Q3 2025 Energizer Holdings Inc Earnings Call
Earnings release prepared remarks and a slide deck are also posted on our website during the call. We will make forward-looking statements about the company's future business and financial performance, among other matters.
These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from these statements.
We do not undertake to update these forward-looking statements.
Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC.
We also refer to our presentation as non-GAAP financial measures.
The reconciliation of non-GAAP financial measures to comparable GAAP measures, as shown in our press release issued earlier today, which is available on our website.
Information concerning our categories and estimated market share discussed on this call related to the categories where we compete and is based on Energizer's internal data.
Data from industry analysis and estimates we believe to be reasonable.
The battery category information includes both brick-and-mortar and e-commerce retail sales.
Unless otherwise noted, all comments regarding the quarter and year pertaining to Energizer's current fiscal year, and all comparisons to the prior year, relate to the same period in fiscal 2024.
With that, I would like to turn the call over to Mark.
Good morning, everyone, and thanks for joining us today. As you can see, we have altered our approach for releasing earnings. I hope you've had a chance to review our press release along with our prepared remarks posted on our website this morning.
I'll open today's call with a high-level summary and then open it up for questions.
We had a strong third-quarter results that came in ahead of expectations, and that's a direct reflection of the work we've done over the past few years to strengthen our business. We've been focused on restoring margins, investing in growth, and building a more agile operation, and it's paying off.
Let me hit a few highlights.
First, our categories remain resilient in spite of a cautious consumer.
We had a solid performance in batteries and lights, while Auto Care was a bit softer. Due to mild weather, our new Podium series is off to a great start.
Second, the projected impact of tariffs on our business has materially improved. Current tariff rates are significantly lower relative to our guidance last quarter. We have a comprehensive plan under which we have already executed several initiatives to mitigate any remaining impact to earnings.
Through a combination of pricing cost initiatives and production credits, we now expect to fully offset the earnings impact from tariffs in both fiscal 2025 and 2026.
A big part of that is the production credits we're now receiving as a result of our continued investment in U.S. production.
These credits are meaningful. We expect them to contribute $35 to $40 million of gross margin, net earnings, and free cash flow on an annual basis, prior to any reinvestment.
We also completed the acquisition of Advanced Power Solutions in May.
The acquisition further expands our ability to manufacture in Region 4 and provides additional optionality to mitigate the impact of tariffs and supply chain disruption.
The acquisition also provides greater scale to our European business and provides the opportunity to expand with key resellers and strategic markets.
We expect the acquisition to contribute $40 to $50 million of net sales in the current fiscal year.
We returned $84 million to shareholders through dividends and share repurchases this quarter. We also repurchased an additional $27 million of shares in July while maintaining leverage, demonstrating our confidence in the business and our commitment to disciplined capital allocation.
We are increasing our outlook to reflect the higher level of earnings generated by pricing tariff, mitigation efforts, and the inclusion of production credits. We now expect adjusted EPS of $3.55 to $3.65 and adjusted EBITDA between $630 million and $640 million.
We have a high level of confidence in delivering our fiscal 2025 outlook and generating continued earnings growth in fiscal year 2026.
With that, let's open the call for questions.
Along with a single follow-up. If you have any further questions, please rejoin the queue with that. Our first question comes from the line of Lauren Lieberman with Barclays. Please go ahead.
Great, thanks so much, good morning. Um, there was a lot to digest this morning in the release and having a prepared remarks at early definitely helped um explain all the moving pieces. But just to be clear, I wanted to know if you could first lay out for us kind of key fundamental underlying drivers for the quarter this quarter and next um and really just thinking about organic sales and profitability and kind of stepping away from the production credits and then I have a follow-up question on the on the credits.
Sure, good morning, Lauren, um look I'll start with kind of overall themes and then I'll I'll turn over to John for a little more detail. I, I think key takeaways from this morning's release. We delivered a very good third quarter, and we're in a position of strength moving forward for the quarter, we delivered organic growth, gross margin Improvement in growth for the fiscal year. We expect to deliver growth. Gross margin Improvement, as well as 7 to 10% EPS growth. I think the most important and exciting part of this quarter is that we have done an exceptional job setting up to drive earnings growth. Not only this year, but in the fiscal 2026. And so, John, I think, if you just want to walk through a little bit more of those details. Sure. You know, Lauren. Um, the organic sales were strong in the quarter. That was very helpful. You know, battery category continues to perform well for us, uh, Auto was a little bit lower, but the podium Series has a has been launching very well. We're in 15,000 doors and beating the plan that we had set.
Set up and as we called out, you know, EPS for the quarter, uh, was it, 78 cents excluding the credits. So you know, that was well, out of our Outlook and the consensus. So even even on that basis, it was a really strong operating quarter for us, you know, as Mark mentioned the Tariff impact uh has really materially improved. So I I think, you know, we're going to see a little bit of noise as we get through the fourth quarter, but heading into next year, you know, we believe that the uh the exposure is minimal. And we really have plans in place to, you know, fully offset, the bottom line impact, and then, you know, the production credits as as a domestic manufacturer of qualifying battery and battery inputs.
You know, we qualify for production tax credits. Uh so that you know, our expectation is that we're going to see about 35 to 40 million dollars in our base earnings now and that's really going to come through gross margin net earnings and free cash flow and that's through about 2032. So, you know, really, really bolster our earnings as we go forward. And then the, the other big thing is, we, you know, we acquired the Legacy, uh, Panasonic Europe, battery business. We're actively transitioning, uh, customers to energize our portfolio right now. We think, for the full year, we're going to get about 40 to 50 million in Revenue. Um, but there is no bottom, line impact, uh, to earnings that were expecting this year. So really, really strong quarter. Really strong position heading into next year.
Okay, great. And then just on the production credits, maybe a little bit of a remedial question, but, um, just if you could explain a little bit more about the genesis of these, sort of why recognize it now because there's this retroactive piece as well as the go forward. Um, and you mentioned investment, and I wasn't clear if that was, um, you know, before any like chosen reinvestment in the business that you would have maybe done otherwise, or if there's a required level of continued investment domestically to maintain these credits going forward.
So you know, there's no required investment required. There's this is a production credit so we just need to continue producing the batteries and the and the inputs kind of as we have and that should get us 35 to 40 million dollars a little bit about the timing. So you do file for these credits, with your tax returns, we uh, just filed our 24 return, we're going to amend our 23, those are the catch-ups that you're seeing that. We're excluding from our normal Ops and that's the 78 million or so. We've got about 34 million dollars coming through, which is the first 3 quarters of 25 and more effectively aing that. So we will file a return next year to to get our 25 credits back. And then every year thereafter you should be getting kind of 1 year of activity in the p&l in 1 year of you know, of cash back into the business.
Okay, great. All right. Thank you.
Thanks Lauren.
And your next question comes from the line of Robenstine with Evercore. Please go ahead.
Liability cost advantage, Logistics. Uh, and then present that you'll be able to do local production in terms of the U.S. Thank you.
Yeah, sure, great question. I I think, as we take a step back and look at all of the evolution of our network, over the past, 4 to 5 years, I think it starts, uh, during the pandemic, we made an acquisition of a facility in Indonesia, in 2021. Uh, we followed up with an acquisition of a facility in Belgium in 2023. So, with the latest 1, uh, with Advanced Power Solutions in in, in May, you know, those were the the acquisition related elements of the network changes. But we also undertook, you know, for the past 3 years project momentum, which was altering and optimizing our network, uh, across across the globe, including in North America, where we've made significant investment in North America. Um, you know, we've made a fifty million dollars investment to increase the workforce increase Innovation, increase automation, uh and and really been driving, uh, the in Region 4 region, attribute of our Network that that that you mentioned all of those pieces, sort of clicked together and and create a dynamic Network for us to address.
Terrorist supply chain disruptions optimized costs, and it's all starting to come together and is really well positioned from a network standpoint moving forward.
Great. And then, you know, kind of maybe veering off that.
um,
You know, you um, you bought back stock which you you hadn't for a little while. Um, can you talk about how we should be thinking about Capital allocation over the next 1 to 2 years? Uh, where where are you thinking about in terms of taking the leverage down? Um, are there further, you know, capacity, you know, Acquisitions that are that are on the radar screen. Uh, what is capex look like, um, you know, dividend just kind of update us on, you know, you know, the general outlook for for cash flow and uh, and capital allocation over the next 1 to 2 years.
Yeah, Robert let me start with the cash flow because, you know, we have invested a fair amount, uh, into inventory this year. For 2 Reasons, 1 is really the plastic free, uh, packaging transition that we're undertaking in North America. And then we've got a fair amount of inventory that we built up as we were, you know, working to offset some of these tariff impacts. We really expect that to to start coming out next quarter or fourth quarter here. Um, you know, I think that's going to bolster the cash flow in our expectations. Is that over the you know, coming couple
Years. We should be generating 10% to 12% free cash flow compared to sales. So, you know, I think that's going to put us in a good position. I'll turn it over to Mark to kind of talk about the capital. Yeah, Robert. I think just a general capital allocation discussion. I mean, obviously, over the last couple of years, we've prioritized that reduction, and felt that was uh,
Really important to do as we look at our debt capital structure, it is fixed at very favorable rates and following the Q2 earnings, we saw a material decline in our Equity value and and that created, you know, that that presented an opportunity to Pivot and, and to create an outsized return to share our purchase. Um, we've been able to repurchase about 5% of our outstanding shares. Uh, oh, over the last quarter uh going forward, I I would expect us to continue to to prioritize debt reduction. It is an important and a primary focus for us, but we also have to continue to evaluate all options to drive the highest return. So, um, we we're not going to be overly rigid in our approach, and we're going to Pivot as, as opportunities to prevent themselves from a capital allocation perspective.
And, and, and just can you help us model out, you know, tying in a little bit with Lawrence's question. Just help us model out CapEx over the next couple of years.
Yeah, we've been running at a, I'd say, relatively elevated rate at Mark mentioned, some of the uh production assets that we've invested in this year. We've also had a lot going into digital transformation. My expectation is it will run closer to 2% in that sales for the next couple of years.
Terrific, thank you very much.
Thanks, Robert.
And your next question comes from the line of Bill Chappelle with True Security. Please go ahead.
Thanks, good morning.
Excuse me. Um, Mark, quite a journey. Um,
Question.
Sets and stuff like that. Do you see more competitive activity coming out of your main competitor? Do you see it staying fairly stable? You know, is that a concern at all?
You know, Bill, I think as we look at the competitive landscape both in the U.S. and internationally, I mean the shares are stable, private labels flat. Um, I think we're in a great position. I think when we take a step back and look at our business holistically, we're the best-positioned battery business. We have the strongest portfolio brands. We have the best performing products, uh, we just talked about with Robert. We've created a dynamic network to manage through any macro environment that we need to, uh, and that optionality, we have the ability to partner with our retailers to bring their particular strategies to life. Uh, and so we have the opportunity to meet consumers where they are with all of those assets at our disposal. We, you know, it gives us, and we expect to deliver consistent year-over-year growth. It may take different forms online versus in-store. It may take different forms retailer to reseller, uh, but at the end of the day, the results are going to be there. Uh, consumers, as we mentioned, they're a little bit cautious, and that manifests itself differently depending upon which category you're talking about. But when consumers engage.
The battery category, as you said, they're purchasing our brand. So we're in a great position, and we're going to continue to drive our business going forward.
So, follow up. You know, what is your initial outlook for the upcoming holidays in terms of, I realize it's fiscal '26, but in terms of both category sets and where you're placed and the consumer?
You know, I would say uh, right now we're planning for a um, a normal holiday season and I think the 1, Alright, you're starting to hear from retailers. Is that how they season is going to start a little bit earlier this year? And, and consumers are going to stretch out their shopping season and so we need to be ready um, to address that and be ready to Pivot from a, from a timing standpoint. So as of now, we are planning for kind of a, you know, that basically normal holiday season.
Got it. Thank you.
Thanks Bill. Thanks Bill.
And your next question comes from the line of Darra, man with Morgan Stanley. Please go ahead.
Hey guys. Good morning.
Historically, you've talked about investing to drive topline growth. You've discussed expansion and emerging markets, expanding Auto Care internationally, investing in innovation, digital expansion, distribution, etc. I won't run through everything, but I'm just curious; strategically, as you take a step back.
As you think about these production credits coming in longer term, looking beyond this year and even next year when you have the tariff impacts.
Does this allow you to spend incrementally buying the business? Where might those incremental investments be? And I guess, B. Just are you actually spending some of this back? How do you think about that net amount as you look out longer term?
There. I think we you mentioned the 5 growth areas. We've mentioned that in the past and and you know on those and we've mentioned distribution and you know, we're seeing 15 million dollars of distribution wins in North American International this quarter in e-commerce. Uh we grew 15%. Uh in Q3 we're we're we've grown 25% year to date Market expansion. We continue to see strong growth and developing markets. Um, you know, pricing we have Innovation based pricing and then Innovation, you see the podium Series. So we we have continued to leverage those sort of 5 key areas to drive growth going forward. And certainly, the production credits uh allow us to invest in our business, both from a network standpoint but also on a growth standpoint but that you know production credits only adding to what we've already done with project momentum so we've driven hundred million dollars of savings through project momentum over the last 3 years which not only helped us restore margins but also allowed us to have you know greater ability to invest for growth. So all of these things add up to the
The ability to invest where we need to in order to drive the top line growth that you expect.
Okay, but I guess generally, it sounds like you feel like you've already been stepping up the investment, so it's not like most of this is reinvested back. When you look out a couple of years, you could see a decent amount of the production credits dropped to the bottom line. Is that a fair way to look at it?
Darren, what I'd say is, you know, we've called up our earnings for 2025. I would view that as kind of a new base, and I think as we head out over a longer period of time from here, we should expect to grow algorithmically off that. I think the credits will really help to drive it.
Just meant to communicate. Look, we've got a higher base in 25 but we also think we can grow off that even with tariffs and giving us a little more insight. Give the various factors out there including tariffs or you know. Are you signaling more that 26? Could be a really outsized growth Year. Just wanted to understand a bit more of the motivation behind that, uh, you open up the window of it to ask. I understand you won't be giving us a specific number, but there's also a lot of sort of puts and takes as we think about the production credit tariffs and reinvestments. So again, just trying to understand the motivation there and a bit, how those 3 areas some of which offset each other, some insight into how we should think about that next year.
I think it goes into the comments that I just made. So we are calling up earnings for 25 and Our intention and we're not going to give a 26 Outlook, but we do believe that that's embedded in the base and when you net it all out, we can offset the tariffs. We can continue to invest in the business at that new higher level of earnings. We think we can grow off of that. We'll, we'll have a better visibility and give real numbers in November but but we, we did want to, you know, signal that we had offset. A lot of the things we had seen last quarter and we're going to be able to grow off the new level.
Okay, thanks guys.
Take care. Thanks Sarah.
And your next question comes from the line of Andrea Tixr with JP Morgan. Please go ahead.
Thank you. Ma'am. Um, and good morning, everyone. Um, I just wanted to, um, go back to Mark. What you talked about the underlying consumption Trends, uh, in both batteries and autos and then across the, you know, across the globe, if you can, I understand that you had some in the US, specifically some potential pull forward in the 4th of July and the prime Day events, um, if there is any reason that the implied, you know, uh, Q4 which is a touch lighter, uh, I think that probably we all um, fought to be because you you had a better third quarter. Uh, so, can you talk to us a little bit more on those puts and takes
And then, uh, a clarification on the pricing. I understand which is, uh, your terrace. In fact, it came in better than anticipated; about half of it would be coming through. The mitigation efforts would be coming through pricing, as you put in the, uh, the comments in the prepared remarks.
Um, any timing of it and how you're going to execute? And if that was a red announced with your retail partners in the U.S., how we should be thinking of that pricing action and potential for elasticity there. Thank you.
Andrea. Let me talk a little bit about Q3. I mean, just to answer the question, simply there was a Fourth of July shipments as well as Prime day shipments with shifted into June instead of July and as a result we did have a little bit of pull forward uh in in the quarter and and so that that I think mainly explains some of the disconnect from what you're seeing from our us, our us consumption numbers versus our our financials uh on your second question. On pricing. I mean we took pricing earlier this year uh it was based on Innovation as well as existing tariff. Um headwinds we did not take any additional pricing and connection with the Liberation day terrorists, we fully work through these pricing discussions with our retailers. It's starting to show up on shelf with with some retailers. Uh, you're going to see that benefit really start to flow through in Q4, uh, and what. Again, as as John just talked through, it allows us to deliver earnings growth, uh, this year and it and it sets up to deliver earnings growth next year. I think from a tariff standpoint, the message we'd leave you with. Is we
We have fully offset Harris with a lot of puts and takes, but we have fully offset Terrace in 2025 and are going into 2026.
On the private label pricing, right? I understand that. You said, probably able has been stable uh, with their production coming. Mostly from abroad. Do you have any indications of like price gaps that you are between? Because it's hard to for us, we can look at it in the uh, in the, in the track Channel data. Uh but not so much with the Amazon Choice, um, and, and, and things like that, and Amazon, basic if you can comment on what you're thinking would be embedded in your guide, um, the price, the price, uh, gaps,
For, for e-commerce.
Settled ground, uh, where people can execute pricing against uh, those tariffs. So we have seen some private label pricing move around. As I mentioned, shares have been largely flat, uh, in the latest uh, reporting period. I think it goes back to what I said earlier. I think it was the Bill's question around, you know, we're the best positioned battery business out. There we have a, a portfolio of brands that we can leverage uh, to meet the value needs of of consumers, whether that's Energizer or whether that's Rayovac or Everett. So we have the optionality uh, as the
As the environment, settles from a post tariff, um regime and and and we can we can respond and leverage our portfolio to maximize, you know, the retailer strategy as well as our business with that retailer.
Right. And then, um, trends in Europe, if you can call me.
Yeah, what I would say is the U.S. has been a little bit softer than the rest of the world. Um, you know, the way I would break it up, Andre, is, you know, sort of modern developed markets, following, you know, roughly consistently consistent with what you're seeing in the U.S., and then, you know, developing distributor markets are a little bit healthier.
Great. Thank you again. I'll pass it on.
And your next question comes from the line of Peter Grow with UPS. Please go ahead.
Thanks, good morning guys. Uh, maybe just a few housekeeping, maybe just to follow up on Andreas question. Just the fourth quarter or organic items where I would imagine you have a pretty good visibility, but just the step back, um, that that you're kind of talking to is that really just a function of shipment timing or or is that, you know, a sign around, maybe underlying Trends or categories, deteriorating a bit.
Well, you do have the shift from Q4 into Q3. So there is an element of that. You also have POS trends, um, that were.
Roughly consistent with what our Outlook is for for TopLine in the quarter. Um, so I, you know, I I would say the category is proven to be resilient at times. Consumers will make different choices. They'll stretch out their purchasing patterns, they'll they'll shift, uh, channels. They'll, um, they'll shift pack size, but at the end of the day, we expect, you know, healthy Trends from the battery category. It's just from quarter to quarter occasionally, you see, um, some consumer softness, but it doesn't persist for very long. Yeah, we haven't changed our full year view, so it's still, you know, flat to 2%. You're seeing that move a little bit between third and fourth quarter, but but still relatively healthy,
Okay, and then just on that point, just any thoughts in terms of how we should be thinking about the composition of growth between the 2 segments, and in the fourth quarter, um, you moved into some, you know, unfavorable weather, I would imagine, that's improved in Auto. So just kind of curious how how we should be thinking about that from a, from a segment perspective.
You know, uh, I think the battery is going to be roughly in line with our call overall. And obviously, that's 75% to 80% of the business, so that should be.
Pretty synced up, uh, Auto. We expect to do a little better as they do some catching up in the fourth quarter. Both businesses, both segments, should benefit from that pricing that we've taken for tariffs, that you'll see come through in the fourth quarter. So, I expect pricing to be a little bit of a driver in the quarter, um, a little bit better on the auto side than battery, though. Kind of, you look at the numbers.
Great. Thanks so much. I'll pass it on.
Thanks Peter.
And your next question comes from the line of Brian McMarro with K Genuity. Please go ahead.
Hey, good morning guys, thanks for taking the questions. Uh, I'm curious your view on current uh battery inventories, both at the retailer level and the consumer Pantry level. We heard some companies other companies that I talked about retail or do stocking calendar q1. I'm curious where where they stand to the
Let's start with the consumers, first. Brian, I think, as as consumers, sort of stretch out their purchase cycle, I think, you know, inventory levels are, you know, tend to get a little bit lighter in these times. I think when you're looking at, um, retailer inventory levels, I would say right now, there's slightly elevated. And, and that that, you know, if that qualification changes retailer to retailer, but we took all that into account as as we guided to Q4.
Right. And then a quick follow-up, I guess, how would you characterize the overall health of the consumer that, you know, you guys serve? You mentioned private label shares are flat, which is a bit counterintuitive based on what we're hearing from, you know, from a consumer standpoint, Brian. I think that.
Does change category to category and when you look at the battery category is John 75% of our business, you know, it is a resilient category consumers need batteries, they may stretch out their purchase cycle, they may switch channels, they may trade down in pack size, um, but but at the end of the day it is a our portfolio serves their needs and allows us to drive the growth that we need.
If I could just squeeze 1 last 1 in on the pricing element. Um when did the actual the Tariff related price increase is actually hit the consumer at the retail level? Has it happened already? Are you expecting that happened in? In the you know the next couple months like what? We've we've heard mixed messages from other companies.
Well, I mean, that's going to be a retailer based decision. I mean, so we, we will negotiate our, our, our pricing with retailers and then it's, you know, retail shelf price, that they're discretion. So that that would be a question for regulars.
Fair enough. Thanks.
Thank you. And once again, if you would like to ask a question, simply press star 1 on your telephone keypad. Our next question comes from the line of William Reider with Bank of America. Please go ahead.
Hi. Um, I just have two quick ones. The first, um, you know, there was a little bit of a change in your capital allocation. Does your leverage target still remain being below 4 times, um, over the long term? And I guess I feel like M&A has been completely off the table for some time. Does that still remain to be the case?
Well, I think
Prioritize paying down debt. So I think getting below 4 is a target that we'd like to continue towards as far as M&A. You know, we've done small, very small deals. I think any deals we would look at would not materially change our leverage, at least for the foreseeable future.
Got it. And then, uh, you kind of, uh, touched upon this in the last question. But you mentioned you may see a trade down in pack sizes. Have you seen that thus far, and has this helped on your margins at all in the third quarter? And I guess, do you expect it could in the fourth?
Well, uh, so Bill, we have a, a sort of a bifurcation that's going on. A consumers, are either trading up to larger pack sizes or they're, they're trading down to smaller pack sizes for, you know, an aggregate purchase price, uh, on balance. You know, we sort of, uh, we sort of work all of those, the aggregation of those of those Dynamics into our our call, for the gross margin which, which we've provided
Got it. All right. That's all for me. Thank you.
Thanks Bill.
And we have no further questions at this time. I would like to turn it back to Mark LaVigne for closing remarks.
Uh, thanks all for joining us today. Hope you have a great rest of the day.
Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.