Jeremy Smeltser: Yes. I think on the latter, I’ll start there, Michael. I don’t anticipate significant pricing actions in the second half of the year from where we sit today. Clearly, external factors could change that if we see a more material impact from some of the political and geopolitical challenges that we see, Red Sea, I mentioned earlier, could be one. But right now, no, I don’t think that’s necessary. On the additional cost reduction efforts, what I would say is if you look at gross margin or gross profit dollars in the quarter, up $36 million, $37 million. As we talked about last year, we had the higher cost inventory last year that was cap variances of around I think $26 million, $28 million in the quarter. So we actually – we’re improving gross profit dollars more than that lower cost inventory benefit that we’re receiving.
And that’s on topline decline of 3%. So that, I think, shows you the improvement in operations and the efficiencies that we’re getting. And a lot of that comes from continuous improvement activities across our supply chain and manufacturing operations. And I’ll give all the credit to the same people that David mentioned earlier. I think they’re doing an extraordinary job in partnering with our commercial business units very well to get those savings, to maintain our fill rates and actually still grow share, all with lower inventory dollars on the balance sheet. So I think we’re in a really good place there.
Michael O’Brien: Great. Thank you.
Jeremy Smeltser: Thank you, sir.
Operator: Thank you. Our next question will come from the line of William Reuter with Bank of America.
William Reuter: Hi. I just have one.
David Maura: Good morning, Bill.
William Reuter: Hey. Good morning. Following up on Chris, his question earlier, talking about capital deployment. David, in your response, you talked about multiples of 15x and 17x. It certainly sounded to me like you believe your stock is far cheaper than any M&A opportunities that are out there and that M&A is not a focus in the near-term. Did I read that correctly?
David Maura: I mean, I’ve personally been buying shares. So I should tell you, I think the stock is cheap. We bought back 26% of the float, and we’re accountable to where it goes in the future. And yes, private assets continue to cost more than where we trade, and we’re working hard to fix that. And we think the two big levers to pull there to basically become a very consistent operating performance business and to separate out our appliance business. And we think that through consistent operating performance and separating out appliances, we will experience a material uplift in multiple. That said, we’re not going to shrink ourselves to greatness. And if we do find a great acquisition in Pet or Home & Garden, we’re going to pursue it. I don’t see anything to do right now, and I’m not looking at anything, but we have a very good track record of acquiring assets in the Pet division, a very good one in Home & Garden. We’re fixing Rejuvenate, and we’ll see where we go.
William Reuter: That’s a very helpful response. Perfect. Thank you. That’s all for me.
Jeremy Smeltser: Thanks, Bill.
Operator: Thank you. Our next question will come from the line of Carla Casella with JPMorgan.
Carla Casella: Hi. Great. It’s Carla Casella here. Just wondering – what?
David Maura: Carla, good morning. Nice to hear your voice.
Carla Casella: Good morning. Good to see you too. Could you say which bonds you had bought back in the quarter?
Jeremy Smeltser: I couldn’t quite catch it.
David Maura: Oh bonds. We bought a bunch of different bonds, all kind of different coupons. Typically, they’ll [indiscernible] the lower the dollar math, then I’ll buy them, but you guys keep bidding them up. So I don’t know if I’m interested anymore.
Carla Casella: No, I know because people are assuming more. So that goes to my second thought, to get to your 2.5x leverage target, it clearly means bringing leverage up from where it is today. I’m assuming that happens through share buybacks. I’m just wondering if you expect to have to come back to our market or, absent M&A, any debt activity we should expect?
David Maura: Yes. I mean it’s three-pronged, right? We’ve definitely been using the buyback of shares to absorb our excess cash. And so we’re entering a net debt position now, albeit small. And if we exhaust the remaining buyback plans in place, I still don’t think it puts us over – right around one turn of leverage. And then we have enough cash on hand, quite frankly, to basically meet the bond obligation this summer, if we don’t do any M&A before then. But clearly, the covenants allow us to do M&A. And if we were to find something to acquire, that would reduce our need to offer cash for the bond. So we’re looking at all those things. We’re monitoring interest rates. Right now, we’re very happy to keep a large amount of cash on deposit, get paid some interest income, buy back our shares and focus on operations.
Jeremy Smeltser: Carla, I would just add to that. There’s just – there’s no hurry in the fiscal year to get to that 2x to 2.5x debt leverage. That’s our longer-term target. We’ll be prudent in how we get there, we’ll make sure that capital is deployed in the right way.
Carla Casella: Okay. And then on the bond obligations to pay down this summer, that’s if you don’t fully invest, can you say how much of investment spend you have left? Because I’m not sure what calculates an investment or not.
Jeremy Smeltser: Yes. What we’ve said publicly, Carla, and we’re going to stick to that through the summer when we actually get to that point in time, which will be June, July time frame is that we would expect it currently with no incremental material M&A to be over $1 billion required.
Carla Casella: Okay. And that’s across all tranches, right?
David Maura: Yes.
Carla Casella: Okay. Can I ask one business question or a margin question? You mentioned gross margin improvement. Part of it was driven by, as you mentioned, lower shipping rates. I’m assuming that’s still the really high shipping rates from 20 – from 2022 still flowing through some of your inventory? Is that correct? And if so, when are we back to like a baseline before we have to start worrying about Red Sea and any other increase in shipping rates?
Jeremy Smeltser: Yes. So you’re right. The comparison to last year in first quarter 2023 was the 2022 high shipping rates still flowing through the P&L in the first half of last year, the whole first half of last year. When you look at our run rate in Q1 right now, I think what you see is reflective of the current environment, which is predominantly under contract for us through the majority of the fiscal year. The Red Sea challenges that I talked about, you’ll start to see a headwind from that in our P&L in – most likely mostly Q3 and Q4. And as I said, it’s around $10 million to $12 million for the year.
Carla Casella: Okay. Great.
Jeremy Smeltser: Thanks, Carla.
Carla Casella: Thank you.
Operator: That concludes…
David Maura: Go ahead, Liz. Thank you.
Operator: That will conclude today’s question-and-answer session. I’d like to turn the call back to Joanne Chomiak for closing remarks.
Joanne Chomiak: Thank you. And with that, we have reached the top of the hour, so we will conclude our conference call. Thank you to David and Jeremy. And on behalf of Spectrum Brands, thank you for all of your participation.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
