Energizer Holdings, Inc.

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. After the speaker's remarks, there will be a question and answer session. To ask a question, please press star one on your touchtone phone. As a reminder, this call is being recorded. I would now like to turn the conference over to John Polden, Vice President, Treasurer and Investor Relations. You may begin your conference.

Good morning. and welcome to Energizer's fourth quarter and fiscal 2025 conference call. Joining me today are Mark Levine, President and Chief Executive Officer, and John Drabik, Executive Vice President and Chief Financial Officer. 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. 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. These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results that 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. The 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, and thanks for joining us today. We delivered strong earnings in fiscal 2025 by staying agile and focused in the face of a disruptive environment and shifting trade policies. We moved quickly, capitalized on opportunities, and executed with discipline to achieve outstanding results. Our decisive actions to reshape our operational footprint combined with strategic investments and strong execution have established an elevated earnings base positioning Energizer to win as we close 2025 and move into 2026. 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. We made necessary changes to our network 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. 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. For the year, net sales grew 2.3 percent to nearly $3 billion. Adjusted earnings per share increased 6 percent to $3.52, supported by organic growth, disciplined cost management, and manufacturing production credits enabled by our investments in U.S. production. We also returned $177 million to shareholders in fiscal 2025 through dividends and share purchases, reducing our outstanding shares by roughly 5%.

The macro environment continues to evolve.

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. 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. 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. 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. 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. This year-over-year growth reflects disciplined execution and the strength of the partnerships built on trust and shared commitment to solving challenges together. Thank you for your continued confidence in Energizer. Together, we are ready to compete, win, and grow. With that, let's open the call for questions.

Thank you. Ladies and 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 touchtone phone. 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. If you are using a speakerphone, please lift the handset before pressing any keys. We do ask that you limit yourself to one question and one follow-up. You may certainly re-queue if you have additional questions. The first question comes from Peter Grom at UBS.

Please go ahead.

Great.

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, specifically just kind of the ramp needed to hit the full year following a challenging first quarter. So can you maybe just speak to the degree of confidence or maybe the visibility you have on the implied ramp, just given how difficult and dynamic the operating environment continues to be? 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? Thanks.

Thanks, Peter. Let me start. I'm going to hand it to John, and then I'll maybe finish in kind of how we approach providing outlook for the year. 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. 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 sheet. We have delivered across all of those metrics over that three-year period. We had $200 million in savings. We've recovered 350 basis points in gross margin. And Momentum has enhanced free cash flow or played a part in enhancing free cash flow. We delivered more than $740 million in free cash flow over that time period. 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. And FY25 put that to an early test. And with the tariff and trade policies, we needed to adjust fast, and we did. We overhauled our network. We preserved margins in 25, and this will get, Peter, to your question. We'll essentially do that in 26 once you incorporate kind of the APS margin integration that we're going to go through. So there is a transitional period, which we saw in Q4. 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. So It's really been a remarkable transformation, and 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 policy. So as we exit that sprint at the end of Q1, we're really set up from Q2, 3, and 4 to to get back to more historical levels of performance from a financial perspective. So John, you want to talk through the ramp?

Yeah, let me start with the first quarter and then we can kind of go into what we see Q2 through Q4. So on the top line in the first quarter, we're getting, you know, we've got both that storm comp and the shift in display timing that we called out. You know, both of those, you know, 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, 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 back half. And then we're going to lean into other areas for growth that have been driving us for the last year or two, and that's really international markets. as well as transitioning that APS business into our Energizer branded portfolio. 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-comm and some of the innovation that we expect to launch this year. 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. 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. And we'll further benefit from transitioning the APS business to our branded portfolio. So I think that will help us on the margin side. 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.

And then, Peter, to wrap up on your final question, how do we approach 26? I mean, look, there's a lot of stuff we can't control. And so what we tried to do is be really clear-eyed about what we're seeing in the environment today. We didn't rely on anything necessarily changing except for the progression that we'll talk about it from a category standpoint. But we basically said the battery category is going to be down roughly 2% for the year. Trade policies are going to stay in place. So things that are macro factors, we basically took them as they are 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 change our outlook. So we were a little bit conservative in terms of the EPS growth. We didn't build in anything out of our control to cooperate over the year. And so I think we feel like it's an appropriate call and one that we can achieve as we go through the year that's going to inevitably change along the way.

Got it. That makes a ton of sense. I'll pass it on. Thank you so much.

Thanks, Peter.

Thank you. The next question comes from Lauren Lieberman at Barclays. Please go ahead. Great.

Thanks so much. Good morning. Just wanted to take a step back maybe and like a bigger picture look. You know, consumer slowdown, softening. Just wanted to get your perspective on maybe what's changed since we last spoke, you know, both August and then you were at our conference, sort of what's changed, what hasn't, And how are you thinking about the consumer and cost environment from here? Thanks.

Yep. Lauren, I think, so if I start with gross margin, we saw the landscape changing. We had plans in place. So I would say the gross margin projection largely as we expected. We knew Q4 was going to get hit by some of these transitory costs. We expected them to continue into 26. They have, but we've also executed the plans to make them go away as we exit Q1. I would say the biggest change is we've just seen a softening consumer sentiment. 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 end of October, you really did see softening consumer sentiment. 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 didn't feel like it was appropriate to rely on that continuing to ramp up. 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. 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 in Peter's question, you know, down 2% is our call for value. But we're going to be able to offset that with some growth in other areas of our business.

Okay. Okay. Great. So just... Oh, one other thing, Lauren.

I'm sorry to cut you off on this. As we progress through the year, and this is one thing I failed to mention. So the category we're assuming is down 3% to 4%. in the first quarter. As we progress, we are expecting stabilization in the category. We're going to start to last some softer comps that you saw in 25. I failed to mention that.

Okay, okay. And that's a big part of the driver of the sort of projected improvement in trends after 1Q, or the comps.

Yes.

Okay, okay, great. All right, I'll pass it on. Thank you so much.

Thanks, Lauren.

Thank you. The next question comes from Rob Odenstein at Evercore. Please go ahead.

Great. Thank you very much. I was just wondering if you could talk a little bit about channel dynamics. Obviously, weaker consumer, how is the consumer responding in this environment in terms of which channels they are going to and shopping? What is going on at Amazon with you and the category? And how are you responding to these different changes in consumer dynamics and shopping patterns? Thank you.

Good morning, 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. You've got brands, pack sizes, as you mentioned, channel. Um, certainly e-commerce is a, 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. 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. Uh, as we look ahead to 26, we expect, you know, 15% growth off of that, uh, as we go into 26. So it's been an area we've invested in. It's an area where we're winning. And over that time period, if I look in the aggregate over a 4-, 13-, and 52-week period, we're winning with consumers because Energizer is gaining share over each of those time periods. So as consumers are seeking value, our broad portfolio of premium and value brands are there to meet consumers where they are, and we're capturing consumers.

Great. Thank you very much. Thanks, Robert.

Thank you. The next question comes from Andrea Tashara at J.P. Morgan. Please go ahead.

Hi, this is Shavana Chowdhury on for Andrea. Thanks for taking our question. 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. As such, can you give us a sense of magnitude of incremental benefit from your prior estimate of $35 to $40 million annually?

Yeah, we are continuing to invest in domestic production to drive those credits. We think there could be upside of $15 to $20 million over what we've generated to date per year. So that's where we'll continue to focus and try to recoup those.

Thank you. And quickly, just to clarify, and is that something that would be a benefit starting fiscal 26 possibly, or is that like more of fiscal 27 onwards story if you get this incremental benefit?

Yeah, we anticipate that in 26, so kind of that level.

Sounds good. Thanks. I'll pass it on. Thank you. The next question comes from William Reuter at Bank of America.

Please go ahead.

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? I'm just kind of trying to dig a little more into your expectation that the category is down by two or three or four percent this year, and then it bounces back in future years?

Consumers are changing. I mean, what we see is consumers will typically drain household inventory. Consumers will typically maybe skip a purchase cycle. And so you see that play out over a multiple quarter period, 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. It also manifests itself with channel shifting, with tax 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 26.

Got it. And then just to follow up for me, I think that there had been an algorithm of an expectation of kind of half a turn of deleverage annually. And if I kind of look back over the last handful of years, leverage really hasn't moved a whole lot. 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?

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, or cash flow, 25. You know, we were down, and that was really largely due to our plastic-free packaging transition in North America. We invested in both inventories, so working capital was way up for the year. And we invested in a lot of CapEx, frankly, to make that product. That should normalize both of those as we head into 2020. So we think that we can get that kind of somewhere north of 10% on free cash flow. 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 ends up. 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. 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. So we're making good progress and continue to push there.

Great. That's all for me. Thank you. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1. The next question comes from Brian McNamara at Canaccord Genuity. Please go ahead.

Good morning, guys. Thanks for taking the question. I'm curious how your retail partners are behaving as it relates to channel inventories. We've heard a variety of takes from other companies, 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 that.

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, you know, we thought were going to go in in Q1. And then obviously with some softening in the consumer sentiment in the category, you saw, you've seen lighter replenishment as we've gotten into Q1 simply because they're managing inventory more tightly. We've expected that, you know, for purposes of what you know, 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 26.

Great.

My other question was already asked, so thanks.

Appreciate it. Thanks, Ryan.

Thank you. We have no further questions. I will turn the call back over to Mark Levine for closing comments.

Thanks, everyone, for joining today. Have a good rest of the day.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and we ask that you please disconnect your lines.