Energizer Holdings, Inc. (ENR) Q1 2015 Earnings Report, Transcript and Summary

Good morning. My name is Daniel and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer Holdings First Quarter Fiscal 2015 Results Conference Call. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Jackie Burwitz, Vice President, Investor Relations. You may begin your conference.

Thank you Daniel and good morning everyone. Thanks for joining us on Energizer's conference call to discuss our first quarter fiscal 2015 results. 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, energizerholdings.com. During our prepared comments and the question-and-answer session that follows, we may make statements about our expectations for future plans and performance including future sales; earnings; capital expenditures; advertising and promotional spending; product launches; the amount and timing of savings and costs related to restructurings; amount and timing of changes to our working capital metrics; currency fluctuations; tax rates; raw materials and commodity costs; category value; acquisition or integration plans; future plans for return of capital to shareholders; whether the spin-off of the Household Products business is completed or expected as expected or at all, the timing, costs in terms of any such spin-off; whether the expected operational, marketing and strategic benefits of the spin-off can be achieved. Any such statements are forward-looking statements, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to risks, including those described under the caption Risk Factors in our annual report on Form 10-K filed November 18, 2014. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not undertake to update these forward-looking statements even though our situation may change, and these forward-looking statements represent our views as of today only. During this call, we will refer 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 shown in the press release issued earlier today, which is available in the Investor Relations section of our website, energizerholdings.com. Management believes these non-GAAP measures provide investors valuable information on the underlying trends of the business. With that, I would like to turn the call over to Dan.

Thanks, Jackie, and good morning, everyone. I would like to start with the financial overview of the quarter and then turn the call over to Ward to comment on the businesses and progress of the planned separation of the Personal Care and Household Products divisions. Adjusted earnings per share for the quarter of $2.07, a decline of 1.4% versus the prior year were in line with our expectations despite significant currency headwinds. Net sales declined 6.8% including approximately $45 million of unfavorable currency impacts. Organic top line declined 4.7%, margins improved as a result of our restructuring program with incremental savings of $26 million in the quarter. Accretion from the Feminine Care brand acquisition was $0.5 per diluted share, A&P spending increased $4 million or 90 basis points on a percent of sales basis versus prior year. SG&A as a percent of sales excluding unusual items improved 60 basis points versus prior year and the effective tax rate was favorable versus the prior year first quarter as restructuring and spin-off costs were incurred in higher tax rate jurisdictions, resulting in a lower overall tax rate for the company. Organic sales declined 4.7% as both businesses experienced softness. Our Personal Care organic sales declined 2.5% driven by declines in Feminine Care, Wet Shave and Infant Care. While volumes are down across the portfolio, we did have a favorable pricing within Wet Shave. In Wet Shave growth in the Hydro franchise was offset by declines in our legacy brands and shave prices. And Household Products organic sales declined 6.9% due to the timing of holiday shipments that occurred in the fourth quarter of fiscal 2014 combined with retail inventory reductions late in the quarter. In addition, Household Products had higher promotional spending that negatively impacted net sales. We continue to see strong margin expansion of 120 basis points to 47.1%, as we continue to make excellent progress with our restructuring initiative. During the quarter, we realized $26 million in incremental savings, bringing the project-to-date savings to $282 million. We estimate that the total project gross savings will exceed $330 million and expect to exceed $300 million of savings through June 30, 2015. Since we closed on the Feminine Care acquisition on October 23, 2013, there is an incremental $0.05 of earnings per diluted share in the quarter representing the operating profit from October 1 to October 23 last year. We also increased A&P investment $3 million during this time period. We continue to be very pleased with how the acquisition is performing and a potential for growth going forward, now that it is fully integrated with our feminine care portfolio. During the quarter, A&P spending increased $4.1 million to 8.2% of net sales, a 90 basis point increase due to increased spending behind the hydro franchise and Feminine Care business. SG&A excluding restructuring and acquisition-related costs and costs related to the spin-off increased 60 basis points versus prior year levels due to restructuring savings and continued tight spending controls. And rounding out the P&L, our effective tax rate excluding unusual items was 28% reflecting a favorable mix of foreign earnings. Moving to our balance sheet, our working capital as a percent of net sales has remained stable at 15.2%. We continue to realize improvements within days payable outstanding across both operating segments. However, days and inventory have increased versus recent trends due to the post-restructuring changes in the Household Products manufacturing footprint and inventory builds related to upcoming new products launches. Finally, in terms of capital allocation, dividend payments in the quarter were $31 million, equal to the prior year quarter. No shares were repurchased during the quarter. Now, moving to our financial outlook. As we indicated last quarter, due to the July 1 expected separation date, a full year earnings-per-share estimate is not applicable. However, we did provide an outlook on metrics related to operational performance and brand investment activities. With the exception of unfavorable currency impacts not much has changed since we provided our outlook in November. We are still anticipating flat organic net sales as a total company with Personal Care organic sales expected to increase low-single digits and Household Products’ that were gaining sales expected to be down low single digits versus the prior-year in line with the category. We expect the gross margin rate to increase slightly due to increased restructuring savings. And A&P investment as a percent of sales is expected to increase over a 100 basis points as we continue to invest behind innovation across the both businesses. Restructuring savings are expected to exceed $300 million by the third quarter of fiscal 2015. Project-to-date, we have recognized $282 million in savings through the first quarter of 2015. And finally, we’re net estimating that organic pretax profit growth will be negatively impacted $60 million to $65 million due to unfavorable currency movements. This is an increase of $25 million versus the estimate that we provided in November. Our nine month financial forecast has earnings per share below the prior year nine month period in the low to mid single-digits. Excluding the negative impact of currencies, forecasted earnings per share is above prior year for the nine month period. Our focus for the next two quarters is delivering topline growth, enhancing margins and investing behind our brands and the new innovations that will come to market over the next couple of quarters. I also want to highlight that we continue to translate our Venezuela results at the 6.3 official exchange rate. We are aware of recent changes announced by other companies including the recent move to de-consolidate and to translating at the higher SICAD II rate. We continue to evaluate the most appropriate accounting treatment and translation rate for Energizer and we may elect an alternative treatment in the future. Now, I’d like to turn the call over to Ward for review of the businesses and an update on the progress of our proposed aberration of the businesses.

Thanks, Dan. As Dan stated first quarter results were pretty much in line with our expectations despite significant currency headwinds. Looking at the U.S. Personal Care business, all categories exhibited growth in the December quarter for the first time in two years. However, our aggregate share did not improve sequentially as we had hoped. We ended the quarter in the U.S. down 1.4% on an aggregate share basis, as losses were driven primarily by Infant in men’s and women’s legacy systems. In wet shave, the U.S. category was up nearly 1% in the quarter as growth in women’s systems and disposables was partially offset by a decline in men’s systems. Our share in the U.S. was down nearly 2% due to the highest levels of promotional activity in the past three years from our major competitor. As a result gains in the Hydro franchise were offset by declines in legacy brands. Globally, our share of [indiscernible] is basically flat. Our total global Hydro franchise sales were up 11% for the quarter, the seventh consecutive quarter of double-digit growth. The Feminine Care grew approximately one point, that our share being relative stable. Market share for Carefree and Stayfree brands are improving behind our continued increased investments for quarter. In the second quarter, we are launching several new products including Hydro Silk TrimStyle, the trade up from existing Quattro for Women TrimStyle. And then started second in January, extension of our growing Hydro franchise. And Sport pads, liners and combo packs, to leverage our sport brand name into the complementing pads and liners categories. In February, we will be leveraging the Playtex Sport brand equity and our Quattro technology with the launch of pads and liners into the sport brand. In addition to the increased A&P support of our existing brands, we will increased be it in and promotions behind these new products. Turning to Household Products, although the battery category value continue to declined to 46%, consistent with recent trends, our value share of the U.S. battery category increased 3.2 points and global battery category value share increased 2.1 points through our successful efforts to gain new distribution and our strong focus on category fundamentals. In addition, we improved profitability excluding currency impacts in the first quarter, driven partly by our ability to continually drive our cost, which led to continued margin expansion. We believe we still have room to grow our share and profits through investing in our brands by introducing innovation. As a matter of fact, next week we will see another world’s first from the iconic Energizer brand. This new product launches in the five days, and we will provide additional details regarding our upcoming innovation launch at CAGNY. Now turning to the separation. We are now little over five months away from the July 1 targeted separation day. We are continuing to make progress on the various work streams. The Form-10 will be filed in early February as planned, and will provide historical stand-alone financials to the SpinCo business, Household Products. Our colleagues have done an excellent job of doing the day jobs, while also working on this complex transaction. I remain confident about both teams ability to drive growth and generate significant value for shareholders. As a part of the separation process, we are also executing a restructuring initiative [indiscernible] position both businesses for success of the stand-alone entities. These initiatives include, adapting the global go-to-market footprints to reflect the future strategies and scale of each company. Centralizing certain back-office functions and outsourcing certain non-core transactional activities, both in an effort to increase efficiencies and reduce headcount to optimize the cost of each business. These restructuring savings are targeted to offset incremental SG&A costs, which are normally expected to be incurred when developing two standalone businesses. Based on the decisions made today, we are estimating the total spin-off and restructuring [indiscernible] cost, to the close of the spin-off will be approximately $350 million to $425 million, with $200 million to $225 million relating to the transaction, evaluation, planning and execution. Now $150 million to $200 million related to downsizing and restructuring initiatives. These estimates do not include costs related to potential debt breakage, tax related charges or potential CapEx, which maybe incurred in the transaction. They may be significant. We look forward to providing more information on February 20, both management teams will be presenting a CAGNY and we will provide more insight into their businesses. In addition, both businesses will be providing more information in the least, proceeding the targeted spin date July 1 to discuss our strategies, capital structure and return of capital plans. This is an exciting time for all involved in Energizer. We strive to continue to deliver value for our shareholders by both investing in our brands, innovation and creating two separate companies spent operating models. This completes our prepared remarks this first quarter earnings call and then I will be happy to take your questions. Daniel.

Thank you, ladies and gentlemen you have a question at this time. [Operator Instructions] And our first question comes from Chris Ferrara from Wells Fargo. Your line is now open, please go ahead.

Hi, thanks good morning guys. So wondering on top line, and so I know you guys had some timing issues in Household around timing of shipments and holiday and inventory changes. Can you, I guess, quantify that on household and then talk about anything else unusual that would have driven organic this low this quarter. I guess particularly in light of the fact that you’re maintaining the organic guidance for the rest of the year? I was wondering if you just talk about the confidence level on that and why it better?

Sure, on the Household side, the quarter again as we described some unusual movements of inventory in and out, the results of a couple of customers specific situations. There was a load last year related to - that was favorable for us but we didn’t annualize through this year. But really nothing material and I think again as we look at planogram sets both on the Household side and Personal Care side, they are pretty much locked in at this point in time, we’re feeling pretty confident of the topline estimates anyway for the balance of our year in the balance of the nine months. I don’t know Dan if you have anything you want to add?

No, I think that pretty much covers it. We did have significant promotion in few of the accounts as well, which have negative impact on sales.

Okay, so just following-up I guess, does that suggest I guess the planograms have a lot of incremental shell space in them and that’s what is going to get the year-on-your gains or maybe your’re - I know you’re going to announce some innovation at CAGNY probably in both businesses. I mean, is some of this contingent upon the success in the seven of those innovations?

As far as the planograms as I said we feel pretty comfortable as we go into 2015. The innovation that we’re launching both on battery side as well as on the Personal Care side is material and will be a contributor, as well. And then I think finally, especially, in the Personal Care side, again the categories that we compete in we’re actually starting to see a little bit of growth out of these categories really for the first time in two years. So I would say those are the three main factors that were basic kind of our more positive view on the top line here for the next couple of quarters.

Thank you. And our next question comes from Wendy Nicholson from Citi. Your line is now open. Please, go ahead.

Hi my question has to do with the promotional and/or the choice of where you’re spending advertising versus promotion. Kind of if you can just update on us the promotional environment as you expected I know you talked about it being very promotional in both [indiscernible] and batteries, but going forward with the expected 100 basis point increase in your advertising spending, do you expect that to come out of promotional spending, in other words are you environment - are you excited about the environment getting easier, or is that just a specific choice you’re making? Thank you.

Sure. On the promotional environment I told you the difference actually between the two businesses. Household promotional environment, I don’t think there's any extraordinary to comment on it, in a macro sense. On the Personal Care side, we saw really some extraordinary promotional spend by our major competitor in shave. And in fact really harking back to previous management of our major competitor levels, we haven’t seen in a couple of years. And I think as we go into the January through June timeframe, you will see increased A&P behind innovation that we’re taking about in some of the different areas and on existing systems. And on the promotional spend in some of our categories not across the border we may be doing some re-judgments given what we’ve seen from our competition. But I think overall, kind of back to Dan’s comment you can expect to see top line that’s kind of the brand building, equity building, innovation focused A&P from around 100 basis points.

Got it, okay. And then on the Household side sort of with the change in ownership at Duracell kind of happening, is there anything you can comment on in terms of may be how the completive environment isn’t evolving in terms of the intensity of winning new distribution. I know that’s been a big driver of your business, you’re either in or you’re out at various retailers. Now that a lot of planograms have been reset, is there any commentary you can make about kind of their competitive approach to the category at this point?

Hi, really Wendy, I really can’t. I mean, you would have to ask them. And I don’t think they quite know. As they have changed management again on the battery business and it’s not quite clear as who’s running that during their transition. I think they are better able to speak to it than we are. I think the duty for us is we make our transition. And as you know, it is the management team we have running this business going forward after July, [indiscernible] with 30 years, and has unmatched experience in that category.

Thank you. And our next question comes from Dara Mohsenian from Morgan Stanley. Your line is now open. Please go ahead.

Hey, good morning. I was hoping on the innovation front, can you give us a sense of how much contribution you’re expecting from new products this fiscal year versus the typical year and how game changing the innovations might be? And then secondly, on the commodity front can you talk about your commodity cost expectations in next couple of quarters and even post to split obviously you’re not to go into the individual businesses, but can you give us a general sense of commodities looking out beyond the split in terms of the impact you’re going to have on your business, based on current spot rates? Thanks.

Yes, sure. Let me talk on the innovation side and maybe turn the commodity discussion over to Dan. On innovation we don’t give out the information as to what these two products will - what percent of total volume they’ll make up. The innovations though are noteworthy. And especially, I think we’re on the household side is something the household battery category has never seen. And so we consider that noteworthy material. And of course in materiality on both the Personal Care side and Household side, coming from innovation will certainly be material as it relates to this quarter and next. And then it starts the blending of total business as you annualize through that. Dan commodities?

Yes [indiscernible], if you think about total product costs we have had a lot of benefit from continued savings from the restructuring project, a lot of which is manufacturing foot print changes which is cost of good sold. On material side, Dara, we’re expecting some slight favorability remainder of the year. Clearly oil is a benefit for us, and we’re going to see significant benefits within the transportation line with TL [ph]. But overall materials striving themselves are relatively flat slightly favorable but the big benefit from ours is going to be the restructuring savings.

Okay, and then on the restructuring savings the higher cost savings that you guys have outlined is that a significant revision there given you are not quantifying your new numbers just a more modest change or could it be more significant. Can you give us some type of health aggressive competition there?

Yes, I wouldn’t characterize it as very significant, the fact that now we’re seeing it exceeds simply shows where the savings are coming in faster and we’re more confident in achieving those savings. At July 1 our total savings we’ve not updated. But we’ll continue to update you next quarter and if we’re closer there is a possibility we could be higher, but at this point time we’re just lot more confident given that where are we at $282 million of savings with two quarters to go. The remainder is the 300 million number.

Thank you. And our next question comes from Bill Chappell from SunTrust. Your line is now open, please go ahead.

Good morning, thanks. And I may have missed this but on the battery side, you may give us an idea, where you’re gaining some of the share. Is this just the existing customers you’re getting better placement or you’re getting into new distribution? I mean it looks like Eveready may be popped up at Home Depot and some other kind of non-FTM [ph] channels. So you may give a little more color there.

Sure, actually a little context as well. If you recall [indiscernible] by growing our marketing share in batteries, outside of those two customers that we lost over a year ago now. And with us annualizing through those customer losses, really last fall anyway, that growth is just now evident, it’s not being masked by the two distribution losses we’ve been referring to over the past year and half. And in fact, it’s broad-based. It’s really all channels. And it’s across a mix of customers. And again it’s a result of just our ability to focus on the fundamentals, focus on helping our customers grow their categories, their battery categories. And again not to that point, but just fact that our battery sales force especially in the U.S. is basically 100% focused on batteries and flash lights and none of our competitors can say that. And I think you’re seeing that in terms of the fundamentals really across the board.

Okay and then switching to Wet Shave. I know this question comes up on a regular basis, but you look at kind of the dollar shave and some of these more alternative channels, I mean, they do seem to have stepped up advertising national and promotion. Is the real competitive pressure just from P&G or I mean, are you seeing other channels or do they even just P&G’s new product where you don’t have a new product right now to kind of tout.

On the Internet version we just view it as a different channel distribution. Actually whether it’s some of the different players there, we participate to there. Our private brands we’ve actually sold some products through some of those Internet based channels, so that’s totally competing with us as much as frankly an opportunity for our Private Brands Group. The real competitive comment goes back to the level of promotional spend, we saw this past quarter from the main competitor who basically drives the category. And we saw unprecedented amount of promotion. I’ll give you an example, in men’s, we saw when you look at percent of volume on deal for the past quarter, our competitor increased the percent of volume on deal by 1,000 basis points. Now they are 100 basis points and 1,000 basis points. Our percent of volume on DL actually was down. So it’s kind of unusual to see that we we’re honestly anticipating these hyper levels of promotional spend other major competitor of ours in wet shave. And I think that’s probably the main contributor to a little bit of share loss.

Thank you and our next question comes from Bill Schmitz from Deutsche Bank. Your line is open, please go ahead.

Hey guys good morning. I just had a couple of questions. Can you just give us a little bit of a sneak preview of the Form-10? So like the two big questions. And I think you probably are better apt to answer now, have you sort of taken a step at what the standard overhead is going to be the two businesses? And then is there any reason to believe that the separation financials are going to be materially different than the current sort of segment numbers allocated in the corporate? And then I have a follow-up please.

Yes Bill this is Dan. You’re not going to get your standard overheads out of Form-10. And the Form-10 actually will be issued in the very near future. We believe at this point, and we’re still putting together these post-separation financials for the two businesses. We believe that we are targeting to eliminate, or overcome all these synergies. So we’ve come up with a rough estimate of what we think the synergies are. Obviously you can see the restructuring expenses that we’ve highlighted, a fairly significant magnitude, a lot of those restructuring efforts are targeted to reduce cost going forward for the two businesses. So that’s kind of the color commentary on that and we’ll certainly have more going forward. In terms of the shape of the P&L we don’t have that in this point in time, I don’t even think we’ll have that Cagney but certainly about their own choose [ph] June will have a much clear picture with this whole financial outlook is for each business.

Okay great thanks. And then if I look back historically, and I’m kind of backing into the numbers for the organic growth for the year. It’s been like since 2007 where you’ve had two consecutive quarters of greater than 1% organic growth, even quarters of good organic growth in the given quarter, but to do two in a row it seems like you’re guiding to. And so is that really like a change in the environment, luckily you’ve seen an up tick in the Nielsen data or is it kind of a stuff you’re doing because every year you have pretty decent innovation, it sounds like this will might be may be if that change is difference. But I just want to try to figure out what’s different this time to get to those levels of organic growth?

I think the main thing that’s different this time is we’re seeing the actual categories in which we compete growth. The negative trends we have seen especially on wet shave, I’m talking value growth, the negative trends we’ve seen in categories like wet shave and most all the others really seem to have in a vain. And I think we’ve been consistent with our observation past couple of quarters. And we’re actually now seeing them go into [indiscernible]. I think that is certainly a fundamental positive as we look into the next two quarters on our own businesses. I think it’s in layer on top of that category growth, what we do have in terms of innovation pipeline coming now, these are really the two primary reasons I think our view.

Thank you and our next question comes from Ali Dibadj from Bernstein. Your line is now open, please go ahead.

Hi, guys thanks. I have one question about currency and one question about the transaction. On the currency front can you please maybe Dan quantify the benefit you got from FX hedging in the quarter and we see the net number. But what’s kind of growth number Dan you think you’re getting? And how that rolls through the rest of the year given the hedges you have in place and perhaps even to the split? And within that talk about your decision around Venezuela timing of that and kind what will change thing. And I will come back on the transaction question.

Yes, on the outset Ali it was about $5.5 million, so the net impact was $20 million. And in general it’s about 20% to 25% offset, I mean it varies like order, but that’s really what we kind of use as a benchmark based on hedging program.

And sorry just on that one still just how does that flow-through going forward. But on the transaction for fear being cut off you guys have bought many companies before and I love your [indiscernible] because you have spoken about in the past your two kind of future companies being potential acquisition targets. And it’s possible somebody could look at these in be interested in I think a lot of lot of us on the analyst investor front of thinking that way as well. And a little bit to the previous question but also to this quarter that you had some really tough top line and tough bottom line results. And as acquirers in the past, do you think that influences your potential future acquirers of your two businesses so they look at these results as they got, either better or worse businesses than we thought. Or do you think this is always in the realm of reasonable volatility in numbers and so it doesn’t really change what a potential acquirer could think about?

Yes, let me try to take a stab at all those questions. We’re approaching July 1 split and thinking post July 1, led as two strong independent companies going forward. And hedge the investment in the brands and the investment innovation. The optimization of the footprints of the two companies as we get through this final part of the split. To set up this two as viable on going concerns, and so that’s really the context we’re thinking and acting and the purpose in the putting. We think that these are both big businesses to be in. We think their cash flows on batteries are very strong and provide some great deal of flexibility as they look at grow post July 1. We think especially as the categories like Personal Care to get back to some growth parameters, that those are looking quite strong. So that’s just honestly how we are dealing with it as we go forward. And I don’t know, Dan if you have anything you want to add? A – Dan Sescleifer: Yes, Ali, though that I don’t have the had jobs in front of me at this point. The $65 million that we talked about is actually the net number, net of the translation, net of the hedge gain.

Thank you. And our next question comes from John Faucher from JP Morgan. Your line is now open, please go ahead. Q – John Faucher: Thanks. If I can just sort of follow-up a little bit on Bill’s question, you highlighted in both the press release and the prepared remarks that the estimates for the cost could go up from here. And so I guess, given the fact that you mentioned it on the call, is that something we should expect that it could go up or is that just sort of a general warning? And then, can you explain sort of the $200 million to $225 million related to evaluation planning in execution kind of what goes into that? And then the third piece of this sort of negative complicated, if it’s goes up I assume that would be related to the restructuring fees, that seems like that would be, where you see the incremental increase, so if we do hear you taking that up again that would be a sign you can attack more of the fixed cost. Is that the right way to interpret that so? Sorry for the complicated question.

Yes, John, this is Dan. I think that’s fair to assume that if there is a change we would anticipate more the restructuring side, in terms of the separation cost, and I’ll go through those, you know that is our best estimate at this point time, but we certainly have to copy out that with, they certainly can go up, it’s because as we proceed going forward. To talk about the separation cost, I guess maybe step back, you think about how our organization is structured, it’s a global enterprise. We have combined entities from back-office to commercial and almost 50 markets around the globe. This separation is clearly it’s a split into two it’s not a small spin-off. And so there is a lot of complexity and what adds to the deeper resources is the restructuring projects that we’ve undertaken over the last couple of years. We’ve gotten rid of a lot of resources that otherwise might be able to work on this project. So we had to rely a lot on external resources. There is really two major buckets under separation costs, the first one I would call effecting the transaction. So think of all the accounting work that we applied in the Form-10 preparation. Clearly, since it’s a tax we spent out there’s a lot of tax experts involved, legal financing, et cetera. So those individuals are working in all of these affiliates around the globe to basically make sure that we effect that transaction appropriately. In addition to just getting the deal done as we separate the business we are looking at go-to-market strategies in every market around the globe and that’s in some cases splitting affiliates into two in some cases it’s going to distributors. And so that analysis doesn’t take a lot of effort. We of course are separating the to corporate entities and there’s a lot of corporate functions that have to be established. And then we have with our combined commercial organizations we have combined their key platform so there’s a lot of effort is going into basically cloning the existing IT platforms and separating into two. So there’s a lot going on and that’s also one of the reasons why, when we announced last April, that’s a deal it’s a four team on timetable to get it done, that’s actually first is our targeted date.

If I could just build on Dan’s answer as well. I think probably what we’re saying the cost we’ve given you are our best estimates on the cost. So that part of the project, but those cost don’t include some of the debt breakage, and tax leakage and CapEx associated with this project. I think we call out specifically, but I’m not sure those are added cost per se just those are cost what you’re seeing.

Okay, great, thank you.

Thank you. And our next question comes from Nik Modi from RBC Capital Markets. Your line is now open. Please, go ahead.

Yes, thanks. So just three quick ones for me. Ward, can you give a little more clarity on exact, kind of what was going promotionally in blade and razors in the U.S. was it pro glad or was it more on the legacy stuff that process [ph] was focusing on. And then Dan just two questions for you. Restructuring charges gone up, is that including any thoughts around trade spending, ROI and then battery manufacturing, outsourcing, any thoughts on those two components of the costs.

Yes Nik on the promotional side certainly a lot was, I think, based on competitors launched last year of some innovation. Again, the level of promotion behind that was that and elsewhere frankly, because it just that is what we noted. And given the levels of promotion for some of volume on deals in at least two years. It helps substantially as I indicated 1,000 basis points in men’s, but even in women’s we’re spending is promotion of subset of volume was up 600 basis points, 36% of volume out the door on a deal versus 30% year-ago. These are levels much higher than ours. And like I can say heck levels much higher than, they have spent in not just last year comparable quarter, but two years ago comparable quarter. So it just an extraordinary promotional environment in that sense. I think as we focus on our own innovation going forward and as we’ve talked about lot of [indiscernible] and future innovation in Hydro. The Hydro platform continues to be a prime example of that and even in light of that kind of a promotional environment as we have announced in this release. So Hydro is still growing in the double-digit, has been for probably 17 not on the past 18 quarters. And we’ll continue to focus on bringing innovation and continuing in that fashion rather than running temporary share.

Nik I want to make surer I understand you question, I think you’re asking your three promotion battery outsourcing were part of these initiatives and the answer really is no. We’re focused on how to separate these two entities and right size the cost structures and so we were really laser focused on that, which create promotion in battery outsourcing [indiscernible].

Great and just to be clear Dan, those are two things that you are looking into?

Yeah in fact, we’re outsourcing that is, at this point in time. We’ve been doing that for a while and trade promotion is a continued focused. It’s just now part of these numbers related to the separation expense.

Thank you, and our next question comes from Steve Powers from UBS. Your line is now open please go ahead.

Great, thanks, a couple of things. The first one on Personal Care, I know you’ve got the innovation planned and the categories look a bit healthier, but as you just said - there is clearly on going competitive challenges in share loss. So how confident are you that you can really accelerate the momentum as planned without even further ramping up brand supports spending. And then, I ask because you got Personal Care sales that have shown negative year-over-year organic trends on average at least staying back to at least middle of calendar 2012. And the competitive climate certainly appears intense. Again to think you maybe spend even more than planned to get the growth that you’re looking for or is that coming innovation that could - that we can really have confidence in this positive inflection beyond initial selling?

Again kind of maybe repeating myself, I apologize if I am, I think the categories in the U.S. getting back to growth trajectories is an important component of our outlook. We hope this will continue. The innovation that we are introducing on top of that, is another contributor to our outlook. And the increase in spend as indicated in the A&P spend as a percent of sales shows that we’re increasing our level of support both on existing brands and innovation. So all three of those I think are fairly positive factors is that go into our plans. And I don’t want to overplay what share trends that we’ve seen in the quarter, and those are U.S. share trends, but as you know, our Personal Care business is global and basically our share of wet shave globally is basically pretty stable.

Is there an assumption that competitive concession I mean, maybe the December quarter was somewhat of an anomaly but it’s been intense. Are you assuming that it gets less intense?

Well I think we were assuming as you look backwards that the level spend in the category promotional environment would have been a little more rational than it was couple of years ago under the predecessor management. So I think that was a little bit of surprise. I think we’re prepared for anything. And as we move forward we’ll just, you know I can’t really comment on promotional pricing going forward. But we are very confident with our plans as you see category value growth back, have to do the innovation we’re bringing it now and [indiscernible].

Thank you. And our next question comes from Olivia Tong from Bank of America. Your line is now open, please go ahead.

Great, thanks. I guess, just following-up on the wet shave question, can you talk a little bit more about combining the competitive challenges there, because are you planning to match some other promotional spend or is the expectation that you’ll still have to deal with this as the year progresses? And then, in batteries you mentioned in your prepared remarks that you saw some de-stocking at retail, is the de-stocking done at this point in your view?

One the Personal Care side, I won’t comment on [indiscernible] where a competition is going to do promotion wise and how we will respond after marketplace. I think we really do prefer to compete on innovation. So we’re focused on getting our innovation launched and are supporting it in a very healthy manner. So that’s the game plan on Personal Care side for the next couple of quarters. Then on the Household side, I’ll tell you how de-stocking is pretty much behind us. The changes we’ve seen and some of our retail inventories, we don’t see anything extraordinary at this point going forward.

Got it. Thank you.

Thank you. And our next question comes from Kevin Grundy from Jefferies. Your line is now open. Please, go ahead.

Hey, good morning, guys. Thanks for taking my question. Ward, I wanted to follow-up on batteries and understanding at the industries in a unique period right now, but kind of looking beyond the spin and looking beyond the close of the Duracell deal. Are you in the camp that there is a potential for pricing rationality to emerge less promotion of focus on profit and cash flow. And if that’s the case, do you think it’s reasonable that this business is capable more consistently delivering even low-single digit profit and free cash flow growth if this pricing rationality, does emerge if you guys continue to cut cost which you’ve done a great job over the past couple of years it would be great to get your thoughts on that front.

Yes, I really hesitate to speculate on go forward basis how the categories will work from a pricing dynamic, but as we get into the business since 1986 I can tell you there been times in the past where there’s been a great deal of price rationality. And then also there’s been times where the strategy where priced works. And I think if you are look in the past, the price work strategy never really played out well for the retailers, customers, and players in the category. But what happens going forward I can’t speculate on.

Okay, thank you.

Thank you. And our next question comes from Connie Maneaty from BMO. Your line is now open. Please, go ahead.

Good morning. I have a couple of questions on this split. Because that the first goes back to I think one of your comments in the prepared remarks then I just wanted to make sure I’m just stood it. Did you say that you expected that there would be no standard over head on the split companies starting in July and that would all be absorb before then.

No, we think longer-term once the companies have right size of the cost structures that will be the case, but there’s going to be a transition period all the way through the next fiscal year before that is achieved.

Okay that’s helpful. And then secondly as you consider what to do with the exchange rate in Venezuela are you also suggesting that may be the Energizer company right now would absorb whatever changes there might be instead of having the split units make that adjustment?

Yes, Connie, there is a possibility, as we highlighted in the remarks we are looking very closely at this. And if you look at what is going on in the industry, we are translating at the 6.3 rate [indiscernible] transacting at that rate so that makes sense where it’s now that there is SICAD I or SICAD II and recently there is a business actually consolidated in Venezuela. So there is really four options available and we are in - we are consulted that [ph] with our external auditors and we are monitoring it very closely, but there is a possibility.

Do you suspect more of any indication, if the split companies would enjoy the same rate, as Energizer does now?

I would assume so I don’t know why the two businesses would have a different rates. Basically we have both businesses selling product in at this point in time and I don’t think this one will impact that.

Okay and then just one follow-on. The dollar growth you’re starting to see in some of your categories, do you attribute it to better consumer health in the U.S., lower gas prices and do you think it’s sustainable?

I would say that is certainly helpful and so in some of our categories like wet shave allowing price increases in the conventional trade of strategy to play out a little bit stronger. And even on batteries I would say that premium batteries, [indiscernible] do better than value battery trends right now. And I would say consumer disposable income is part of that.

Thank you and our next question comes from Jason English from Goldman Sachs. Your line is now open, please go ahead.

Hi, good morning folks, thanks for the question, I want to circle back to the very first question, that was the attempt to quantify some of the puts and takes and transitory headwinds that impacted household. Can you give us a better sense of some of the quantification or more specifically give us a sense of on an underlying basis absent all the noise, where the businesses running right now? And whether or not some of these transitory impacts actually can reverse on a go forward or is it just simply the factor of lapping over shipments in the prior year?

Yes, the details on kind of a puts and takes on batteries from past quarter versus a year ago, really are kind of customer specific so I hesitate to give anymore granular on that. We have customers and big benefits last year that we’re doing kind of one time situations, I don’t want to get into that, won’t repeat it. So I think that’s part of it along with just general shifts in volume at the end of the quarter at the end of the quarter. I would say on a long-term basis I would view the battery business, again we called global batteries as a category down to 4%. We were the first ones to call that out we called that out a few years ago, we have been improving right on that, that’s still a case. Now most recent quarter I think down 3%, I didn’t know that range, so within that slowly declining overall global category. But I think our Household battery business has the potential to offset some of that decline through distribution gains and our focus recently we’re focused on category like our competitors and pricing especially international markets. So I think, on the battery side, taking out frankly some shareholder time in that 2% to 4% decline. How much you get back to zero or little bit of growth. I think that’s to be seen. But again the other net organization is focused on battery, the innovation for bringing to market. I think it’s a reasonable to expect them to actually build a little bit of share in the declining category.

Okay. Switching gears to Personal Care, quickly. I can appreciate some of the competitive dynamics as a bit of a near-term headwind for you. But as we look at the data Personal Care also appears to be suffering at least here in the U.S., where we have got the good data. Suffering from quite a bit of distribution losses. I think your aggregate Personal Care portfolio has total distribution points tracking down 8% or so. With wet shave and Infant Careleading those declines and they are mounting. Can you give us a sense of where these distribution losses are coming from? I imagine some SKUs being cut out. If they are the material nature and how that may impact the go-forward growth rate?

Yes, I’m not looking to exact data you have, so I can’t speak to the numbers you point out. But I would say, in a general context, we saw some facing and distribution losses in Fem Care on the brands acquired, I think as a related to just the transition from JJ to our ownership. That was the last year number, and we had I would say if you facings in a few SKUs kind of here and there across Wet Shave, as well as Fem Care, though we were down during 2014. But frankly I’ve seen the result for the resets that we had for 2015 and saying frankly we are up either in terms of SKUs or facings or both in most of our Personal Care categories. As we go into 2015. And I think that is based on our more confidence in terms of turning some of negative top line trends, organic trends of Personal Care to more positive trends for the addition of the other reasons I cited earlier.

Thank you, we have a follow-up from Bill Schmitz from Deutsche Bank. Your line is now open, please go ahead.

Thanks, I meant to ask this before, I got cut off. How hard is it to switch a business from a company [indiscernible] to a distributor because I was wondering of Venezuela, maybe one of the options would be just to take the business or take the right down on the cash and balance sheet and then ship it off to a distributor? So maybe I broadly speaking I know that’s a big chunk of the standard over a cost elimination. So just kind of logistics around switching from a - own sub to distributor and then maybe if you could possibly do that Venezuela, as well.

Yes, there are really kind of two separate markets. The overall volume is down and affiliate turning the business over to distributor is having some of our affiliates as we focus our footprint. It's pretty straightforward how you do that. We sell through third party distributors and in over probably a 100 countries outside of our footprint already so this is certainly not anything new to us. And even in markets where we may be transitioning from affiliate structure to distributors often times that can be with distributors we already do business with. So it's really more a matter of when you close down an affiliate obviously there is headcount reductions and legal work around that. But I wouldn’t see anything extraordinary. It’s difficult from a headcount reduction, always to do those, but it straightforward how to do it in a charted manner and from a legal point of view straightforward on that complicated. So we are doing a fair amount of that, that’s a fair amount of cost that Dan talked about. It's also fair amount of cost offset that we are anticipating for these two companies going forward. And then Venezuela is really just totally different animal. I want to assume it's going to distributors model or not. It's unique set of circumstances and standard good job of laying out. We had another option before us. I think there probably is a feeling that we like to get that resolved prior to spin versus host spin. We are already in the middle of - you go to two companies in Venezuela or whatever. So its kind of one time event we need to consider coming from the split as it relates to our options in Venezuela.

Yes, this in Venezuela this just transacting dollars and if there’s a distributor you can freely exchange dollars that would be great but we haven't found this at this point.

Gotcha. Alright, thank you.

Thank you. I'm not showing any further questions at this time. I would like to turn the call back to Ward Klein and Dan Sescleifer for any further remarks.

Okay, operator, thank you. That really concludes the call and thank you to everybody for your interest in Energizer. Have a good day.