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.