Energizer Holdings, Inc. (ENR) Q3 2019 Earnings Report, Transcript and Summary

Good morning. My name is Andrew, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's Third Quarter Fiscal Year 2019 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.

Good morning and thank you for joining us. With me this morning are: Alan Hoskins, Chief Executive Officer; Mark LaVigne, Chief Operating Officer; and Tim Gorman, Chief Financial Officer. This call is being recorded and will be available for replay via the Investor Relations section of our website, Energizerholdings.com. Also available on our website is a slide presentation providing additional details for the third quarter results. During the call, we may make statements about our expectations for future plans and financial performance and operating performance. Any such statements are forward-looking statements, which reflect our current views with respect to future events. We also refer to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in the press release issued earlier today, which is available on our website. Information concerning our category and market share discussed on this call relates to markets where we compete and are based on estimates using Energizer's internal data, data from industry analysis and adjustments that we believe to be reasonable. Comments referencing the VARTA business relates to the VARTA consumer battery, chargers, portable power and Portable Lighting Business in Europe, Middle East and Africa regions, and comments referencing the VARTA brand do not include these markets. References to specific quarters and years pertain to our fiscal years and references to the legacy and/or base business relate to the Energizer business prior to the completion of the Battery and Auto Care acquisitions. Investors should review the risk factors in our Form 10-K, 10-Q and other SEC filings for a description of the key factors affecting our business. These risks may cause actual results to differ materially from our forward-looking statements. We do not undertake to update these forward-looking statements. With that, I would like to turn the call over to Alan.

Thanks, Jackie, and good morning everyone. During the quarter, we made great progress on transforming Energizer into a global diversified household products leader. Our combined battery and lighting business, which now represents approximately 80% of our top-line, is strong and operating well. In Auto Care, we have been focused on stabilizing the Dayton facility and are nearing successful completion of that project. We are now focused on plans for innovation and brand building that will drive future growth. The combination of these businesses positions us well to drive long-term shareholder value by delivering strong EBITDA and free cash flow growth. Our third quarter results reflect the strong health of the Battery and Auto Care categories, the strength of our brands, robust growth within our combined battery and lighting business, weather related challenges in our refrigerant business, our commitment to cost management and significant progress on our integration. As we look ahead to the balance of the year, we remain on track to deliver our full-year 2019 outlook for adjusted earnings per share, EBITDA and free cash flow all while continuing to integrate realized synergies and invest in our new businesses to build momentum to drive future growth. First and most importantly, in the quarter, we extended our track record of consistent growth in our legacy business behind our strategic priorities leading with innovation, operating with excellence and driving productivity. We delivered strong organic sales growth of 3.6% behind pricing and distribution gains. Turning to the acquisitions, the strategic rationale for both is stronger than ever. In the acquired battery business, we've seen incremental wins by leveraging our broader portfolio, which are driving improved trends. We're just beginning to utilize our combined global supply chain manufacturing bases that are already seeing the benefits of the scale and flexibility. In the acquired Auto Care business, the core parents business delivered year-over-year growth in the quarter behind the Armor All brand that was more than offset by weather related declines in tight year-over-year inventory management from our customers in our refrigerant business. The refrigeration category was negatively impacted as the U.S. continued to experience prolonged unseasonably cool and wet weather versus unseasonably hot weather in the prior year. The current year weather trends reversed in July with hot weather across most of the U.S. We are now seeing strong sell-through, but given the late start to the season we do not expect to be able to make up the difference in the fiscal year. Recall that our refrigerant business is predominantly in the U.S., where we have over a 60% share making us more prone to weather impacts. As you may recall, our first priority in the Auto Care acquisition was to ensure we operating with excellence and that our customers' needs throughout the peak selling season. As a result, we prioritize the stabilization of the Dayton facility to ensure we met customer service level expectations and thanks to the hard work of our Dayton team. The facility performed well with average fill rates of approximately 99%. Now that we have insured operational excellence, we can turn our attention to reinvigorating the innovation pipeline to deliver top-line growth and drive margin improvements going forward as we execute a clear set of initiatives. As we look ahead, we have confidence in the long-term health of the Auto Care category and the strength of our brands. Our core strategies will allow us to drive growth and efficiencies in the business into the future. Our game plan is simple. First, we will lead with innovation supported by smart brand building investments to drive long-term growth and consumer connections to our products. Second, we will execute with excellence by focusing on and investing in core category fundamentals such as visibility, distribution and revenue management to drive growth in our brands and create value in our categories. We will also drive incremental growth through our global distribution footprint. And finally, we will drive productivity gains to reduce costs and maximize efficiency to ensure we have adequate reinvestment in our business to deliver future growth. Beyond the excellent work in Dayton, we made tremendous progress integrating our two new businesses in the quarter and have completed several important milestones with minimal disruption. Coupled with that tremendous progress, we have also been able to over deliver on our synergy expectations. We achieved synergy benefits of $5 million on the quarter tracking ahead of our original synergy target for 2019. In addition, we have uncovered significant incremental opportunities and are raising our total synergy target to approximately $100 million that would drop to the bottom line by the end of the first three years of ownership. This is up approximately $25 million from the original three year target. Even more promising is that we also expect to deliver incremental synergies above the $100 million target and we'll reinvest those back into the business in support of innovation and brand-building activities to drive growth and profitability over the long term. We expect the initial investments will be primarily focused on our combined Auto Care business where innovation and brand building had been limited and are confident that there will be significant return on those investments as we greatly improve the consumer focused innovation and branding across the portfolio. This should sound like a familiar playbook. It is the same plan we executed after our separation and we are confident that these increased investments will achieve similar, if not greater benefits than what we achieved in our legacy battery business, which resulted in extended distribution, increased value share and most importantly organic growth with margin expansion. These acquired businesses are in categories and retailers we know well and we have plans to leverage our existing capabilities and proven operating expertise to drive profitable top-line growth and enhanced margins across our expanded platform. We will continue to generate stable organic growth in our legacy business and realized significant synergies, which will enable steady debt reduction and a meaningful dividend. When you combine those attributes with the ability to invest behind our newly acquired businesses, we have a solid foundation for delivering shareholder value for the years to come. With that, I'd like to turn the call over to Mark for a deeper dive into our initiatives, integration activity and an update on the divestiture of the VARTA business. Mark?

Thank you, Alan, and good morning everyone. I'm going to first review the performance of our categories and then provide insights into our business performance, the status of our integration efforts, and finally our divestiture. Starting with our largest category. Global battery was down slightly with value down four tenths of a percent as declines in the performance alkaline segment were partially offset by growth in the price alkaline and specialty batteries. Energizer’s combined battery business outperformed the category, up a half a share point to 40.9%. This year performance was driven by increased distribution as we leveraged our broader portfolio now anchored by the Energizer and Rayovac brand. We were also able to implement pricing actions across several markets, most notably in the U.S. on Energizer MAX and Ultimate Lithium. In the U.S., we saw e-commerce battery category growth slowed significantly compared to what we have seen in recent period. Once again, Energizer continues to outpace category growth online and we remain the overall U.S. market share leader in this channel. We are also seeing an early indication of what we were able to do with our combined battery portfolio. By using our combined e-commerce expertise, we have significantly improved Rayovac’s online presence. And during the last three months, Rayovac was the fastest growing battery brand online growing at 35%, which is well beyond the category growth rate of 4%. E-commerce provides an early example of what the combined force of the organizations can achieve. Across all channels, including e-commerce, the promotional and pricing environment continues to be stable. We have seen the depth of promotions declined as retailer ads have focused more on full priced products. In addition, pricing actions taken in the U.S. and certain international markets have driven upside in the back half of the June quarter with expected benefits to continue over the next 12 months. Turning to the auto category, it was up nearly 2% with strong growth in those segments offset by weather related declines in the refrigerant category. Our total value share in the category declined 1.6 points to 21.6% driven by weak refrigerants sales and competitive activity in other segments. As Alan discussed, weather was a significant headwind in the category overall and disproportionately impacts our business due to our strong share in refrigerant. We have seen hotter weather beginning in July and sales have rebounded, but given the late start to the season, we do not expect to make up the full amount of the shortfall. Pricing and promotion in the Auto Care category trended positively in the quarter with both category and Energizer price per unit up across all segments other than refrigerant. Despite the weather impact this year and after six months of ownership, we're even more excited about the opportunities we have in the Auto Care category. Three of the four sub-segments in which we compete: appearance, fragrance and performance chemicals have healthy growth rates and respond well to innovation. Even with the refrigerant segment being negatively impacted by the weather this quarter, we have a strong and growing share base. We have clear plans to invest behind our iconic brands in these categories and drive future growth. In addition, we know that we can drive further efficiencies in Dayton now that we have the facility operating with service levels in the high 90s. Going forward, we will focus on continuous improvement in key areas including driving line efficiencies to optimize production runs, driving labor efficiencies, optimizing distribution and improving inventory management. Moving onto business performance; as Alan referenced, our results come from a simple formula. We lead with innovation, we operate with excellence and we drive productivity in all of our categories. First, leading with innovation. Our new Energizer visual identity and packaging refresh started showing up on shelf this quarter. This new packaging which has been rolled out globally, we'll connect with consumers through a clear and impactful visual identity. We expect this connection will drive greater velocity for all of our products. While you are most familiar with our innovation in the battery category, we have even greater opportunity in Auto Care. Those efforts are underway and as we mentioned shortly after we announced the transaction, we feel that we can infuse significant incremental innovation into the pipeline, particularly now that we can leverage these ideas with iconic brands like Armor All and STP. We will have much more to come on that on future calls. Second, operating with excellence. Our operational excellence in batteries is second to none. Our deep category expertise, in-store execution and supply chain excellence are just a few of the things we do, which make us the category partner of choice for our retailers. Combining platforms with the Rayovac assets will enable us to take that to the next level. With an expanded footprint in the U.S. we can truly maximize operational efficiencies to meet or even better exceed our customer's expectations. Now we can turn that expertise toward Auto Care where we acquired scaled U.S.-based manufacturing capabilities we didn't have before. The significant operational improvements in the Dayton facility are just the beginning of what we can do. These operating improvements which have already been accomplished were all achieved while staying laser focused on service levels. Looking ahead as we began to exit the peak season, we will be engaging in a series of continuous improvement exercises to enhance the efficiency of the Dayton facility in 2020 and 2021. We expect healthy gross margin expansion on a year-over-year basis for the next several years. And finally our greatest opportunity is to drive productivity over the next couple of years through our integration efforts. As Alan mentioned, we are updating our expected run rate synergies to approximately $100 million, which will be fully realized in operating profit by the end of the third year of ownership. Separately, we expect to have additional synergies which we believe are in excess of $10 million and our intention is to reinvest those amounts in support of innovation and brand building activities. We have a high degree of confidence in achieving these synergies, which when reinvested to drive growth and profitability over the long-term. We expect to exit the year with run rate savings ahead of our original plan and we will continue to push the organization to uncover any and all synergy opportunities. As we have mentioned since the close, we will remain focused first on the stability in the businesses and minimizing any customer disruption. It is a credit to the teams that they have been able to operate with excellence and minimize any customer disruption, all well over delivering the synergies we expected. With the combined impact of leading with innovation and operating with excellence, our sales forces will deliver more. The teams have identified and implemented numerous cross selling opportunities by leveraging the power of our Energizer and Rayovac portfolios. Over the long-term, we see significant upside in leveraging our Rayovac value brand in conjunction with our premium Energizer brand as part of our multi-brand strategy across our global markets. As we have discussed previously, we will leverage the brand that resonates the most with consumers in each market between Energizer, Rayovac, Eveready, or VARTA. We really like the optionality this provides us. In Auto Care we have recently been awarded additional category captaincies at major retailers. A clear vote of confidence for what our combined team can bring to this space. Turning to core integration activities. Our integration program has now shifted from stabilization and planning to execution. We have firm plans in place to integrate all three businesses together in a way, which captures the synergies we updated today and will drive future growth. Recently, we completed two major milestones on systems integration both of which went very smoothly. These are the first steps that will eventually allow us to exit transition service agreements and reduce costs. These system integrations were successfully completed with minimal disruption and we remain on track across all remaining integration work stream. And briefly on the divestiture process of the VARTA business. In late May we announced an agreement to sell the Europe based VARTA consumer battery business for $400 million. Our expectation now is to receive regulatory approval and close the transaction by the end of the calendar year. Looking ahead, we believe that we have all the pieces in place to execute seamless integrations and to drive improved performance with attractive growth opportunities across our expanded portfolio of leading brands. With that, I will turn it over to Tim.

Thanks, Mark, and good morning everyone. In 2019, we are delivering on our outlook for adjusted EBITDA, free cash flow and for earnings per share. EBITDA and free cash flow are the primary focus for our organization, and enable us to deliver value for our shareholders. Our relentless focus on strong cost management and the acceleration of synergies benefited us in the quarter and we expect it will continue over the balance of the year. We are reconfirming our outlook for the following metrics for 2019. Adjusted EBITDA in the range of $540 million to $560 million, adjusted free cash flow to be in the range of $220 million to $250 million, and adjusted EPS to be between $2.90 and $3. 2019 is both the transformative and transitional year for Energizer. As we close two transformative transactions in January. Here are the key takeaways at this point in the year. Our core business is strong and growing. Acquired battery business is improving. Synergy expectations are growing and accelerating and the integration is progressing smoothly. Auto Care operations in Dayton are stabilized with sustained service levels in the high-90s. It is important to call out that we also experienced softness in our Auto Care business, which was challenged weather and increased competition. We expect this to negatively impact our full-year expectation for Auto Care sales by approximately $40 million. As you recall in Auto Care, our first priority was to stabilize the Dayton facility. With the operational performance improved and customer service levels high we can now direct our attention to investing in incremental innovation and brand building activities. We are now six months in and we're already seeing the beginning of a three-year period of meaningful value creation through cost rationalization from our recent acquisition. By the end of the third quarter, we had already delivered over $5 million in synergies and we expect to more than double our synergy estimates for the first full-year of ownership, and this is just the beginning. Behind significant work done on operational efficiencies across the combined business that Alan and Mark discussed earlier, we are now projecting overall realized synergies to be approximately $100 million in the first three years of ownership, which will benefit our bottom line results. Now let's walk through the results for the third quarter of 2019 in more detailed. We've also posted slides on our website; provide greater detail on the third quarter results and our updated outlook. Starting with the results, for the current quarter adjusted EBITDA was $127 million increasing to $380 million year-to-date. Our adjusted free cash flow increased $37 million from the second quarter to $138 million year-to-date. Adjusted earnings per share from continuing operations was $0.37compared to $0.54 in the prior year third quarter. The current quarter was negatively impacted by weather affects on our A/C PRO refrigerant business, which reduced earnings per share by $0.10 and an additional $0.05 was due to a change in the allocation of interest between continuing operations and discontinued operations reflecting the lower part evaluation. Improved cost efficiencies and synergies we're able to partially offset these impact. Net sales on a reported basis for the quarter was $647 million, up $254 million inclusive of the net sales contributed by the acquired businesses. Importantly, organic sales were up 3.6% primarily as a result of the strength in our battery business reflecting pricing action and distribution gains, which more than offset the currency headwinds of $7.4 million or 1.9%. Looking quickly at net sales activity by geographic segment, Americas net sales increased to $465 million, up 93% and reflected organic sales growth of 3%. In the international, net sales increased to $182 million, up 20% including organic sales growth of 4.6%. The organic net sales growth in both segments was driven by increased pricing and distribution gains. Our adjusted gross margin rate for the third quarter was 40% largely driven by the lower margin profile for the acquired businesses. We did see improvements in the adjusted gross margin rate in our legacy business excluding the negative impacts of currency. SG&A excluding acquisition and integration costs was 17.4% of net sales, which included the 240 basis point improvement from the prior year in our legacy business. We continue to drive the cost efficiencies and synergies across our combined businesses. Moving forward we expect additional favorability in SG&A as we continue to realize synergies from the acquisitions. Now turning into the acquired businesses. The acquired battery business contributed net sales of $109 million, representing a quarterly sequential improvement in trend as we anniversary its shelf space changes in the prior year. The current quarter was also impacted by unfavorable currency headwinds. We expect battery net sales to turn slightly positive compared to the prior year in the upcoming fourth quarter due to increased display activities. Acquired Auto Care contributed net sales of $136 million for the quarter. The results in the quarter were negatively impacted in large part do the performance in our refrigerant business where we exited unprofitable private label business and experienced negative impacts from weather, and in performance chemicals due to share losses. Quantifying the declines in refrigerant business approximately $25 million was weather related and $13 million was from the private label exit. In terms of weather, trends are improving now that warmer weather has arrived, but we do not expect to make up the full difference over the balance of the year due to the shortened season. As we look at capital allocation, we remain confident and our overall strategy will deliver shareholder value through a balanced approach to capital allocation fueled by our strong free cash flow generation from our combined businesses. During the quarter we continue to invest in our businesses through innovation and brand building activities. Pay down $35 million in debt and remain on track to achieve a 4.7 times net leverage ratio by the end of the first quarter of 2020 reflecting the timing of the VARTA closing. We paid our quarterly common dividend of $21 million and preferred dividend of $4 million, and we also repurchased approximately 1 million shares at $45 million to offset dilution. We are competent in the strength of our balance sheet, which provides Energizer with the appropriate base from which we can prudently manage our business. Lastly, I would like to turn to our updated outlook for 2019 and 2020. First in 2019, we are reaffirming our outlook for adjusted earnings per share from continuing operations, EBITDA and free cash flow. This outlook does not assume any benefit from storm activity over the balance of the year, which is difficult to predict and would be incremental to our outlook for the current year. We are confident in our ability to achieve our full-year outlook despite challenges in the acquired Auto Care business. Due to our team's great work in identifying opportunities across all businesses to improve operating efficiencies and reduce cost, reflecting the challenge net sales performance in the acquired Auto Care business, particularly in the refrigerant sub category in the third quarter and the modest declines in the acquired battery business due in part to expect distribution losses and incremental impact of currency headwinds, we are revising our full-year net sales outlook as follows. Total global net sales on a reported basis to be in the range of $2.48 billion to $2.5 billion, acquired Auto Care net sales to be in the range of $310 million to $320 million; and acquired battery net sales to be at the low-end of our previously guided range of $350 million to $370 million. Our outlook for the legacy business remains unchanged from the previous outlet with organic net sales growth expected to be in the range of 3% to 3.5%. Foreign currency headwinds to be in the range of 1.5% to 2%, and Argentina's negative highly inflationary impact of 30 basis points. Our gross margin rate improves the mid-point of our range by 70 basis points to be in the range of 42.5% to 42.9%. Interest expense for the full-year is now expected to be approximately $160 million reflecting a revision in the purchase accounting allocation of interest expense between continuing and discontinued operation. This change in allocation is driven by the VARTA evaluation. We expect this impact to carry over to 2020 as the divestiture is now expected to occur in the first quarter. The remainder of the outlook provided in our second quarter earnings release remains unchanged from our prior outlets. Now turning to the outlook for 2020. As we noted in our earnings release this morning, we are currently in the midst of our annual planning process as such, we are not reconfirming our outlook for 2020. The battery and lighting business which represents approximately 80% of our total business is stable and growing and we would expect our outlook for 2020 would be in line with our prior outlook. However, based upon the revise Auto Care outlook for 2019, we will be revising our outlook for Auto Care sales to be in the range of $510 million to $525 million. We also expect the marginal impact of these lower sales to flow through to adjusted EBITDA, free cash flow and earnings per share offset in part by approximately $10 million to $12 million of increased synergy benefits. We will provide a full updated guidance for 2020 during our fourth quarter earnings release. Now I would like to turn the call back over to Alan for closing remarks.

Thanks, Tim. Before we open it up for questions, I want to thank our colleagues around the globe for their continued hard work as we continue executing our integration plan and providing the industry leadership in our respective category. We are successfully executing on our key initiatives as we transformed the company. Our battery business is both legacy and recently acquired is stronger than ever and continues to be a source of future growth. We are invigorated by our excellence, stabilization efforts in Auto Care to remain confident that we can bring these brands to their full potential with careful and considered investment in growth and brand building. We remain as confident as ever in our ability to achieve the full synergy benefits of our acquisition in the next three full years, which will enable us to continue to reinvest in our business and brands for long-term growth, generates strong and rapidly growing free cash flows and EBITDA, quickly delever as we target a 4.7 times net leverage ratio from closing the VARTA transaction, and pursue a balanced approach to capital allocation. With these combined businesses Energizer is now better positioned, execute on its strategy to deliver long-term shareholder value. With that, I would now like to turn it over to the operator who will open up the line for questions.

[Operator Instructions] The first question comes from Bill Chappell with SunTrust. Please go ahead.

Thanks, good morning.

Good morning, Bill.

Good morning, Bill.

With the understanding that it's a journey, can you maybe help us understand that the Auto Care guidance going in for the bridge from 2019 to 2020 and just if its weather related, unless you're expecting some kind of weather change into next year, just trying to understand why sales would come down?

Bill, that’s a great question. And bear with me because I'm going to give a little bit more detail and color than I might otherwise, just because I think this is an important question and one where I think we can provide more detail around the update. There were a number of factors which caused us to change the guidance on the Auto Care business for the balance of 2019. The first and biggest reason behind it was the weather. That was the largest contributing factor. We had an unseasonably cool and wet spring in early summer seasons, and this was against a comp last year, which had a historically high and actually equally important early hitting summer season. And so we attribute about $19 million to $20 million or about half of the change in the guidance to that impact. This is both a direct result of lower POS at retail, but then also some inventory and promotional focus that we saw from our retailers in response to the weather that was hitting. The next factor is the international distributor network. The international growth forecast was too aggressive frankly, and given the distributor load in advance of a price increase which hit in early fiscal 2019 as well as there was another load right before the closing of the transaction. The distributors entered our ownership with a fairly heavy inventory load and that's a significant portion of that. There was also some competitive activity and minor transition disruption, but the bulk of the issue came from the inventory levels and that accounts for about $11 million or 25% of the overall change. And then appearance and performance, probably the rest – the remaining balance is equally split between those two. The team was able to preserve shelf space last year during the line reviews despite the disruption from Dayton. But what they did have to do is pause on some of the innovation that they otherwise would have introduced in the market. And what we saw in the marketplace is that appearance grew more slowly than we anticipated and performance chemicals declined slightly. So those are the issues that are driving the 2019 update. But I want to talk a little bit about what we're doing about it. And what I would say is first and foremost as everyone is – who's been on the calls before, our first priority was to ensure that Dayton was operating at an extremely high level. It is and it continues to be – it is in sustained high-90s service levels to our retailers, which is exactly where we wanted it to be. That's compared to last year where at times it dipped into the 80s. There was no point in introducing new innovation or deploying A&P when you weren't able to ship on time and in full. Operational efficiency in the plant is up by 20 points. There's also a long list of continuous improvement activities, which we're going to be able to undertake once we exit the peak season. So, mission accomplished at Dayton. It is operating as it needs to be and that allows us to really turn to the next level. And where that is, is we need to address top line growth. I don't want any of this to come across as we're cavalierly accepting the results. I think anyone who's around us right now understands we're not happy and we are addressing it with urgency. And one of the reasons that we're so confident is if you look at these categories other than refrigerants, which was impacted by the weather, the categories are growing, appearance is growing at 2.5%, performance chemicals at 1.7%, and fragrance of 2.7%. These are categories that respond to innovation, and we are working aggressively to infuse consumer insight innovation into the portfolio, and we've identified a number of opportunities to do that. When you pair that innovation with the iconic grants that we have, we're confident in our going forward ability to grow at or ahead category growth rates. And because of the favorability that we've mentioned several times on synergies, we're going to have the firepower to invest behind innovation and brand building. So when we factor all that in and then you lead into 2020 and this gets to more of your question Bill, is why? What's the logic behind 2020 is we expect to finish, FY 2019 in the $495 million to $505 million range, call it $500 million at the mid-point. Whether we didn't – we didn't believe it was prudent to plan that all the weather was going to come back. When you look at 2018 and 2019, you have exceptionally divergent weather years to built into our updated 2020 guidance is a $10 million bring-back of the weather. And so that's – that's what's built into our assumptions. Obviously if the weather ends up being like it is in 2018, there's some upside to that. If it continues the trend of 2019, then obviously the weather impact would be a little bit worse than that, but we really want it to be balanced in how we were approaching 2020 with the weather, much like we do with hurricanes on the battery side. With category growth, we expect to grow at or above category growth rates. So call that 2%. Now that we've stabilized Dayton we're going to introduce innovation and we're going to support it in the market. So we feel good about being able to keep up with category growth rates. International, what we've assumed in this number is that the distributors will resume a more normal ordering pattern so we've built in around $4 million back into the 2020. And then one minor point, but in 2020 it’s going to be a bit of a transition year for the portfolio. There's going to be some cannibalization because we have a few brands that compete in the same space and as we position brands more holistically within our portfolio, I think there could be some minor cannibalization. I don't think it'll be anything significant, but growth may be a little bit more muted than otherwise would be. But that kind of gives you the flavor of how we got to the rest of 2019 and then into 20th. I hope that helps.

No, thanks for the extended color. I just – follow-up as I look at your updated synergy number, just trying to match that with – is that on the battery side, is that on the Auto Care side, how is the split and then how does that match with the thoughts, your commentary of Dayton is back to where you wanted to be operationally. That was a bill – big piece of getting the profitability of Dayton closer to the eventual $150 million it did two, three years ago. So I'm just trying to understand how do I look at that synergy number and then how are we progressing on getting Dayton back to profitability and how do they match?

Yes, so I'll start and then turn over to Alan for more color on Dayton. I stay on synergies, we are extremely confident in the $100 million dropping to the bottom line by the end of three years of ownership. We’ve identified synergies, which we believe are in excess of $10 million, which are going to help fund some of the growth initiatives in Auto Care both behind innovation and A&P. We feel really confident in the ability to achieve both of those things. So I think the $100 million is something we feel we have a very good line of sight to. In terms of Dayton, when I say it's operating where it needs to be, that means we are – the service levels are in the high-90s. It is not operating as efficiently as it will be able to in the future, and those initiatives needs to be undertaken in a way which doesn't impact service levels and we have a long list of those which are going to take place through 2021.

And Bill, just to build on that, if you think about those, there were four that we undertook right away including maximizing line efficiencies, eliminating waste, and we did that by improving the materials sourcing. We did look at the workforce efficiency to drive that as well and then a reduction in inventory overflow, which existed prior to the acquisition; all four of those have been managed. As we go forward we'll also be looking at manufacturing and distribution network optimization. That becomes a key one in terms of driving further efficiencies. We don't anticipate that because of the high service levels, as Mark alluded to that we're done; we continue to look for ways to drive improved productivity. And one of the things we've noticed in these first six months of ownership you went from the 80s on surface levels when the acquisition was complete to the high-90s now, so you're at 99. The other thing that we've done is we've also improved the overall equipment efficiency. So think about that as just the overall improvement in manufacturing productivity. That's up almost 20 points in the last four months. So we know that we have the ability to continue to sustain the current level of performance. What we're going to do is go in and look at how we drive either even more efficiency and productivity and further waste elimination, so you can expect more to come on that.

Got it. Thanks.

The next question comes from Robert Ottenstein of Evercore. Please go ahead.

Great. And thank you for the detailed answer on the auto business. I’ve just one follow-up on that and then a question on batteries. So on autos, you mentioned that the service levels are where you are and because of the work that you had to do on service levels, you held back on the innovation. So as you work to improve the efficiency of Dayton, is that also going to have an impact on the top-line and the sales? Or you able to – do you think you'd be able to accomplish that without impacting the sales of the business? That's the first question. And my second question is if you could give us kind of a – your current assessment on the Rayovac business, a little bit more detail on what you've done with that business. To what extent you've been able to repurpose any assets, upgrade them to Energizer assets and maybe a little bit more detail on what looks to be the Q4 stabilization of that business? Thank you.

I'll get started and I'll let Alan and Tim jump in with any additional detail. First on Dayton, just to be clear, we didn't hold back on innovation for Dayton that was held back previously before our ownership. I think one thing to remind everyone is this has a different line review cycle as anyone who's been listening to us since the HandStands acquisition has heard before. And it takes longer for innovation once you introduce, it’s retailers to actually hit shelf. It’s a much more elongated line review cycle. So they held back on the innovation that they – was on shelf this year. And in terms of the current line reviews, which are underway right now, we are going ahead with innovation and we have pushed innovation through the system. In terms of your question on Dayton, as we continue to improve that facility, we will absolutely – that will absolutely not impede introducing new innovation. It will not impede growth, if fact continuing to operate that facility better and better should only help accelerate growth in the future. In terms of the battery question on that one, I mean 80% of our business frankly, is hitting on all cylinders. We love what this acquisition has been able to do for our portfolio in the markets where we were able to acquire it. An early indication of that, as we mentioned in the prepared remarks is on e-commerce. You've seen the healthy growth rates in the Rayovac brand online. It was the fastest growing brand over that time period. So it's an early indication. We've had a number of conversations, number of wins in some regional grocery retailers where you're going to see extent expanded space for Rayovac, not at the expense of Energizer, but at the expense of other brands. All the other major distributions of scale are underway. Those discussions are ongoing. You are seeing continued sequential improvement in Q3. In Q4 we would expect from a sales line on the acquired battery business that to be flat to slightly positive. And that's when you pair that with the legacy business, which is going to grow 6% organically in Q4, 80% of our business is absolutely firing on all cylinders.

Thank you very much.

Yes, last question on the ability to utilize the North America assets. We are able to flex activity between all of our facilities, so it gives us flexibility and agility to react to opportunities in the market for the Energizer brand.

And everything that we believed when we acquired the business still holds true. If you think about – we've already talked about the compelling synergies, the fact that we now have clear global market leadership in the battery category, we are scaling up our LatAm business to expand distribution and visibility by leveraging the Rayovac and VARTA brands. Certainly the breadth of our product portfolio has been expanded. It's allowed us to approach markets with multi-brand strategy and as we've learned doing that in Asia, that provides significant opportunity to build distribution. And then there’s two things that we're able to access and leverage. One, the hearing aid ideology piece is very important to strategic part of the hearing aid sub channel and that is because 80% of total battery category volume in hearing aid has done in non-retail channels. So having that access is really important. And then finally, as mark alluded to, we've been able to leverage the high performing Made in USA product with several of our channels in the U.S.

You mentioned the 6% organic growth for the legacy business. Can you give us where that number comes from?

Yes. So if you look at the guide that we've given for the full-year 3% to 3.5%, it reflects organic growth in Q4 in excess of 6%. And so just breaking that down in terms of what's driving that, it’s 4.5% is related to distribution and promotional activity; 2.5% is pricing. We have the royalty re-class that 50 basis point contributor and then offsetting that is the Hurricane activity, which was about 150 basis points contributor last year. As I noted in the script that we did not project any storm activity for this year, if there is, that would be incremental to our outlook.

And presumably the additional from distribution and pricing, how tight is – how tied are those gains into the improved position that you have with Rayovac?

It's a combination of both. It's a combination of with the distribution gains and our Energizer both in the Americas and in International and so there will be some carryover impact of that. And then the pricing, obviously the biggest price increase that we took would have been in the U.S. and that is carrying over into Q4 and then we'll carry over into 2020.

Thank you very much.

Thank you.

The next question comes from Jason English with Goldman Sachs. Please go ahead.

Hi, good morning folks. Thank you for…

Good morning.

Thanks for swapping me in. I want to come to the Auto Care business real quick and the acquired Auto Care business that is the legacy spectrum business. It looks like you're on track for that business to – on a fully annualized fiscal year basis deliver around $400 million a rev this year or about $65 million, $66 million short of where – what the business did was spectrum in fiscal 2018. First, am I roughly in the ballpark? And second, can you unpack that a little bit and how much of the annualized declines do expect to come from private label? How much from this weather issue net of what happened last quarter and presumably some recovery this quarter and then share losses and then it sounds like based on your comment of inventory that that base level may have been – may have been a bit inflated with some inventory, particularly in – with international distributors. So any color you can share on those components would be helpful?

Yes, Jason your number in terms of where the acquired will end-up is spot on. Relative to the exit of private label that’s roughly $23 million decrease from fiscal 2018. Whether as Mark indicated is approximately $19 million to $20 million. The international, so that was the discussion around distributor load in, that's roughly $11 million. And then the balance is attributed to the performance in the parent – fragrance and performance chemicals. Mark had indicated lack of innovation was part of the driver of that decline.

And in the refrigerated the AC recharge business, how is your market share doing?

It's actually growing. So the category has obviously had a rough season because of the weather, but we've been able to take share during that same time period.

Awesome, that's helpful guys. Thank you for that. And then one quick question on base batteries. You mentioned the somewhat subdued promotional depth that you see in the marketplace right now. It's unclear to us, how much of this is sort of a bend in the trend versus maybe some timing with Duracell with the new Optimum innovation. Presumably you've got programming locked and loaded into the holiday at this point with retailers. What are you expecting from a pricing and promotional environment as we roll through the critical holiday season based on what you've negotiated so far?

Yeah. So we are expecting no significant change. In other words where – if you look at just the most current quarter, overall pricing is stable, price mix is flat. You've got average pricing up in the category almost two-tenths of a percent and then you've got promotional levels down in battery, similar story to auto, by the way. As we look forward with their current launch and all the things that we've done in the market around our restage as well as the performance improvements in our business, our expectation is you'll see continued stability in the overall category from a promotional standpoint, from a pricing standpoint, I think you're probably aware Energizer did take pricing at 13 markets around the world. That included the U.S. We expect that pricing to continue to flow through in Q4 and you'll see the annualized benefit Q4 through the next three quarters after that. We are seeing overall pricing appear on shelf for Energizer. We're seeing same for Duracell. Prior to the price increase that we announced on MAX and Ultimate Lithium, we were seeing prices to consumers on shelf going up on both private label as well as on the value brand. So the gap while it’s widened a bit since our announcement is still in line with what we expected and it will normalize over time. On the price gaps overall between the premium brands and the other brands, it's in line with what we communicated previously, private labels 40% to 60% below the premium brands, you've got the value brands 20% to 30% below the premium brands. Performance alkaline which is a declining part of the category is 20% to 30% over the premium brands and Ultimate Lithium in the U.S. is roughly 2 times the premium brands internationally, it's 2.5 to 3 times with premium brands. But all-in the pricing and promotion environment in the battery category is stable and the same can be said for auto.

The next question comes from Kevin Grundy of Jefferies. Please go ahead.

Hey, good morning guys.

Hey, Kevin, good morning.

I wanted to come back to you Auto Care business as well. Mark, I think you said the July trends had improved building on Jason's question a moment ago, if I'm not mistaken, I think your guidance implies and you can correct me if I'm wrong here sort of high single-digit declines in the acquired Auto Care business in the fourth quarter. Maybe you can confirm that number? And then just in terms, if it is correct what's driving the improvement. Is it just normalized weather with some carryover impact from this distributor, international distributor issue? More broadly, Mark, I guess the hope was that this is more sort of forward-looking with the Auto Care business. This was once upon a time $150 million EBITDA business, the hope was on the bull case that this eventually gets back to that at some point. Is the hope here that this business troughs in fiscal 2020 from an earnings perspective. And what's your level of confidence today on that comment that this indeed does that this sort of the fiscal 2020 will mark the low point for this business? And then the last piece, this will be for, Mark and Alan and just the international opportunity, it seems like this business has changed hands over the years as you guys are well aware and everyone sort of speaks to the international opportunity and the ability to expand distribution. So, setting aside the distributor piece and inventory levels there, maybe talk to us about where that stands? How you see that your level of excitement around the ability to expand distribution internationally? Thanks for all that guys.

Yeah, thanks. So, Kevin, I will start here and then Tim and Alan can jump in and then let us know if we didn’t catch all the questions. I think the way you're thinking about, you know, the balance of this fiscal year for Auto Care is directionally accurate. I think the important point for us is where does it go into 2020 and your question on where does that build come from? Again, we're building back in more normalized weather and we're trying to pull out a little bit of the more extreme 2018 versus 2019 diversion weather patterns. So we've put in – what we – as a reasonable weather assumption into that growth. We’ve built in more normalized inventory levels at distributors and more normalized order pattering – order patterns for that as well because again we did see a heavy load before we took ownership and that obviously causes them to pause on some of that. We are introducing innovation. We are in the middle of line reviews, which will impact next fiscal year. Feel really good about where we are there. We can do even better going into next year's line reviews. But we've built in being able to match category growth rates, which in this past fiscal year was a bit more of a challenge because they did pause on the innovation. In terms of international growth, let me cover that one really quick is we feel really good about where the international growth. I know a lot of people have talked about it. But we are building plans. I think Tim in our – in the last earnings call mentioned, we feel really confident about our ability to double the size of that international business. And nothing that we've seen or planned for thus far gives us any reason to think otherwise.

And the only add I'd have is if you go back to the thesis for the acquisition when we explored this, we really liked the opportunity that auto gave us an additional platform to grow and diversify beyond battery. And what we can tell you is that the underlying fundamentals of the categories, the segments we compete in an overall automotive and the brands that we acquired are strong. I think that that needs to be a key takeaway from this. And I think that we've got some underlying facts that are going to support that. Again, as Mark alluded to, three of the four segments in which we compete in auto and total auto are growing. And if you look at the key indicators behind that that are driving that you've got improvement in the overall car park size. The fact that vehicles are older and the number of both miles driven is growing, used car sales are growing. The fact that DIY is holding stable and the average number of vehicles and in the years of those are being owned are all up. So as we look at the trends and our ability to innovate around the idea of looking better, running longer, smelling better, and creating innovation around those three platforms of the segments, we compete in, we're very excited about the opportunity to grow that, not just domestically, but to bring that same level of innovation internationally.

And Kevin, not to belabor the point and make this answer even longer, but I want to emphasize kind of the way we've approached this integration with this business and notwithstanding the updated numbers that we provided today. I’m – we're really confident in how we're handling this integration and this business and how we're approaching it. We have – first priority was Dayton. We dealt with that. That issue is behind us. The next one was to get in and do joint line reviews and to make sure that we were setting ourselves up for next year set for success. And we've had really good line reviews this cycle and so we were focused on that. We've also focused on innovation and brand building. I think in terms of Q3 of fiscal 2019, obviously, we were disappointed in the results. We were going to have limited impact and the ability to impact that in a very limited way in the six months we've owned this business. So what we've focused on is the medium to long-term and everything we're doing there is going to help set up success going forward. So we feel really confident in the call at the mid point of a – albeit at lower base, you're growing at 3.5% for 2020 and we think that's just the start going forward.

And I would add. As Mark said in his prepared remarks, the fact that we've been able to pick up additional category captainships at key retailers is important to call out. That's going to give us the ability to bring our story to the trade to drive that category growth and improvement and that delivers the innovation we're going to bring to bear.

The next question comes from William Reuter of Bank of America. Please go ahead.

I know you're not prepared to provide fiscal year 2020 guidance yet, but I was wondering if you could talk at all about the deleveraging path in general that you guys see over the next two years. Has it changed materially based upon what you're seeing this year in terms of revenues in Auto Care?

No, Bill, it's hasn't. The one factor that is impacting the de-leveraging is the timing of the VARTA closing. So we had originally projected that to close by the end of the fiscal year. It's now moving into Q1 of 2020. So we're on track for the 4.7 times and then at the end of fiscal 2020, we'd expect to be at roughly four times.

And then just my follow up there, with regard to the – can you remind us, I guess, what the net proceeds should be from the combination of payments from Spectrum to sale of VARTA and then any taxes due? And then will that go towards term-loan reduction?

Yes. It'll go towards term loan reduction. So the purchase price is roughly $400 million and there are purchase price adjustments against that as it's a debt free cash free deal. And so, we're projecting somewhere in the range of – net proceeds of $300 million to $320 million subject to closing…

And those were adjustments which were also made on the Spectrum side of VARTA…

That's correct.

The next question comes from Faiza Alwy of Deutsche Bank. Please go ahead.

Yes. Hi. Good morning.

Hi, good morning.

Hi. I wanted to talk a little bit more about fiscal 2020. So I know that you're not. I guess you sound very good on the legacy or the entire battery portfolio. You sound good on gross margins. It looks like cost inflation as manageable, if anything favorable. Currencies seem to be, if not favorable, at least stable. So I know the missing pieces are the Auto Care sales side, but then you do have incremental synergies coming in. So I'm just wondering sort of what – why you're not able to reiterate your fiscal 2020 guide?

As far as I think we gave the fiscal 2020 at Q2 as indicative of what the full run rate of the business would be. We've called out the two items that we know have changed since that Q2 outlook. The rest were in – we're in the midst of the planning process and it doesn't make sense to go through all of the outlets that we provided at Q2. One, we're going to update that at Q4. So we've given the major components that are changing from where we were at before. And so, we have to call down of Auto Care and then we've identified what the incremental synergy benefits are expected for 2020. So if you take the Auto Care call down, 45 to 50, the marginal impact of that is roughly $15 million to $20 million offset by the increased synergy benefits. The impact on EBITDA would be roughly in the $5 million to $10 million range. So we think we've provided appropriate update to what we've provided at Q2. And again, as you know, with different things, there's a lot of puts and takes that we're going through with our teams right now and we'll update that in Q4, but we're confident in terms of where we're at. As you indicated 80% of our business in battery is strong and growing and Auto Care there were impacts in 2019 that we're addressing as we move forward in 2020.

And we're approaching our annual business planning process and it's important to note that we do want to take the time to sit with our teams and understand those plans going forward and that will be included in the update in November.

Okay, that's helpful. Okay, then I just wanted to follow up on the legacy – again, the organic growth you've called out 6% in 4Q. Can you talk a little bit more about what you're seeing by channel because we're not sort of seeing this type of growth in the Nielsen data? If anything it seems like Rayovac has been improving and the Energizer brand has been declining, if we look at the very like the near-term data. So is there anything you can call out in terms of channels?

Yeah, so overall if you look at the category, the volume and value in the most current quarter are both near flat. You saw it started at the segment level first. Overall premium was flat. You're comping prior year, early quarter weather. In addition to that you've got the performance segment down and that's driven by performance alkaline rechargeable decline. You're seeing price alkaline up. That's a bit of an anomaly because of a promotional event that occurred in Germany. And then you've got growth in specialty driven predominantly by watch/electronic. As we look at channels, really Energizer gained a half of share point in the most current quarter and we did that across most channels. We also saw a growth in e-commerce, which we'll answer that question when it comes up during the call today. And we started growth in our non-measured channel. So we're really not seeing overall declines in total EHI. You are seeing some mix shifts occur in certain channels, mass as an example between the brands that's occurred. But part of that was a result of actions we took pre-acquisition that we're benefiting from now at the Energizer brand.

I think, Faiza, on that one too is we get the question a lot of – are you just trading between Energizer and Rayovac and Alan pointed it out. It's not just going from our right pocket to our left pocket in terms of the way this is approaching it. We had combined battery sales growth and share growth. And so, it's not just trading between Energizer and Rayovac. And I think that's something that we're going to try and continue to talk more about the holistic portfolio as we anniversary more of the acquisition quarters.

The next question comes from Olivia Tong of Bank of America. Please go ahead.

Great, thanks. First maybe I could build a little bit on that question. Just to sort of talk through the distribution channels, you mentioned in your prepared comments that e-commerce growth slowed significantly, so can you parse out that a little bit? And then in terms of the non-tracked, which channels – I mean batteries are everywhere. So which channels in terms of non-tracked are growing, especially if e-commerce is going through a little bit of slow down? Thanks.

Yeah, so start – let's start with the channel and then I'll have Mark to address the first part of the question. From a channel perspective, don't get – you've got home center DIY, which is a big part of the non-measured base and is growing. Energizer certainly has a dominant position in that particular channel or channels. We continue to do well there. So we are seeing growth in non-measured channels. And that goes beyond home center. So for us that's a pretty important part of it. I'll let Mark speak a little bit specifically to the e-commerce and why the minus turned to plus four in the current three months versus the plus 10 in the…

Olivia, as Alan mentioned, it grew at [indiscernible], 10% in the latest 52. In terms of individuals, I know sometimes you guys like to hear individual brand growth rates. Energizer was at 29% over that same time period. Rayovac was a 35, as we mentioned in the script, Duracell was at 22 and Amazon was down 9% in that same time period. The resulting share when you factor those growth rates in, combined Energizer Rayovac at a 31% share, Amazon's at 25% and then Duracell at 16%.

So we're going to – from a channel perspective, the way we're approaching innovation in both legacy and acquired battery is not really going to be any different. We're going to continue to lead with innovation. It's an important part of our secret sauce, if you will. The other half of that is really the operational excellence that we're doing in stores. You can expect that to continue as well. The teams remain focused on looking at gaining distribution as well as increasing visibility, which is really expanding your space in existing retailers of channels where you have today. That remains a focus for us going forward. The key is going to be leveraging our multi-brand strategy to be able to reach the different price points that consumers are looking for and that value equation combined with performance you’re looking for in batteries overall.

And Olivia, we kind of focus on the U.S., but I just point you to our international is also growing. Organic revenue growth in the third quarter was 4.6%. We expect a continuation of that as we move over the balance of the year, so that is a contributor as well.

The next question comes from Steve Strycula of UBS. Please go ahead.

Hi, good morning.

Good morning, Steve.

So the first question is I just want to follow up on the organic sales trend to make sure I'm getting the numbers right. Were you saying that 6.5% for the battery business, organic sales and the fiscal fourth quarter, and where's that four points of distribution? Was that specific to total batteries or just the legacy ENR battery system?

It was 4.5% on our legacy business, so that would be inclusive of the battery lives and Auto Care. Pricing was 2.5 and royalty revenue re-class was 50 basis points.

And we did reference on the acquired battery that in Q4 we expect it to be flat to slightly positive organic growth and that would be distribution related as well.

But that's not in the organic numbers that we're calling out because that that organic growth is on the legacy business.

Right, correct. And so for the distribution gains that you're observing for the legacy battery business right now. Is it anything unique in terms of maybe some retail exclusivities where they were previously doing business with just one premium battery company and now all of a sudden you're getting kind of like a major distribution into an existing retailer where you didn't have share of wallet? Like what's really driving that level of a pop in the distribution?

It's not any one sort of flip of a retailer on an exclusive basis from our competition to us. So it's really broad based, which again is – it makes it even healthier in that regard. It’s continued expansion of space. It's continued activity within the store that that allows us to drive the growth. So it is – there's some inconvenience. There's some in the dollar channel in mass, in some clubs. You start to see some distribution expansion and space expansion and that's what's driving the growth.

And you'll also see that in the non-measured channel as well.

The next question comes from Andrea Teixeira of JPMorgan. Please go ahead.

Thank you. Can you just – I know we're trying to go and triangulate the performance of the acquired battery business, but I think it's important to just like understand how the trajectory of the business is going. So on the distribution gains, are you referencing only the legacy Energizer? So what would have been the combined distribution for batteries, all channels? And further clarifications please, first on the A&P, in the fourth quarter by our math, it seems as if your guidance implies that you are not invest much of the – on the acquired – in the acquired business this quarter. And second, do you have an increasing shipment in the quarter to fulfill this one day shipping on e-commerce, that's what we heard from a couple of other companies. And if that, can you bridge the third quarter performance to your comments you made about decelerating e-commerce trends in the quarter? I appreciate that. Thank you.

In terms of whether we saw an increase – we continue to partner on e-commerce and as shipping times increase, you obviously have to monitor inventory levels. It's something we watch and partner with. I wouldn't say we saw a meaningful impact this quarter based on that. We continue to watch inventory levels throughout. In terms of the overall battery business, it means, again, I want to focus on the holistic view of the business, which as you saw sales growth and you saw share growth. On the legacy business, we've talked through the distribution gains is expanded space. It's continued to make sure that that space is working even better in the store. In the acquired battery business, it's leveraging our existing relationships. Its increased display activity that you're seeing in certain retailers and it's just continuing to just go to the – go to retailers and allows us different brands and different products to be able to meet their needs. And we've seen the number of instances where retailers came to us with a specific need where we were able to meet that with the Rayovac product. And we think that's only going to continue. This is just making us a better partner to our retailers. Anything in there that we didn't touch on?

Yeah, I guess, I mean you did 109 and A&P, and also the 109 just on the sales, you're saying that 109 last year for the legacy Spectrum business was lower than that? Or it’s higher than that sales? And in the A&P commentary, it seems as if you're not investing much on the acquired business for the quarter two. Just to close that out…

So maybe to take the last question first. Relative to the investment in the acquired businesses, I think their investment in A&P has been historically lower than we have in the battery business. At the legacy business, which we've indicated in the range of 6% to 7%, clearly on a valve-brand like Rayovac, you are going to have a lower level of A&P investment with respect to the Auto Care business. Our view is that going forward we would expect to increase that level of investment that has historically been there. That's what market walked through earlier.

Relative to the trends on the battery business, what we've seen is just a sequential improvement in that business from Q2 where it was down 13%, Q3 down 6%. And as we indicated it would be flat to positive, slightly positive in Q4. So that is a trend that we like. It's a trend that reflects the work that has been done by the combined teams and reflects the combined portfolio and the strength of that portfolio.

And then from an A&P and a trade investment standpoint, if you look at the acquired businesses, two things we're going to be doing. One, we're going to be looking at the A&P investments that the acquired parent had in those segments, those categories if you will. And then rethinking and reapplying those investments what we would think to be more productive of working A&P. From a trade investment standpoint, the teams have already gone in and started to look at where we can drive more efficiencies in those investments, very similar to what we've done on legacy business and you can expect that will continue to. The whole idea is really to drive more productivity and efficiency out of those investment dollars. And we have plans as we move toward November to identify where and how those changes will be made in the existing businesses – the acquired businesses.

The next question comes from Karru Martinson of Jefferies. Please go ahead.

Good morning.

Good morning.

Just wanted to ask about why the pause in e-commerce that is obviously slowing down a bit here, but it's been growing so robustly like what’s changed in the marketplace on that front? Or do you feel that this is a temporary blip?

I think you can expect the e-commerce to continue to grow at healthy growth rates. I think as the numbers get larger and as comps in some instances get harder, you're going to see momentary pullbacks a little bit in some of the growth rates, some of the growth rates over the same time period. Again, we were getting into hurricane season and some of those growth rates depending upon how they impacted the growth rates at this time last year may be impacting that. I also think as consumers are going to continue to shop in store, they're going to continue to shop online at some point you're going to reach some sort of stability in that penetration. But I think in the near-term, I think you can expect the growth rate to continue and we'll be ready to grow right along with it.

Two other comments on e-commerce, we're also seeing growth in international e-commerce and Energizer was outpacing that growth and separately we're seeing growth in omnichannel, so think about that as brick and mortar players, but their own online programs. Those are also growing with Energizer doing a terrific job growing there as well. So overall from an e-commerce standpoint, as Mark alluded to, a part of it is comping some promotional activity, part of it is calming storms. You can expect it to hold at current levels, but you can also expect that e-com, international and omnichannel will grow as well.

Okay. And then just on that promotional front, I mean I think pretty much every holiday season ends up being a little bit more promotional than we thought. And what gives us the confidence that the promotional environment will stay steady here going into the end of the year?

Yes, so keep in mind, we typically plan out to our customers a year in advance. So we have a pretty good understanding of the types of programs that would be deployed during holiday. If you look at the sequential trends quarter to quarter for the last several years, we've seen overall promotional level stable. So think about that as a percent price decrease attached to a promotion is not as aggressive and you're seeing less overall promotional activity. In fact, when you look at retailers today, a lot of the merchandising that they're putting on the floor is at full price, they’re not discounting that which leads you to understand that they're also looking to capture the full margin and what is typically a prompted purchase. So, overall, our expectation is that you can expect the pricing to remain stable between online and brick and mortar. We're seeing overall average unit prices go up and our expectation is we'll see similar stable promotional activity in the category going forward. I think what you may see is more beefed up A&P as companies like Energizer continues to introduce innovation across their categories. That is something that we will continue to do. And as Tim alluded to one of the prior questions, for battery A&P typically runs in that 5% to 7% range. It'll ebb and flow year to year really depending on the innovation that we bring to market as well as competitive activity we see, you can expect that we will be working toward the goal of increasing A&P investments to support innovation in automotive as well.

That concludes the question-and-answer session of the call. I would like to turn the call back over to Alan Hoskins for any closing remarks.

Yes, thank you, operator, and thank you everyone for joining us on the call today and for your continued interest in Energizer. That concludes our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.