Q1 2023 Energizer Holdings Inc Earnings Call
Eluded in reports, we file with the SEC.
Speaker 1: from these statements are included in reports we file with the SEC.
Speaker 2: up over 4% during the same period.
Speaker 3: In the quarter, global category value was up almost 6% with volumes down roughly 3%. And consumers prefer our brands with energizer outpacing the category. Our value share was up 1.2 points globally versus prior year behind a strong performance in the U.S.
Speaker 4: Now turning to AutoCare.
Speaker 5: Category leading indicators remain strong, and each of our four subcategories have experienced double-digit value growth since pre-pandemic levels.
Speaker 6: You're over year the category value grew over 3% with the benefit of pricing more than offsetting volume impact.
Speaker 7: While this is the smallest quarter of the year for AutoCare, both Armor All and STP grew share, including in the important appearance subcategory, which represents nearly half of our total AutoCare portfolio.
Speaker 8: As John will explain in a moment, our first quarter sales did not track with syndicated data across our category.
Speaker 9: We mentioned last quarter that retailers entered the quarter with slightly elevated inventory levels, particularly in batteries, which partially contributed to that disconnect.
Speaker 10: At the quarter progressed, retailers also began to more aggressively manage inventory level despite the strong consumer demand.
Speaker 11: After a strong holiday season, many of our customers were either below or at the low end of their historical inventory levels.
Speaker 12: While this impacted our net sales in the quarter, the strength of our categories, our performance at shelf and lower retail inventory gives us the confidence in delivering our full year outlook.
Speaker 13: Against the backdrop of those strong category fundamentals, our focus on restoring gross margins has begun to pay dividends.
Speaker 14: First, let's cover pricing.
Speaker 15: As we discussed in previous quarters, we have taken multiple rounds of broad-based pricing across both battery and auto care to offset the inflationary headwinds we were experiencing.
Speaker 16: And we expect to continue to benefit from favorable cons in the first two quarters of the fiscal year.
Speaker 17: Looking ahead, any additional pricing actions are expected to be more targeted in nature.
Speaker 18: In addition to pricing, savings from the initiatives under Project Momentum have driven gross margin improvement year over year as benefits from re-engineering our products, consolidating suppliers and improving labor efficiency are beginning to flow through.
Speaker 19: The auto care business has been a point of emphasis as gross margins were impacted significantly by inflation and is one where we are already making great progress.
Speaker 20: Our considered efforts around pricing, combined with the benefits of Project Momentum, contributed to a significant improvement in segment profit in the quarter.
Speaker 21: Project momentum is not just improving gross margin, it is also driving much improved working capital deficiency, which John will provide more detail on later in the call.
Speaker 22: The combination of our expanded margins and linear balance sheet helped to generate over $150 million of free cash flow in the quarter, which we used to pay down over $100 million of debt in the first four months of the year.
Speaker 23: As we look ahead, debt paydown continues to be our primary capital allocation priority.
Speaker 24: Now, let me turn the call over to John to provide additional details about our financial performance.
Speaker 25: Thanks Mark and good morning everyone.
Speaker 26: I will provide a more detailed summary of the quarter, an update on Project Momentum, and some additional color on our outlook for the remainder of the year.
Speaker 27: For the quarter, reported net sales were down 9.6%, with organic revenue down 5.4%.
Speaker 28: Our initial outlook for the quarter was for low single digit organic declines due to lower current year volumes in response to pricing actions over the last year. The exit of lower margin battery business and slightly elevated retail inventory levels entering the quarter.
Speaker 29: While our categories performed in line, or better than our original expectations,
Speaker 30: Retailer inventory management across both battery and auto care businesses at the end of the quarter created additional headwinds of 300 to 400 basis points.
Speaker 31: The volume declines in the quarter were partially offset by roughly 950 basis points of pricing.
Speaker 32: Adjusted gross margin increased 150 basis points to 39%, driven by pricing actions, savings generated from project momentum, and the benefit of exiting that lower margin battery business in the quarter.
While the cost environment has stabilized, we continue to see elevated operating costs, including material and ocean freight costs.
and unfavorable currency impacts versus the prior year quarter.
Adjusted SG&A increased $2.5 million, primarily driven by higher stock compensation amortization,
Factoring fees tied to rising interest rates.
and depreciation expense related to our digital transformation initiatives.
The increases were partially offset by project momentum savings and favorable currency impacts.
ANP as a percent of sales was 7%, up from 6.1% in the prior year.
The increase was driven by planned brand support and shifting spend from Q4 of the prior year to Q1 of this year to better align with the holiday season.
Interest expense increased $5.9 million year over year due mainly to rising interest rates.
partially offset by lower average debt outstanding.
We delivered a justed EBITDA and adjusted earnings per share of $145.6 million and 72 cents per share respectively.
On a currency neutral basis, adjusted EBITDA and adjusted earnings per share were $155.6 million and 83 cents per share, respectively.
We also generated over $152 million of free cash flow in the quarter. Nearly double our long-term algorithm of 10-12% of net sales.
We achieve these excellent results by combining strong operating earnings with a nearly 250 basis point improvement in working capital as a percent of net sales since the start of the year.
In the quarter, we pay down over $50 million of debt through a combination of term loan retirement and open market bond repurchases.
Our strong cash flows also enabled us to pay down another $53 million of the term loan in January .
Including this payment, we have paid down over $100 million of debt in the first four months of the fiscal year, and over $170 million in the previous five months.
Our debt capital structure remains in great shape.
with a weighted average cost of debt of around 4 3 quarters and 87% fixed, with no meaningful maturities until 2027.
Project Momentum is also off to a solid start in the quarter with savings of $7.3 million.
Our plans are focused on generating savings through network optimization.
strategic sourcing efforts, and SG&A savings enabled by our digital transformation.
And, as previously mentioned, we expect the benefits of these efforts to impact each of our segments.
The program is on track to deliver 80 to 100 million dollars in run rate savings, with roughly 80% of those benefits impacting gross margin, and the remainder recognized throughout the rest of the P&L.
We anticipate $30 to $40 million of those savings will benefit our results in fiscal 2023.
Working capital improvements are also off to a fast start, with project momentum generating over $20 million of improvement this quarter.
bolstering our efforts across inventory, payables, and receivables management.
We continue to expect our initiatives to deliver over $100 million in working capital improvements over the lights of the program.
further supporting our free cash flow efforts.
And finally, I would like to provide additional color on our outlook for our second quarter and the remainder of the year.
We expect our top line in the second quarter to continue benefiting from pricing actions, partially offset by lower volumes, with organic growth in the low to mid-single digits.
On a reported basis, we expect reported revenue of flat to low single digits.
While our cost of goods will continue to reflect the negative impact of inventory previously built at higher total costs, our gross margin should benefit from both pricing actions and project momentum savings, with gross margins expected to improve by 150 to 200 basis points from the prior year quarter.
We expect AMP as a percent of sales to be consistent with investment levels in the prior year quarter and SGNA roughly flat on a dollar basis.
Interest expense is expected to be up four to five million dollars from the prior year, driven by higher interest rates and partially offset by lower average outstanding debt in the quarter.
And finally, at current rates, we forecast currency headwinds to impact the quarter's pre-tax earnings by approximately $8 to $10 million.
We remain on track to deliver the full year as guidance November .
Despite top-line softness in Q1, we still expect low single-digit organic next sales growth led by pricing and recovering category volumes as we progress throughout the year.
Pricing, mix management, and project momentum savings are expected to result in improved gross margins of 100 to 150 basis points year over year.
We've also seen a weakening of the US dollar relative to a number of our currency exposures, and now expect full year negative impacts of $50 million on the top line and $20 million on pre-tax earnings.
Combined with continued cost management down the rest of the P&L, we are reaffirming our outlook for adjusted EBITDA in the range of $585 million to $615 million, and adjusted earnings per share of $3 to $3.30.
Both of which represent an excess of 9% growth at the midpoint on a currency neutral basis.
Now I'd like to turn the call back over to Mark for closing remarks.
Thanks, John . We delivered a strong first quarter.
Project Momentum is already delivering savings and we remain confident the program will achieve $80-$100 million on run rate savings and over $100 million in working capital improvements.
our ability to execute projects like Momentum, and our digital transformation, Position Energizer, to deliver for our customers and consumers, while also delivering our financial algorithm and driving long-term shareholder value. With that, I will open the call for questions.
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At this time, we will pause momentarily to assemble our roster.
And the first question will be from Lauren Lieberman with Barclays. Please go ahead.
Great, thanks. Good morning. Just first off, I mean, something I've got morning. Sorry, I've gotten a few times from people already this morning was just the question on effects being less of a headwind to the full year, but holding the year. So just, and I have more interesting follow-up. Just curious to hear the comment on that decision on this.
into the year, we had a pretty significant offset. When those turned over in the last couple of months, the benefits that you're seeing on the top line aren't going to flow through to the bottom line as much because the hedge actually reverses. So as you know, we average into these positions. So it's going to take a little while for some of those benefits to come through.
As we talked about, we're only getting five to $7 million of benefit on the bottom line, incremental to, let me say, versus the downside that we expected originally. So we're picking up only five to seven. So not a significant change overall to our outlook for the year.
Okay, all right, great. And then another question I've gotten is just the gross margin and during the call, just the gross margin commentary. There's going to be consciencecommunicationava.org usdivisionary.inches ALEXANDRA RO?
For 2Q is a bit, almost like half the expansion maybe of what I have in my model for second quarter. So just everything timing related that's worth talking about on gross margin build. I know this quarter was well ahead of expectations but just wanted to know if you could comment on the 2Q outlook too.
Yeah, well 2Q, I mean, partially you get mixed impact, so it's going to be more auto than battery. It's also, you know, one of our smaller quarters. We expect to be 150 to 200 basis points better than last year, so I think a lot of the improvement that we've been seeing will continue to flow into the second quarter.
And then as we go throughout the year, we're still expecting 100 to 150 basis points of total improvement. So we expect pretty good improvement in Q2 and then full year improvement to be in a pretty good place.
Okay, great. And then just any comment on volume versus practice. I know there was the inventory destocking and the exits, which you specify as well. But just read on elasticity that you would effectively be seeing in market, how that's shaping up versus what you might have.
how tightly retailers managed inventory as we worked our way through the holiday season. But to your point on the last disc, you have the categories performed really well with batteries of almost 6% and auto-care up 3%. That was ahead of our expectations. And obviously, the batteries were able to gain chairs so we're out performing the category.
So I would say from the last 50s, Ann Boyd, both are, you know, probably better than our historical analysis would have indicated. We feel like we're in a really strong position. And then as John mentioned, we're trending ahead on margin with healthy free cash flow and we're able to pay down that. So off to a good start, we're one quarter in and recognize we're, you know, we haven't made the year.
Please go ahead. Your line is open. Perhaps you're muted on your end. Please proceed.
Can you hear me? There we go. Thanks. We just try to understand the inventory reductions at detail during the quarter, I guess.
Is the plan that for the rest of, I mean, did you expect that when you were giving guidance in November ? And so this is all kind of in line with expectations. Was that a surprise by how deep they went? And you're just, it's taking out some of the cushion that you had baked into the year, or do you expect to kind of...
Make up with battery sales, get on any all season. Bill, I think there's a couple different things in your question and maybe John and I will tag team them separately. I think the first part of your question, we expected low single digit decline coming into the quarter, we ended up in a single digit decline.
That is entirely related to a change in the way retailers dealt with inventory in October , November , December , most prominently in December as we got towards the end of the holiday season.
Really, the low single digit decline, the mid single digit decline is entirely explained by the way retailers dealt with inventory. I would say we are starting to see that revert. I think the way we set it on the call was there are some retailers that are well below historical averages.
And so for those retailers that were on the more extreme side of that, as soon as we got into January we started to see that reverse and start to get back to not yet to, but closer to normalize levels. In terms of the retailers that really just trended down to the low end of their historical range, it wasn't as an abrupt change, but we expect that over the course of the year for them to work back to where they've been.
and walk you through the different pieces. That's related, but a little bit different. Right. Yeah, obviously a lot of the changes are what were in our outlook, but there was a little bit of incremental. So what was in our outlook and what was the difference between the scanner that we saw in the quarter, in our actual report of results?
lower current year volumes, universal pricing actions that was in our outlook. The shift in holiday orders, that definitely had an impact. And then we had talked about exiting some of this low margin battery business, part of our margin management group, and I think it was the right move to make. It was definitely a creative tool.
to our margins, but that did have an impact on the top line. And then I think a little bit more of what we also saw, you saw track channels perform very strong. Non-track channels were actually lower than that, so that was a drag as well on our top line.
Got it. And then just a follow-up on AutoCare. What are your expectations for?
the upcoming season, I mean with the understanding of in the four or five years you've owned this business, it never seems to have been a normal year. Either we've had weather or we've had COVID or we've had weather and COVID. And so just you know, what is a normal? I mean are you? Do we expect a normal year? Do we expect easy comps? How are you looking at it this year?
Well, from the overall year, we expect organic growth. And we're expecting organic growth in both auto care and batteries, built into the outlook that we provided.
You're right, every year plays out a little bit differently than the previous year and certainly than as expected. But when we go into the year, you've followed us long enough to remember when there's been a particularly bad weather year for AC Pro. We model what we would consider to be sort of normalized demand and so it's not an extreme heat, it's not an extreme cold.
So we moderate in terms of what the expectations are in that organic growth call. We do expect volumes to be down, but that's consistent with batteries. As you work our way through the fiscal year, pricing is really going to carry the day from an organic growth standpoint. Volume is going to pick up as you progress through, and by the time you get to sort of Q4, you're going to be at flat volumes, and then you're going to move forward on kind of a normalized category.
First, I don't understand the timing on holiday orders. Can you provide a little more detail on that?
Q-Recall, Jason and Q-4, we talked about we were going into the holiday season slightly elevated inventory levels. There was a poll forward of some orders into Q-4 from Q-1. We noted that on the previous call. That was at least part and that was a known item as we provided outlook as we provided outlook for the low single digits.
declines in Q1. The incremental piece to that as it related to retailers was the inventory desocking that went on as we got into December . They were separate in terms of what caused the impact on our P&L. Looking at your gross margin bridge,
This is a lot of volume decline, yet you're not calling it out as a drag on gross margin. Why are you not seeing more substantial deleverage there?
You know, look, I think we're attacking costs across the board. So you've seen, you know, Project Momentum is really going after a lot of that. We have seen some impact, but we've, you know, we had that also last year. So it's flowed through into this year, and I think we're in a pretty good spot overall.
Okay, and gents, it sounds like you're looking for your categories to firm volumetrically as the year progresses. You came in highlighting how consumption level from both the value and volume perspective are still above pre-COVID levels. Why wouldn't we expect to continue to reset lower?
In other words, why shouldn't we expect volumes to remain ahead when for much longer than your guidance suggests?
Well, I think we're seeing the categories perform in a really healthy way, Jason. I think as, you know, we've had negative volume trends as we did in this quarter, but we just expect them to moderate as we get through the quarters. I mean, one, you're going to see pricing settle into the market. You know, last year was a very active year from a pricing standpoint. That obviously has an impact on consumers.
on consumer behavior. You have the general macro trends that's impacting consumer behavior. But really, I think at the end of the day, batteries in particular are an essential category to consumers. They continue to shop to category. And it shows those healthy trends as we got through holiday. And we expect...
And also as you get through the year, Jason, you're gonna have mitigating impacts of the COVID comps as you work your way through this fiscal year. Because at this time last year, we were still having a little bit of elevated demand from COVID, not to mention some of the overall category dynamics.
Okay, okay, thank you.
Thank you. The next question will be from Nick Modi with ABC Capital Markets. Please go ahead.
Yeah, thank you. Good morning everyone. I was hoping you could comment on inventories, but not necessarily battery inventories. I'm more worried about end market demand and inventory levels for what batteries go into. So I'm just curious on how you guys think about that. Have you kind of thought about that in terms of the guide? And would that present any potential risk down the road?
Are you talking in terms of the consumer inventory levels next? I'm talking more about end market demand for controllers and achieve remote and things like that because the retailers are obviously skinning down on inventory across the board and I feel like there's still a lot more that they might...
hold back on as it relates to some of those more discretionary items. So that's kind of where the question is coming from. So it's not pantry inventory, it's more retailer inventories of things that batteries go into.
Understood. Well, I do think, Nick, in terms of as you worked your way through the pandemic, you saw a great deal of pull forward of consumers purchasing devices as they were stuck at home during the pandemic and gaming controllers are certainly one of them.
You know I when consumers buy devices the great thing is that just expands the installed base that they have in their home and 60% of the devices that Consumers have in their homes take primary batteries those devices are still there What's really going to drive our consumption is going to be the usage of those devices
There is an ample installed base of devices already existing within consumer homes to more than drive our categories. What we want to make sure is, you know, one, as devices consistently they'll roll off in terms of usage or, you know, some devices convert into battery on board, but you see new devices come online.
I would say that we're seeing in new devices is roughly the same percentage of those devices take primary batteries So there's a constant replenishment in consumers homes for batteries And then as they engage with those devices as they utilize them more than the change out frequency increases and they and they consume more batteries
The consumption of batteries for a household is still up. We would expect that to continue. We just would expect the growth to moderate. I think we said a number of times the category larger coming out of the pandemic from a growth rate standpoint, it will revert back to where it was pre-pandemic, but off of a larger base. So I would say from a device universe standpoint, from an installed base standpoint, categories as healthy as it's been in a long time.
non-track channels on the performance that you called out. Was it mostly on the sellout basis or an inventory drawdown at your largest e-commerce partner? Is that so? Is that a normalized, mostly normalized at this point? And another question on distribution, you gained a lot of shares during COVID.
And do you see any, what they should change is to that and you're lapping understanding. You're probably lapping a lot of that these years. So, I wonder if what's happening there from my distribution standpoint.
Andrea, on the first point, it was mostly sellout, but probably both impacted the performance there. And on the distribution side, you're right, we did gain a lot of distribution during the pandemic. We've had a very long run of share gains, particularly in the U.S.
Any distribution gains or losses is built into the outlook we provided. I think we've mentioned a number of times share is not the ultimate objective for us. I think if from a share standpoint, if we were to have share moderate, if we were even to lose a little bit of share, but we were able to improve.
the financials of our business, that's an okay trade-off for us. So it is not something that we're focused on in terms of preserving it. We're more focused on improving the financials and driving gross margin improvement. But thus far, we've been able to hold share while doing that at the same time, it's a great place to be in.
No, that's fair. And then the other point point on just on clarification on a commentary of getting out of one of the, I believe, contracts is that something that we, if you can, kind of parse out that or bridge that change in the quarter if I understood it correctly. And then...
what's the impact for the next few quarters? Well, it was OEM business, so very low or no margin on the battery side, so you really won't, you know, it won't be very visible to you other than in our financials.
Right, and not on the top line. It'll continue through sort of at that pace.
Okay. All right. Thank you.
The next question will be from Kevin Grandy from Jeffries.
Hey, good morning everyone. A question on the guidance, and I'm just trying to reconcile a bit the tone on the call versus the way the market is digesting your quarter today. It sounds like from your perspective, this is currencies a little bit better.
but you're still within the range. Are you toward the midpoint of the range? Are you toward the high point of the range? Is it currency got a little bit better, but the first quarter maybe a little bit worse, so it kind of gets you squarely back to the midpoint of the range. I'm just trying to sort of understand, based on what you know and understanding the volatility of the environment, how you guys are kind of digesting the quarter relative to the full year guidance. And then I have a follow up on the next one.
through Q1. We did have the inventory issue with retailers that were working our way through and we're already starting to see that reverse as we get into Q2. Margin's, you know, trended ahead of our plans with great work on pricing but also the project momentum which is off to a fast start. We've been able to really, you know, advance that program and have great line of site, 80 to 100 million.
824 as well. So I think we feel we feel great about the start to the year. It's certainly a lot of work to do. You know, the only audited anticipated development, like I said, was in the retail inventory space, but we're working our way through that, you know, this quarter. John , anything that's sort of specific to the outlet? Yeah, the only thing out of ad marks.
Kevin, you hit on the FX. It's a slight benefit for what we originally had in our outlook. I'd also say if you look at the way we're calling gross margin for the full year, there's a little bit of headwinds going into the back half, and what we're seeing is some of our raw material costs are a little bit higher, as well as some of the energy surcharges that we're seeing. So, you know, we're still calling for 100 to 150 basis points up.
I've just had a side just tying together some of the commentary around the Nielsen data and then the the the retailer commentary and destacking. Should we expect now to give you your commentary that you feel comfortable if it's sort of a seasonal sort of dynamic that your US business should start tracking much more closely to what we see in the next slide.
Kevin, that's a great question. I mean, I think certainly as inventory levels would recover, you would expect, you know,
Nielsen as well as our financial results to track more closely together but I caution a little bit because there are other things which in fact our business both positively and negatively at times and one is the on track channels that we mentioned and the other piece is the international part of our business which is frequently not captured in that scanner data.
I would say yes as inventory level sort of recover that there will become closer alignment. How closely is remains to be seen both given sort of the ordering patterns of the quarters but then also the other untracked pieces of our business which impact the overall financials.
Thanks for your time. Good luck.
Thanks, Kevin.
And the next question is from Rob
Great, thank you very much. A couple of follow-ups from the...
the opening commentary. Can you give us maybe a little bit more color on the plan savings, what particular operations functions are involved, and maybe most importantly are those savings going to fall to the bottom line? Are they net of reinvestment in some of the systems improvements you're talking about?
in other debt paydown programs and given everybody's desire to manage working capital, what gives you the confidence that you're able to execute on them. Thank you.
There's a lot in there, Robert. Let me start to chip away at it and then we can kind of direct us in places that maybe we didn't cover. Let me just sort of remind you and others on the call about the overall details of the program. $80 million and $100 million by the end of 2024.
Cost to implement the program is roughly 50% of savings. We achieved $7 million of savings already in Q1, $21 million working capital benefits already in Q1. We expect $30 to $40 million of savings in fiscal 23 from the program. It's going to be split roughly 80% gross margin, 20% SG&A.
and then the balance would be achieved in the 24. The intention is certainly for that to drop to the bottom line. I want to be careful in saying that though, because I don't want to get ahead of ourselves and provide 24 guidance prematurely. But that's certainly the intention of the program is to claw back margins, improve earnings of the enterprise as we go through this program, and to be able to drive.
incremental earnings power as we get into 24 and 25.
Maybe in the working capital, kind of the details of that. Yeah, the only thing I'd add to that, Mark, is on the 30 to 40 million that's going to drop. And that really is very much in gross margin that's helping us drive those gross margins.
numbers this year and offsetting some of those inefficiencies in my comments, some of those volumes came down.
to an earlier question. On the working capital, Robert, you know, we've, you know, really prioritized inventory and continue to do that even outside this program. Just over the last quarter, you know, we've taken out close to $100 million of our working capital. We were able to go after inventory, AR, and AP. It'll continue to be a high focus.
I think you'll see some normalization as we go throughout this year. This was a very good quarter for us and I'm actually close to 20 percent. Precashables are percent of the sales. We're calling for more like 10 to 12 percent for the full year and I think that'll give us the opportunity to really fund the momentum project in the back after the year.
Pre-cash flow is really a positive number for us this quarter, and we expect it to be really strong throughout the rest of the year. As far as debt pay down, still number one priority for us for capital allocation. As we talked about in the prepared remarks, we've paid almost $170 million over the last five months, so something we'll continue to focus on as we go throughout the year.
Have you disclosed and had approved your working capital objectives with your supply chain? Because there's two sides to every kind of transaction.
We understood, Robert, there's certainly a counterparty in some of these changes we're trying to drive through, but we have confidence in our ability. Some of the things that are internal working capital management, which are sort of unilateral actions we can take and have taken this room.
to implement, but then it's also working with your counterparties to improve your working capital, and we certainly have confidence in our ability to do that.
Terrific, thank you very much. Thanks, Robert.
The next question is from William Reuter with Bank of America. Please go ahead.
Hi, this is Maryanne for Bell. Thanks for taking our questions. So first I know you touched on some of the value share increases in the quarter, but are you seeing any signs of trade down the private label?
We are not. Private label, particularly in the battery category, is basically flat. You're seeing some increases in international markets, but as of now, private label is just staying consistently flat in the reporting periods we've seen thus far.
Got it. And I know that reduction is your primary focus, but is there any potential for M&A and if you could share your expectations for debt reduction for the year if you have one?
I think with our stated priority of debt pay down, I mean, M&A would be on the sideline. I mean, I think it's very difficult to speak in absolutes with something like M&A, but with our stated priorities and, you know, our point of emphasis of paying down that M&A would certainly be a secondary consideration right now for the business.
And we're looking to pay down around a half a turn from the beginning of the year, and that's both through debt pay down and earnings growth.
Great, thank you very much.
The next question is from Carla Cassella from JP Morgan. Please go ahead.
Hi, thank you. Did you see how much of the debt pay down with bonds versus Charm loan and in each of the quarters? Did some bought buybacks?
Yeah, in the first quarter it was about half and half bonds versus term loan and then when we paid down it was all term loan to start the second quarter.
Okay great. And then you mentioned about this quarter there were some timing differences in the brand support. And I'm wondering as you go into spring, summer, and next holiday if we should think of any, is there any change in your cadence of brand support? And is that dictated by the fact that you're not a brand support or is that dictated by the fact that you're a brand support?
I kind of what's going on with the retailer or something you can set months in advance, meaning was it a surprise change? No, it wasn't a surprise. Last quarter we had talked about shifting some of this into the holiday season. That's why you saw it higher. I think in general, our biggest quarters are going to be first quarter and third quarter because you've got the holiday for battery and then you've got the...
the summer for the auto care. So, you know, I would expect, you know, as we talked about, five to six percent for the full year, but you're gonna spike in the first and the third quarter. You'll be the lowest in the second and you'll be also lower in the fourth.
Okay, great. And then can you give a little more clarity you mentioned about some costs, you make some comments on the cost and you call the material ocean freight. Can you just talk about any more color you can give there and it's still in place and area and when we see the costs come down and how much of that is because what you've locked in versus.
just where the markets are.
Well, so we're about 75% locked for the year in our total cost positions, and that's inventory on hand and what we've already experienced. So we're in pretty good shape for knowing what's coming down at us for the rest of the year. What we are seeing is a little bit of headwinds in some of these metals really on the battery side, so zinc.
kind of anticipated some of that in our outlook. So it's not a big upside to what we were originally calling, but it's still positive. And then I did call some outperformance in the first quarter, warehousing and distribution, which was mostly in North America. And that also was a little bit...
lower than we had anticipated, so a positive there.
So, it's a positive there. Okay, that's great. Thanks.
And again, if you have a question, please press star then 1.
The next question is from Hal Hating from Barclays. Please go ahead.
Good morning. I just had two quick ones. You called out in the script negative headwinds from higher factoring rates, and I was wondering if you could sort of give us a sense of what that looked like and if it changes your view on whether factoring is an attractive source of cash.
Yeah, that's a good question. We called it out because that factoring goes through SG&A, and it is kind of variable rate. So we are looking at whether we can optimize that. And I think there's, to the extent that we use it, it might be less. We'll also look at, you know, use pro, we have multiple programs. We'll try to find the ones that are the best for us, but it is something that we're...
The next question is from Brian McNamara from Cana Cord Unuity. Please go ahead..
Good morning, guys. Thanks for taking the question. Morning. I hate you.
You know, be the dead horse on the inventory levels. You guys mentioned the stocking at retailers. I'm curious which business our channel inventory is in better shape at the moment, auto care batteries. And then secondly, I'd be curious your opinion of consumer inventory in terms of pantry loading or lack thereof in both businesses.
You guys mentioned the stocking at retailers. I'm curious which business are channel inventories in better shape at the moment, auto care or batteries. And then secondly, I'd be curious your opinion of consumer inventories in terms of pantry loading or lack thereof in both businesses. Thank you.
Now we're happy to revisit this. Obviously it's an important point. I think from a consumer standpoint, we continue to see consumers buying for immediate needs. So we do not anticipate nor are we seeing that pantries are loaded from a consumer standpoint. They are migrating either to larger packs, such as their smaller packs, depending upon the individual consumer and value.
means something different to most consumers, but in the overall research that we're seeing, we are seeing that a very high percentage of consumers are buying for immediate need.
Retailer's standpoint, when you go through October , November , December , it's a critical quarter for batteries. You tend to see inventory levels shift quite a bit during that time period. We are now entering peak season for auto care, so it'll be inventory builds as we work our way into the spring season, which Q2 and Q3 tend to be the big quarters for that business.
I would say we're seeing a recovery on the battery side, which was the main impact that you saw in Q1. But in auto care, we're also going to see a recovery. But that's also just going to be because you're heading into peak season.
Thank you.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mark Levine for any closing remarks.
Thanks once again for joining the call and ongoing interest in Energizer. I hope everyone has a great day.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Thank you.