Q3 2021 Energizer Holdings Inc Earnings Call
[music].
Good morning, My name next question Ravi and I will be your conference operator today at this time I would like to welcome everyone to Energizer was third quarter fiscal year 2021conference call.
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I would now like to turn the conference call over to Jackie <unk>, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to Energizer third quarter fiscal 2021 conference call. Joining me today are Mark Levine, President and Chief Executive Officer, Tim Gorman, Chief Financial Officer, and John driving corporate controller, and Chief Accounting Officer.
A replay of this call will be available on the Investor Relations section of our website Energizer Holdings Dot Com. In addition, a slide deck, providing detailed financial results for the quarter is also posted on our website.
During this call we will make forward looking statements about the company's future business and financial performance. Among other matters. These statements are based on management's current expectations and are subject to risks and uncertainties, including those resulting from the ongoing COVID-19, pandemic, which may cause actual results to differ materially from those statements.
We do not undertake to update these forward looking statements other factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in reports we file with the SEC.
We also refer in our presentation to non-GAAP financial measures a reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in our press release issued earlier today, which is available on our website.
Information concerning our category and market share discussed in this call relates to markets, where we compete and is based on Energizer is internal data data from industry analysis and estimates we believe to be reasonable.
This quarter E Commerce data is limited to our business as total category data is not currently available. It is uncertain when that data will become available in the future.
Unless otherwise noted all comments regarding the quarter and year per change of Energizer fiscal year and all comparisons to prior year relates to the same period in fiscal 2020 with that I would like to turn the call over to Mark.
Thanks, Jackie and good morning, everyone.
Great to be with you today to share the results from another solid quarter.
Before jumping into the results I want to focus on a few bigger picture headline first.
Our categories remain very healthy in fact, each of our categories showing solid growth when compared to pre pandemic levels and we expect that consumer behavior is driving that demand will continue for the foreseeable future.
Second operating costs have risen rapidly and we are laser focused on offsetting those headwinds from cost reduction initiatives and pricing.
And finally global supply chain networks continue to be stressed and are prone to disruption as a result, we have built inventory to service our customers with excellent and minimize supply chain disruptions as we approach the critical holiday season.
In a few minutes I will talk in more detail about each of these areas.
But before we get to that let's turn to the quarter, where the benefit of our diversified portfolio and global footprint has shown through.
Our topline grew nearly 10% from strong growth globally in our auto care business solid growth in our international battery business and currency tailwind.
These were partially offset by anticipated declines in our North America battery business.
Topline growth combined with cost management synergy realization and interest savings translated into solid adjusted EPS and EBITDA growth.
Headlines for the quarter.
We maintain top line momentum with organic sales growth of 5.8%, including growth of more than 25% and our auto care business.
In addition, we saw our international markets produced strong growth across all categories.
Our gross margin was lower than last year by 160 basis points as synergies and favorable currency impacts did not fully offset rising industry wide input costs that accelerated in the back half of the quarter.
The change in overall margin also reflects the strong growth of our auto care business, which has a lower margin profile than our battery business.
Our adjusted EPS was <unk> 74.
An increase of nearly 50% versus the prior year.
Given the strong topline performance to date, we are increasing our full fiscal year outlook for net sales.
2.8% to 9% growth and reaffirming our outlook for adjusted earnings per share and EBITDA.
In addition to third quarter earnings, we also announced today that we intend to repurchase $75 million of our stock.
Through an accelerated share repurchase program.
We anticipate that this will result in the repurchase of roughly $1.8 million shares or approximately 2.5% of our fully diluted outstanding shares.
Have a high degree of confidence in our strategies and believe that this will prove to be a prudent allocation of capital.
Upon completion of the stock repurchase program, we expect to have ample remaining financial capacity to support our ongoing capital allocation priorities of investing in our business to drive growth.
Turning cash to shareholders through our dividend and additional share repurchases executing.
Strategic M&A and debt reduction.
Before Tim and John will provide more details on the quarter I want to provide some additional details on the rising cost environment and our recent pricing actions.
The measures we have taken to ensure that we will operate with excellence and an uncertain environment.
And the promising long term growth prospects in our categories.
First the profitability of our business.
I mentioned earlier that we have seen operating costs, including labor transportation and commodities rise rapidly over the past few months.
This is a trend we expect to continue.
We will manage these pressures by reducing costs in other areas.
Pricing actions and improved mix management.
The price increases we took in auto care recently have gone into effect and the previously announced price increase in North America for batteries should be fully realized by the second half of fiscal 2022.
Similar efforts are underway across all categories in international markets.
We are also proactively taken steps to bolster the resiliency of our supply chain.
First with the uncertainty around product sourcing transportation delays and labor shortages, we are investing in inventory to maintain high service levels through the remainder of the auto care season and throughout the peak holiday season for batteries.
Second we are increasing production of key products and component parts, where demand continues to exceed our ability to supply.
Including alpine in lithium batteries auto care wipes and trigger formats.
We are expanding our internal production capacity as well as expanding our network of third party partners, including those with packaging capabilities.
And third we are executing our plan to transform our global product supply organization by enhancing our use of data and analytics to enable us to respond to changing market dynamics much faster and more efficiently.
Finally, and most importantly, I wanted to provide some insight on the health of our categories.
During this quarter and for a few more to follow.
We will see consumption trends versus the prior year, which are a bit skewed by the peaks and valleys from COVID-19 related demand, which could be very different by category geography and time period.
However, we remain very encouraged by the consumer trends underpinning our categories.
Our analysis reflects healthy and stable underlying growth drivers.
And as we compare to 2019 it is clear that our current category trends remain elevated.
This growth is driven by sustained changes in consumer behaviors, which we believe bode well for long term category growth.
The following consumption trends should help provide some support for that confidence and as a quick reminder, this data excludes e-commerce.
And looking at the battery category for the quarter consumption through May was down 11, 6% versus a year ago.
However against that same period in 2019 consumption was up 9.5%.
There are 2 drivers behind this growth devices owned per household are up mid single digits in the U S and an increase in the amount of time those devices are being used.
As a result consumers are replacing batteries more frequently and they are buying behavior reflects these trends with an increase in purchase frequency and greater spending per trip.
Our brands outpaced the category, resulting in a 2.8 share point gain versus last year, as we increased distribution and visibility, particularly in the U S.
The auto care category experienced even stronger growth trends up 19% versus last year as the category lapped soft consumption from the shelter in place orders in March and April of 2020.
More impressive it was up 21% versus 2 years ago due to the following factors.
Tumors increase their do it yourself behaviors that were established during the pandemic, including higher levels of cleaning and renewed interest in car care as a hobby.
Also the number of miles driven returned to the pre pandemic levels.
And third there is a tailwind from the increasing age of the fleet given the shortage of new vehicles.
And looking at our auto care business, we are proud to be the market leader in this fast growing category.
Not only are we the market leader, but we are accelerating that leadership by outpacing category growth through the strength of our innovation and brand building investments.
This quarter, our armor, all innovation, which had 4 of the top 10, new products during the quarter was a key contributor to our growth.
We are also growing the business by expanding into international markets, which grew 29% through increased distribution in existing markets as well as entry into new ones.
While the information we just provided does not include ecommerce we do want to provide some color on how we're performing there.
While we do not have full category data for pure play e-commerce, our consumption trends demonstrate that we are capturing consumers as they shop online more often.
<unk> were down 29% versus a year ago. However on a 2 year comparison, they were up 80% and.
In auto care, we grew 57% versus a year ago and over 400% versus 2 years ago.
As you can see the underlying trends for our business are promising and we expect those drivers to remain healthy.
The actions, we are taking will position us to win for both the remainder of the pandemic and beyond.
Before I turn the call over to Tim and John I wanted to talk about the CFO succession plan that we announced in June.
After nearly 40 years in finance and 4 years as CFO of Energizer, Tim has decided to retire.
During Tim's tenure, we have all seen firsthand his passion for the business, which has been integral to energizer, becoming the leading global household products company. It is today.
I am personally grateful and I'm confident that I speak for the entire organization in thanking Tim for all that he has contributed to Energizer, we were all better for having the opportunity to work side by side with him and he will be missed.
Effective October 1 John Drabik currently our senior Vice President corporate controller, and Chief Accounting Officer.
Who will become our CFO.
John has been a vital part of our team and has a deep understanding of our business with nearly 2 decades in the Energizer financing controller ship organization.
Most recently he led the work to transform the financing controller ship organization and over the coming months, Tim John and I will work closely together to ensure a smooth transition on.
On behalf of the entire organization I want to congratulate Tim on his retirement and John as he moves into his new role with that I'll turn it over to Tim.
Good morning, everyone and thanks, Mark for the kind words regarding my retirement.
Both the privilege and a pleasure to be part of the Energizer team through this transformative period.
Beginning with our spin off from Ed dwell in 2015, and the acquisitions, we've made sense.
With the acquisitions essentially fully integrated now is the right time to hand, the baton to John <unk>.
Many of you have had the opportunity to meet with John over the past year.
He is an outstanding financial leader with 20 years of well rounded experience as part of Energizer finance team.
I am confident he will be a great CFO.
Now turning to our results.
In addition to the earnings release, we issued this morning, a slide deck is included on our website highlighting additional key financial metrics.
I'll cover the results for the quarter, and then turn the call over to John for an update on our outlook for fiscal year 2021.
Our organic revenue growth of 5.8%.
Combined with synergy realization and lower interest expense and favorable currency tailwind resulted in strong adjusted earnings per share of 74.
Up 48% versus the prior year third quarter, and adjusted EBITDA of $144 million.
Up 7% compared to the prior year.
Taking a deeper look at organic revenue growth, our Americas and international segments.
Grew 4.7% and 9.1% respectively.
In the Americas Auto care had strong double digit growth due to elevated demand and distribution gains. This was partially offset by an expected decline in our U S battery business as we continue to lap elevated COVID-19 related activity in the prior year.
This battery trend is expected to continue over the next 3 quarters.
In our international segment.
<unk> sales were strong due to increased demand and replenishment versus last year when sales were down 5% in the third quarter as many of the international markets where on strict lockdowns.
Auto care grew 29% organically as we focus on expanding our products into new and existing markets.
Adjusted gross margin decreased 160 basis points versus the prior year to 39, 2%, primarily due to higher labor tariffs and transportation costs.
Consistent with ongoing inflationary trends in the global market.
These cost pressures rose quickly and are expected to continue over the balance of the fiscal year.
Additionally, gross margin was negatively impacted by the lower margin profile of our auto care and life businesses, which experienced strong organic growth in the quarter.
Synergies of $40 million.
And the favorable impact from currency exchange rates.
We offset these negative impacts.
A&P as a percentage of sales was 6.1% up 40 basis points or $6.8 million on an absolute dollar basis as we continue to support our brands and innovation.
This includes increased support for our international auto care expansion.
Excluding acquisition and integration costs SG&A as a percentage of net sales was 14, 8% versus 16, 2% in the prior year, primarily the result of levering our cost structure against the higher sales achieved in the current quarter, coupled with SG&A in absolute dollars being.
Really flat as we continue to effectively manage our cost.
We realized nearly $50 million of synergies this quarter, bringing.
Bringing the total thus far in $2000.21 million to $55 million.
Since our battery and auto care acquisitions, we have recognized approximately $124 million of synergies exceeding our initial targets.
We are now in the final stages of integration and expect to close out the program at the end of this calendar year.
Interest expense was $12.2 million lower than the prior year quarter as we have taken advantage of favorable debt markets and refinanced essentially all of our debt over the past 15 months.
At the end of the quarter, our net debt was approximately $3.3 billion.
Or 5 times net debt to credit defined EBITDA.
With nearly 85% at fixed interest rates.
No near term maturities.
And an all in cost of debt are below 4%.
Our adjusted free cash flow through the end of June stood at $43 million well below the level achieved in the prior year.
The decline in adjusted free cash flow, primarily reflects working capital investments to support the balance of our auto care peak season, and our upcoming holiday activity as we are conscious of potential supply disruption from the pandemic.
Finally, I wanted to highlight some key performance metrics achieved through the first 9 months of the year.
Net sales grew 14%, including organic sales up 10%.
Adjusted gross margin dollars grew 10%.
Adjusted earnings per share increased 55%.
Adjusted EBITDA increased 15% and finally interest expense.
<unk> from significant refinance activity.
<unk> $20 million.
We achieved this balanced growth across our key metrics, while managing through the challenges brought about by the pandemic.
Now I would like to turn the call over to John for an update on our outlook for fiscal 2021.
Thanks, Tim and good morning, everyone.
Looking at our fiscal 2021 outlook, we are increasing our net sales outlook range to 8% to 9% growth.
This increase was driven by the better than expected growth in our auto care business and the impact of favorable currencies.
Gross margin is now expected to be down 80 to 110 basis points. Our previous gross margin outlook was flat year over year, However, inflationary pressures, which rose rapidly in May and June along with the mix impact of the growth of our auto care business will have a negative impact.
Adjusted earnings per share outlook remains unchanged at $3.30 to $3.50 and represents significant earnings growth over the $2.31 delivered in the prior year.
We also expect adjusted EBITDA of $620 to $640 million, which is unchanged from last quarter and is an increase of 10% to 14% above the $562 million in 2020.
Our year to date cash earnings are up roughly 30% versus the same period last year. However, as Tim discussed we expect our working capital levels to remain elevated through the balance of the fiscal year <unk>.
Anticipating that we are revising our outlook for adjusted free cash flow to exceed $225 million.
This is a direct result of our decision to invest in inventory to support the upcoming peak battery season and to ensure we maintain high service levels for our customers.
The steps, we are taking a prudent ones, giving ongoing disruptions that persist in the global supply network.
Our combined 2 year average for fiscal 2020, 1 is closer to 11% of net sales and is in line with our expected long term outlook.
We also view this investment as short term in nature, and fully expect our inventory and free cash flow to normalize as the volatility and macro impacts of the pandemic abates.
Now I will turn the call back over to Mark for closing remarks.
Thank you John.
Through 3 quarters, we delivered strong topline growth with solid adjusted earnings per share and EBITDA results.
Looking ahead, we are well positioned in the marketplace position anchored by our strong brands and innovation are focused today and moving forward will be to offset the cost headwinds, while ensuring our products are available to consumers around the world we.
We have complete confidence in our team's ability to operate with excellence drive productivity and accelerate the momentum in our business. Despite any challenges, which may come our way with that I will open the call for questions.
We will now begin the question and answer session.
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Got it thank you.
Please limit yourself to 1 question and 1 follow up if you have further questions. You may have entered the question queue.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Okay.
Our first question comes from Bill Chappell with true Securities. Please go ahead.
Thanks, Good morning.
Good morning Bill.
Just wanted to talk a little bit more about the kind of pricing cost offsets that you said you should be fully covered as you move into kind of the back half of next year, but obviously with the battery business.
A majority of the earnings come in that first quarter. So just trying to understand.
Are you fairly prepared for that or are we talking about more of a.
Kind of a negative tailwind to gross margins.
The key parts of the year.
I think bill I'll start that and then turn it over to John because I think.
As we start to answer that question, but we do think it's important to provide a little bit insight about 'twenty, 2 and I think we can start to shape that a little bit for you on the pricing dynamic as we mentioned in the prepared remarks.
Auto care has gone into effect and we're going to start to see that benefit in August in batteries that price increase is still in process. We are committed to seeing that went through and getting it across the line as we've talked about before I think you would expect we're going to expect to see minimal benefit in Q1, increasing benefit as you get through Q2 with the <unk>.
We'll impact in the back half of 'twenty, 2 which will help offset some of these headwinds that we're experiencing but obviously there could be some delayed impact and John why don't you kind of walk through a little bit of that yes, maybe a little bit of composition. We've called the rest of this year down 80 to 110 basis points and Thats really from an incremental 20 to 25.
It costs this year half of that is going to come from transportation, which we've seen go up pretty significantly we've seen container rates go up from $2500 a <unk>.
Dana at almost $4600. We've also seen pretty significant inflation in labor rates and then tariffs. We've also got hitting us with headwinds.
And then I think we talked about this last quarter, but it's not a significant driver of this quarter, but commodities have really gone up continue to go up we've been hedged and will be hedged through the remainder of this year, but as we look out into 'twenty..2 obviously, we will start dollar averaging into those higher costs and so that will be a headwind for us.
1 of the things that we've decided not to do or we continue to do is we hedge but we've done it at a slower rate opting not to lock into some of these costs at the highest hopefully so as we go into 'twenty 2 it probably makes a little bit of sense to give some more color as there are a number of moving parts. So maybe to that point.
We're going to provide guidance in November on a normal calendar, but it's obviously very volatile environment. So we're going to give a couple of thoughts on the road ahead.
As we've talked about throughout the year and began to see this quarter, we're going to have difficult comparisons against the elevated sales levels that we saw during the COVID-19 in the U S last year. So we're expecting year over year declines in many of our categories over the next 3 quarters or so although we do expect those to be up versus 2019 levels. So very strong categories.
Speak to our results. We also expect to have benefit from expanded distribution and pricing activity that we've already announced that mark talked about.
On gross margin as we've talked about those inflationary pressures are going to carryover. We expect some of those to continue to impact 'twenty..2 so we've got the the pricing offsets that will come in but if current spot rates were to continue for the duration of the coming year.
With the expectation that some of that pricing would have to come in over time, we would project our gross margin.
In 2022 would be down roughly 100 basis points versus our full 2021 results.
So our objective will be to perform better than this through a combination of productivity and revenue improvement measures, but we do expect to see some impact.
2 other known aspects that we have for 'twenty 2 that will just call out quickly.
We do expect to have incremental reduction in interest expense from all of our refinancing. This year, so that should be about $15 million to $20 million of tailwind.
And then we also are going to have the benefit of the share repurchase, which we announced earlier today. So we expect that that should take out outstanding shares by roughly 2.5 per cent.
And again, we will provide.
November but wanted to give some of that color.
No that's extremely helpful. Thanks, Thanks for the color I guess 1.
Follow up.
You look at auto care, and I guess, especially as the comparisons for for next year.
The thought is the auto care a season is largely behind us or maybe you have a couple of months.
Laughter at most.
Do you consider this like a above peak year in terms of consumers out on the road driving more than expected favorable conditions do you consider this kind of normal more what you would've kind of expected back to 2019, how do we look at it especially from a comparison standpoint going into next year is there is there more growth on top of this or is.
This really is.
Probably better than you would've expected.
I think the the trends have persisted this year, a little longer than perhaps we would have expected because we had some strong comparison now remember last March and April that channel was essentially shut down. So you've had you have some easy comps that you're cycling through this quarter.
As you get through the summer and into the fall that was where you saw elevated demand coming out of some of the lockdowns. So we'll continue to see those tough comps, but I mean, there are consumer behaviors, which.
Our continuing around cleaning, particularly on the interior of the car you have had an extraordinarily hot summer, which has been a bit.
<unk> 2 our refrigerant business, you've also had a lot more miles driven this summer than last for the performance chemicals business has been elevated. So you will go through some tough comps for the next several quarters on auto care similar to batteries.
But I believe the long term health of that of that category is still very encouraging.
Great, Thanks, and congratulations Tim and John talk to you soon thanks.
Thanks.
Our next question comes from Lauren Lieberman with Barclays. Please go ahead.
Great. Thanks, good morning, everyone.
I want to talk a little bit about reinvestment it was great to see.
Ending on advertising this quarter coming in as you guys had planned actually higher than what I had had expected, but as we look into whether it's 'twenty..2 we're just call. The next couple of quarters I was curious about reinvestment in SG&A and in light of things that you discussed earlier this year I mentioned again today about reinvesting in.
David keep ability is visibility into the supply chain and so I mean, it sounds like from the day.
Decision to proactively manage inventory your visibility has improved versus this time last year, but I'd love to hear I guess, 1 progress made on that front and to cost to get there and the degree to which that is.
Further headwind in the P&L.
Certainly contemplated in your guidance, but something that we should be probably be thinking about as well. Thanks.
Florida, I'll start and then let Tim and John add on where they think appropriate I do think any any of our current reinvestment plans have been built into the outlook. We provided for the balance of the year.
<unk> 22.
<unk> I think we will get into detail of that in November, but let me let me take a step back on the supply chain question, which was really the second part of your question.
When youre talking about supply chain in today's environment, There's really 2 different elements. The first 1 is around consistency and predictability of supply chain networks in the second around cost, which John touched on a few seconds ago.
There's been a lot of.
No disruptions in our supply chain and supply chain globally.
And you have got the Suez Canal, Texas free as you've got the recent typhoon in China. All of these events create delays in availability of raw materials and component parts. In addition in the U S. You have labor issues.
To give you some data points.
<unk> from China to the U S was previously pre pandemic around 40 days as of May. It was 75 days at times. It's reached 90 million. There are restrictions on carrier carrier availability with frequent delays in inbound and outbound and ports are congested. So I think all of these caused delays as a result, we made the decision to invest in inventory.
To your point, we saw that coming and we have anticipated our visibility is greatly improved from where it was last year and the way for us to manage.
Less efficient and less reliable supply chain situation is to invest in inventory to ensure that we can meet the demands per customer. So we think it is a prudent investment.
It's a short term investment and as John mentioned, we think it's going to normalize as we get into next year I don't think youre going to see.
As you get into 'twenty, 2 outsized investments in some of these data and analytics capabilities that we've talked about we've built them into a lot of the work. We've done this year and youre going to see the benefit of that really starting to come to life in 'twenty 2.
Okay, that's great.
Super Helpful. And then as you have also the other mentioned.
The net debt you need an.
Investing in internal capacity as well as third party.
Just thoughts on Capex spending.
Obviously, you've got flexibility on your balance sheet with a decision to the ASR, but I was just curious about.
Capex additions and again also on capacity.
For your.
Youre, adding to I.
I guess what is the underlying category size assumption I know youre not going to give me a number but just in terms of it.
That consumption in auto and in batteries is to what degree higher.
Today, our annual revision of what steady state looks like versus what you might have predicted back in 2018 or 2019.
It's a great question Lauren at the <unk>.
Base of your question I think is are we going to end up with too much capacity on the other side of what may be elevated demand.
We are confident that the answer to that is no and that's in part because we have had.
A multifaceted approach to production.
We in sourced and we outsource and we make sure that we balance prudently in between those 2 we have started to bring.
Some more capacity in house and we.
We will retain the ability to flex up and flex down both internally and externally so that we make sure that we don't end up.
With an absorption issue and increased cost as a result of that we had we bought a plant in Indonesia. As you know last year, we've increased the productivity of that plant in excess of 20%. We've added a couple lines, we've talked about in fenimore in asheboro, you can flex up and down.
And then we've added Wi Fi and Dayton as well as in the UK.
To allow us to bring outsourced product in house.
But we're still going to continue to use.
Third party providers as well to make sure that we can flex capacity and not have too much internal capacity that would have to be idle.
In the event that that demand drops.
That's great. Thank you so much I'll pass it on.
Okay.
The next question comes from Angela Please share with Jpmorgan. Please go ahead.
Thank you good morning, Thanks for sharing some of the puts and takes thanks.
Thanks Sue.
Okay.
Sure.
The Canadian.
At the top line because you did mention.
Cancel wage sales being.
Probably negative.
Next couple of quarters.
Wanted to Shanghai from what are you embedding these guidance from the book.
Okay.
Oh, how we should be thinking on the telephone.
Andre I think I picked up your question, but it was a little tough to hear you I think in terms of the top line cadence I mean, we're not going to yet get into 'twenty 2.
Guidance, but I think if you.
Think about just Q4.
At this point, it's essentially just math I think you would expect.
<unk> care and batteries to be flat to slightly down.
<unk>.
Yes, it's about negative 5% is what we're looking for the fourth quarter.
Mhm, Yes, now from no for sure and Alan This is understandable, obviously, but I was thinking more in I apologize for the free.
But that's on quality, but probably like more into as you said the fiscal 'twenty 2 like more from a consumption perspective, how you are seeing.
You get into the into the peak of the season, what are your retailers, telling you in terms of consumption.
Consumption has been has been strong we arent seeing inventory levels elevated in any meaningful way across retailers I think what youre going to have to just youre going to have to cycle through the elevated costs, particularly in batteries over the next 3 quarters. So I think youll continue to see negative category trends, but thats when it will be important to continue to look at.
It against 19, I think you can.
Distantly seeing consumers about a third of consumers tell us that they are buying batteries today for an index continue to.
<unk> expect to buy additional batteries in the future 90% of them are using them for immediate usage.
Purchase frequency is up 2% versus the prior year and the spend per trip is up 9% against the previous year. So youre continuing to see healthy consumption trends out of consumers, particularly in the battery category.
Uh-huh that's super helpful. Thank you I'll pass it on.
Our next question comes from Jason English with Goldman.
Go ahead.
Hey, good morning folks excuse me a couple of questions. Good morning Joseph.
Good morning.
So to build off the earlier Capex question.
I noticed you've lowered your capex expectations this year.
What drove that is that just a deferral into next year and you mentioned that you are on track to complete the integration program. This year.
How should we what should we be expecting in terms of capex levels going forward once that falls out.
Yes, it's a good question, Jason we've kind of looked at our Capex needs as we go forward. We've historically run at about 1.5% to 2% of net sales I think what we're viewing as we complete the program and kind of get into a normal run rate.
Some of those investments that we talked about in technology as well as into our plants, we'd probably be towards the higher end of that but still kind of within our normal long term range somewhere more around that 2%.
Okay. That's helpful. And then Hugh you mentioned the accumulation of inventory this year.
Is that just raw materials or is it finished goods.
Gross margin benefit are you seeing in terms of leverage.
Of your plants, if that's the case.
Yes, a lot of what we built incremental over the last quarter has been raw material in with and so we've kind of built up as Mark said, we're seeing some potential volatility out there in the global supply chain. So we've built up some of our ability to continue to turn that into finished goods next quarter, and then we'd see that kind of sell through and.
'twenty 2.
I would say.
Theres not a significant impact to our gross margin from what we've done.
In line with sort of our normal, but we have stockpiled a bit.
Got it helpful. Thanks, I'll pass it on.
Was there a reminder, if you have a question from school.
From 1 to be turned into the queue.
Our next question comes from John <unk> with Evercore. Please go ahead.
Great. Thank you very much.
Just to start off I, just wanted to ask you a little bit about the.
Your share buyback program.
Certainly I can understand wanting to buy back stock, whereas it's so undervalued as it is today.
But you don't usually see that with the kind of leverage that you guys have particularly in.
A tough on certain general macro environment.
Wondering if you can just give us a little bit more details behind.
Behind this share buyback program and any signals that we should be getting free.
That in terms of future capital allocation.
Yes, Rob.
I think the first thing we'd say is that we've spent a lot of time over the last 12 months refinancing our debt capital structure. So we feel very comfortable with where that is right. Now. We've got basically are all in coupons are below 4%. We've got very limited maturities over the next 6 years or so so it freezes up a bunch a bit to make capital allocations, where we think we can get the best.
Return.
The second main point is that we expect significant cash flow generation over this quarter and as we go forward and kind of back to a normalized level. So the ASR that we're talking about we think we can fund with those cash flows are pretty comfortably along with our dividends that will continue to pay.
Share repo has been an important component of our capital allocation strategy. All along so I think we've got confidence in our strategy and future growth prospects and really believe that this is a prudent investment to make given the value proposition that you talked about.
Absolutely great. Thank you and then second can you talk maybe just a little bit more.
About in this on the battery side about the competitive environment that you're seeing are.
You mentioned that you've been gaining share.
Who are you gaining share from is it related to particular price points particular channels.
What's the consumer doing in terms of private label.
Any any any thoughts along those those tangents. Thank you.
Sure Robert from.
From a private label standpoint, Youre seeing small upticks.
In the U S, but nothing significant and I wouldn't say nothing that's overly concerning.
A lot of our our distribution gains recently have come from yourself, we are gaining share.
As you've seen in the <unk>.
Recent.
Dataset and we would expect to continue to gain some distribution through the balance of Q4 as well and into 'twenty..2 so a lot of great work from our from the team standpoint, I would say overall the competitive dynamic is healthy both.
We and our competitors are.
We're competing on innovation on brand building.
And we expect that to continue.
Terrific. Thank you very much.
We will conclude a quick question and a quick question I would like to turn the conference back over to Mark Landy for any closing remarks.
Thanks for your time this morning, and once again for joining our call and your ongoing interest in Energizer.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.