Q2 2025 Energizer Holdings Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and welcome to the Energizer Holdings Inc. 2nd quarter
Speaker Change: At this time, all lines are in listening mode and following the presentation, we will conduct a question and answer session If at any time during this call, you require immediate assistance, please press star zero for the operator
Speaker Change: This call is being recorded on Tuesday, May 6, 2025. I would now like to in the conference call over to Mr. Mark LaVigne. Please go ahead.
Speaker Change: Good morning, and welcome to Energizer's second quarter fiscal 2025 conference call. Joining me today are Mark LaVigne, President and Chief Executive Officer, and John Drabik, Executive Vice President and Chief Financial Officer.
Speaker Change: The replay of this call will be available on the Investor Relations section of her website, energizerholdings.com
Speaker Change: In addition, a slide that providing detailed financial results for the quarter is also posted on our website.
Speaker Change: Starting the call, we will make forward-looking statements about the company's future business and financial performance among other matters.
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 SEC.
We also refer in our presentation to non-GAAP financial Measures
Speaker Change: A reconciliation of non-GAF financial measures to comparable GAF measures is shown in our press release as you'd earlier today, which is available on our website.
Speaker Change: Information concerning our categories, an estimated market share discussed in this call relates to the categories where we compete and is based on Energizer's internal data, data from industry analysis, and that's the myths we believe to be reasonable.
Speaker Change: The battery category information includes both brick-and-mortar and e-commerce retail sales.
Speaker Change: And, let's otherwise note it, all comments regarding the quarter and year pertain to Energizer's fiscal year, and all compared since the prior year relate to the same period in fiscal 2024.
Mark LaVigne: With that, I would like to turn the call over to Mark.
Mark LaVigne: Good morning everyone, and thank you for joining us for our second quarter earnings call.
Speaker Change: John and I are going to first talk through the details of our Q2 and then we will spend the bulk of the time on the impact of the changing macro environment and how we are responding
Due to who was a solid corridor for us, and largely consistent with our expectations.
Speaker Change: We saw growth continue for the fourth consecutive quarter, with organic sales up nearly 1.5 percent.
Speaker Change: We also expanded Gross Marginth and delivered a Justive Earnings per share, the 67th Sense, at the upper end of our guided range.
Speaker Change: We are proud of our performance in the quarter, which was bolstered by many of the investments we have made in the past several years.
Speaker Change: Those decisions have not only contributed to our year over year results, but they are playing a critical role in helping us to navigate the current volatility.
or on that the moment.
Speaker Change: As we take a closer look at each of our businesses, recall the areas we have highlighted previously, distribution, innovation, digital commerce, pricing and revenue management, and market expansion.
Speaker Change: Each of these areas has contributed and will continue to contribute to our fiscal 2025 results.
Speaker Change: These focus areas come together on shelf or online as we strive to meet consumers where they are.
Speaker Change: Our battery business had a particularly strong performance, growing 3% organically in the quarter.
Speaker Change: Our Distribution footprint in the US and international markets continues to grow across both the brick-and-mortar retail and digital commerce.
Speaker Change: In auto care, we saw strong growth within our appearance and air freshener businesses behind innovation, distribution gains, and market expansion.
Speaker Change: Our appearance business delivered 5.5% organic growth, largely driven by the launch of our new podium series product line, which is now on shelf in over 15,000 stores in both the U.S. Pandit or nationally.
Speaker Change: Overall, our auto business declined roughly 2.5% organically in the quarter, with the decline entirely driven by a shift in the timing of our refrigerant shipments from the second quarter into April .
Those are just the highlights of a solid second quarter.
Thanks, Mark, and good morning everyone.
Speaker Change: 2nd quarter of reported net sales were flat while organic revenue increased 1.4% Our 4th consecutive quarter of organic growth was driven by strong performance in batteries, partially offset by declining auto care.
Speaker Change: Batteries continues to benefit from significant distribution winds in the U.S., as well as strong international results which combine to deliver organic growth globally.
Speaker Change: The launch of our podium series is also progressing nicely in infosition for a strong performance during the summer season.
Speaker Change: However, in the current quarter, auto results were weighed down by a shift in timing of shipments within our refrigerant's business, which have now largely shifted into April .
Speaker Change: Adjusted gross margin increased 30 basis points to 40.8%, primarily driven by an incremental $16 million of project momentum savings in the quarter.
Speaker Change: Adjusted SGNA with 18.8% of net sales, an increase of $10.6 million in the quarter.
Speaker Change: The year-over-year dollar increase was primarily driven by plan spending in our digital transformation and growth initiatives, as well as increased legal fees, partially offset by project acclimatism savings of approximately $4,000,000.
Speaker Change: A&P as a percent of sales is 3.1%, roughly flapped versus the prior year.
Speaker Change: Interest expense was $38 million, an improvement from the prior year due to lower average debt outstanding.
Speaker Change: We delivered adjusted EBITDA and adjusted earnings per share of $140.3 million and $57 cents per share, with adjusted earnings per share at the upper end of our previously provided outlook.
Speaker Change: During the quarter, we also refinanced our $500 million revolving credit facility, now maturing in March 2030, and opportunistically extended the maturity of our term loan B, now maturing in March 2032.
Speaker Change: Importantly, we refinance these facilities at roughly the same rates while extending the maturities of both facilities by more than four years, and the weighted average maturity of our total debt portfolio by more than one year.
Speaker Change: Our free cash flow declined $44.1 million a year over year, primarily driven by investments in incremental inventory to support our plastic free packaging launch in the U.S. and incremental inventory to mitigate tariff exposures, as well as capital expenditures to support our plastic free packaging and digital transformation initiatives.
Mark LaVigne: Now I'll turn it back over to Mark to take us through what we're seeing in the macro environment and the impact on our categories and consumers.
Mark LaVigne: Thanks, John . Again, a performance we are very proud of despite ending the quarter in a more challenging environment relative to where we began. As we look ahead, the uncertainty around terrorists and the impact on the consumer create challenges for the balance of the year. Let's first talk about terrorists.
Mark LaVigne: Work we have done over the last two-and-a-half years to transform our supply chain, positions us well to mitigate the impact from terrorists much more quickly than we would have been able to previously.
Mark LaVigne: As a baseline, imports from China to the U.S. typically represent less than 5% of our consolidated cost of goods. And, as John and I will cover, we have a clear path to further reduce our exposure during the next 12 months.
Mark LaVigne: Let's take a step back and revisit the changes we've made to provide more context on why we are confident in our ability to withstand the volatility that has become more and more common.
Mark LaVigne: You will recall that as we exited the COVID pandemic, we identified a substantial pipeline of initiatives to rebuild gross margins, improve working capital efficiency, and invest for long-term growth.
Mark LaVigne: As part of that undertaking, we identified areas where we could improve cost, resiliency and agility Many of these initiatives were captured within Project Momentum, which you have heard a lot about since we announced it in November 2022 Thank you.
Mark LaVigne: The intent of the program was clearly designed to improve earnings growth and enhance free cash flow. So we were mindful that the changes to our network needed to also enhance our ability to absorb future shocks to the global supply chain.
Mark LaVigne: As project momentum got started, we took a clean sheet approach to our manufacturing and distribution network with an emphasis on in-region for-region production
Ultimately, the drive improved cost, agility, and resiliency [inaudible]
Mark LaVigne: In addition to the work on our existing networks, we made several strategic acquisitions over the last few years, which included manufacturing locations in Indonesia, Belgium, and our latest plant acquisition in Poland last week.
Mark LaVigne: The results have transformed how we bring products to market and are particularly relevant today.
Mark LaVigne: For markets outside of the U.S., we currently source approximately 97% of our costs are good, from either in-region or non-US production facilities [inaudible]
Mark LaVigne: In the US, product source from China for US consumption represents less than 5% of consolidated
Mark LaVigne: for remaining 95% or soars mostly within the U.S. with a remainder from low tear of countries.
Mark LaVigne: The significant investments behind our digital transformation have also been a key enabler.
Mark LaVigne: In addition to greatly improved data visibility and analytics, it has allowed us to streamline processes and overall workflow and has resulted in a more efficient and responsive organization which is so critical in this environment.
Mark LaVigne: Progress we have made over the last several years has been tremendous. Even with that we are not immune to the impact from the proposed tariffs.
Mark LaVigne: We remain focused on managing those items that are directly within our control.
Mark LaVigne: A critical area is ensuring that we stay close to the consumer and understand how they are reacting against this backdrop.
Mark LaVigne: Recently, there has been a notable shift in consumer sentiment which has driven increased emphasis on value and heightened caution in their spending.
Mark LaVigne: In terms of the impact on our categories, let's start with battery.
Mark LaVigne: On a global basis, we expect the battery category to deliver low single-digit growth over the long term.
Mark LaVigne: However, leaking consumer confidence and persistent inflation across the store may pressure volumes in the short term.
Mark LaVigne: In auto care, we expect consumer caution to have a mixed impact in the short term, as some consumers move into our categories and away from do it for me, while others prioritize their spend in other categories which may be left discretionary for them.
Mark LaVigne: When we pull all of this together, terrorists, consumer confidence and overall demand, we have tempered our outlook over the remainder of the year, which John will cover now.
John: Thanks, Mark. Let me start with some details around tariff impacts.
John: In an admittedly very fluid environment, we did want to share some directional impacts these tariffs would have on our business and how we are working to address them.
So let me first address fiscal year 2025 in five minutes.
John: We have already taken a number of steps, including sourcing shifts and pricing, and do not expect tariffs that have a direct impact on our P&L this year.
John: Now, moving to our exposures over a longer period of time.
John: Assuming tariffs announce this year remain in their current form, let me walk through our gross unmitigated exposures
John: Roughly 5% of our cost of goods are exposed to tariffs levied on China at an incremental 145% rate.
John: and approximately 10-15% of our cost of goods are exposed to the rest of the world for
John: We have some exposure to the steel and aluminum tariffs announced this year as well.
John: All in, this represents an incremental total headwind of roughly $150 million, of which 85% is attributable to the Chinatarros.
It's important to remember this is unminigated.
John: We are already working on solutions to minimize the ongoing impact and believe over the next 12 months.
John: We can reduce the amount of our China Source product by close to half through alternative sourcing partners and mix of our own internal supply.
John: And based on the flexibility of our redesigned supply chain, we have the ability to revounce our network and minimize the impact of tariffs related to all other countries.
John: We've also already taken a round of pricing related to the initial round of terrorists, including for steel and aluminum.
John: And as we gain more insights and certainty, we will assess additional commercial actions, including product offerings and additional pricing.
John: By minimizing our China exposure, rebalancing our internal supply network, and targeted commercial actions
John: We have a line of sight to offset the impacts of terrorists over the next 12 months.
John: Looking to the balance of this year, while we are very encouraged with our year-to-date results.
We know the recent volatility is negatively impacting consumer sentiment.
John: Based on the most recent economic indicators, consumers are beginning to pull back on spending and becoming more valued conscious with their dollars.
John: Based on this demand environment, we now expect the following results in the back half of fiscal 25.
John: From the third quarter, we expect reported in white antichnet sales in the range of flat to down 2%.
Rose Margin, roughly flat versus prior year
John: Despite the expected slowdown in consumer spending and the related impact on our revenue.
John: We intend to continue to invest in AMP behind our podium launch during the quarter, resulting in adjusted EPS in the range of $0.55 to $0.65 per share.
John: For the full year, we expect reported and organic met sales in the range of flat of two percent.
John: Gross Margin to be at 50 basis points and in line with prior guys.
John: Adjusted EBITDA, and adjusted EPS and ranges of $630 million, and $3.30 to $3.50 per share, both reflecting positive growth at the midpoints versus prior your results.
John: Our current outlook for earnings excludes any impacts from the recently acquired APS business in Europe .
John: For the remainder of 2025, we expect the results of this business to have a modestly dilutive impact or consolidated gross margins
and Neutral The Earnings Per Show.
John: We have also made incremental investments in inventory this year as we work on various terrorist mitigation strategies as well as planned additional investments in working capital related to our recently announced European battery acquisition.
John: Based on these additional uses of cash, we now expect free cash flow in the range of 6-8% of net sales and debt paid out of roughly $100 million for the full year.
John: In closing, we delivered a strong second quarter, but we entered the third quarter facing an uncertain macro environment and consumer.
John: The organization is rallying around these macrochallenges and we have built a strategic advantage to our investments in our network which will enable us to perform at a high level in a dynamic environment.
John: I am highly confident we are executing the right strategies to deliver on our long-term financial
With that, let's open the call for questions.
Speaker Change: Thank you. Ladies and gentlemen, we'll now begin the question and answer session.
Speaker Change: Should you have a question, please press the star followed by the one you touched on phone. You will venture a prompt that your hand has been raised.
Speaker Change: Did you wish to decline from a polling process? Please press the star followed by the two. And if you are using a speaker phone, please look to the answer before pressing any keys. One moment please for your first question.
Speaker Change: And your first question comes from Peter Grom from UBS. Please go ahead.
Peter Grom: Thanks, operator. Good morning, everyone. So I just wanted to follow up on the tariff commentary.
Speaker Change: I know you just ran through that, and all that color was incredibly helpful, but just-
Speaker Change: You know, given the many moving pieces, can we maybe just run through the mitigation impacts again? And I guess what I'm really trying to understand and I recognize the situation is fluid, it's really early to be talking about testing 26, but I was hoping to get some color in terms of how we should be thinking about how we should be modeling. [inaudible]
Speaker Change: Good morning Peter. I just apologize for the late start. Today we had some technological issues. I want to make sure we're coming through clearly to Peter and the call. You're hearing us, okay?
You sound great guys.
Speaker Change: Okay, well, a straight question for you, it's obviously probably the most timely question given the environment.
Speaker Change: We want to provide as much clarity as we can. I think what we want to do is it's important to separate and understand the impact of the different tranches of tariffs and the impact that they may have. I think from a headline standpoint, Peter, I'm going to turn it over to John to kind of walk through the details.
Speaker Change: But from a 25 standpoint, we have mitigated the impact of tariffs on 25. So we've we solve the impact there. I think as we look ahead
to 26.
Speaker Change: We are in the process of mitigating that exposure. It will take time, but we have line a site over the next 12 months to mitigate all impact from tariffs over that period of time. And John can walk through some of the details about how we're thinking about it. Yeah, thanks, Mark. Morning, Peter.
John: So I gave a gross tariff number of $150 million on the prepared remarks and I want to kind of break that down into a couple of buckets. The first one are tariffs in place already and then the second group are tariffs that are announced but not yet active.
John: So the tariffs that are already in place include the steel and aluminum tariffs that we've talked about and then the China IEPA.
John: And as Mark said, we've effectively neutralized the direct impact of these tariffs. That was through sourcing shifts, pricing, and an inventory that we have on hand, which is offsetting any impact that we would have to 25. And that's going to carry forward for us as well.
John: Now, we'll turn to the tariffs that have been announced by Narnia in place, which are really the reciprocal tariffs, so you've got...
John: China, which is, you know, the 125% incremental tariff and then rest of world tariffs, which are currently 10%, so starting with China, I think Mark mentioned that this represents only about 5% of our consolidated clogs.
John: That really is the overwhelming majority of the absolute tariff exposure.
John: So whether or not those incremental 125 rates for China go into effect, we already have plans in place to reduce the underlying China exposure through sourcing from something like 5% to 2% to 3% so we'll cut that in half
John: relatively quickly over that 12 months. And then the rest of the world tariffs are, you know, which are about 10% to 15% of our consolidated cost of goods.
John: These are exposed to the 10% reciprocal rest of world tariff, and we're actively working to minimize those by sourcing changes, rerouting our network and then commercial actions that we will continue to take.
So, we've addressed and offset the tariffs already in place.
John: And then we have concrete plans today to address about 60 to 70 percent of the tariffs announced, but not yet implemented. And that's going to happen over the next 12 months.
John: So, you know, we're confident, you know, for the remainder of the 30 to 40 percent, that we'll continue to look at additional supply chain actions and commercial actions to get, you know, take care of those.
John: And so we think that over the course of the next year, you know, ultimately we'll be able to offset the entire exposure. Now, to your point about 26, we're continuing to work through how that'll look and we'll give guidance.
John: You know, in a couple of quarters, but it will be a transitional year where we start incurring some of these larger tariffs.
John: in the next month, and those will go into inventory and then they'll start coming back out into our PNL. So we'll give a better color what the total impact of 26 is will be in a couple quarters, but we think we can minimize the gross number by at least half if not more.
Speaker Change: Great. Thanks so much. That was super helpful. I'll pass it on.
Thanks Peter.
Speaker Change: Thank you. And your next question comes from Bill Chappell from Truith Securities. Please go ahead.
Thanks. Good morning.
Speaker Change: I know there's the tariffs, it's a murky and kind of the outlook and appreciate the mitigation in done kind of for your specifically, but what are you hearing or kind of what's your evaluation of?
Speaker Change: I guess the device is out there that use batteries, and I mean I'm trying to think of clearly like a lot of...
Speaker Change: Cautious now, but what happens when the devices go up 30-50% in price? Just trying to understand how that goes into your algebra for the back half of the year.
Speaker Change: So we take all of those factors into account as we kind of look forward and we certainly are mindful that devices are going to likely become more expensive. Those devices that previously used our batteries will continue to use our batteries.
Speaker Change: and both you are going to see consumers react to higher prices. You have seen we have recent experience with this which you know in COVID you had a lot of that device pulled forward. We are consumers, bought a lot of devices and they
Speaker Change: Then they did for a couple of years and they were just getting back into a replenishment cycle on devices.
Speaker Change: So we're in contact with our OEM partners, we understand the way they're thinking about it.
Speaker Change: As John said, some of these tariffs are in place. Some of them aren't yet. We'll have to wait and see what happens with that.
Speaker Change: But I think this is in part of the lodgers behind taking the prudent approach to call down our top line outlook because it is an uncertain consumer environment. We do expect consumers to pull back. That would include device ownership, and that would impact our replenishment as well.
Speaker Change: And to just to clarify, I mean, you're assuming that it gets worse, it just has brighter prices coming in and that's factored into the back half, is that the right way to look at it?
Yes.
Okay, and then just on auto-care, I mean...
Thoroughly Win
Speaker Change: There's been a slowdown in kind of new car sales. It helps the auto care because people are taking care of spending more time on their existing used. Is that kind of how you're looking at this summer or is it too early to tell?
Speaker Change: Well, what I would say is there's headwinds and tailwinds that immerse in difficult economic times with consumers on auto-care. I mean, first it's slightly, you know, some of our categories are more discretionary.
Speaker Change: for consumers, and so they will opt out of those purchases in favor of other categories which are less discretionary for those consumers. However,
Speaker Change: To your point, people are going to hold on to their cars longer, and cars the age of the fleet is going to continue to increase in age. They will also migrate from do it for me to do it yourself which helps create a tailwind within the auto care category. So there's puts and takes on balance. We do expect some impact to consumers as they pull back and become more cautious.
George, again, those consumers tend to be... Um...
Speaker Change: More immune to the pricing impacts than others, and we've launched that product in a timely place right now from a consumer standpoint as they...
May migrate into the do it yourself as opposed to do it for me.
So again, to clarify, your lower top line guidance is...
Speaker Change: Auto and battery, or the primarily battery and just a slave modification to auto.
Speaker Change: Yeah, it's it's more battery auto I mean they're both down a little bit but auto still positive in the third quarter Yeah, it's it's it's it's it's it's it's it's
God, thanks so much.
Thanks a lot. Thanks, Bill.
Speaker Change: Thank you. And your next question comes from Lauren Lieberman from Barclays. Please go ahead.
Lauren Laberman: Great. Thanks. Good morning. I was curious if you could talk a little bit about any retailer destocking that you have seen. You haven't mentioned it yet, but I would think that that's something that could well be a headwind for 3Q. So you can talk about your things destocking-wise. Thanks.
Lauren Laberman: a natural effect of some software POS sales. We think that will mitigate over time as retailers moderate their replenishment orders and we have taken that into account in sort of our 3Q and 4Q forecast.
Lauren Laberman: Okay, got it. So this is in part, that the adjustment to the back half is not just weakening or the risk of weakening consumer. It's retail orders catching up with consumer takeaway that you've already seen in the first half. [inaudible]
That's correct [inaudible]
Okay, great.
Speaker Change: And then, curious if you can tell us a little bit more about the APS acquisition, just as this primarily the manufacturing asset, or also I know that APS manufactured panasonic.
Speaker Change: In Europe , so is that also going to be part of your portfolio going forward? And if so, anything you can share with us strategically on how Panasonic would fit in.
Thank you.
Speaker Change: Sure, we were really excited to be able to get that one close. We just closed on this past Friday. It really has a number of attributes to one is greater scale in our European business, notably in Germany, UK, Poland, Spain, this is key markets.
Speaker Change: It is another asset to your point in our network and it provides a manufacturing facility in Poland which again will help us.
continue to lean into the in-region for region manufacturing. That's a great strength.
Speaker Change: We were just, you know, we just closed on Friday the integration teams are meeting actually this week to get together and understand how do we want to push these two businesses together and create the most value. There is a brand transition from Panasonic to the Energizer brands, so that will take place over the balance of this calendar year. So we'll be transitioning from Panasonic into the Energizer [inaudible]
Speaker Change: Family of Brands over the next eight months and that will be part of the process that the teens are discussing this week as well.
Okay, great. Thanks so much.
Thanks, Lauren.
Speaker Change: Thank you. Your next question comes from Robert Ottenstein from Energizer, please go ahead.
Robert Odenstein: Great, thank you very much. I've got two questions, but let me start off with one and then we'll go to the next.
So, first, you know, when we go out…
Robert Odenstein: and kind of do our trade visits and you look at batteries and you look at the back. You know what we find is Dorisle batteries made in China, a lot of private label made in Vietnam, private label made in China and so
Robert Odenstein: You know, this is, you know, a multi-dimensional situation, right? And can you help us think through how you're looking at the impact on competitors? What competitors may do with their supply chains?
Robert Odenstein: and, you know, what that overall impact will be on competitive dynamics on one level and the other, just how, you know, retailers...
may start to change how they think about competitors.
Robert Odenstein: and Private Label, right? Because if you think this is all going to continue for some time, you may decide to switch suppliers you want to work with based on your perceptions of the suppliers' supply chains.
Robert Odenstein: So, love to kind of get that dimension of the whole tear of situation if you can.
Thank you [inaudible]
Robert Odenstein: Good morning, Robert. Let me start with on the competitive set. I think the way to think about this is...
Robert Odenstein: Our main competitors, great competitor. I don't think we may have different input headwinds or production headwinds. I would say based on the way we think about it, we think we're largely in the same place as our main competitor and there's not necessarily a discernible advantage. It's a disadvantage.
Robert Odenstein: for us in that space. I think if you flip the private label, the way to provide some dimension to this is, you know, if you...
Robert Odenstein: If you think about the private label portion of the category in the U.S., call it roughly 20% of the category, about 50% of that is manufactured.
Robert Odenstein: in the US or in sort of a problem-low tariff countries, including Vietnam.
Robert Odenstein: Engage and Private Label to the Accentic and Advantage are brands and certainly we have a stable of value brands that can help add to the offerings that any retailer may have and may be able to...
Robert Odenstein: to provide an augment to the credit label in the form of a value grant in their store.
Right, so wouldn't it make commercial sense?
Redouble those efforts.
with Ryovak, and saying, look...
Robert Odenstein: You know, situation as an opportunity to deepen your relationship with retailers and gain incremental
Speaker Change: I love the way you're thinking. I can assure you we're having the same conversations internally as well [inaudible]
Speaker Change: All right. Well, I don't want to monopolize the call. I've got a bunch of other questions, so I'll pass it on and we can follow up later. Thank you.
Speaker Change: Thank you. And your next question comes from Andrea from JP Morgan, please go ahead.
Andrea: Thank you and good morning everyone. So I wanted to just see if you can comment on the
Andrea: on the exit rate of the quarter, on the underlying consumption rate, vis-a-vis what we're seeing.
Andrea: Daveing in terms of your higher price tiers, against rail vac, and against like even entry level, or even packs, like as we think about it.
Andrea: And you have obviously one customer on club and think about how you've been able to move channels as the consumers and meet the consumers right there. Thank you.
Speaker Change: Thanks, Andrea. A lot of questions, but let me see if I can hit them, and then you can follow up on anyone that I made in this. I mean, let's just talk to category from a battery standpoint. Globally, what we saw through February was the category volume was roughly, was it grew about one and a half percent through February .
in the US through the end of March.
Speaker Change: Volume with Splat, but what you've seen in the latest 13 week data and the vape role is that you've seen some volume declines over that time period, so you've seen some sequential softening in the category from a volume standpoint.
Speaker Change: Overall promotion levels to your point. I mean, you're seeing stable promotions. In fact, it's down year over year in terms of the percentage up with a price reduction. It's above a little bit above the historical levels, but nothing concerning from an overly promotional environment. You are seeing depth.
Speaker Change: Really flat year over year, but below historical averages. So there's a few puts and takes there, but I would say relatively benign and healthy promotional environment.
Speaker Change: We do have the broad offering. I mean, the benefit of our business is...
Speaker Change: We are in distribution in every channel, so as consumers migrate in search of value, we are there to meet them, we have different pack sizes, we have different brands, we have different offerings that we can meet them in terms of whatever value orientation that they may have. In terms of the value and volume next time, can probably give you the way we're looking at it from a Q3 and Q4 split.
Speaker Change: I can't let me just wrap up on Q2, though, just to give a little bit more. So the actually the pricing on battery was relatively flat of the 50 basis points down. It was more investments and promotions that we did on auto as we came into the season. So that was more of the driver of the down 50. So battery was actually the most point.
Speaker Change: Relatively flat, looking forward as we think about maybe just a...
Speaker Change: to map out Q3 and Q4 and give a little more color. We expect to be flat to down 2% in the third quarter. That's really low single digit declines in battery. We're going to offset those partially with low single digit increases in auto, which is going to continue to benefit from the podium launch in those shifting refrigerant sales. Thank you all so much.
Speaker Change: Also on a reported basis, you know, currency has the dollar as weakened as we know, so that should leave our full year reported currency impact relatively neutral. We've kind of gone up and down and we're back to neutral for the full year.
Speaker Change: We expect Gross Margin to be roughly flat and never calling for EPS of 55 to 65 cents.
Speaker Change: And that's really the expectation that we're going to continue investing in A&P, in the third quarter behind our podium launch, and that's in spite of some of the expected consumer headwinds that we'll see in the near term.
Speaker Change: You know, as we go maybe just to give a little bit of color on the fourth quarter since we're kind of changing our outlook a bit here You know, we expect strong performance you know as a full impact of pricing so we talked about the pricing that we're going to take off that tariffs that's going to hit in full in the fourth quarter and we should see that we also took some pricing for innovation and that's also going to be realized in the fourth quarter that's going to benefit margins [inaudible]
Speaker Change: And then, you know, we don't expect to spend nearly as much on podium in the fourth quarter as we did in the third quarter. So we'll see kind of a lift from that. And that really should result in some nice earnings for us as we finish out the year. Anything we missed, Andrea?
Andrea: No, this is perfect. Thank you so much for hitting all the questions. I'll pass it on.
Thank you.
Speaker Change: Thank you. Your next question comes from William Reuter from Bank of America. Please go ahead.
Speaker Change: Hi, just a couple for me, and I know I maybe I just got myself very confused, but in your first question, when you were asked about fiscal year 26
William Reuter: I thought you said that you would be able to offset all of it by the end, or by the time that happened, but then your last statement, you said, well, we can offset the gross in by half if not more.
William Reuter: Yeah, we will have taken the actions necessary to offset the tariffs. We will start incurring those tariffs.
William Reuter: At the end of May, the incremental, the new ones that have been announced but haven't started haven't been put in place [inaudible]
William Reuter: So we're going to see those dollars being spent throughout the summer and into the fall. We're taking actions currently to get out of these tariffs. And we think in the next 12 months we will be able to offset most of them if not all. And so there will be a P&L impact through the course of 26.
William Reuter: It's going to be dependent on rates and volumes and a lot of other things so it's hard to give an exact number I know what I would say is that gross 150 number will be cut by half as we look at 26 we just don't know exactly what we're going to fall and then we can take commercial actions and other things offset and in addition.
Speaker Change: I get it. Thank you. Sorry for being dense. The second question, your free cash flow guidance is down a little bit for the year. Do you still expect to repay $150-200 million of debt, or is that expectation lowering?
Speaker Change: Yeah, we're going to shoot for $100 million, so we think we invested around $100 million in inventory for a couple of reasons.
Speaker Change: We knew we were going to invest in incremental inventory for plastic-free packaging because we're making that transition in North America this year. We've also invested in some additional inventory to try to mitigate some of the tariff exposure. So we expect some of these to start coming out in the third quarter. They should bolster us. [inaudible]
Speaker Change: in the back half of the year, but it's still incremental to what we had planned coming in. So we're shooting for a 6 to 8% free cash flow, and I think we're going to go for $100 million of debt paydown which will happen in the third and fourth quarters.
Speaker Change: Got it. And then just lastly for me, from a competitive perspective, the de minimis exemption that's being repealed or likely being repealed. Do you think that this will have any positive impact on the company? Do you believe that there have been, you know, batteries that have been, you know, being shipped to the U.S. and sold to a team or other [inaudible]
Retailers that haven't been subject to tariff. [inaudible]
William Reuter: You know, Bill, I think the best way to think about this is from an overall standpoint, we think our...
Speaker Change: Production Network. We think our sourcing optionality and our distribution footprint provides us an advantage in this environment. It takes time to work through some of the sorts of changes as well as the distribution changes that may calm as a result of these tariffs. But I think we need to work through that and see where we land before we sort of call any benefit or detriment going forward.
William Reuter: Thank you for tuning in. I'm Jonathan Poldan. I'll see you next time.
Speaker Change: Okay, that's all from me. I'll pass to others. Thank you
Thank you, Bill.
Speaker Change: Thank you. And your final question comes from Carla Casela from JP Morgan. Please go ahead.
Speaker Change: Not that we, you know, what I would say is we're trying to get to four times and below, and that can, you know, death paydown continues to be one of our top priority. So we'll continue to focus on paying down. I think we'd like to get to four and below. Obviously, you know, we're going to get to four and a half first and we're just going to keep paying down and working our way towards that.
Speaker Change: Okay, great. And then, do your raw material, does your basket of raw materials change dramatically with your move to the plastic free packaging?
Speaker Change: No, not dramatically. I mean, the majority of our materials are still the same on the battery side where it be steel sink, manganese, all those things. With the packaging it'll just be a different mix of it. There might be a little bit more cardboard, but not a huge change.
Speaker Change: The bulk of the cost is in the battery. Yeah, the bulk of the cost is in the battery, so it's not that big a change.
Speaker Change: Okay, great. And then just when you talked about bringing some of your sourcing in-house as you do risk from China, is that bringing into your own facilities worldwide or is it into other third-party facilities, sourcing?
Speaker Change: We look at everything, so we'll look at bringing in and house, we'll look at other partners that we could have in different parts of the world. It's just a big...
Speaker Change: Sourcing exercise to make sure that as we forecast demand around the world what's the way we can fulfill that demand in the most cost-efficient way, and so we will mix and match our sourcing partners internal external to make sure we come up with optimized costs for our recalers.
Okay, great, thanks so much.
Speaker Change: Thank you, and there are no further questions about this time, Mr. Lieberman, and we continue.
Speaker Change: Thanks for everyone joining us today. Everyone have a great rest of the day. Thanks for your interest in Energizer
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you may disconnect. Have a good day.
Thank you.