Energizer (ENR)2024-11-20 00:33Financial Data and Key Metrics - Organic net sales were within the guided range, with a 2.2% decline for the full fiscal year, driven by a 3.4% decline in Battery and Lights sales, partially offset by a 2.3% increase in Auto Care sales [26][27] - Adjusted gross margins improved by 190 basis points to 40.9% for the full year, with Q4 margins reaching 42.2% [9][11][27] - Free cash flow for the year was $339 million, representing 11.7% of net sales, enabling $200 million in debt reduction [9][11][28] - Adjusted EBITDA grew 2.5% to $612.4 million, and adjusted EPS increased 7.4% to $3.32 [28] - Net leverage ratio improved to 4.9x, down from 5x, with $200 million in debt reduction for the year [9][28] Business Line Performance - Battery and Lights organic sales declined 3.4%, primarily due to holiday order timing and promotional spending, partially offset by distribution gains and improved category trends [26] - Auto Care organic sales grew 2.3%, driven by distribution gains, partially offset by promotional spending [27] - E-commerce grew by approximately 15% in fiscal 2024, with plans for even more ambitious growth in fiscal 2025 [14][56] Market Performance - The company expects 1% to 2% organic sales growth across both batteries and Auto Care in fiscal 2025, with developing markets expected to drive outsized growth [12][15] - E-commerce growth is a key focus, with the US and international markets seeing significant investments in digital capabilities and partnerships [14][56] - The company is expanding its presence in developing markets, targeting regions with healthy population and GDP growth [15] Strategic Direction and Industry Competition - The company is focused on expanding distribution, accelerating e-commerce growth, and investing in innovation to drive top-line growth [13][14][17] - New product launches, such as the Armor All Podium Series and plastic-free packaging, are expected to drive growth and market leadership [17][18][20] - Project Momentum has delivered significant savings, with $90 million in fiscal 2024 and an expected $40 million to $60 million in fiscal 2025, contributing to margin improvement and investment in growth initiatives [25][31] Management Commentary on Operating Environment and Future Outlook - Management highlighted the resilience of the battery category and expects 1% growth in 2025, driven by healthy volume trends and promotional investments [48][49] - The company is well-positioned for fiscal 2025, with expectations of 1% to 2% organic sales growth, adjusted EBITDA of $625 million to $645 million, and adjusted EPS of $3.45 to $3.65 [12][30] - Management remains committed to debt reduction, with plans to pay down $150 million to $200 million in fiscal 2025, reducing leverage further [32][36] Other Important Information - The company expects gross margin expansion of approximately 50 basis points in fiscal 2025, driven by Project Momentum savings and favorable commodity costs [30] - Capital expenditures are projected to be between $80 million and $90 million, with investments in digital enablement, plastic-free packaging, and operational improvements [32] - The company anticipates a 2% to 3% organic net sales increase in Q1 2025, driven by hurricane-related demand and solid category growth [33][34] Q&A Session Summary Question: Long-term gross margin trajectory - The company expects 50 basis points of gross margin improvement in 2025, followed by algorithmic growth of 25+ basis points annually, supported by ongoing programs beyond Project Momentum [42] Question: Tariff impacts and global supply chain - Less than 5% of global cost of goods sold is subject to US tariffs due to China sourcing, with in-market production minimizing exposure [44] Question: Battery category outlook and pricing - The battery category is resilient, with mid-single-digit volume growth expected in 2025, driven by promotional investments and stable pricing [48][49] Question: Distribution gains and timing - Distribution gains are global and expected throughout fiscal 2025, with expanded space in existing retailers and new retail partnerships [52] Question: E-commerce growth and profitability - E-commerce grew 15% in 2024 and is expected to grow significantly more in 2025, driven by investments in digital capabilities and product assortment [56][59] - E-commerce profitability is neutral overall, with some margin-accretive and margin-dilutive areas [65] Question: Top-line phasing and segment performance - Q1 2025 is expected to see 2% to 3% organic sales growth, driven by hurricane-related demand, with stable growth throughout the year [69] - Volume growth of 200-300 basis points is expected, offset by 100+ basis points of pricing headwinds, with both battery and Auto Care segments contributing [71] Question: Pricing and promotional investments - Pricing headwinds of 100 basis points are expected, with elevated promotional spending to engage consumers and drive volume growth [80][81] Question: FX impact on guidance - FX is expected to be a 100-150 basis point drag on Q1 2025 revenue, with a $0.03 to $0.05 EPS impact, but the full-year guide accounts for currency headwinds [79] Question: Auto Care growth and profitability - Auto Care grew 2% in 2024 and is expected to grow 1% to 2% in 2025, supported by international expansion and the Podium Series launch [97] Question: Leverage reduction and capital allocation - The company plans to reduce leverage by half a turn annually, with $150 million to $200 million in debt reduction expected in 2025 [99][103] Question: Input cost outlook - Input costs are expected to be slightly positive in 2025, with headwinds from zinc, copper, and corrugate offset by favorable lithium and silicone costs [102] Question: Shareholder value and capital allocation - Debt reduction remains the top priority, with flexibility for other capital allocation options as leverage improves [103]