Energizer Holdings Stock

Good morning. My name is Kelsey, and I'll be your conference operator for today's call. At this time, I would like to welcome everyone to Energizer's Third Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] This event is being recorded Tuesday, August 4, 2026. I would now like to turn the conference call over to Mr. Jon Poldan, Vice President, Global Finance Treasurer and Investor Relations. Please go ahead.

Good morning, and welcome to Energizer's third quarter fiscal 2026 conference call. Joining me today are Mark LaVigne, 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 to differ materially from these statements.

We do not undertake to update these forward-looking statements. Other factors that could cause actual results that 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 on 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 2025. With that, I would like to turn the call over to Mark.

Good morning, and thanks for joining us today. As in prior quarters, we've posted prepared remarks on our website that provide a detailed review of our third quarter performance and our outlook. I wanted to begin with a few brief comments. As we move through fiscal 2026, our priorities remain centered on strengthening the earnings power of the business, generating strong free cash flow, and continuing to improve our balance sheet. In the third quarter, we delivered organic growth across both batteries and lights and auto care, while sustaining the margin recovery achieved since the beginning of the year. These results reflect the actions we've taken over multiple years to strengthen our brands, improve execution, streamline our cost structure, and build a more resilient organization. While consumer demand moderated in the quarter, our business continues to benefit from the progress across key strategic initiatives, enabling Energizer to meaningfully outperform the battery category.

We expanded distribution, advanced innovation, and made further progress on the transition of APS sales into the Energizer branded portfolio. At the same time, Project Momentum has improved our operational flexibility and positioned us to navigate a range of operating environments while maintaining a focus on profitability and cash generation. Looking ahead, we remain confident in our strategy and the actions already underway across the business. We expect strong fourth quarter earnings growth to be supported by productivity initiatives, supply chain optimization, and the work we have done throughout the year to strengthen the profitability of the business. We believe these actions position us well to continue creating value through strong free cash flow generation and disciplined capital allocation. Thank you for your continued interest in Energizer, and with that, let's open the call for questions.

[Operator Instructions] Your first question comes from Lauren Lieberman from Barclays. Please go ahead.

I wanted to start by just kind of getting more detail on the change in guidance. So, you know, 1 quarter left and [ you ] moved to the low end of the range after an inline delivery this quarter. So, just wanted to better understand the drivers of that change. Thanks.

Good morning, Lauren. When we spoke in May, our expectation at that time was that the back half of the year was deliver around 4% organic growth. Today, we expect the back half to be roughly flat to up 1%. So clearly, there's been a change in the demand outlook. The primary driver behind this is in the battery category. At the time of the Q2 call, we expected the category to be roughly flat through the balance of the year. Since then, consumers have remained more cautious than we anticipated, and the battery category trends have softened by roughly 200 to 300 basis points relative to those expectations. And those items have been reflected in the outlook we've provided today.

This is more of a category adjustment than it is really an Energizer adjustment. The business is actually performing well within the environment that we're seeing. We continue to gain share. We're expanding distribution. We're launching innovation, and we're outperforming the categories. So while we're taking a more prudent view on our top line demand, our confidence in the business has not changed at all. The actions we've been taking are working. We're improving the quality of the portfolio, rebuilding margins, and strengthening the earnings power and increasing financial flexibility.

I would also point out the earnings and cash flow story remains very much intact. Gross margin has improved more than 430 basis points from first quarter levels. We expect fourth quarter gross margin to be north of 40%, and we expect 25% adjusted EPS growth at the midpoint in Q4. We expect strong free cash flow generation and meaningful debt reduction. So all in, that's kind of the way we were thinking about the balance of the year and wanted to provide that opportunity.

[ tension up 26 ]. Okay, great. And just one, you know, given the slowdown in category growth that you're calling, I was just curious about your read on retailer inventory levels. I know inventory, you know, there's been some retailer inventory dynamics in the first half of the fiscal year, but with the incremental flowing in the category, is that something we should watch out for further from here?

Yes, thanks, Lauren. It is something we watch. You know, we went through this. It occurred earlier this year, and there's actually a slide in the slides. There's a reference in one of the slides we posted this morning where we referenced that in the first half. It was really the first part of this year where we dealt with some inventory and destocking. We do not expect it to be an additional meaningful headwind, and really it's embedded in the revised numbers that we provided today.

Okay. All right, great. Thanks so much. I'm going to pass it on.

Thanks, Lauren.

Thank you. And your next question comes from Andrea Teixeira from JPMorgan. Please go ahead.

Thank you, operator, and good morning, everyone. I was just hoping to see if you can comment a little bit on that decline of 200 to 300 basis points. From a volume perspective, from a pricing perspective, it seems like it's both, that consumers are also down trading not only like volume-wise, but down trading from a value perspective. So can you elaborate on that and also speak to not only the U.S. but international?

Sure, Andrea. Let me get started. I think it's important to separate near-term consumer environment from long-term health of the overall category. Consumers are being more selective today. They're looking for value. They're shopping across channels and pack sizes and managing overall basket spend more carefully. [ dollars in MIPS ] in the short term. Energizer is winning in this environment. In the U.S., our value grew 1.8%, volume grew 5% on a category decline. We also gained volume and value share globally as well.

I think on the promotional front, we have no interest in buying share. I think for our business, the category is more promotional today because consumers are seeking that value that I mentioned. But the improvement we're seeing on our business is broader than just price. We're benefiting from better distribution, stronger execution, innovation, and the breadth of our portfolio. The actions we're taking are resonant. Distribution gains and the strength of our brands and the breadth of our portfolio allow us to meet consumers across both premium and value. So we're not assuming that the consumer improves from here, but we are managing the business to win with consumers where they are today. I think you're seeing that play out. I would say in the Q3, you are seeing a bit of a pricing headwind. Expect that to be neutral in Q4. So I would not extrapolate the trends you're seeing in Q3 into Q4.

And then can you comment on the cost side, how we should be thinking of your outlook now with oil prices, you get less impacted because your cargo is value added, but just thinking of how to think about the commodity cost pressure also on the raw material side.

Sure. Andrea, you know, we've done a good job getting costs out of the system. We've seen improvement in gross margins from the beginning of the year to where we are now. As Mark mentioned, we're expecting fourth quarter gross margin to be in the low 40s, and that's really a clean number for the first time this year. By clean, I mean, we've had a lot of these in and outs, for instance, there won't be any IEPA credits in our fourth quarter number. So we think that reflects a lot of the hard work that we've done, and we're in much better shape. There's still a number of moving parts, and we've been talking about it for the last couple of quarters, commodities, tariffs, FX, logistics. We're going to be disciplined, you know, about providing a full view to that when we're ready.

That should be next quarter. What I would say is we have a lot of levers that are available to us, including productivity, sourcing, network flexibility, operating efficiencies, and pricing where appropriate. So our goal as we go forward is going to be to maintain the margins we've worked to recover, as well as the overall earnings profile of the business. I would say the other area where I think we're seeing as we move forward some, you know, important factors that I think will bolster our free cash flow, which is really important to the story. So first, you know, we're finishing up Project Momentum this year. So we expect related cash costs, you know, to execute that program, which we're, you know, in large part like facility exits and severance, they should be significantly reduced going forward. The CapEx that we've been spending really for digital transformation and some of that supply chain transformation, that's been elevated in recent years in coordination with the Momentum program. And we expect that to be down pretty significantly.

We're pushing for like 1% of net sales or $30 million to come back into the run rate basis. And then we've talked about it last quarter and it's starting to occur, but we've already collected about $11 million of IEPA tariffs. That's on the recovery side. We expect the remaining $53 million that we've booked to provide a meaningful source of cash generation as we kind of finish up this year and go into next year. So cash flow should be a strong story for us as we finish up the year and go into '27. Thank you.

[Operator Instructions] And your next question comes from Robert Ottenstein from Evercore.

Great, thank you very much. First, just wanted to follow up on the category slowdown. Is this something that increased during the quarter, was fairly stable? Just kind of a little bit of color on the cadence of that, and then I think you mentioned 200 to 300 basis points, would that have been split roughly equally between price and volume, just any color around that. And then my second question is, we get the Circana data, and in that, your main competitor had pretty dramatic declines, I mean very high double-digit declines in volume in the period. I was wondering if you can give any color around that. It looks like a lost customer and any color in terms of if that's the fact, timing around that, and circumstances, whether that's something that will likely benefit you going forward. Thank you.

Good morning, Robert. I never like to speak on behalf of our competitors, I think I would just direct questions that way. We see the scanner data just like you do. Rest assured, we are in the market competing and trying to win distribution and do it the right way. It all plays out in the scanner data that you receive. I think in the first question around the dynamic in the battery category, I think we referenced it in our last quarter where we were seeing a bit of pressure on the consumer. And I think as we worked our way through the quarter, we saw it accelerate a bit. We're not anticipating that it snaps back and improves in a meaningful way over the balance of the year, which led to the 200 to 300 basis call down that we made this morning.

I do think that's a near-term dynamic, and I don't think it impacts our longer-term view of the category. Devices still continue to be healthy. Usage continues to be healthy. Change-out frequency is healthy. So all the fundamentals behind category demand are in place. And what you are seeing, though, is consumers reacting in a more near-term environment where they're making choices. They're making choices about frequency of their spend. They're stretching dollars further. And as a result, they're seeking value and they're more cautious.

And you're seeing that play out in the battery category, which results in our making a call for the Q4 that we did this morning.

And again, is this weakness split equally between volume and value and price, or is it biased in one direction or the other?

Well, so what you saw in the quarter is there's a little bit of promotional activity and there's a little bit of volume erosion in the quarter. I think going forward, you're going to see that split be, you know, it's going to be split a little bit between both. And so I think it's just our job to manage continuing to connect with consumers, invest in promotion where it makes sense, drive the appropriate volume dynamics, keep margin, you know, keep the margin that we've worked hard to preserve intact so that we can go into '27 with a stable margin, which allows the rest of our investment thesis to hold. Yes, and I think our fourth call specifically for us is that pricing would be neutral to a slightly positive.

Great. Great. Thank you very much.

Thank you, Robert. Thank you.

Next question comes from Brian McNamara from Canaccord Genuity. Please go ahead.

Hi, this is Madison Callanan on for Brian. Not to beat a dead horse, but can you tell us comment on the battery category and struggles there? Is there something structural going on, whether it's a towards battery-free technologies or something else? Is it pantry destocking? Thanks for any color you guys can give.

Yes, sure. Appreciate the question. No, there's nothing structural going on. The foundational health of the battery category is intact. Again, I mentioned devices continue to be stable in the household usage frequency. If anything, you're seeing a little bit of increased frequency because the power that these devices require is greater than it used to be. So structurally battery category is healthy. I think what you are seeing play out in the scanner data numbers is simply a reflection of consumer caution, value-seeking behavior, and the dynamic nature with which they shop. And they're changing channels, they're changing pack sizes.

All of that plays out in the scanner data. But no, we feel as positive about the battery category today as we ever have.

Great. And then are there any nuances to holiday shipment timing that we should be mindful of for Q4 and Q1 of fiscal '27?

Thank you. Holiday timing? Anything that we're aware of was built into our call today. And again, our back half is right now between Q3 and Q4 will be flat to plus 1%. And that's built into any sort of pacing and phasing we had relative to holiday.

Thank you. And there are no further questions at this time. Mark, you may please proceed.

Great. Thanks for joining us today and your interest in Energizer. Hope everyone has a great rest of the day.

Ladies and gentlemen, this does conclude your conference call for today.

Good morning. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energizer's First Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this call is being recorded. And now I would like to turn the conference over to [indiscernible] Vice President, Treasurer and Investor Relations. Please go ahead.

Good morning, and welcome to Energizer's Second Quarter Fiscal 2026 Conference Call. Joining me today are Mark LaVigne, 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 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 on 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 2025. With that, I would like to turn the call over to Mark.

Good morning, and thanks for joining us today. As in prior quarters, we posted prepared remarks on our website that provide a detailed review of our second quarter performance and our outlook, but I wanted to begin with a few brief comments. As we move through fiscal 2026, our strategic priorities remain clear and consistent, restoring growth, rebuilding margins impacted by tariffs and returning the business to its long-term historical cash flow profile.

The second quarter marked an important step forward as disciplined execution across pricing, supply chain optimization and an improved cost structure produced tangible results. During the quarter, tariff-related developments provided an incremental benefit, further supporting our ability to restore margins while still reinvesting in the business to drive sustainable top and bottom line growth. The building blocks for a return to growth are in place. We expect the third quarter to mark an inflection in organic net sales, supported by stable category dynamics, higher quality distribution across our portfolio, continued progress on the APS integration and strong innovation.

Innovation remains a core pillar of our strategy, as highlighted by the recent launch of Energizer Ultimate Child Shield. In Auto Care, growing distribution of the Armor All Podium Series, together with continued innovation across the portfolio is enhancing the business' long-term earnings and growth potential.

Stepping back, performance in the first half of fiscal 2026 was largely consistent with our expectations and reflected a transition that will be followed by a second half with organic sales growth and profitability continuing to benefit from announced and accepted pricing and ongoing supply chain initiatives. As a result, we expect to deliver the high end of our fiscal 2026 earnings outlook.

Thank you for your continued confidence in Energizer. And with that, let's open the call for questions.

[Operator Instructions] And your first question comes from the line of Peter Grom of UBS.

I was just hoping to get some perspective on the guidance for the year. Can you maybe just give us a sense for how FY '26 is playing out relative to your expectations? And I ask this just more in context of moving to the high end of the range, but that now incorporates a tailwind related to tariff refunds, which would suggest pressure in other areas. And then I guess my second question, you have this slide that really shows the multiyear progress of the business despite all the external volatility. How does this inform your view on the path forward? And maybe specifically, where do we go from here as we look out to '27?

Peter, I'll kick off, and let's start with the '26 first, and I'll cover a little bit, John will cover a little bit, and then maybe I can come back on the longer-term view. Look, I would say there's been a lot of moving pieces in fiscal '26. It is on track to be a successful year for Energizer. Our goals going into the year were to restore growth, rebuild margins and restore free cash flow. We've had nice success against all 3.

When you think about it on a top line perspective, the first half and the back half are playing out largely as we expected. We knew the first half we're going to have organic declines, and we still expect growth in Q3 and Q4. The growth in the back half of the year is really driven by the integration of the APS business. Some exciting new innovation that we're launching, new distribution that we've been able to achieve as well as a little bit of pricing. Those are in place. Those are known decisions. So that should drive the organic growth as we get into Q3 and Q4.

We are tempering a bit in terms of the macro outlook. So we did bring down our overall call for Q3 and Q4 just a touch because we do see a little bit more of a cautious consumer than maybe what we anticipated going into November. On the margins, we've done a lot of work on the network on our cost structure. We obviously have the benefit from the tariff recovery as well. So all in all, I think it's been a successful year so far. We're set up for success as we get into the back half of the year, and that's where the delivery at the high end of the earnings range is despite some of the headwinds that I just talked about. And John can maybe put a little finer point on some of the puts and takes as it relates to the tariffs.

Yes. Well, I probably would just maybe a couple of numbers on that, Mark. So on the top line, we're calling top line kind of organic flat. And that's what you just talked about reflecting that cautious consumer. I think there's a corresponding gross profit impact. So that's one of the items that we're calling out in the back half of the year. We also -- we're benefiting from these production credits. We get those credits on product that we make in the U.S. and sell anywhere. We still have some foreign sourced product in our inventory, and we're going to flush more of that through than we originally planned. So those credits will probably in '26 be about 10% to 15% lower than we originally planned, but that doesn't change kind of the run rate of what we expect from those credits over time. But it will be a bit of an impact in the back half of '26.

And then to Mark's point, what we're going to continue to reinvest for future growth? And I'd say that's in some of the innovation, e-comm and consumer engagement throughout the rest of the year. So that's really what you're kind of seeing on the back half, a bit more on the number side.

And Peter, on the -- in your question in terms of the longer term, we did put the slides in the earnings slides that we posted today because we really wanted to zoom out and take a look at how the business has performed over the last 3 years. I know you all get frustrated at the amount of seismic changes that seems to occur with the different factors that are driving our business with tariffs, production credits, [indiscernible] tariff refunds. But when you take a step back and looking at how we've operated through the COVID disruption, historic inflation, the tariff pressure and through all that volatility, we stayed disciplined on the financial algorithm, which is centered on growth, margin expansion and free cash flow.

When you look at the longer-term slides, I mean, the results speak to the resilience of what we've been able to do. And over that time period, we've maintained stable net sales while expanding our share. We've improved gross margins by about 360 basis points, and we've delivered consistent growth in both adjusted EBITDA and adjusted earnings per share. And that wasn't driven by tailwinds. That was really driven by really solid execution in the organization and structural changes that we've been able to make as all of those events were occurring.

Free cash flow has been a critical proof point. Over the last 3 years, we've generated $740 million of cumulative free cash flow, which has allowed us to reduce debt and return capital through dividends and share repo. Project Momentum, which you've all heard a lot about has been central to all of that. It reshaped the cost base. It strengthened the supply chain and improved working capital efficiency.

So I think when you take a step back and you look at that longer-term horizon, the takeaway is that even in a highly volatile environment, which we're still in, we have the ability to drive this business and deliver solid financial performance and disciplined capital deployment. And so it was that overall track record, which gives us confidence that we're going to build on that as we finish out '26, and we think we're set up to do just that, and that's reflected in the outlook that we provided today by taking the earnings to the high end of the range. Anything else, Peter?

No. That was super helpful.

And your next [indiscernible] comes [indiscernible] Dara Mohsenian of Morgan Stanley.

Maybe just to build on that, the weaker consumer you touched on and pulling down the full year top line guidance to account for that. Can you give us a bit more detail there? Auto Care, you mentioned the weaker start to the peak season. What's driving that? Is that just the consumer volatility around macros we see here? Or are there other factors there? Do you expect that to linger? And how do you think your own business is positioned just from a market share and innovation standpoint heading into the full peak season?

And then just on the Battery side, are you seeing anything in the U.S. or Europe from a consumer standpoint in terms of demand impacts? And also just help us understand any impact from the Middle East and how you guys are thinking about that going forward?

Thanks, Dara. Let me get started. A lot of questions in there. So let me answer them and then maybe as a follow-up, you can tell me where we fell short in terms of answer. Let's start with just the consumer generally. We've said it before, you've heard it from a number of our peers. They are certainly in a cautious position. They're seeking value. They are willing to switch channels, retailers, brands, pack sizes to get what they want. We are committed to meeting consumers where they are.

And we're best positioned in both of our categories in Batteries and Auto Care better than any of our competitors because of our broad portfolio of brands and offerings that we have. We're confident we can win regardless of the environment. We have a broad distribution footprint. We have multiple brands, including value brands, which we've been able to leverage to meet consumers as well as the best innovation in our categories. So in terms of controlling what we can on that front, I think we're doing an excellent job.

Now let's turn to some of the category specifics on Auto Care, for example, we're just entering peak season now. A slightly colder start to the peak season. I don't think it's anything to be unduly worried about. We continue to see the high-end consumer engage in the category. Our Podium Series launch was very timely. We've expanded that offering this year. We've expanded from 15,000 retail locations to 25,000. So from -- [indiscernible] able to capture the growth there, I think we're on solid footing.

Some mainstream consumers, again, this is where the caution probably is a little more heightened than it is at the higher end. They're starting to opt out, starting to delay, starting to engage in some other habits. Some of them are switching from do-it-for-me to do-it-yourself, which is a natural offset to that. We have the portfolio to win in Auto Care. I think we're calling for the Auto Care business to be roughly flat for the year instead of maybe some mild growth, which we thought it was going to be before. It's not a big call down. I think we're just reflecting the overall cautious consumer environment.

Let me switch to Batteries, which is obviously the biggest business we have. The category in the last 13 weeks in the U.S. has been strong. You've seen volume growth. You've seen value growth. It was driven in part by some of the winter storm that you saw. That was offset in terms of our sales by a little bit of tighter retailer inventory management. So we didn't see as much of a flow-through from replenishment as we typically would in storms, but still a net very positive benefit to the category.

Globally, you're seeing similar dynamics. You're seeing volume and value growth. What I would say in that is in some of the international modern markets, they're trailing a little bit of the dynamic of what you saw in the U.S. by maybe a quarter or 2. So you're seeing a little bit of softness there that you saw in the U.S. maybe 6 months ago. But all in all, I think it is a healthy category.

I do think as we look ahead and we see higher gas prices and we continue to see the impact on the consumer that we thought it was prudent to inject some caution in our forward look in terms of what we thought out of the consumer going forward. But both of our categories are stable. We expect to continue to drive growth. It's just not going to be as high as we thought it would be maybe 6 months ago. Let me stop there and see if -- where you want to take that, Dara.

That's very helpful. And I guess it sounds like Auto Care, a bit of a softer start reflecting this consumer environment, just given the Middle East situation, any changes in April versus March or it's more sort of the environment you're seeing generally externally and that softer start in Auto in fiscal Q2?

Auto is going to be very weather dependent. So you did see a pickup as you got further along into April. So you saw some momentum in a positive direction with Auto Care. I still think you want to make sure that you play that season out. I also think on the Middle East, there was a question of how big of an impact that is. John?

Yes. So Middle East for us is about 1% of our revenue. In the quarter, we had some shipments of finished goods on both Battery and Auto side that were held up. It was about a 50 basis point drag to our top line. So we've got a team working on alternative routes. We think we're still going to get the majority of that back into those markets, but it's more of a timing issue at this point. But obviously, we'll continue to watch that area closely.

And your next question comes from the line of Rob Ottenstein of Evercore Partners.

I was wondering if you could comment a little bit more on the Battery side in terms of your share trends and in particular, by channel, if there are different trends by channel? And then given some of your concerns on the consumer, do you think that the industry is going to get -- start getting a bit more promotional as the year goes? And how do you plan on combating that?

Sure, Robert. I think on the share side, let me -- I want to speak at a macro level and not get into individual retail share or even channel share. But what I would say is we grew share globally. We grew share in the U.S. So our share position continues to be strong. In terms of what I would expect from a category standpoint, I do think when you're dealing with cautious consumers, there is a tendency to have slightly more promotion. I think you're seeing that play out in the category. I think the frequency is increasing, but the depth is staying about the same. So you're going to see slightly more promotions than what maybe you would typically see.

But all that is for us is the sign of investing to stay consumers connected with the category. As long as we can do that in a way that still drives the gross margin improvement, that's really the calibrating factor here. I think it's a wise investment in this environment to promote a little bit to stay connected to those consumers and still continue to engage with them in a way that creates long-term benefits to your business. And we're doing it in a way that still allows us to improve gross margin in the way we've talked about throughout the year.

Your next question comes from the line of Andrea Teixeira, JPMorgan.

I was just hoping to see the 480 basis points that you had as a help for the quarter. It has obviously other quarters in from the tariff refund. How much it was in this quarter or the second quarter fiscal, just to think about like how the normalized gross margin would be? And then related to that also, I know commodities, even though you have some important commodities, but they don't represent a lot. But just thinking how we should be thinking -- I think transportation is part of your COGS, but you have a quite valuable cargo like for the weight of it. So just thinking how to think in your outlook, how we incorporate it and if you can pinpoint the amount that you're incorporating for the headwind in commodities and transportation.

And then as I'm sure you know, all the other HPC names kind of called out some impact already in the outlook. I know it might be more kind of like a fiscal '27 conversation, but then if you can give us like a little bit of a normalized margin going forward, that would be great.

And then on the Battery side, the category, as you said, like it's improving over the last few quarters. Just thinking of how like Amazon sales have been trending and private label, as it sounds like consumers may be a bit more cautious, but by the same token, you had a very good job kind of creating that premiumization factor, the new packaging. So how to think about like your value share against private label and how they would pass through these cost pressures as you hear what you see in the trade?

All right. Andrea, you win for squeezing in the most topics [indiscernible] questions. Let me -- let's get started, and I'm sure we're going to have to double back on some of that. But let me start with a little bit on '27. Like it's just too early for us to call anything related to fiscal '27, as you can appreciate. Things are changing in a relatively rapid way. We're going to approach it -- but take a step back, we are seeing what's happening in terms of any volatility related to our business. We're going to approach it the way we have the last 3 years, which is part of why we included those slides in the deck we did today.

We're going to work to offset any inflationary pressures that we're feeling with cost initiatives. We're going to leverage the flexibility that we've built into our network over the last 3 years. And then obviously, we'll take a look at pricing as it might become required because of those. Too early to call '27. I think for purposes of '26, we're largely locked. And so any of the margins that we're talking about today have largely reflected any input cost variation that we've experienced over the course of this year.

In terms of the Battery category question in terms of private label, private label, again, I think as would be expected in this environment is gaining a little bit of share. It is isolated at fewer retailers. It's not broad-based. Our portfolio gives us an advantage, and we certainly are having a lot of success leveraging our value brands so that we can meet consumers where they are, including Rayovac and Eveready. And we've had some nice distribution wins over the last couple of quarters where we are successfully leveraging the value brands in lieu of private label with certain retailers to be able to capture that demand.

And I think we're having great success. And I think the categories where we are doing that with our retailers are benefiting from that. And as a result, we're going to continue to lean in. Private label will always have a role in the category. It's something that we don't take lightly, and we make sure that we invest to keep consumers invested with brands.

Let me shoehorn a couple of answers into that, Mark. So going back to the tariffs and kind of what a normal run rate is. Andrea, we continue to incur tariffs at roughly a consistent rate with how we entered the year. So that's something like $15 million a quarter based on what we know right now or $60 million on a yearly basis. Obviously, a lot of moving ins and outs through the first 3 quarters this year. I think what we would point to is fourth quarter should be relatively clean. It should be kind of that $15 million tariff hit with no offsets from any sort of receivables, any of those credits.

So as we kind of get to the end of the year, we think it's much more normalized, and we're looking at a gross margin rate kind of in the low 40s at that point. So we think we've been able to, at least for this year, feel really good about getting a lot of those inefficiencies out, kind of normalizing the tariffs, pulling the levers that we can and getting back to a nice gross margin run rate at the end of the year.

Yes. No, I just like -- just specifically the $48 million that you have as a credit, how much it was the second quarter itself of the $48 million?

Yes. So we actually booked a receivable for $65 million. We're getting about 75% of that coming into the P&L in the second quarter, which is that $48 million or so. And then the rest of it will flush through most likely. We've written down inventory, and that will flush through the P&L in Q3.

And your next question comes from the line of Brian McNamara of Canaccord.

I think we touched a little bit on part of the question I wanted to ask here. But more broadly, I think you guys are the first company, at least that I cover that has received tariff refunds. So would you expect some of the tariff-related pricing you've taken to be subsequently clawed back given this dynamic?

So let me clarify there, Brian. We have not gotten any refunds yet. We're booking a receivable. It's a long-term receivable. So our view is that our portfolio of IEEPA tariffs was relatively clean. You had the Supreme Court ruling based on everything that we understand around the process, we feel like we are in good shape to go get this money back. So realizability is not in question. It's really just a matter of process and timing. So we are booking the receivable. We're not changing our cash flow outlook for the year. Again, it's a longer-term receivable. So we would expect to get that sometime out into the future, the actual cash back.

And Brian, I mean, we'll constantly have pricing discussions with our retailers. But just to level set, when you go back to last year, the vast majority of the pricing we took last year were -- it was before the IEEPA tariffs were put in place. And so we didn't then double back and take additional rounds of pricing as IEEPA came into place. So there wasn't a pricing justification based on IEEPA as we went through the pricing discussions.

I would point that you would see that in our gross margins that we generated in Q4, Q1 this year and would have been in Q2 that those IEEPA tariffs really were not offset by pricing.

Okay. Great. And then secondly, on Consumer Health, can you opine kind of what you've observed from higher tax refunds, obviously, in the season and then any notable detriment from higher gas prices? Were they a net positive, neutral or negative as you see it?

I would say the consumer tends to just continue to be in a cautious posture. I think that maybe the increased tax refund that consumers are seeing is bolstering them a little bit. A lot of that is likely the way at the price of fuel that they're having to pay today. So I don't think that the consumer has moved in a meaningful direction because of tax refunds or necessarily because of the price of gas. I think they've offset each other. But I still think the longer the consumer continues to be in that cautious posture, the more likely it is they're going to start to engage in different behaviors or change their spending habits.

And so it's a duration issue as well for the consumer. So they're hanging in there. They're resilient. They're still spending money, but they are willing to change behaviors and they're seeking value in order to get what they need. And that's what I mentioned earlier, which is they'll switch channels, retailers, brands, pack sizes in order to meet the needs that they have.

And your next question comes from the line of William of Bank of America.

I just have 2. The first one, the guidance, does that now include not only the $48 million credit that you got in the second quarter, but also the remaining, I guess, it would be $24 million that you expect will hit the P&L for the remainder of the year of that receivable?

It does include the entire amount. It should be like $16 million or $17 million. It would be a $65 million total.

Okay. $65 million is total, not $72 million. I must have just heard that incorrectly.

Yes, 65%.

Got it. And then have you -- just my follow-up to that, have you -- you mentioned that you guys have an understanding of the process. I have no clue if there's any dialogue that goes back and forth between those that have filed their refund requests and the governmental entities that will be paying those. Do they provide any color on when you actually may receive funds?

Not at this point. I think right now, there's a process that's opened up. There's a tool that they've implemented in order for people to submit their refunds. They're in Phase 1. We would be in Phase 2 of that refund process. As John mentioned earlier, our refund analysis is pretty clean. So we wouldn't expect a lot of back and forth. But as soon as the portal opens for us to submit, we'll submit and we'll start the process. I'm happy to have any dialogue along the way to clarify.

And then in terms of when the refunds actually get processed and issued, I still think that's an open question, which is why we've kind of had the position of the right to recover is not in question, but the process and the timing is a little open, and we're going to continue to work that process and see if we can receive the funds as soon as possible.

[Operator Instructions] And there are no further questions at this time. I will now turn the call back over to Mark LaVigne.

Thank you all for joining us today. I hope you all have a great rest of the day.

Ladies and gentlemen, this concludes today's call. Thank you, everyone, for joining. You may now disconnect.

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energizer's First Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the conference over to John Poldan, Vice President, Treasurer and Investor Relations. Please go ahead.

Good morning, and welcome to Energizer's First Quarter Fiscal 2026 Conference Call. Joining me today are Mark LaVigne, 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 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 on 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 2025.

With that, I would like to turn the call over to Mark.

Good morning, and thanks for joining us today. As we've done in prior quarters, we posted prepared remarks on our website, which provides a comprehensive overview of our achievements this quarter and our forward outlook. But I first wanted to open the call with just a few comments before we head into Q&A. As we closed our first quarter of 2026, our agenda is unchanged and firmly aligned with long-term value creation, restore growth, rebuild margins that were pressured by tariffs and return the business to our historical cash flow profile.

In the first quarter, we made meaningful progress on all fronts. Our performance exceeded expectations, and we've established a clear foundation for sequential gross margin expansion and a return to meaningful earnings growth in the back half of the year. The quarter demonstrated that our strategy is working. We secured final customer decisions on the APS to Energizer brand transition, which is expected to contribute over $30 million of organic growth in the year, most of it landing in the third and fourth quarters. We strengthened distribution across our value and premium brands with key U.S. retailers, advanced innovation across both Batteries and Lights and Auto Care and substantially completed the supply chain realignment that is central to restoring margin.

These actions position us to deliver over 300 basis points of gross margin expansion from Q1 to Q2 with another 300 to 400 basis points anticipated by year-end. We also delivered robust cash generation that allowed us to pay down over $100 million of debt while returning nearly $28 million in capital to shareholders through dividends and share repurchases, reinforcing the durability of our cash flow model.

And finally, I wanted to spend a brief moment on our capital allocation strategy, which remains a cornerstone of long-term value creation. We will continue to prioritize reducing debt, which directly shifts value to equity holders while strengthening our balance sheet. In addition to reducing leverage, our free cash flow supports a balanced shareholder-first capital allocation strategy. We intend to return capital through an attractive dividend, which reflects our confidence in ongoing cash generation and through share repurchases when market conditions create attractive entry points. This disciplined deployment of cash, paying down debt, maintaining an attractive dividend and buying back shares reinforces our commitment to maximizing long-term shareholder value. Thank you for your continued confidence in Energizer.

And with that, let's open the call for questions.

[Operator Instructions] Your first question comes from Lauren Lieberman from Barclays.

So one quarter into the year, I wanted to just get a sense for how you're thinking about things broadly versus what you might have sensed 3 months ago. So thinking about the consumer backdrop, maybe what you're seeing in terms of category trends, any kind of uptick from private label. We know the continued pressure on the lower-end consumer has been a dynamic. And it just feels like there's a lot of moving parts and now a very back half weighted year. So just kind of degree of confidence in hitting that ramp in the second half.

Let me start high level. So when we were building our plan for '26, we knew it was going to be a transitional start to the year. We saw softening consumer trends in October and November. We were lapping last year's hurricane-driven demand. And we had some orders which were planned for the first quarter, which benefited the fourth quarter of fiscal '25. On the cost side, we were managing through elevated tariff pressures, which were the result of tariffs which were levied at higher than the current rates. And in light of that, we were reshaping our network, which also created some short-term operational inefficiencies, including some absorption.

These affected the results at the end of last year, and we expected them to continue into the first half of '26. These were understood going in, were fully embedded in our plan and the quarter thus far -- the year has thus far unfolded largely as we expected. Looking ahead, we're encouraged by the trends we're seeing in the business. Consumer demand has stabilized. We saw a strong rebound in December volumes in the U.S., which remains our largest market. We also strengthened our in-store presence with broader and higher quality distribution across major retailers, which you'll see over the back half of the year. At the same time, we've done additional work to reposition our cost structure, and that's starting to take hold.

We are starting to cycle through inventory, which were impacted by those higher rates and our mitigation efforts are starting to come to fruition. That includes relocating production capacity in the U.S., diversifying sourcing and investing in efficiencies to make the network more efficient. We've taken targeted steps to increase production to increase the tax credits, which we expect to earn this year, which should drive a benefit of roughly 50% above last year.

These dynamics are all coming together and setting us up for a strong acceleration of net sales and earnings in the back half. So while the first half reflects the short-term factors, the underlying trajectory is improving. This year is really about restoring growth, restoring margins and restoring free cash flow. And thus far, we're off to a great start.

Specific, Lauren, to your question on battery consumption trends, we saw a meaningful improvement in the quarter. As I just mentioned, December inflected the volume growth. You see in the scanner trends, the 13-week volume was slightly negative. But then when you see the December data in the 4 weeks, that was where volume inflected the positive. Obviously, January is going to have a very positive volume growth with the winter storms in the U.S. For the balance of the year, we expect the category to be stable and the trajectory of the category is essentially what we assume going into the year. Anything I missed?

No, I think that was perfect.

Your next question comes from Peter Grom from UBS.

I guess I wanted to follow up on that last point, right, just on the January trends and kind of the impact of weather. And so I ask this in the context of -- you mentioned in the release that your outlook does not contemplate any impact from the recent winter storm activity. So just whether it's based on what you've seen thus far, maybe what you've seen over time, can you maybe just help us understand what this could do to your guidance as it relates to either the second quarter or to the full year outlook?

Sure. Peter, why don't I start with the storm impact and then maybe John can bridge a little bit of kind of the front half, back half dynamic that we're seeing. I mean the storm volume in the U.S., clearly, was a benefit to POS. I mean the 1-week numbers were significant, category value north of 50%. It's really too early to quantify the impact that this will have on our business as we'll need to work through replenishment orders. We need to manage through any shipments, which may have been disrupted because of the weather as well as work through resulting inventory levels at retailer inventory levels.

It will certainly be a benefit for our business, but it's just too early to tell how much. I would say there's just more to come on that in connection with the Q2 earnings call. John, do you want to walk through kind of the bridge as we think through the balance of the year?

Yes, Mark, I can take us down maybe a level from where you were setting it up. So our view for the back half of the year or the rest of the year is really that the category is relatively flattish. And as Mark said, that's kind of what we've seen in December and into January. So we've got a good base to build on. Some of the key drivers on the top line that we're looking at, we've called out the transition of APS customers to Energizer branded product. That's like -- we expect that to contribute $30 million or roughly 200 basis points of organic growth.

One of the other things, we have plans to really increase distribution in the back half of the year, and that's by leveraging innovation and leaning into our full portfolio. That's across both brick-and-mortar and fast-growing e-commerce. So based on current planogram changes that we've got as well as NPD sell-in and then that e-com growth, we're expecting 400 to 500 basis points of growth in the back half. And then we've got some carryover pricing as well as some targeted tactical pricing that we expect to have kind of a 50 to 100 basis point benefit as we go into the back half of the year. So we're seeing good things within our plan on the top line.

And then gross margin, obviously, first quarter was really impacted by a number of factors. A lot of them are not going to continue. So we kind of wanted to give some color around that. I mean, the first one is the tariffs were almost a 300-basis-point impact in the first quarter. We're still flushing through some of that inventory that we bought in the spring and in the summer. So the rate was higher at that point. We expect that to improve as we go throughout the second quarter and into the rest of the year. We also -- you'll see in our report, we sold about $65 million of Panasonic branded product in Q1. That's really related to the APS transition. So we sold through. We're losing that market at 12/31 and we've lost it already. We sold through all that inventory and worked with our customers there in Europe to try to transition. That had a pretty big impact on gross margin. So that was a 200 basis point hit. That's not going to recur as we go throughout the rest of the year.

The other big one that we've been talking about for a while are the transitional product cost impacts. Those were almost 100 basis points. We've done a lot of work to reset the global supply chain. We should flush through most of that as we get through Q2 and then the rest of the year, we should be in really good shape. So as we look at Q2, we expect 300 basis points of sequential improvement, and then we see continued expansion as we go through into Q3 and Q4.

I think our plan is to get back into the low 40s, which is kind of where we were before the tariffs really hit. And I think we're going to get past these transitional onetime costs and leverage targeted pricing and then optimize production credits really in the back half of the year. So we've got some good trends going on.

Peter, we broadened your question a little bit. We thought it was important to sort of highlight that front half, back half.

No, that is helpful. I mean, I guess one follow-up to that. I mean, the building blocks are really helpful, but it remains a pretty volatile uncertain environment. So how would you characterize or how did you think about layering in flexibility or cushion as you think about the guidance from here?

Yes, Peter, we always try to build in enough flexibility in the plan to be able to deal with uncertainty. I mean, what you just described has been a constant over the last 5 or 6 years. So every year evolves differently than you expect going in. I think if one thing this organization has developed over that time period, it's the muscle memory to be able to read and react the situation and adjust your plans accordingly. And that's a daily occurrence around here. So I think we've got the right plans in place. We're confident in the outlook that we provided. It may not play out exactly as we forecast sitting here today. But ultimately, we feel like we can deliver the financials we've laid out.

Your next question comes from Rob Ottenstein from Evercore.

I think you may have just answered my question, but I want to make sure. So Batteries, much stronger than we would have expected, less increase in gross profit than we would have expected. Is that -- have you just basically totally explained what happened there in terms of Panasonic and the tariffs? Or are there other factors? Or do I just have that all wrong?

No, that's right, Robert. It's the 3 items. It's the higher tariffs. APS was really -- it was a 200 basis point drag on its own in the quarter. And then it's the product cost transitional nature of some of those changes that we've got going on that should continue to improve.

Great. And then can you talk about the strength in December? Was that the category? Or was it more you? And does that tell us anything about potential market share gains in '26? And maybe you could touch on what you see in calendar '26 in terms of shelf space, points of distribution, those sorts of drivers?

Sure, Robert. The category certainly improved in December, but we also have gained share in the latest reporting periods as well. So that's continuing to be -- so the category is improving, and we're improving slightly ahead of the category. As we look ahead in calendar '26, we do expect our distribution footprint to increase both -- a broader distribution footprint, but also higher quality distribution. We're leveraging our full portfolio to do that from value to premium to make sure that we're meeting consumers where they are. We also have sold in some exciting innovation in both Batteries and Auto Care that you're going to see in Q2 and Q3. So we're excited about the plans we have with our retailers as we head into the rest of the year.

Your next question comes from Andrea Teixeira from JPMorgan.

Just want to just drill down a little bit on the top line. And obviously, you said that stable categories and you're also taking pricing, selective pricing. I was curious to see how the dynamics within private label, in particular, obviously, the largest e-commerce partner that you have. Like how are you thinking of pricing against volume within that guide? And from there, like what is your expectation in terms of shelf resets? You did say -- I believe you did say, as usual, like some additional shelf space. So just thinking of that. And since we haven't discussed the autos yet, like just a state of the union there, that would be great.

Sure, Andrea. Let me start with Auto. I mean, it's the smallest quarter we have in Auto in Q1. There was a slight impact from weather as well as some timing as well within the Auto business. We're heading into peak season. We're really excited about your [indiscernible] Podium Series. We have additional innovation that we're launching across the portfolio. We always are excited about the prospects of international growth as well as growth in e-commerce. You are seeing a little bit more of a bifurcated consumer in the Auto category where higher-end parts of the category are showing growth where middle to the lower end of the category, you're having some consumers that are delaying purchases or opting out altogether. I think that makes the Podium Series launch all the more timely for us, which we're participating now in growth at the high end. So as we head into Auto Care for the balance of the year, still expecting growth, but you are seeing a little bit more of a pronounced bifurcated consumer in that part than maybe what you're seeing in Batteries.

Now if I want to switch over to Batteries, I mean, let's just talk consumers generally. I mean consumers are continuing to search for value. You are seeing consumers stressed about finances. In light of those dynamics, they're comfortable switching channels, retailers, brands, pack sizes. So they're willing to rotate their purchases to meet their needs. It's critical that we meet them where they are, and this is where Energizer is uniquely positioned with our full portfolio. Private label plays a role in the category. Certainly, some retailers are looking to connect with consumers in light of those trends. In the first quarter, we did see an increase in private label at certain retailers as well as some aggressive pricing. This results in volume growth for those retailers, but actually erodes category value at the same time. And our view is this is all about balance, and we've already seen some retailers recalibrate their approach and bring more balance to both private label value and premium equation.

Even with those dynamics, we gained share over the holiday period, and we're excited about some of the plans that we're leveraging in order to be able to compete with private label, but also leverage our value brands and our premium brands to connect with consumers.

Your next question comes from Carla Casella from JPMorgan.

I'm wondering if you're -- with your guidance, do you have a leverage target where you think you would like to get to by the end of this year?

Yes. I think by the end of this year, we're expecting to get 5 or a little bit below. We're going to continue to prioritize debt paydown. We feel like we can -- we've paid down over $100 million in the first quarter, still targeting $150 million to $200 million. So I think that's what will drive the leverage level over the rest of the year.

Okay. Great. And should we assume that M&A is back burner until you delever? Or are you looking at M&A opportunities?

We will always look at M&A opportunities. I think any deals that we would look at would be leverage neutral and not impact our debt paydown trajectory that we're looking to achieve. So that would be on the smaller side.

Okay. Great. And then I know in the past, you've often talked about storms affecting, the hurricanes, winter storms. Are there distinct differences between winter storms and summer storms? Do you prefer one or the other? Just curious.

Well, I mean, hurricanes tend to be a little more isolated in terms of impact and whereas this winter storm that we saw over the last couple of weeks really covered a broad section of the country, which is a little different. So the response is going to be different and the impact on our business will be different. But I wouldn't say we prefer either, but we make sure that we can deliver products when consumers need them. And obviously, this is something that the organization excels at.

Great. Yes, [indiscernible] figure how to word. That was horribly worded, but thank you, you got my gist.

Don't worry. We struggle with that, too.

[Operator Instructions] Your next question comes from William Reuter from Bank of America.

The first, you mentioned that there were impacts of products that were produced during periods when tariffs were elevated, which have since normalized to the current levels. Can you talk about what the amount of impact that we should kind of normalize this quarter's EBITDA by based upon the elevated tariff rates?

Look, I think I'd probably -- I think we're calling for something like $60 million to $70 million of tariffs or around $60 million was maybe the last where we were. I think that would be relatively fixed as you go through. We took maybe a bigger hit in the first quarter, but that should be the run rate.

Okay. So I guess I thought you guys had highlighted that the elevated tariff rates, the $145 million probably on some products impacted you. Did I misunderstand that?

Yes. It will go down a bit as you go through the year. I don't have the exact tariff hit in the first quarter. We'll come back to you on that exact number. But it does get a little bit better. Plus remember, we've got pricing and credits and the credits -- the tax credits that we've got will continue to grow as we go throughout the year. So the total impact that we're calling for tariffs will improve as we go throughout.

Got it. And then on the gross margins, you were explicit that the second quarter will improve 300 basis points. And then you said an additional 300 to 400 by the end of the year. So does that mean you will see a sequential improvement from the second to the third and fourth quarters of 300 to 400 basis points in each of the...

That's exactly right, Bill. It will be sequential. And we did -- I mean, our first quarter tariff impact was about 300 basis points. That will get better on a margin rate as we go forward, for sure.

And Bill, just to clarify, just to make sure you're not walking away with a different model. So it's 300 basis points from Q1 to Q2 and then 300 to 400 between Q3 and Q4, not in each of Q3 and Q4.

That's right.

Okay. I might send you an e-mail just to make sure I understand that correctly. Lastly, for your input costs, certainly, there's some inflation in some of those metals. Can you talk about what you're seeing now? How much you have locked in? And then what that might mean for necessary price increases next year for products which you haven't hedged if these elevated input costs remain?

Yes. We did see a bit of a drag in the first quarter. It was about 80 basis points, and we had some momentum offset to that, but it was really input costs, especially freight and some of our production inefficiencies. Raw materials, we're -- right now, we're about a bit of a push. But on spot prices, we're seeing, especially zinc has gone up. We've also seen some moves, some negative moves in lithium, obviously, silver and then R-134a, which is the gas and a lot of our refrigerant products. On zinc, we're over 90% fixed for '26. We've got between contracts and inventory, we're probably in a decent position on a lot of these.

I think, we'll continue to see pressure as we go more into '27. We've also taken some targeted pricing, especially on the Auto side for some of those cost impacts that should come in, in the second and third quarter, and that's a little bit what we alluded to earlier. So all in, the trends are slightly negative. I don't expect it to be a huge impact to '26, but it's something that we've got to continue to manage.

Bill, one follow-up. On your question on margin. We have a slide within the earnings deck that provides a little bit more color on the margin progression over the balance of the year, which I think you may find helpful, but happy to connect after the call as well.

And there are no further questions at this time. I will turn the call back over to Mark LaVigne for closing remarks.

Thanks for joining us today. I hope everyone has a great rest of the day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

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.

[Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to John Poldan, 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 LaVigne, 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 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 the 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 on 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% to nearly $3 billion. Adjusted earnings per share increased 6% 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 repurchases, 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 that 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 3 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 their 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.

[Operator Instructions] The first question comes from Peter Grom at UBS.

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, Peter. Let me start. I'm going to hand it to John, and then I'll maybe finish in kind of how we were -- 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 3 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 3-year period with $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 of 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 FY '25 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 preserve 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 is going to describe.

So it's really been a remarkable transformation, as you said, in a really disruptive volatile environment over the last 3 years, which ended in a sort of 6-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 were really set up from Q2, Q3 and Q4 to get back to more historical wells of performance from a financial perspective. So John, do you want to talk through the ramp?

Yes. 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 -- we've got both that storm comp and the shift in display timing that we called out. Both of those we view as onetime 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 2, 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 margin is 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 chains around to offset the tariffs. And it will 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 try to do is be really clear 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 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 -- 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, and that's going to inevitably change along the way.

The next question comes from Lauren Lieberman at Barclays.

Just wanted to take a step back maybe and like a bigger picture look. Consumer slowdown, softening, just want your perspective on maybe what's changed since we last spoke, 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?

Yes. 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, as we've just seen, is 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 into October, you really did see softening consumer sentiment, and we're seeing it in the category data for Batteries. We are seeing some of the -- more recent time period 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, 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 -- it does... Yes, sorry. Go ahead.

As we progress through the year, and this is 1 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 lap 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 comp?

Yes.

The next question comes from Rob Ottenstein at Evercore.

Great. 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?

Consumers are certainly seeking value. They're cautious. They're very comfortable shifting channels to be able to find the value of the product to meet their needs. That manifests itself in a lot of different ways. You've got brands, pack sizes, as you mentioned, channel. Certainly, e-commerce 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 a growth of 25% for the year. As we look ahead to '26, we expect 15% growth off of that 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.

The next question comes from Andrea Teixeira at JPMorgan.

This is Shovana Chowdhury on for Andrea. On your management commentary, one of the levers to [ restrict ] gross margin includes optimizing U.S. manufacturing to maximize our future benefits from production credits. As such, can you give us a sense of magnitude of incremental benefit from your prior estimate of $35 million to $40 million annually?

Yes. We are continuing to invest in domestic production to drive those credits. We think there could be upside of $15 million 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.

And quickly, just to clarify, and is that something that would be a benefit starting fiscal '26 possibly? Or is that like more a fiscal '27 onward story if you get this incremental benefit?

Yes, that's -- we anticipate that in 2016, so kind of that level.

The next question comes from William Reuter at Bank of America.

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 2% or 3% or 4% this year, and then it bounces back for future years?

Consumers are changing. I mean what we see is consumers will typically drain household inventory. The 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 historic 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 pack 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 a follow-up for me. I think that there had been an algorithm of an expectation of kind of 0.5 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?

Yes. Look, first priority is going to be to pay down debt. We think we can get back to resumption of normalized cash in '25 -- or cash flow in '25. 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 '26. So we think that we can get to kind of somewhere north of 10% on free cash flow. We would focus on paying down $150 million 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 0.5 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 we'll continue to push there.

[Operator Instructions] The next question comes from Brian McNamara at Canaccord Genuity.

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 to kind of our Q4, Q1 dynamic that we were highlighting today. So we saw displays going at the end of Q4 that were -- we thought were going to go into 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. For purposes of what 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.

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

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

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