Energizer Holdings, Inc. Announces Fiscal 2023 Third Quarter Results

• Net sales decreased 3.9%, Organic Net sales down 2.7%.¹
• Gross margin of 37.9%, and 38.8% on an adjusted basis, as sequential improvement continues through the third quarter, driven largely by the benefits of Project Momentum initiatives. ¹
• Operating cash flow of $296.3 million with Free cash flow exceeding 12% of Net Sales year-to-date.¹
• Debt pay down of $200 million in the first three quarters.
• Adding a third year to Project Momentum and increasing estimated program savings to $130 to $150 million.
• Reaffirms fiscal year outlook for Adjusted earnings per share and Adjusted EBITDA at the low end of original range.¹

ST. LOUIS, Aug. 8, 2023 /PRNewswire/ -- Energizer Holdings, Inc. (NYSE: ENR) today announced results for the third fiscal quarter ended June 30, 2023.

"While we faced top-line challenges in the third quarter, we have taken aggressive actions throughout the year to preserve the earnings power of our business," said Mark LaVigne, Chief Executive Officer. "We are accelerating our plans under Project Momentum and now expect program savings to be in the range of $130 to $150 million, an increase of $50 million from our original estimate. Despite lower net sales, we still expect to deliver full fiscal year 2023 adjusted earnings per share and adjusted EBITDA at the low end of our original range."

"Though the year has not progressed as expected, the actions we are taking to position the business for long term success are leading to steadily improving margins and cash flow, enabling us to reduce debt and reinvest back into our business to deliver sustainable growth and long-term shareholder value."

Top-Line Performance

For the quarter, we had Net sales of $699.4 million compared to $728.0 million in the prior year period.

• Organic Net sales decreased 2.7% primarily due to the following items:
  • Volume declines across battery impacted organic revenue by approximately 4.5% due to weaker performance at a number of non-tracked retail customers during the quarter and general economic headwinds impacting category performance;
  • Volume declines from our auto care business of approximately 3.0%, largely due to cooler weather in the quarter negatively impacting refrigerant sales, and
  • Volume declines of approximately 1.5% from the planned exit of low margin business and a decline in our sales to device manufacturers due to their delay of new product launches.
  • Partially offsetting the declines was the continued benefit of global pricing actions in both the battery and auto care businesses contributing approximately 6.5% to organic sales.

Gross Margin

Gross margin percentage on a reported basis was 37.9% versus 39.0% in the prior year. Excluding the current year restructuring costs and prior year costs related to the flooding of our Brazil plant, adjusted gross margin was 38.8%, compared to the prior year adjusted gross margin of 40.4%.⁽¹⁾

The Gross margin decline was largely driven by higher operating costs, including raw materials, the timing of inventory builds in the prior year, ongoing inflationary trends and adverse currency impacts. The decline was partially offset by the continued benefit of pricing initiatives, Project Momentum savings of $10.7 million and the benefit of exiting lower margin battery business.

Selling, General and Administrative Expense (SG&A)

SG&A, excluding restructuring costs, for the third quarter was 16.2% of Net sales, or $113.3 million, compared to 16.3%, or $118.9 in the prior year. The year-over-year decrease was primarily driven by Project Momentum savings, favorable currency impacts and lower environmental expense. These declines were partially offset by higher compensation expense and factoring fees in the current year.⁽¹⁾

Advertising and Promotion Expense (A&P)

A&P expense decreased $0.9 million and was 5.4% of net sales for the third fiscal quarter, compared to 5.3% in the prior year.

The decline in Net earnings, Earnings per share and Adjusted EBITDA for the quarter reflects the decrease in organic net sales, the decline in gross margin, higher interest expense and adverse currency movements. These declines were partially offset by savings from Project Momentum initiatives and decreased A&P and SG&A spending.

Capital Allocation

• Dividend payments in the quarter were approximately $22 million, or $0.30 per common share.
• Operating cash flow for the first three quarters was $296.3 million, and free cash flow was $261.6 million, or 12.2% of Net sales.
• Long-term debt pay down in the first three quarters was $200.0 million. Net debt to Adjusted EBITDA was 5.7 times as of June 30, 2023.

Financial Outlook and Assumptions for Fiscal Year 2023⁽¹⁾

We are lowering our outlook for full year organic revenue from up low single digits to down low single digits. Even with lower revenues, we expect continued gross margin recovery, driven largely by Project Momentum savings, to support delivery of Adjusted EPS and Adjusted EBITDA at the low end of our previously communicated ranges.

We anticipate fourth fiscal quarter organic revenue will be roughly flat with significant year over year gross margin improvement due to declining input costs and the continued benefit of Project Momentum savings. For the fourth fiscal quarter, we anticipate Adjusted EPS to be in the range of $1.10 to $1.20 and Adjusted EBITDA in the range of $173 and $183 million.

Project Momentum remains on track with approximately $32 million of savings delivered year-to-date and total project savings of $45 to $50 million anticipated for the full year. We have added a third year to the program that will increase our savings to $130 to $150 million by the end of 2025. Total one-time program cash costs are now projected to be roughly 75% of expected savings. With the expansion of the program, total one-time cash project costs for the current year are now expected to be in the range of $45 to $50 million.

Webcast Information

In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. Eastern Time today. The call will focus on third fiscal quarter earnings and recent trends in the business. All interested parties may access a live webcast of this conference call at www.energizerholdings.com, under "Investors" and "Events and Presentations" tabs or by using the following link:

https://app.webinar.net/Yy8Abz7MOpG

For those unable to participate during the live webcast, a replay will be available on www.energizerholdings.com, under "Investors," "Events and Presentations," and "Past Events" tabs.

This document contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future sales, gross margins, costs, earnings, cash flows, tax rates and performance of the Company. These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "will," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "should," "forecast," "outlook," or other similar words or phrases. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this document are only made as of the date of this document and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:

• Global economic and financial market conditions, including the conditions resulting from the COVID-19 pandemic, and actions taken by our customers, suppliers, other business partners and governments in markets in which we compete might materially and negatively impact us.
• Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
• Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
• We must successfully manage the demand, supply, and operational challenges brought about by the COVID-19 pandemic and any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
• Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
• Loss of any of our principal customers could significantly decrease our sales and profitability.
• Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
• We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
• If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
• Changes in production costs, including raw material prices and transportation costs, from inflation or otherwise, have adversely affected, and in the future could erode, our profit margins and negatively impact operating results.
• Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
• Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
• The manufacturing facilities, supply channels or other business operations of the Company and our suppliers may be subject to disruption from events beyond our control.
• The Company's future results may be affected by its operational execution, including scenarios where the Company generates fewer productivity improvements than estimated.
• If our goodwill and indefinite-lived intangible assets become impaired, we will be required to record impairment charges, which may be significant.
• A failure of a key information technology system could adversely impact our ability to conduct business.
• We rely significantly on information technology and any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.
• We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
• If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
• Our business involves the potential for product liability claims, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
• Our business is subject to increasing government regulations in both the U.S. and abroad that could impose material costs.
• Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on environmental, social and governance (ESG) issues, including those related to sustainability and climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
• We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition.

In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements. The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly filed documents, including those described under the heading "Risk Factors" in our Form 10-K filed with the Securities and Exchange Commission on November 15, 2022.