Q1 2025 Energizer Holdings Inc Earnings Call
Sylvie: Good morning. My name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's first quarter fiscal year 2025 conference call.
Sylvie: At this time, note that all lines are in listen-only mode. And if at any time during this call you require immediate assistance, please press star zero for the operator. And we also ask that out of consideration to other callers on the call today, you please limit yourself to one question and one follow-up.
Speaker Change: Also note that this call is being recorded and I would like to turn the conference over to John Poldan, Vice President, Treasurer and Investor Relations. You may begin your conference.
John Poldan: Good morning and welcome to ENERGIZER's first quarter fiscal 2025 conference call.
Speaker Change: Joining me today are Mark LaVigne, President and Chief Executive Officer, and Jon Drabik, Executive Vice President and Chief Financial Officer.
Speaker Change: In addition, a slide deck providing detailed financial results for the quarter is also posted on our website.
Speaker Change: During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters.
Speaker Change: 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.
Speaker Change: Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SDC.
We also refer in our presentation to non-GAAP financial measures.
Speaker Change: The 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.
Speaker Change: Information concerning our categories and estimated market share discussed in this call relates to the categories where we compete and is based on Entertaiser's internal data, data from industry analysis, and estimates we believe to be reasonable.
Speaker Change: And last, otherwise noted, all comments regarding the quarterly year pertain to ENERGIZER's fiscal year, and all comparisons to prior year relate to the same period in fiscal 2024.
Mark: With that, I would like to turn the call over to Mark.
Good morning, everyone, and thank you for joining us today.
Mark: We had a great start to the year and delivered strong results in our first quarter of Fiscal 2025.
Specifically, we delivered organic net sales growth of nearly 4%.
Mark: We grew adjusted earnings per share by 14% and we paid down $25 million of debt.
Mark: We entered the year positioned to drive growth through our strategic initiatives, and our investments are paying off.
Mark: We achieved organic growth in batteries of 4% and auto care of 2%.
Mark: As John will discuss more in a moment, our strong start to the year has given us the confidence to increase our organic sales outlook for the full year.
Mark: We were able to achieve this growth while continuing to improve our adjusted gross margins, which reached 40% in the quarter.
Mark: With three quarters remaining in the program, we expect it to enable continued investment and growth, as well as margin improvement.
Mark: Our results are certainly bolstered by the health of our categories.
Mark: Battery category volume remained positive both globally and in the U.S.
Importantly, we are seeing improving value trends as well.
Mark: This is resulting in volume and value converging in a manner consistent with our expectations.
The auto category also continued to show growth.
Mark: We are seeing strong category fundamentals, including a steady increase in the age of the car park and a continued consumer shift towards do-it-yourself car care activities.
Mark: These category underpinnings, combined with international expansion, drove solid growth for our brands in the quarter.
Mark: The first quarter highlighted how we are leveraging both project momentum and our strategic growth initiatives. And before turning it over to John, I would like to provide a forward look on how both of these areas look for the rest of the fiscal year.
Mark: Let's start with Project Momentum. We generated significant savings over the life of this program, and this quarter was no exception.
Mark: Project Momentum generated nearly 20 million dollars of savings in the quarter and helped to drive very strong earnings growth.
Mark: There is more to come in the balance of the year, and we expect to finish fiscal 25 with roughly $60 million in total savings for the year and approximately $200 million for the program.
Mark: We will capitalize on the success of Project Momentum and invest for consistent ongoing growth. We've previously identified five areas where we expect to capture growth going forward.
Mark: Distribution, Pricing and Revenue Management, Market Expansion, Innovation, and Digital Economy.
Mark: This quarter demonstrates the progress in several of those areas, with the biggest impact in Q1 coming from distribution.
Mark: In the quarter, we expanded our business with existing customers and won new ones.
Mark: These gains were broad-based across channels, both in the U.S. and in international markets.
Mark: We expect distribution to be a tailwind for the balance of the year.
Mark: Innovation will also play a big part for us in fiscal 25.
Mark: On our call last November, we unveiled some of our newest and most innovative product lines, including the Armor All Podium series, developed in partnership with Oracle Red Bull Racing.
Mark: We are pleased to report the early indicators are very positive.
Mark: We have secure distribution at large retailers across the United States, Australia, UK, and more.
Mark: In total, Podium Series will be on the shelves in more than 15,000 retail locations across the globe.
Mark: We also expect areas like market expansion, pricing and revenue management, and our investments in expanding our digital economy business to drive growth in future quarters and fiscal years.
Mark: The benefit of having this broad-based pipeline is that we can invest and build each of them out over time to generate the consistent growth our financial algorithm calls for.
Jon: I will wrap up and turn the call over to Jon.
Speaker Change: From a high level, we delivered a strong first quarter and entered the second quarter with even greater confidence in our strategic initiatives.
Jon: Our strong start to the year adds to our confidence that we are executing the right strategies to deliver on our 2025 financial outlook. I will now turn it over to John for more details on the quarter and our outlook.
John Poldan: Thanks, Mark, and good morning, everyone. I am pleased to report solid first order results with both organic net sales and adjusted earnings per share above the guidance we provided in November, and adjusted gross margins in line with our expectations.
Jon: I will now walk you through our quarterly results in greater detail and update our expectations for the rest of the year.
John Poldan: For the quarter, reported net sales were up 2.1%, with organic revenue increasing 3.8%.
John Poldan: Our battery business posted 4% organic growth driven by distribution gains and $10 million of hurricane-related sales, which we noted during last quarter's earnings call.
John Poldan: Even though the first quarter is the smallest quarter for our auto business, we were pleased to see strong organic top-line growth of 2% led by distribution gains, international market expansion,
and Digital Economy Growth.
partially upset by an earlier shift in holiday orders.
John Poldan: The volume growth in both businesses was partially offset by 1.9 percent of planned pricing and promotional investments in support of the holiday season.
Adjusted gross margin increased by 50 basis points to 40%.
John Poldan: Project momentum savings of 16 million dollars and an improvement in product input costs were the biggest drivers this quarter.
John Poldan: These benefits were partially offset by pricing and promotional investments, as well as the negative impact from the strengthening U.S. dollar.
John Poldan: Suggested SG&A as a percent of sales was 16.3% and roughly flat on a dollar basis.
A&P as a percent of sales was 7.3%.
for an increase of $6.4 million.
John Poldan: The increase year over year was primarily driven by an increase in investment behind our brands and business to support the key holiday season.
John Poldan: Interest expense decreased by 3.7 million dollars due to lower average debt outstanding.
John Poldan: We delivered adjusted EBITDA and adjusted earnings per share of $140.7 million and 67 cents, representing growth of 6% and 14% respectively.
John Poldan: We also generated north of 42 million dollars of free cash flow.
Now turning to our outlook for fiscal 2025.
John Poldan: while reaffirming our adjusted earnings per share and adjusted EBITDA outlooks.
John Poldan: We anticipate consistent organic growth throughout the next three quarters driven by continued distribution gains in both the U.S. and international markets.
as well as strong performance behind multiple new product launches.
John Poldan: We also intend to continue investing in pricing and promotional activity, which will partially offset the projected volume gains.
John Poldan: The U.S. dollar has also continued to strengthen, which at current rates creates a headwind to reported revenue, resulting in reported net sales growth in the range of 1 to 2 percent.
John Poldan: We continue to expect adjusted gross margin expansion of 50 basis points to more than 41%.
Project momentum savings of roughly $60 million.
John Poldan: and Adjusted Earnings Per Share and Adjusted EBITDA in our original ranges of $3.45 to $3.65.
and $625 million to $645 million, respectively.
John Poldan: We continue to expect debt pay down in the range of $150 to $200 million and to end 2025 with a net leverage ratio of around 4.5 times.
John Poldan: Capital expenditures are still expected to be in the range of $80 to $90 million, driven by our continued investments across IT, operations, and our plastic-free packaging initiative.
John Poldan: And we expect free cash flow to be in the range of 8% to 10% of net sales.
John Poldan: I would also like to provide some additional color on the second quarter.
John Poldan: We project organic growth in the range of 2 to 3 percent, driven largely by distribution gains, new product launches, and international growth in our auto care business.
John Poldan: And we expect reported net sales of flat to up 1% as we continue to see pressure from the strength of the U.S. dollar.
John Poldan: We are forecasting adjusted earnings per share in the range of $0.60 to $0.70 compared to $0.72 in the prior year.
John Poldan: The decline year-over-year is primarily being driven by increased investments in digital transformation and growth initiatives.
Mark: Now I would like to turn the call over to Mark for closing remarks.
Mark: Thanks, John. A great start to the year, and we're excited for what's ahead.
Mark: Project Momentum has delivered strong results, providing the necessary flexibility to invest for growth, which we saw come through this quarter.
Mark: We are operating from a position of strength and have a high level of confidence in our ability to deliver long-term value for our shareholders. Now let's open the call for questions.
Speaker Change: Thank you, sir. Ladies and gentlemen, should you have a question, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, we ask that you please lift the handset before pressing any keys. And again, a reminder to please limit yourself to one question, one follow-up. Thank you.
Mark: Your first question will be from Bill Chappell at Tourist Securities. Please go ahead.
Thanks. Good morning.
The first question, the topic du jour on tariffs.
Mark: I think in U.S., Latin America, Europe, you're fairly local manufacturing for batteries.
Speaker Change: We're domestic manufacturing for batteries, and so maybe can you talk about what impact tariffs would have? Would it have a benefit, especially as you look at some of your private label competitors that manufacture overseas? And then the same question for the auto business.
Yeah, Bill, I'll start.
Speaker Change: with kind of the exposure. So yeah, you hit it. We really, with momentum, leaned into in-market for market production. So that helps us.
Speaker Change: minimize some of the exposure and I talked to last quarter
Speaker Change: You know, our procurement from China for U.S. consumption is about 5% of our COGS, so it's not huge.
Speaker Change: If you throw in now Canada and Mexico into the mix, we procure less than 1% of our cogs from those two markets, so not really large. I think the way we're thinking about it is we'll continue to mitigate these tariffs by optimizing our sourcing strategy, and then anything that we can't get out of the system, we're committed to taking pricing.
Speaker Change: On the competitive set, when you think about China tariffs or even Mexico tariffs in particular, some of our competitors do produce, including private label, is produced in China.
Speaker Change: as tariffs would be implemented on those. We would have to see what the details would be, how retailers would react to that, how pricing would react to that, and what...
Speaker Change: opportunities there may be as the tariff landscape becomes clearer. Bill, just to be clear, my numbers were consolidated so that's battery and audit.
Got it. And then just, you know, maybe characterize...
Speaker Change: The overall, I mean, it looks like obviously strong top line results for the quarter in organic growth. Maybe you can kind of characterize the holiday season. Was it as expected? Was it better than expected in terms of the consumer and how that gives you kind of confidence going forward?
Speaker Change: I think it was a it was a solid holiday season for us. I think it was an interesting one in that we we started in October with us with you know sort of hurricane tailwinds.
Speaker Change: November was not a particularly robust month from a consumer standpoint and then December really turned around nicely with the
Speaker Change: with the late holiday season. I think you saw different shopping patterns of what you had seen in previous years, but we're really pleased with the way Q1 played out for us. And again, it gave us the confidence to raise our top line outlook for the full year.
Great. Thanks for the color.
Thanks, Bill.
Operator: Next question will be from Peter Grum at UBS. Please go ahead.
Thanks, Operator. Good morning, everyone.
Peter Grum: Hope you're doing well. So I was just hoping to get some perspective on what you're seeing from kind of an input cost perspective. You know, obviously a lot can change just in reference to what Bill was talking about with tariffs, but just would love to kind of get an update in terms of what you're seeing across your key cost baskets and how you think about inflation and your kind of gross margin bridge or the balance of the year.
Peter Grum: Yeah, well we're not seeing a big change from where we were last quarter when we gave the outlook. I would say
It's kind of mixed
Peter Grum: We continue to see some cost pressure on zinc, copper, nickel, corrugate, some of those areas.
Peter Grum: But we've got some offsets with things like lithium, silicone, and some of the gas that we buy for the auto business.
Peter Grum: Net-net, we're calling for a modest benefit from materials and input costs.
Peter Grum: I think where we are seeing some pressure continues to be on energy and labor. And then we saw a little bit of an uptick in some of the freight rates, especially coming out of Asia over the last quarter or so. So we'll continue to watch that. But we feel good about our call for 50 basis points of improvement for the full year.
you know, the competitive landscape and sourcing differences. I mean...
Speaker Change: Do you think this could be an opportunity to gain additional business with these retailers just given the differences, or do you not really foresee that being kind of an impact to your business kind of down the road?
Speaker Change: Peter, I appreciate the question. I think it's an interesting one, and one we think about a lot. I do think it's a bit of a multivariable equation that we're trying to solve for there, and a lot of it is going to come down to the details.
Speaker Change: of any trade tariffs or trade restrictions might be. So I think the details are gonna matter in terms of how they play out and what the impact would be. Certainly it's our job to continue to look at any changes in the landscape and make sure we turn.
Speaker Change: These types of situations and opportunities and we'll continue to work toward that. I think first order of business is
Speaker Change: where Jon started with Bill's question, which is we have to make sure we mitigate any impact that these may have inside our four walls and make sure that we react accordingly, and then once we've done that, I think it's time to turn around and look to see where we can expand and create opportunities above and beyond that.
Thanks so much. I'll pass it on.
Thanks, Peter.
Speaker Change: Next question will be from Andrea Teixeira at JP Morgan. Please go ahead.
Speaker Change: Hi, this is Shabana Chowdhury on behalf of Andrea. Thank you for taking our call.
Speaker Change: business and does this mean… Can you please also elaborate on what you're seeing on the consumer front on behavior with value seeking behavior like pricing of… Pricing promotion was a negative in the quarter. And how do you
trending the rest of the fiscal year. Thanks.
Speaker Change: The habits you're seeing out of consumers have been pretty good.
Speaker Change: consistent over the last, you know, 12 to 18 months, which is they are.
Speaker Change: They're value-seeking, and they are looking for innovation. They're looking for value, and they will respond accordingly when you deliver that to them.
Speaker Change: So, I don't know that the consumer landscape is changing dramatically. It does shift quite a bit with some of the macro events that are occurring. But all in all, I think it's a stable but cautious consumer environment. I think that
Speaker Change: that lends itself well at least from our portfolio because we've got a full portfolio and we have the advantage of really meeting consumers where they are and leveraging different brands within our portfolio to make sure we're responding to any needs they may have.
Speaker Change: I know you asked about the investment, so maybe I'll just talk about that.
Speaker Change: the splits for the rest of the year, kind of how we're thinking about the outlook. So two to 3% organic top line growth.
Speaker Change: We expect that to kind of be quarter over quarter for the rest of the year. Pretty solid growth. We've got those distribution expansion, a good category trends, and some of those new product launches that we've talked about.
Speaker Change: And then we expect, you know, when you talk about investments.
Speaker Change: We do anticipate still having a little bit over 5% on A&P, although I would expect that to be heavy in the second and third quarters as we do those launches. So I think that will be a little bit of an impact that we've talked about today. And then also, kind of what I've been talking about for the last couple of quarters,
Speaker Change: you know, giving some color to SG&A and some of the investments we've been making on our digital transformation.
Speaker Change: is that we have seen the dollar continue to strengthen. And so that's kind of flowing through. So some of the organic growth that we're getting is getting offset by the increase in the dollar.
Thank you.
Next question will be from Rob
Speaker Change: Great, thank you very much. You mentioned that the consumer looks pretty stable.
in terms of behavior. So should we take that?
Speaker Change: to be that there's not much change at this point, at least sequentially in terms.
of Channel, PacSize.
Speaker Change: private label, just want to be kind of specific on those things.
Speaker Change: And then, looking more forward, can you give us any more color about, and I know you've touched on it, but any more color on the new distribution?
You know
Speaker Change: Any way to quantify that, you know, what quarter that comes in and any color around additional shelf space. Thank you.
Speaker Change: Sure, Robert. Let me start to address those and if I miss one just let me know. I mean, so I would say...
Speaker Change: Color on distribution. All the distribution wins are sort of known decisions built into the consolidated guide that we provided today.
Speaker Change: It's really broad-based, it's both in batteries, it's in auto, it's in Dollar Channel, it's in the Club Channel, it's in the U.S., it's in international markets, so really pleased with, you know, the distribution gains that we've been able to make as we really focus.
Speaker Change: on those, you know, sort of five strategic growth initiatives that we have internally. In terms of the consumer question, I would not— look, consumer is stable, cautious, but embedded in my answer was also the value-seeking behavior, and that—
Speaker Change: There is a newfound muscle that a consumer has, which is they're very comfortable shifting channels.
They're very comfortable shifting where they make their purchases.
Speaker Change: And so that's where I think both the consumer as well as correspondingly, you know, TPGs have to be very nimble in terms of how they meet consumers with, with, um,
Speaker Change: with promotions, with innovation and investment to make sure that you're driving the top line sales. So there is a newfound muscle that we're seeing out of consumers, and I think it's likely here to stay.
Speaker Change: I think you hit on it, but I would like a follow-up if that's possible. So you mentioned that...
Speaker Change: what you're doing internally that's working, that's repeatable to get those distribution gains, and is this something that you can kind of expect at this rate in the next few years going forward? Thank you.
Yeah
Speaker Change: Robert, I'll start with kind of a qualitative view of this and then John can give you sort of what distribution looks like over the balance of the year. But I think what we've done internally is we went about this the right way. We first started with Project Momentum. We had to make sure we recovered the margins in our business. We had to make sure that we were building in the flexibility in our P&L to be able to invest.
Speaker Change: and we've done that with Project Momentum. About midway through Project Momentum, we knew that we had to sort of finish the play on the other part of the P&L, which is make sure we get back to consistent growth.
Speaker Change: in top line. And so our algorithm calls for roughly one to two percent top line growth year over year basis. That's what I would look for us to achieve.
And what we've highlighted are sort of those areas.
Speaker Change: which is the basic blocking and tackling within our business, which is distribution, innovation, pricing, and revenue management.
Speaker Change: market expansion, and then digital economy. Those are areas that we've continued to focus on. We focused on on them even before we started highlighting them externally. And what that does is it just gives us areas of focus.
Speaker Change: where we can drive that 1% to 2% growth consistently. Now, not all five of those...
Speaker Change: are going to deliver the exact same every single year. It gives us the ability to invest, to spread the investments out, and to make bets both in the short, medium, and long-term so that we do get back to that ratable 1-2 percent growth and we think these five areas are going to deliver that not only this year, but in future fiscal years as well. Then John, the quantitative view of things. Yeah, Robert. The big driver is the hard point in our role for this year's distribution, digital commerce growth, and then you end up.
Speaker Change: innovation launches. Distribution we're expecting to kind of generate about 200 basis points of growth this year.
Speaker Change: And is that something, you know, as we kind of do our long-term model, would kind of 1 to 200 be the right range over the next three years, let's say?
Speaker Change: In total? Yeah. That's what the financial algorithm calls for. That's right. One to two percent per year.
Right, but coming from distribution specifically.
Speaker Change: Well, look, I would not, what I would do is that's a consolidated one to two percent. I would, you know, we're going to pull from these five areas. They may, the composition of that growth may change year over year. It could be a heavy digital economy year and a lighter distribution year. We will update that on a quarter basis or even on a fiscal year basis in terms of where we expect the growth to emerge from, but I would not build in growth rates for each of these five.
Speaker Change: They will, in total, deliver 1-2% on a consistent basis year-over-year.
Terrific. Thank you very much.
Thank you, Your Honor. Thank you, Your Honor.
Speaker Change: Next question will be from Brian McNamara at Canaccord Genuity. Please go ahead.
Brian McNamara: Hey, good morning guys. Thanks for taking the question. Don't mean to beat a dead horse on the distribution gains, but it's been a pretty consistent theme over the last several quarters, and it's just very difficult to track. So I think you answered some of this already, but...
Brian McNamara: Are these gains coming as retailers are expanding shelf space to your categories? And if not, who or what are you kind of displacing? Because I know retailers are being pretty selective with shelf space, at least for some of the other companies that I cover. Thank you.
Speaker Change: Brian, a bit of a frustrating answer for you probably, but it is really specific to the given retailer. In some instances, we're getting expanded distribution. In some instances, we're getting new distribution.
Speaker Change: At some points it's coming from our main competitor versus some it's from more value brands or private labels. So we do look to drive overall and leverage our full portfolio to do so.
Speaker Change: We built it all into the financial outlook. We saw nearly 4% organic growth this quarter. You're gonna see two to 3% for the fiscal year. So we're tracking it that way, and that's the way we're looking at it. And then I would say, in terms of...
Speaker Change: We like to let our brands and our retail partners be the ones that show this off and announce this to their shoppers. So you're going to see a lot of these things show up in retail, if not already, then very soon.
Great, thank you.
Thanks, Brad. Thanks, Mark.
Speaker Change: Hi, two follow-up questions and then one question, so the follow-up on the sourcing. Can you give us a little bit more color, what key products are made in China or Mexico for both you or the industry?
Speaker Change: For us specifically, a couple of the bigger areas are still lights.
Speaker Change: which is something that gets produced in China. And then some of the auto components, especially like hoses and gauges, things like that that we're acquiring out of China. There's some smaller categories around battery, but those two are probably the biggest.
Speaker Change: Yeah, and there are some raw materials that we have in China that we'll keep an eye on.
Speaker Change: Okay, that's great. And then just, you've talked about all your internal potential growth opportunities. Have you looked at or can talk to the M&A environment and whether that would be a pillar for growth as well?
Speaker Change: It's something, Carla, we always look at and we continue to sort of keep a pulse on what's out there, what's hitting the market, but our emphasis is going to continue to be in the near term, but we'll continue to look on.
Speaker Change: for small bolt-on acquisition. And what we're seeing is, you know, there's some things out there, but I would not look for anything larger scale from us. I think it would just continue to be on smaller scale so we can focus on that pay down.
Okay, that's great. Thank you.
Thanks for having us, thanks for having us.
Speaker Change: Once again, ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touchtone phone. Next, we will hear from William Rudin at Bank of America. Please go ahead.
William Rudin: Good morning. My question is on e-commerce, one of the five growth pillars.
Speaker Change: Can you talk about where the industry is in terms of penetration in the U.S. and how it is growing relative to the brick-and-mortar market, and if you're seeing any increases in private label competition in that channel?
Speaker Change: e-commerce continues to be a source of growth in our categories and I think overall I would say you are seeing
Speaker Change: stable shares from a private label premium standpoint, and so you're not seeing any shift.
Speaker Change: to private label, but you are seeing nice growth opportunities both in the U.S. and in international markets.
Speaker Change: You know, for our aspirations for this year is, you know, we talked about it in November, roughly, you know, 30% growth in that business for us in fiscal 2025. So we're certainly going to participate in and exceed the category growth that we're seeing in e-commerce.
Speaker Change: Got it. And then secondarily, the pricing and promo that you're investing, is that related to the new distribution and is it somewhat one-time-ish in nature such that once you lap those promotional offers that you've given the customers, if you retain the shelf space, you could have some gross margin expansion in fiscal year 26?
Speaker Change: Yeah, there is some related to the new distribution and the new product launches. I think the way we're thinking about it this year, Bill, is that we're looking at about 100 basis points overall for the full year, but I expect that to be more front-end loaded from the holiday and then work our way down to less investment as we get to the back end of the year.
Speaker Change: Yes, yes, that would fall through into our margin. That's top line, we've got about 100 basis points of pricing investment. I think for the margin that probably turns into about 70 basis points for the full year.
Speaker Change: Got it. That makes sense. Okay. I'll pass to others. Thank you.
Speaker Change: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time we ask that you please disconnect your lines.