Energizer Holdings, Inc. (ENR) Q4 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 Incorporated Fourth Quarter and Fiscal Year 2011 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Jackie Burwitz, Vice President of Investor Relations. You may proceed, ma'am.

Thank you, and good morning, everyone. Thanks for joining us on Energizer's Fourth Quarter and Fiscal Year 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 results or events, future earnings, investments or spending initiatives, cost savings related to our restructuring project, the impact of certain price increases, anticipated A&P spending, currency fluctuations, raw material and commodity costs and category value and future volume, sales and growth in some of our businesses. Any such statements are forward-looking statements, which reflect our current view 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 measure is shown in the press release issued earlier today which is available in 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 would like to turn the call over to Dan to review the financial highlights for the quarter.

Thanks, Jackie. First, to close out fiscal year 2011, our earnings per share, excluding unusual items, was $5.20 which was within the guidance range we provided earlier in the year. Now for the fourth quarter, our earnings per share were $0.67 versus a $1.20 in the fourth quarter of fiscal 2010. As outlined in the table in the press release, adjusted earnings per share was $1.10 for the quarter. Net sales for the quarter increased $139 million or 13% due to the inclusion of the American Safety Razor business and favorable currencies. Organic sales were up $6 million, or less than 1%, due to growth in Personal Care. Gross margin for the quarter declined 100 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, as a percent of net sales, excluding the American Safety Razor business, was down 190 basis points as we anniversaried the launch of Schick Hydro in North America and Japan and shifted investment to promotional activities, which are accounted for as a reduction to net sales. Selling, general and administrative expenses increased $9 million versus last year's fourth quarter, primarily due to the inclusion of American Safety Razor. Now turning to divisional results. In Personal Care, organic sales growth was 1%, primarily due to higher shipments of disposables offset by lower sales of legacy Wet Shave products and higher sales across all other Personal Care categories. The increase in disposable net sales this quarter reflects broad-based volume growth and trade-up within the global portfolio. Shipment volumes of Schick Hydro increased despite the comparison against our prior-year launch in Japan in the quarter, but these shipments were fully offset by higher promotional spending, which was recorded as a reduction to net sales as we continue trial-generating activities across all markets where we have launched. Including the impact of ASR, segment profit was up almost 120%. Excluding the impact of ASR and currencies, segment profit was up 74% on lower advertising and promotion and improved product costs, partially offset by the impact of higher coupon and trade promotional spending which are recorded in net sales. ASR results for the quarter were generally in line with our internal expectation. For the year, ASR was not accretive on a GAAP basis, but was accretive approximately $0.18 excluding inventory write-up, integration, severance and deal costs. These results were above our original assumptions and were driven by a favorable product mix and lower product cost versus our going-in assumptions at the time of the acquisition. We believe these results are a good indication of the run rate for this business. Going forward, ASR results will not be discussed separately within our Personal Care segment unless material to the results. Turning to Household Products. Organic sales were flat as approximately $20 million of hurricane response sales in the U.S. and continued category growth in several Asian markets were offset by continued category declines in many developed markets, most notably the U.S. and western Europe. We estimate that the dollar value of the battery category in our global major markets declined overall by 2% in our latest full-week's data, exclusive of the impact of the U.S. hurricane consumption. In addition, gains realized from our recent price increases on C, D and 9-volt batteries in the U.S. and price increases in other select international markets were offset by higher retailer trade spending, which is recorded in net sales, as the battery category environment remains competitive. Segment profit was up approximately 4% due to the favorable impact of currencies. On an operational basis, segment profit declined 8% due primarily to increased commodity costs. In addition, the incremental gross margin from the hurricane-related volume in the U.S. was offset by spending related to our positive energy, marketing and advertising campaign and other brand investment activities. Our restructuring project announced in the fourth quarter of fiscal 2010 is almost complete. Total costs were approximately $19 million for the quarter and $79 million for the fiscal year. We estimate that there's an additional $6 million in costs that will be recorded in fiscal 2012, but that those costs will be offset by a gain on the November 1 sale of the Swiss facility, which was closed as a result of the restructuring. We expect annual savings from the restructuring to be approximately $30 million to $35 million by the end of fiscal 2012. In fiscal 2011, we recognized approximately $11 million of these savings. During the fourth quarter, we recorded $24.7 million of other financing expense, which is detailed in a table on Page 6 of the earnings release. The biggest portion of this expense was $16.4 million, primarily related to the impact on long-term inter-company notes from the rapid revaluation of the U.S. dollar during the month of September. We consider this expense to be non-cash in nature as we do not anticipate settling these obligations in the foreseeable future. Accordingly, we do not hedge these inter-company obligations, which result in P&L exposure to changes in currency rates. If more information on these charges will be helpful, I'll be happy to discuss in more detail during the Q&A session which follows our prepared remarks. With that overview of the quarter, I will now turn the call over to Ward.

Thank you, Dan. Now I will walk you through each of our businesses and the key factors that are impacting them. During fiscal year 2011, we made investments in our Personal Care business to drive top line growth into 2012 and beyond. For the fiscal year 2011, our top line sales grew nearly 5%, fueled by strong results across many of our product lines, including all segments within Wet Shave, both brands in sun care, our Sport tampons and Diaper Genie. The categories we compete in are growing and we are competing well across all these categories, reflecting our emphasis on providing consumers with products that deliver superior performance and our emphasis on delivering category expertise and superior category solutions to our trade customers. The Schick Hydro men's system launch was our key priority this year. We continue to see strong product satisfaction scores and robust first, second and third repeat rates. The Hydro shaving experience provides meaningful points of difference against other products. As a result, we have invested in extended support of the launch with promotional merchandising and advertising programs to leverage a strong positive consumer response and to continue to build trial to fuel future growth. We are tracking to our expectations for razor trial and are seeing that trial translate into increased refill blade share and shipments. Hydro has improved our competitive position in men's systems in major markets where we've launched. In the fourth quarter, Hydro unit shipments of both razors and blades were offset by trial-generating promotional investments recorded against net sales. We have shifted the focus of our investments from awareness to trial as our launch enters its second full year. In fact, the fourth quarter investment behind Hydro increased versus prior year when you look at total advertising, consumer promotion and promotional spending. We are pleased with the effectiveness of our recent promotional activity, which has driven higher demand for refills and points to continued strong consumer conversion to Hydro. Looking forward, we expect to continue to focus on generating trial and building awareness for Schick Hydro and expanding distribution into new markets. While we will anniversary one-time launch cost in 2012, we intend to continue to invest robustly behind this product line and expect volume and improved mix through a conversion to refills to drive higher margins and begin delivering the solid returns we expect in this product line. In addition to Hydro's outstanding sales results in fiscal year 2011, our solid year in Wet Shave was also driven by growth in disposables and our American Safety Razor acquisition. Disposable net sales continue to grow behind both 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. We continue to see growth in trade-up to products like Xtreme3 and Quattro disposable and launch line extensions to keep our brands fresh and relative to consumers. The Xtreme3 brand posted solid growth in the fourth quarter in line with the growth we've delivered with this brand all year, with successful line extensions, continued growth in developing markets and pricing initiatives. The ASR acquisition has put us in even better position to participate in the growth of this category. Our plans and strategies remain the same with the addition of this business: first, expand our product range to value-conscious consumers and shoppers; second, provide total category solutions for our trade partners, including a full commitment to private label; and third, accelerate growth in developing markets. Contributing over $260 million in net sales and $28 million in segment profit, this business performed better than we anticipated at the beginning of the year due to a smooth integration process, stronger category growth and better product and cost mix. The management team, capabilities, facilities, technical expertise are all strong additions for us and are highly synergistic to our Wet Shave business. Going forward, ASR reporting will be integrated with our Wet Shave business and will not be broken out separately. Moving on to sun care. We have grown net sales and profits this year significantly across both domestic and international markets and across both Banana Boat and Hawaiian Tropic. We redesigned our business model to drive improvements in returns and inventory management. This resulted in over 20% decrease in product returns for the 2010 season. Furthermore, our innovation pipeline has delivered products with high consumer satisfaction and we are excited about our new product lineup for the 2012 season. For example, our fourth quarter sales grew significantly in southern hemisphere markets we sell in for summer season as we continue to roll out new products and line extensions across both brands. Turning to our Household Products division. The battery category remains challenging as promotion, retailer trade spending and commodity cost continue to be volatile. We continue to perform well despite challenging conditions as our share position is held and we have taking pricing on C, D and 9-volt size batteries. In North America, volume gains from hurricane demand resulted in an incremental $20 million of sales in the quarter. We were able to reinvest these gains in support of our global positive energy advertising and marketing campaign that is just now rolling out globally. It is important to note that over the last 3 years, we reduced our media spend as we were facing the extreme economic crisis, shrinking demand in the battery category, heavy competitive activities, and instead funded future growth opportunities. This investment is critical as we diversify our portfolio, continue to leverage our most valuable assets, reenergize our EMD and Eveready brands. In Asia, household battery consumption continued to grow. Category volume was up 0.4% and value up 0.5% in our latest 12-week data. Much of the growth continued to be driven by Australia and South Korea, where retailers continue their support of the battery category. In Europe, category and overall economic conditions remain very challenging. Several western European markets continue to be negatively impacted by the difficult economic conditions and a fierce competitive environment. In an effort to offset these unfavorable trends, we have greatly reduced our level of free goods and promotional activity. In Latin America, we continue to see value accretion as price increases and trade-up to premium brands have helped offset inflationary pressures. As previously stated, the value of the global battery category continues to decline, estimated down 2% below year-ago in our latest 12-week data of the 29 markets covered, excluding the impact of hurricane consumption in the U.S. This unfavorable trend, combined with higher commodity cost and increased retailer trade spending, has created negative pressure on the divisional P&L. Our guidance reflects a cautious outlook for fiscal 2012. We have attempted to offset these unfavorable trends through the elimination of pack upsizing and the implementation of a price increase on C, D and 9-volt cell batteries in the U.S. during fiscal 2011. For fiscal 2012, we have recently announced an additional 6.7% price increase in the U.S. on alkaline and carbon zinc products effective February 2012. We estimate that this price increase will yield approximately $20 million to $30 million of revenue dollars in fiscal 2012. This favorable pricing benefit and approximately $24 million of incremental restructuring savings are expected to help offset anticipated continued challenges in the battery category, increased commodity cost, higher retail trade spending and other inflationary pressures. Previously-announced restructuring efforts are nearing completion. Year-to-date, restructuring charges have totaled $79 million. We estimate that an additional $6 million will be recorded during fiscal 2012, bringing the total cost of restructuring to $85 million, consistent with our original estimate. Savings estimates are tracking to the high end of the $30 million to $35 million range. Finally, we continue to focus on our product growth initiatives. We recently introduced a new line of power solutions for consumers' most critical portable electronic devices. Consumers have become accustomed to an unplugged lifestyle where mobile devices are critical in everyday life. We believe consumers are looking for universal, easy-to-use solutions, solutions that address their needs for longer battery life, the ability to charge on-the-go and increased convenience in the way they charge their devices, from faster charge times to reducing clutter. In late fiscal 2011, we introduced a new line of chargers and cables that leverage the USB industry standard to bring convenient and portable charging to the home, office and car. This complements our 2010 introduction of the world's first Qi-certified inductive charging portfolio. Energizer's inductive charging pads and sleeves enable consumers to charge wirelessly on the world's only wireless power standard, named Qi. The Wireless Power Consortium standard continues to gain momentum and device manufacturers are beginning to launch this technology in cellular phones. In addition, Energizer has a strong lighting products business that evolves with changing consumers' wants and needs. We are leveraging our expertise in lighting design, brand development and distribution capabilities to expand the household lighting product solution available in the marketplace. These concepts utilizing LED technology and world-class electronics are expected to provide retailers unique and new segments to grow their household lighting business. We believe that our recent pricing actions, restructuring, savings and portfolio diversification efforts should help offset continued volatility and stabilize Household Products in fiscal 2012 and beyond. In addition to these operational highlights, I'm also happy to report that during the quarter, we repurchased 2.7 million shares of our common stock. This brings the total repurchased in fiscal 2011 to 3.7 million shares. We still have 4 million shares outstanding on our current board authorization. Now turning to fiscal 2012 guidance. We expect earnings per share to be in the range of $6 to $6.30, based on current exchange rates and commodity cost. As we stated in the release, we expect additional product cost headwinds in fiscal 2012 as compared to fiscal 2011, driven by commodity costs and other inflationary pressures. Our announced pricing actions are intended to offset these unfavorable cost trends. Furthermore, advertising and promotion as a percent of sales are expected to return closer to the historic rates in 2012 that we experienced in 2009 and 2010, though we remain committed to investing in innovation, brand and category development and growth opportunities. While the economy continues to pose difficult challenges, we are confident that our investments made in 2011 position Energizer to continue to meet our long-term objective of earnings per share growth in the high- to mid-single digits. 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, ensure that we are solidly positioned for continued growth, success and value creation. Now Dan and I will be happy to take your questions. Operator?

[Operator Instructions] And our first question comes from the line of Bill Chapell of SunTrust.

This is Mike Swartz filling in for Bill. I just have a real quick question with regards to the ASR business. You had about $13 million in integration expenses in fiscal year '11 and I'm kind of trying to think about that and what that implies for fiscal '12, in your fiscal '12 guidance. Should we expect any incremental integration expenses from that business? And then do you plan to reinvest kind of that $13 million that you're lapping back into the business, or should that fall to the bottom line in '12?

Mike, this is Dan. We will have some additional integration expenses. It's a longer-term integration process, but -- and a lot of that will happen in 2012. I can't give you a number on that right now. In terms of just kind of the base business, when we talked about the run rate that we've experienced in 2011 should be indicative of the future, $28 million of operating earnings and about $8 million of offset of essentially amortization. So that's about a $20 million go-forward rate within the Wet Shave portfolio. But again, there will be some integration expenses that we'll experience in 2012 that we will spike out.

Our next question comes from the line of John Faucher of JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: Just want to ask a question about the guidance. If I use the midpoint of your guidance range and then just use your average share count for Q4, it would get me to sort of $422 million of net income for next year. And then if I look back at 2010 and sort of use the adjusted net income number, that nets out to basically roughly around $400 million. So if we subtract out the contribution of ASR, which you said was -- if I back into that, was about $13 million excluding all the charges and everything, it gets us to about 3% net income growth over the 2-year period from 2010 to 2012. So I guess, given some of the success that you've had on the razor business -- and I realize batteries has been difficult, but you've had the restructuring there. It just seems like a low level of sort of multiyear net income growth. So can you talk a little bit about why using 2010 as the base, that the numbers -- you don't seem to be getting a whole lot of contribution from the base business there.

John, this Dan. One of the elements that's going to hit us next year are product cost increases really across both businesses. We're in the $40 million to $45 million range, and that's really inclusive of the savings that we're getting from the restructuring project. And it's really not one particular commodity. It's mostly commodities but it's wage inflation in China, things like that. So there's some pretty significant commodity headwinds that we're facing into next year. John A. Faucher - JP Morgan Chase & Co, Research Division: Okay. And then I guess the second question would be sort of looking at the pricing. And obviously, if you've got this commodity inflation, you'd feel like you need to take it. But I guess you talked a lot about the promotional environment in batteries and then you say, okay, but we're going to take 6.7% pricing. So what's the comfort level that, that pricing's going to go through, given what you've seen in the category over the past quarter?

Yes, I'm not sure we feel comfortable speculating, frankly, on competitive reaction to our price increases. The price increases, as Dan pointed out, really are driven by the commodity cost increases that we've seen, that are real. Certainly, there's -- this past year, as we look backward, undoing the pack upsizing that was initiated by our competitor was no easy task, I should say, in terms of the risk we took. But we decided to undo that and the industry followed. The C, D, 9-volt size price increase is another example of that. So at least we have those 2 data points under our belts this past 12 months, but we really can't speculate on what's going to happen going forward. We've announced this price increase to the trade a few weeks ago. It's in the process of being sold into the trade, and it's our intent and our plan to implement that price increase in February.

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

Just to follow up on the price increase. Are you leading the category in the price increase? And what do you see from your competitors? And then I have a follow-up question.

As far as I know, we're leading it because we've not -- I'm not aware of competition having done anything in this regard. We led the pack upsizing, are undoing that. We led C, D, 9-volt and we're leading with this price increase that we're going out right now.

Okay, great. And then back on the cost inflation, could you just give us a little bit more information about the big moving pieces? I know there's a lot that goes into it, but how much -- because the last time I looked, I think it was off nicely. And because of hedging, it might have more of an impact on 2013 than 2012. But could you just discuss what the big pieces are in the cost inflation you're going to be absorbing in fiscal '12?

Yes, Connie. I wish there were big pieces. It's a lot of little pieces. I'll say if we look at commodities, it's probably around $30 million of headwind in and of itself within the battery portfolio. Zinc, because -- actually, because of the success of our hedging program, we're actually rolling into higher zinc prices. But steel, EMD are unfavorable, higher resin cost, higher cost of purchased products. And then as I mentioned, we have some manufacturing facilities in China and wage inflation is becoming meaningful there. So all that combined kind of adds up to a fairly big number.

Our next question comes the line of Dara Mohsenian of Morgan Stanley.

I just want to get an update on your perspective on battery category volume growth here, both domestically and in international markets. Obviously, the volume continued to be soft in the quarter. So can you give us an update on your view on the longer-term volume growth potential of the battery category? And then secondly, it looks like promotion has been intense in the category. Do think that's a more temporary phenomenon? Or is that something that's still occurring so far in this quarter and likely to linger, in your minds?

On the battery category itself, globally, it continues to be challenged. On a 52-week basis, the data we look at, units of value globally are down 1% to 2%. We continue to see units mostly challenged. Our pricing actions are helping to hold value up a bit. And again, our expectation is, going forward, is you'll be better from a value point of view from a -- versus a unit point of view. The real challenge is, of course, right now -- probably no surprise, when you look at the battery category, is Europe. 12-week basis, European value for the category is down 3.5%; 52-week basis, down 3.5%. And that's in value. Units are down in the same sort of range. Conversely, we do see still some category growth rates in Latin America, in Asia to a lesser extent. But these are smaller parts of the total pie for us. So it's hard to move the total number when you have some countries in emerging markets that are showing some positive growth. I think net-net long term, we'd love to see the category go back to about 0, flat on units, and plus-2 or plus-3 on value. I think it has that potential, but it hasn't gotten there quite yet and we'll work accordingly. I think your second question was regarding promotional environment. Is that correct?

Yes.

In the area of promotion, one number we look at, for example, is dollar -- percent of volume done on deal. We traditionally -- less of our volume is done on deal than our main competitor in the battery category. We have seen these levels coming down over time, especially versus the bonus pack frenzy that we got to experience a couple of years ago and the pack upsizing frenzy we got to experience a year ago. So I think we are seeing some rationality come there. It's -- but like I said, from a -- it's a heavily promoted environment and even though we tend to track below our competitor in terms of the percent of volume we do on deal, it nevertheless is still meaningful for the category.

Okay, that's helpful. And I know it's hard to speculate on competitor actions regarding battery pricing. But is your guidance for next year, the earnings guidance, is that predicated upon your battery price increase fully going through and competitors following?

Well, I can't, again, talk about competitors or what their actions may or may not be. But the guidance we've given is inclusive of the price increase we've announced, yes.

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

Just staying with that promotional level, did you say what your razor volume growth was? I know we got the sales growth, organic.

Razor volume growth...

Or just the shaving business, broadly.

Yes. I'm looking at some -- let's pull some numbers here real quick. Razors -- do you have that?

We just have category data.

We just have category data. We'll get back to you. I'll have Jackie get back to you on that particular...

Okay. I mean, but is it fair to say that there's still a fairly high level of counter sales promotions in the category?

Yes. I think you're -- we're continuing to see pretty heavy levels of promotion taking place in the overall razor and blade category. We have been focusing, as you know, over the past -- since the launch of Hydro, in getting razor handles out there. We have -- the matter exceeded our plan, in terms of getting handles out there. We are seeing the repeat rate on the product, as we have cited in previous calls, continuing to hang in there very strongly. Much higher than what we ever saw on Quattro; equivalent to, I think, best-in-class for the razor and blade category in terms of repeat 1, 2 and 3. Our consumer research, you go back in terms of trier/acceptor, trier/rejector sort of research. People are very happy with the product. So it's -- we'll continue to focus on trial. We're happy with where we are on trial, but given the repeat rates we're seeing, we see a good return on our investment in terms of generating further trial. And not at the frenzy year-1 rates necessarily, but you'll still see some continued strong support. And I would imagine our competitor will be doing the same. It remains a competitive category.

Got you. And there's a lot of noise out there about Hydro 3 and some distribution losses. I mean, how big a deal is that in the broader Hydro platform strategy?

None whatsoever. We lost H3 distribution at one account. It was a strategic decision within that account. They're pursuing kind of their own unique idea of trade-up, and so they're basically trading up from H3 to H5. I don't think we lost any facings in that one account. That's the only account I'm aware of any delisting. And in fact, we've added to our distribution list some accounts on Hydro that we weren't actually anticipating. So I think when you net it all out, not only is distribution holding rock solid, it's -- we're getting distribution in some accounts we weren't planning on. So we're quite happy with the distribution and where we are right now.

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

I guess the first question's just going back on the stabilization of Household Product profits. So I mean, if the category remains challenged as the year progresses, I mean, what else can you guys do? You guys have terrific margins in that business, but the question here is how sustainable is it? So obviously, you've got this pricing out here. Can you lean more on the restructuring side? Is there more that you can do to kind of preserve the profitability in this business and really keep reinvesting that back into the Wet Shaving?

I would say at this point, no. I mean, our capacity utilization rates, as a result of the restructuring we've just done, are quite high. And so the capacity we have in place, we're pretty much fully utilizing for a business of this type. So now if the category declines accelerate and 1.5 years from now, the capacity utilization starts to drop as a result, you'll always relook that. But as a major restructuring, right now we don't see, really, the opportunity or the need based on what we've just gone through. I would also say this again -- and I think you've heard us in the past, but we really mean it. We run a lean culture and so we always have the continuous improvement efforts going on. I don't think, obviously, it's unique to Energizer. But it's a material cost reduction program on an ongoing basis using lean, and that certainly will continue.

Okay. And then just, I guess, kind of thinking about overhead leverage and things of that nature. And obviously in this quarter your SG&A was down. I got to believe part of that might have been on a comp accrual. I mean, can you just kind of strip out the overheard reductions? I think you did have incremental ASR cost this quarter which you didn't have the prior year. So as we look to 2012, a lot of your competitors are -- and until gross margins actually start to look better, which, hopefully for you guys it's a second-half story like the rest of them, everyone's been leaning on kind of the overhead reduction as a way. So what's your comfort level that -- your selling expenses were 18% in 2011, that you could actually see that improve along with kind of the advertising that's going to come down as well?

Yes, Jason. I think from a commercial standpoint, I think that we're not expecting increases. We certainly will benefit from not having the ASR integration expenses. One of the headwinds we're facing -- much, I think, as probably common among many companies is increased pension expense. As the discount rates go down, we have a fairly big additional pension expense that we incorporate next year. So we would expect to see some improvement. I'm not sure it's going to be drastic, though.

Our next question comes the line of Ali Dibadj of Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: A couple of questions. One is, I guess, don't you think it may be time to revisit your broad return to shareholder policy? So I guess I say that because half of your business, by your own admission, by everyone's analysis, our own analysis, doesn't grow very well but generates a lot of cash -- obviously, batteries. Razors and blades is supposed to be the growth engine, but so far, there's been a large offset from cannibalization or kind of getting out of the other brands, which are muting that at least. And you are cutting some cost but despite what you just said a moment ago, there probably is a little bit more to cut, in our mind. So has there been a time you think about perhaps enticing new investors or satisfying, frankly, the current investors by actually offering a dividend? There are faster-growth companies who do that as well. So I understand you have a policy not to do it, but I want to understand the logic behind that policy, given your growth prospects in your categories.

Well, there may be faster-growing companies out there but -- well, 11 years, we've gone from $1.7 billion to over $4.5 billion in sales. And so I think our growth posture has been fairly strong and robust over the years. That growth posture obviously comes from a combination of organic growth -- and we've proven that with what we've done with the razor and blade business that we bought in '03. And that growth comes from acquisitions which -- we've been very happy with the acquisitions we've made, in terms of really building the Personal Care division that now is over to $2.5 billion in sales, out of nothing. That takes cash and so when you commit yourself to a dividend stream, you reduce your flexibility in terms of actually growing the business the way we have, Ali. We always talk about the best way to get value back to our shareholders. We've: a, grown the business, as I've already outlined; b, we've been pretty heavy in terms of share repurchase opportunistically. And in fact, you're seeing that as we come back into the market in the numbers we quoted earlier, in terms of the share repurchase that we've done in 2011. Our capability of doing it going forward with the cash flow that we have, very strong cash flows, I think that remains our preference. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay. I'll follow up with a different question, but you don't think -- a little bit of dividend doesn't hamstring you.

I don't think a dividend does much right now, frankly. And we had shareholders share that point of view as well. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay. So let me go back to the guidance question then. And let me ask it slightly differently, which is -- I would have believed, we would have believed a guidance like this. And so that's what roughly we're modeling -- higher than that if I hadn't seen your comments about pricing on batteries this quarter or your comments about cannibalization in razors this quarter. So I'm really looking for data points that you're seeing that give you confidence in the guidance going forward.

I'm not sure what you're looking for. Maybe we could take that offline and you could talk to Jackie. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: Okay, I could. But I'm trying to see what you're seeing that we're not seeing that's getting better in the business.

Well, I'm not sure what you're seeing that's different from what we've already been talking about for 40 minutes. I think we need to go on to other callers, don't we?

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

I have a couple of questions, some of them a little housekeeping. What's the magnitude of the pension, increased pension contribution you expect in fiscal '12?

Connie, it's not the contribution. It's actually just expense, and it looks like it's going to be around that $10 million above what we experienced in fiscal '11.

Okay. And then on to the wage inflation in China, and it's starting to be significant. I think that's what you said. How much of an advantage on a total landed cost basis does your China operation still provide? I guess this is primarily in the flashlight business, right?

Well, we have lighting products. We also have assembly for the razor blade business as well, and we have an outgoing facility there. So we actually have 3 facilities in China. And I don't have the metrics on the landing cost, what it is now versus what it used to be.

Kind of a general answer is from the Auckland [ph] battery facility up in Tianjin remains probably our low-cost facility globally. It's highly automated combined with some of the benefits of working in China. In terms of the flashlights and razor assembly operations, somewhat manual-intensive. And that's obviously where you're seeing some of the increase in cost with salaries and wages, one with utilities in some other areas. But I guess my comment is off a fairly low basis. And so even with the amount of inflation we're seeing out of China, and as you CAGR that out, it remains best location for those kinds of processes and I suspect will for at least the next few years. I think if you CAGR out what we're seeing from a Chinese inflation 3 to 5 years out, I think there's a more legitimate question there as to is it going to remain competitive versus where else we can operate. And we operate in places like Indonesia and are very comfortable with other parts of Southeast Asia. So that's something we always look at.

Our next question comes from the line of Christopher Ferrara of Merrill Lynch.

I wanted to ask about, I guess, the nature of support behind Hydro next year, right? Because it looks like you had some significant price offs on the refill side, right? Coinciding with Procter's relaunch of the ProGlide and I guess A&P has been coming down, right? A&P's going to come down again next year, I guess. And I'm sorry if you talked about this a little bit already, but can you talk about where A&P is coming down next year? Is it in the Personal Care segment? Do you think that the support in Hydro is going to come more on promo or more on advertising on a year-on-year basis? I guess, if could you just give a little color, that would be really helpful.

Yes, Dan's maybe looking at some numbers. But from a color point of view, obviously, the one big thing that we have working for us is we have a much larger sales base from which -- on Hydro, anyway. And A&P as a percentage of sales, certainly in that system, it's coming down pretty dramatically. The raw A&P dollars will come down somewhat, as we've alluded to in our comments. And it will be in a mixture, both on the promotion side as well as on -- in terms of trade promotion side as well as consumer promotion and advertising. It will vary by quarter depending on what our tactical strategies are. It will also vary depending on the competitive environment. I know that our competitor is continuing to spend very, very heavily to try to regain share that they've lost to us. And so we will remain competitive as well, although I think a lot of the share that we've gained is share we've kind of earned, not rented. And by that, I go back to once people try Hydro and they really, really like it, you capture those. And that's not rented share, that's owned share. And I do agree you gain share over time through innovation and Hydro continues to be the best innovation in the category.

And not to be overly dramatic about this, right, but the price offs that you guys ran or at least what the scanner date showed, right, in, I guess, coinciding with Procter's relaunch ProGlide seemed different than what we've seen historically, right? I don't think I've this much price promotion on the refill side in the past as we did. I mean, is that a fair characterization? Has the dynamic of the category changed at all, where you're seeing more discounting on blades than you ever had before? And if so, I mean, what are the implications of that?

Yes. I don't think -- I wouldn't draw a conclusion you're seeing a permanent change in that regard. I think you're seeing just some tactical knife fighting going on. When your competitors does something big in this category, it's often common to take your current users out -- and that is inducing them to load up on refills, is specifically what I'm talking about. But that's more of a tactic. I don't sense it's a big strategic change for the category going forward.

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

Can you just talk about the U.S. battery retail inventory levels? I had some sort of frustration trying to buy batteries this weekend.

Well, I think U.S. battery retail inventories in the northeast are kind of low right now, between the flooding that took place not too long ago and this recent power-outage snowstorm event. Other than, I think, that comment, I'm not sure I'm aware of any extraordinary retail inventory situations at this point elsewhere in the U.S. You may be a little heavy on the East Cost, South and North Carolina, but nothing extraordinary. But I do think that you have -- we have some replenishment opportunities in the northeast as a result of the weather situation you guys have suffered the past week or so.

And we have no further questions at this time I would now like to turn the call back over to the speakers for any closing remarks.

Thank you, everybody, for participating on today's conference call. And this call will be available for replay beginning in a couple of hours. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.