ENERGIZER HOLDINGS, INC. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Achieved organic net sales within guided range, improved adjusted gross margins, delivered strong free cash flow, and paid down $200 million of debt in FY 2024.
• Strategic growth initiatives:
  • Expanding distribution globally in both batteries and Auto Care.
  • Accelerating e-commerce growth in US and key international markets, with 15% growth in FY 2024 and expecting meaningful growth in FY 2025 due to investments from Project Momentum savings.
  • Expanding presence in developing markets where population and GDP growth are healthy.
  • Investing in pricing and revenue management to optimize trade spend and pricing, leveraging data-driven insights.
  • Innovation: In batteries, introduced the world's first three-in-one coin lithium Child Shield and plastic-free packaging. In Auto Care, launched the Armor All Podium Series developed with Oracle Red Bull Racing.
• Project Momentum delivered nearly $25 million in Q4 savings, contributing to improved margins and EBITDA.

Segment Performance

• Fourth Quarter: Organic net sales were slightly up. Battery and lights organic sales declined 3.4% due to holiday order timing and pricing/promotional spend, partially offset by distribution gains and category trends. Auto Care organic sales increased 2.3% driven by distribution gains, offset by promotional spend. Adjusted gross margin in Q4 was 42.2% (up 220 basis points), with Project Momentum savings and favorable commodity costs contributing. Adjusted EBITDA was $187.3 million, and adjusted EPS was $1.22. Free cash flow was $143.9 million.
• Full-Year FY 2024: Organic net sales declined 2.2% as guided. Battery and lights organic sales declined 3.4% mainly due to holiday order timing and pricing/promotional spend, offset by distribution gains and category trends. Auto Care organic sales increased 2.3% due to distribution gains, offset by promotional spend. Adjusted gross margin was 40.9% (up 190 basis points), adjusted EBITDA was $612.4 million, and adjusted EPS was $3.32. Free cash flow was $339 million, and net leverage ratio was 4.9 times.

Guidance

• Fiscal 2025: Expect 1%-2% organic sales growth for batteries and Auto Care, adjusted EBITDA in the range of $625 million to $645 million, and adjusted earnings per share in the range of $3.45 to $3.65. Project Momentum savings of $40 million to $60 million are included. Expect to pay down $150 million to $200 million of debt, with free cash flow 8%-10% of sales.
• First Quarter 2025: Expect organic net sales up 2%-3%, reported revenue up 1%-2% due to dollar strength, adjusted gross margins up 50-100 basis points, and adjusted EPS $0.60-$0.65. The quarter benefited from demand related to hurricanes, but offset by dollar appreciation.

Risks

• Currency Fluctuations: Sharp appreciation of the US dollar in the year started to impact revenue, with a projected drag of 100-150 basis points in the first quarter.
• Tariffs: Less than 5% of global cost of goods sold is subject to US tariffs due to China sourcing, but monitored as part of supply chain management.
• Input Costs: Fluctuations in input costs such as zinc, steel, copper, etc., which can impact margins if not managed properly.

Question and Answer

Q: Talk about gross margin trajectory long term.

A: John Drabik mentioned about 50 basis points in 2025 and then algorithmic growth of 25+ basis points annually, with programs beyond Project Momentum to drive continued margin improvement.

Q: Tariff impacts on supply chain?

A: John Drabik said less than 5% of global COGS is subject to US tariffs due to in-market production as part of Project Momentum, minimizing exposure.

Q: E-commerce growth outlook?

A: Mark Lavigne said e-commerce in US battery category is over 20%, expecting meaningful growth in 2025 due to investments from Project Momentum savings, providing a tailwind for growth.

Q: FX impact on guidance?

A: John Drabik said first quarter FX could be a 100-150 basis point drag, embedded in the guidance for the first quarter.

Q: Deleveraging and free cash flow allocation?

A: John Drabik said priority is debt paydown, and they'll consider other allocations like M&A or shareholder-friendly activities as the balance sheet strengthens.