Good morning. My name is Natalia. I will be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands fiscal 2019 first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers prepare remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. Should anyone need assistance at any time during the conference, please press star, then zero. An operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, February the 7th. Thank you. I would now like to introduce Mr. David Prichard, Vice President of Investor Relations for Spectrum Brands. Mr. Prichard, you may begin your conference.
Thank you, operator. Welcome to Spectrum Brands Holdings fiscal 2019 first quarter earnings conference call and webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands and your moderator for our call today. To help you follow our comments, we have placed a slide presentation on the event calendar page in the investor relations section of our website at spectrumbrands.com. This document will remain there following our call. If you start by turning to slide two of the presentation, you'll see that our call will be led today by David Maura, our Chairman and Chief Executive Officer, and Doug Martin, our Chief Financial Officer. David and Doug will deliver opening remarks. Then they will conduct the Q&A session.
If we turn to slide three and also slide four, we want to note that our comments today do include forward-looking statements, including our outlook for fiscal 2019 and beyond. These statements are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated February 7th, 2019, and our most recent SEC filings and Spectrum Brands Holdings most recent 10-K. We assume no obligation to update any forward-looking statement. Please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the investor relations section.
With that, I will now turn the call over to our Chairman and CEO, David Maura.
Thank you, Dave, and thanks everybody for joining us today for this call. Before jumping to our Q1 results, which I guess I need to tell you to turn to slide six, I want to highlight some of our strategic achievements. We are exiting a period of significant transition. We're now entering a period of stability, with meaningful operational opportunities. In January, we made major progress in completing our transformation into a meaningfully less leveraged and much more focused consumer products company with materially increased financial strength and flexibility to drive our long-term growth ambitions. We closed on the divestiture of both our global battery and our lighting businesses. We also sold our global auto care business.
These two asset sales brought us to combined gross cash proceeds of approximately $2.9 billion, along with 5.3 million shares that Energizer issued to us, making us one of their largest shareholders. We also were able to utilize capital and net operating losses to minimize cash taxes on these transactions. Using the battery and auto care proceeds, we moved quickly in January to repay in full all of our cash flow revolver, which had about $114 million on it at the time. We prepaid in full all of our U.S. term loans, totaling approximately $1.23 billion. We just recently last week redeemed all of our $890 million of our 7.75% notes. These were the former HRG bonds.
These actions reduced our debt by over $2.2 billion and represent major progress to achieve our goal to significantly de-lever and strengthen our balance sheet, materially reduce our cash interest payments for the balance of this year and beyond, and further improve the tenor of our obligations. As a result of these steps early this year, we are on track to achieve our leverage target of approximately 3.5x at the end of this fiscal year. As we have a de-levered balance sheet, we may look to repurchase our shares under the repurchase agreement in the open market or otherwise from time to time. If I could have everyone turn to slide seven. Turning specifically to the quarter, Q1 is traditionally the smallest quarter of our year. We delivered results that were generally in line with our expectations.
We also continue to expect the H2 of 2019 to be larger than the first half for both sales and EBITDA, driven by the seasonality of our home and garden, and typically the stronger back half we experience in HHI. We're very pleased by the strong start this fiscal year in our pet care unit. Although Q1 growth was just 2% organic growth, it was led by a double-digit increase in the United States markets. As the turnaround of this business is now underway, we're continuing to focus our efforts to improve the pet performance in Europe, primarily the dog and cat food assets. HHI faced a difficult comp this quarter. It had a 13% net sales growth in the period last year. That was driven largely by hurricane-related hurricane recovery revenue in retail. It was also driven by two significant non-repeating promotional load-ins last year to significant customers.
Quite frankly, the impacts this year from a softer U.S. housing market, and we began to see the effects of that late this November. We now must work closely with our retail customers to drive this business forward despite the recent headwinds in the new housing markets, which again, we began to see in November. We still expect a strong performance from HHI this year, driven by strong innovation such as the recent unveiling of a new line of Wi-Fi-enabled Kevo smart locks at the Consumer Electronics Show just this past January. As expected, our home appliance and personal care business started slowly. We're reintegrating this business, and we stood the business back up this quarter. We're focused on improving the business fundamentals, and we're lapping difficult first half comps. Additionally, we're materially increasing investment spend to drive innovation throughout the year and into 2020.
We are stabilizing home and personal care, and we are expecting improved performance as we move through the year. As a terrific example of the new thinking about the business, this morning, we're excited to announce a major new global five-year partnership between our Remington personal care brands and the Manchester United football team. This is an alliance that we believe will showcase the depth and the strength of our Remington line worldwide and begin the process of further strengthening the amazing brand equity inherent to this business unit. Home and garden had slightly lower sales, and that was due to the absence of a strong prior year revenue from the aftermath of Hurricane Maria that we had in Puerto Rico. Q1 is home and garden's seasonally smallest quarter, representing only about 10% of its full-year sales.
We expect sales and EBITDA growth for home and garden this year, driven by new distribution wins and improved product mix. If we look at the full-year fiscal 2019 outlook, and you can turn to slide eight for that, we are today reiterating our fiscal 2019 adjusted EBITDA guidance of $560 million-$580 million versus a 2018 pro forma adjusted EBITDA of $581 million for the same four continuing businesses. This guidance includes the impact of a significant increase in targeted and impactful investments in advertising, material new product development initiatives, and marketing to improve both the vitality and the strength of our product offering to put Spectrum Brands back on a meaningful growth trajectory beginning in 2020. 2019 is a year of focus for Spectrum Brands.
It's a year where we will materially step up investment spending behind our major brands and the continued alignment of our organizational structure and operating processes to streamline our activities and reduce waste. We are establishing clear lines of accountability, and this is providing for quicker decision-making behind a much stronger balance sheet with ample liquidity. In closing, our team is singularly focused on creating shareholder value by strengthening and innovating behind our strong portfolio of leading consumer brands, delivering operational excellence in our manufacturing facilities and supply chain, and providing all of this with exceptional customer service. In short, we are becoming the faster, smarter, stronger Spectrum Brands of the future, and we're being driven now by vision, clarity, and focus. With that, I will turn it over to Doug.
Thanks, David, and good morning, everyone. Turn to slide 10, a review of Q1 results from continuing operations, and we'll begin with net sales. First quarter reported net sales of $874.6 million decreased 4.9% versus last year. Excluding unfavorable foreign currency of $13.6 million, organic net sales fell 3.4%. Higher pet sales were more than offset by lower Home & Personal Care and Hardware & Home Improvement revenues. Reported gross margin of 34.9% increased 30 basis points from 34.6% last year, primarily due to product mix.
Reported SG&A expense of $259.6 million or 29.7% of sales, compared to $233.5 million or 25.4% of sales last year, primarily due to the one-time recapture of $29 million of non-cash depreciation and amortization charges that were not recorded last year due to Home & Personal Care's discontinued operation status, as well as lower acquisition and integration and restructuring and related costs this year. I'm going to just take a minute and talk about this depreciation and amortization adjustment this year because it not only affects this quarter, but also the remaining quarters in the year. This adjustment is a non-cash catch-up adjustment required as we put the HPC business back into continuing operations for depreciation and amortization that would have been recorded in Q2, Q3, and Q4 of 2018. All of that catch-up was recorded in Q1 of 2019.
Going forward, it'll also impact our year-over-year comparisons for 2019 Q2, Q3, and Q4, because last year we'll have zero depreciation and amortization. This year we'll have roughly $10 million in each quarter. Moving on to reported operating margin, also impacted by this depreciation and amortization adjustment. We had 2.8% margin in the quarter versus 5.6% in the prior year. On a reported basis, Q1 diluted loss per share from continuing operations of $0.56 decreased compared to diluted income per share of $1.24 last year, primarily due to the recapture of $29 million of non-cash depreciation and amortization, lower interest expense, a tax benefit last year attributable to U.S. tax reform, and higher shares outstanding this year as a result of the HRG merger.
Spectrum-only adjusted diluted loss per share from continuing operations of $0.20 decreased versus adjusted diluted EPS of $0.68 last year, primarily due to the Home & Personal Care depreciation and amortization adjustment, which contributed about $0.41 to the decline, as well as lower volume and income tax benefit in last year's first quarter due to U.S. tax reform. Turning to slide 11. Reported interest expense from continuing operations in the first quarter of $57 million decreased $18.4 million from $75.4 million last year due to the paydown of HRG-related debt. Spectrum-only cash interest payments of $56 million were $1.5 million lower than last year, driven by the timing of payments on our cash flow revolver.
Spectrum-only cash taxes of $10 million were flat compared to last year. In addition, we incurred about $12 million of taxes for activities related to our battery business carve-out. Spectrum-only depreciation, amortization, and share-based compensation from continuing operations of $72 million increased from $43 million last year, primarily due to the recapture of depreciation and amortization for Home & Personal Care as a result of their continuing operations classification in Q1 of this year. Spectrum cash payments for acquisition and integration and restructuring and related charges for the first quarter of 2019, including discontinued operations, were $6.1 million and $9.9 million, respectively, versus $5.3 million and $24.8 million, respectively, last year. The reduced costs were driven by the absence of last year's operating inefficiencies in our HHI Kansas D.C. facility, acquisition cash costs last year related to our battery and appliance divestiture processes, and HRG merger costs.
Now on to our business units from continuing operations, beginning with slide 12 in Hardware & Home Improvement. HHI reported Q1 net sales of $305.1 million, decreased 6.4%, driven predominantly by the absence of strong prior year U.S. hurricane revenues in the retail channel across residential security, plumbing, and builders hardware, two significant non-repeating promotional load-ins from customer wins last year in residential security, and recent housing market softness. Excluding unfavorable FX of $1.6 million, organic net sales fell 5.9%. Reported adjusted EBITDA of $55.6 million fell 7.3%, with a reported margin decrease of 20 basis points due to lower volumes and unfavorable operating expense leverage. New product introductions continued at a steady pace in Q1, reflecting HHI's strong vitality rate. We still expect HHI to have a solid performance this year. Now to Home & Personal Care, which is slide 13.
HPC reported Q1 net sales of $317.2 million, fell 7.3%, while organic revenues of $327.4 million decreased 4.3%, excluding unfavorable FX of $10.2 million. For personal care, strong growth in Latin America was more than offset by decreases in the U.S., primarily from the impact of prior year losses, retailer distribution adjustments in mass and drug, e-commerce softness, and in Europe, primarily due to Brexit-related soft consumer demand in the U.K. For small appliances, growth in Latin America, Canada, and Asia Pacific was more than offset by lower U.S. results, primarily from e-commerce, and in Europe, also driven by Brexit-related soft consumer demand in the U.K. HPC reported adjusted EBITDA of $35 million, fell 16.1% with a 120 basis point reported margin decrease. The lower EBITDA was due to reduced volumes and unfavorable product mix.
Home & Personal Care expects an improved second half with new product introductions in the U.S. and Europe and expanding distribution. As David mentioned, Remington today also announced a five-year partnership with Manchester United that will provide significant brand exposure. Given the club's worldwide reach and following, will be terrific for our brand. This is a good example of the step up in spending we're planning across the company this year and into the future. Moving to global pet, which is slide 14. Q1 reported net sales of $204.7 million, grew 1.1%, primarily due to double-digit increase in U.S. companion animal revenues, predominantly dog and cat chews and treats, partially offset by lower U.S. aquatic and European companion animal sales. Excluding unfavorable FX of $1.8 million, organic sales increased a solid 2%.
Reported adjusted EBITDA fell 14.7% to $29 million, with a 260 basis point margin decline to 14.2%, driven by unfavorable product mix and higher distribution costs. In fiscal 2019 Pet expects solid performance in its largest region, the U.S., as it continues turnaround work to improve profitability of its European operations, primarily the branded dog and cat food business. Turning to Home and Garden, which is slide 15. Home and Garden Q1 reported net sales of $47.6 million, decreased 3.4% as a result of the absence of strong prior year household control and repellent revenues in Puerto Rico in the aftermath of Hurricane Maria. As a reminder, Home and Garden's first quarter is its seasonally smallest quarter, typically comprising about 10% of full-year revenue. Reported adjusted EBITDA of $3.1 million, decreased 42.6%, and reported margin of 6.5% fell 450 basis points.
The decline was the result of the timing of seasonal production, unfavorable product mix, and higher input costs. Home and Garden continues to expect sales and EBITDA growth in fiscal 2019, driven by new distribution wins, improved mix, and strong continuous improvement savings. Moving to the balance sheet and slide 16. We entered the first quarter of fiscal 2019 in a solid liquidity position, including $664 million available on our $800 million cash flow revolver and a cash balance of $252 million, with debt outstanding of $4.8 billion. Our liquidity and capital structure position experienced a step change improvement in January as the company prepaid in full all of its U.S. term loans totaling $1.23 billion, $114 million on its cash flow revolver and redeemed all $890 million of our 7.75% bonds using proceeds from our battery and auto care divestitures.
As a result of this debt reduction of more than $2.2 billion, pro forma as of December 30, 2018, and using trailing four-quarter EBITDA from continuing operations, our gross and net leverage were approximately 4.6 and 3.1x , respectively, down from 5.8 and 5.2x at the end of fiscal 2018. This reflects a 46% reduction in debt from our fiscal year-end. Q1 capital expenditures from continuing operations were $13.5 million in the quarter versus $20.3 million last year. Turning to slide 17 and our 2019 guidance. We expect reported net sales growth from continuing operation in 2019, driven by innovation, increased marketing investments, pricing actions, which include tariff-related increases now expected to go into effect on March 1, and market share gains. We now expect FX to have a negative impact on sales of approximately 150 basis points based on current rates.
We reaffirm our guidance for adjusted EBITDA from continuing operations to be between $560 million and $580 million as we stabilize operations and increase revenue-generating investments in an inflationary environment, including the anticipated impact of tariffs and input cost increases, partially offset by pricing actions. We have $1.3 billion of usable Federal NOLs remaining post the asset sales and have used all of our capital losses. For adjusted earnings, we now use a tax rate of 25%, which includes state taxes. Thank you, back to Dave for questions.
Thanks, David and Doug. Operator, with that, you may now begin the Q&A session, please.
Ladies and gentlemen, at this time, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that is star one. Your first question comes from the line of Olivia Tong.
Good morning. I wanted to start with free cash flow and your full-year expectations there, because your cadence has always been for a back-end loaded year, given the cadence of the season and the seasonality in your businesses. This year's Q1 loss is significantly larger than years past. Can you talk through a couple of puts and takes there? Are there any exogenous events? Obviously, the loss from the disc ops is a big chunk of that. How much of Q1, in your view, is tied to businesses that are now no longer part of your portfolio versus those that are in your go-forward businesses? Thanks.
Yeah. Hey, Olivia, good morning. Hope you're well.
Good morning.
Look, I think this year we've got a lot of moving pieces, but I think we're really starting to settle things down. Clearly we just paid off $2.2 billion of debt, a little bit more than that. You can do the math on that on a rolling 12-month basis. That frees up about $129 million of cash interest. Obviously that's increasing the free cash flow going forward by a material amount. We've kind of stayed away from giving free cash this year because we've got so many moving parts, and we're still not done with all of our capital allocation decision-making, which will affect that. Why don't I let Doug take the nitty-gritty of it and see if that helps you with the question some more.
You're absolutely right, Olivia. There were a lot of pieces in the first quarter that are non-cash related.
The additional write-down of the GAC business to reflect the net proceeds we receive on that is a big one. The doubling up of the depreciation and amortization, or the catch-up of the depreciation and amortization relating to the home and personal care reclassification is in there. The fact that the two businesses that we sold in January were in our cash results for the first three or four months, depending upon the business. As you know, we use cash this part of the year across all of our businesses as we're investing in inventory for our season. There are a lot of moving pieces that will make this year's cash flow numbers really not representative of the continuing operations of the business.
Some of the cash that we received in proceeds, we would've ordinarily flowed through free cash flow this year, but they become working capital adjustments or working capital targets in those sales. It's just a confusing story. As David mentioned, when we make the capital structure choices and when the interest payments on our existing debt would have been paid, also impact free cash flow for the year. The short answer is, we're not going to update guidance on free cash flow this year, but we'll give you as many pieces as we can. We still have significant NOLs. We still expect to be a relatively modest cash taxpayer, going forward. We expect to invest in CapEx at about the 2% rate across the business going forward. We expect significant improvement in restructuring and A&I expenses this year.
Again, David gave you the kind of the parameters to do the math on what we've decided so far on the capital structure. I know it's a long story, that's also the reason we're not giving specific guidance.
Got it. Maybe if I could turn just to sales. The sort of soft guide down from quote unquote "meaningful growth" to just growth. I guess if you could break that down, is that simply a reflection of the lower Q1 base, or did you also ratchet down your expectations for the remainder of the year? Can you talk about sort of, part and parcel with that, the order of magnitude of some of the investments that you said you're planning to make around advertising and R&D and the like?
Yeah, look, I think the quarter actually came in, as I said in the opening remarks, largely in line with what we planned. To be very blunt, the only thing we saw in the quarter was a little bit of weakness in HHI, we expected a little bit more sales there. Look, I think when we spoke to you last time, we had anticipated pricing a bunch of tariffs at the end of the calendar year that obviously got postponed, that was in the revenue guidance there. Organically, I expect a very good year out of particularly Pet and Home and Garden, we still think we have a pretty solid year in HHI. Obviously, it's going to take us a couple of quarters to get appliances stood back up and reinvest and get that healthy.
As we go out to retailers and we're talking to them about the new investments we're making, both on innovation and also consumer insights and actually communicating the message, we've just been very weak there, particularly in the U.S. on the marketing side. As we rebuild that, we're capturing a lot of new orders. In fact, I think even the last call, I talked about some of the new wins we're getting. If I get a new win today, a new listing today, I don't ship it for six months in that business. That's really where we see kind of the June and September quarter being much stronger in that particular unit. I would say if there's anything that changed from the last time we spoke till now, it's that, yeah, we have a weaker housing market and we need to be on guard there.
We need to have contingency planning. We've got to work much more closely with our retailers to make sure we bring that year in as we originally planned. We definitely feel the effects of the Fed interest rate hikes, and we definitely see the effects, particularly in new home sales, that have declined as a result of that. Does that help you?
Yeah. I guess, could you talk about the benefit.
I don't want you to think that there's any less confidence in the full year guide, other than there's a delay on pricing for tariffs, and we see some softness in housing.
Yeah, the only additional thing on a reported basis, Olivia, is that we've moved FX guidance from modest impact to 150 basis points based on the first quarter on where rates are today.
I missed that. Thank you, Doug.
Yeah. I guess just following up on the housing and the impact on HHI. What kind of benefit do you think you guys had in the past because of the favorable housing market that now you expect to unwind?
Yeah, look, I think in general, we enjoy a dominant position in what I call the kind of replacement cycle model. We have the largest install base in the United States with our Kwikset product. We've got SmartKey technology, which is a material advantage versus our competition. We're seeing real increase in the adoption of mechanical locks and real excitement around some of our new Bluetooth and Wi-Fi locks. I think we'll continue to have gains on the innovation side, and we hope to continue to drive that business. I would say that but we're not immune, right? 75% of that business, call it, is replacement cycle business. It holds up well. The other piece of that is new home sales.
Our kind of view and some of the reports we study and metrics we look at, we figure that every 25 basis points that the Fed has raised rates, it's kind of destroying or making unaffordable, I guess would be the better way to phrase it, probably 10%-15% of buyers. We actually agree with the recent stance of the Fed to pause because housing's such a .