Q4 2024 Energizer Holdings Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Energizer Holdings, Inc. fourth quarter and FY 2024 results conference call.
At this time, all lines are in a listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 19, 2024. I would now like to turn the conference over to John Poldan, Vice President, Treasurer and Investor Relations. You may begin.
John Poldan: Good morning and welcome to Energizer's 4th quarter and fiscal 2024 conference call.
John Poldan: Joining me today are Mark LaVigne, President and Chief Executive Officer, and John Drabik, Executive Vice President and Chief Financial Officer.
John Poldan: A replay of this call will be available on the investor relations section of our website energizerholdings.com.
John Poldan: In addition, a slide deck providing detailed financial results for the quarter is also posted on our website.
John Poldan: During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters.
John Poldan: These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from these statements.
We do not undertake to update these forward-looking statements.
John Poldan: Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC.
We also refer in our presentation to non-GAAP financial measures.
John Poldan: 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.
John Poldan: The battery category information includes both brick-and-mortar and e-commerce retail sales.
John Poldan: Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer's fiscal year, and all comparisons to prior year relate to the same period in fiscal 2023.
Mark LaVigne: With that, I would like to turn the call over to Mark.
Good morning, everyone, and thanks for joining us today.
Mark LaVigne: The hard work and dedication of the Energizer teams paid off as we achieved a great deal in 2024.
Specific.
Mark LaVigne: We delivered organic net sales within our originally guided range, bolstered by second-half top-line momentum.
Mark LaVigne: We delivered free cash flow of nearly $340 million, and we paid down $200 million of debt, reducing leverage to below five times.
Let me expand on each of these.
Mark LaVigne: First, advancement of our strategic top-line growth initiatives, coupled with steadily improving category trends, came through in our BACAP results.
Mark LaVigne: As we enter the new fiscal year, we are well positioned to drive both top and bottom line growth.
Second, gross margins and earnings continue to improve.
Mark LaVigne: We achieved adjusted gross margins of 42.2% in the fourth quarter and nearly 41% for the full fiscal year.
Mark LaVigne: We also generated adjusted earnings per share of $3.32 exceeding the top end of our original outlook.
Third, cash flow remains healthy.
Mark LaVigne: Fiscal 2024 was another very good year, with free cash flow of nearly 12% of net sales, enabling another $50 million of debt reduction in the quarter and a total of $200 million in the fiscal year.
Mark LaVigne: With the progress we have made over the past 2 years, we are carrying a lot of momentum into the year ahead. For fiscal 2025, we expect to deliver 1 to 2% organic sales growth across both batteries and auto care.
Speaker Change: Justin Ibbitson on the range of 625 to 645 million dollars
Speaker Change: and adjusted earnings in the range of $3.45 to $3.65 per share.
Speaker Change: John will provide a bit more context on the outlook, but first I wanted to touch on those areas where we expect to drive consistent top-line growth.
First distribution.
Speaker Change: We are expanding our footprint with retailers where we do not currently have distribution, and we are also expanding the space we have with existing customers.
Speaker Change: This is a strength of our organization, and based on the recent customer decisions, we expect to expand distribution in both batteries and auto care in 2025.
Second, we are accelerating our growth in e-commerce.
both in the U.S. and in key international markets.
Speaker Change: To drive this outsized growth, we have expanded our internal capabilities, enhanced external partnerships, and invested in the right product assortment across our categories.
Speaker Change: Third, we are expanding our presence in developing markets. As we look to 2025, we are investing for growth in markets where population and GDP growth are healthy, where we believe that we can become the market leader.
Speaker Change: We expect developing markets to continue to drive outsized growth in the years ahead.
Speaker Change: In addition to expanding our footprint, we are also investing with our customers to drive velocity of our products while remaining committed to ongoing margin improvement.
Speaker Change: We have expanded the capabilities of our pricing and revenue management teams to maximize the effectiveness of our trade spend and to optimize our pricing.
Speaker Change: This group leverages data-driven insights to highlight and emphasize those promotions that are most meaningful to consumers and that will maximize category value for our customers.
Speaker Change: Finally, we are very excited about the role innovation will play in our growth.
Speaker Change: In batteries, we have recently talked about the introduction of the world's first 3-in-1 coin lithium child shield.
Speaker Change: which is in the market today and designed with secure packaging, bitter taste to deter ingestion, and a new color alert technology, which is activated when it comes into contact with saliva.
Speaker Change: The consumer reaction to this innovation has been very positive and demonstrates our leadership in this fast-growing segment of the category.
Speaker Change: We have invested further in batteries in the form of plastic-free packaging.
Speaker Change: We have transitioned our European markets, and over the next few years, nearly 90% of our products sold in the North American market will be converted to plastic-free packaging.
Speaker Change: In AutoCare, on our last earnings call, we mentioned exciting innovation.
Speaker Change: Today, I am very pleased to introduce our newest and most innovative product line, the Armor All Podium Series, developed in partnership with Oracle Red Bull Racing.
Speaker Change: Armor All became the official auto cleaning and care partner of the team in 2021. Since then, Oracle Red Bull Racing and Formula One have seen tremendous success.
Speaker Change: with a global TV audience in excess of 1 billion race fans.
Speaker Change: Oracle Red Bull Racing's unparalleled performance on track and global brand recognition combined with the legacy and expertise of ArmorAll makes this an ideal evolution of the partnership.
Speaker Change: The podium series will include a full portfolio of automotive appearance and air freshener products at the premium end of the category.
Speaker Change: We believe the new product line positions us well to capitalize on this fast-growing segment of the market.
Speaker Change: This type of innovation, combined with our leading brands and global platform, will enable us to continue scaling this business into a meaningful growth engine for Energizer.
Speaker Change: In summary, we are proud of our performance in 2024, a year in which we executed our plan, achieved significant milestones, and delivered on our financial expectations as we closed out the year.
Speaker Change: As we move into 2025, we are squarely focused on driving growth.
of Growing Earnings and Generating Stable, Class-Leading Pre-Cash Flow.
John Poldan: Let me now turn the call over to John to provide additional details about our financial performance and fiscal 2025 guidance.
Speaker Change: Thank you for watching. For more information, please visit www.FEMA.gov FEMA is a national, independent, nonprofit organization. Fema's mission is to help people with disabilities and disabilities to have a safe and secure life.
John Poldan: Thanks, Mark, and good morning, everyone. I will provide an update on the fourth quarter and full-year results before turning to our expectations for our 2025 performance.
John Poldan: We delivered a strong end to the year. Organic net sales were up slightly in the quarter.
John Poldan: Combined with strong gross margins, we delivered adjusted earnings and free cash flow in excess of our outlook for the quarter.
John Poldan: Fourth-order organic revenue is positively impacted by improved category trends and new distribution globally, partially offset by planned pricing and promotional investments.
John Poldan: Adjusted gross margin increased 220 basis points to 42.2%, driven by $18 million of savings from project momentum and favorable commodity input costs.
John Poldan: These benefits were partially offset by planned pricing and promotional investments.
John Poldan: Suggested SG&A as a percent of sales was 15.3%, or an increase of $7.5 million, mainly driven by an increase in digital transformation depreciation, higher travel expense, and an increase in wages and benefits.
This was partially offset by Project Momentum's savings.
John Poldan: A&P as a percent of sales was 4.6 percent up 50 basis points and consistent with the increased investment in our long-term growth initiatives.
John Poldan: Interest expense decreased 3.8 million dollars due to lower average debt outstanding and lower interest rates.
John Poldan: Project Momentum delivered almost $25 million of total savings in the quarter. These savings, combined with strong operational performance, resulted in adjusted EBITDA of $187.3 million and adjusted earnings per share of $1.22.
John Poldan: We also generated $143.9 million in free cash flow, or 17.9% of sales in the quarter, and paid down $50 million of debt.
John Poldan: For the full year, organic net sales declined 2.2%, in line with our original guide.
John Poldan: These headwinds were partially offset by distribution gains and improved category trends.
John Poldan: In auto care, organic sales increased 2.3%, driven by distribution gains.
partially upset by planned promotional spend.
John Poldan: Adjusted gross margin was up 190 basis points to 40.9%. That's savings from project momentum and lower commodity costs more than offset planned pricing and promotional spending.
John Poldan: Adjusted EBITDA grew 2.5% to $612.4 million, and adjusted earnings per share grew 7.4% to $3.32.
John Poldan: Free cash flow for the year was $339 million, or 11.7% of net sales.
John Poldan: We deployed this cash flow to pay down $200 million of debt and ended fiscal 2024 with a net leverage ratio of 4.9 times.
John Poldan: And for the year, Project Momentum generated almost $90 million of savings.
John Poldan: Looking forward to fiscal 2025, as Mark stated, we expect to generate organic top-line growth in the range of 1 to 2 percent, driven by new and expanded distribution, as well as product launches across both our battery and auto care businesses.
John Poldan: We expect gross margin expansion of roughly 50 basis points, which will put us above 41% for the full year.
John Poldan: We expect SG&A on a dollar basis to be up between 15 and 20 million dollars year over year.
John Poldan: Through our top-line growth initiatives, gross margin improvement, and project momentum savings, we expect solid growth in our earnings again next year, resulting in an outlook for adjusted EBITDA in the range of $625 million and $645 million, and adjusted earnings per share in the range of $3.45 to $3.65.
John Poldan: Project momentum savings of between 40 million to 60 million dollars are included in our outlook.
John Poldan: We intend for 2025 to be the final year of project momentum, and we project total savings of the program to be between $180 million and $200 million.
John Poldan: This program has been tremendously successful for the company, and these results are a testament to the organization's ability to drive productivity, allowing us to invest for growth in the years ahead.
John Poldan: We expect to pay down between $150 and $200 million of debt in 2025, resulting in reduced interest expense of roughly $8 to $10 million.
John Poldan: We project capital expenditures to be in the range of $80 to $90 million, driven by investments across operations, digital enablement, and plastic-free packaging, as well as one-time momentum costs.
John Poldan: Due to some of these incremental investments, we expect to generate free cash flow between 8 and 10 percent of sales.
John Poldan: I would also like to provide additional color on our expectations for the first quarter.
John Poldan: We expect organic nut sales to be up between 2 and 3 percent.
John Poldan: In addition to continued solid category growth, the beginning of the quarter benefited from the demand related to two named hurricanes, which drove approximately $10 million of incremental sales, providing a strong start to our year.
John Poldan: Slightly offsetting these organic tailwinds is a sharp appreciation of the US dollar, which has been rallying versus a basket of our largest foreign currency exposures to start the year.
John Poldan: Net, we anticipate reported revenue to be up 1-2% for the quarter.
John Poldan: Adjusted gross margins are expected to be up between 50 and 100 basis points.
John Poldan: We expect adjusted earnings per share in the range of 60 cents and 65 cents.
John Poldan: Top mid-single digits versus the prior year first quarter at the midpoint.
John Poldan: And lastly, I would like to provide some color on our capital structure and capital allocation priorities.
John Poldan: Over the last two years, our organization has been heavily focused on the recovery of gross margins and a return to consistent free cash flow generation.
John Poldan: We are ending fiscal 2024 with gross margins roughly in line with pre-pandemic performance.
John Poldan: and have been able to utilize strong free cash flows to pay down almost $500 million of debt, reducing our total outstanding debt by roughly 13%.
John Poldan: Looking ahead, we will continue to focus on debt payout as our number one priority for capital allocation.
John Poldan: We believe this continued transition of value from debt to equity holders, combined with our projected earnings growth and meaningful dividend, offers a compelling return proposition for our shareholders.
Speaker Change: I would now like to turn the call back over to Mark for closing remarks.
Mark LaVigne: Thanks, John. Our results in 2024 are further proof that our strategies are working.
Mark LaVigne: We have meaningfully strengthened our operating foundation and financial position, enabling continued investment in our long-term growth objectives.
Mark LaVigne: We enter 2025 in a position of strength, and I am confident in our ability to deliver our financial algorithm, anchored by consistent growth and class-leading free cash flow. Now, let's open the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session.
Speaker Change: If you would like to ask a question, simply press the star followed by the number 1 on your telephone keypad.
Speaker Change: You would like to draw your question, simply press the star followed by the number 2.
Speaker Change: We ask that you please limit yourself to one question and one follow-up. One moment, please, for your first question.
Speaker Change: And your first question comes from the line of Lauren Lieberman with Barclays Discohead.
Great. Thanks. Good morning.
Speaker Change: I was curious if we could talk a little bit about gross margin trajectory long-term because you called out, you know, the accomplishment of getting back to pre-pandemic levels. We've made a lot of, you know, sort of structural and underlying changes to business, all the work with momentum. So maybe as we look out over the next like three to five years, let's call it, how should we think about gross margin trajectory and kind of, you know, if we're talking about a new benchmark level? Thanks.
Speaker Change: Sure, so if we've gotten back to where we started at the pandemic, we've done a lot of work to get there. We're calling for about 50 basis points next year in 2025, and then I think we'll go back to more algorithmic growth.
Speaker Change: which is probably more that 25, you know, plus basis points every year. We've got a number of programs teed up beyond momentum that we'll continue to lean into. So, I think we've got a good pipeline to continue to drive that year after year, but I think we'll get back to that more algorithmic growth level.
Speaker Change: Okay, great. And if I can squeeze in another, I was just curious if you could talk a little bit about tariff impacts. You know, steel cans, where do you produce product that's sold in the U.S.? Just a little bit about the set of the global supply chain as we think about potential tariff risks broadly. Thanks.
Thank you.
Speaker Change: You know that's one good thing about Project Momentum as well with that we've really leaned into in market for market production which is you know help minimize some of that exposure to tariffs. So you know we've got we're starting to look at that.
Speaker Change: We'll continue to evaluate as things progress over the next couple of months, but as we stand today, less than 5% of our global cost of goods sold dollars are subject to U.S. tariffs due to China sourcing. So we think that we've really minimized that exposure pretty well and feel pretty good going into next year.
Speaker Change: Okay, great. I'll pass it on and get back in the queue. Thank you.
Thanks Lauren.
Speaker Change: And your next question comes from the line of Bill Chappell with TruViz Securities, please go ahead.
Thanks, good morning.
Speaker Change: Just a little bit more talk on, I guess, the battery category and why you think, you know, we're in a better place going forward and maybe the level of pricing you're seeing over the next year from both you and the whole category.
I think the battery category is...
Speaker Change: proven to be a very resilient category. It's certainly a need-based product for consumers. We went through a lot of peaks and valleys over the last three to four years with surges in demand.
Speaker Change: and then you had the COVID recovery and pricing and we're really achieving a stability within the volume.
Speaker Change: within the volume element of the category. So as you look at the category, we're expecting kind of that, you know, 1% growth trajectory.
Speaker Change: in 2025, and we would expect that to be the new baseline. You are seeing...
in the U.S. and globally, very healthy volume trends.
Speaker Change: You're seeing kind of mid-single-digit volume in the 4% to 5% from a volume standpoint. So the slightly elevated promotion that you're seeing both in the U.S. and certain international markets is driving demand in the category that you would expect.
Speaker Change: I think over time, you'll see volume and value trend more in line with one another. But, you know, I think with the pricing that was taken, then the slightly increased promotional, we've continued to invest to keep consumers engaged in the category and continue to drive demand. It's working, and we're expecting growth in 2025.
Speaker Change: Got it. And just to follow up on your comment on distribution gains, I think that meant you were talking about North America and maybe you could help us understand like where that is. Is that holiday sets for the upcoming quarter or is this kind of more spring reset shelf space gains?
So it's not holiday-weighted, it's full year.
It is full distribution weighted. Gotcha. Thanks so much.
Speaker Change: Your next question comes from the line of Rob Odenstein with Evercore. Please go ahead.
Speaker Change: Great, thank you very much. I think I heard you said that you grew e-commerce 15% in 2024 and you expected to do more than that in 2025. Was that the right number?
That is correct.
Speaker Change: Great, so can you give us a sense of how large e-commerce is as a channel for you?
and then given your success there.
Speaker Change: may or may not change your overall retail channel strategy and does it give you more leverage with some of the brick-and-mortar retailers? Thank you.
Speaker Change: Let me dig into that, Robert, and then we can see if it's answering your questions. I think what I would say is if you look at the size of e-commerce within the battery category in the U.S., you're probably in that north of 20% range. I think it's maybe it can peak.
Speaker Change: mid-20s, maybe not that high. So that's roughly, I think, the size. And that includes both Amazon as well as a lot of other online sites that are omni-channel sites from retailers.
Speaker Change: It's been an area that we've been investing in for a number of years. We've put people resources behind it, financial resources behind it, we're a gate. We have the right partnerships externally.
Speaker Change: We're making sure we have the right product strategy for online. So it's becoming a center of excellence for us. We did grow 15% in 24. We do expect to grow meaningfully more than that in 25. So it's going to provide a nice tailwind from a growth rate standpoint for us.
Speaker Change: What that does, Robert, it makes us just a better partner for all of our retailers. I mean, certainly this is an area of emphasis for brick-and-mortar retailers. It's an area of emphasis for pure play online retailers, and the better we can be at navigating that channel, the better partner we'll be all around.
Speaker Change: And what, um, you say you're going to grow meaningfully greater than that, um...
Speaker Change: Can you give us, you know, some thoughts on what underscores that confidence?
Speaker Change: I would be disappointed if we didn't double that growth rate next year.
Speaker Change: And that's because you're going to be spending a lot more investment on online promotions or just trying to get a sense of why it should accelerate.
Speaker Change: Well, it'll accelerate because of the investments we've been able to make because of Project Momentum. So, if you remember, in Project Momentum, we took a step back.
We got gross margins and a better place.
Speaker Change: We, you know, reinstilled free cash with iteration page out of that. That was points of emphasis for momentum
Speaker Change: What all of that hard work has done is allowed us the flexibility to invest in those growth areas.
Speaker Change: So we've been able to redeploy some of those savings from Momentum back into people resources.
investment and financial resources, you know, digital spending.
Speaker Change: digital content, product assortment, and all of that investment which you've seen and John provided in terms of the outlook of 25 are paying off in terms of that growth rate going forward.
Speaker Change: Great. And then just finally, is e-commerce, that channel for you at this point, margin profitability neutral or is it accretive or a detriment?
Speaker Change: You know, Robert, I think you'd have to get into it on a very product-specific basis, but overall, I would say we're neutral in terms of overall profitability, but obviously there's some areas where it would be margin-accretive, there would be some areas where it would be margin-dilutive, but on balance, we're agnostic in terms of brick-and-mortar online.
Perfect, thank you very much.
Speaker Change: And your next question comes from the line of Peter Grom with UBS. Please go ahead.
Speaker Change: Thanks, operator. Good morning, everyone. So, I was just looking to get some color on the top line phasing, strong start to the year.
Speaker Change: And I apologize if I missed this, but it's kind of interesting. Most TPG companies are more or less assuming the opposite, slower start and stronger growth in the back half. Is that just simply a comparison thing or is there something you're seeing?
Speaker Change: quarter to date where the trends have been stronger. And then just within the organic sales outlook, can you maybe just unpack what you're expecting in terms of volume, including distribution gains and price, as well as anything we should be aware of from a segment standpoint? Thanks.
Speaker Change: Peter, on the first point, so as we're looking at the full year, we see pretty stable growth quarter to quarter as we're projecting it right now.
Speaker Change: We did have the benefit of hurricanes to start in the beginning of October for us.
Speaker Change: So that was 10 million of incremental sales and that's going to drive, you know, 100 to 150 basis points of top line growth. So when we say two to three percent, we've got good underlying growth within the categories, but we've also got that that's kind of kick-starting it. We still expect to then see growth throughout the second, third, and fourth quarters, more in that, you know, one to two percent, kind of like we call for the full year.
Speaker Change: And I apologize, I kind of missed the last part of your question. Yeah, yeah, no, yeah.
Speaker Change: Yeah, no, just anything like just in terms of, you know, when we think about the year, you know, what are you anticipating volume, like, maybe unpack how much you're embedding from distribution gains and then, you know, just anything we should be aware of, you know, you know, auto care versus kind of batteries as we think about our model.
Yeah
Speaker Change: So on a consolidated basis, I'd say volumes, we're looking at two to three hundred basis points. We're looking at probably pricing offsetting that by about a hundred, a little bit more than a hundred basis points, and that really gets you to the one to two. It's consistent between both battery and auto. Battery is going to drive pretty solid growth this year through some
Speaker Change: distribution that we're going to get it that Mark was talking about and then auto you've got the podium series that we're going to launch in the second quarter with a fair amount of investment behind it and feel really good about that launch so you know we expect to see good growth in both of the segments as we go throughout the year
Awesome. Thanks so much. I'll pass it on.
Thanks, Peter.
Speaker Change: Your next question comes from the line of Andrea Teixeira with JPMorgan. Please go ahead.
Speaker Change: Thank you. Good morning. I was just hoping, just following up to Peter's question on the pricing you mentioned.
Thank you.
Speaker Change: a bit of a headwind of 100 basis points is that
Speaker Change: If you can explain the investments back, I did a quick math on the implied EBITDA margin, so obviously you have
Speaker Change: margins expanding for fiscal 25. So I would expect that to be mostly flowing through, but I was just thinking how to think about investments in marketing.
Speaker Change: and how to think about pricing as we go price and mix.
Speaker Change: And if I can squeeze one other question, we got the, obviously, the first quarter impact of FX from the implied top-line growth against the organic growth, but just hoping to see what we should expect for FX, what are you embedding in your guidance for FX for the full year?
Speaker Change: Matt, do you want to talk about FACTS first and then I can cover this?
Matt: Yeah. So you're right, Andrea. We entered the year, currency was pretty stable. Last couple of weeks, the dollar has really strengthened throughout November. So what we called out first quarter, we're expecting that to be kind of a top line drag of about 100 to 150 basis points.
Matt: And we're viewing that as about 3 to 5 cents of an EPS drag. That's embedded in the outlook. We had assumed some currency headwinds in our full 25 guide.
Don't look.
Speaker Change: Andrea, on your on your pricing question, we did talk about, you know, roughly 100 basis points of headwind from pricing for the year.
Speaker Change: You know, look, I would say in the latest 13 weeks, the end of September, you're seeing it below the promotionals. The promotions are below what they were a year ago, but they're still elevated from what you would have seen historically. I think that continues to be a symptom of the pricing that has been vacant over the last two to three years.
Speaker Change: We and our competitors are continuing to invest to engage consumers, work them up to the higher price points in temporary promotions. You're not seeing pricing rollbacks in any degree, so you are seeing an elevated...
Speaker Change: investment in promotions. We're seeing that. It was below a year ago. I wouldn't say that's a trend that's going to continue necessarily just because I think that's a symptom of timing with the way the holidays have fallen and the way that the planning is going.
Speaker Change: So, I think those are smart investments to make in this time period, and as John alluded to, we have volumes that are positive with a little bit of headwind from pricing. I think we're finding that right balance between
Speaker Change: between both of those dynamics, and we'll continue to explore what's the right way to toggle promotional activity to drive growth and volume. The only thing I'd add is that on the investment side, we're looking at advertising next year a little over 5%.
So it consists of what we've done historically.
Speaker Change: Mm-hmm. Okay. No, that's super helpful. Thank you. I'll pass it on.
It's time for AYA.
Speaker Change: Your next question comes from the line of Carla Casella with JP Morgan. Please go ahead.
Carla Casella: Hi, you commented on the holiday timing shift. Can you just remind us exactly the amount and kind of what that shift was?
Speaker Change: Yeah, well this shift would have been, explaining 24, so it was last year, so this year we're not, we're just topping it, there's no significant impact.
I think that went back into fiscal 23.
Speaker Change: Okay, great. So you just made the compare this year a little more difficult.
Thank you. Thank you.
Okay, and then I'm just wondering on...
Speaker Change: As you spend behind the brands and as you gain additional shelf space are you seeing any change in retailers are asking for in terms of either marketing support or trade spend?
Speaker Change: Yeah, I think we work with our individual retailers to make sure we tailor our programs to meet the needs for their particular shopper. So I would not say it's a change in terms of how we're doing business or they're doing business, but each retailer is going to have their own specific approaches and we make sure that we meet them where they are and invest appropriately.
Speaker Change: Okay, I guess I was more wondering, is it like an industry shift way or another or anything going on there between marketing and trade spend in general?
Uh, nothing meaningful now.
Okay, great. The rest of my questions were answered.
Thank you.
Speaker Change: And your next question comes from the line of Ryan McNamara with Canaccord Genuity. Please go ahead.
Speaker Change: Hey, good morning guys. Thanks for taking the questions. I guess first I was hoping you could touch on auto care. Organic growth there has been elusive but the business is kind of significant exposure to new and used car sales which are
Speaker Change: depressed relative to recent memory, especially in appearance. Profitability was hit hard and you've had a nice recovery there. I believe when the business was acquired, it did roughly low 20s and EBITDA margins reversed today, call it high teens. So what should investors expect from that business in 2025 and on a longer term basis?
Speaker Change: I think we had a really solid year in auto care. We grew over 2% in 2024. We're going to have 1-2% growth in auto care. We continue to expand that business internationally. We have a fantastic launch with Podium Series with Armourall going forward in 2025.
Speaker Change: with AutoCare in that direction. So I think, and on top of it, we've been meaningfully improved gross margins over the last couple of years with Project Momentum. So I think we feel great with where AutoCare is sitting today, the growth prospects and the ability to continue to improve margins going forward.
Speaker Change: Great. And then secondly, I mean, despite the progress, leverage remains a key sticking point for many investors that we speak with that are yet to be involved in the stock. Is a half-turn reduction in that leverage annually still the right way to think about it?
Speaker Change: Yeah, that's what we're still targeting. We talked about $150 to $200 million of paydown in 2025. We've paid down almost $500 million over the last two-plus years, so we're making really good progress.
Thanks a lot, guys. Appreciate it.
Speaker Change: And once again, if you would like to ask a question, simply press star 1.
Speaker Change: Your next question comes from the line of William Reuter with Bank of America. Please go ahead.
Speaker Change: Good morning. I just have two. The first, in terms of your outlook for input costs for fiscal year 25, I guess zinc prices have moved up a little, steel is still down. As a whole, is there any meaningful change in your kind of cost basket?
Speaker Change: Yeah, I think on the material side specifically we're thinking it's slightly positive going into 25 and like you said
Speaker Change: Some of the headwinds are coming from zinc, copper, nickel, some corrugate product is a headwind, but we've got...
Speaker Change: Some offsets in lithium, silicone, and some of the gas we buy for the refrigerant business. So net-net slightly positive going into next year.
Speaker Change: Got it. And then your commentary around deleveraging and use of free cash flow for debt reduction has stayed pretty consistent here. You talked about transferring value towards shareholders. What would have to change or what are the targets that you would be looking for where you would start to allocate more free cash flow towards either M&A or something shareholder friendly?
Speaker Change: Well, I think we're going to continue, like you said, number one priority is paying down debt, so we'll continue to shore up the balance sheet. I think as we continue to go down, we got below five times, which was our target for the year. We're going to try to keep making progress to drive that down, like we said, a half a turn a year. And I think that'll just create more flexibility. So as we get into a better position, we can consider some of those other options for capital applications.
Speaker Change: I don't know that we have set targets, but we'll continue to make good progress towards those.
Got it. All right, that's all for me. Thank you.
Breakout.
Speaker Change: Thank you. And I'm showing no further questions at this time. I would like to turn the call over to Mark LaVigne for closing remarks.
Mark LaVigne: Thanks for joining us today, everyone, and your interest in Energizer. Hope everyone has a great rest of the day.