Energizer Holdings, Inc. (ENR) Q2 2020 Earnings Report, Transcript and Summary

Good morning. My name is Chad, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's second-quarter fiscal-year 2020 conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jackie Burwitz, Vice President, Investor Relations. Please go ahead.

Good morning and thank you for joining us. During the call, we will discuss our results for the second quarter of fiscal-year 2020. This call 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 details about results for the quarter. On the call with me this morning are Alan Hoskins, Chief Executive Officer; Mark LaVigne, President and Chief Operating Officer; and Tim Gorman, Chief Financial Officer. During the call, we will make forward-looking statements about the Company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties, which may be -- which may cause actual results to differ materially from our forward-looking statements. We do not undertake to update these forward-looking statements. Factors that could cause actual results to differ materially from these statements are included in today's presentation slide and in the reports we filed with the SEC. 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 is based on Energizer's internal data, data from industry analysis, and estimates we believe to be reasonable. Unless otherwise stated, all comparisons are to the same period in the prior year. With that, I'd like to turn the call over to Alan.

Thanks, Jackie, and good morning, everyone. I want to start by first expressing our deepest sympathies for those affected by COVID-19. The global disruption and loss of life are truly devastating and unprecedented. And over 36 years with us Energizer, I have seen this company face adversity time and again, but I have never seen our colleagues rally together as they have during this crisis. The work by our colleagues and business partners has been remarkable and driven by a shared passion, resiliency and collaboration. We are exceptionally proud of this organization and everything it has really endured and accomplished. Early in the pandemic, we established two principles to guide our response, protect the health and well-being of our colleagues and preserve business continuity in order to ensure we could provide our customers and consumers with our products at a time when they need the most. The safety and health of our colleagues are Energizer's top priority. We reacted quickly to implement safety guidelines and health protocols across all Energizer locations in many instances ahead of government requirements. As with natural disasters, there was a surge in demand for batteries as governments around the world implemented shelter-in-place orders and our have consumers prepared by stocking up on the critical products they needed. The ongoing demand is driven by increased consumption as consumers shelter in place and interact even more with their devices, which require the power our products provide. Even with the challenges presented by operating in this environment, all of our manufacturing facilities and distribution centers are operational, and we are consistently achieving overall fill rates of over 90%. This is critically important because demand for our batteries has remained elevated beyond the initial spike in mid-March, and we continue to support our Auto Care customers for the upcoming peak selling season. Our strong second quarter results demonstrate how we continue to execute our strategies and operate with excellence to achieve strong organic sales growth of 2.7%, driven by our performance in batteries. The organic growth, ongoing cost controls and synergy capture from our integration efforts helped drive adjusted EBITDA growth of 22% and adjusted earnings per share of $0.37 compared to $0.20 in the second quarter of last year. And while managing through the early days of the crisis, we also continued to make significant progress in our integration efforts, which benefited the quarter. Given the uncertainty in the operating environment today, we have taken prudent actions to strengthen our liquidity as a precautionary measure, and currently have nearly $600 million of cash on hand globally and access to approximately $200 million of additional liquidity through our revolver. As of today, our business remains strong, and our strategic initiatives, including integration, are on track. These strategic plans are expected to help deliver EBITDA in excess of $700 million and adjusted free cash flow of above $400 million by the end of fiscal 2022, consistent with what we provided at Investor Day last November. We are confident in our ability to execute the strategies in place. However, the uncertainty around the length of the pandemic, the shape of the recovery and its ultimate impact on the global economy are variables we cannot quantify with clarity at this time. But for the uncertainty related to COVID-19, we remain on track to achieve our EBITDA and cash flow goals. We have a strong global team responding to the crisis with an extraordinary level of dedication, creativity and resiliency. We will continue to do what we always do in times of crisis; take care of each other and work with customers to ensure our products are available to consumers. I am more than confident in our organization's ability, and we are ready with the challenges that lie ahead. With that, I'd like to turn the call over to Mark.

Thank you, Alan, and good morning, everyone. As Alan described, the last few months have been unlike anything we have ever seen. Our colleagues around the world have worked exceptionally well to serve our customers and consumers with the same determination we have when natural disasters strike. Managing through this crisis has truly been a team effort. While we, like many other companies, face a steady stream of issues and potential disruptions, we have found ways to operate at an extremely high level during the crisis. The guiding principles Alan described, colleague health and business continuity, are uniting our organization to meet the challenges we face today and into the future. Early on, Energizer implemented health and safety protocols at our facilities, including temperature monitoring, enhanced cleaning and sanitation, social distancing, and the work-from-home policy for more than 40% of our colleagues. These actions have resulted in a healthy and productive organization. In response to the incredible consumer demand caused by the pandemic, Energizer's commercial teams did a remarkable job partnering with our customers to ensure they were adequately prepared for the increased demand for our products. In addition, our product supply team proactively increased manufacturing output as well as the sourcing of raw materials in order to successfully meet ongoing increased demand. Thus far, we have been able to resolve literally hundreds of challenges from a global supply standpoint, which have run the gamut from new government regulations, border closings and temporary shutdowns to finding new and alternative supply partners in record time. The teams are undertaking all of this while maintaining high fill rates and delivering high-quality products. As a result of this tremendous effort, we are reinforcing the confidence that our customers have in us during times of crisis. Now let's turn to category performance, starting with batteries. For the 13-week period ending in February, which measures activity before COVID-19 impacted the U.S., battery category value grew 1.2% globally and 1.9% in the U.S. As we have progressed through March and April, there was a significant increase in demand in both measured and unmeasured channels. In the U.S., category value sales in measured channels grew 32% in the 4 weeks ending in March. More recently, category value trends remained elevated, up approximately 20%, through the first few weeks of April. During the 4-week period in March, Energizer's share in measured channels declined by 4.6 points. This stems from prior year resets at major U.S. retailers as well as the impact of consumer shopping in channels where we are underrepresented as they are -- were making their initial stock-up purchases. As we mentioned in the previous earnings call, we expect these share trends to improve throughout the balance of the fiscal year as our distribution wins are executed. Prior to the pandemic, trends in U.S. e-commerce continued to show strength, with category value sales increasing over 16% in early 2020. More recently, we are seeing a significant shift to consumers shopping online, both pure-play and omnichannel. This trend has driven demand to 2 to 3x the normal e-commerce battery category growth rate. On Amazon, Energizer's portfolio outpaced category growth and we gained value share, enhancing our overall share leadership. Our leadership position in this area as well as our strong partnerships with other leading omnichannel retailers have served us well and will continue to be a strength in the future as more and more consumers shop online. While there have been shifts in where consumers purchase batteries, our analysis continues to show a stable commercial pricing environment in the U.S. with a reduction in promotional activity and an increase in average unit price. Demand trends indicate that consumers stocked up in the initial days of the pandemic, but our recent analysis of U.S. consumer behavior also shows they are using more batteries in their daily lives. As a result, we do not believe there will be a significant headwind in the remainder of the year, which has been further validated by the ongoing sales trends in April. Now going deeper into our battery performance. Last quarter, we announced significant distribution gains at several U.S. retailers, and these wins are now showing up on shelf. At several retailers, you can see we significantly improved the quantity and quality of space for our overall portfolio, including both Energizer and Rayovac. This quarter, we continued that momentum and have additional distribution gains in our international markets. As of this time, we do not believe the pandemic will impact our ability to execute the remaining resets and new distribution by the end of the fiscal year. Our strong organic net sales growth was driven by these distribution gains as well as some increased battery demand caused by the pandemic. While it is difficult to generalize because it impacted countries differently, we have seen a similar trend in both Americas and international segments. Modern markets have shown strong consumer demand, while developing markets have been more constrained by shelter orders. As a result, the increase in battery sales was also largely limited to markets like the U.S., U.K. and Australia. Consolidating those factors into our segments, in the Americas, we delivered strong growth in the U.S. and Canada, which was partially offset by declines in Latin America. This remained consistent throughout April. In our international segment, growth was driven by distribution gains as well as increased demand in modern markets, offset by the softness in developing and distributor markets. Now turning to Auto Care. Prior to the onset of the pandemic, the Auto Care category was relatively stable in a seasonally low period with category sales down slightly in the 13-week period ending in February. Since the government restrictions were implemented in the U.S., the number of miles driven has decreased significantly. This is a key driver for Auto Care category demand. As a result, during the four-week period ending March, we saw the category down nearly 15% in the U.S. Energizer's share in measured channels declined by 0.8 points in March, which reflects solid performance during a period of category disruption. In the quarter, our organic Auto Care net sales were down slightly as shelf resets and promotional activity were offset by the impact of COVID-19 beginning in mid-March. We are monitoring when markets and regions ease the various restrictions, which will have a direct impact on the U.S. peak selling season. We have a strong portfolio of branded do-it-yourself Auto Care products, which offer an attractive value proposition versus more expensive do-it-for-me options. We remain optimistic about our Auto Care business and its potential for future growth, both in the U.S. and internationally. As we have started to roll out each of those plans in international markets, we have already achieved several important distribution wins in Europe and Australia. Now let's turn to our integration efforts. The great work done by our colleagues to address the pandemic has not changed our focus or impacted our ability to achieve our long-term strategic objective. While we did make some minor timing adjustments to our integration schedules due to travel restrictions, which limited on-site activities, our efforts to integrate the acquired battery and auto care businesses are moving ahead. We realized synergies of $13 million in the quarter and still expect to deliver incremental synergies of $45 million to $50 million this year. Our remaining plans for our calendar year include the following initiatives in the U.S.: First, our optimization of footprint with centralized distribution for batteries and Auto Care; second, the consolidation of Auto Care production in Dayton, Ohio and specialty battery production in Portage, Wisconsin; and third, the migration of the acquired battery and auto care businesses onto Energizer's SAP platform. By the end of 2020, we still expect to be 2/3 of the way to realizing over $100 million in synergies. As we have mentioned previously, synergies in excess of $100 million will be reinvested to support our leading brands and to accelerate the multiyear innovation portfolio in Auto Care. As you can see, Energizer is well positioned to manage through the uncertainties in the months ahead because of the incredibly strong response from our colleagues. We are doing exactly what we need to do to emerge from this crisis as an even stronger and more efficient company than we were before. Now I'll turn it over to Tim.

Thanks, Mark, and good morning, everyone. As Alan said earlier, our second quarter results of adjusted earnings per share of $0.37 and adjusted EBITDA of $123 million reflect strong execution in the quarter and the benefit of higher-than-expected battery sales, driven by increased consumer demand due to COVID-19. While I will cover a few highlights in my prepared remarks, we have also posted more detailed slides on our website. Net sales in the quarter increased 5.5% to $587 million. This includes 1 month of incremental acquired Auto Care sales of $24 million, offset by $7.4 million of unfavorable foreign currency. On an organic basis, global net sales were up 2.7% driven primarily by distribution gains and higher battery replenishment sales in March due to COVID-19. These results were balanced in our geographic segments with Americas up 2.9% and international up 2.3%. We did see softness in our Auto Care business in the latter part of March. So far in the third quarter, we have continued to experience increased demand in batteries and softness in Auto Care. Gross margin rate in the second quarter increased 100 basis points to 41.6%. The increase was primarily driven by the synergies Mark talked about a moment ago and favorable raw material costs partially offset by foreign currency headwinds as well as unfavorable product and channel mix and incremental operating costs related to COVID-19. While raw material prices have declined significantly, our requirements for 2020 were already 90% locked through forward contracts. However, we do expect lower commodity costs in the marketplace today to be a benefit in 2021. We always look to maximize the return on our A&P investment. As a result of COVID-19, we have shifted some of our in-store investments to later in the year, which has resulted in a decrease in investments for the second quarter. In addition, we have optimized our A&P spend to reflect the changing consumer dynamics, addressing both the shift to online shopping and increased mark -- media consumption across all mediums. Investing to build strong brands is one of our core strengths, and we will continue to do so going forward. The exit of several transition service agreements and certain mark-to-market adjustments on deferred compensation drove a decline in SG&A of $5 million to 18.4% of sales versus 20.2% in the prior year. We will maintain spending discipline as we manage the business during this crisis, and we expect to realize additional synergy savings in the second half of 2020. As we discussed on our previous earnings call, we utilized the proceeds from the sale of the Varta Consumer Battery business in January to pay down $346 million of term loan debt during the quarter. In addition, we have taken several steps since the end of the second quarter to improve our liquidity position as we move forward: First, we drew down $200 million on our revolver; second, subsequent to the second quarter, we completed a $250 million add-on offering of our 2026 senior notes with a yield of 5.94%. Finally, we secured an amendment on our credit agreement extending our leverage covenant of 6.25x net debt to EBITDA. This will ensure significant earnings cushion against our covenants through the end of fiscal 2021, at which time, the ratio will step down to 5.75x. These actions leave us in a significantly enhanced financial position today. As of May 1, we have almost $600 million of cash on hand with 2/3 held in the U.S., approximately $200 million of remaining capacity on our revolver and total debt of $3.5 billion with nearly 90% fixed. From a liquidity standpoint, we also benefit from minimal near-term debt maturities with approximately $45 million due during the remainder of 2020 and approximately $91 million in 2021. We remain committed to reducing debt once we have greater clarity on the potential impact from the pandemic. We expect the excess cash, which we obtain to improve our near-term liquidity position, would ultimately be used to pay down debt. We also expect our strong free cash flow to reduce debt over time by about half a turn per year in a normal operating environment. During the second quarter, prior to the onset of the pandemic, we repurchased 980,000 shares at a cost of $45 million. Capital expenditures through the first 6 months of our fiscal year were below expectations at $28 million, comprised mostly of integration-related activities. As we previously announced, we elected to withdraw our full year outlook due to the uncertainties over the next several quarters caused by the pandemic and the associated global shutdowns that have taken place. We will press forward with what we can control in the remainder of the year by executing against the distribution gains we have achieved and our integration plans to realize synergies in the range of $45 million to $50 million, continuing to invest in A&P and innovation to ensure the long-term health of our brands and maintaining a strong balance sheet and liquidity position to manage through the uncertainty brought about by COVID-19. We will keep our colleagues safe and best position Energizer to adapt to what may come next. Now, I would like to turn the call back over to Alan for closing remarks.

Thanks, Tim. Energizer will take the necessary steps to keep our colleagues safe as they continue to support one another and do remarkable work to operate with excellence during this crisis. We remain focused on our customers, and we'll provide them with our products in the safest possible manner. While there will be challenges in the months ahead caused by COVID-19, we are not losing sight of our strategic objectives to become the leading global household products company in batteries, lights and auto care and deliver significant shareholder value by achieving the long-term objectives we presented at our Investor Day in November. With that, I'd like to now turn it over to the operator, who will open up the line for questions.

Thank you. [Operator instructions] And the first question will come from Wendy Nicholson with Citigroup. Please go ahead.

Hi. Good morning. I wanted to follow-up maybe with some more color on the Auto Care business because even though I knew you said you do have branded products that are sort of up and down the price spectrum, I still wonder about the health of that category over the next few months, just if people are traveling less, they're still staying at home more. So can you talk a little bit more about your expectations through the summer months for that channel? And remind us your distribution. I assume products that are sold in big-box retailers might be selling better than those that are in specialty auto stores, such are probably still closed in many parts of the country. So can you just -- can you talk a little bit more about auto and kind of how you're feeling about that business for the next quarter, please?

Sure, Wendy. When we -- as we talked about on the call, the category through the end of February was roughly flat, but then you did see the category soften as you got through March. So the three months ending -- at the end of March was roughly down 5%. We mentioned on the call that for the month of March, it was down 15% in the U.S. So these shelter-in-place orders that we saw pervasively around the U.S. have impacted our consumers in the auto care space largely because the number of miles driven have gone significantly down. People just aren't using their cars and they're not on the road nearly as much as they once were. So short term, it has created some softness in demand in the category. As the shelter-in-place orders are eased over the -- throughout the country, I do think there's some macro factors, which are going to play to the benefit of the category. I do think people will get out and about more, they'll -- the miles driven will naturally increase as a result of that. But I also have -- because of the macroeconomic backdrop, I think you're going to see the age of the fleet increase, people aren't going to be as prone to buy new cars. There's going to be an emphasis on cleanliness that perhaps wasn't there before. So our Auto Care products will certainly fill that need. And I also believe that they're going to stay away from public transport or shared autos or flying somewhere. This may be in the summer of the road trip instead of flying somewhere with the family. All of those factors, I think, really help generate some demand within the auto care space. And so -- I think the ultimate pushback that you may see on that is just the economic backdrop in terms of what's the fallout from the pandemic as we work our way out of it. In terms of your questions in terms of distribution, certainly, we are in Mass and we are in the auto retailers. Most of the auto retailers have been able to stay open being essential businesses during this pandemic, but you have seen foot traffic down. And in part, that is because people aren't out and driving as much as they once were. Mass has had more traffic as a result of people stocking up on basic essentials.

Planning on -- to change any of your investment spending plans, sort of remind people that your brands are there or whatnot or given still weak category growth you'd pullback the spending? Just how are you approaching that so that hopefully, you emerge from this with stronger market share than you entered?

No, that is certainly our intention. We are not going to pull back off of planned investment levels. This is an opportunity. I think on the auto care space, this is largely a pause. I wouldn't, call it, necessarily a systemic weakness, it's just a pause. We're going to continue to invest. We are looking at how we're investing, and this is both on batteries as well as on auto care, where some of the in-store promotions have been pushed off until later in the year. And that was largely just due to the ability to execute in-store was different during the pandemic than it would have been under normal circumstances. So we pushed those off. We've also looked at our digital spend as well as our media spend to understand how we should be engaging with consumers. Certainly, a lot of their habits have changed over the last couple of months, and we need to make sure that we're connecting with them. So we're constantly evolving that. We are not pulling back investment. We are not pulling back spending. We think this is an opportunity to remind everyone the strength of our brands, both in batteries as well as in auto. And also in auto, you have to remind them of the value proposition of the product, which is instead of having your car washed and if you're at home, you can wash it at home yourself and save some money. And in terms of like the A/C Pro product, when we were at Investor Day, we talked about that product being a value proposition for consumers. If your air conditioning is not working, use this product instead of taking it to a shop and paying more for that.

The next question comes from Dara Mohsenian with Morgan Stanley.

Hope you're all well. Two-part question on margins. First, you reiterated your synergy guidance for the acquired battery and Auto Care businesses. It didn't sound like operationally, you've had to slow much down on that front, given the COVID situation, but just wanted to double-check there. And can you discuss your level of visibility around realizing the synergies that you've outlined for this fiscal year? And then secondly, can you also give us an update on the commodity outlook with the recent spot declines we've seen, when might that flow through the P&L? Any sense of magnitude and how you sort of manage a potential windfall there on that side?

Yes. Dara, first on, synergies and integration, as Mark indicated in his remarks, we remain on track with that. We've had some timing issues relative to travel restrictions, but we still are confident in our ability to deliver the $40 million to $45 million that we've laid out. And so that, we're comfortable with. Things are progressing, particularly on the consolidation of distribution, that is on track as well as the integration to our SAP platform. So we're confident in doing that and moving forward through the end of this fiscal year and then into next. Relative to our expectations on commodities, we did experience favorability in the quarter. That was approximately 110 basis point benefit in the quarter. And as I mentioned in my prepared remarks, we're essentially 90% locked for this year. So as we see the current spot prices, we expect that to be a benefit as we move into 2021. So we'll give further guidance on that when we give our outlook for 2021.

Our next question will be from Bill Chappell with SunTrust.

I hope you and your families are safe. First question, just kind of follow-up. Same kind of question as Dara's, but on currency. Can you kind of give a sense where you stand? I know you're not giving full guidance, but just kind of what the headwind would be on top line for currency, kind of where we stand? And then just remind us where you are on hedges for this year, on how that affects the bottom line?

Yes. Bill, in terms of hedges, so we hedge against the 4 significant baskets of currencies, so British pound, the euro, Canadian dollar and Aussie dollar. We hedge about 50% of that. Relative to FX, what we saw within the quarter, we called out the currency impact top line of roughly 140 basis points. We would expect, given where it's at right now, that you'd see a similar headwind as we move through the balance of the year.

Okay. And then this is a tougher question, but is there any way to gauge what the overall pantry load impact is? Because I say that it -- clearly, in the U.S., it sounds like there was some pantry loading, but everyone is at home using toys and other devices and going through the product. At the same point, it doesn't sound like there was as much of an opportunity for pantry load in Europe and in some markets where there was some shutdowns. So I was just trying to understand kind of if there's any way to break out what you think is kind of the normal demand in this abnormal environment versus what was just stockpiling?

Bill, I think it's different in modern markets versus developing distributor markets, as we mentioned. In modern markets, you have seen increase in purchases. And that's because in markets like the U.S., you saw people stock up in the early days of the crisis. The U.S. consumer tends to be more prone to doing that because of experiences with hurricanes and wildfires and other instances that they have experienced, but retailers are also more experienced in terms of being able to meet that consumer demand. So, consumers bought more batteries during that time period. They bought larger packs. And we have done some consumer research where we wanted to understand, was this just pantry loading. And a lot of it is just really intuitive, which is people are home more. They're engaging with their devices more, everything in the home is getting used more than it once did. And that's remote, toys, game controllers, you mentioned a few of them. And as a result, we don't think there's a significant degree of pantry loading that's going on right now. And that -- if you look at the value sales growth through the end of April, 3 months through the end of April, it's at 16.4%, which is greater than the 3 months through the end of March at 10%. So you're seeing consistent buying pattern from consumers as they are using these batteries in their home. As we come out of this, is there the potential of having some degree of pantry load? I think there's a little bit, but it's not going to be significant. We don't think it's a significant headwind through the balance of the year.

The next question will be from Faiza Alwy with Deutsche Bank.

So, first, I just wanted to ask if you could break down the Auto Care business between appearance, refrigerants and chemicals. I think at Investor Day, you told us what the overall category was, but I don't think you've disclosed what your breakdown was. So I was wondering if we could get that.

I can break down some of the recent trends, Faiza, I think the way -- and let me give some color just on demand as -- because I think what's more important to all of you is what does the future demand look like in these subcategories. And right now, we've seen a couple of weeks of pretty healthy growth in appearance chemicals. We talked earlier about the emphasis on cleanliness and hygiene, which is certainly playing through to the car. And appearance has had some nice growth rates over the last couple of weeks. We think this will be the first subcategory that -- where this will show up on. In terms of refrigerants, as you know, from last year, it all depends on the heat. In those areas of the country where we have seen some extreme heat, particularly on the West Coast over the last couple of weeks, you have seen some nice growth there. But in order for that to hit the growth we expect, we do need a normalized heat pattern as we go through the summer. There's still time left for that to hit. And as you remember last year, it hit very late in the season, and that impacted our results. As long as we get a more normal season, then we do think that refrigerants should be able to show some growth year over year. In terms of air fresheners, that's probably the third category that's likely to come out of this. We are seeing this -- again, the trends are moderating. We did see a decline in March and April. But those did start to grow in the last couple of weeks or at least been the trend from the decline. Performance chemicals is the smallest piece of our business. That's one that's going to also be impacted by gas prices, which are on the lower end at the moment. And as a result, people aren't as prone to invest to get better efficiency from fuel and oil additives that they were when it was more expensive price per gallon. In terms of the Energizer share overall, in total, the Auto Care, we're roughly a 15.5%. Again, our share will ebb and flow because of the seasonality of the business; in appearance chemicals, we're 29%; air fresheners, we're 20%; performance chemicals 4%; and in refrigerants about a 53% share.

Okay. That's very helpful. I just also wanted to ask, broadly, it seems like -- I know you called guidance, but I'm wondering where do you see the most level of uncertainty for the rest of this year because you reiterated your synergies, you seem to have a good handle on what's happening with battery demand. You're already hedged on commodities. It doesn't seem like -- it seems the distribution that you were hoping for is continuing to play out. So where is the most level of uncertainty in your mind?

What we're focused on, Faiza, is let's control what we can control and continue to execute. And that's around the integration, that's around the distribution. That's around continuing to invest in A&P. So those items are under our control. We feel comfortable with that and I think we mentioned our overall strategic objectives for 2022 are in place for the extended that -- those items are within our control. I would say the uncertainty is just around the macroeconomic backdrop, the extent and length of the pandemic, the extent and length of the shutdown, and then what's the resulting impact on the overall economy and consumers' ability to spend again for our products.

Okay. Thank you.

The next question will come from Olivia Tong with Bank of America. Please go ahead.

All right. Thanks. First on synergies. I just wanted to talk through that a little bit because I think it's fairly impressive that you could hold your synergy expectations, both for the year-end, for the long term. So can you talk through the plans a little bit? Because I would imagine that there are some incremental challenges in terms of implementing the initiatives, whether it's your own manufacturing plants and just getting in there and moving things around in your facility right now, and then also with respect to retail, just getting into the store to push through any shelf plans that you might have drawn up pre-COVID.

Olivia, I think it's a real credit for the teams what they've been able to accomplish during this time. And I think we make that statement in a fairly benign way, which is we're holding our synergies, but it's not without a lot of effort from the teams to be able to do that. With the integration, the items that we had to delay slightly were those that really required in-person meetings. And that's around some user acceptance training that you need to do to make sure that when you flip the systems on, that they work and people know how to use them and they know how to problem solve and troubleshoot when things may not go quite as smoothly as you want them to. So we delayed those. We're consolidating distribution centers. All of our facilities on the DCs as well as the plants are operating. And then there's the added complexity around the battery side as we've seen significant increased demand. But thus far, we've been able to navigate it. I think it's a credit to the well thought out plans that we had, the teams that are executing them and the willingness to delay things 30 or 45 days, which we've done in order to make sure we do have a smooth transition. It's something we constantly monitor on a weekly basis to make sure we don't need to modify any additional plans. Thus far, we're holding, and we are managing through it quite well, actually. And it's impressive to see the teams do it. But as to the future uncertainty, I think we'll continue to monitor it. And if we need to, we're going to adjust because we will sacrifice timing to ensure no disruption of our business.

Yes. I think, Olivia, the teams jumped on it right away as it became clear what was coming in front of us. And the amount of contingency planning that they've been doing is, to Mark's point, very impressive. And they've been just very flexible in terms of how we accomplish the integration planning. So they'll continue to adjust as things become clear as we move forward.

Great. That's helpful. And then just turning to batteries. As we sort of look to the future and just the pandemic and the increased usage from staying at home right now, we're obviously going through a pretty tough time in terms of recession. So as you talk to your retailers and as they restock, is it pretty much more or less the same conversation? Or is like the way of that portfolio coming up more in discussions? And how are they thinking about restocking shelves as we go into a tougher time?

Olivia, I think that was actually part of your last question as well. The retail teams have continued to execute at a high level as well. And I was remiss in not mentioning them. They have continued to get into the stores. They have continued to make sure that we pull product from the backrooms and get it on shelf. And as a result, we have not seen any significant out of stock for any of our retailers as consumer demand like another impressive accomplishment for the team. But to your point, on the battery side, short term, this has been a benefit to battery demand. It continues through April. I think as long as people are at home and interacting with their devices as much as they are, we would expect it to moderate, but we would still expect to see elevated demand. And I would say even in the medium term, this is a bit of a tailwind because even as things get loosened up around the country and around the world, people would be more prone to staying at home than they maybe previously for a period of time. It's the longer-term impact that you're speaking to, what is the -- what is the economic fallout. And that is where we're very cognizant to make sure that we are meeting consumers with where they are going to engage in the category. And we are even better positioned today than we were during the last recession because we have 2 new additional value brands with Varta and Rayovac to be able to fill those needs. So, certainly, as retailers -- and it will depend retailer to retailer, how much do they want to emphasize value brands in their portfolio. We're there to meet them. We're there to partner with them to make sure that we capture the consumer demand that may be in their particular retail. The other dynamic where you're going to see us double down is our success and investment that you've seen in e-commerce. Certainly, over this pandemic, you have seen consumers across all categories engage more and more online. As you're well aware, we leaned in on that several years ago with great success on Amazon. We're extending that to omnichannel as well, having great success there in the U.S. as well as more broadly around the globe. So that will continue to be a point of emphasis as well.

And then I think from a global supply chain standpoint, Olivia, we've seen our team do just a stellar job, both in working through any obstacles or roadblocks that were put in place as an essential category. As you know, we are -- facilities are all up and running in full, and we've been shipping battery as an example with line item fill rates in the 90s.

The next question will come from Steve Strycula with UBS.

So, first question would be for Mark and wanted to just touch in. I don't mean to get overly prescriptive here, but I think it would be helpful since the Auto Care business is still a little bit newer to a lot of us. Were your comments, I think, to an earlier question on the call regarding April trends, were you saying that the Auto Care business has gotten directionally better from March? Or were you saying certain categories such as appearance, were, in fact, actually up year-over-year? So just a quick clarification, just so we understand that a little bit better.

Yes. Thanks for clarifying that one, Steve. So what we saw through February was -- and this was 3-month data, it was roughly flat on a value basis. If you take the 3-month data through March, it was down 4.8%. But if you take just the March data, the 1-month data for March, it was down 15%, and that's what we mentioned in our script. April, we don't have syndicated data yet for that period. But what we have seen from some sales trends at key retailers, as we've gone through April, is -- and this is limited to appearance, we've seen 2 solid weeks of year-over-year sales growth at several of our retailers. And that, again, is a sign that things are starting to turn around within appearance because of some of the macro trends we've talked about. We have not seen the same impact in our other 3 subcategories just yet. On the refrigerant specifically, we have had pockets of heat around the country. And when you do see that, you will see that growth in those areas, but it hasn't been pervasive enough to carry the day around for the whole country in the U.S.

And Mark, on that point, given that we saw a little bit of a slower just industry-wide demand for March and the first half of April, how is channel inventory right now when you talk to a lot of your end markets right now? Does that mean that maybe there's temporarily like pause orders just a little bit as we try and sell what they already have in the supply chain? And then I would say my question for Tim would be -- a question we've received a lot from investors is it was encouraged to see that you guys went through with the dividend, given what you're trying to do to pay down debt right now. But what -- in the absence of guidance, how did you guys scenario plan and stress test a downside scenario and get comfortable that you could still pay the dividend amid some of these uncertainty that we're moving through?

Steve, your question on inventory was specific to auto?

Correct, correct.

On that one, what I would say is that retailers, I think it's fair that you would see because of some of the trends in March and for the first part of April, we have seen some softness, I think replenishment. You'll see continued softness in that for a period of time. The retailers did to be proactively manage that as well though. So the retail -- they're not loaded up with inventory at the moment. We were heading in, we are heading into sort of the peak selling season, so inventory levels were also heavier than -- as a result of that. But we're making sure, in real time, we're connecting with the retailers that inventory levels don't become an issue.

Yes. And, Steve, relative to the dividend, as you point out, we did maintain the dividend in the quarter. As we move forward, we continue to discuss that with the board on a quarterly basis. And as we do our scenario planning, at this point, we're comfortable. We'll continue to review that as we move forward.

Thank you.

Our next question is from Kevin Grundy with Jefferies. Please go ahead.

Hey. Good morning, everyone. I hope that everyone is doing well. I wanted to drill down a little bit on the commentary with respect to distribution wins in the battery category, which I think was certainly part of the guidance coming into the year and understanding that you have kind of taken that off the table. But for Alan and Mark, maybe talk a little bit about the visibility on those distribution gains. I'm trying to reconcile that a bit. I think the prior comment, if I'm not mistaken, was we begin to see those in the March, April time frame and understanding there's kind of a lot of noise in the scanner data at this point with pantry loading, but we haven't really seen the market share improve, at least in scan channels. So maybe just some comments around visibility and timing, and maybe that's been pumped back, any implications from the shelf space reset. And that if you could also kind of weave into that answer a little bit, we know what's happened to Target, which has been an Energizer stronghold. Any surprises there with the magnitude of the private label share gains, which have ticked up a little bit and how you're kind of thinking about that risk more broadly, whether this is a target or beyond another channel.

On the distribution -- sorry, I was going to say maybe on the latter question, maybe we'll start there and then we can go back to the distribution. On the private label piece, Kevin, we -- there was a large retailer that did make the switch to a greater emphasis on private label, not just in battery but across categories. That did impact the category overall. Typically, in a recession, you do see some trading down to value brands and on the private label. Although we see that normalize over time, we saw it through H1N1 and again during the Great Recession. So we expect that to revert back the way it historically has. And then, Mark, maybe a little bit on the distribution?

Distribution wins are full speed ahead with the distribution wins we've been able to achieve that we talked about on the last earnings call. We've executed several of those in the store already. And so when we were talking about -- you'd start to either show up in March and April, that was in the stores, and so those have continued. In one large retailer, there was a reset, which advantaged our brands quite a bit. And that was right in the throes of the pandemic. But despite that, we were able to get in there and have the resets largely complete. I think we're in the high 90% of stores that have executed that reset. So as you get through March and April, you've seen them show up in store, it will take a little bit for that to show up in the share numbers. Certainly, there is a lot of noise in the numbers in March and April as it relates to share. You did see some shifting patterns of how consumers were shopping where club really overindexed initially in the consumers, and they still continue to overindex with consumers, and then it's Mass and grocery, and then you're seeing some retail grocery as people maybe migrate to stores that are smaller, and they don't have the fear of larger crowds. So you've seen some shifting. You've also seen some shifting to e-commerce, with Amazon is unmeasured. But all of the distribution gains that we've been able to achieve, and they have been additional ones that we've been able to secure since the last call are still on target to be executed by the end of the fiscal year. We do believe you're going to see the share turn around as those are executed, and you see them in store. We do think some of those areas where we're underrepresented, we are going to bend that trend as we move forward. And as consumers engage in more of the channels as they have been, we're going to be there with our products.

Mark, and just one point of clarification. Do you have a percentage even roughly in terms of what portion of distribution gains you have secured that was anticipated for the year? So is it 50%, is it 60% of what you hope to accomplish for the year?

In terms of what's in-store today versus what you're going to see going forward?

Just with respect to the distribution gains that were contemplated in the guidance. At this point, you've achieved what percentage of those or how much is still sort of left to be achieved in order to deliver on what you had hoped for this year?

You will still see some significant distribution hit the markets over the balance of the year.

The next question will come from Javier Escalante with Evercore ISI.

My question is on e-commerce. If you could please talk about the -- your performance within e-commerce in terms of brand? And also whether you can give us some color with regards to how the Amazon private label business is growing. I mean, it doesn't need to be a specific number, but just to get a color in terms of whether there is a benefit of having a brand in Amazon.

Javier, I think, as you've seen across multiple categories, e-commerce growth has been significant. One, I'm going to focus on batteries. That's been largely the focus of our e-commerce discussions in the past. And you have seen that channel shifting really as people got into e-commerce, omnichannel and all the delivery services throughout this crisis. One of the qualifiers I want to make is we're in the middle of a transition of a data source. Some of the information that we're giving you won't be as clean as it was in the past, but -- so I would treat these growth numbers as directional and not precise. Through January, for the 3 months ending January, you saw the battery category grow 15%, 16%, roughly online. Going forward, this is where the data will be a little bit awkward. But if you use January as a baseline, for battery category growth, February grew 3% over January. But then March and April basically grew between 70% and 75% over January. So you saw that significant growth in those time periods. If you look at the, call it, roughly 4 weeks ending the middle of April, Energizer brands grew 95% over that time period and Rayovac grew 84%. So significant growth for us, significant growth for the category. Certainly, you've seen growth. Our estimation is that the private label offering on Amazon basically grew at 60% during that time period, that 4-week time period. Now that has ebbed and flowed throughout this crisis, but that's a snapshot of the data, which gives you some directional growth numbers that we've seen.

And Mark, if I can -- if you can give us a refresher with regards to how much of the category, the battery category you think is online and how much is your exposure, I mean, Energizer exposure to online is right now? That will be very, very helpful.

We have not given our business online in the past, and I think we'll stay away from that. But I can give you, again, directional on Amazon. Amazon is probably roughly 8%, 11% if you factor in measured channels, and that was through February. I think that number would -- I think it's a reasonable assumption that, that number would have increased as you get into March and April where our estimations are in roughly the 15% to 18% range of what it represents the total category. When you saw the previous data at the time you -- Amazon was roughly 85% of the overall online sales in the battery category. If you apply that rough estimation, I think you can get what the omnichannels. But in all of our retail partners where we partner with them on omnichannel, they are growing significantly as well, albeit off a lower base.

The next question will be from Robert Ottenstein with Evercore.

Two questions. First, just a follow-up on Javier's question on e-commerce. Obviously, this is becoming a pretty material part of your business now. I know you're not giving out the exact percentage, but I think our numbers would suggest somewhere like 20% to 30% of your sales. How does that inform your overall retail strategy? And as you look going forward, your supply chain, your organization as a whole, and do you feel well set up for that? So that would be the first question. And then the second one, from an organizational perspective, these are absolutely unprecedented times. And you talked a little bit about it at the beginning, but maybe just give us a little bit more color in terms of how you're keeping organizational focus and execution through unprecedented challenges.

I think maybe we'll start with the second one first. And what we have done, and really, this started in January and February with the organization when we saw the disruption that was coming out of China. And as a result, our global supply team got together, and they started managing that on a proactive and daily basis because we needed to make sure our supply chain had continuity going forward. As we saw the pandemic spread across the world, that group evolved to be more cross-functional and more global in nature. And as a result, we were able to stay ahead of it. We made the decision in February to run the plants flat out. And that was really driven from a twofold reason: One, having done that, we will be able to withstand any intermittent disruptions to the supply chain that may come up as a result of this; we also would be able to meet our increased demand. That served us very well as we got into this because we've been able to keep fill rates, in many cases, in the high 90%, but certainly above 90% overall. We've had some intermittent issues here and there, but nothing of significance. And really, this comes down to -- and we mentioned the overall principles quite a bit is we have to keep our colleagues healthy and we have to keep the business running. Those are the only two things we're focused on. And in these times, you tend to get a lot of noise in the world, and we've just asked the organization, if it doesn't impact those two items, tune it out, focus on keeping yourself healthy, and keeping on -- keep the business running. In that simplicity of direction, I think, has served us well. And as a result, the organization is executing at an extremely high level. And as a result, we've been able to -- we can make the simple statement that there hasn't been any material disruption. So -- but behind that simple statement is tremendous effort and problem-solving by the organization.

Yes, Robert, Alan. A couple of builds on Mark's comments. He is spot on. My adds would be, we put a task force in place with high level of engagement from our senior management. That task force has really been focused on the risk mitigation plans in the event that they are needed, but really dovetailing those plans with just running the business every day. They've done a tremendous job. Communication to the organization has been key. So to your question on focus and the attention, which the team has done a terrific job, not only managing through the COVID, but also managing through running the day-to-day business as well as the integration. We've not had really any hiccups or events at this point that would concern the organization, but that is running exceptionally well for us right now.

And then on your first question, on e-commerce, I mean, I wouldn't say that this is going to be a seismic change for us in terms of how we view the business because we were already firmly implanted it -- in the digital economy with our battery business. We were certainly looking to the extent that success to other categories as well as other markets around the world. It was already an area of emphasis for us, not just with pure-play, like Amazon, but also making sure that we partner with our retailers, who had an omnichannel offering as well. So we were already fairly advanced on that. And I think at this point, it's really about continuing to evolve that as substantively as we need to because of some of the recent trends we have seen to come out of this. From a supply chain standpoint, again, we had built that into how we think about these things already. We need to take a step back and certainly reflect what we do coming out of events like this. And one of the things that we talked about as a team is there is increasing surge demand, and whether it's around the crisis management with hurricanes in the U.S., whether it's around this pandemic, how do we think about inventory, how do we think about working capital going forward to make sure that we manage that appropriately.

Terrific. Thank you very much.

The next question comes from Andrea Teixeira with JP Morgan. Please go ahead.

Thank you for squeezing me in a hope you're all doing well. So with -- I'm just hoping if you can talk about pricing in batteries. What was your price/mix component in the quarter? And how we should be thinking about it going forward? So I understand the mix has moved against -- probably against you from your commentary about the large bag. But just curious about the promotional environment because we were hearing in CPG in general that we've seen less promotional environment, given the strong demand and consumers being less price sensitive. So then as we move out of COVID, hopefully, and recession, on the other hand, playing a bigger role, are you conscious about potentially retailers starting to ask you about price concessions or perhaps positioning Rayovac, for instance, closer to private label? Or this is something that you don't foresee in the near future? And I would hope to get some feedback from prior recessions and what happened. I think you commented earlier, but if you can elaborate more.

Yes. Andrea, generally on pricing, while the current crisis is really causing rapid and dramatic shifts in where consumers purchase batteries, our analysis really continues to show there was a stable commercial pricing environment, particularly in the U.S. As Mark alluded to in his prepared remarks, we are seeing a reduction in promotional activity and an increase in average unit price. The price increases have actually improved overall category value. This is something we're going to continue to monitor. And the addition of Rayovac to our portfolio, and I think this gets missed sometimes, is really going to give us an even greater ability to meet the needs of the cost-conscious consumer as this recession plays out. And then, Tim, maybe a little bit about the mix. And Mark, you can conclude.

Yes. So Andrea, we called out both the distribution and replenishment. And if you look at both channel and when we talk about channel, there, in particular, you're seeing a mix in the international markets. I think Mark alluded to modern trade versus traditional trade. And so for the quarter, that mix impact was roughly about 70 basis points in the quarter. So you are seeing some shifting taking place. But to Alan's point, the promotional environment remains stable, and AUPs are actually...

Next question will come from William Reuter with Bank of America.

I only had one, most of mine have been answered. But in terms of your channels that you sell your products across, both batteries as well as auto, it would seem like the large majority of these would be open. Is there any way you can quantify what percentage of the channels that you sell into maybe closed due to regulatory restrictions?

It would be a small percentage of the retailers, I think that would be in the U.S., big-box specifically there. Most of the Mass and auto retailers have been open and able to operate. In international markets, that does depend on which market you're in, you do see home centers and some international markets have been closed. You have mom-and-pop stores in just developing markets that have been closed. But in the U.S., it would be a relatively high percentage of our main retailers that have been able to be open.

Yes. The majority of them have been deemed essential in those sections of the store where our products are sold. Battery, in particular, are open.

Okay. So it sounds like it's not meaningful?

No, it's not for the nonessential in the U.S. And Tim chime in, it's not a big number. We've not disclosed that publicly, but it's not a big number.

The next question is from Carla Casella with JPMorgan.

You took a question earlier about the inventory in retail, a little bit more focused on auto. I'm just wondering how inventory retail looks in the batteries going into hurricane season. And if the retailers -- we've heard that there could be a bad hurricane season. Do they plan on that? Have you seen an increase in orders ahead of hurricane season?

That's something that we partner with our retailers on heading into hurricane season, so they have hurricane-ready inventory that they deploy when those hurricanes strike so that they can move it around to the given stores where the area is, the impacted area. Certainly, that's something that we have been talking about for the last month. We'll continue to talk to our retailers and make sure that we get them prepared as well. So that will play into our plans for, as we get into summer and as we watch inventory levels. But that's something we're proactively managing, and we'll make sure we're prepared and the retailers are prepared and that they can respond as they usually do when hurricanes strike.

Okay. And then just one follow-up on the capital structure. You took some actions to preserve liquidity or enhance liquidity. How do you think about -- how long do you hold on to that excess liquidity versus when you return to debt paydown or buybacks? Is that something we could see this year? Or is it something you try and wait out until you annualize it?

We're going to hold on to the liquidity until we have clarity on how things are recovering in terms of markets opening up, customers returning to the marketplace and how we see in terms of customer activity as we move forward. So once that uncertainty is behind us, then we'll move forward with our normal debt paydown.

The next question will come from Lauren Lieberman with Barclays.

Great. I just -- I don't think this has been covered yet, but one of the things that you talked about with the Auto Care acquisition was that the category could prove or should prove countercyclical, sort of a benefit in a recession. So I know right now, everyone is not allowed to drive their cars. But just kind of thoughts on how the category may well perform as we move into the summer, as the lockdown orders kind of come off, and just talk around the thesis on the countercyclicality of auto.

Certainly, Lauren, in past recessions, it has proved to be resilient. It's certainly a discretionary item in some respect, but also in a recession, people keep cars longer, they tend to drive more. So, those are tailwinds that help. Every recession is different, and certainly this one is going to be a little bit different as well in terms of how it impacts the consumer. We still think that these categories, these subcategories will hold up well in a recession. We're not ready to ascribe growth rates to the category or even to our business at this point as we work our way through it. But certainly, it's more resilient than many consumer categories, and we're going to make sure we invest behind them to convey the value proposition that is embedded in many of our products going forward. And so we're -- we feel really good between the battery and auto businesses that we have. We feel very well positioned to weather what's coming at us over the next 3 to 6 months.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Alan Hoskins for any closing remarks.

Thank you for joining us on our call today and for your interest in Energizer. This concludes the call.

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