Energizer (ENR) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Energizer Holdings, Inc., including statements of earnings and comprehensive income, balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining the company's business, accounting policies, segment information, debt, equity, and risk management strategies for the periods ended March 31, 2023 and 2022 Consolidated Statements of Earnings and Comprehensive Income (Condensed) Consolidated Statements of Earnings and Comprehensive Income (Condensed) | Metric | Q2 2023 (Millions) | Q2 2022 (Millions) | 6M 2023 (Millions) | 6M 2022 (Millions) | | :-------------------------------- | :----------------: | :----------------: | :----------------: | :----------------: | | Net sales | $684.1 | $685.4 | $1,449.2 | $1,531.7 | | Gross profit | $253.3 | $238.4 | $551.6 | $550.0 | | Earnings before income taxes | $50.4 | $28.0 | $112.7 | $104.5 | | Net earnings | $40.0 | $19.0 | $89.0 | $79.0 | | Net earnings attributable to common shareholders | $40.0 | $19.0 | $89.0 | $75.0 | | Basic net earnings per common share | $0.56 | $0.27 | $1.25 | $1.09 | | Diluted net earnings per common share | $0.55 | $0.27 | $1.23 | $1.09 | | Total comprehensive income | $31.3 | $68.7 | $50.7 | $147.4 | - Net earnings attributable to common shareholders increased significantly by 110.5% to $40.0 million in Q2 2023 from $19.0 million in Q2 2022. Diluted EPS also rose by 103.7% to $0.55 in Q2 2023 from $0.27 in Q2 2022[9] - For the six months ended March 31, 2023, net earnings attributable to common shareholders increased by 18.7% to $89.0 million from $75.0 million in the prior year, with diluted EPS increasing by 12.8% to $1.23[9] Consolidated Balance Sheets (Condensed) Consolidated Balance Sheets (Condensed) | Metric | March 31, 2023 (Millions) | September 30, 2022 (Millions) | | :-------------------------------- | :------------------------: | :------------------------: | | Total current assets | $1,488.1 | $1,590.0 | | Total assets | $4,436.0 | $4,572.1 | | Total current liabilities | $636.9 | $697.9 | | Long-term debt | $3,414.6 | $3,499.4 | | Total liabilities | $4,287.6 | $4,441.5 | | Total shareholders' equity | $148.4 | $130.6 | - Total assets decreased by $136.1 million from $4,572.1 million at September 30, 2022, to $4,436.0 million at March 31, 2023. Total liabilities also decreased by $153.9 million, while total shareholders' equity increased by $17.8 million[12] - Cash and cash equivalents decreased from $205.3 million to $193.7 million, and inventories decreased from $771.6 million to $746.7 million[12] Consolidated Statements of Cash Flows (Condensed) Consolidated Statements of Cash Flows (Condensed) | Metric | 6M 2023 (Millions) | 6M 2022 (Millions) | | :-------------------------------- | :----------------: | :----------------: | | Net cash from/(used by) operating activities | $210.2 | $(108.7) | | Net cash used by investing activities | $(18.0) | $(45.4) | | Net cash (used by)/from financing activities | $(203.4) | $130.2 | | Net decrease in cash, cash equivalents, and restricted cash | $(11.6) | $(25.7) | - Net cash from operating activities significantly improved, moving from a use of $108.7 million in the six months ended March 31, 2022, to a generation of $210.2 million in the same period of 2023[14] - Net cash used by financing activities shifted from a generation of $130.2 million in 2022 to a use of $203.4 million in 2023, primarily due to debt payments[14] Consolidated Statements of Shareholders' Equity (Condensed) Consolidated Statements of Shareholders' Equity (Condensed) | Metric | September 30, 2022 (Millions) | March 31, 2023 (Millions) | | :-------------------------------- | :------------------------: | :------------------------: | | Total Shareholders' Equity | $130.6 | $148.4 | | Retained (Losses)/Earnings | $(304.7) | $(216.0) | | Accumulated Other Comprehensive Loss | $(145.3) | $(183.6) | - Total shareholders' equity increased from $130.6 million at September 30, 2022, to $148.4 million at March 31, 2023, driven by net earnings and share-based payments, partially offset by dividends and other comprehensive loss[17] - Retained losses improved from $(304.7) million to $(216.0) million, reflecting positive net earnings during the period[17] Notes to Consolidated (Condensed) Financial Statements (1) Description of Business and Basis of Presentation - Energizer Holdings, Inc. is a global manufacturer, marketer, and distributor of primary batteries, portable lights (under brands like Energizer®, Eveready®, Rayovac®, Varta®), and auto care products (under brands like Refresh Your Car!®, Armor All®, STP®, A/C PRO®)[19][20][21] - The company adopted ASU 2020-04 (Reference Rate Reform) on October 1, 2022, applying it prospectively to contract modifications for establishing new reference rates, which did not materially impact financial statements[24] (2) Revenue Recognition - Revenue is primarily generated from finished product sales, recognized when title, ownership, and risk of loss pass to the customer, typically upon delivery or carrier pickup[26][28] Net Sales by Products (Millions) | Product | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------- | :------: | :------: | :------: | :------: | | Batteries | $480.1 | $488.5 | $1,119.6 | $1,190.2 | | Auto Care | $178.2 | $168.9 | $271.7 | $275.0 | | Lights | $25.8 | $28.0 | $57.9 | $66.5 | | Total | $684.1 | $685.4 | $1,449.2 | $1,531.7 | Net Sales by Markets (Millions) | Market | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :------------- | :------: | :------: | :------: | :------: | | North America | $430.9 | $417.7 | $887.2 | $926.6 | | Modern Markets | $111.7 | $115.2 | $265.3 | $280.5 | | Developing Markets | $96.3 | $99.9 | $204.8 | $215.3 | | Distributors Markets | $45.2 | $52.6 | $91.9 | $109.3 | | Total | $684.1 | $685.4 | $1,449.2 | $1,531.7 | - For Q2 2023, Batteries sales decreased by $8.4 million YoY, while Auto Care sales increased by $9.3 million YoY. For the six months, Batteries sales decreased by $70.6 million, and Auto Care sales decreased by $3.3 million[31] (3) Acquisitions - The Formulations Acquisition, completed in Q1 FY2021 for $51.2 million cash, was finalized in Q1 FY2022 with a $1.0 million purchase price reduction. The acquisition included proprietary technology ($19.5M) and customer relationships ($1.0M)[32][35] - Goodwill of $28.7 million from the Formulations Acquisition was allocated to the Americas segment and is deductible for tax purposes[35] - No acquisition and integration costs were incurred in the six months ended March 31, 2023, compared to $16.5 million in the prior year period, which included costs related to facility exit, IT integration, and retention compensation[38][39][40] (4) Restructuring - In November 2022, the Board approved 'Project Momentum,' a profit recovery program expected to incur $40-50 million in cash operating costs, $10 million in non-cash costs, and $35-45 million in capital expenditures through FY2024[42] Restructuring Program Expenses (Millions) | Program | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------- | :------: | :------: | :------: | :------: | | 2019 Restructuring Program | $— | $— | $— | $3.9 | | 2020 Restructuring Program | $— | $— | $— | $1.4 | | Project Momentum Restructuring | $7.5 | $— | $14.1 | $— | | Total | $7.5 | $— | $14.1 | $5.3 | - Project Momentum restructuring costs for the six months ended March 31, 2023, totaled $14.1 million, primarily severance ($5.5M), accelerated depreciation ($0.9M), and other costs ($7.7M). These costs were mainly allocated to the Battery & Lights segment ($12.6M) and Auto Care segment ($1.5M)[46][48][50] (5) Earnings per share Basic and Diluted Earnings Per Share (Millions, except per share data) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | :------: | :------: | | Net earnings attributable to common shareholders | $40.0 | $19.0 | $89.0 | $75.0 | | Basic net earnings per common share | $0.56 | $0.27 | $1.25 | $1.09 | | Diluted net earnings per common share | $0.55 | $0.27 | $1.23 | $1.09 | | Weighted average common shares outstanding - Diluted | 72.4 | 71.6 | 72.3 | 69.0 | - Diluted EPS increased from $0.27 in Q2 2022 to $0.55 in Q2 2023, and from $1.09 to $1.23 for the six months ended March 31, 2023[56] - The mandatory convertible preferred stock (MCPS) converted to approximately 4.7 million common shares in Q2 FY2022, impacting diluted share calculations for the prior year but no longer outstanding in FY2023[55] (6) Segments - Energizer manages operations through two product segments: Batteries & Lights and Auto Care. Segment performance is evaluated based on segment operating profit, excluding corporate expenses, amortization, restructuring, acquisition/integration costs, and other corporate items[59] Segment Sales and Profitability (Millions) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :---------------------- | :------: | :------: | :------: | :------: | | Net Sales | | | | | | Batteries & Lights | $505.9 | $516.5 | $1,177.5 | $1,256.7 | | Auto Care | $178.2 | $168.9 | $271.7 | $275.0 | | Total Net Sales | $684.1 | $685.4 | $1,449.2 | $1,531.7 | | Segment Profit | | | | | | Batteries & Lights | $114.5 | $95.3 | $252.8 | $263.7 | | Auto Care | $29.4 | $24.3 | $40.0 | $24.1 | | Total Segment Profit | $143.9 | $119.6 | $292.8 | $287.8 | - Total segment profit increased by 20.3% to $143.9 million in Q2 2023 and by 1.7% to $292.8 million for the six months ended March 31, 2023, compared to the prior year[63] (7) Goodwill and intangible assets Goodwill by Segment (Millions) | Segment | October 1, 2022 | March 31, 2023 | | :-------------- | :--------------: | :------------: | | Batteries & Lights | $868.9 | $885.3 | | Auto Care | $134.2 | $134.2 | | Total | $1,003.1 | $1,019.5 | - Goodwill increased by $16.4 million to $1,019.5 million at March 31, 2023, primarily due to cumulative translation adjustments in the Batteries & Lights segment[70] Other Intangible Assets, Net (Millions) | Asset Type | March 31, 2023 | September 30, 2022 | | :-------------------------------- | :--------------: | :----------------: | | Total Amortizable intangible assets | $503.9 | $533.3 | | Trademarks and trade names - indefinite lived | $763.4 | $762.5 | | Total Other intangible assets, net | $1,267.3 | $1,295.8 | (8) Debt Long-Term Debt (Millions) | Debt Type | March 31, 2023 | September 30, 2022 | | :-------------------------------- | :--------------: | :----------------: | | Senior Secured Term Loan Facility due 2027 | $1,051.0 | $1,182.0 | | 6.500% Senior Notes due 2027 | $300.0 | $300.0 | | 4.750% Senior Notes due 2028 | $583.7 | $600.0 | | 4.375% Senior Notes due 2029 | $791.3 | $800.0 | | 3.50% Senior Notes due 2029 (Euro Notes) | $704.5 | $637.1 | | Capital lease obligations | $32.1 | $32.3 | | Total long-term debt, including current maturities | $3,462.6 | $3,551.4 | | Less current portion | $(12.3) | $(12.4) | | Less unamortized debt premium and debt issuance fees | $(35.7) | $(39.6) | | Total long-term debt | $3,414.6 | $3,499.4 | - The company prepaid $125.0 million of the Senior Secured Term Loan in Q1 and Q2 FY2023, and retired $25.0 million of Senior Notes, resulting in a net gain on extinguishment of debt of $2.0 million for the six months ended March 31, 2023[75][80][81] - In February 2023, the Credit Agreement and interest rate swap were amended to transition the interest reference rate from LIBOR to SOFR, with no material impact on financial statements[76][83] (9) Pension Plans Net Periodic Pension Cost/(Benefit) (Millions) | Component | Q2 2023 (U.S.) | Q2 2022 (U.S.) | Q2 2023 (Intl.) | Q2 2022 (Intl.) | 6M 2023 (U.S.) | 6M 2022 (U.S.) | 6M 2023 (Intl.) | 6M 2022 (Intl.) | | :------------------------------ | :------------: | :------------: | :-------------: | :-------------: | :------------: | :------------: | :-------------: | :-------------: | | Service cost | $— | $— | $0.1 | $0.2 | $— | $— | $0.2 | $0.4 | | Interest cost | $5.1 | $3.2 | $0.9 | $0.4 | $10.2 | $6.4 | $1.7 | $0.9 | | Expected return on plan assets | $(5.3) | $(5.7) | $(0.7) | $(0.9) | $(10.5) | $(11.4) | $(1.4) | $(1.7) | | Amortization of unrecognized net losses | $0.5 | $1.6 | $0.1 | $0.3 | $1.1 | $3.2 | $0.2 | $0.4 | | Net periodic cost/(benefit) | $0.3 | $(0.9) | $0.4 | $— | $0.8 | $(1.8) | $0.7 | $— | - For the six months ended March 31, 2023, U.S. net periodic pension cost was $0.8 million (vs. benefit of $1.8 million in 2022), and International net periodic pension cost was $0.7 million (vs. $0 in 2022)[93] (10) Shareholders' Equity - All outstanding Mandatory Convertible Preferred Stock (MCPS) converted to approximately 4.7 million shares of common stock in Q2 FY2022[95] - The company has a share repurchase program authorized for up to 7.5 million shares, with 5.0 million shares remaining under authorization as of March 31, 2023[96][224] - Cash dividends of $0.30 per share of common stock were declared for Q1, Q2, and Q3 of fiscal 2023. Total dividends declared to common shareholders were $43.9 million for the six months ended March 31, 2023, up from $42.0 million in the prior year[99][100][101] (11) Financial Instruments and Risk Management - The company uses derivatives (forward currency contracts, interest rate swaps, zinc contracts) to manage exposure to currency rates, interest rates, and commodity prices, not for speculative purposes[102][105][106][107][111] Estimated Fair Values of Derivatives Designated as Cash Flow Hedges (Millions) | Derivative Type | March 31, 2023 (Liability)/Asset | September 30, 2022 (Liability)/Asset | | :---------------------- | :------------------------------: | :------------------------------: | | Foreign currency contracts | $(0.7) | $16.3 | | Interest rate swap | $68.5 | $86.4 | | Zinc contracts | $(3.5) | $(6.1) | | Total | $64.3 | $96.6 | - The interest rate swap, with a notional value of $700.0 million, was amended in February 2023 to fix the variable benchmark component (SOFR) at 1.042%, transitioning from LIBOR[112][113] (12) Accumulated Other Comprehensive (Loss)/Income Changes in Accumulated Other Comprehensive (Loss)/Income (AOCI), Net of Tax (Millions) | Component | September 30, 2022 | OCI before reclassifications | Reclassifications to earnings | March 31, 2023 | | :---------------------- | :----------------: | :--------------------------: | :--------------------------: | :------------: | | Foreign Currency Translation Adjustments | $(77.7) | $(17.2) | $— | $(94.9) | | Pension Activity | $(140.5) | $2.1 | $1.0 | $(137.4) | | Zinc Contracts | $(4.6) | $2.1 | $(0.2) | $(2.7) | | Foreign Currency Contracts | $11.7 | $(6.9) | $(5.6) | $(0.8) | | Interest Rate Contracts | $65.8 | $(5.1) | $(8.5) | $52.2 | | Total | $(145.3) | $(25.0) | $(13.3) | $(183.6) | - AOCI increased from a loss of $145.3 million at September 30, 2022, to a loss of $183.6 million at March 31, 2023, primarily due to foreign currency translation adjustments and reclassifications to earnings[135] - Reclassifications from AOCI to earnings for the six months ended March 31, 2023, totaled a net loss of $13.3 million, impacting cost of products sold and interest expense[137] (13) Supplemental Financial Statement Information Other Items, Net (Millions) | Component | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :------------------------------ | :------: | :------: | :------: | :------: | | Interest income | $(1.1) | $(0.3) | $(1.3) | $(0.5) | | Foreign currency exchange loss/(gain) | $4.5 | $(0.1) | $3.5 | $1.2 | | Pension cost/(benefit) other than service costs | $0.6 | $(1.1) | $1.3 | $(2.2) | | Exit of Russian market | $— | $7.5 | $— | $7.5 | | Other | $(3.2) | $— | $(4.1) | $0.2 | | Total Other items, net | $0.8 | $6.0 | $(0.6) | $6.2 | Inventories (Millions) | Component | March 31, 2023 | September 30, 2022 | | :-------------------- | :--------------: | :----------------: | | Raw materials and supplies | $148.4 | $115.9 | | Work in process | $224.0 | $201.6 | | Finished products | $374.3 | $454.1 | | Total inventories | $746.7 | $771.6 | Other Current Liabilities (Millions) | Component | March 31, 2023 | September 30, 2022 | | :-------------------------------- | :--------------: | :----------------: | | Accrued advertising, sales promotion and allowances | $10.9 | $13.4 | | Accrued trade allowances | $43.0 | $57.7 | | Accrued freight and warehousing | $29.7 | $37.2 | | Accrued salaries, vacations and incentive compensation | $39.6 | $60.6 | | Accrued interest expense | $20.7 | $20.5 | | Restructuring reserve | $1.9 | $1.7 | | Income taxes payable | $46.1 | $36.7 | | Other | $85.1 | $106.1 | | Total other current liabilities | $277.0 | $333.9 | (14) Legal proceedings/contingencies and other obligations - The company is involved in various legal proceedings but believes that any resulting liability is not reasonably likely to be material to its financial position, results of operations, or cash flows, considering established accruals[142][144] - As of March 31, 2023, the company had approximately $14.2 million in purchase obligations under supply and service contracts[145] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Energizer's financial performance, including a detailed analysis of operating results, segment performance, and liquidity and capital resources for the periods ended March 31, 2023 and 2022 Forward-Looking Statements - The document contains forward-looking statements reflecting expectations, estimates, or projections concerning future results, which are subject to known and unknown risks and uncertainties[149] - Key risk factors include global economic conditions, competition, changes in retail environment, COVID-19 impacts, brand reputation, loss of principal customers, innovation challenges, international operations (currency fluctuations), intellectual property protection, production costs (inflation), reliance on suppliers, supply chain disruptions, operational execution, goodwill impairment, IT system failures, significant debt obligations, and increasing government regulations[150] Non-GAAP Financial Measures - Management uses non-GAAP financial measures to provide additional meaningful comparisons by excluding items not reflective of ongoing operating performance, such as restructuring costs, acquisition and integration costs, acquisition earn-out, costs of exiting the Russian market, and loss/(gain) on extinguishment of debt[152] - Non-GAAP measures include Segment Profit, Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Common Share (EPS), Non-GAAP Tax Rate, and Organic metrics (excluding Russia/Argentina operations and currency impact)[153][154][155][156][157][158][159] Coronavirus (COVID-19) - COVID-19 continued to impact the company in the first half of fiscal 2023, primarily through disruptions in the global supply chain and changes in product demand[160] - An inflationary environment with higher manufacturing and commodity costs is expected to continue in fiscal 2023, leading to incremental costs and gross margin pressures[161] Exit of Russian Market - The company exited the Russian market in Q2 FY2022 due to global economic and political uncertainty, resulting in a pre-tax impact of $14.0 million[163][165] - The financial impact included $0.7 million in inventory impairment (Cost of products sold), $5.8 million in asset impairment and severance (SG&A), and $7.5 million in currency impacts (Other items, net)[165] - The Russian subsidiary comprised approximately one percent of the company's business[164] Restructuring Costs - Project Momentum, approved in November 2022, aims for $65-80 million in annual pre-tax savings from restructuring and an additional $15-20 million from continuous improvement, totaling $80-100 million in annual pre-tax savings[166] - For the six months ended March 31, 2023, Project Momentum incurred $14.1 million in pre-tax expenses, primarily severance, accelerated depreciation, and consulting costs, and realized $17.6 million in savings[167][169] - The 2019 and 2020 restructuring programs were substantially completed by December 31, 2021, generating approximately $55-60 million in annual run-rate cost savings, primarily in Cost of products sold[170][171][174] Acquisition and Integration Costs - No acquisition and integration costs were incurred in the six months ended March 31, 2023. In contrast, $16.5 million was incurred in the prior year period (FY2022) related to the Formulations, Battery, and Auto Care Acquisitions[176] - FY2022 costs included $6.0 million in Cost of products sold (facility exit/restructuring), $9.4 million in SG&A (IT integration, consulting, retention), and $1.1 million in R&D (severance, asset write-offs)[177][178] Highlights / Operating Results Financial Results Adjusted Net Earnings and EPS (Millions, except per share data) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | :------: | :------: | | Net earnings attributable to common shareholders | $40.0 | $19.0 | $89.0 | $75.0 | | Total adjustments, after tax | $6.5 | $14.3 | $9.3 | $28.1 | | Adjusted net earnings | $46.5 | $33.3 | $98.3 | $107.1 | | Diluted net earnings per common share | $0.55 | $0.27 | $1.23 | $1.09 | | Adjustments (per common share) | $0.09 | $0.20 | $0.13 | $0.40 | | Adjusted diluted net earnings per diluted common share | $0.64 | $0.47 | $1.36 | $1.49 | - Adjusted diluted EPS increased by 36% to $0.64 in Q2 FY2023 from $0.47 in Q2 FY2022. For the six months, adjusted diluted EPS decreased to $1.36 from $1.49 in the prior year[179][180] - Currency had an adverse impact of $10.4 million ($0.11 per share) on Earnings before income tax in Q2 FY2023 and $20.4 million ($0.22 per share) for the six months ended March 31, 2023[182] Total Net Sales Total Net Sales Performance (Millions, % Change) | Metric | Q2 2023 $ Change | Q2 2023 % Chg | 6M 2023 $ Change | 6M 2023 % Chg | | :-------------------------- | :--------------: | :-------------: | :--------------: | :-------------: | | Net sales - prior year | $685.4 | | $1,531.7 | | | Organic | $17.5 | 2.6% | $(28.1) | (1.8)% | | Change in Argentina Operations | $0.7 | 0.1% | $2.0 | 0.1% | | Change in Russia Operations | $(5.1) | (0.7)% | $(12.6) | (0.8)% | | Impact of currency | $(14.4) | (2.2)% | $(43.8) | (2.9)% | | Net Sales - current year | $684.1 | (0.2)% | $1,449.2 | (5.4)% | - Q2 FY2023 Net sales decreased by 0.2% YoY to $684.1 million, with organic net sales increasing by 2.6% due to global pricing actions (13.0%) partially offset by volume declines (9.5%) and exit of lower margin products (1.0%)[189][190] - For the six months, Net sales decreased by 5.4% YoY to $1,449.2 million, with organic net sales declining by 1.8% due to lower volumes (11.5%) and lower margin exits (1.5%), partially offset by pricing actions (11.0%)[189][190] Gross Margin Gross Margin Percentage | Metric | Q2 2023 | Q2 2022 | | :------------------------------------------ | :------: | :------: | | Gross margin - Reported | 37.0% | 34.8% | | Gross margin - Adjusted | 37.9% | 34.9% | | 6M 2023 | 6M 2022 | | Gross margin - Reported | 38.1% | 35.9% | | Gross margin - Adjusted | 38.5% | 36.3% | - Adjusted gross margin increased by 300 basis points to 37.9% in Q2 FY2023 and by 220 basis points to 38.5% for the six months, driven by pricing initiatives and Project Momentum savings ($10.7M in Q2, $17.2M in 6M)[189][191] - These benefits were partially offset by higher operating costs, raw material costs due to inflation, and adverse currency impacts[191] Selling, General, and Administrative Expense (SG&A) SG&A Expense (Millions, % of Net Sales) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | :------: | :------: | | SG&A - Reported | $118.3 | $123.4 | $238.7 | $245.5 | | SG&A - Reported (% of Net Sales) | 17.3% | 18.0% | 16.5% | 16.0% | | SG&A - Adjusted | $116.5 | $117.6 | $230.6 | $229.2 | | SG&A - Adjusted (% of Net Sales) | 17.0% | 17.2% | 15.9% | 15.0% | - Adjusted SG&A decreased in Q2 FY2023 due to Project Momentum savings and favorable currency movement, but increased for the six months due to higher stock compensation and factoring fees, partially offset by savings[192][193] Advertising and Sales Promotion Expense (A&P) A&P Expense (Millions, % of Net Sales) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | :------: | :------: | | A&P Expense | $18.4 | $19.6 | $71.8 | $71.3 | | A&P Expense (% of Net Sales) | 2.7% | 2.9% | 5.0% | 4.7% | - A&P expense decreased by $1.2 million in Q2 FY2023 but increased by $0.5 million for the six months ended March 31, 2023[194] Research and Development (R&D) R&D Expense (Millions, % of Net Sales) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | :------: | :------: | | R&D Expense | $8.0 | $7.9 | $15.6 | $16.8 | | R&D Expense (% of Net Sales) | 1.2% | 1.2% | 1.1% | 1.1% | - R&D expense remained stable at $8.0 million in Q2 FY2023 but decreased to $15.6 million for the six months ended March 31, 2023, compared to $16.8 million in the prior year, which included $1.1 million in integration costs[195] Interest Expense Interest Expense (Millions) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :------------- | :------: | :------: | :------: | :------: | | Interest expense | $42.0 | $38.3 | $84.9 | $75.3 | - Interest expense increased to $42.0 million in Q2 FY2023 and $84.9 million for the six months, primarily due to higher interest rates in fiscal 2023, partially offset by lower average outstanding debt[196] Loss/(gain) on extinguishment of debt - A loss of $0.9 million on extinguishment of debt was recorded in Q2 FY2023 due to the repayment of $100.0 million on the term loan[197] - For the six months ended March 31, 2023, a gain of $2.0 million was recorded, related to the retirement of $25.0 million of Senior Notes at a discount and the repayment of $125.0 million on the term loan[198] Other items, net Other Items, Net (Millions) | Component | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :------------------------------ | :------: | :------: | :------: | :------: | | Interest income | $(1.1) | $(0.3) | $(1.3) | $(0.5) | | Foreign currency exchange (gain)/loss | $4.5 | $(0.1) | $3.5 | $1.2 | | Pension cost/(benefit) other than service costs | $0.6 | $(1.1) | $1.3 | $(2.2) | | Exit of the Russian market | $— | $7.5 | $— | $7.5 | | Other | $(3.2) | $— | $(4.1) | $0.2 | | Total Other items, net | $0.8 | $6.0 | $(0.6) | $6.2 | - Other items, net, was an expense of $0.8 million in Q2 FY2023 (down from $6.0 million expense in Q2 FY2022) and a benefit of $0.6 million for the six months (up from $6.2 million expense in 6M FY2022)[198] Effective Tax Rate - The reported effective tax rate for the six months ended March 31, 2023, was 21.0%, down from 24.4% in the prior year[199] - The adjusted effective tax rate for the six months was 21.2%, compared to 21.3% in the prior year, after excluding the impact of restructuring, acquisition/integration costs, Russia exit, earn-out, and debt extinguishment[199] Segment Results Segment Net Sales Segment Net Sales Performance (Millions, % Change) | Segment | Q2 2023 $ Change | Q2 2023 % Chg | 6M 2023 $ Change | 6M 2023 % Chg | | :------------------ | :--------------: | :-------------: | :--------------: | :-------------: | | Batteries & Lights | | | | | | Organic | $7.3 | 1.4% | $(27.5) | (2.2)% | | Net sales - current year | $505.9 | (2.1)% | $1,177.5 | (6.3)% | | Auto Care | | | | | | Organic | $10.2 | 6.0% | $(0.6) | (0.2)% | | Net sales - current year | $178.2 | 5.5% | $271.7 | (1.2)% | - Batteries & Lights organic net sales increased by 1.4% in Q2 FY2023 due to pricing actions (13.5%), but decreased by 2.2% for the six months due to lower volumes (11.5%) and lower margin exits (2%)[203][205] - Auto Care organic net sales increased by 6.0% in Q2 FY2023 due to pricing (12.5%) and increased international distribution (1%), but decreased by 0.2% for the six months due to lower volumes (11%) partially offset by pricing (10.5%)[204][206] Segment Profit Segment Profit Performance (Millions, % Change) | Segment | Q2 2023 $ Change | Q2 2023 % Chg | 6M 2023 $ Change | 6M 2023 % Chg | | :------------------ | :--------------: | :-------------: | :--------------: | :-------------: | | Batteries & Lights | | | | | | Organic | $27.5 | 28.9% | $11.9 | 4.5% | | Segment profit - current year | $114.5 | 20.1% | $252.8 | (4.1)% | | Auto Care | | | | | | Organic | $5.6 | 23.0% | $17.9 | 74.3% | | Segment profit - current year | $29.4 | 21.0% | $40.0 | 66.0% | | Total Segment Profit | | | | | | Organic | $33.1 | 27.7% | $29.8 | 10.4% | | Segment profit - current year | $143.9 | 20.3% | $292.8 | 1.7% | - Total organic segment profit increased by 27.7% in Q2 FY2023 and 10.4% for the six months, driven by higher gross margin from Project Momentum and pricing initiatives, and reduced SG&A/A&P spend[208][210] - Batteries & Lights organic segment profit increased by 28.9% in Q2 FY2023 and 4.5% for the six months, despite a reported decrease for the six months, due to gross margin improvements[208][211] - Auto Care organic segment profit increased by 23.0% in Q2 FY2023 and $17.9 million for the six months, driven by gross margin improvement from Project Momentum and pricing, partially offset by higher SG&A/A&P[209][212] General Corporate General Corporate and Other Expenses (Millions, % of Net Sales) | Metric | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | :------: | :------: | | General corporate and other expenses | $27.8 | $25.6 | $53.2 | $47.3 | | % of Net Sales | 4.1% | 3.7% | 3.7% | 3.1% | - General corporate and other expenses increased by $2.2 million in Q2 FY2023 and $5.9 million for the six months, primarily due to higher mark-to-market expenses on deferred compensation plans and increased stock compensation[213] Liquidity and Capital Resources - Energizer's primary future cash needs are for operating activities, working capital, strategic investments, and debt reductions, which are expected to be funded by cash from operations and access to capital markets[214] - As of March 31, 2023, the company had $193.7 million in cash and cash equivalents, with approximately 94% held outside the U.S[215] - The company prepaid $131.0 million of the Term Loan and repurchased $25.0 million of Senior Notes in the first half of fiscal 2023. Subsequent to the quarter, an additional $30.0 million of the Term Loan was prepaid[219] Operating Activities - Cash flow from operating activities was $210.2 million for the six months ended March 31, 2023, a significant improvement from a cash use of $108.7 million in the prior year[221] - This $318.9 million change was primarily driven by working capital improvements, including $107 million from accounts receivable collections, $174 million less inventory investment, and $30 million from changes in accounts payable and accrued liabilities[221][222] Investing Activities Net Cash Used by Investing Activities (Millions) | Metric | 6M 2023 | 6M 2022 | | :-------------------- | :------: | :------: | | Capital expenditures | $(18.7) | $(45.9) | | Proceeds from sale of assets | $0.7 | $0.1 | | Acquisitions, net | $— | $0.4 | | Net cash used by investing activities | $(18.0) | $(45.4) | - Net cash used by investing activities decreased to $18.0 million for the six months ended March 31, 2023, from $45.4 million in the prior year, mainly due to lower capital expenditures[221][222] - Anticipated investing cash outflows for fiscal 2023 are $55-65 million for capital expenditures, including Project Momentum initiatives[222] Financing Activities Net Cash (Used by)/From Financing Activities (Millions) | Metric | 6M 2023 | 6M 2022 | | :-------------------------------- | :------: | :------: | | Payments on debt (>90 days) | $(152.9) | $(7.2) | | Net decrease in debt (<=90 days) | $(5.3) | $(102.2) | | Dividends paid on common stock | $(43.3) | $(42.8) | | Dividends paid on mandatory convertible preferred stock | $— | $(8.0) | | Net cash (used by)/from financing activities | $(203.4) | $130.2 | - Net cash used by financing activities was $203.4 million for the six months ended March 31, 2023, a shift from $130.2 million generated in the prior year, primarily due to significant debt payments[223][226] Dividends - The Board of Directors declared a cash dividend of $0.30 per share of common stock for Q1, Q2, and Q3 of fiscal 2023[223] Share Repurchases - The company has an authorization to acquire up to 7.5 million shares of its common stock, with 5.0 million shares remaining under this authorization[224] - Future share repurchases will be determined by the Board based on market conditions, capital allocation objectives, and other factors[225] Other Matters Environmental Matters - Accrued environmental costs were $14.1 million at March 31, 2023. Total environmental capital expenditures and operating expenses are not expected to materially affect the company's financial position[229] Contractual Obligations - The company has long-term debt obligations of $3,430.5 million, with $12.0 million due within the next twelve months, and interest commitments of $861.0 million, with $154.4 million expected within the next twelve months[231] - Other material future obligations include a mandatory transition tax of $16.7 million (first payment of $3.6 million due Q2 FY2024) and purchase commitments of $14.2 million ($8.4 million due within twelve months)[232][233] - Total future operating and finance lease payments are $147.8 million and $67.4 million, respectively, with $19.4 million and $2.5 million due within the next twelve months[235] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including currency rates, commodity prices, and interest rates, and outlines its strategies for managing these risks through derivative instruments Derivatives Designated as Cash Flow Hedging Relationships - The company uses forward currency contracts to hedge cash flow uncertainty from forecasted inventory purchases due to short-term currency fluctuations, primarily for Euro, British pound, Canadian dollar, and Australian dollar exposures[237][238] - At March 31, 2023, Energizer had an unrealized pre-tax loss of $0.7 million on these forward currency contracts, expected to be recognized in earnings over the next 12 months[238] Derivatives Not Designated as Cash Flow Hedging Relationships - Energizer enters into foreign currency derivative contracts not designated as cash flow hedges to hedge existing balance sheet exposures, with gains or losses expected to offset underlying exposures[239][240] - These contracts resulted in a gain of $0.1 million for Q2 FY2023 and $0.6 million for the six months ended March 31, 2023, recorded in Other items, net[240] Commodity Price Exposure - The company uses hedging contracts on future zinc purchases to reduce exposure to price volatility, with contracts extending into fiscal 2024[241][242] - At March 31, 2023, the pre-tax unrealized loss on zinc contracts was $3.5 million, included in Accumulated other comprehensive loss[242] Interest Rate Exposure - At March 31, 2023, Energizer had $1,051.0 million in variable rate debt under the 2020 Term Loan and Revolving Facility[243] - The 2020 Interest rate swap, with a notional value of $700.0 million, was amended in February 2023 to transition the fixed variable benchmark component from LIBOR to SOFR at 1.042%[244][245] - At March 31, 2023, an unrealized pre-tax gain of $68.5 million was recorded on the interest rate swap, and the weighted average interest rate on variable rate debt (inclusive of the swap) was 4.58%[246] Argentina Currency Exposure and Hyperinflation - Effective July 1, 2018, the financial statements of the Argentina subsidiary are consolidated under highly inflationary economy rules, requiring remeasurement into USD and reflecting exchange gains/losses from monetary assets/liabilities in current earnings[247] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2023, and states that there have been no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance of accurate and timely reporting[248] - No material changes to the company's internal control over financial reporting occurred during the quarter ended March 31, 2023[249] PART II — OTHER INFORMATION Item 1. Legal Proceedings This section addresses the company's involvement in various legal proceedings, stating that while such matters arise in the ordinary course of business, the company does not anticipate any material adverse effects on its financial position, results of operations, or cash flows - The company is subject to various legal proceedings but believes that any resulting liability is not reasonably likely to be material to its financial position, results of operations, or cash flows, considering established accruals[250] Item 1A. Risk Factors This section refers to the detailed discussion of risk factors in the company's Annual Report on Form 10-K and confirms that no material changes have occurred since its filing - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended September 30, 2022[251] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's equity security purchases during the second quarter of fiscal 2023, indicating no purchases were made under publicly announced plans or programs during this period Issuer Purchases of Equity Securities (Q2 FY2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number That May Yet Be Purchased Under the Plans or Programs | | :-------------------- | :------------------------------: | :--------------------------: | :--------------------------------------------------------------------------: | :--------------------------------------------------------------------: | | January 1 - January 31 | — | — | — | 5,041,940 | | February 1 - February 28 | — | — | — | 5,041,940 | | March 1 - March 31 | — | — | — | 5,041,940 | | Total | — | — | — | 5,041,940 | - No equity securities were purchased by Energizer or its affiliates during the second quarter of fiscal 2023[253] Item 6. Exhibits This section refers to the Exhibit Index for a comprehensive list of documents filed as exhibits to the Form 10-Q - A detailed list of exhibits is provided in the Exhibit Index[254] EXHIBIT INDEX This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, incentive plans, credit agreement amendments, and certifications - The Exhibit Index lists various documents, including the Third Amended and Restated Articles of Incorporation, Fourth Amended and Restated Bylaws, Energizer Holdings, Inc. 2023 Omnibus Incentive Plan, and Amendment No. 3 to the Amended and Restated Credit Agreement[257] SIGNATURES This section contains the official signature of the registrant, Energizer Holdings, Inc., by its Executive Vice President and Chief Financial Officer, affirming the submission of the report - The report is duly signed on behalf of Energizer Holdings, Inc. by John J. Drabik, Executive Vice President and Chief Financial Officer, on May 8, 2023[261]