Energizer Holdings, Inc. (ENR) Q3 2011 Earnings Report, Transcript and Summary

Good morning. My name is Chris, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Energizer Holdings Inc. Third Quarter 2011 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. At this time, I would now like to turn the conference over to Jackie Burwitz, Vice President, Investor Relations. You may begin your conference.

Thank you, Chris. Good morning, everyone, and thank you for joining us on Energizer's third quarter 2011 earnings conference call. With me this morning are Ward Klein, Chief Executive Officer; and Dan Sescleifer, Chief Financial Officer. This call is being recorded and will be available for replay via our website, energizer.com. During our prepared comments and the question-and-answer session that follows, we will be making statements expressing the beliefs and expectations of management regarding future performance including future earnings, investments on spending initiatives, restructuring charges and cost savings, the impact of the elimination of pack upsizing and price increases, A&P spendings, currency fluctuations, raw material and commodity costs and the ASR acquisition. Any such statements are forward-looking statements, which reflect our current views with respect to future events and are based on assumptions and therefore, are subject to risks and uncertainties. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitations, those described under the caption Risk Factors in our Annual Report on Form 10-K filed November 23, 2010. We do not undertake or plan to update these forward-looking statements even though our situation may change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release issued earlier today, which is available on the Investor Relations section of our website, energizer.com. Management believes these non-GAAP measures provide investors valuable information on the underlying growth trends of the business. With that, I will now turn the call over to Ward.

Thank you, Jackie. Good morning, everyone, and welcome to Energizer's third quarter conference call. Fiscal year 2011 continues to be a year of investment for Energizer. Our investments, as outlined in previous communications, are being made as planned, and we continue to anticipate strong returns going forward as a result. The launch of Hydro has now passed the one year mark in North America, and I'm happy to report that sales and consumer acceptance metrics have exceeded the high expectations we have for this revolutionary new product. Meanwhile, our Household Products restructuring initiative is being implemented as previously outlined, and we are well on our way to realize expected savings. In addition, the investments we are making in strategic markets and in product growth initiatives continue to look promising. In the release, we updated our guidance for fiscal 2011 and now expect total GAAP earnings per share for the full fiscal year to be in the range of $3.90 to $4.10. This is lower than the previous guidance due to the make-whole payments associated with the debt refinancing that was completed in May, which was not included in our previous guidance. Excluding unusual items, most notably the make-whole charges, the Household Products restructuring and the acquisition and integration of American Safety Razor, we reconfirmed that adjusted diluted earnings per share for fiscal 2011 are still expected to be in the range of $5.10 to $5.30. With that, I'll turn the call over to Dan to review the financial highlights of the quarter.

Thanks, Ward. Before giving you an overview of the quarter, I would like to point out some changes that we made to the earnings release. We have added several tables, including a reconciliation on GAAP earnings per share to adjusted earnings per share, along with net sales and segment profit tables showing the changes year-over-year for the quarter and the year. We have made these changes in response to investor feedback and believe that the new format should better facilitate understanding of the company's results. Now let's look at our third quarter earnings. For the third quarter, earnings per share were $0.94 versus $1.47 in the third quarter of fiscal 2010. The $0.94 for the third quarter included charges related to the Household Products restructuring, the acquisition and integration of the American Safety Razor business and make-whole payments on the private placement notes retired in connection with our recent refinancing. Combined, these items in the quarter negatively impacted earnings per share by $0.43. Net sales for the quarter increased $158 million or 15% due to the inclusion of the American Safety Razor business, favorable currencies and continued growth in Personal Care. Organic sales grew $28 million or 3% due to solid top line growth in Personal Care. Gross margin for the quarter declined 170 basis points, primarily due to the addition of value-priced products from the American Safety Razor acquisition. This impact was expected based on the lower gross margins of ASR. Advertising and promotion, excluding the American Safety Razor business, was essentially flat as a percent of net sales versus the same quarter a year ago, as we continue to support the launch of Schick Hydro in key markets around the world. Selling, general and administrative expenses increased $30 million versus last year's third quarter. This increase is primarily due to the inclusion of American Safety Razor and currencies. Now turning to divisional results. In Personal Care, organic sales growth was nearly 5% due in large part to strong sun care shipments in the quarter. As we discussed last quarter, as compared to the 2010 season, significant shipments moved from Q2 to Q3 in part, due to the timing of the Easter holiday in 2011. In addition, we've experienced lower sun care returns this year as we've improved our business model over the past year. While timing of shipments did shift between quarters, year-to-date, our sun care shipments have grown globally with better distribution and new products. Ward will cover our business model improvements and organic growth drivers in more detail during his remarks. Our Wet Shave business experienced solid top line growth versus last year, driven by strong disposable sales growth and increased Hydro sales. Despite the significant pipeline fill associated with the North American launch in the third quarter of 2010, Hydro net sales increased behind the launches in Asia and Europe, while maintaining momentum behind retail sales in North America. Disposables grew approximately 15% on both higher shipments and favorable price mix. Offsetting most of these sales increases were anticipated decline in legacy men's system brands due to the launch of Hydro and the impact of the March natural disaster in Japan. In addition, women's systems and shave preparation sales were both down modestly in the quarter due to the timing of launches and promotions versus prior year. Both are performing well with higher volumes and favorable price mix year-to-date. I'll highlight 3 other segments briefly. We had solid results in our other Skin Care brands outside of sun care due to distribution gains and good consumer takeaway with promotional packs. In Feminine Care, sales were up modestly as our growth in Sport behind strong promotional programs more than offset declines in Gentle Glide. Infant Care declined modestly again this quarter across most product lines consistent with the category. As a result, the Personal Care segment profit was higher by 14.5% on an operational basis, driven by higher organic sales just discussed and modestly lower advertising and promotion expense. A&P spending remained at historically high levels as we continue to fund the launch of Hydro internationally. ASR results continue to pace above our original expectations. We initially disclosed that we did not expect the transaction to be accretive on an all-in basis and only modestly accretive ex unusuals for fiscal 2011. Given stronger-than- anticipated operating results, however, we now estimate that the transaction will be slightly accretive $0.05 to $0.07 on an all-in basis and approximately $0.15 to $0.20, excluding the inventory write-up and integration, severance and yield cost. Turning to Household Products. Organic sales were flat as pipeline sales for new distribution and space gains in France and U.S. and returns from strategic international market investments offset continued category declines in the U.S. and Western Europe. Recent pricing increases on C, D and 9-volt sizes in the U.S. and other international markets have partially offset the continued trend of value declines in the battery category. Household Products segment profit was down $22 million or 24% on an operational basis versus last year's third quarter. The profit decline was due primarily to increased commodity costs of approximately $9 million and the timing of A&P spending. During Q3, we began to feel the full impact of rising commodity costs, primarily in zinc, steel, silver and EMD and although zinc hedging program has helped mitigate some of the volatility in commodity prices. We are launching a positive energy marketing campaign globally behind our Household Products portfolio and as a result, has shifted A&P dollars from the first half of the year to the second half. Overall, A&P spending is projected to be flat for the full year, but timing shifts have impacted year-over-year quarter comparability. Our restructuring project, announced in the fourth quarter of fiscal 2010, remains on track, and we continue to estimate the total restructuring cost will be in the range of approximately $75 million to $85 million with the vast majority in fiscal 2011. We expect to generate annual savings of approximately $25 million to $35 million by the end of fiscal 2012 and have recognized approximately $4 million, thus far, in fiscal 2011. The third quarter and 9 months ended June 30, 2011, included pre-tax restructuring charges of approximately $21 million and $60 million, respectively. With that overview of the quarter, I will now turn the call back over to Ward.

Thank you, Dan. Now I will walk you through each of our businesses and the key factors that are impacting them. On the positive side, we continue to make the necessary investments in our business that will drive top and bottom line growth in 2012 and beyond. Our Personal Care business continues to generate strong organic growth across the majority of our product segments. Across the portfolio, we are competing well, reflecting our emphasis on providing consumers with products that deliver superior performance and delivering category expertise and superior category solutions to our trade customers. The Hydro men's system launch has been a key priority during this year of investment and is a good example of our focus on satisfying consumer and customer needs better than anyone else. With consumers, we continue to see extremely strong product satisfaction scores and very encouraging first, second and third repeat rates. With customers, we are gratified by strong support of our promotional and merchandising programs and we have driven the vast majority of the category unit growth over the last year. As you know, we have launched Hydro in most of our key markets including North America, Japan, Western Europe and other markets in Asia. In the United States, we have achieved a 13.5 share for the quarter. It's 12-week FDMx, up 0.8 points versus a tough launch period comparison a year ago. We continue to be on plan for razor trial, and we have seen that trial translated to increased refill blade shift. In the most recent 4 weeks, Schick's unit share of men's refills exceeded 15%, an all-time high. International, we have also increased our men's system share behind the launch of Hydro despite intense competitive promotional and new product activity. For example, Hydro has increased men's share in Europe on accumulative basis since launch, with men's share up 1.2 points to 16% in Germany, up 1.8 points to 13% in the U.K. and up 2 points to 20% in France. Looking forward, in existing markets, we will continue to focus on building Hydro awareness and generating trial. Please keep in mind, we have just annualized through the April 2010 Hydro launch in the U.S., and we are still in year one launch mode in Japan where Hydro was launched in August of 2010, in major Western European markets where Hydro was launched in October of 2010. Furthermore, we continue to expand Hydro's presence into new markets. For example, this quarter, we introduced Hydro in Austria, Switzerland and Spain. It is obviously early in those markets, but we are encouraged by trade reception and early turns. By the end of the fiscal year, we expect to have launched Hydro for men into 13 out of over 140 markets where we do business. In addition to Hydro, our solid quarter in Wet Shave was driven by growth in disposables and our American Safety Razor acquisition. Disposable net sales continue to grow behind both the Schick and Wilkinson Sword brands and across all areas on pricing and higher volumes globally. We continue to leverage our portfolio of disposable products across all consumer segments in the United States and internationally to provide products for consumers at all price points. As a result, we continue to see growth and trade-up to products like Xtreme3 and Quattro disposables, but also growth in our twin-blade disposables like Slim Twin or Exacta. In addition, we have continued to launch and support line extensions for both men's and women's disposable products. The value segment within disposables has continued to grow, and with the ASR acquisition, we believe we're in an even better position to participate across the globe. ASR results have been better than anticipated as we're benefiting from strong category growth globally, as well as favorable product mix and costs. Integration has gone according to plan and our colleagues in branded and private label groups are working well together to maximize the Wet Shave opportunity. We continue to receive very positive feedback from our trade customers about the acquisition and our increased category management capabilities across the portfolio. We're also excited about the early results for our launch of ASR's next generation of 3- and 5-bladed products, which are in very early stages in both U.S. and Europe. I visited several of the ASR locations 2 weeks ago and continue to be impressed with the colleagues, management team, facilities and operational and technical capabilities we acquired. I'm even more confident after these visits in our ability to strengthen our share and profit in the value segment. In shave prep, we continue to be very pleased with this business. In the most recent quarter, global sales were down modestly due to the timing of promotional activity behind the Edge and Skintimate brands. However, year-to-date, preps have grown nicely across our major markets in terms of sales and share, driven largely by our launch of Hydro. We continue to leverage revenue synergies between preps and razors cross-promoting preps to benefit our razors. We do face increasing commodity and structural cost and have announced an 8% price increase in the U.S. effective in October across the Edge and Skintimate product lines. Moving on to sun care, we enjoyed a strong quarter with net sales growth in all of our areas. Although North America remains a vast majority of our sun care business, we continue to leverage our international battery distribution capabilities to grow sun care with the international sun care business up 11% this quarter versus prior year. Market shares are up, were stable in almost all sun care market in which we compete. Australia is up 1% to a 23.6% share, and Mexico has held its leadership position with a 43.6% share. In the U.S., we saw sun care category growth accelerating after Memorial Day and continuing through July 4. The category grew over 4% in the latest 12-week data, and Banana Boat and Hawaiian Tropic are keeping pace with the category. Both Banana Boat and Hawaiian Tropic new products are performing very well this season. Banana Boat's growth has been strong in all 3 subsegments: sport, kids and baby. The Banana Boat SPF 110 spray is the #1 new item in the sports segment. Hawaiian Tropic's growth has been strong in the general protection segment and the Hawaiian Tropic Shimmer SPF 20 lotion is the #1 new product in that segment. As many of you are aware, the FDA has issued final rules on labeling and testing of sunscreens and is requiring the products manufactured after June 18, 2012, have compliant labeling. We have led the industry by adopting many of the labeling guidelines already. And our overall product roadmaps are on track to meet this timing. We've also met with all of our top customers to discuss the category implications of the FDA ruling and to develop joint business plans to optimally manage the transition. As many of you know, we have a lean continuous improvement culture across all of our geographies and all of our functions. A recent lean success story can be found in our sun care business this past year where we applied lean principles to our product return process. Specifically, due to a lean-driven business redesign effort, we decreased product returns by over 20% in the 2010 season, which translates to over $10 million in incremental profits. In fem care, we grew net sales behind incremental promotional activity and solid trade support. We also gained share of tampons behind continued healthy growth on sport more than offsetting slowing declines on Gentle Glide. Switching to household batteries, the overall category continues to struggle, primarily in the United States and Western Europe. Globally, both volume and value declined 4.5% in the latest 12-week period. As we have stated in previous communications, the company has taken steps to restore the value of the battery category in an effort to combat unfavorable category consumption trends. These actions included implementing price increases in the U.S. on C, D and 9-volt sizes and across other sizes in other international markets and eliminating pack upsizing in the United States, carefully analyzing trade spending investments, reducing promotional activity and promoting trade-up from lower-priced carbon zinc to alkaline. In North America despite negative consumption in value trends, we are seeing some positive signs. Recently initiated price increases on C, D and 9-volt sizes are reflected at retail AA, AAA sizes had been restored to prepack upsized quantities. We are seeing increased merchandising commitments by many major retail customers, and finally, the level of promotional discounting has decreased. And as a result, we have seen an increase of 6% in the premium alkaline retail average unit price in the U.S. over the latest 12 weeks. The benefits of these actions are beginning to flow through our P&L as evidenced by an 11% increase versus prior year in the average unit selling price of premium alkaline batteries sold in North America this past quarter. However, this positive price performance is only partially offsetting significant commodity cost increases. In Asia, household battery consumption continue to grow. Volume was up 1% and value up 1.5% in the latest 12-week period. Much of the growth is driven from Australia and South Korea where retailers are increasing their support of the battery category. In addition, our share position remains strong in these markets. In Europe, the category remains challenging and the competitive environment is fierce. Household batteries in the latest 12-week data show volume down 3.2% and value down 5.9%, reflecting intense competitive promotional spending in many of the Western European markets. In the U.K., we have reduced our promotional spending, which has resulted in recent share losses. It is important to note that there are positive signs within other European markets as we continue to realize share gains in France and expanded distribution in Russia, one of our strategic investment markets. In Latin America, we have seen stable volume and significant value appreciation in the category, as consumers trade up from lower-priced carbon zinc batteries to alkaline. In the latest 12-week category data, volume is down 06%. The value has grown 9% versus a year ago. In addition, price increases have been successfully implemented to help offset inflationary pressures in many of these key markets. Finally, our share position has remained strong throughout Latin America. We will continue to monitor device trends and their impact on the battery category. Although we have recently seen positive signs that our strategies are beginning to take hold in many markets, we remain cautious with our future outlook for the battery category. This caution has led us to adjust our battery protection operating platform. Those restructuring efforts are progressing as planned, and we anticipate completing these actions during the fourth quarter. These actions are expected to yield savings of $25 million to $35 million through 2012 and better position our go-forward cost structure for anticipated future volume declines. This is our second restructuring program in the past 3 years. The combined, have led to the closure of 3 plants, streamlining of an additional plant and the reduction of household division headcount in excess of 8%. We believe the actions currently underway are appropriate based upon our current projections of battery demand, and we will continue to monitor device trends and battery category trends in an effort to proactively manage our cost to ensure that we're able to remain competitive and maintain our strong margin structure. During the quarter, we took advantage of favorable credit markets to enhance our debt structure. We renewed our U.S. revolving credit facility for 5 years and upsized the committed amount from $275 million to $450 million. We also renewed our asset-based borrowing facility, extending the maturity from 1 to 3 years for up to $200 million in borrowings. Lastly, we entered the investment-grade public bond market with an inaugural $600 million 10-year issuance. This offering was oversubscribed by 3x and was priced at a coupon of 4.7%. As a result of these 3 transactions, we have lengthened the maturity of our debt portfolio, mitigated short-term refinancing risks and further diversified our sources of debt financing, all, while maintaining the same all-in interest rate. I'm also happy to report that between July 1 and July 25, we repurchased 1.2 million shares of our common stock. This brings a total of repurchased amount in fiscal 2011 to 2.2 million shares. Due to the timing of the shares repurchased in July, we do not expect that the repurchases will have a significant impact on full year earnings per share in fiscal 2011. And we have an outstanding board authorization to purchase up to 5.8 million additional shares. In closing, I believe that Energizer is well positioned for the future. Within Wet Shave, the Hydro launch has demonstrated that true innovation is rewarded. In addition, our shave prep business continues to fortify our growing business in razors and blades. The Edge and Skintimate acquisitions in 2009 provided much needed scale in shave preps. The introduction of Hydro shave prep within the last year combined with the continued growth of the Edge and Skintimate brands has greatly enhanced our Wet Shave franchise. The acquisition of American Safety Razor early in fiscal 2011 has provided capacity, management talent, high-product quality and a range of products the we believe greatly enhance our ability to generate profitable growth in 2012 and beyond. The rest of our Personal Care portfolio fits together well with our Wet Shave business. Sun care is clearly a growing market, and we are well positioned with 2 world-class brands. Fem care, while experiencing some competitive challenges continues to generate strong cash flows, and our Infant Care business continues to show strength and is well positioned to compete going forward. Admittedly, our Household Products business has experienced challenges, has secular declines and devices that adversely impacted consumption of primary batteries. Even so, this business is led by the industry's most effective and experienced management team that remains highly profitable with a very strong market share position and brand equity, and it continues to generate very strong cash flows. We anticipate that the restructuring efforts currently underway will allow us to continue to compete effectively. And I'm confident that Energizer's portfolio of strong brands, our global reach and our outstanding colleagues, together with the numerous steps we have been taking across the organization, ensures that we are solidly positioned for continued growth and success and value creation. Now Dan and I will be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from the line of Bill Chappell of SunTrust.

Just wanted to kind of dig in a little bit to the dynamics of the battery industry and trying to understand, in coming off of the bonus packs, you would have had end of the holidays, 25% more batteries sold to the same price. I mean, is that creating somewhat of a hangover, which is depressing the volumes as consumers bought more than they would normally use for the first 6 months and maybe that starts to pick up as we move back to the holidays of 2011?

I think so or I hope so, and let me be clear. We have seen an increase or we did see an increase in consumer pantries of batteries they have at home, which we do track and have tracked ongoing as part of the result of the pack upsize. And all those free batteries to your point did go into the home and are sitting there waiting to be used. And that increased inventory in the households does potentially speak of a bit of an inventory glut at the household level, which we believe has impacted the category as we saw in the minus 4.5% trend. The minus 4.5% trend is, frankly, a little worse than where the category had been trending over the past year or 18 months. And so the real question is, is it a blip or is it a worsening trend? We think it's a blip based on what we're seeing in terms of household pantries, but time will tell in the category.

Okay, great. And one just follow-up. Can you just help me reconcile the guidance, I mean, in terms of maintaining the guidance but now thinking that ASR would be excluding charges $0.15 to $0.20 accretive versus neutral? Is that just being conservative or is there some offset to that in the current guidance?

Well, again, our guidance for this year, we've not changed in terms of the adjusted guidance. And so the strength we're seeing in ASR is welcomed. Obviously, we're seeing a little bit more headwinds on -- have on commodities. We've seen a little bit softer category as we just talked about on batteries than maybe we were anticipating. And so kind of in the all mix of things, we really haven't seen a reason to change our guidance for this year at this time.

And our next question comes from the line of Wendy Nicholson of Citi Investment Research.

I wanted to follow-up kind of on the guidance but more importantly, in the third quarter just to understand, I know you're suggestion I think for the third quarter had been that earnings would be down year-over-year. They came in a little bit better. Is that all -- I mean and now you're telling us the battery business is marginally weaker than you would have expected. So was the upside really just from ASR or some of that currency? I'm just trying to figure out which business is tracking that much ahead of your prior expectations.

Yes, I would say ASR is part of that and I'm looking at Dan, but I'd tell you sun care is a little bit part of that as well. The sun care season, this record heat is good for our sun care business. And so we've seen, I think, a little bit stronger sun care maybe than we were anticipating for the past 90 days. Those would be the 2 that, I think, we're on the strong side and again, some of the battery dynamics are a little bit over the negative side.

Got it. And then on ASR specifically, the fact that it's coming in so much ahead of expectation, is that really more top line-driven or is it -- because I remember back at the beginning of the year, the reason it wasn't going to be accretive was because it looked like it was sort of an under resourced organization. You're going to have to spend a lot more money to sort of build up the infrastructure, and yet the beat, relative to my numbers in the third quarter, really was on the SG&A side. So are you finding that you have to invest less on the SG&A side of this ASR or is it all just wow, top line is going great?

Wendy, this is Dan. It's really a combination of both top line and margins, and keep in mind that because of the close competitive nature of the 2 businesses, our due diligence was really limited as we went through the purchase process. So as we came out of CAGNY and talked a little bit about our expectations, we were still conducting due diligence. And as Ward said, we've been to the plants and the business is just even better than we originally anticipated. And it is performing stronger than the, I guess, conservative assumptions we had in the beginning.

Got it. And then my very last question is just on the A&P spending. I know you said it would be back-half weighted for 2011. It's playing out to be that case. But as we look forward to 2012, any preliminary sense the overall annual kind of 11% of sales? Should we be thinking that, that sort of stays the same? Again, there may be fluctuations quarter-to-quarter or half-to-half, but full year 11% of sales is still what you think the right full year rate for A&P?

We have not finalized our plan for '12. I think you can safely assume that our overall A&P spending will be lower than it is this year. And clearly, both I think it's clearly, as a percent of sales as we add ASR into the mix. But even in the Q4 going forward, we would expect that we will moderate as the Hydro launch matures around the world.

And our next question comes from the line of Chris Ferrara of Bank of America.

I just want to talk through a little bit, I guess, your assessment of Hydro and its level of success, right? So and again, conceding that these are U.S. numbers, and they're Neilsen numbers we're talking about, but it looks like the razor share is pacing basically in line with what Quattro did when it launched. It looks like refill share is maybe pacing slightly behind where Quattro was, and pricing looks like, and given its promoted heavily right now, looks like it's a little -- it's a slight premium to Quattro, but I guess why are the repeat rates -- or how do I reconcile that with the repeat rates being so far above and beyond anything that you've seen historically in this category?

Well, I'm not sure, I guess I look at different data. First and foremost, the thing that's been most remarkable for us in Hydro had been the repeat rates. And the repeat rates have been almost double what we saw in Quattro and have been certainly the highest we've ever experienced. And it's that repeat rate that is so critical because that really shows, in terms of the acceptance of the product, popularity of the product. And so you follow on with the fact that our cartridge share is setting all-time highs as long as our history goes with Schick Wilkinson-Sword which preceeds[ph] even before we acquired it. So it had certainly been a competitive environment, as we've introduced, but we're very happy Hydro is meeting our expectations both in terms of the razor handles year 1, in terms of year 1 trial. Repeat rates are above what we expected and cartridge is still lagging a little bit. Maybe our expectations are coming in quite strongly.

And that's helpful. And it looks like your level of promotion or the depth of your promotion picked up pretty markedly, coinciding with the ProGlide relaunch. Is that an accurate characterization? Are you battling them pretty hard on the promo side?

Well, I think that's been to true since day 1, if not even before day 1, frankly. It's probably the most competitive category that we participate in. It's also one of the most lucrative. They tend to go hand in hand. I think what you're seeing over the past 12-week data in particular is we had a very good Father's Day. We nailed Father's Day. And guiding tremendous amount of promotional support behind Hydro by a number of customers during Father's Day, which is -- just helped in terms of escalating our razor and trial, which bodes well as you go forward into future quarters. So that may be part of what you're seeing there.

Just one last one on a totally different note. And I don't think I've actually asked this upfront, but last quarter, you started the conference calls, right? And I don't think anyone would dispute that earnings calls are a good thing for you guys. Now a very good, I'd say, best-in-class press release coming out of you guys and the changing comp from the board. I guess can you just talk a little bit about why now? Like, I'm not going to dispute that all those things are good things, right? But why now as opposed to a year ago or 2 years ago?

I'm not sure I can say why now. We've listened obviously to The Street as we've gone along and have gotten pretty consistent feedback in terms of the need for better communications. And not just conference calls, I think the changes that you saw in the press releases turnaround reflects some very specific and broad feedback that we've solicited, frankly, from The Street in terms of how can we do a better job in communicating our message. So that's part of it. I think the other part of it is I think we were intentionally unusually quiet 2 and 3 years ago because we knew Hydro was coming but no one else did. And we knew Hydro was going to be material to our numbers and to how we view things. But it was a very confidential project. And so the reticent in large part, I think if you're to going compare now versus 2.5 or 3 years ago, it was pre-Hydro, post-Hydro. What we're doing in Hydro now is well known by the world. And our innovation pipeline, game plan on Hydro is pretty much well known to the world. And it's material to the company unlike most new products for most companies. We can be a little more forthcoming now and not jeopardize competitive intelligence and the value that these new products generate for our shareholders.

And now the next question comes from the line of Nik Modi from UBS.

Just a quick question. If you can -- you were kind enough last quarter to provide trade spending, drag on the blades and razors business and on your gross margins. Just curious if you can give us some perspective on volumes versus price mix in the blades and razors businesses this quarter. Just trying to get an understanding as we think about 2012, the profit implications of kind of wrapping the initial launch in the heavy trial and sampling?

Yes. Our trade spending is down a little bit. It's about a 50-50 mix between pricing and mix. Last quarter it was significant enough, as you recall, that it really did have material impact on gross margin. And this quarter, really, the impact was really due to the ASR gross margin, just including that in our financials. So we're selling more cartridges and there's more emphasis on that as opposed to just sampling. And so that mix has been favorable for us.

Our next question comes from the line of Alice Longley, Buckingham Research.

I just have a couple of follow-up questions about the battery category and your share a little bit more by region. How much was the category down in the U.S. and Europe in value and volume in terms of what happened to your share in those 2 regions overall?

Yes, Alice, this is Dan. The category in the U.S. was really pretty much similar to what happened overall. The words [ph] are down 4.5% each. It was actually down a little bit less in terms of value in the U.S. And it continues to be down pretty significantly, really along the same lines within Europe. Richard O'Reilly - S&P Equity Research: So in the U.S., the category was maybe down 4% -- or 3% to 4% in value but down 4% in volume?

It would have been about 4.5% in volume and about 3% in value. Richard O'Reilly - S&P Equity Research: Okay, and then what was your share overall in the U.S.? how much was it up or down?

It was -- oh, for the 12-week period -- what about north...

Pretty much...

Yes, the U.S., pretty flat, yes.

Yes. Globally, we're up maybe 0.5 point. U.S. would be flat. Asia would be up a little bit. Latin America, I think, upward slightly.

Okay. And then what would you expect the battery category to be sort of on the trend line basis in the U.S., let's say in fiscal '12? Sort of flat? You were down 1% to 2% in volume and value. I mean what should we use as a run rate?

Well, this is forward looking in the [ph]hoe. We have been seeing high single-digit declines during the recession. We've seen that abate. And then we saw a little bit of an uptick in the razor declines in the past 12 weeks. That's the concern you were talking about earlier. I think it's a blip due to household pantry inventory loading and we expect that to get back to maybe more of a flat scenario from a value point of view, slightly negative on the unit point of view. But we really don't know. This has been the biggest question on the battery business. It's just the whole category over the past 5 years has acted in ways we've not seen before. And so we've lowered our long-term projections on the category accordingly, hence the restructuring in the battery operations. But it remains a question for '12. Is it going to be flat in '12? Is it going to be minus 2% in '12? Minus 4% in '12? I think that's the range to think about, but your guess is as good as ours right now in a way.

And maybe Western Europe is a little worse than the U.S.?

I think right now it is. And certainly on the value side because the presence of private label has an extra drag on the European scene versus what you find in the U.S. But the U.S. and Western Europe are the weak parts of the global battery business, and Latin America and many parts of Asia still show some growth and some trade-up opportunity. And we're about 75% of our battery business is in the developed world, 25% in the developing world. We're in a good position in the developing world with strong market shares in many of those markets to capture what growth there is. It's just hard to offset when you have a decline in the U.S. or Western Europe.

Our next question comes from the line of Ali Dibadj of Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: Hey, just a couple of things. One is to follow up a little bit on the pricing question on Hydro. At what point do you expect kind of a true pricing of Hydro from a net perspective to start showing up? In other words, are you going to be able to pull back on promo? And in some sense, is that related to what you're expecting or what you're seeing from your major competitor out there? So just a little bit of guidance on that would be helpful.

Yes, Ali, it's really hard to say. It's situational. Trial has been successful. Repeat rates have been successful. And so we've continued to promote, basically get as many handles and people-- in consumers' hands as possible given the success of the product. So I really can't make a future comment on promotion, but I can tell you that we have been very successful since the launch with both the trial and both with the promotion and getting consumer trial. And the repeat rates, I think, reflect the success of the plans that we put in place. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: So let ask that question more broadly in the context of, Ward, something you said probably at the beginning of your remarks, which was these are investments to get a better return. How should we think about that? How do you maybe think about the return on the investments? So what is going to be the return on Hydro? Is it going to be better or worse than Quattro, especially in the different consumer environment? How do you think about the return on the restructuring and the batteries business? And I guess perhaps more importantly, how do we -- how should we think about what you mean by getting better returns by these investments? Because we're hearing from a lot of folks in broad CPG, we're investing more, we're investing more, but the results aren't coming through probably because of the macro environment and maybe probably because of the category environment for you and batteries. But can you give us some idea about how to think about that comment?

Sure. In razors and blades, I think the investment model is fairly clear. You invest upfront in terms of generating trial by getting razor handles in people's hands. And if they like the product, they'll come back and buy the cartridges. The razor handles, of course, have lower margin structures, are much more expensive, are expensive to promote, expensive to get out there, expensive to advertise and generate awareness. So it's kind of a classic for any new product. The investment is upfront. And if it's successful, you will see the returns down the road as the volume and share grows, awareness and penetration grow. And you don't have to spend as much money going forward to maintain that as you do to generate that. On top of just kind of the standard new product cycle is the reality of, again, the razor and blade model. We'll be making money off all those cartridges going forward, not having to spend all that money getting handles in people's hands. So it's a very powerful model when you look at razors and blades in terms of as you can just envision what the returns would be down the road. Of course, the investments, most of the majority of investment in capital complex has already been done as well. We also -- on top of all of those 2 comments with Hydro is a third comment in that. Hydro is not a new product per se, it's a new platform. And so when I say a new platform, you can imagine that there are other products that we can introduce down the road off of that platform, again, leveraging all the investments we've made upfront. So I think, really, the investments' expectations that you can have on the Hydro launch are very real. We're not going to quantify or give forward guidance in that regard but I think it's pretty apparent. Same on the battery side. By reducing our manufacturing footprint, we will, for example, increase our batteries per capita, battery productivity 10% just by reducing these plants. Okay, these are all more efficient, more effective ways to do business going forward. The big offsets regardless and I think as other consumer packaged goods company as well as us, is commodities. We've seen tremendous run-up at about every commodity category you can look at, whether you're talking to food guys, household guys or personal care guys. And those run-ups in terms of just across the raw material going in your product have been a tremendous headwind these past 12 to 18 months for everybody and probably eat into some of those savings or profit payouts on the investments everybody is making. But again, we're confident of the investments we've made in Hydro. We're confident in the investments we're making in resizing our battery production platform. And that's really the source of our comments for 2012 and beyond. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: Okay, that is helpful. Just one thing. I mean having seen some of these other launches, whether it by you guys or your competitors, does it feel to you that the investment period for Hydro is perhaps longer and perhaps deeper than some of those other launches? That's just kind of a clarification.

The answer is yes. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: You do. Okay. But you still feel the return will be enough?

Absolutely. It's a much bigger idea. It's a much bigger platform. It's a much bigger product. It's much more successful. That's why we were at it longer. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: And then just last one thing about the share repurchases. Do you have a sense of what's the authorization, what's the timing of the -- I guess it was $5.2 million authorization, when do you want to use that? If there's any idea that you have, it will be helpful for us in terms of thinking through it.

Yes, obviously, we're back into repurchasing our shares and returning the capital back to shareholders after a few years of not doing so. We have much more flexibility in doing that right now. We still do it in an opportunistic way. Opportunistic. The various factors that come into play is, what, the share price versus what we view it could be going forward, maybe. But also in terms of debt covenants, just capital structure and other uses of capital. Right now, as we made our major investments in Hydro are behind us, as our balance sheet has gotten even stronger, as we've gotten through very successful debt refinancing, we have more flexibility in this regard as you see this month we talked about and as we go forward.

Our next question comes from the line of John Faucher of JPMorgan. John Faucher - JP Morgan Chase & Co: One of the comments that you guys talked about was your blade share being the highest it's ever been. And so one of the things I'm having a little bit of difficulty reconciling is the overall growth that we're seeing at least through the U.S. channels and realize you've got the international business. So the incremental sales that we're seeing from Hydro not showing up as much in the shipment side, as you talk about the offset from the legacy systems, and you had a couple of quarters of this. So any thoughts on what we're missing from that standpoint? Is it inventory? Is it sort of other channel data that we're not seeing? And then can you also talk a little about the differences versus expectations in the 3-blade and 5-blade products for Hydro in terms of are you seeing any shift down because of the cheaper option?

Let me answer maybe the second part of your question and Dan maybe can get the first part. In terms of the 3-blade versus the 5-blade, I would say frankly, the 5 blade has exceeded our expectations. And in fact, instead of -- we offer both options and they are slightly different products. They're not just the 3-bladed and 5-blade. But of course, the 5-blade has the pop-up trimmer, which is sold more premium priced and positioned. That's doing quite well and frankly stronger than I think maybe we originally expected. Three-blade adds are below what we expected. It's more of a mix issue in terms of when you go into a new product launch, you can't always call the SKUs right. But we're very pleased with the 5-blade and I think that's based in a time where consumers are very sensitive to value. And you hear about downtrading in some categories. Our experience with the Hydro launch has been opposite. On the first part of your question, I'm looking to Dan. I'm not...

Yes, John, I'm not exactly tracking what your comments are. Now keep in mind that in Q3, we anniversary-ed the launch. And we're actually very pleased with the fact that we've maintained momentum in North America and we have maintained a very large share of systems. There's been a little bit of cannibalization or attrition with Quattro and some of the other systems. But overall, we're really at the highest levels we've ever been. So I'm not sure what data you're looking at but we're actually pleasantly surprised that we're as high as we are.

We're not -- I'm sorry, I'm just going to interject. We're not seeing cannibalization rates different from what we were expecting on Quattro. And what's interesting is as we introduced Hydro in the advanced markets in the U.S. and the markets we've gone into, it frees up our Quattro capacity for some of our mid-tier and lower-tier markets where we're also working on growing the business. John Faucher - JP Morgan Chase & Co: Yeah, I think we're saying the same thing. What I was basically saying was when you guys talk about it, okay, you talk about the growth in Hydro and the press release being offset by the legacy men's systems. And again, we're seeing the big market share gains in the scanner data. So I guess I was trying to wonder, is there anything different between what we're seeing in the scanner data and what you guys are seeing on the shipment side? And it doesn't sound like that's the case.

Oh, no. No, we're not really detecting any sort of major changes in inventories. This category is so different from batteries where the retail trade tends to carry huge inventories because of multiple size in the batteries. Razors and blades is much leaner at retail, so we don't see much noise swings generally. I'm not seeing that now. Sorry, we get circled awhile to get to answer your question there.

Our next question comes from the line of Connie Maneaty of BMO Capital Markets.

Could we talk a little bit about the lean process you employed in sun care? Describe exactly what happened that created so much incremental profit and how far along you are with the programs like these and what the outlook is for other businesses.

Sure. On the sun care process, it's kind of standard lean approach. For those familiar with lean, it's what call Kaizen where you have the people involved in the value chain, in this case sun care sales, sun care returns and sun care -- and processing of those returns. The people on the front lines get together and look at all the individual steps they go through to carry out that function. And when they do it in an integrated manner across sales, marketing, production, inventory control, you get individuals from each department and you work through all the steps they're all doing to process these returns and you look for opportunities then to take wasted steps, wasted turn, wasted actions out of that process. Time and time again, when we do these Kaizens, we see reductions of activities in the neighborhood of 40%, 50%, 60%, 70%. In other words, the team says, you know, we don't need to do it this way. We can totally redesign it, achieve the same objective with 30% of the activity. So that kind of Kaizen event took place in our sun care return process and yielded the kind of benefits that we cited. On your broader question, this is a discipline we have throughout the organization. It started years ago, frankly, in our battery organization and the production side with batteries. It's spread throughout Personal Care division and it's spread outside of production. So we will do Kaizens on things like the annual budgeting process that affects the entire organization and what do we do to take steps out of that to make it leaner and more effective so then people can spend more time working on things that are important to customers. So that in a nutshell is kind of a lean process we've been following for years.

Okay. Also on the 8% price increase in shave preps, are you leading or following the industry?

I believe we're leading on that one and leading it for the reasons cited. Again, a great example of what a commodity cost increases really require it. And so we're leading the industry on that. We are the leader in that industry. I think that's part of our role as leader. And so that's how we're going forward.

And one final question. Have you already repositioned the Playtex basic tampon as the value brand? Or is that still to happen?

It's in the works. I think it's certainly known to trade customers. I think the General Glide restage ships next month, if I'm not mistaken.

Our next question comes from the line of Jason Gere, RBC Capital Markets.

I guess I just wanted to get a little bit more clarity on the wet shaving, the 1% in the quarter. I mean you talked about both the tough comp versus Hydro last year, as well as maybe some of the relaunch. Can you give a little bit more color around that? And then I guess I just wanted to talk about -- glad to hear about the promotional spending versus last quarter, but like how we should think about that going forward? Do you think what we've seen the levels that we've seen this past quarter should continue going forward?

Maybe I'll take the second part of that. On the promotional spending, again, we don't really like to talk forward-looking, so to speak. But I think as Dan mentioned earlier, we certainly have annualized through Hydro in North America. We kind of laid out some specifics in our comments today about we're annualizing through -- when we annualized through in Japan and in Western Europe. But then again, you have tail-end markets that we're not annualized through yet and some markets that we're still just introducing Hydro in. So of course, they're smaller markets. So the bulk of it should be annualized through by, I'm guessing, Jan, Feb, March or so when you throw in the Western European markets. The promotional spend is not a 12-month thing. It goes beyond 12 months, but it's really more rate of spend. And A&P as a percent of sales has been quite high this year, but now it's off a bigger base, off a bigger business as we've been successful with Hydro. And so our A&P spending will remain competitive but as a percent of sales will decline in part due to some adjustments in A&P but also due to the base of the business itself. On the 1%, I'll turn to Dan.

Yes, Jason, on the 1%, we had about $40 million to $50 million of pipeline fill a year ago in North America just with the initial launch, so we had that to comp. We did have some declines in legacy brands, which as Ward mentioned, were anticipated. But another element in the quarter is last year we had some fairly large promotion and sales in shave prep, which we're anniversary-ing which were negative. So all things being considered, we feel pretty good about the 1%. And one other thing is we're having some headwinds in Japan as well.

Just a clarification. I think earlier, you said about A&P flat for the year. Was that dollars percentage of sales? I just wanted to get a little more color on that. I might have missed that.

No, we said it was flat. I think we said it would moderate going forward. I think, yes, household should be flat for the year. But overall, our spend going forward on a consolidated basis, including Personal Care, should be down for Q4.

And our next question comes from the line of Bill Schmitz of Deutsche Bank.

Hey, just on the European side of the battery business there. I guess you mentioned France is being a big driver in incremental distribution. Was that a big carry-forward distribution gain?

It really is a matter policy talk to specific customers. So I'm going to have not to answer your question although there's very few, very big customers in France.

Right. Okay, and then did you say what the debt-to-EBITDA was at the end of the quarter? I didn't see it in the press release.

I don't know if we had it in the press release.

It's slightly below 3 on a compliance basis. And that's not net of cash, that's EBITDA.

Okay, got you. And then are we doing anything for women's system refresh at some point in the future? There's some talk about it and it seems like those sales were soft. So is that getting ready for something?

I can't comment on future new products either. Sorry.

That was our final question. I will now turn the call back over to Ward Klein for closing comments.

Thank you, everyone, for joining us today. We look forward to speaking with all of you again next quarter to review our fourth quarter and year-end results. Thank you. Operator?

Thank you for your participation in today's conference call. This call will be available for replay beginning at 1 hour. You may now disconnect. Have a great day.