Q4 2019 Earnings Call
There will be a question and answer session to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
As a reminder, this call is being recorded.
I would now like to turn the conference call over to Jackie Burwitz, Vice President Investor Relations you May begin your conference.
Good morning, and thank you for going on during the call. He will discuss our results for the fourth quarter and fiscal year 2019, as well as our outlook for 2020.
This call is being recorded and will be available for replay via the Investor Relations section of our website Energizer Holdings Huh.
Also available on our website is a slide presentation, providing additional details around our results and outlook for the coming here.
With me this morning, our Alan Hoskins, Chief Executive Officer, Mark Levine, President and Chief operating Officer, and Tim Gorman Chief Financial Officer.
During the call we may make statements about our expectations for future plans, including financial and operating performance any such statements are forward looking statements, which reflect our current views with respect to future events.
We also refer to non-GAAP financial measures a reconciliation of non-GAAP financial measures to comparable GAAP measures as shown in the press release issued earlier today, which is available on our website.
Information concerning our category and market share discussed on this call relates to markets, where we compete and is based on estimates using energize theres internal data data from industry analysis and adjustments that we believed to be reasonable unless otherwise stated the information provided pertains to the 13 week period ending in August .
References to specific quarters in years pertain to our fiscal years and references to the legacy and our base business relate to the Energizer business prior to the completion of the battery and auto care acquisition.
Investors should review the risk factors in our Form 10-K , 10-Q, and other SEC filings for a description of the key factors affecting our business. These risks may cause actual results to differ materially from our forward looking statements.
We do not undertake to update these forward looking statements.
With that I'd like to turn the call over to Alan.
Thanks, Jackie and good morning, everyone 2019 was an important year in Energizer is transformation to become a global diversified household products leader in batteries lights, and Autocare, which will create significant value for our shareholders and will enhance our colleagues ability to connect with consumers.
And partner with our customers.
As we indicated in our earnings release, the organization did a terrific job of achieving full year financial outlook and delivering strong organic net sales growth of 4.1%.
We managed to accomplish this while also executing on our integration plans, which delivered cost synergies of $18 million ahead of expectations.
From source to consumer use we have proven capabilities and innovating marketing and manufacturing high quality products.
Which are experienced commercial teams use to successfully partner with our customers around the globe to meet the needs of the consumer.
That has been and we'll continue to be the formula for us to deliver significant EBITDA and free cash flow growth.
Now turning to our operations.
Our combined battery in lights business, which now represents approximately 80% of our topline is strong and operating well.
Just as important the overall battery category remains healthy with a stable pricing and promotional environment.
Our 9% organic growth in the quarter had several components, including a strong topline gain from distribution and the number of onetime items.
Including the timing of certain customer orders for the holiday season shift, which shifted forward into the fourth quarter.
The impact from Hurricane Dorian.
The impact of anticipated us competitive product launch.
And the temporary volume shifts in order patterns and customer decisions, which can occur between battery segments in the category following a price increase.
Despite these moving pieces our organization is well positioned as we head into 2020 , where we expect to achieve our fifth consecutive year of organic growth.
Turning to auto care.
We were attracted to this business because we saw the growth potential in these assets in the ability to leverage our operating innovation and marketing expertise.
As I look back on 2019, we have accomplished a great deal to set this business up for future success.
We certainly face challenges, but we immediately began addressing the issues under our control, including fixing the manufacturing issues at Dayton and increasing investments in innovation.
As we look forward to 2020 trends in the auto care category remained favorable as markets such as the US expected increase in the size of the car park and consumers will increase their usage and length of ownership.
All of which are a good fit for our leading do it yourself brands.
During 2020, we will increase investment in our auto care brands and deliver new innovation to meet the needs of customers and consumers better than anyone else.
In addition, our teams are maintaining their focus on improved operational efficiencies for the peak selling season in 2020.
As a result of the tremendous work from the organization. We expect our first full year of ownership for the combined autocare portfolio to deliver organic net sales growth of approximately 3.5%.
So the total combined business topline growth increased synergy realization and the full year impact of the acquisitions should result in growth of adjusted EBITDA for 2020 to be in the range of $610 million to $640 million.
We plan to deliver strong free cash flow and earnings per share growth, reflecting the strength and momentum in our combined businesses, which takes into account the impact related to trade tariffs currency and Brexit.
Looking ahead. This management team is confident in our ability to become the global leader in battery life and auto care categories through our proven game plan of driving both growth and efficiencies across our business.
First we will lead the innovation with smart brand building investments to drive long term growth by converting consumers to our products and brands.
Second we will continue to operate with excellence by focusing on and investing in our commercial capabilities, including visibility in store and online efficient and effective distribution and insight driven revenue management to drive growth in our brands and create value for our customers.
We will also build upon energizer strong customer relationships and leverage our large global distribution footprint to drive incremental growth globally in both the battery and auto care businesses.
And finally, we will continue to drive productivity to reduce costs and maximize efficiencies through continuous improvement initiatives and by simplifying and standardizing our business.
Our existing capabilities and proven operating expertise leveraged across the acquired businesses will allow us to generate consistent organic revenue growth realized significant synergy savings and deliver top tier free cash flow among our peer group to support continued investment in our business the steady reduction of debt.
And also provide a return of capital to shareholders.
We believe this formula supports a solid foundation for delivering shareholder value in years to come.
On November 20, Onest, we will be hosting an investor day will you will learn more from our leadership team about our strategies outlook and plans to deliver long term value to our shareholders customers and consumers.
With that I'd like to turn the call over to Mark.
Thank you Alan and good morning, everyone.
Following on the strength of what our teams delivered in 2019. Our plan for 2020 is a year of execution to take advantage of the opportunities we have created across our business.
To that end, let me first update you on the progress of the integration efforts to date, and then share some insights on our categories and business performance.
We have made significant progress in our integration efforts since closing both acquisitions in January .
The successful stabilization of the Dayton Auto care manufacturing facility is just one example.
We used our operating expertise to quickly increase and consistently maintained fill rates at high levels to meet the needs of our customers.
Under our ownership the facility average fill rates of 99% during peak season.
We are now in the middle of a multiyear plan to optimize and streamline facilities in the U.S, which will reduce complexity and realize greater efficiencies in manufacturing packaging and distribution.
In battery, we will consolidate our distribution facilities as well as centralized specialty battery manufacturing.
Auto we will consolidate north American Autocare manufacturing into the Dayton facility, which is one of the first major steps in a series of continuous improvement exercises.
Aimed at further enhancing the efficiency of our auto care operations.
We will also outsource all autocare distribution consistent with our model in battery driving both cost efficiencies and operational effectiveness.
We are using a phased approach across these changes to ensure business continuity and to provide adequate transition time for our colleagues customers and suppliers.
We have achieved many milestones over the past six month related to the migration of IP systems and the lack of any disruption to the business is a credit to our commercial and supply chain teams.
By the end of calendar 2020, we expect to have the majority of our markets integrated onto combined ERP systems, which will enable consolidation and streamlining of our operations and support functions.
And by early January we expect to exit most of the transition service agreements with spectrum with the remaining to be exited throughout 2020.
On previous calls we have stress that stabilizing the acquired businesses and minimizing any customer disruption has been and we'll continue to be our first priority.
I wanted to I want to acknowledge the great work our colleagues around the globe are doing successfully to complete the integration, while managing to minimize any disruption.
As we progress through 2020, we will accelerate our integration efforts to drive improved performance across our businesses.
We are on track to deliver run rate synergies of $100 million, which we expect to be fully realized in operating profit by the end of the third year of ownership.
We expect to also achieve incremental synergies beyond 100 million, which will be reinvested to drive topline growth through innovation and brand building activities, particularly for our auto care brands.
We are extremely confident in our ability to achieve these synergies, which will enable us to drive growth and profitability for the long term.
And finally I wanted to provide a quick update on the Varda divestiture the buyer far to AG filed a form Seo with the European Commission on October 14, and the completion of the divestiture of remains on track.
Before we cover our business performance, let's cover some relevant category trends.
Global battery value was up 2.6%, which was driven by pricing in the premium segment in both of US in Latin America.
Growth in the price price segment.
And in expansion of higher priced private label at a U.S. retailer.
The trends are reasonably consistent with what we've seen in the past as we have historically seen short term growth in the price segment following pricing actions in the premium segments.
This typically reverses over the course of several quarters as pricing settles into the marketplace.
During this period Energizer experienced a loss of one value share point globally in measured channels.
This loss was driven by several anticipated impacts.
A decline in Pos trends in the us because of the price increases just reference.
A competitor's new product launch.
And an increase in private label activities in certain retailers.
In fact, we have seen expanded distribution in non measured channels, which partially offset the decline in measured channels. The teams are also taking a deliberate and disciplined approach as we head into 2020 and are confident that we have the plans in place to compete effectively going forward.
In the US ecommerce battery category growth was up 15% with energizer growing 28% and rayovac, 79%.
With our dedicated ecommerce team now running the brand rayovac was the fastest growing branded offering online and contributed to our leadership position.
Overall, the commercial environment in the us remains favorable with a reduction in total promotional activity and increases in average unit price.
Our long term outlook for global battery category volume remains unchanged with volumes flat to slightly up and value growing ahead of volume trends.
Turning to auto category.
The overall category continues to grow with value up 2.7%, we saw growth in all four sub categories in which we compete.
Appearance chemicals up 6.1% performance chemicals growing 1% error.
Air Fresheners up 3.3% and refrigerants upper half a percent.
Energizer is value sales declined one share point overall in these sub categories.
This however is sequential improvement from the third quarter due to increased retail space and improve service levels.
We remain confident in our innovation pipeline for 2020, and beyond which will help us maintain our leadership position.
As I mentioned earlier, the incremental synergies will be used to increase investment behind our iconic brands to drive future growth.
In addition to our marketing and innovation expertise.
Our existing relationships with key retailers is another reason, we believe we can grow the auto care business.
Our retail partners understand that we not to innovate and market our brands to grow the overall category.
Moving on the business performance starting with batteries.
During the quarter, we continued the global rollout of the new Energizer visual identity and packaging refresh that prominently displays our iconic brand characters, the energizer Bunny and Mr. Energizer.
The packaging refresh strengthens brand appeal and connect with consumers in a clear and impactful way while the rollout has just started hitting shelves. There has been an enthusiastic early response from both customers and consumers.
On the strength of our exceptional execution and brand investments, we achieved our fourth consecutive year of organic growth. Our colleagues did an outstanding job delivering on increased distribution and responding to the earlier phasing of promotional holiday displays which drove significant organic growth.
I also want to recognize the superior execution by our colleagues to help serve our customers during a recent natural disasters affecting the U.S.
As we look ahead to 2020, we expect another year of organic growth for our combined battery business in the range of 1% to 2% to.
The growth will be driven by pricing as well as distribution gains as we continue to leverage our relationships with our retail partners to grow the battery category.
This will be partially offset by lapping a hurricane sales in 2019 as we do not include natural disasters in our outlook.
Moving on to auto care as I mentioned on the third quarter call efforts are underway to infuse significant incremental innovation into the pipeline, which we can then pair with our leading brands. Our investment has been focused on building the capabilities and adding resources to create a multi year innovation portfolio.
Our focus on growing the innovation pipeline and leveraging the relationships with retail partners will set us up for long term success in this growing category.
Looking specifically at 2020, we expect our auto care business to achieve topline organic growth of 3.5%, which includes expectations for a reversal of a portion of the negative weather impacts.
In 2019 normalization of international distributor order patterns and growth in line with category trends.
As you can see from what we accomplished in 2019, we have the right team in place to move these businesses forward by focus on growing the top line and optimizing productivity, while executing the plan for integration flawlessly with that I will turn it over to Tim.
Thanks, Mark and good morning, everyone you saw the fourth quarter and full year results in our earnings release this morning.
In addition, a slide deck is available on our website highlighting a key financial metrics.
We ended 2019, delivering our outlook for net sales of 2.5 billion adjusted EBITDA of 545 million.
Adjusted free cash flow of 256 million.
And adjusted earnings per share of $3.
As Alan and Mark commented.
We had a strong year as our organization remained focused on the legacy Energizer business, while closing two significant transactions.
We are excited about the opportunities ahead in 2020 to accelerate the integration efforts, while also generating strong EBITDA and free cash flow growth that will enable us to steadily reduce our debt and leverage ratio and most importantly, reinvest in the business to drive growth in each of our categories.
Starting with fourth quarter results total net sales were $719 million, which included $226 million from the acquired businesses and strong global organic revenue growth of 9.2%.
This exceeded our 6% growth expectation and benefited from approximately $9 million of unplanned hurricane activity.
On a global basis over 90% of the increase in organic sales came from distribution gains for both existing and new space that added 410 basis points of growth.
Saving of us holiday promotional activity in measured a non measured channels, which contributed 310 basis points.
Price increases enacted earlier this year across several markets added 120 basis points.
And a favorable 30 basis point year over year impact of hurricane activity in the fourth quarter.
Organic growth was 7.5% in the Americas, and 12.5% internationally driven by distribution and pricing in both segments.
The strength of the U.S. dollar has been a headwind throughout 2019 and in the fourth quarter.
The impact of net sales was 120 basis points during the quarter and we anticipate continued impact to our 2020 results.
Our adjusted gross margin rate was 42.1% for the fourth quarter down 340 basis points.
As we've discussed previously the lower margin profile of the acquired businesses decreased the consolidated gross margin by 390 basis points in the fourth quarter.
The remaining results were larger largely driven by the benefits of pricing and synergies offset by the negative impact of currency headwinds in additional cost related to trade tourists.
And key investment was higher during the first nine months of the year and was inline with our prior outlook.
As we move into 2020, we expect $80 to increased by 12% to 15% versus the prior year.
We remain focused on effectively managing SGN aid to successfully achieve our operating priorities.
Excluding acquisition and integration costs.
We reduce SDMA as a percent of net sales in the fourth quarter as a result of the benefits of synergy savings and continuous improvement initiatives across our combined businesses.
Moving forward, we expect additional SGN a improvements from our disciplined approach to managing costs and the contributions from our integration efforts over the next two years.
Our effective tax rate for the quarter end, the year were lower reflecting a lower us tax rate and favorable adjustments related to prior year returns.
We continue to take a balanced approach to capital allocation fueled by strong free cash flow generation from our combined businesses.
This enabled us to pay down $115 million of debt in 2019, resulting in a net leverage ratio of 4.7 times as of September Thirtyth.
Capital expenditures were $55 million, including $10 million for related to integration activities as we invest for future growth.
Finally, we paid a quarterly common dividend of $21 million.
And a preferred dividend of $4 million.
Turning to our outlook for 2020.
Adjusted EBITDA is expected to be $610 million to $640 million.
Adjusted free cash flow is expected to be $310 million to $340 million and adjusted earnings per share from continuing operations is expected to be in the range of $3 to $3.20.
This includes lapping the three cents of hurricane benefit in the current year.
And over 25 cents of headwind related to currencies Terrace and Brexit.
Despite these headwinds the outlook for 2020 remained strong.
We expect net sales to grow approximately 9% to 10% in the range of $2.72 billion to $2.74 billion.
This includes low single digit organic revenue growth with combined battery expected to grow 1% to 2% lapping the benefits of hurricane in 2019.
And combined Autocare expected to grow 3.5%.
Despite the mid single digit decline is expected in the first quarter driven by the anticipated saving of holiday activity from the first quarter to the fourth quarter and the benign replenishment in the aftermath of Doran, we remain confident in delivering our full year outlook of low single digit organic growth in.
Combined battery, we expect to achieve distribution gains in new doors and to expand our shelf space and secondaries displays in existing accounts.
In addition, we will continue to see the benefits of improved pricing and mix, particularly in North America.
In combined Autocare, we continue to expect improved performance in the auto care business inline with the commentary we shared last quarter driven by three factors.
First a recovery in the refrigerant sub category, assuming a normalized weather year.
Second a resumption of distributor order activity as we lap fill volumes in certain international markets and.
Finally organic growth in line with category trends driven by increased innovation and investment in support of our combined Autocare business.
We expect our gross margin rate, excluding the acquisition and integration cost to improve by 10 to 40 basis points as the benefit of synergy synergies and improved operating efficiencies are partially offset by an estimated $15 million to $20 million from foreign currency headwinds and 10% to.
$18 million in incremental Harris and Brexit costs.
And finally, we expect to realize incremental synergies in 2020 in the range of $45 million to $50 million was approximately 65% benefiting cogs and 35% benefiting overheads.
The savings are related to the facility consolidation and the exit of.
Most of the TSA agreements with spectrum in the coming months.
And there are additional integration activity planned and underway to deliver our target of over $100 million and savings by the end of 2021.
By the end of 2020, we will be two thirds of the way to completing our goal.
We expect to integration cash cash cost of $65 million to $75 million and integration related capital expenditures of $50 million to $60 million.
Integration related to capital expenditures should diminish future capital needs of the combined businesses and drive future continuous improvement beyond 2020.
Our priorities for excess cash our to pay down debt end to end 2020 with a net debt to adjusted EBITDA multiple in the range of 4.2 to 4.4 times, which includes the proceeds from BARDA divestiture.
Now I would like to turn the call back over to Alan for closing remarks.
Thanks, Tim before we open it up for questions I want to thank our colleagues around the globe for their continued focus and hard work.
2019 was an important years, we positioned to energizer to generate significant shareholder value in the years to come.
I also want to take a moment to reference a recent leadership announcements that we made on Monday at Energizer, We believe the development of talent across our organization is critical to our success.
Marketing is taking on the role of President in addition to Chief operating Officer.
As Im sure Youre, all aware Mark has been instrumental in defining in executing our strategic initiatives.
This included overseeing our separation from edge, while personal care in 2015 and successfully implementing our integrated operating model to enable the successful integration of the acquired businesses.
And Kim Assistant General Counsel, and corporate Secretary will serve as the company's Chief legal officer and corporate Secretary.
Canada is a strong leader within our organization and bring significant external strategic governance and legal experience and the organization looks forward to continuing to benefit from her experience knowledge and insights.
And as appointment follows Kelly bosses decision to retire next summer Kelly's strategic Council has served us well and on behalf of the entire leadership team I would like to thank her for her many contributions over the past six shares.
Finally, we announced that John Dray, Vic Vice President corporate controller, and Treasurer has been appointed to the role of senior Vice President corporate controller and has been designated our Chief Accounting Officer.
I look forward to working with Mark and his expanded role as well as with Hana John and other members of our leadership team as we continue to execute on our strategy and deliver long term value for our shareholders with that I would now like to turn it over to the operator, who will open applied for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to.
Please limit your questions to one with a single follow up at this time, we will pause momentarily to assemble roster.
Our first question comes from Berlin apparel with Suntrust.
Please go ahead.
Thanks, Good morning.
Good morning to auto.
I guess first.
Battery side, just help us understand the bridge just we've been seeing in scanner data in terms of of two 300 basis points of loss share and in a real pickup at private label at target just trying to understand how that translates into organic growth going into fiscal 2020 years. How this doesn't just country.
Due to repeat itself over the next three four months.
Bill, It's Mark I'll start with that I mean first I think the first part of the question is how do you reconcile the maybe that disconnect between organic growth in what you're seeing in in scanner data and a lot of that is.
Built on a couple of things. One is you are only covering about 60% of the market.
In scanner data and so you've got another 40% and in those areas. We've had some healthy growth I think when you look at the trends in our prepared remarks, we referenced.
This.
Trends over the latest three months ending August see at value up to six and unit volume that was roughly flat in the latest four week data, depending upon which which period you look at you have seen.
Some negative trends with volume being down roughly 4.2 in though in the latest scanner data and I think in the in the short term period, you've got to look at what's happening during that period and there could be a number of of things that have occurred year over year in some of that as hurricane related volume, so you're seeing some year over year comp related to that.
The other thing you're seeing as you saw an uptick during hurricane Dorian, but youd you didnt see the power outage and with the track of that storm it impacted roughly 18% of the US population and so you saw some pantry loading which occurred and then you didnt have the follow on usage and so thats impacting some of it as well the trends a pit.
Energizer, a little bit harder than they do the category because we tend to benefit from the hurricane activity and then as a result.
When you see that pantry loading it will impact us because we are.
They know and hurricane partner with with our retailers I think also what you're seeing in the scanner data is the impact of a competitive launch and I think what use what's you're going to see out of Energizer is we know how to combat. These launches were not going to overreact in the short term based on short term trends, we feel very confident in the plans we have in place but.
Typically once you get passed this holiday season, which is why we're calling for organic growth going forward I think the worst thing we could do both for energizer business as well as the over all categories to overreact to short term trends the competitive lodge hit around the July time period, Weve, whether that storm and we expect to have a really strong 2020.
Got it and then just follow up.
Bill on.
The journey back to 150 million hundred 60 million of EBITDA for the auto care business trying to understand.
Where we are in particular thinking the pass you said that half of the way back would be with getting the ability to pass off pricing and so I didn't know if you're now in the position going into next year, if your 3.5% growth consumes some pricing or if that's still to come.
The way, we've decompose the three and a half a percent pricing is really around three elements, which is category growth.
Some normalization of weather patterns and then the international distributor.
Resuming more normalized order patterns going forward that three and half percent consequences.
Just as we do on the battery category will look at the ability to take pricing.
It's not anything that we talk about.
Of our plans going forward, but if theres an opportunity, we'll certainly do it much like we do in the battery category.
We feel good about the plans weve gotten through the line review season.
We feel like we have adequate space to be able to drive the organic growth, we're calling for its really now down to execution and getting through the resets, which we're going to occur in the March April timeframe.
Got it thanks, so much.
Thanks, Thanks Bill.
Your next question is from Jason English with Goldman Sachs. Please go ahead.
Hey, good morning, folks think slot me in and congratulations on the promotion Mark.
Thanks, Jason.
I wanted to I guess I've two questions first drilling down into into your GAAP free cash flow.
It's going to be burn in next year by more integration related Capex, then we were expecting and certainly more than you had dumb you'd foreshadowed with the details you gave in the second quarter call.
Can you can you help us understand what's causing the the staffed up integration related Capex and also give us some color context of how we should think about.
These integration buckets.
The magnitude of free cash flow drag over the next couple of years here Hodaly due to the gradually slow down to the meaningfully step down in any order of magnitude would be really appreciate it.
Yes, Jason the.
The amount of capital being extended in 20 is really going to be the bulk of the capital that we expand you'll see a significant drop off as we move forward beyond 2020, and as I said in the in the comments you should expect some of that integration capital will reduce future capital needs of the come.
Mine businesses Likewise in terms of cash will be extended.
Beyond the capital relative to integration activities. The big years 20 in terms of activities that will take place.
That Mark commented during during his comments on activities that are taking place in 2020. So.
Do you see a significant ramp up in the.
Synergies being realized and that will continue into 2021.
In 2021, we're calling out those those integration benefits will kind of fall into that continuous improvement category.
So the return on the capital and cash investments or making to realize the synergies have the have a very healthy return.
Okay. So I think we're looking at like a 102 120 million of cash outlay. This year are we talking about some eyedrops or something in the range of 50 or 20 or anything to any anymore specificity you clarify would be helpful. Yes. It will so the capital required in 2021.
And we'll be roughly.
Five to 10 million.
So a significant decrease from what you see as of today Okay.
In the cash side for cash cost, so think severance and other other recent.
Related matters will will drop off from the amounts that we called out.
I'd say cutting it roughly in half as as we move forward into 2021.
And Thats really helpful and last question for me I'll pass it on.
As as we look at many of your core input cost ma'am.
Most all of sort of metal complex related to spend a fair amount of deflation in the spot markets.
You're talking about positive price and mix in North America next year should we expect that to be accompanied with with input cost benefits at the same Tom.
Yes, we are seeing we are seeing a benefit to in in input costs. As you know zinc is a large contributor to our and input cost that is that as favorable as we move forward into 2020.
Right now were roughly two thirds of the way lock on our commodity needs.
For 2020, and so we are seeing a.
Approximately 10% 20 basis point benefit on commodities as we move forward into law into 2020.
Okay. That's really helpful. Thank you guys messy in a couple of weeks.
Okay.
The next question is from Kevin Grundy with Jefferies. Please go ahead.
Hey, good morning, everyone and market, where Threeq then my congratulations as well.
Thanks.
I wanted to come back through our new our us market in batteries and the market share dynamic and you guys acknowledge some of the factory. So my question relates specifically on on private label and its noteworthy as you guys are well aware, it's hard to has long been a stronghold for you guys seems interesting, they're putting private label.
Oil and hardly unique to the battery category.
We talk a little bit about are we sort of at the early stages of a bigger pushing private label because the context is of course at private labels and relatively flattish.
For a long period of time, particularly in brick and mortar what's the level of concern here that we see other retailers increasingly pushing in this category in a way that they have not before what's the risk at Walmart, where rayovac Insys has historically been the house brand. Then you can talk a little bit about that and then sort of what is going to continue over the next 12.
Through store some of that lost market share that I've a follow up.
Yes, Kevin I think.
What I would say is and you've heard us we'll take it up a couple levels could we don't want to talk about specific customers for their individual strategies.
As you know private lives when a part of this category for a long time, we'll continue to be it is up one share points over the latest reporting period.
For US again, we're not going to overreact to that if what we know and what's been proven out over time, we continue to invest in the brands, we continue to invest and product innovation and connecting with consumers brands are going to continue to resonate and matter to to individual consumers.
We in terms of being up one share point not overly concerned about that.
Creating a trend because we have all of the investments in place we need to in order to compete effectively I would say overall in the category. It's one that.
In terms of overall concern, it's not something I can say, it's it's something that we don't worry about we don't worry about in terms of private label that will we worry about is where where we can invest in how we can continue to advantage on our brands and we know that works and if we do that and I don't expect it to become.
In emerging trend in the category and we continue to it for it to be relatively benign going forward.
And Kevin It's Alan I'd keep in mind that in the battery category brand still matter, you've got roughly 85% that the total category sales in the us coming from the branded.
Part of the category, we expect that to continue this is we look across the globe even across other markets.
Not seeing trend to us that would be alarming or concerning however, keep in mind that we do believe there's opportunity to leverage the rayovac brand as that opening price point proposition for lot of our retailers around the globe.
Okay. Thanks at one one quick follow up on the battle diluted since we pulled this the bridge from the six on this is an adjusted EBITDA guidance that you had provided for fiscal 2000 back in <unk>, which was 250 to 675 million at the time announced extended 640 million.
Seems like it's largely explained by incremental FX headwinds and tariffs and Brexit, but maybe if you could you sort of fill in any other changes maybe greater investment now behind batteries that you did not foresee earlier. This is a little bit greater support behind auto clear to ensure that this and get back to category levels. This sort of bridge. The when you guys, it's kind of seen.
Equaled 20, now relative to when did back in May and then I'll pass it on.
Yes, Kevin So you're right in May we called out 650 to 75.
In Q3 was the impacts on the auto care business, we had the had called out 10 to 15 million.
Call down on that original guide in May.
And then we do see the impacts of currency.
Parents trade Harrison and Brexit.
Impacting to drag us down further from where we were ads in in Q3, we are making and reflected in the guy that we provided was increased investment in a impede that's called out.
To drive.
Growth for the long term so.
It really is the items that are that are out of our control in terms of currency.
Terrace and Brexit.
With the tariffs we have.
Had offsets to some of the impacts that we're seeing from terrorists.
But you know, making short term supply chain changes for what may be a temporary impact.
Those are the decisions, we way as we alternatives and you're seeing outside of China difficulty in changing some of that sourcing.
So we're we're moving forward and if you take those items into account is still at a very strong outlook for 2020 is we're driving activity within both within all of our categories and also realizing significant increases.
The benefits.
Okay, great. Thank you very much good luck.
Thanks, Kevin.
Your next question is from Pfizer, all we with Deutsche Bank. Please go ahead.
Yes, hi, good morning, silicone Justin Funnell.
Just on auto care.
No previously you talked about 2% sales growth.
And it's now three and a half thanks, Dan So I'm wondering if.
Thanks changed relative to what we had talked about a couple of months ago or you are you. I know you were talking about sort of line reset within auto care. So I'm just wondering if there is increased optimism around that category.
Our call that we just made in the prepared remarks is consistent with what we've said before it was 3.5% at the midpoint and Thats.
System with what we've said today I think that 2% Youre referencing was what we ascribe to the category growth and so the 2% category growth, we expect to grow in line with the category and then the reason it's above that is related to the resumption of norder normal weather patterns in the refrigerant side and then the international distributor fees.
Okay got it Okay and then my second question is just sort of slightly bigger picture question, which is.
We look at your historical growth, it's been relatively strong at around.
Pre buy side and if you look at it over a longer period of time, but there is a lot of volatility quarter to quarter pieces.
So it seems like you don't get full credit for Youre sort of overall stable consistent growth that alley, you referenced in your remarks.
I'm wondering is there anything you can skew to institute more sort of stability consistency you on a quarter to quarter basis or is it just how the category is then yes, we just have to sort of deal that that at all you can deal with as it will be transparent I'm just curious what Eric.
Yes, Thanks, guys I, it's Alan So again, we were as we look at this it's not a quarter to quarter. We're looking at the full year, knowing that both our strategic plans, how we launch innovation and the way our customers manage sets and execution of plants in store it ebbs and flows quarter to quarter we.
Thats why we look at the full year, we account for that vulnerability in each of those quarters.
We're very confident and our ability to deliver the year the way we've laid out knowing that we've called out some of the things in the first quarter, we're going to have to account for if you look at what we've done the last couple of years, it's been a similar pattern, where Q1, a little bit softer than Q2, three four we picked that back up in line with what we expected our outlook for.
20 would be no different than that and again, we've taken into account.
What would be considered any vulnerabilities that is to be factored into that outlook, Mark and phase I think the best thing we can do is run it.
With that with a longer term horizon than quarter to quarter in place and I understand the frustration that that may result in because of some of the volatility, but when we when we're planning we really planned for the year and when customers want to move orders or when customers want to ship things ahead of time in this case. It was Q4 versus Q1, we're going to be responsive to the customer needs.
I think that is what ultimately our shareholders would want us to do I understand that that results in some shifting of timing and some unevenness in some of the result, and frankly, I think you'll you'll see a little bit of that an auto care as well.
Between Q2 in Q3 because of weather patterns, there as well so you could see some significant shifting between Q2 in Q3 much like you do between Q4 in Q1 on the battery side, we'll do our best to communicate what do we think that trends are going to be quarter to quarter. Overall, we're always going to default to the year. In this case, we're confident that bail in.
The overall it.
Call that we've made for the year, it's just sometimes hard to predict quarter to quarter, because we want to we want to respond to what the need to the customers and rest assured we will keep the pedal to the metal here, we're not we're not pulling back but I think your comments on if you look over the last four years. It has been a very consistent.
Organic growth pattern.
And with the outlook that we provided for 20 youre going to happier fifth year of organic growth.
In the low single digits.
Thank you.
The next question is Philistines Strycula wasn't UBI, yes. Please go ahead.
Hi, good morning.
40, killing.
My first question I wanted to kind of zoom in on the battery business on a few the talking points you've already walk disorder. We appreciate the color. The first piece would be how do we think through your ability to navigate.
Or be patient through the holiday season, when a key competitor launches a big product it seems like you've seen this movie.
Several times before and how do you think about managing it through any being confident revenue grows on the other side and similarly, how do you think about managing the private label competition. That's been mounted previously again, you said that over time. These things tend to settle themselves out but from an investor shareholder standpoint, how should they think about.
How should they be confident that you've got this what are the tactics you typically do and then how does rayovac really fit into that as you think about managing battery category assortment, which seems like it's becoming increasingly complex with duracell coming out with Optum on which is above copper top rayovac being modernized.
Private label coming in more premium just trying to see like how these moving pieces fit together in your conversations with the retailer. Thank you, yes, yes it.
Steve its Alan I'll real quick headline for me and then I'll hand over to Mark or more in depth to answer is we look at competitive launches and you actually captured it correctly, we have seen movie multiple times, we account for competitive launches in our outlook, which we have done we track and monitor that regularly and as you would imagine we have our.
Our own, albeit a preemptive war strategic plans that allow us to count of those competitive activities. You would anticipate that is going to continue through the quarter and post quarter.
In terms of energizer engaging with in executing with our customers. The plans that we have in place.
As we look at what we see out in the stores at retail, where we're very confident and the merchandising and execution that our teams have deployed in the results that we believe we'll get from that so again, we are if theres not a lack of overly concerned on our part is just we've done a lot a really good sound planning and set strategies in place that we believe will allow.
Allow us to remain competitive.
Despite a competitive launch Mark yes, I would say, we're not patient at all I mean, so when it when a.
Competitor launch as a product we make sure we're in there and we're competing.
From the start what we're not going to do though are.
Value destructive activities and Thats, where we will have restraint and disciplined but we are challenging our teams to get in with retailers and make sure we.
Either get the space back gain more space and some off shelf displays in order to counteract the competitive activity, we're confident with what we've done we're confident in the portfolio. We have we're confident the plans we have going into holiday and then I think the meaningful opportunity will be the next time retailers would open up their shelf set to be reset.
Obviously will go in and aggressively try to regain any space that was lost as a result today additive activity.
The end of your question really also provided the answer which is how do you get comfort around private label, we're better positioned today than we ever have been in terms of how to counteract that pressure that you may see in the category because we have ever ready, but we also have rayovac now which is particularly helpful. In the less retailers need and want an opening price point product they can serve.
With private label in a store brand or they can serve it with our our value branded products and we think we have a really compelling story to tell so we helps.
Solidify their needs from top to bottom in the category and we're better positioned today than we ever happened in order to have those conversations.
And then my quick follow up to that would be you know as year sales team goes into the channel as a key talking points that you know battery life array that relative to private label offerings is compelling in magnitude in turns faster from an inventory velocity perspective, like our theres like hard facts to you what underwrite and then.
How does how did the lithium Tesco at club. This this quarter I knew that was a newer piece of your business and then I'll pass along yeah. I mean, you touched on a lot of the talking points, it's really going to depend whether given retailers looking for in that opening price point and what their strategy as around it but.
Rest assured between eveready and rayovac, we have the assets at our disposal to meet just about any need they have.
While we don't talk about.
Specific customers, obviously, we've gotten some distribution in club with some of our products and win whenever of a product like lithium gets visibility in the store. It does very well and that in that same thing focus with them across our categories.
Yes. Thank you.
Your next question is from Olivia Tong with Bank of America. Please go ahead, great. Thank you.
Question to start on auto and your expectation for three and 5% growth fair.
Like you guys from shelf space.
Is that primarily promotional or is that more permanent in your mind and you had conversations that lead you to believe that you're on the path towards more space can you talk a little bit about innovation and how inventories in the channel right now thanks.
On on the innovation front and that's the that's the question that's always hard to answer because we're working on innovation, we're working on.
Reinvesting in our brands, but those are plans, we like to share with our retailers and ultimately show up on shelf before we discuss them publicly we have done a lot of work since only since acquiring that asset to really.
Reintroduce the Sun's.
Some more innovation into that pipeline and feel really good about the path for on for not all the way there yet, but we would expect over the course of 2020 to really have a healthy.
Innovation pipeline much likely deal and battery in terms of the shelf resets that youre going to see in the spring I was there were puts and takes in their pluses and minuses I think ultimately the space will end up being in that positive.
The the task now is to make sure that that space is productive and that we connect with consumers and those plans are underway as well.
I would this is a transition here with the auto care business in terms of making sure that we reinvest in it we really reignite those brands and that the space and the velocity trends turnaround, which ultimately is going to turn into the ability to have those discussions during the next line review season, which will be in late spring and summer of next year.
Which we think the following year, which should provide a nice uplift to that business factor and also the international plans, which in 2020 are fairly benign. So that work is underway to grow that business internationally and then in 2021 is when we would start to see some benefit from that work as well and supported that innovation keep in mind that we're going.
To be investing behind the automotive brands and that is something that will be quite different than prior ownership. Our expectation is that AMPU for 20 will be in that 5% to 5.5% sales range, including the acquisitions and.
We believe that that investment behind came P is really going to help our prop up that innovation that we'll be introducing the market.
Let me I think the other thing that we've talked about is.
Getting date and stabilize was really key in 2019 and you saw that the service levels remained at that average 99% service levels. So that takes that out of the conversation as we move forward in terms of our ability to deliver on.
Customer needs and wants.
Understood.
On battery I, just wanted to dig a little deeper into pricing.
Going forward because.
Hi, clearly better than anticipated sales and pricing positive this quarter. It wasn't slow a little bit less of a benefit send you an implied last quarter. So just trying to understand either what can end up happening what you pulled what maybe is coming.
Now please introduce later in the quarter, just a little bit more detail that would be great.
Yes, as as we as we move forward, obviously, we were taking pricing in several markets throughout the year. So as as you with the US being you know in really at the beginning of the third quarter, you've got the carryover benefit of that which will carryover into next year with some of the.
The markets you have markets there are cycling off those as we move forward.
So it was it was in line with our expectations.
As we move forward, you're seeing some of the impacts of the Pos trends as we move forward into 20 in particularly Q1, where the benefits of the pricing are being offset by some of the Pos trends were seat.
And we do expect that.
The GAAP and then that shift should normalize over time as we've seen in the past.
Got it thank you.
Your next question is from Andrea Teixeira with JP Morgan. Please go ahead.
Hi, Thank you. Good morning. So my question is on the brain.
Okay.
Andrew you cut out.
Okay.
I am I'm sorry.
So.
For the technical difficulties. So on the my question is on the bridge to.
To the topline outlook on the on the first quarter, specifically into holiday sell lane and promotions. So you about 2.4% headwind on the guide, but you are saying mid single digit decline into first quarter. So I'm trying to see if you're embedding about a 1% additional customer.
And pantry de stocking order holiday season, and in terms of the cadence of the remainder of the fiscal year. It puts some pressure for the second and third when you are probably expecting and meet signature shutdowns gaining could also if you can help with like a breach that.
And if you you can give us like a breakdown distribution in pricing and on the ERP spend I was hoping I mean, you. This could just discuss now that you're hoping to increase the out only spanned but if you can also talk about the investment in I ever am aimed at Mailback, Ken Eveready positioning that would be helpful. Thank you.
I'll start I think Theres a lot there is a lot of questions in there that I think we'll try and cover and where we where we may be missed when you can follow up with us on that but.
Again quarter to quarter, we really want to get away from trying to provide.
Detailed quarter to quarter, we plan for the year and overall for the year, we expect the organic growth of 1% to 2%, which you saw in the Q1 Q4, you saw some promotional shifting which was I think Tim called on his prepared remarks, roughly 310 basis points shifted from Q1 into Q4, we still would have had the organic growth of 6%.
Even without that but I think that was the reason.
Behind wanting to make sure that the mid single digit in Q1, we made sure we called that out just to prepare you all that there wasn't the volatility.
Came up in a previous question. So I think from that standpoint, we feel really good I mean, there is still a competitive launch that we're fighting against again as I said, we're not going over react we know the plans we have in place we're confident in the full year, but we have to let that play out over Q1, and I think again. The worsening. We can do is overreacting Q1, because that could be detrimental long term and we don't want to engage in.
That type of activity and then Fray NP to answer the question briefly.
Think about it is we treat each of the business is a little bit differently, depending on how in the need to reach consumers in for the legacy battery business.
Digital and TV are important we've shipped a lot of our media weight there to be able to support the brands. When you look at automotive it'll be a combination of what we do digitally and then what we do in store when you get into some of the other brands that we have such as rayovac never already we do support those with S&P, but understand there.
Dominant share outside of home center in mass in the US is through traditional channels. So the way you advertise and supported with JMP is going to be different most of that is going to be visual merchandising in the store and a lot less of what you traditionally would see into us with TV and digital.
Okay. Thank you.
The next question is from Javier Escalante with Evercore ISI. Please go ahead.
Hi, good morning, everyone I will like to have probably.
It sounds like a simplistic.
Take on batteries to if you can help us understand indicated to us.
What would be you or your best guess of retail take away before they energize our business, which is what is included in organic sales.
How much westat contribution of the pull back all the full were from.
From the holiday shipping.
What is the dam.
The impact often distribution gains and I do have a follow up when it comes to the distribution gains. Thank you.
I think in terms of decomposing I think some of the simplistic.
Request you have is if you look at the holiday. It was 310 basis points from Q1 Q4.
In the latest category data that you've seen you've seen value in the category. So up 1.5 and this is in the four week data, depending upon which dataset you looked at and volumes down for.
As we mentioned I think it was Bill's question, where we had our value was down roughly 4.5 in that time period with our volume down 12.
In those numbers are allowed to hurricane comps you also had hurricane comp against Florence and Michael from last year, depending upon the time period. You also have some destocking that's going on in terms of pantries because of Dorian where power didn't go out.
But in what I would say to focus on again is as you get through holiday.
And the competitive launch and we have our plans in place to do so what we focus on less about share and more about organic growth in dollars and what we've said is 1% to 2% thats going to come from distribution gains thats going to come from pricing and thats going to come from better execution as we get into 2020.
How that plays out in the measured universe is difficult for us to decompose for you because that is only about 60% of the category for us we're still executing with excellence and E Commerce and home Center in club, which ultimately don't get picked up and that scanner universe and then there's a large portion in the international business, which is going to drive some of that growth as well.
Well, so if I if for us to take it.
From a subset because I think if you're talking globally. The measured universe is going to cover less than 50% of.
Of the universe for us and it's tough to extrapolate from there to our results. What we're focused on is the organic growth of 1% to 2% I'm not sure I answered your question Javier, but I just wanted to at least explain how how we're thinking about China and how they are the other part of your question was around the distribution fees and if you look at the quarter you had a good part of the organ.
Revenue driven by the distribution gains that we have ever both permanent and and some were incremental supplemental displays that we saw we would expect that to continue into the balance of 20 as well as you know our core fundamentals are really focused on gaining that distribution and visibility in store as our primary fundamentals that we invest behind.
You will expect that to continue in 2000 and beyond.
Thank you and they follow up precisely on distribution side right because.
How much does distribution gains.
Can you attributed to defy, particularly the international lines to the fact that you now have ride you back wholesaler sent to what extend DCC readiness seanergy essentially from the deal that you never dimension. Thank you.
That's it that's an asset that we intend to leverage obviously, having the value brand and rayovac and Florida in certain markets around the world isn't is.
And asset that we intend to leverage and to help drive growth and distribution and so we're going to continue to drive that and with more going to be able to do it across our both portfolio. This just add a different dimension to it.
I think the additional benefit that you have is now you have one combined commercial team driving the entire portfolio.
And obviously they acquired battery business was impacted by the length of.
The transaction, taking to close and so now our commercial teams are fully.
Integrated and you have them driving both energizer and Ray back activity and keep in mind. If you look at the if you just come back to the organic growth for the quarter in the year. The majority of that was driven by distribution 4.2 in Q4 that what was the majority of the gain that we have at full fiscal year, we expect that to continue.
And these distribution if you can a few can clarify.
Is this how because international growth was so strong is mostly outside the U.S. already sold so within the U.S.
The 12.5% has got to be.
Theres Americas and international Thats going to be the pure international play and again that was through a combination of leveraging the portfolio, where you're seeing a mix shift more towards premium in specialty in Europe , and then you're seeing broad distribution across the portfolio and all the non American markets. Yes. It is heavier was it was balanced across.
Both the Americas in International you saw Americas up 7.5%, obviously aided by hurricane activity, but still very strong growth in that in the quarter.
Coupled with the 12.5% in international.
The next question is from William Reuter with Bank of America. Please go ahead.
Hi, almost all of might have been.
Answered at this point I only had one.
I guess at this point given that you're still kind of pretty.
Deep into the integration.
And the turnaround of auto care or would you consider looking at M&A at this point or do you need to be solely focused on those two objectives. Thanks. So our it to be really clear bill our objective for 20 and 21 is to do a few things one pay down debt that is our top priority we will continue to.
Reinvest in our brands in our business for long term growth those are the two top priorities that we have as a company certainly will be providing a return of capital through a dividend payment that we will look at.
Opportunistic share repurchase both to offset dilution and we will look at it opportunistically if it creates a return for the shareholder M&A false further down that latter.
To be very clear, we'll look at small tuck ins potentially but I have to dial you backup to that top priority is to pay down debt to maintain healthy balance sheet.
Makes sense all right. That's all from me. Thank you.
Your next question is from Carla Casella with JP Morgan. Please go ahead.
Hi, I'm, you mentioned that the Barnett.
It's proceeding the hardest sales proceeding as planned.
But can you remind us how are you still looking for 300 is 320 million of net proceeds.
That's correct.
Yes.
And then this quarter you mentioned you pay down some debt I'm just curious what you paid down and then also what which that will be paid down with Florida pricing.
Yes, so weve paid roughly $30 million into quarter.
Against term loan and the 300 million will be.
We'll be paying down term loan we have roughly $1 billion in term loan. So after after the pay down we'll be at roughly 700 million.
Manny.
Okay, and then just from all of the discussion today I'm trying to get a sense or whether you expect to working capital to the source or use of cash for 2020 is there some money that you'll be taking out of working capital oral cavity, commenting I think it may billings behind Samir next steps.
Yes, you'll you'll see some.
A little bit of Bumpiness in working capital as we migrate through the integration activities, because typically will build inventory.
In advance and then longer term, we will see a working capital benefit from the integration activities that were doing.
Okay, and one clarification you mentioned the gross profit you're looking rests margin you're expecting to increase tend to 40 basis points.
Make sure what they said is often that off the pro forma 42.6% from this year.
It is it is so if you go back pro forma.
It would have been 41.6% pro forma in fiscal year 18.
For fiscal year 19 pro forma with.
Fully integrated acquisitions would be at 41.9%.
And growing in.
In fiscal year 20 to the outlook that we provided.
Okay, great. Thank you.
That concludes excuse me that concludes the question and answer portion of the call now I would like to turn the call back over to Alan Hoskins for closing remarks.
Thank you for joining us on our call today and your interest in Energizer, We do look forward to seeing many of you next week in New York City on November 20, Onest, we'll be hosting an investor day, where you'll learn more from our entire leadership team about our strategies outlook and plans to deliver long term value to our shareholders customers and our consumers our investor day pressure.
And station will also be webcast for all interested parties to listen so thank you again for joining us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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