Energizer Holdings, Inc. (ENR) Q4 2023 Earnings Report, Transcript and Summary

Good morning. My name is Gary and I'll be your conference operator today. At this time, I'd like to welcome everyone to Energizer's Fourth Quarter Fiscal Year 2023 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'd now like to turn the conference over to Jon Poldan, Vice President, Treasurer and Investor Relations. You may now begin your conference.

Good morning, and welcome to Energizer's fourth quarter fiscal 2023 conference call. Joining me today are Mark LaVigne, President and Chief Executive Officer; and John Drabik, Executive Vice President and Chief Financial Officer. A replay of this call will be available on the Investor Relations section of our website, energizerholdings.com. In addition, a slide deck providing detailed financial results for the quarter is also posted on our website. During the call, we will make forward-looking statements about the company's future business and financial performance among other matters. These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements. Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC. We also refer in our presentation to non-GAAP financial measures, a reconciliation of non-GAAP financial measures to comparable GAAP financial measures is shown in our press release issued earlier today, which is available on our website. Information concerning our categories and estimated market share discussed on this call relates to the categories where we compete and is based on Energizer's internal data, data from industry analysis and estimates, we believe to be reasonable. The battery category information includes both brick and mortar and e-commerce retail sales. Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer's fiscal year and all comparisons to prior year relate to the same period in fiscal 2022. With that, I'd like to turn the call over to Mark.

Good morning, everyone and thank you for joining us on our yearend earnings call. As we close our four fiscal 2023, let's start today by reviewing the priorities we established coming into the year, restoration of gross margin, return to healthy free cash flow generation, and paying down debt. Over the course of the year, we've made excellent progress across each one, including year-over-year improvement in gross margin of 170 basis points, free cash flow generation of $340 million and debt paydown of $225 million. We also delivered adjusted earnings per share and adjusted EBITDA within our original guided ranges, despite the impacts of persistent inflation and macroeconomic pressures. I would like to thank our teams across the globe as these results are a reflection of their dedication, execution and focus on fundamentals. As we look ahead, there are several areas which are influencing our plans for 2024. First, we have a macroeconomic backdrop where higher interest rates, resumption of student loans, and the end of emergency pandemic benefits are just a few of the areas, which have taken a toll on consumer sentiment. That shift in consumer confidence has been exacerbated by persistent inflation, forcing consumers to shop more cautiously and to reallocate their household spending across discretionary and nondiscretionary products. In terms of the impact on our categories, let's start with batteries. It is important to look at the category over the long term to understand the impact that the pandemic and broader inflationary trends have had on value and volume. On a global basis, the battery category experienced a spike in volume growth over the course of the pandemic as consumers spent more time at home and with their devices. As consumers returned more closely to their pre-pandemic routines, volume normalized from the peak levels experienced in 2020 and 2021. In addition, inflation across the store, as well as several price increases within the battery category, added to the volume decline. As we have begun to lap these impacts, we have seen category volume growth resume in the U.S. in recent periods. The end result is a category which is 5% larger today than pre-pandemic, at roughly 20 billion cells versus 19 billion cells in 2019. Since 2015, global category volume has experienced compounded annual growth of approximately 1.5%. Over that same time period, U.S. category volume grew roughly at 1% annually. The strength and stability of the category stems from device ownership, which is a primary driver of consumption. The number of devices per U.S. household has increased by more than 5% since 2015. The incorporation of the smartphone into our daily lives has enabled a world of connected devices, with over 50% of those taking primary batteries, including connected home devices such as security cameras, doorbells, and smart tags, and health devices, including blood pressure monitors and pain relief devices. The future pipeline of devices is also strong, where we anticipate global consumer devices will continue to grow, with many of those taking primary batteries, as they do today. Our long-term outlook for the category remains at flat to low single-digit volume growth, supported by these healthy category fundamentals. Moving to auto care; the auto care category remains an attractive area for growth, supported by strong category dynamics. Miles driven exceed pre-pandemic levels over 6% higher than 2019. The age and size of the car park is also increasing. The average age of vehicles in the U.S. has steadily increased and now exceeds 12 years, and the size of the fleet has grown by over three million vehicles over the last year. As vehicles continue to age and consumers feel the impact of economic pressures, more of them are stating that they are performing car care themselves versus do-it-for-me options. With that as the general landscape in our categories, here is how we are thinking about FY'24. The continuation of our strategic priorities underpins our plan. Continue margin recovery, generate free cash flow, and pay down debt. Those objectives ensure we can invest in our business and achieve the financial algorithm, both of which drives significant value for our shareholders. Project momentum is a key driver. With $50 million realized in fiscal '23, we will add an incremental $80 million to $100 million of savings over the next two years, which provides the flexibility to operate in this environment. We will look to accelerate investments throughout this downturn with a focus on innovation and brand building to drive consumer engagement and long-term consumer preference. In batteries, we will be disciplined in balancing our pricing and promotion strategies with the need to engage consumers, deliver top line, and take advantage of the improving volume trend. When balancing these factors, we focus primarily on driving overall health of the category and continuing to improve the earnings power of the business. In a healthy category with improving earnings, we will not prioritize share at the expense of those two objectives. In auto care, we are proud of the growth we have achieved. Top line is up over $90 million since 2020. This represents a 6% compounded annual growth rate and is consistent with our low to mid-single digit growth expectations over the long term. As we look ahead, we have an exciting slate of innovation launching this year and will continue to invest behind new product development and launches. Fiscal '23 was a pivotal year for auto care. We made tremendous progress restoring profitability, increasing operating margins by almost 500 basis points over last year, while maintaining stability in the top line. This focus on pricing, innovation and cost control will generate further margin improvement over the course of fiscal 2024. Now let me turn the call over to John to provide additional details about our financial performance and fiscal 2024 guidance.

Thanks Mark. I will provide a more detailed summary of the quarter and full fiscal year before turning to our 2024 outlook. As a reminder, we have posted a slide deck highlighting our key financial metrics on our website. The fourth quarter was another solid performance by the organization in the culmination of a year in which pricing and savings from project momentum offset continued macro headwinds and we delivered adjusted earnings per share and EBITDA within our original guided ranges. Reported revenue grew 2.6% with organic revenue up 2%. The organic growth was driven by 150 basis points of pricing across both the battery and auto segments. In addition to pricing, we generated roughly 100 basis points of volume due to earlier holiday shipments and batteries, partially offset by underperformance of non-track channels, as well as channel shifting, which favors value offerings, and lost battery distribution in a few international markets. Adjusted gross margin in the quarter increased 380 basis points to 40% due to pricing, the continued benefits of project momentum, and lower transportation costs. Adjusted SG&A as a percent of net sales was 14.2% versus 15.1% in the prior year. The current year decrease was primarily driven by project momentum savings. A&P as a percent of sales was 4.1% up 60 basis points and consistent with our plans to focus A&P spending in our first and third quarters. We delivered adjusted EBITDA and adjusted earnings per share of $185.4 million and $1.20 per share. We also generated $78 million of free cash flow in the quarter and paid down $25 million of debt. As noted in our press release this morning, we recorded a one-time non-cash $50 million settlement charge during the quarter related to a partial buyout of U.S. pension liabilities. For the full year, organic revenues decreased 1% as the benefits of pricing actions were largely offset by lower volumes due to higher retail pricing and general economic conditions, in addition to volume declines related to the planned exit of lower margin business and lost battery distribution in international markets. Adjusted gross margin was up 170 basis points as pricing actions and savings from project momentum were partially offset by higher input costs. Adjusted EBITDA grew to $597.3 million and earnings per share of $3.09 were both driven by significant gross margin improvement and the benefits of project momentum. Looking forward to our coming fiscal year, we anticipate operating in an environment where input costs have stabilized but remain elevated, consumers remain financially stretched and pricing and promotion in our categories will remain strategically important. As such, we expect organic revenues to be flat to down low single digits and at current rates for FX to be modestly negative. Input costs beginning to turn positive, a full year of freight rate savings, and continued momentum improvements more than offset the costs of targeted promotional activity, resulting in expected gross margin improvement of roughly 100 basis points, reaching 40% for the full year. We expect AMP and SG&A levels on the dollar basis to remain relatively consistent with fiscal year '23. Due to debt pay down and a largely fixed debt capital structure, we expect interest expense to be favourable by $8 million to $10 million for the full year. We also project a tax rate of 22% to 23% for the year. Primarily through gross margin improvement and continued leveraging of project momentum for savings, we expect to grow our earnings next year, resulting in an outlook for adjusted EBITDA in the range of $600 million to $620 million, and earnings per share in the range of $3.10 to $3.30. Project momentum is expected to benefit 2024 by $55 million to $65 million and has been included in the outlook ranges we provided today. Over the next two fiscal years, we expect project momentum to generate $80 million to $100 million in savings, with roughly 70% of those benefits impacting gross margin and the remainder recognized throughout the rest of the P&L. Due to continued investments in our underlying operations, project momentum, and our digital transformation, we are projecting capital expenditures for 2024 to be between $95 million and $105 million. We anticipate that continued strong cash flow aided by working capital management will allow us to cover capital expenditures and one-time momentum costs while still delivering free cash flow consistent with our goal of 10% to 12% of net sales, albeit at the lower end this year. I would like to provide additional context on the first quarter, given our expectations for a challenging start to the year. Despite continued category volume improvement, we expect impacts from the earlier holiday shipments, channel shifting, which favors the value segment, and weaker performance in non-track channels to impact the first half of the year. As a result, we expect organic sales to be down 6% to 8% in the first quarter and improve as we move through the year. Gross margins should be roughly comparable to the prior year quarters, and due primarily to the lower net sales, we expect to deliver adjusted EPS in the first quarter of $0.50 to $0.60 per share. And finally, a few comments on our debt capital structure and capital allocation priorities. Our debt is currently 91% fixed at an average interest rate of 4.8%, with no meaningful maturities until 2027. Looking ahead, debt pay down and deleveraging continues to be our primary capital allocation priority, and we expect to end 2024 below five times leverage. We believe that consistent free cash flow generation is one of the most important factors impacting our business today. Returning this cash to shareholders through our quarterly dividend and paying down debt provides Energizer shareholders with a compelling opportunity to benefit from consistent returns combined with capital appreciation potential. Now I would like to turn the call back over to Mark for closing remarks.

When we began the year, we embarked on a multi-year transformation, which will streamline our operations, improve our financial performance, and ultimately shape the future of Energizer. We have made significant progress over the last 12 months, and in fiscal 2024, we'll focus on the same strategic priorities, restoration of gross margin, top-tier free cash flow generation, and debt reduction, ultimately driving sustainable earnings growth and shareholder value over the long term. Now I'll turn it back over to the operator to open up for questions.

[Operator instructions] Our first question today is from Bill Chappell with Truist Securities. Please go ahead.

Thanks. Good morning. Mark, just to talk a little more color on kind of the state of the battery category, both U.S. and international, and I'm just trying to understand -- I think I understand that you believe that kind of consumer demand is fairly stable after a few years, but I'm trying to understand where the promotional levels might be, both, especially in the U.S., but also international in terms of do we need to go back to 2019 levels, or do we need to go higher than 2019 levels to kind of spur demand even further? Are you seeing kind of competitive promotional levels that are different than what you were expecting? Just kind of talk more about the environment there of what you need to do or what the category needs to do to kind of get back to that zero to low single digit kind of annual volume growth.

Sure, Bill. There's a lot in there. Let me -- I'll kick it off kind of how we built '24 from a framework perspective, and then John can maybe give you some details just on how we're framing up the year. It really starts with how we approach the plan for the year, which is staying consistent to the strategic priorities we had in '23. We want to continue to improve margin, which gets to a little bit of your promotion question, but we want to improve margin. Our outlook provides 100 basis points improvement over the course of fiscal '24. We want to continue to generate free cash flow for the second year in a row, consistent with our historical levels, and we want to continue to pay down debt, and our plan is to be below five times at the end of fiscal '24. So from a strategic priorities standpoint, our outlook achieves all of those objectives, but then when you take a step back to your point and look at consumers generally and then our categories, so if you look at consumers generally, even beyond our categories, certainly they're feeling pressure. There's some mixed data points out there. I think it's mixed because consumers are very engaged in categories, but they're rotating around a lot of ever-shifting priorities for them, and that results in delayed purchasing. It can result in some trade-down, either in terms of from premium to value or even pack size, and then some brand-switching activities. All of that is based on temporary priorities and needs that consumers are experiencing in a relatively pressured environment for them, but then when you delve deeper into our categories, our categories are in solid shape. Batteries have been on a process of coming down from normalized levels from the pandemic, the spike in demand we saw during the pandemic. We're also seeing the impact of pricing and elasticity. We have achieved sort of volume stability over the last couple of quarters, which has been a nice plateau to see in the volume trend. Auto care, roughly the same, maybe a little bit more discretionary than batteries. So when you combine our strategic priorities that we want to achieve from our business with stable category trends and then a cautious consumer, it comes down to pricing and promotion, to your question and pricing and promotion discipline is critical to what we want to do. It was critical for us restoring gross margins. It will be critical for us to continue to preserve gross margins and then from a promotional side, I think the questions that we constantly push is we are promoting to bridge consumers to a higher price point and keeping them engaged with our brand. We're not promoting to prime them for sort of permanently lower prices and so we're going to continue to lean in to the former, not the latter and that's how we built the '24 plan to make sure that we can continue to achieve the results that we that we laid out today. John, do you want to go through the details of '24?

Yeah, maybe I'll just come about some of our planning assumptions. I'll start with the full year and then move to Q1, because I know that's part of what we came out with this morning. So on the top line, flat to down, low single digits for the full year and as Mark just said, in battery, we've seen category volumes recover. We project those to be relatively flat for the rest of the year. We're projecting auto volumes in the category to be modestly positive and in that environment, we expect to reinvest some of our gross margin recovery into pricing and promotional activity. That's both online and in store and as we've mentioned, on top of that, we'll start the year with some headwinds as we saw some holiday volume shift into the fourth quarter last year, which we don't expect to comp again this year. Kind of moving on to gross margin where we continue to see improvement, we're expecting 100 basis points for the full year. Project momentum, a great source of efficiency for us. We expect that to continue generating improvement, something like 100 basis points to -- 120 basis points to 140 basis points. We have seen raw material input costs kind of come back our direction. We see that being about an 80 basis point improvement next year. We continue to see transportation rate savings be beneficial. And we get a full year of those this year. So we should see another 70 basis points of improvement. After two years of significant pricing, we're expecting some of that pricing and promotion to be invested back in and, we're probably going to see about 100 basis point to 150 basis point headwind and then we've seen a lot of inflationary impacts on conversion costs, utilities and wages and that should be another 50 basis point drag. As I kind of talked about on the prepared remarks, we expect SG&A to be roughly flat. That's really project momentum offsetting some of the inflationary costs that we're seeing as well as digital transformation investment. A&P, we want to increase that, our A&P dollars and probably see us kind of more in that 5% range for the year. Interest, based on our debt pay down and being 90% fixed rate debt, we expect to get about $8 million to $10 million better on interest expense next year and then the tax rate is going to go up a bit. That's going to be between 22% and 23% next year, so that should be a little bit of a drag on our EPS all in EBITDA kind of in that $600 million to $620 million and EPS of $3.00 to $3.10 – I'd say $3.10 to $3.30. And then for the Q1 outlook, we expect our first quarter to start the year down top line about 6% to 8% and that's really half of that decline is related to the shift in holiday volume in the just completed fourth quarter. As we mentioned previously, we're still seeing weaker performance in some non-track channels and then we've also seen a slight shift to channels favoring some value offerings, which has a bit of a share impact on us as well as trade down impact. We expect gross margin to be a little bit better this year than last year in the first quarter and all in, we're going to see EPS kind of in that $0.50 to $0.60 range.

Threw a lot of ads to their bill. Any areas we didn't answer?

No, I think I've finished my model for the next year. Perfect. Just one quick follow up. You did allude to the weakness in the non-track channel, and I guess it's the DIY channel. Is that tougher comps year-over-year or is there something else going on? Or is that just the way those retailers are kind of kind of acting right now in terms of store traffic?

I think it's a general store traffic trend in non-track channels, depending upon the information that you may get. So that's DIY and online you are seeing growth. So I would think about this way, brick and mortar, traditional brick and mortar down a little bit on volume, online is up. Non-track, including home center is down.

Thanks so much.

The next question is from Lauren Lieberman with Barclays. Please go ahead.

Great. Thanks. Good morning. I guess one question I have is this, you think about and talk about some of the trade down and the value seeking behavior you're seeing from consumers. Now that you've got this broader portfolio than you did losing track of time five years ago or so. How does that play in? What can you do with Rayovac? What can you do in terms of your merchandising sets? Is the situation fluid enough that you can leverage that broader portfolio a bit more to position yourself well for changing consumer behaviour? That would be kind of number one. And then just number two is on pricing. Pricing is moving negative with volumes up in track channels and then it looked like the same dynamic in the slide. So just curious what you can tell us a little bit more maybe on the promotional conversation where we stand versus maybe 2019 in terms of normalized promotional levels and where you expect that to settle out? Thanks.

Thanks, Lauren. On the last point, and Bill asked that as well, I think on the promotional levels, we would not see a situation where we would exceed promotional levels from 2019. On your question on value brands, the short answer is yes. We have the full portfolio. We have several value brands that can fill a need, particularly in times that consumers are experiencing now. A little bit easier to do that online because it's a little bit easier to cut in than it is in a brick and mortar environment, but it is something we're leveraging. We're having some encouraging discussions with retailers on that front and that's one that we'll continue to leverage as long as the macro environment is what it is today. Anything I missed on that one, Lauren?

No, I think that's great. And then can I just switch for a second to Auto, just thinking about long-term margin goals for that business, kind of maybe what you are willing to share on where gross margins in that business are now, kind of where you think you can go to?

I think on that one, Lauren, let me take a step back on what we've experienced the last couple of years as an organization. The first thing you dealt with was a pandemic that tested your ability to manage supply chain disruptions, which required sort of greater insights, proactive management of bottlenecks, and just greater resiliency. We not only at the time made the decision to solve the issues of the day, but we invested to improve sort of that operational excellence on a go-forward basis and really enhance the visibility we had across our supply chain. There's been tremendous progress there. Then we did on auto care in terms of inflation, we got hit, particularly in auto care, with higher inflation, which required pricing. We've launched project momentum to drive sort of cost out of our supply chain. You've seen some stabilization on some of the inflation rates, and we've really leaned into our pricing and revenue management teams, which as we sit here today, our visibility across our network is dramatically better than it was pre-pandemic. Our fill rates are at or above targeted levels. Our margins are steadily improving. We've made tremendous progress in auto care, up nearly 500 basis points as we talked about in the prepared remarks. So beyond the financial results from a supply chain margin management standpoint is the organizational muscle we've built to be able to work through these issues in more real-time basis than we have. In terms of Auto Care, we've seen great foundational macro trends with the three main factors that drive volume demand in that category and we've really retrenched and refocused on margin levels, which we expect to continue to improve this year. The first target is to get back to where that business was pre-pandemic, and then from there continue to improve the margins, but we are always going to push to improve margins and grow that business going forward.

The next question is from Nik Modi with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Good morning. I was hoping you can just give some more clarity perspective on some of the international distribution losses that you cited. Is that just a competitor getting hyper-promotional or any perspective around that would be helpful and then just as you think about the first quarter, obviously the holiday season to some degree is very important for at least the battery business given device trends, etcetera. What are you baking in terms of your assumptions on how the holiday season progresses in your guidance? Thanks.

Yeah. So on the international distribution, again, our priority last year and this year is restore margins to our business, which requires pushing pricing. In some international markets, we were aggressive on our pricing and that caused some lost distribution. It wasn't overly promotional. It was simply just a pricing discussion where we were very disciplined and that caused some distribution losses. We still believe that's absolutely the right approach to take. We would do exactly what we did from a pricing standpoint if we had to do it all over again because we needed to restore our margins, which allow us to invest back in the business and then ultimately regain that distribution through healthy category management, which we're always focused on and then the second question, Nik?

On holiday.

On holiday. Okay. On holiday, right now, we have great support from our retailers going into holiday. We're planning for success. I think there's going to be some caution both from us and from retailers in terms of how does the early holiday season play out? How does consumption look and that's going to drive replenishment discussions as you get further into holidays. So I would say there was some caution as we planned for Q1 and we've heard a little bit of caution from retailers as they head into holiday because they want to see how it plays out, but that will play itself out as you get closer towards Christmas.

Excellent. Super helpful and disclosure and guidance and the release on the presentation was also very helpful. Just wanted to pass along that feedback.

The next question is from Andrea Teixeira with JPMorgan. Please go ahead.

Yeah. Good morning, Mark, John. You mentioned that half of the 6% to 8% declining sales in the first quarter is actually attributed to the shift in the holiday sales, like the pull forward. Is the other part more of a consumption impact? Can you bridge the other half if it's the loss of distribution you mentioned now for international or it's really consumption at this point that moved to your point in the non-track channels? And I was wondering if you can also bridge that from an e-commerce perspective, if you're seeing that kind of tracking to more promo at your key partner in commerce. Thank you.

Start from a digital standpoint and then John can break down some of the sales differentials. I would say as you're seeing consumers shift online, there's a natural share shift from us from brick and mortar from online. We don't have as high of a share in online as we do in some of our brick and mortar retailers. So that's causing some of the shifting dynamics. I would say right now you're seeing promotional levels that are a little bit higher than last year, but they're lower than what we had seen in 2019. I think you'll continue to see promotional levels be around those levels, and to the earlier questions, I don't think you'll see it exceed 2019. I think the importance for promotion right now is bridging consumers to those higher price points and continue to sort of train them up the value scale as you work your way through what is a tougher macro environment for them and John, on the breakdown.

Yeah, Andre, you're right. Half of the decline is related to that shift in holiday volume into the fourth quarter. The other parts are kind of equal measure for the rest of the difference, but I'd say half of that difference is consumption and it's really in the non-track channels that we talked about and that's foot traffic and things like that. And then as Mark just mentioned, we have seen a shift to when we talk about those channels favouring value offerings, that does have that share impact on us as well as some of the trade down, which hits the top line.

No, that's super helpful. And then if I can just like squeeze one clarification. So if we put in the first quarter, right, the 6% to 8% decline, so midpoint minus 7%, and then the balance of the fiscal, I'm assuming when you said flat volumes, right? So that implies, I'm assuming flat volumes in batteries for next year. So that implies a bit of a, well, first of all, that those volumes will inflect to the remainder of the year, of the fiscal year. And then second, that you have some pricing, is that fair that you're going to see organic sales inflecting as well as volumes inflecting in your embedded outlook for the nine months remaining of the year?

Yeah, so volume should be relatively steady, we think, for the category over the rest of the year. We do expect our own performance to still be probably challenged in the second quarter even, but really, as you get into the third and fourth quarters, we think we should see some improvement from there on the top line.

And on pricing, do you think that pricing will, because you've been firm and disciplined with the promos, you don't think pricing will be turning negative into next year?

No, well, what we said was that pricing overall, I don't think that there's any broad-based price increases that we would talk about. There's no incremental pricing coming through. And we've kind of lapped all of it heading into '24. So we do think that we'll reinvest some of our margin improvement back into pricing and promotional activity. And so I kind of called out on the gross margin side, you heard that there's probably a little over 100 basis points of negative pricing drag for the year.

Okay, that's super helpful. Thank you.

The next question is from Dara Mohsenian with Morgan Stanley. Please go ahead.

So first, just for clarity, I think I heard that you expect an incremental $80 million to $100 million in project momentum savings. Is that correct?

Yes, over the next two years.

Okay, with the $50 million plus this year, what's driving the upside relative to your original goal and then B, of that incremental $80 million to $100 million, how much is slated to come through in fiscal '24 versus fiscal '25?

Fiscal '24 is $55 million to $65 million of savings. What drove the upside, we went into this a little bit in the last quarter's call where we talked about adding a third year allowed us to undertake some projects from an operational network standpoint that were a little bit constrained from a two-year standpoint, but that yielded greater savings. So it's just a few more projects that we're able to complete in a three-year time period, and we've also been able to make some organizational changes from digital transformation, which is driving some of the savings in SG&A, but all in a three-year program, $130 million to $150 million total.

Great. That's helpful. And then just on the battery pricing front, obviously one of the hallmarks of the battery category has been pretty consistent price increases over time. I understand why you're not seeing that this upcoming fiscal year with the consumer and retailer environment, but can you just discuss conceptually as you move beyond this year your expectations in terms of pricing for the battery category and maybe compare and contrast that with the environment in fiscal '24?

'24 feels a bit like a reset year for a lot of categories in terms of just getting back to foundational elements of category management. I would say the focus for our organization is continue to invest in the brands, continue to invest in products, both on batteries and auto care, and allow those investments to then drive opportunities for pricing going forward. Batteries has not been kind of a year-over-year price increase type approach over the years. It's always been every couple of years there have been price increases. I would expect that to continue, but I do think we have to continue to rebase ourselves at the current level. I think consumers have to find the price points. We have to continue to normalize promotional activity and then from there you invest in brands, you invest in innovation, and that's going to drive pricing discussions going forward.

The next question is from Rob Ottenstein with Evercore. Please go ahead.

Great. Thank you very much. And I know you kind of touched on this in different places, but I think we're still a little bit confused on the volume outlook. I think you'd mentioned that the holiday volume, you had a tough comp, but I think what I have is that you were down 5% in December of last year. So I don't know if that's correct, but trying to square that. Second, can you give us any sort of sense of kind of breakout between your shipments and your takeaways in the U.S. and internationally for batteries, kind of where those look, particularly in terms of your guidance and the quarter and then if there's any kind of weird destocking that's going on in any particular country or category and then tied to that, any thoughts in terms of what people are keeping at home in their pantries in terms of batteries. Thank you.

Rob, let me start with the first point on the holiday, just so we're clear. We had holiday shipments for this holiday that moved into Q4 of '23, and that's about half of the headwind that we're seeing going into Q1. So it's really the sequential quarters, not year-over-year on the holiday side. I think your second question a little bit was about inventories at retail. I think we've sold in ahead of the holidays, and I would say that the inventories that we're seeing are relatively in line. We need to see how the sell-through goes through over the next month, really, but we feel like we're in pretty good shape there.

And then on the consumer front, I would say when we've consistently engaged in our research with consumers, and for a period of time they were buying for immediate need, and consumers are delaying some purchases right now, which is what we're seeing from consumers generally. They're also using household inventory to meet current needs. But I would not say there's an abundance of consumer inventory. If anything, it's decreasing as they make prioritization decisions as they shop in today's environment and so there's not a headwind from consumer inventory levels. If anything, it could be a bit of a tailwind once the macro environment becomes a little bit better.

The next question is from Hale Holden with Barclays. Please go ahead.

Hi, good morning. Thanks. I just had two follow-up questions. On the category growth comments you made, I was wondering, when you think about device growth over the next couple years, if that was going to be more in the healthcare side, blood pressure monitors, glucose monitors, etcetera, or if you were going to see it from somewhere else?

I would put home automation in line with healthcare automation and the devices that come from both of those as sort of 1A and 1B in terms of where those devices should come from.

Great. And the second question was, in your comments around the shift to online where you had lower share, is that specific to the non-tracked kind of home stores, or was that broadly across the domestic market?

It's broadly across the online market.

[Operator instructions] The next question is from William Reuter with Bank of America. Please go ahead.

Good morning. I have two. So the first one, you talked about the first quarter headwinds. You talked a little bit about DIY, and then you talked about the timing shift. I didn't hear anything about kind of seasonal sets with your retail partners being down year-over-year. Were there any changes to the amount of distribution that might be in kind of specific to the holiday period, any changes to the amount of shelf space that they're allocating to the products?

There is not. It's consistent year-over-year, what we're seeing in the U.S. In international markets, we talked about some distribution losses, and that obviously would impact holiday, but in the U.S., holiday sets are largely consistent with last year.

Okay. And then just secondly for me, you did mention that there may be some shift going on to non-tracked channels. Sorry, rather that your market share of non-tracked channels is a little bit lower. Are there any changes in terms of consumer consumption around private label? You talked a little bit about how you have Rayovac and some lower priced options that you can try and kind of fill those gaps, but is there anything going on with private label?

Private label overall globally is up about 0.7 share points. You're seeing it higher than that in the U.S., but it's isolated to certain retailers as well as online, as you've dealt with some of that channel shifting that's going on there. In international markets on balance, it's going down. It's going down in Europe. It's increasing a little bit in APAC, but overall, it's going down. So I would say private label is within the manageable historical range of what you've seen from category penetration over the years.

The next question is from Brian McNamara with Canaccord Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. Just following up on Andrew's question, on the top line, you're starting minus 6% to 8% in Q1 on your easiest compare. You've got it flat to low singles for the year. So what drives that improvement, specifically the volume improvement in the back half of the year?

I would say from an overall standpoint, what we're factoring in is you have half of this shift from Q1 is going into Q4 this year. From a volume standpoint, we're expecting flat volume year-over-year pretty much throughout the year and I think just healthy category dynamics and distribution are going to drive the improvement as we get into Q2, Q3.

Is there any specific dynamics between the batteries and auto care in that volume outlook?

Pretty consistent. Consistent between the two. You're going to see -- in terms of top line, you're going to see a little bit of growth in auto care for the year, whereas batteries will be trailing that.

And then secondly, if this shift towards value offerings and batteries persists, does that change your promotional strategy for the year?

Yeah, I think as we analyze promotion, we want to make sure that you don't sort of solve a temporary problem with a permanent solution and I would say you continue to invest behind your brands. You continue to promote. We've got value brands we can offer, but ultimately, consumers will come through this environment into a healthier environment. And we want to make sure that we continue to keep them at the premium end of the category because that's the healthier margin dynamic for us and that's going to be continuous. It's how do we bridge the gap both with our value brands, our promotional strategies to continue to work our way through this macro environment that consumers are experiencing.

This concludes our question-and-answer session. I would like to turn the conference back over to Mark LaVigne for any closing remarks.

Thanks, everyone, for joining the call and the ongoing interest in Energizer. I hope everyone has a great rest of the day.

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