Q4 2025 Energizer Holdings Inc Earnings Call

Speaker #1: Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's fourth quarter and fiscal year 2025 conference call.

Speaker #1: After the speakers' remarks, there will be a question-and-answer session. To ask a question, please press *1 on your touch-tone phone. As a reminder, this call is being recorded.

Speaker #1: I would now like to turn the conference over to John Poldan, Vice President, Treasurer, and Investor Relations. You may begin your remarks.

Speaker #2: Good Good morning. And welcome to Energizer's fourth quarter and 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 #2: In just a moment, Mark will share a few opening comments, and then we'll take your questions. A replay of this call will be available on the Investor Relations section of our website energizerholdings.com.

Speaker #2: In addition, please note that our 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.

Speaker #2: These statements are based on management's current expectations and are subject to risk and uncertainties which may cause actual results to differ materially from these statements.

Speaker #2: We do not undertake to statements. Other update these forward-looking factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC.

Speaker #2: presentation to non-GAAP financial We also refer in our measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in our press release issued earlier today which is available on our website.

Speaker #2: Information concerning our categories and 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 estimates we believe to be reasonable.

Speaker #2: The battery category information includes both brick and mortar and e-commerce retail sales. Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer's fiscal year and all comparisons to prior years relate to the same period and fiscal 2024.

Speaker #2: Good morning. With that, I would like to turn the call over to.

Speaker #2: Mark.

Speaker #3: Good

Speaker #3: And thanks for joining us today. We deliver strong earnings in fiscal 2025 by staying agile and focused in the face of a disruptive environment and shifting trade policies.

Speaker #3: We moved quickly, capitalized on opportunities, and executed with discipline to achieve outstanding results. Our decisive footprint, combined with strategic actions to reshape our operational investments and strong execution, have established an elevated earnings base positioning Energizer to win as we close 2025 and move into 2026.

Speaker #3: Let me share a few highlights that define our progress in 2025. We grew net sales in a challenging environment driven by significant growth in e-commerce, international expansion, and meaningful innovation in auto care.

Speaker #3: necessary changes to our network We made and executed targeted pricing to mitigate tariffs and preserve margins. Project momentum achieved over $200 million in savings to date as we announced this morning we have extended it into a fourth year focused on increased operational efficiency and the integration of advanced power solutions.

Speaker #3: Our innovation pipeline is robust, designed to drive category growth and strengthen our leadership across batteries and auto care. And finally, through this transformation and strategic investments, we have established a stronger earnings foundation for the future.

Speaker #3: For the year, net sales grew $2.3% to nearly $3 billion. Adjusted earnings per share increased 6% to $3.52. Supported by organic growth, disciplined cost management, and manufacturing production credits, enabled by our investments in U.S.

Speaker #3: production. We also returned $177 million to shareholders in fiscal 2025 through dividends and share repurchases reducing our outstanding shares by roughly 5%. The macro environment continues to evolve.

Speaker #3: Tariffs have increased our costs, consumer demand softened late in the year, and supply chains required rapid rebalancing. We responded quickly realigning our manufacturing footprint to minimize tariff exposure and executing pricing actions to protect margins.

Speaker #3: These steps weren't easy, but they were necessary and created a solid foundation for future growth. As we enter fiscal 2026, we know the first quarter will be transitional.

Speaker #3: It will reflect a challenging sales comparison transitional tariff-related costs and moderating consumer sentiment. But beyond Q1, the benefits of our actions, including network realignment, accelerated APS integration, and project momentum savings, will build.

Speaker #3: And we expect these initiatives to drive double-digit adjusted earnings per share growth over the final three quarters of the year. In short, fiscal 2025 was a year of resilience, agility, and progress.

Speaker #3: We faced a challenging environment head-on, made bold decisions, and strengthened our foundation for the future. I want to thank our colleagues, suppliers, and customers for the collaboration that helped us overcome these headwinds and deliver.

Speaker #3: disciplined execution and the strength of the This partnerships built on trust and shared commitment to solving challenges together. Thank you for your continued confidence in Energizer.

Speaker #3: Together, we are ready to compete win and grow. With that, let's open the call for

Speaker #3: questions.

Speaker #1: Thank you. Ladies and

Speaker #1: gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchstone phone.

Speaker #1: You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two.

Speaker #1: If you are using a speakerphone, please flip the handset before pressing any keys. We do ask that you limit yourself to one question and one follow-up.

Speaker #1: You may certainly queue if you have additional questions. The first question comes from Peter Grom at UBS. Please go ahead.

Speaker #1: ahead. Great.

Speaker #4: Thank you. Good morning, guys. Hope you're doing well. So I wanted to pick up on that last point and just on the phasing end of the year, and specifically just kind of the ramp needed to hit the full year following a challenging first quarter.

Speaker #4: speak to the degree of confidence or maybe the visibility you have So can you maybe just on the implied ramp, just given how difficult and dynamic the operating environment continues to be?

Speaker #4: And then just related, I mean, what's the level of flexibility or cushion you've kind of embedded in the outlook at this stage?

Speaker #4: Thanks. Thanks, Peter.

Speaker #3: Let me start. I'm going to hand it to John, and then I’ll maybe finish in kind of how we approached providing outlook for the year.

Speaker #3: I mean, look, we acknowledge that we expected a stronger Q4, but I still think we want to take a step back, at least as we get started, and really reflect and be proud of what the organization achieved in '25.

Speaker #3: And to do that, I think you have to go back to when we launched Project Momentum three years ago, and the objective behind that was to restore gross margins, enhance free cash flow, and strengthen the balance those metrics over that three-year period.

Speaker #3: We had sheet. We have delivered across all of $200 million in savings. We've recovered $350 basis points in gross margin. And in momentum has enhanced free cash flow played a part in enhancing free cash flow where we delivered more than $740 million in free cash flow at that time period.

Speaker #3: The result over that time period is nearly 5% EPS growth on average over that time period and over 3% EBITDA growth. As we started momentum, we understood the need for supply chain agility.

Speaker #3: And FY '25 put that to an early test. With the tariff, we did. We overhauled our network. We preserved margins in '25, and this will get to Peter's question.

Speaker #3: We'll essentially do that in '26 once you incorporate the APS margin integration that we're going to go through. So, there is a transitional period, which we saw in Q4.

Speaker #3: You're going to see in Q1. But the pieces are in place, and the plans are mostly complete for the ramp that John's going to describe.

Speaker #3: So it's really been a remarkable transformation in, as you said, in a really disruptive volatile environment over the last three years, which ended in a sort of six-month sprint where we needed to rebalance our network to make sure that we took into account new trade policies.

Speaker #3: So, as we exit that sprint at the end of Q1, we're really set up from Q2, Q3, and Q4 to get back to more historical levels of performance from a financial perspective.

Speaker #3: So John, you want to talk through the ramp?

Speaker #5: first quarter, and then we can kind of go into what we Yeah. Yeah. Let me start with the see in Q2 through Q4. quarter, we're getting we've got both that So on the top line in the first storm comp and the shift in display timing that we called out.

Speaker #5: Both of those we view as one time or timing in nature. And then kind of as you look at the rest of it, the category overall, we're calling down for the quarter about 300 to 400 basis points.

Speaker #5: But we see that improving as we kind of go throughout the quarter and then into the rest of the year. So our outlook for the full year on the category kind of contemplates back to roughly flat in the lean into other areas for growth that have been back half.

Speaker #5: driving us for the last year or two. And that's really international And then we're going to markets, as well as transitioning that APS business into our Energizer branded portfolio.

Speaker #5: That's a big driver in the back half of our fiscal year. And then we're going to continue to see growth in e-com and some of the innovation that we expect to launch this year.

Speaker #5: So when you put those in place, I think we're going to get past the first quarter and start to see better growth in the back half of the year, really starting in Q2.

Speaker #5: And then gross margins also getting impacted in the first quarter. So as we get past the first quarter, we should benefit from getting past the transitional operational inefficiencies that we really generated over the summer and into the fall as we kind of moved our supply chain around to offset the tariffs.

Speaker #5: And then we'll further benefit from transitioning the APS business to our branded portfolio because I think that will help us on the margin side.

Speaker #5: So as we look at kind of Q2 through Q4, I think low single-digit top-line growth and normalized gross margins with some of the momentum savings should allow us to generate that EPS growth of kind of low double digits.

Speaker #5: '26? I mean, look, there's a lot of stuff we can't control. And so what we tried to do is be really And then, Peter, to wrap up on clear-eyed about what we're seeing in the environment today.

Speaker #5: We didn't rely on anything necessarily changing except for the progression that we'll talk standpoint. But we basically said the battery category is going to be about from a category year.

Speaker #5: Trade policies are going to stay in place. So, things are down roughly 2% for the macro factors; we would basically take them as they are.

Speaker #5: And rolled them forward. And so if you look at our EPS call, there is growth at the higher end of our range. And as we were contemplating it, we felt it was appropriate to build in some downside just so that we can absorb some shocks to the system, which we've seen over the last couple of years, and not having to conservative in terms of the EPS growth.

Speaker #5: Change our outlook. We didn't build in anything out of our expectations, so we were a little bit like, it's an appropriate call and one that we can achieve as we go through the year.

Speaker #5: That's going to inevitably change along the way. over the year and so I think we feel

Speaker #1: That makes a ton of sense. Lauren, I think so if I start with I'll pass it on. gross Thank morning. margin, we saw the landscape changing.

Speaker #1: you so much.

Speaker #5: Peter.

Speaker #6: Thank you. The next

Speaker #6: ahead.

Speaker #7: Just wanted to take a step back

Speaker #7: maybe and a bigger picture Got it.

Speaker #1: We had plans in place, so I would say the gross margin projection largely came in as we expected. We knew Q4 was going to be hit by some of these transitory costs.

Speaker #1: We expected them to continue into '26. They have, but we've we exit Q1. I would say the biggest changes we've just seen is softening also executed the plans to make them go away as consumer sentiment.

Speaker #1: You've heard it from a lot of our peers. You've certainly seen it in some of the macro data, that as we progress from August to September and into October, you really did see softening consumer sentiment.

Speaker #1: And we're seeing in the category data for batteries, we are seeing some of the more recent time periods, some improvement in that. But we appropriate to rely on that continuing to didn't feel like it was ramp up.

Speaker #1: Long-term, we're still very bullish on the battery category. We expect it to be kind of a low single-digit grower, but we're going through a disruptive time.

Speaker #1: And I think it's important to call that from a consumer standpoint, as we have. Gross margin, we've controlled what we can. Overall, for the year, again, I just mentioned it in Peter's question, down 2% is our call for value.

Speaker #1: But we're going to be able to offset that with some growth in other areas of our business.

Speaker #7: Okay. Okay.

Speaker #7: Great. So just.

Speaker #5: Oh, one other

Speaker #5: thing, Lauren. I'm sorry. As we progress through the year, this is one thing I failed to mention. assuming, is down 3 to 4 percent in So the category, we're the first quarter.

Speaker #5: As we progress, we are expecting stabilization in the category. We're going to start to lapse some softer comps that you saw in '25. I failed to mention

Speaker #7: Okay. Okay. And that's a big part of the driver of the sort

Speaker #7: comps. Okay. Okay. Great. All right. I'll pass it on. Thank you so much.

Speaker #6: from Rob Ottenstein at Evercore. Please go ahead. that. Thanks,

Speaker #8: talk a little bit about much. Just wondering if you could channel dynamics. Obviously, weaker consumer, how is the consumer responding in this environment in terms Great.

Speaker #8: of which channels they are going to and shopping? What is going on at Amazon Thank you very with you and the category? And how are you responding to these different changes in consumer dynamics and shopping patterns?

Speaker #8: Thank

Speaker #8: you. Hey, good morning,

Speaker #5: Robert. Consumers are certainly seeking value. They're cautious. They're very comfortable shifting channels. To be able to find the value of the product and to meet their needs, that manifests itself in a lot of different ways.

Speaker #5: You've got brands, pack sizes, as you mentioned, and channel. Certainly, e-commerce is a big part of that channel shifting that's going on. It's been a point of emphasis for us to make sure that we win in e-commerce.

Speaker #5: We had a really strong Q4 in e-commerce. We saw our e-commerce business grow more than 35% in Q4. We saw it grow 25% for the year.

Speaker #5: As we look ahead to '26, we expect 15% growth off of that as we go into '26. So it's been an area we've invested in.

Speaker #5: It's an area where we're winning. And over that time period, if I look in the aggregate, over a four, 13, and 52-week period, we're winning with consumers because Energizer is gaining share over each of those time periods.

Speaker #8: Great. Thank you very much.

Speaker #6: Thank you.

Speaker #6: Andrea Teixeira at JPMorgan. Thanks, Robert.

Speaker #6: ahead. Hi.

Speaker #9: This is

Speaker #9: Thanks for taking our questions. On your management commentary, one of the levers to restrict gross margin includes optimizing U.S. manufacturing to maximize your future benefits from production credits.

Speaker #9: As such, can you give us a sense of the magnitude of incremental benefit from your prior estimate of 35 to 40 million?

Speaker #9: annually?

Speaker #5: in domestic production to drive those credits. We think that there could be upside of 15 to 20 million dollars over what we've generated to date, per year.

Speaker #5: So that's where we'll continue to focus and try to recoup those.

Speaker #9: Thank you. And quickly, is that benefit starting in fiscal '26 possibly? Or to clarify, is that something that would be a '27 onwards story if you get this incremental benefit?

Speaker #5: that in '26. So kind of that level. Yeah.

Speaker #9: Sounds good. Thanks. I'll pass it. We anticipate.

Speaker #9: on. Thank you.

Speaker #6: The next question comes from William Reuter at Bank of America. Please go ahead.

Speaker #10: Hi. My first question on the weakness that you're seeing in consumers: do you expect that they're just reducing the amount of product that they have in their pantries, or do you believe that their behavior is changing such that they're utilizing devices that need batteries less?

Speaker #10: I'm just kind of trying to dig a little more into your expectation that the category is down. Two or three or four percent this year, and then it bounces back in future years.

Speaker #5: Consumers are changing. I mean, what we see is consumers will typically drain household inventory; they consumers will typically maybe skip a purchase cycle. And so what you see that play out over a multiple quarter period.

Speaker #5: But then everything stabilizes, and consumers go back to that historical low single-digit growth that we expect to see out of the category. So we believe these are temporary behaviors out of consumers.

Speaker #5: It also manifests itself with channel shifting, with pack size changes, and other things that come through in the category data. But we do expect a reversion back to more normalized behavior as we head into

Speaker #10: Got it. And then

Speaker #10: Just to follow up for me, I have an expectation of kind of half a turn of deleverage annually. And if I look back over the last handful of years, leverage really hasn't moved a whole lot.

Speaker #10: So I guess what is your expectation for that deleveraging path? And I guess in that context, how will you think about allocation relative to share repurchases, which you guys did 90 million this year?

Speaker #5: Yeah. Look, first priority is going to be to pay down debt. We think we can get back to a resumption of normalized cash in '25.

Speaker #5: We were down, and that was really largely due to '25 or cash flow our plastic-free packaging transition in North America. We invested in both inventory, so working capital was way up for the year.

Speaker #5: And we invested in a lot of CapEx, frankly, to make that product that should normalize both of those as we head into '26. So we think that we can get that kind of somewhere north of 10% on free cash flow.

Speaker #5: We would focus on paying down $150 to $200 million of debt. I think the offset from a leverage perspective will be where the earnings end up.

Speaker #5: So we'll have to see where that comes in. But it won't probably be all the way to half a turn. It would be something less than that if the earnings fall off.

Speaker #5: I will say that we generated decent cash as we finished up the fourth quarter, and we paid down about $80 million of debt so far in the first quarter.

Speaker #5: So we're making good progress, and we'll continue to push

Speaker #5: there. Great.

Speaker #10: That's all for me. Thank

Speaker #10: That's all for me. Thank you. Thank

Speaker #6: Thank you, ladies and gentlemen. you. As a reminder, if you have any questions, please press star one. The next question comes from Brian McNamara at Canaccord Annuity.

Speaker #6: Please go ahead.

Speaker #11: Good morning, guys. Thanks for taking the question. I'm curious how your retail partners are behaving as it relates to of takes from other companies.

Speaker #11: channel inventories. We've heard a variety But the predominance has generally been they've been pretty tight on inventories heading into the holiday season. I'm curious how your categories are being impacted by

Speaker #5: Good question, Brian. I think that that plays a part in kind of our Q4, Q1 dynamic that we were highlighting today. So we saw displays go in at the end of Q4 that were we thought were going to go in in Q1.

Speaker #5: And then obviously, with some softening in the consumer sentiment, the category you've seen lighter replenishment as we've gotten into Q1 simply because they're managing inventory more tightly.

Speaker #5: We've expected that for purposes of what the outlook we're providing, we're expecting that to continue. For the balance of this year, I think we do expect tighter inventory management as we progress through

Speaker #11: Great. And my other question was

Speaker #5: Brian.

Speaker #6: questions. I will turn the call back over to '26. Thank you. We have no further Mark LaVigne for closing

Speaker #5: Thanks,

Speaker #5: everyone, for joining today. Have a good rest of the comments. day.