Energizer Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Energizer Holdings, Inc., second quarter 2025 results conference call. At this time, all lines are in listen-only 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. This call is being recorded on Tuesday, May 6, 2025. I would now like to turn the conference call over to Mr. Mark Levine. Please go ahead.

Good morning, and welcome to Energizer's second quarter fiscal 2025 conference call. Joining me today are Mark Levine, President and Chief Executive Officer, and John Dravik, Executive Vice President and Chief Financial Officer. A replay of this call will be available on the investor relations section of our website, energizerholdings.com. In addition, a slide deck providing detailed financial results for the quarter is 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 in our presentation to non-GAAP financial 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. 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. 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 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 thank you for joining us for our second quarter earnings call. 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 to it. Q2 was a solid quarter for us and largely consistent with our expectations. We saw growth continue for the fourth consecutive quarter, with organic sales up nearly 1.5%. We also expanded gross margins and delivered adjusted earnings per share of 67 cents at the upper end of our guided range. 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. 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. More on that in a moment. 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. Each of these areas has contributed and will continue to contribute to our fiscal 2025 results. These focus areas come together on shelf or online as we strive to meet consumers where they are. Our battery business had a particularly strong performance, growing 3% organically in the quarter. Our distribution footprint in the U.S. and international markets continues to grow across both brick-and-mortar retail and digital commerce. In auto care, we saw strong growth within our appearance and air freshener businesses behind innovation, distribution gains, and market expansions. 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. and internationally. 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. Now let me hand it to John to provide more details on Q2 before we then turn to an update on the impacts of tariffs and how we are leveraging our world-class supply chain to manage the changing landscape. We will then finish with a view on the remainder of fiscal 25. John? Thanks, Mark, and good morning, everyone. Second quarter reported net sales were flat, while organic revenue increased 1.4%. Our fourth consecutive quarter of organic growth was driven by a strong performance in batteries, partially offset by a decline in auto care. Batteries continues to benefit from significant distribution wins in the U.S., as well as strong international results, which combine to deliver organic growth globally. The launch of our Podium Series is also progressing nicely and in position for a strong performance during the summer season. However, in the current quarter, auto results were weighed down by a shift in timing of shipments within our refrigerants business, which have now largely shifted into April. Adjusted gross margin increased 30 basis points to 40.8%, primarily driven by an incremental $16 million of project momentum savings in the quarter. Adjusted SG&A was 18.8% of net sales, an increase of $10.6 million in the quarter. The year-over-year dollar increase was primarily driven by planned spending in our digital transformation and growth initiatives, as well as increased legal fees, partially offset by project momentum savings of approximately $4 million. A&P as a percent of sales was 3.1%, roughly flat versus the prior year. Interest expense was $38 million, an improvement from the prior year due to lower average debt outstanding. We delivered adjusted EBITDA and adjusted earnings per share of $140.3 million and 67 cents per share, with adjusted earnings per share at the upper end of our previously provided outlook. 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. Importantly, We refinanced 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. Our nearest maturity is now $300 million of notes maturing at the end of 2027. Our free cash flow declined $44.1 million 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. 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. 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 tariffs and the impact on the consumer create challenges to the balance of the year. Let's first talk about tariffs. 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 tariffs much more quickly than we would have been able to previously. 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. 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. 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. 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. The intent of the program was clearly designed to improve earnings growth and enhance free cash flow. but we were mindful that the changes to our network needed to also enhance our ability to absorb future shocks to the global supply chain. 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 to drive improved cost, agility, and resiliency. In addition to the work on our existing network, 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. The results have transformed how we bring products to market and are particularly relevant today. For markets outside of the U.S., we currently source approximately 97% of our cost of goods from either in-region, or non-U.S. production facilities. In the U.S., products sourced from China for U.S. consumption represents less than 5% of consolidated cost of goods. The remaining 95% are sourced mostly within the U.S. with the remainder from low tariff countries. The significant investments behind our digital transformation have also been a key enabler. In addition, to greatly improve 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. 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. We remain focused on managing those items that are directly within our control. A critical area is ensuring that we stay close to the consumer and understand how they are reacting against this backdrop. Recently, there has been a notable shift in consumer sentiment, which has driven increased emphasis on value and heightened caution in their spending. In terms of the impact on our categories, let's start with battery. On a global basis, we expect the battery category to deliver low single-digit growth over the long term. However, weakened consumer confidence and persistent inflation across the store may pressure volumes in the short term. 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 less discretionary for them. When we pull all of this together, tariffs, consumer confidence, and overall demands We have tempered our outlook over the remainder of the year, which John will cover now.

Thanks, Mark.

Let me start with some details around tariff impacts. 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. But let me first address fiscal year 2025. We have already taken a number of steps, including sourcing shifts and pricing, and do not expect tariffs to have a direct impact on our P&L this year. Now, moving to our exposures over a longer period of time, assuming tariffs announced this year remain in their current form, let me walk through our gross unmitigated exposures. Roughly 5% of our cost of goods are exposed to tariffs levied on China at an incremental 145% rate, and approximately 10% to 15% of our cost of goods are exposed to the rest of the world reciprocal tariffs. We have some exposure to the steel and aluminum tariffs announced this year as well. All in, this represents an incremental total headwind of roughly $150 million, of which 85% is attributable to the China tariffs. It's important to remember this is unmitigated. We are already working on solutions to minimize the ongoing impact and believe over the next 12 months we can reduce the amount of our China-sourced product by close to half through alternative sourcing partners and mix of our own internal supply. And based on the flexibility of our redesigned supply chain, we have the ability to rebalance our network and minimize the impact of tariffs related to all other countries. We've also already taken a round of pricing related to the initial round of tariffs, including for steel and aluminum. And as we gain more insights and certainty, we will assess additional commercial actions, including product offerings and additional pricing. By minimizing our China exposure, rebalancing our internal supply network, and targeted commercial actions, we have a line of sight to offset the impacts of tariffs over the next 12 months. 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. Based on the most recent economic indicators, consumers are beginning to pull back on spending and becoming more value conscious with their dollars. Based on this demand environment, we now expect the following results in the back half of fiscal 25. For the third quarter, we expect reported and organic net sales in the range of flat to down 2%. Gross margin roughly flat versus prior year. Despite the expected slowdown in consumer spending and the related impact on our revenue, we intend to continue to invest in A&P behind our podium launch during the quarter, resulting in adjusted EPS in the range of 55 cents to 65 cents per share. For the full year, we expect reported and organic net sales in the range of flat to up 2%. Gross margin to be up 50 basis points and in line with prior guidance. Adjusted EBITDA and adjusted EPS in ranges of 610 to $630 million and $3.30 to $3.50 per share, both reflecting positive growth at the midpoints versus prior year results. Our current outlook for earnings excludes any impacts from the recently acquired APS business in Europe. For the remainder of 2025, we expect the results of this business to have a modestly dilutive impact to our consolidated gross margins and neutral to earnings per share. We have also made incremental investments in inventory this year as we work on various tariff mitigation strategies, as well as planned additional investments in working capital related to our recently announced European battery acquisition. Based on these additional uses of cash, we now expect free cash flow in the range of 6 to 8 percent of net sales and debt pay down of roughly $100 million for the full year. In closing, we delivered a strong second quarter, but we entered the third quarter facing an uncertain macro environment and consumer. The organization has rallied around these macro challenges, and we have built a strategic advantage through our investments in our network, which will enable us to perform at a high level in a dynamic environment. I am highly confident we are executing the right strategies to deliver on our long-term financial algorithm. With that, let's open the call for questions.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. And your first question comes from Peter Grom from UBS. Please go ahead.

Thanks, operator. Good morning, everyone. So I just wanted to follow up on the tariff commentary. I know you just ran through that, and all that color was incredibly helpful. But just, you know, given the many moving pieces, can we maybe just run through the mitigation impact 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 PISTOL 26, but I was hoping to get some color in terms of how we should be thinking about how we should be modeling this $150 million gross number versus the expectation that you anticipate to mitigate that headwind over the next 12 months. Thanks.

Morning, Peter. I just apologize for the late start today. We had some technological issues. I just want to make sure we're coming through clearly to you, Peter, and Nicole. You hearing us okay? You sound great, guys. Okay. Well, great question, Peter. It's obviously probably the most timely question given the environment. 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. But from a 25 standpoint, we have mitigated the impact of tariffs on 25. So we've solved the impact there. I think as we look ahead to 26, we are in the process of mitigating that exposure. It will take time, but we have line of sight 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. 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. So the tariffs that are already in place include the steel and aluminum tariffs that we've talked about, and then the China IEPA. And as Mark said, we've effectively neutralized the direct impact of these tariffs already. That was through sourcing shifts, pricing, and then 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. Now, we'll turn to the tariffs that have been announced but aren't yet in place, which are really the reciprocal tariffs. So you've got China, which is 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 COGS. That really is the overwhelming majority of the absolute tariff exposure. 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 relatively quickly over the next 12 months. And then the rest of the world tariffs, which are about 10% to 15% of our consolidated cost of goods, 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. And then we have concrete plans today to address about 60% to 70% of the tariffs announced but not yet implemented. And that's going to happen over the next 12 months. 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. 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, you know, in a couple of quarters. But it will be a transitional year where we start incurring some of these larger tariffs and in the next month, and those will go into inventory, and then they'll start coming back out into our P&L. So we'll give a better color what the total impact of 26 is. It'll be in a couple quarters. But we think we can minimize the gross number by at least half, if not more.

Great. Thanks so much. That was super helpful. I'll pass it on. Thanks, Peter.

Thank you. And your next question comes from Bill Schappel from Truist Securities. Please go ahead.

Thanks. Good morning. I know the tariffs are murky in kind of the outlook and appreciate the mitigation you've done kind of for yours specifically, but what are you hearing or kind of what's your evaluation of, I guess, the devices out there that use batteries? I mean, I'm trying to think of, I mean, clearly like a lot of Washing machines are made in China, and they're going to see a big tariff coming over to the U.S., but washing machines don't use batteries, to my knowledge. Have you looked at the device market and how that's going to be impacted and put that into your forecast? Because I understand consumers are cautious now, but what happens when those devices go up 30%, 50% in price? Just trying to understand how that goes into your algebra for the back half of the year.

Bill, 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. But you are going to see consumers react to higher prices. We have recent experience with this, which in COVID, you had a lot of that device pull forward where consumers bought a lot of devices, and then they than they did for a couple of years. And they were just getting back into a replenishment cycle on devices. So we're in contact with our OEM partners. We understand the way they're thinking about it. 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. But I think this is in part of the logic 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.

And so just to clarify, you're assuming that it gets worse. It just has higher 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, historically when... 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?

Well, what I would say is there's headwinds and tailwinds that emerge in difficult economic times with consumers on auto care. I mean, first, it's slightly, you know, some of our categories are more discretionary and for consumers and so they will opt out of those purchases in favor of other categories which are less discretionary for those consumers. However, 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. But there's some natural offsets which occur as well. And again, all of that has been taken into account as we've provided our forward look. Yeah, maybe just to add for that, for some of color. Bill, we're expecting low single-digit increases in auto in the third quarter. So we're still relatively bullish on our auto business going into the busy season. And that's behind podium. And you saw the shift of the refrigerants from Q2 to Q3. So that should boost the quarter a little bit. And, Bill, as a reminder, the Podium Series is a super premium offering, which, again, those consumers tend to be more immune to the pricing impact 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, just to clarify, your lowered top-line guidance is, auto and battery, or is it primarily battery and just a slight modification to auto?

Yeah, it's more battery, auto. I mean, they're both down a little bit, but auto is still positive in the third quarter. Got it. Thanks so much. Thanks, Bill.

Thank you. Your next question comes from Lauren Laberman from Barclays. Please go ahead.

Great. Thanks. Good morning. I was curious if you could talk a little bit about any retail or destocking that you have seen? You haven't mentioned it yet, but I would think that that's something that, you know, could well be a headwind for 3Q. So, just talk about what you're seeing destocking-wise. Thanks.

Sure, Lauren. I think as you've seen some of the recent scanner trends that have come out, and you've seen some softening in the consumer, including in the battery category, Naturally, that will cause a slight uptick in inventory on hand with retailers. I wouldn't say it's significant or meaningful. It's just 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 forecasts.

Okay, got it. So this is in part this 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.

That's correct.

Okay, great. And then, curious if you can tell us a little bit more about the APS acquisition, just is this primarily the manufacturing asset, or also I know that APS manufactured Panasonic in Europe, so is that also going to be part of your portfolio going forward, and if so, just Anything you can share with us strategically on how Panasonic would fit in?

Sure. We are really excited to be able to get that one closed. We just closed on it this past Friday. It really has a number of attributes to it. One is greater scale in our European business, notably in Germany, UK, Poland, Spain as key markets. 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. 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 brands. family of brands over the next, you know, eight months or so. And that'll be part of the process that the teams are discussing this week as well.

Okay, great. Thanks so much.

Thanks, Lauren.

Thank you. Your next question comes from Robert Ardenstein from Energizer. Please go ahead.

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 and kind of do our trade visits and you look at batteries and you look at the back, you know, what we find is Duracell batteries made in China, a lot of private label made in Vietnam, private label made in China. And so, you know, this is, you know, a multidimensional 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, and what that overall impact will be on competitive dynamics on one level, and the other, just how retailers may start to change how they think about competitors and private label, right? Because if you think this is all going to continue for some time, you may decide to switch which suppliers you want to work with based on your perceptions of the supplier's supply chains. So love to kind of get that dimension of the whole tariff situation, if you can. Thank you.

Good morning, Robert. Let me start with on the competitive set. I think the way to think about this is our main competitor's great competitor. I don't think, we may have different input headwinds or production headwinds. I would say, you know, 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 for us in that space. I think if you flip private label, The way to provide some dimension to this is, if you think about the private label portion of the category in the US, call it roughly 20% of the category, about 50% of that is manufactured in the US or in sort of, I'll call them low tariff countries, including Vietnam. The other 50% of that 20% is manufactured in China. So to your point, is there an opportunity? There could be, certainly one that our teams are chasing. We don't want to necessarily get into the private label business. We've said our philosophy on private label is we're going to engage in private label to the extent it can advantage our 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 provide an augment to the private label in the form of a value brand in their store.

Right. So wouldn't it make commercial sense to redouble those efforts with RIOVAC and saying, look, let us come in with a RIOVAC and phase out your private label and we'll give you that value tier or develop you know, some other strategy, whether it's kind of a joint sort of Ryovac private brand or some kind of twist for the retailers, but kind of use this, you know, situation as an opportunity to deepen your relationship with retailers and gain incremental shelf space.

Love the way you're thinking. I can assure you we're having the same conversations internally as well.

All right. Well, let me, I'll, I couldn't, I don't want to monopolize the call. I got a bunch of other questions, so I'll pass it on and we can follow up later. Thank you. Thanks, Robert.

Thank you. And your next question comes from Andrea from JP Morgan. Please go ahead.

Thank you and good morning, everyone. So, I wanted to just see if you can comment on the exit rate of the quarter. on the underlying consumption rate vis-a-vis what we're seeing in the category. Perhaps, you know, step back and talk about the category in the West and then as you see the exit rate. And then related to what you just discussed about private label and Rayovac, I was wondering because your price mix was down about 50 bps in the second quarter. And that includes trade promotions. So if you can talk about how the consumer has been behaving in terms of your higher price tiers against Rayovac and against, like, even entry-level or even PAX, like, as we think about it. And you have, obviously, one customer on club. And think about, like, how you've been able to move, you know, channels as the consumers and meet the consumers where they are. Thank you.

Thanks, Andrea. A lot of questions in there. Let me see if I can hit them, and then you can follow up on any one that I may have missed. I mean, let's just talk category from a battery standpoint. Globally, what we saw through February was the category volume was roughly was it grew about one, one and a half percent through February. In the U.S., through the end of March, volume was flat. But what you've seen in the latest 13-week data end of April 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. 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 with a price reduction. It's a little bit above historical levels, but nothing concerning from an overly promotional environment. You are seeing depth 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. We do have the broad offering. I mean, the benefit of our business is 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 mix, John can probably give you the way we're looking at it from a Q3 and Q4 split. I can't. Let me just wrap up on Q2, though, just to give a little bit more. So the actually 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 March point. relatively flat. Looking forward, as we think about maybe just 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 and those shifting refrigerant sales. So Also, on a reported basis, 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. We expect gross margin to be roughly flat. And then we're calling for EPS of 55 to 65 cents. 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're seeing in the near term. 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 the full impact of pricing. So we talked about the pricing that we were going to take to offset 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 significantly. 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?

No, this is perfect. Thank you so much for hitting all the questions. I'll pass it on.

Thank you.

Thank you. Your next question comes from William Reuter from Bank of America. Please go ahead.

Hi. Just a couple for me. And I know maybe I just got myself very confused. But in your first question when you were asked about fiscal year 26, I thought you said that you would be able to offset all of it by the end or by the time that happens. But then your last statement, you said, well, we can offset the gross by half, if not more. So can you help clarify that?

Yeah, we will have taken the actions necessary to offset the tariffs. We will start incurring those tariffs at the end of May. The incremental, the new ones that have been announced but haven't started, haven't been put in place. 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 26th. 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. 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 where we're going to fall. And then we can take commercial actions and other things to offset in addition.

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 to $200 million of debt or is that expectation lowering?

Yeah, we're going to shoot for $100 million. So we think we invested around $100 million in inventory for a couple of reasons. 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 in the back half of the year, but it's still incremental to what we had planned coming in. So we're shooting for 6% to 8% free cash flow. And I think we're going to go for $100 million of debt pay down, which will happen in the third and fourth quarters.

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 batteries that have been being shipped to the U.S. and sold through TEMU or other retailers that haven't been subject to tariffs?

You know, Bill, I think the best way to think about this is from an overall standpoint, we think our 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 sourcing changes as well as the distribution changes that may come 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.

Okay, that's all for me. I'll pass to others. Thank you.

Thanks, Bill.

Thank you. And your final question comes from Carla Casella from J.P. Morgan. Please go ahead.

Hi. One follow-up on Bill's question about the debt pay down. Do you have a long-term leverage target

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, debt pay down continues to be one of our top, it is 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, we got to get to four and a half first and we're just going to keep paying down and working our way towards that.

Okay, great. And then on the, do your raw materials, does your basket of raw materials change dramatically with your move to the plastic free packaging?

No, not dramatically. I mean, the majority of our materials are still the same on the battery side, where it'd be steel, zinc, 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. 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.

Okay, great. And then just when you talked about bringing some of your sourcing in-house as you de-risk from China, Is that bringing into your own facilities worldwide or is it into other third-party facilities sourcing?

We look at everything. So we'll look at bringing it in-house. We'll look at other partnerships that we could have in different parts of the world. This just, you know, it's just a big 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 retailers.

Okay, great. Thanks so much.

Thank you. And there are no further questions at this time. Mr. Levine, you may continue.

Thanks for everyone joining us today. Everyone have a great rest of the day.

Thanks for your interest in Energizer.

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 great day.