Q1 2020 Earnings Call

Good morning, and thank you for joining us during the call. We will make we will discuss our results for the first quarter of fiscal year twenty-twenty. This call is being recorded and will be available for replay via the investor relations section of our website Energizer Holdings., also available on our website as a slide presentation providing additional details around our results and outlook for the coming year with me this morning are Island Home executive officer Mark Levine president and Chief Operating Officer and Tim Foreman Chief Financial Officer during the call. We make statements about our expectations for future plans, including financial and off 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 make sure to comparable gaap measures is shown in the press release issued earlier today, which is available on our website information concerning our category and marketshare discussed on this call relates to markets where we yep.

And it's based on estimates using energizer's internal data data from industry analysis and adjustments that we believe to be reasonable unless otherwise stated the information provided pertains to the 13th.

Period ending in November references to specific quarters and years pertain to our fiscal years and references to the Legacy and are based business relates to the Energizer business prior to the completion of a Bath & Auto Care acquisition.

Investors should review the risk factors in our form 10-K 10-q and other SEC filings for description of the key factors affecting our business these resist risk may cause actual results to differ materially from our forward-looking statement. 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 off. I began I'd like to thank those who participated in our investor day in November. We appreciate the interest in Energizer in our team value the opportunity to meet with many of you so that we could share our path. We are grateful for the opportunity to showcase more of our leadership team and provide even more insight as to why we are so excited about energizer's future.

As we outlined during investor day Energizer as well positioned to achieve industry leadership as a diversified Global household products company and batteries lights and Auto Care of generate significant shareholder value by the end of 2022. Our financial goals are to deliver more than seven hundred million dollars of adjusted ebitda and over four hundred million dollars adjusted free cash flow to strategically invest in our business to achieve this we are focused on the same strategies that have served us. Well since separation, they are deleted innovating operate with excellence and drive productivity across all of our businesses.

Please enable us to deliver consistent organic growth ahead of our categories invest in Innovation and A and P and capture over 100 million dollars in synergies by the third anniversary of our acquisition.

Executing the strategies will advance our goal of creating a strong integrated company with a leadership position and batteries lights and Auto Care 20/20 is the first year on our path to deliver the financial goals. We communicated during investor day.

Our first quarter results were in line with our expectations and we are reaffirming our outlet for the full fiscal year.

Tim will provide more financial detail on the quarter and full-year later during the call. I want to provide some high-level commentary.

Or a battery organic net sales were better-than-expected compared to the guidance of down mid-single digits provided during the fourth quarter call.

I commend our colleagues for strong execution during the holiday selling season including managing the earlier than normal phasing of holiday display activity from the first quarter into the prior-year quarter looking to the remainder of the year. We have high confidence in our outlook for 1 to 2% organic growth in 2020 is our team secured new distribution and expanded Shale space with existing customers.

Sure.

Our business first quarter net sales performance was in line with our expectations, which is historically the smallest sales quarter of the year.

As we approached the peak selling season. We are well-positioned to deliver. Our organic sales objectives with expanded distribution you product Innovation increased investment and consistently High customer fill rates from our Navy facility.

Is Mark will discuss in more detail in a moment? We achieved several important integration Milestones with minimal disruption. The benefits of these activities will become evident in the remainder of the year off.

Our formula for Success this fiscal year and over the next several years centres on the following delivering consistent organic growth by being the preferred partner with our customers investing in a long line of innovation A&T to convert consumers to Our Brands regardless of where they shop and realizing the benefit of significant synergies as we create a strong combined company.

ultimate

This combination will support the delivery of strong and free cash flow growth enabling Energizer to accelerate our earnings reduce debt and continue to pay a meaningful dividend.

We are excited about the opportunities ahead of us and remained focused on executing the plans underway to deliver on our commitments in twenty-twenty and drive value for all of our shareholders money with that. I'd like to turn the call over to mark for an update on our categories business Trends and integration efforts.

Thank you, Alan and good morning, everyone as I mentioned last quarter our priorities in fiscal 2020 are to build momentum across our businesses while also executing our integration page. Excellent first. Let's cover Global battery category Trends before providing the specific data for the quarter. I want to highlight a number of moving pieces which are important to keep in mind that these include hurricane activity from the year-ago comparable. A later Black Friday this year and some Pantry loading which occurred as a result of Hurricane Dorian all of these play a factor in the current category Trends in addition to these factors on the value side. You had the price increases in the US and several International markets which resulted in some shift between the premium and value segments of the category.

with these facts

In mind during the most recent 13 week period ending November Global battery value was down 1.1% primarily due to the copying of hurricane volume from the prior year. And in fact than usual Black Friday, excluding the impact of these items Global battery category value would have been up nearly 1% due to pricing in the premium segment in both the US and Latin America as well as growth of the price segment.

And to further the point if you look at the 13-week data ending in December in the US, we did see category value growth of 2%

For the November. Energizer's value share in measure channels decreased 1.8 points, which was driven by several impacts a competitor's new product of a decline in the due to premium price increases and increased private label activity. Each of these Trends is reasonably consistent with what we've seen in the past following competitive launches and price increases as these factors have settled into the marketplace. We have seen the trends begin to stabilize and revert Ford historical month.

in the US

Commerce Channel which grew 9% for the period ending November both Energizer and Rayovac Brands outpaced the category and gain share standing at a combined thirty two Sheriff pray that God continues to be the fastest-growing brand online as we apply the same expertise that grew the Energizer Grant.

Overall the commercial environment in the US remains stable with the category experiencing a reduction in promotional activity and an increase in average unit price during the quarter am moving on to our battery results as you recall in the fourth quarter of fiscal 2019 certain large customers pulled holiday shipments forward which resulted in higher growth in the fourth quarter. Therefore we had anticipated first-quarter net sales would be down mid-single digits. However, net sales were better than anticipated down low single-digits as we continue our strong performance and non measured channels in the US.

We continue the global world.

Cloud of the new energiser visual identity that prominently displays our iconic brand characters the Energizer Bunny and Mister Energizer. This new packaging is now available available Globe retail and consumers continue to respond favorably which drives growth for Our Brands and customers.

As we look to the remainder of the Year our teams continue to focus on distribution game. In fact, we have recently been awarded significant distribution in several us retailers, which should begin to suck up in our third and fourth quarters, these winds solidify our confidence in the outlook for 1 to 2% organic growth in 2020.

Turning to the auto category overall category value continues to grow across all four of our sub segments with value growth of 4.5% through the November report. Led by appearance chemicals and refrigerants which were each up 10% performance chemicals in air fresheners each grew 2%

during the

. The Armor All and AC Pro Brands experienced improved consumer take away due to strong execution and the benefits of favorable favorable weather in September.

Required auto business was down slightly in the quarter on a year-over-year basis, but this was a result of timing of shipments between the first and second quarters. The Consolidated Auto business is spoiled deliver a strong peak season in the second and third quarters this confidence stems from our expanded distribution increased A&P investment and new Innovative products including Armor All extreme Shield protecting and wipes AC Pro Extreme Digital gauge and STP intake valve cleaner these investments in combination with Phil rates near a half percent at our Dayton facility. Give us the confidence that we will provide our customers and consumers with Superior Products and service and deliver net sales growth of approximately 3.5% off.

We are also.

Analyzing plans to expand Auto Care internationally with the goal of doubling net sales in the next three years beginning in fiscal year 2021.

And finally, let's cover the status of our integration. We continue to make significant progress against our integration plans projects energies in the quarter were $9 and we expect to receive the remainder of the 45 to 50 million dollar Target by the end of this fiscal year. We are well on our way to achieving our total Synergy Target of over a hundred million dollars by the end of the third full year of ownership.

During the quarter our teams completed several significant. It implementations across multiple locations with minimal disruption to the business. This initiative will allow us to further consolidate streamline our operations and support functions.

As a result of these implementations and the hard work of teams around the world we have now exited ninety percent of the transition services with Spectrum brand with plans to exit the remaining agreements by the end of this year. We have closed of art of divestiture and the remaining businesses. We acquire from Spectrum in Europe have been fully integrated onto our platform.

We are also on.

Schedule with our multi-year plan to optimize and streamline. Our integrated supply chain footprint. This private project will reduce complexity and create greater efficiencies and Manufacturing packaging and distribution enabling us to better serve our customers across all of our categories.

Specifically in batteries we are in the process of consolidating our North American battery and lights distribution into a single facility in Indiana. We are also combining specialty battery production in our Portage Wisconsin facility.

For auto care, we continued with a phased approach to combine manufacturing into the Dayton Ohio facility as well as to create a Consolidated Distribution Center to date these efforts have been executed with excellence and put us in a strong position entering the season. Once again, I want to acknowledge our colleagues across the business who are working as a unified team and have done a terrific job creating a strong combined company.

as we

Mentioned before we will invest synergies in excess of our hundred million dollar Target to build the capabilities and add resources to create a multi-year Innovation portfolio that we compare with our leading branch.

In closing we are focused on gaining distribution and visibility for Our Brands investing in Our Brands and Innovation and executing the integration plan. I believe that this combination positions us very well to create significant long-term shareholder value for more details on the financial results for the quarter. I'll turn it over to Tim. Thanks Mark and good morning everyone. You've seen our results in the press release and you can track my comments in the slide presentation on our website. I will focus my remarks on the driver's of our net income and gross margin performance.

We expect to complete several important steps in 2020 to realize our long-term Financial objectives those efforts outlined by Allen and Mark are well underway, and the progress Thursday gives us the confidence to reiterate our previously stated full-year Outlook including global net sales growth of nine to 10% including organic growth and combined battery one to 2% and combined Autocare growing three and half percent adjusted ebitda in the range of 610 six hundred forty million dollars adjusted free cash flow a 310 to 340 million dollars and adjusted earnings per share of $3 to $3.20.

Net sales in a quarter increased 29% to $737 due to the incremental net sales of the acquired businesses Global organic net sales declined 3.4% ahead of the mid single-digit decline. We guided on the fourth quarter call compared to the prior-year organic net sales were impacted by the factors we discussed last quarter.

A decline in point-of-sale Trends driven by pricing actions a competitive product launch and batteries and low replenishment values volumes associated with hurricane door in life, which contributed 280 basis points to the decline Beijing of holiday shipments from the first quarter into the fourth quarter resulted in a negative impact of two hundred fifty basis points and improved pricing partially offset. The organic sales decrease by 180 basis points organic net sales in the Americas wage and 5% while International net sales were essentially in line with the prior-year.

Here are the sales.

Opponents the bill to our full year net sales Outlook from the 2019 net sales base of 2.49 billion.

Incremental net sales from the acquired businesses will add $205 to $210 million of net sales. We have essentially last the year-over-year comparability issues created by the Acquisitions, except the second quarter will contain one more month of incremental acquired Autocare sales Auto Care is expected to grow about 15 million dollars in line with our expected organic growth a three and a half percent. This includes our assumption for a normalized weather pattern during peak season International Distributors sales returning to normal order patterns wage the benefit of approximately 2% category growth

Finally the expected growth from battery and lights will contribute incremental net sales through the Outlook of 1 to 2% organic growth turning the gross profit off gross margin rate in the first quarter was 41.8% which was primarily driven by the inclusion of the acquired businesses, which had lower margins than our Legacy business as well as additional impact from incremental terrorists Channel mix and unfavorable overhead absorption because of lower production volume.

The modest unfavorable impact from foreign currency, which was better than expected. In addition. The negative impacts were partially offset by the benefit of price increases and battery and synergies.

As you will recall we exited last year with a gross margin rate of 42.1% in the fourth quarter ranging from the fourth quarter to this quarter. We see you the benefits of project about 70 basis points and synergies being offset by the negative impacts of unfavorable fixed overhead absorption incremental terrorists and channel mix off the expected synergies. The mark discussed will be an important component to the gross margin Outlook as well as improved fixed cost absorption as we ramp up production to age support growth and batteries driven by distribution gains, and it's strong Peak selling season in Auto Care.

Our full-year out our full-year gross margin Outlook calls for a 10 to 40 basis point Improvement year-over-year based on our gross margin performance in the first quarter would expect a 210 240 basis point improvement in our gross. Margin over the balance of the Year. Here are the components driving the Improvement the energy contribute a hug 4260 basis points favorable commodity cost at forty to fifty basis points and favorable fixed cost absorption. That's eighty to a hundred basis points are setting these expected favorable impacts to our gross margin rate are incremental terrorists and foreign currency headwinds.

on the fourth quarter call we discussed the possible impact on our business from

Currencies terrorists and brexit given the subsequent events that occurred in the UK and the phase one trade deal with China. We have revised the expected impact of terrorists and breakfast our 2020 results. We now estimate an approximate eight million dollar incremental impact from terrorists in twenty-twenty and no impact from brexit in this fiscal year. It's exit currency movements are harder to predict during the quarter US dollar weakening against a number of our main currency exposures while the negative impact on our first quarter results was less than expected. We still experience the headwind on net sales at two point five million dollars as well as an unfavorable impact on net operating profit.

Based on current rates including our hedge positions. We have included in our Outlook a negative full-year impact of about ten million dollars. We will consider adjusting this Outlook Thursday. We have the better visibility on the stability of recent Trends the improved outlook for currency tariffs, and the timing of the impact of brexit gives us the opportunity to increase investment A&P by five million dollars support Our Brands and Innovation as a result. We now anticipate a full year fifteen to twenty percent increase in dollar terms above 2019.

our plan phases in the

Throughout the year based upon the seasonality of batteries and Auto Care.

Turning to Capital allocation during the quarter. We utilize free cash flow to pay down approximately forty million dollars in debt. We also refinance $365 million dollars of Term Loan be into a newly-established Term Loan a favorable rates on the new Term Loan a will save about 2 million dollars in annual interest.

Subsequent to the quarter, we completed the sale of the part of consumer business, the initial proceeds received from a g and Spectrum were about $345 million dollars. These young kids are being used to pay down term loan debt. There will be a true up to the initial proceeds based upon the final closing balance sheet and we expect a final settlement to occur within the next 6 months off after factoring in paying down the term loan debt in early January our net debt-to-ebitda multiple currently stands at about four point seven times.

the remaining components of our

Guidance are reconfirmed and are included in the appendix to our slide presentation before returning a call back over to Alan. I want to reiterate our confidence in the full your outlet. Line organic growth. Margin expansion increased investments in Our Brands and Innovation, and finally the delivery of integration synergies by optimizing our manufacturing and distribution Network. Now. I would like to turn the call back over Alan for closing remarks.

Thanks Tim is you've heard from all three of us are accomplishments in the first quarter support the album be expecting 20/20. We have now passed the one-year Mark since closing the Acquisitions am energized was a stronger company today with the added experience and skills from the colleagues. We gained new markets to invest for growth in a broader portfolio of leading Brands and categories where Brands matter we are excited by what's ahead in the remainder of this year in the years to come as we take steps in creating a more capable company able to deliver on long-term strategic and financial objectives with that. I'll turn it over to the operator who will open the line for questions.

We will now begin the quest.

Question and answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press * then two.

Our first question is from Wendy Nicholson from City. Go ahead. Hi, good morning. Actually two questions first in terms of the new distribution. Can you just verify whether that is all secured and kind of a sure thing? Cuz I know that's supposed to be with driving the acceleration in growth as we go through the course of the year. So is there any risk to that or is is it all kind of like it loaded and then the second question is on the pricing environment. Can you talk about your confidence sort of with the price increases you talked? Obviously Commodities are more favorable. Do you think any rest of that pricing? Do you need to increase promotional activity, etc, etc. Thanks.

It windy, it's Mark. I'll cover the the first one. I let Alan cover the pricing question second in terms of the distribution that the distribution wins that we referenced are locked and loaded and and it's included with our plans. We're in the planning phase with customers now. So the the phasing and timing of when those roll out and when the loads will hit will is still a little bit in flux, but in terms of the space and the distribution, there's a lock them and then went beyond the pricing you can expect that that's going to hold we don't anticipate that changing. I think what you'll see is there's been a gap between the premium package and the value price alcohol Brands. We would expect that to be temporary in line with what we've seen historically that will moderate revert back over time in terms of the promotional environment you focus on the job in particular the promotional environment continues to be very stable. As a matter of fact average unit prices to Consumers have been up again in the most current quarter.

Got it. That's helpful. Thank you. And then just one last one just on the second quarter just to

Help everyone from a modeling perspective. I know you talked about big gross margin expansion in the second half but second quarter. Can you give us any sense for the direction of gross margin still under pressure? When should we start to see the benefits et cetera et cetera. Yeah wendee. You'll start to see the Improvement in gross margin beginning in the second quarter again, you know, what's going to drive that is Jeff gross margin expansion as as the absorption improved.

Our next question is from Bill from SunTrust. Go ahead.

Thanks. Good morning. Just again on the kind of battery growth organic growth through this year. Just do you expect it should have organic growth in each of the next three quarters and focus mainly on the fourth quarter trying to understand whether you expect the the kind of pull forward from retailers to happen again this year whether that's a tough comp obviously encouraging is a tough comp or whether the the Shelf Space games will more than offset. Both of those things embedded in in the one to two percent organic growth of the battery business for this year. It is it likely will result in organic growth Q2 through Q4. Now the phasing and amount of that organic growth can shift depending upon timing, you know month to month, but overall I you know, I could expect a few organic growth to 2 through Q4.

Okay. Thanks.

And then just follow I think I remember that that there was a 20-30 million dollar impact expected from tariffs, but I thought that a majority of the terrorists were on auto care and that was with the December terrorists that were never actually executed. So, can you maybe give us an update on on what the impact will be this year? Yeah. So last quarter we had indicated that off the Tariff impacts would be twelve million dollars incremental in the brexit cost would be two million dollars. I just indicated that you're right. The decision came off the phase one deal didn't impact any of the previous terrorists that existed and so that impact of the December was roughly four million dollars a month. So I mean total for the full year. So sorry, right and what we had called out last quarter as well as if you took terrorist brexit and currency impact it wage.

and roughly $0.25

that's now down to roughly $0.18 and the differential is the increased investment name, either we're making

Got it. Thanks so much.

Please limit yourself to one question and one follow-up question. Our next question is from Jason English from Goldman Sachs. Go ahead.

Hey, good morning, folks. Thanks for holding. Man. I wanted to come back to gross margins cuz it was it was it was a big surprise for me to see the off the sequential movement on GM's you give us a little bit of a walk from 4 q 2 1 cue and I appreciate that that's helpful. But historically when we walk from 4 q 2 1 cue we have to step up quite a bit. We usually get get get a pretty big lift sequentially into the first quarter. It sounds like that we met it was perhaps due to the Cadence or production and the and the slack capacity or lack of utilization. That was a drag but can you clarify that and also can you give us some color on was this anomalous or is this going to be the new Norm in terms of seasonality and shape your gross margins throughout the year or should we expect him back to the historical Peaks and valleys?

Yes, Jason.

No part of the part of what the driver was is obviously had the phasing of the holiday shipments that we called out in the fourth quarters. So that did impact, uh production volumes as we were entering the first quarter and that was expected that we would have pressure on the margins given that given that shift as well as the additional impacts of Channel may as well as incremental tariffs. So, you know as we move forward, I would expect that it'll it'll improve as as the the values of the organic growth improved as are you looking forward to future future years, you obviously have to factor in the impact of the acquired businesses on our Honor on our business. So I I I would expect as we would move forward, you know, assuming how the faith

of of holiday shipments lazy

Out that, you know, we wouldn't be back to the what was the Legacy gross margin raised but you'd see a relatively normal pattern to our business office. I I gave you have to take into account Auto Care in the seasonality of that business as well. Yeah, totally. I know it's changed both the level of your margins as well as change the shape a little bit. It's a page on that point if part of the weekend is here is a pull forward of the both the sales and The Leverage into the fourth quarter. Should we be braced for for a pretty tough fourth quarter? I mean we're going to laugh both the the pull for Don sales and Thursday and leverage then the fourth quarter.

Jason we just went bills question. We expect organic growth in in Q4. Now part of that is going is we're assuming that the timing shifting that occurred this past year will continue age year. And so if there's any shifting there, but overall it's also the new distribution which is going to drive the organic growth as well which we expect to hit in a meaningful way and sort of the August September time period as well. Our next question is from Kevin Grandy from Jeffrey's go ahead.

Thanks. Good morning.

Question on on Synergy. So it seems like you have good visibility on the $65 million that you guided to for fiscal twenty. Can you talk about the key areas of the Synergy capture how you manage business risk as you go about capturing these synergies and then as you work through them and and what's still a volatile environment Oddities in FX etcetera? What's the flexibility that the company may have to accelerate the pace of synergy captured beyond that $65 million this year.

Yeah, it's a Kevin we have we have good line of sight to the cumulative 65 million. So it's 45 to 50 incremental in in 20 laughing fifteen million that we realized last year. So we have a pretty strong governance process in place to manage those risks that you that you were outlining and and more confident in our ability as we move forward and and move through the integration. I think we called out one, you know one big factor and in terms of getting the European business on to our it platform occurred in the in the first quarter and so, you know, we removed from the the divested guard of business. And so Thursday, we have we have many miles stones coming up this year. And again, we're we're extremely confident in our ability to deliver. Yeah, Kevin on the on the business risk. We we manage that very tightly and that's actually at the Forefront of birth.

every discussion we have is what's happening with the business as we're implementing these changes to capture these synergies, so

We're going to minimize business risk first. The second priority is to get the synergies in the third priority is the timing of those synergies. We feel like we have a good Cadence down. But um when if business risks were taught service will shift it around and make sure that we don't create any business risk, cuz that's first and foremost the most important thing you just we showed it in yesterday. We've got a a really good handle on how to see these these activities Thursday. We we demonstrated both the 13 and separation of 15 were very positive in that. Okay. That's helpful, too quick quick follow-up is just on the auto care business where you expect that business to return to growth Thursday, or can you give us an update on the relationship with retailers there where there's obviously been some strain in the past under under different ownership and then second just the visibility on the distribution you expect to pick up as we head into the important, March and June quarters, and I'll pass it on. Thank you.

Kevin we have obviously visibility to the sets which are going to be going in place here and then that could be no 30-45 days with retailers. So we have very good visibility.

Because we do have some expanded space now the the task at hand is to make sure that space works for us. The relationship with retailers is is very good. I think the relationships that the team had that would be fired in the global auto care business were really strong. We've only worked to solidify those and show what Energizer can bring to this business as well. We've had a number of table. You know Innovation Summit where we've shared our plans for the business both from an innovation standpoint as well as a branding standpoint and they're excited by what they're by what they're hearing and what they're seeing from June but at the end of the day we have to prove it to him and we're going to prove it to him in this Q2 and Q3 and then we're going to build on that going forward but the relationships are solid and as a result, you know, we would expect that to continue the upward trajectory that this

Our next question is from Steve's Dracula from UBS. Go ahead.

Hi, good morning. So first of all, operational assortment question that I have a quick follow-up on the finances. So Alan on the assortment piece. It's been six to seven months since we've seen a National Rollout of private label and a key competitor launch a premium product. Wanted to get a little bit more texture as to some of the new distribution wins that you're getting in line of sight to for calendar 2026. Is that really coming from the Branded piece? Is it coming from the premium end? Is it all over? Can you give us a little bit more color and feel as to where the new distribution winter coming from then have to follow up.

so we we're

Changing the full portfolio. So what I would tell you in battery, it's it's leveraging the portfolio for distribution in new customers with with the portfolio and then expanded space in customers that we may have today obviously at this stage give them where we are in the planning process, you know, our our policy is not to talk about specific customers, but these are already committed to and we're in the process of working through what sets look like and the phasing of product flowing into there and stores smart, you know, when we talked in November and and December with some of you we talked about that. We we expected to be able to regain some of the space that we lost based on the competitive launch and the teams have successfully done that so that was built into our our aspiration and plans for for 2020. The truck is still shifting around a little bit but you're going to start to see some of this new distribution hit in the March April time frame and then again later at the air and it's all for granted dancer the first part of your question.

Okay, it's very helpful. And then the math question from endpoint to midpoint of Eva. Guidance for 19 to 20. That's about eighty million dollar Step Up.

And or increase on a year-over-year basis, I realize about fifty of million of that incremental from synergies. But can you give us a little bit more feel for how much of that is maybe contribution from the acquisition the four months you didn't own it last year. How much is in our base business? That would be helpful. Thank you. Yeah, so the so the Acquisitions contributor about forty million of of incremental ebitda as you pointed out sooner jeez or a big contributor and then to balance is coming from the the Legacy busy and you know layered in that is the distribution that we talked about and and regaining space as well as new space.

Our next question is from Laura liberman from Barclays. Go ahead great. Thanks. Good morning, just to follow up on the question about a distribution on on batteries. That was curious as your kind of coming to retailers and talking about your Fuller portfolio. Now, how is private label playing into that in terms of shells Thursday? Not you producing it. But are you finding that retailers are open to kind of swapping out private label to have Rayovac play that role on opening price point and maybe that's not even part of the the approach life. I was curious. If you could sort of a pint on that. I think that's that that's the broad strategic question that that it was the benefit of this acquisition I as we go in we've obviously had, you know, been a long-standing conversations around energizing the premium end of the category, but the the acquisition of the background allows us to extend the reach in the particular way. Certainly we've had it with a dog

Ready as well. But Iraq is a much stronger brand in certain markets.

but allows us to to to begin the

Station at the opening price point as well as take it all the way up to the premium end of the category. And so there is an openness to this. I think it's going to be a you know, a long-term discussion retailers have their own strategies. They have them strategies run private label and what they will going to do but as you start to get some wins and and maybe you convert private-label into the Rave at Grand and then retailers see the data on what it does for their category totally compelling story from them, but it all it all has to fit within their strategy with their stores and their Shopper which is 1 our teams are doing on a daily basis.

Okay, great. And then the follow-up would be to sort of at the other end of the spectrum at the premium end. I was just curious on things. You may be doing to increase education around lithium and things that you can do at the Shelf cuz obviously with the optimum launch the idea is, you know, bringing price points up, but that's now going product. So, yep. Yeah anything that is is there anything in part of your conversations with retailers in shelf senses. Also how the Shelf is presented itself and education in the store as the differences within the premium end of the catalog. Our teams are absolutely working on that and that's presenting these Shopper based Solutions is something that our teams do very well. It's it's really a question of communicating the benefits of lithium not only do the customer but also then to the consumer well and there are unique benefits to the lithium product. It is the best battery on the market today and making sure that we connect with consumers convey that benefit. Yep.

conveying the benefits specific usage is important and it's one that we we do and and we're working on on a daily basis to communicate it both in store, but

And also communicate it from you know, a digital advertising standpoint as well. It's a combination of above-the-line and below-the-line support. So it's it's easy. It's digital. It's the pricing move that we made on Thursday its visibility in the store and and it's benefiting globally. We're seeing lithium up in the latest 13 weeks seven almost eight percent.

Our next question is from fayza. Always from Deutsche Bank. Go ahead. Hi, good morning. So my first question is just again on the distribution and I was wondering if you could give us a little bit more color around, you know, the channels where you're gaining distribution and I guess specifically I'm wondering if it's something that will see in the scanned data that could get every two weeks. And then my second question is it seems like you have you know some flexibility as it relates to either an DPS office and you know this quarter you've chosen to, you know, increase reinvestments and you know spend spend on A and P as it relates to the guidance, so I'm curious how long how are you thinking about sort of optimal and be spending and so to the extent that you have further upside from things like FX Etc. Should we expect that those will continue?

To get reinvested things visor is Mark. I'll

And I'll turn it over to Tim for the second part of those questions as much as we would love to get into the specifics of the distribution games and and I recognize it's frustrating for us to not provide that that came at detail. It's one that we really were working on with our customers. It's we do have a standard, you know policy of not talking about customers and we really want the reveal of this distribution to be with our customers in stores as well as what their Shoppers and so we don't want to we don't want to front-run that process the distribution gains or obviously built into the reaffirmation of the guidance that we provided today. And and so what what I would say is you're going to start to see that distribution gains really occur in the March April time. In certain retailers and then you're going to see it over the summer and certain other ones as that rolls out. You're going to begin to see it. We're still working through the faith in planning, but it is built into to sort of our reaffirmation today. We're excited about it and and we're excited for what it's going to do for our business markets in measured and non measures and it's both. Yep.

It's primarily us but also International right and besides on the question, you know, we did we did have the opportunity to increase investment name p specifically increasing investment in the auto care business. And so

We talked about the need to invest behind those Brands spring forward Innovation. And so we're we are taking the opportunity to do that and we'll continue as we move forward with the right level of but you know, there's going to be some initial upfront investment required to get get the auto care business back to where it where it was in any surplus and we have beyond the Synergy number we're going to put back into the business.

Okay. Thank you.

Our next question is from Robert Martin Stein from evercore i s I go ahead great. Thank you very much. You touched on Thursday of this in in some of the comments, but I just wondering if we could go into a little bit more detail in terms of what's happening with mix product mix and channel mix. So maybe a little color on the relative growth of your business between the Energizer brand and private label and the outlook for those and then, you know a little bit of discussion in terms of Channel mix and the impact that is having on your margin structure. Obviously, the e-commerce channel is growing faster. You know, what is what is the margin profile that and what is the margin profile on International? Thank you.

Yeah, so the reference to change.

I'll mix was as you've seen in the POS Trends in measure channels, you know, we we've been experiencing declines, uh that's being offset by growth in a measured channels. So you are seeing a bit of mixed related to you know, the growth and unmeasured channels versus versus measure so we did see that play out in towards the tail end of Q4 and then carrying over into q1 along with the absorption impact that that we referenced in the prepared remarks as we move forward through the balance of the year. You're going to start to see that mix reverse related to some of the distribution games that we've referenced earlier.

And and what is what is the margin impact you know in or how would you compare the margin profile between your measured business and your unmeasured business?

Yeah, we we don't get into specific Channel discussion of margins particularly. You have a question about Amazon. We just we don't go into specific customer margin profiles or wage market profiles.

our next

Question is from Olivia Tom from Bank of America. Go ahead.

Hi guys. Thanks for the question. This is John Ki pora on for Olivia. I just had a really quick one about your exposure to China given the the coronavirus in terms of both manufactured in sales. If you could sort of elaborate on maybe whether or not there'll be any impact to to the supply chain or Your Capacity anyway, and then a follow-up would just be I'm not sure about the rest of the country. But the Northeast has seen some very mild weather this winter so far and I'm wondering if you've seen that flow through into the auto care line.

Yes. Well, it's Allen. I'll take the first one John and then Marco address the second one. So our first priority was the health and well-being of our colleagues and we're happy to report in office in Asia all are doing okay from a business perspective. We have no major issues to report Dell. I think it all depends on how things materialize over the next two to three weeks that could possibly change but right now we don't anticipate any major issues. I will tell you that our Global Supply Chain has been doing a lot of work over the last two weeks around contingency planning in the event any action is warranted. But right now we're in a good position and on the Auto Care, uh question, you know, which you saw over the last thirteen weeks ending November you did see uh, a fairly robust wage category growth and in the September month in particular because of the weather the weather that's that's really going to matter is over Q2 and Q3 for our business and and you know, if you recall last year the web app

Was cold and rainy ugh.

Through much of the spring and early summer season and and what we're we're expecting is a return to more normalized weather patterns, obviously if it gets particularly hot early wage for our business. You may see some shifting in between Q2 and Q3 depending upon when that whether it's above much of our auto care business does is weather dependent and and as a result when spring hits home when the the peak season starts

All right. Thanks guys.

Thank you.

Our next question is from William router from Bank of America. Go ahead.

Hi, I just have one I guess as we think about your deal averaging path. You've laid out a target for the end of 2020. Can you remind us where you expect to be at the end of fiscal year $21 a month, I guess whether you are seeing any any m&a Targets that could change the path towards deleveraging.

Yeah, so but we we had called out that we would expect to be in the range of 4 to 2 for Four and Twenty and then roughly a half a turn As you move forward to 21.

On the m&a front and we'll continue to look at bolt-on Acquisitions. Um it it's something that we we obviously keep leverage levels in mind if you agree with we're leverage levels are now but faith in terms of it's difficult to provide forward-looking view on m&a. We continue to look at it, but our Focus right now is is paying down debt and and in in in the event that an opportunity comes up obviously take that into account or analysis. We're going to continue to take a balanced approach to Capital allocation make sense. Thank you.

Our next question is from Carla Casella from JPMorgan security. Go ahead. Hi, you talked about some couple of key wins in the bath spaced are there any offsets offsets in terms of any business or shelf life losses and can you talk about it from the perspective of the Legacy portfolio versus wage Spectrum portfolio that you acquired? What we've done is we want to talk about the battery portfolio holistically and in our growth rate was 1 to 2% on the entire battery business because it really depends on the given retailer given customer how that where the brands resonate and and what we want to do is is look at it as a complete the complete business in a complete portfolio. Obviously the whole plays out, you know differently than you expect every year. There's puts and takes throughout the year. We expect it distribution wins heading into this year that we were going to regain the space from the competitive launch because wage

so the story

In terms of the category Trends and we had a very compelling story to tell the Retailer's, you know, in terms of overall. We feel really confident on our 1 to 2% organic growth. All of that information we have is built into the guidance that we provided today which is uh, which which basically reflects organic growth from Q2 through Q4.

Okay, great. Thank you.

Our next question is from karru Martinson from Jeffrey's go ahead. Good morning, Specifically, you know how the hearing aid business performing for you since that had been a big part of spectrum's battery business in terms of their margin contributor.

You you have seen a little bit of conversion in the hearing aids segment right. Now what you're seeing is more hearing aid devices or taking rechargeable batteries there or with some lost distribution, which occurred before we acquired the business. We're still cycling through that. It was a healthy margin business. It is a smaller piece of our business, but then it was for the for the Spectrum Business, but you're still seeing extremely healthy Trends in the specialty segment overall hearing aid is a part of that. But what you're seeing is on the lithium coin side nice growth rates. We're we're able to capitalize nice life with our expanded portfolio. It is the the specialty segment is one of the more profitable for the retailers. It's Energizer today's hits at a 55 share globally on a daily basis and least 13 weeks off we dominate there at the marks point if you think about it hearing it is actually relatively smaller part of total specialty at 17% They watch electronic where we dominate is roughly three-quarters of birth.

sales, globally

I can order. Thank you very much guys. Appreciate it.

Our next question is from Andrea Tara from jpmorgan's. Go ahead. Thank you. Good morning. So, can you help me on the synergies in the first quarter wage? You couldn't nine million, but that is is that most related to growth marching. And if we assume it's about seven million too gross margin. So the Synergy help you around a hundred twenty six points on the gross margin. So I was trying to bridge the gap and and and try to understand what it was the core business margin of the Legacy business for Energizer and well in compared to inspire batteries and autos and just clarification follow-up question on the prepared remarks, you mentioned competitive activity if you understood correctly on a private label players as well. So is that happening on this counters or again on the drug Channel as we continue to see on the truck channels and arguing betting and normalization on this Thursday?

And guidance appreciate thank you. Yeah, so I'll take the last one while Tim formulates the perspective on the the first question.

So for private label now, there's not been any significant changes. We reported last quarter. And as we expected in the current quarter, there's activity and one large retailer where there was some emotional and distribution activity around private label, but that was expected outside of that. We're not seeing anything different. It does vary by Channel market and catalogue. It's more developed obviously in lights less. So and Battery even less so in auto care, but around the the globe, we're not seeing big shifts in current private label value shares still sits at roughly 18.8% the bump up and got in the most recent 13 weeks again, was that one retailer? Yeah and the synergies we called out the nine million and a half as we said it investor day. You're going to see the the mix of those synergies about 65% is going to be clogged in the balance is going to be sg&a and R&D so it isn't dead.

In in the results for the first quarter again, the the items impacted are the ones that we called out. You've got the impact of absorption. You've got the impact of the mix that occurred during during the first quarter. We're we're not breaking out Legacy business versus it's it's one combined business now, he's a move forward as this will be the last quarter that we left the acquisition impact.

Thank you.

This concludes a question-and-answer session. I would now like to turn the conference back over to Alan Hoskins for closing remarks.

Thank you for joining us on our call today and your continued interest in Energizer. Thank you operator.

Just the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.