Energizer Holdings, Inc.

Good morning. My name is Andrew and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's fourth quarter fiscal year 2020 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jackie Berwitz, Vice President, Investor Relations. You may begin your conference.

Good morning, and thank you for joining us. During the call, we will discuss our results for the fourth quarter in fiscal year 2020, as well as our outlook for fiscal 21. This call will be available for replay via the investor relations section of our website, energizeyourholdings.com. Also available on our website is a slide presentation providing details about results for the quarter. On the call with me this morning are Alan Hoskins, Chief Executive Officer, Mark Levine, President and Chief Operating Officer, Tim Gorman, Chief Financial Officer, and John Drabik, Senior VP, Corporate Controller. With respect to our use of forward-looking statements, risk factors, and gaps and non-gap reconciliations, please refer to our press release and slide presentation issued earlier today, which is available on our website, and the risk factors we have in reports we file with the SEC. Information concerning our category and market share discussed on this call relates to markets where we compete and is based on Energizer's internal data, data from industry analysis, and estimates we believe to be reasonable. Unless otherwise stated, all comparisons are to the same period in the prior year. With that, I'll turn the call over to Alan.

Thanks, Jackie, and good morning, everyone. As I'm sure you saw in our press release this morning, we have many topics to discuss on today's call. I'll first address our performance in the quarter and the year at a high level before providing some color around my planned retirement and Mark's appointment as Energizer's next CEO. At the onset of the pandemic, we committed to two principles, ensuring the well-being of our colleagues and meeting the needs of our customers in consumers. In a year filled with incredible challenges, we leaned on an exceptional team to adapt in real time to ensure business continuity and reposition us for the future. While we ensured our brands and products were available to customers and consumers where and when they needed them, it came at a higher cost than expected, which is reflected in our financial performance for the quarter and the year. In particular, we have seen three factors impact our business since the beginning of the pandemic. Increased COVID costs based on our efforts to meet the elevated demand of our customers and consumers, changing sales mix due to the pandemic, including markets, channels, and products, and higher interest expense as we defensively positioned our balance sheet. The demand, particularly for batteries in the U.S. and many developed markets internationally, was elevated and prolonged since the middle of March. Because of the duration of this outsized demand and the variability between markets, we fulfilled the demand spikes in the spring and summer while also undertaking additional actions to ensure we were prepared for the upcoming holiday season. As a result, the cost to serve the increased demand has been higher than we expected. However, since the start of the pandemic, We made the decision to meet the demand given our belief that our value of relationships with our customers far outweighs these short-term costs. As Mark will describe in detail in a moment, our performance has truly been a team effort and involved a multitude of actions, including a small acquisition, improving operating efficiency in our supply chain, plant reconfigurations, and true partnerships with our suppliers. Based on what we know today and our expectations to the future in terms of demand levels, cost and product mix, we expect our first quarter 2021 results will reflect the tail end of the incremental cost with minimal cost thereafter, even if the current level of demand persists. However, we recognize that there remains a high level of uncertainty because of the pandemic and its impact on the retail landscape and our global business. We also saw a shift in the mix of our business across markets, channels, and products driven in part by consumer behavior in response to the pandemic. Ultimately, this has had a net negative impact on our margins in the fourth quarter of 2020 and full year, particularly in the fourth quarter. While we believe a portion of this shift is temporary, as Tim will discuss, we have accounted for the shifts in the business mix that we believe will continue into the next year in our guidance for 2021, assuming no material disruption to our markets, customers, or operations. And finally, our results for the year were also impacted by interest expense, as we defensively positioned our balance sheet for the uncertainty we saw earlier in the year. In recent months, we have aggressively pursued opportunities to pay down debt and refinance our outstanding indebtedness at lower interest rates. Even with the challenges brought on by the pandemic, there were several notable accomplishments from the year that we believe demonstrate our organization's resilience and validate the confidence we have about this business moving forward. All major initiatives related to the integration of our battery and auto care acquisitions are either well underway or complete. In 2020, we delivered $51 million in synergies, and the outlook that Tim will cover for 2021 reflects the full year run rate of the benefits that we expect our shareholders will see from over $100 million in synergies. We maintain the top line momentum in our business with organic net sales of 6.1% in the quarter and 2.5% for the year. Over the latest three months, we have seen strong category growth and share gains across our battery and auto care businesses. In particular, Our auto care business delivered extremely strong results for the quarter and full year behind strong operating fundamentals, exciting innovation, and favorable weather patterns. While due in part to one-time items, working capital management and the timing of inventory movements, which will reverse as we rebuild our safety stock, we significantly over-delivered on free cash flow, our number one priority, achieving $405 million up $149 million versus the prior year. This cash flow has enabled us to pay down over $100 million of debt to start 2021, and we remain in a strong position to continue to further reduce debt and pursue a balanced approach to capital allocation. Finally, the global efforts of our colleagues have been remarkable, and I have seen more dedication in the past year in the service of colleague safety, and business continuity than I ever could have imagined. I truly appreciate the hard work that so many colleagues have put in as we continue to operate through the pandemic. In summary, 2020 was a challenging year, and we are looking ahead to 2021 and our plans to drive organic sales growth, margin expansion as the year progresses, synergy utilization, and EBITDA growth. Before I turn the call over to Mark, I'd like to take a moment to address the CEO succession plan we announced this morning. After nearly 40 years at Energizer and the past five years as CEO, I announced that I have chosen to retire effective January 1st, 2021, and Mark will become our new company CEO. Mark's appointment is the culmination of rigorous succession planning with our board over the past two years, and after thoughtful reflection, I believe now is the right time to transition to the next generation of leadership. We have nearly completed the integration of the spectrum businesses, have taken action to address challenges from the pandemic, and are on track to substantially eliminate incremental costs resulting from meeting elevated demand. And the platform for the company's next phase of growth is well established. There is no one more qualified than Mark to oversee Energizer's next chapter. He has been instrumental in defining and executing our strategic initiatives and has overseen our integrated operating model with a focus on growing our platform and market positions across categories. I have great confidence that he will be an exceptional CEO for Energizer. To ensure a smooth transition, I will continue to serve as a director and an advisor to the company until the end of September 2021. It has been an honor and a privilege to have spent nearly a 40-year career as part of the Energizer family and a pleasure to have served as its chief executive officer the past five years. We have taken bold steps to transform the company from a single category company to one with a mission to achieve industry leadership as a diversified global household products company in batteries, lights, and auto care. I couldn't be prouder of what this organization has accomplished I want to thank the Energizer colleagues for their dedication, commitment to excellence, and their passion for winning. With that, I'll now turn it over to Mark for a detailed review of the business and actions we've taken to put us on a path to deliver meaningful growth in 2021 and beyond.