Energizer Holdings, Inc. (ENR) Q3 2024 Earnings Report, Transcript and Summary

Good morning, my name is Lara and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's Third Quarter Fiscal Year 2024 Conference Call. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to turn the conference call over to John Poldan, Vice President, Treasurer and Investor Relations.

Good morning and welcome to Energizer's third quarter fiscal 2024 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 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 in 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 pertaining to Energizer's fiscal year and all comparisons to prior year relate to the same period in which we are in fiscal year 2023. With that, I would like to turn the call over to Mark.

Good morning, everyone, and thanks for joining our third quarter earnings call. It is always rewarding to highlight the tremendous work of this organization, particularly when it shows up in the financial results as it did this quarter. We made several strategic decisions over the past couple of years, and we are at the early stages of seeing tangible dividends from that focus. We started with Project Momentum, designed to accelerate margin recovery, free cash flow restoration, and debt reduction. Once we made significant progress against those objectives and established a healthy pipeline to ensure ongoing improvement, we turned our attention to growth. This quarter demonstrates progress in each of those areas. Let me start by summarizing a very good third quarter. Highlights include 1.2% organic net sales growth, adjusted gross margin expansion of 270 basis points, 46% adjusted earnings growth, and debt paydown for the eighth consecutive quarter, bringing our total debt paydown to $150 million year-to-date and reducing net leverage to 5 times. Both batteries and auto care generated great results throughout the P&L. Starting with batteries. Organic net sales were up roughly 60 basis points, supported by solid category fundamentals and distribution gains. We also drove expansion in segment profit, improving by 160 basis points in the quarter. And the overall battery category continues to perform well, as global volume and value both grew in the latest three-month data. In the U.S., category volume increased over 4% in the latest 13 weeks. Value declined roughly 1%, as pricing and promotional investments are driving healthy demands. In addition to the positive trends we are seeing in digital commerce and measured channels, trends in not-in-track channels are improving as we lap softness, which began in the spring last year. Consumers are continuing to select brands in the category. Private label value and volume share declined globally in the quarter, with value share now declining in eight months of the last 10 months globally and volume share declining in seven months of the last 10 months. Moving to auto care, where we are seeing continued momentum. Organic net sales increased nearly 3% in the quarter, as the June heat wave in the U.S. drove strong replenishment in our refrigerants business. This was complemented by a strong quarter internationally, up 19% organically as we continue our expansion plan. And segment profit margin increased by an impressive 470 basis points. This business is hitting its stride. We have grown the top line by over 20% since our first full year of ownership, delivered organic growth for four consecutive quarters, and expanded segment profit by over 700 basis points relative to fiscal 2022. Also, during that time, we have developed a healthy pipeline of innovation, the strongest we have seen in many years, to generate margin accretive growth in both the U.S. and international markets. The success in auto care is just one of the reasons we are so confident about the future. As I stated at the top of the call, we have also made tremendous progress over the past two years rebuilding our margins, restoring our free cash flow, and strengthening our balance sheet, all while investing in our business to deliver sustainable growth over the long term. If we take a step back, I would like to reflect on not only where we are today, but where we have been, where we are headed, and why we are so confident in our ability to deliver growth and shareholder value over the long term. First, let me summarize where we are. Our categories have proven to be healthy and resilient. This quarter, we delivered organic growth and expect to achieve the back half growth we provided in our outlook at the beginning of the year, even with the caution we are seeing with the consumer. Our execution of Project Momentum has delivered nearly $120 million in savings to date, driving adjusted gross margins to 40.3% in the trailing 12 months, an expansion of 300 basis points when compared to fiscal 2022. We have also resumed top-tier free cash flow generation and expect to deliver between 10% to 12% for the second consecutive fiscal year. We have reduced leverage by over a full turn in the last two years and remain on track to end the year under 5 times net leverage. Having paid down debt in eight consecutive quarters totaling over $430 million, we have prioritized allocating cash flow to debt reduction as a key driver in our investment thesis. All of this progress provides us with the flexibility to invest in long-term growth and value creation. As we turn to where we are going, I want to highlight areas of future growth where we have and will invest in order to drive it consistently. There are some emerging areas where we see healthy opportunities. First, market expansion. Energizer's global platform and broad distribution network position us to identify and strategically accelerate growth in a number of developing markets across the globe where we can expand our business. In addition, as we mentioned before, we have shown healthy growth in our international auto care business and expect to continue to roll that out more aggressively, particularly now that we have improved the margins. Second, innovation. With the investments and health of our innovation pipeline, we have plans to deliver industry-leading innovation across each of our categories. We expect to generate healthy growth over the next couple of years as we introduce these products to our customers and consumers. In addition, we have invested in already strong foundational areas to accelerate growth even further. Several areas to highlight. First, digital commerce. This channel continues to grow in size and importance and we are increasing our investment to realign and enhance our organizational structure to accelerate growth in both existing and new digital commerce platforms in North America and international markets. There are also distribution opportunities. As a core strength of this organization, we are investing to improve the placement and mix in existing customers while also aggressively pursuing new white space opportunities. We will do so without compromising our focus on maintaining healthy margins. And finally, pricing and mix management. Fueled by our investments in digital transformation, we are leveraging improved analytic capabilities to identify opportunities and action more quickly, enabling us to drive growth through enhanced mix management. As you can tell, we are very pleased with where we are and excited about what's ahead. Now let me turn the call over to John to provide more detail on the third quarter and our fourth quarter outlook.

Thanks, Mark, and good morning, everyone. I will provide a more detailed summary of the quarter, an update on project momentum, and some additional color on our expectations for the fourth quarter and full year. For the quarter, net sales were up 30 basis points with an organic increase of 1.2%. Improved battery category trends, distribution gains, and warmer weather driving the North America refrigerant business contributed to organic volume growth of 4.6%, offset by planned strategic pricing and promotional investments of 3.4%, primarily within battery and lights. For the last two quarters, we have invested a little over 300 basis points of pricing and promotional investments back into the battery business. We believe these investments have been very successful and continue to drive healthy volume growth in the category. In addition, the current levels of total pricing and promotion are largely in line with historical averages for the category, and we expect this to remain relatively consistent in the quarters ahead, including in the coming holiday season. Adjusted gross margin increased 270 basis points to 41.5%, driven by project momentum savings of approximately $14 million, as well as lower input costs, including improved commodities and material pricing and lower ocean freight. These benefits were partially offset by the planned strategic pricing and promotional investments. As Mark mentioned earlier, we have made significant progress over the last two years restoring our gross margin, which has been a key contributor to our ability to generate cash and invest for future growth. We anticipate gross margins will continue to be a positive tailwind for us in Q4, as well as heading into next year due to additional momentum savings, slightly mixed but overall positive raw material cost trends, and reasonably stable freight costs. Adjusted SG&A increased $5.1 million, primarily driven by an increase in labor and benefit costs, higher travel expense, and increased depreciation expense related to our digital transformation initiatives, partially offset by project momentum savings. A&P as a percentage of sales was 5.4%, flat versus the prior year, and consistent with our focus on investing behind our brands and business. Interest expense decreased $3.7 million due to lower average debt outstanding, reflecting the benefits of continued debt reduction. Our strong operational performances in both battery and auto care, driven by improving top-line performance, significant margin recovery, and momentum savings, resulted in adjusted EBITDA and adjusted earnings per share of $149.7 million and $0.79 per share. This represents a 46% increase in adjusted earnings year-over-year, well ahead of the outlook we provided last quarter. Throughout the first nine months of fiscal '24, we have generated $195 million of free cash flow, or 9.4% of net sales. Our strong free cash flow generation has enabled us to pay down $150 million of debt during the first three quarters, already hitting the low end of the full year range that we provided at the beginning of the year. Our debt capital structure remains in great shape, and our focus on debt repayment continues to drive significant benefits. Our current weighted average cost of debt is 4.5% and 96% fixed, with no meaningful maturities until December 2027. As noted in our press release this morning, we recorded a one-time non-cash $111 million impairment charge on certain intangible assets associated with the acquisition of Spectrum's battery business. We continue to view these acquired assets as vital components of our portfolio, and this non-cash accounting charge does not have an impact on our strategic plans for these brands or our broader battery business. Lastly, I would like to provide some additional color for our fourth quarter and full year expectations. In Q4, we expect volumes to continue to be a positive driver of performance, although partially offset by pricing and promotional activity. We also experienced significant heat-related activity, which shifted some refrigerant sales out of the fourth quarter and into the third. When we combine our plan with a generally defensive posture on the consumer, we expect organic net sales to be roughly flat. We anticipate gross margin in the quarter to improve by roughly 150 basis points year-over-year, and higher SG&A in the quarter, as we make strategic investments in digital transformation and growth initiatives. We expect adjusted earnings per share to be in the range of $1.10 and $1.20. For the full fiscal year, we expect organic revenue to be down roughly 2%. We expect adjusted gross margin improvement of over 150 basis points, an increase from our prior call of over 100 basis points, primarily driven by incremental project momentum savings and improved input costs. We expect the over delivery and gross margin to drive us to the high end of our original guided adjusted EBITDA and EPS ranges, to $610 million to $620 million and $3.20 to $3.30 per share, respectively. As Mark noted in his earlier comments, project momentum continues to be a driver of significant efficiencies and benefits for our organization. Due to continued progress across the program, we now expect to achieve savings of between $180 million and $200 million, up $20 million from our previous guide. And finally, our expectations for strong full-year cash generation will enable us to pay down debt at the high end of our originally guided range, expected to be between $175 million to $200 million for the year. With that, I will turn it over to Mark for closing remarks.

Thanks, John. In closing, we delivered a strong third quarter with a return to organic growth and continued progress in rebuilding gross margins, resulting in strong earnings growth. Our decisive actions and advancement of our strategic priorities over the past two years has set the foundation for investment in our long-term growth objectives and value creation for our shareholders. With that, let's open the call for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Peter Wun from UBS. Go ahead, please.

Thanks, operator. Good morning, everyone. Hope you're doing well. So, just in the context of the top-line trends we've seen, what we can kind of see in the track performance here, we'd love to kind of get some perspective on the health of the consumer, but maybe specifically what you're seeing and kind of expecting from your categories? And then for Energizer specifically, you know, recognizing that you delivered 1% growth in the quarter, when we think about the flattish exit rate, can you maybe help us understand how you think about growth looking at the '25 and maybe longer term and just the degree of confidence you have in delivering top-line growth at this stage? Thanks.

Thanks, Peter. Good morning. You know, I think when we provided our outlook in November, we were very clear-eyed at that time about the state of the consumer. We highlighted that areas that were taking a toll on a consumer, and we developed plans to make sure that we could operate in that environment. We've made smart promotional investments along the way to engage consumers in a cautious time for them. And so, I think the year has played out largely as we expected, and we've returned to volume growth in both the U.S. and international markets over the back half of the year, and we're going to deliver financial growth over the back half of the year, just like we anticipated. I think looking ahead, there's real optimism for us in terms of how we've gone about this. I think we executed project momentum at exactly the right time. We restored the health of the P&L. We restored free cash while we've paid down debt. It's given us the ability to reinvest in a business in a way that we haven't had in the last couple of years. We're not interested in chasing growth that undoes that, and we don't believe that we have to actually chase after that type of growth because there's plenty of opportunities for us to find. And let me talk you through kind of how we're thinking about that. One of the areas that we're focused on is really just expanding the scope of the business. We want to use our platform to continue to build out in certain higher growth markets, and one of the areas we're looking at is if you look at our emerging market coverage, you're at about 15% of the consolidated financial results for the business, and we think that could be higher. If you look at markets like Mexico and Brazil, Brazil has an 8% compounded annual growth rate for us since '19. Mexico's at about 13%. So as we continue to build out additional markets and expand that coverage for Energizer, we think it can create a tailwind from our growth perspective. I think you can also look at a different element of expanding our business with digital commerce, and I think that's a channel strategy. It's a category strategy where we get deeper penetration within auto care. It's also geographic where we can operate multiple platforms, and we have and will invest in that area going forward, and we think that can provide a tailwind. We spoke on the call about innovation. We have a deep pipeline of innovation over the last couple of years while we were executing Momentum. We also repopulated that pipeline in a way that it hasn't been in the last couple of years and are really excited about what we're bringing to market over the next couple of years. And then you get down to some more basic fundamentals around distribution. That's including to expand the geographic growth that you're seeing in auto care, white spaces and batteries, pricing and mixed management. A lot of the digital work we've done is informing a better approach to our retailers in terms of how to get a higher ROI on the investments you're making. So all of these things come together, and where Project Momentum restored a lot of the financial algorithm help below the top line, this new consolidated initiative is really meant to restore that top line growth that we want to see going forward. So as I think about an exit rate going into '25, this is all about taking the individual opportunities within those areas and generating 1% to 2% top line growth on a pretty consistent basis going forward, and then you've really put together back the financial algorithm that we've spent a lot of time rebuilding over the last couple of years. So honestly, as we're exiting '24 and heading into '25, we feel really good about where we're sitting as a business.

Great. Thanks so much. I'll pass it on.

Thank you. Our next question comes from the line of Lauren Lieberman from Barclays. Please go ahead.

Great. Thanks. I thought it'd be interesting, actually, since you mentioned Brazil, to just ask about this, the acquisition that you made during the quarter. So just curious to hear anything about that, that you can share, kind of existing manufacturing footprint in Brazil. Yeah, so I'm curious about that Brazil acquisition. And then secondly, just kind of the, I guess, following on that, the Belgium battery acquisition earlier. So just how should we think about the pieces that go with the comments you've made on international expansion? Where does capacity come in? Where does kind of local infrastructure come into that as you think about expanding the scope and going after growth?

Thanks, Lauren. I would say both the Belgian acquisition from previous quarters, as well as this most recent one in Brazil, really help highlight some of the optimism we have by continuing to build out our platform. If you recall, the Belgian acquisition was largely a manufacturing acquisition, which allows us to now produce in-region, for-region, insulates us from a lot of the supply chain disruption, gives us a cost advantage going forward. So that one, and we were just in that facility a couple weeks ago, is really operating very well and with great benefits, particularly for the European business. Similarly, you go down to Brazil and the auto care business, you now have local manufacturing for products in the Brazilian market. You have brands that are local and that have really resonated with consumers down there. We have an emerging platform in Brazil where we really think we can drive growth, and that's both in batteries and auto care going forward. So it's really becoming a source of strength, where if you look back in kind of where we were in 2019, that entire market looks different right now. And now we're in a position where we have scale, we have local manufacturing of both battery and auto care that gives you a strategic advantage. We have local brands, we have global brands. And at this point, we're going to really push for growth in that market because we think there's a lot of growth to be had there.

Thank you. Our next question comes from the line of Bill Chappell from Truist Securities. Go ahead, please.

Thanks. Good morning.

Hey, Bill.

Good morning, Bill.

Just want to talk a little bit more about pricing, especially as we move into next year, I guess. The one -- we're hearing a lot of CPG companies talk about increased promotion and maybe less chance to price going into next year, but I understand that your businesses or the category is a little bit different from some CPG categories. So with that in mind, and then also, I imagine you've done some of your kind of pricing bake-offs for the upcoming holiday season. Can you give us some kind of color of what you're seeing or what you're thinking for not just you, but for the overall category in this inquiry environment and primarily for the U.S.?

Sure, Bill. So what I'd say is in Q2 and Q3, we've seen about 300 basis points of pricing and promotion in the P&L. Our plan, as we looked up Q4 for it to be kind of relatively similar, we still think we'll be driving volume growth. And then as you look a little forward, as you go into '25, we don't see a significant change through the holiday season around that pricing and promotion environment. So we think it's pretty stable at this point, and we'll continue to invest to drive the volumes and engage with the consumers in the category.

Okay. So any update in terms of how the upcoming holidays are looking in terms of what you're hearing from retailers in timing of orders or stuff like that?

Bill, as where we're sitting today, I would say we're planning for a normal holiday season. We've had the typical dialogue heading into it in terms of the early shipments and the displays that are going in. And then what will typically happen is we'll watch how holiday progresses. It doesn't end up being an early or late shopping season and then be ready to respond to any retailer needs as they may need. I would say as of now, we're planning for a good holiday season, and we're not seeing any signs that would make us walk back from that.

Yeah. Last year, Q4 was a pretty strong quarter for us. I think we were up a couple percent. Our plan right now is to comp that. So we're not seeing a lot of significant changes from that trend.

Got it. And sorry, one housekeeping. Would you expect FX on the top line to be similar impact in 4Q as it was in 3Q?

Yeah, I think so, roughly.

Perfect. Thanks so much.

Thanks, Bill.

Thank you. Our next question comes from the line of Robert Ottenstein from Evercore ISI. Go ahead, Bill.

Great. Thank you very much. A couple things I just wanted to touch on. Number one, any more detail about the distribution gains that you've gotten, the timing of them in terms of when that'll hit your results? So that's number one. And then number two, I was really interested to hear your comments about private label and what's going on there, and to what extent that has to do with your strategy with Rayovac, what the gaps look like, any channel strategy having an impact there? So love to hear you touch on those two points. Thank you.

Sure, Robert. I think on the private label, I mean, the commentary we've provided in the prepared remarks was a global perspective where volume and value were down. I think as you dig into it, both from maybe a U.S. or international perspective, it then becomes a different story depending upon which market, which retailer you're discussing. But I think right now, I think the message from us is private label is largely consistent with what it has been. You are seeing pockets where private label has slight uptick in other areas, it's coming down a little bit. But on balance, it has been sort of held at bay thus far. And I don't think we anticipate that changing. And I think what we try to do, Robert, is from a -- don't watch, share for us perspective too carefully. I think we've got to react to share shifts a little bit and really understand the root cause. And right now, we're not seeing anything that would give us alarm from a private label perspective. And I don't believe I touched on your first question. And the distribution gains. So on the international side, if you recall last year, when we were rolling out additional price increases, we talked about some international distribution losses that we had. Well, as those price increases have been settled into the market, as the teams have gotten back out, re-engaged with retailers, it really is a broad-based effort on behalf of a lot of the international teams to get back that distribution. And they've been successful in doing so. There's not any one piece that's worth calling out. It's a lot of little pieces from markets around the world, but a great job by the team in getting that distribution back and sort of restoring growth back. In the international battery business, we grew 60 basis points in a quarter. So it was a nice job by the international team.

Thank you. Our next question comes from the line of Andrea Teixeira from JPMorgan. Go ahead, please.

Yeah, good morning. So can you comment on a little bit of what you're seeing in terms of the performance on track and non-track channels? Understandably, there has been obviously a secular shift in both in batteries and auto care? And wondering back into the distribution gains that you spoke about, like anything that we should be thinking into the holiday season? And in terms of you just discussed also pricing, anything you can share other than, I would say, FX-related pricing that we may be seeing towards the holiday season? Thank you.

Andrea, I think on the track versus non-track channel discussion, I think one of the things that, because the data sets seem to be changing a little bit more these days, is getting back to what's the data set that we're looking against. And just to try to provide a little bit of perspective, if you're using kind of a typical Nielsen data set, you're probably capturing 50% of our U.S. business. So that's 50% of 60% of our business, roughly. If you're using the MULO+ data set, you're probably getting 75% to 80% of the U.S. business. But even with that coverage, I mean, remember that the U.S. is just 60% of our business. I mean, what you may be leaving out in the U.S. is home center data, B2B, OEM. And some of those data sets, club and online out of visibility, is not what you would want, I assume. And then the international business as well. And so from a growth standpoint, so if I'm standing in your shoes, I'm trying to bridge 1.2% growth to the standard data you may be seeing. And I mentioned 60 basis points of growth in international battery. You had 19% growth in international auto care. So that's some of the growth that you're probably not picking up. As we look forward, in terms of holiday, and I think we are feeling good when we call it flat for Q4, we're still delivering growth in the back half. I would not overemphasize going from 1.2% to flat. I think we're exiting the fiscal year in a very strong position. We're still delivering the growth. We expect growth in '25, based on all the initiatives we talked about. So when you look at it from a financial modeling standpoint, you've got growth. You're going to have gross margin improvement. You're going to have some investments in A&P and SG&A, because you're going to want to, we're investing in those in Q4, because we want to make sure we hit the ground running in '25 when we deliver the growth that we're talking about.

So if that's super helpful, '25, we should be thinking at a normalized long-term algorithm, as we can, as I think you alluded to now.

I think that's the intention. Again, get back to growth on the top line, deliver gross margin improvement, and then the rest of the algorithm kind of falls into place.

It's always the objective.

Okay, great. Thank you so much, folks.

Thank you. Our next question comes from the line of Carla Casella from JPMorgan. Go ahead, please.

Hi, thank you for taking the question. You've gotten a lot of questions on the promotional environment, but I'm wondering if you can give us a little bit more color by channel, if you're seeing a shift to more value channels, and if that's dictating kind of how you target promotions going into the back half?

Carla, we always tailor our promotional investments with retailers trying to meet their strategic objectives. I do think you are seeing consumers, particularly in the low and middle income, being more value conscious. That does tend to migrate online. It can be in club. It can be in dollar. The benefit we get from that is our ubiquitous distribution that we have. We're in every retailer. We're in every channel. We don't need to sort of overly incent consumers to engage with our product, but I do think our teams are out there. We're meeting with retailers, and we are making sure we're connecting with them and investing dollars. Again, I think it comes back to, from a promotional strategy standpoint, we're looking to drive top-line growth with gross margin improvement. Those are the guardrails that we go against, and we look at that, and that's always going to drive our decisions and our investments. With Project Momentum, we now have that flexibility to invest to drive that growth while still letting gross margin improve.

Can I just do a follow-up on that? Project Momentum, you increased the expected savings $20 million. Any change in the baskets, or can you give us the key remaining baskets to that program?

No. I think the percentage is it's still heavily gross margin versus SG&A. Just continue to find opportunities within our network to optimize. We took it up $20 million for the fully three-year program.

Okay, great. Your leverage reduction for the year, is that mostly coming now from EBITDA, since you're a little bit ahead on the debt reduction?

No, Carla. Our expectation is we continue to pay down debt in the fourth quarter. If you saw, we raised our call for debt pay down to $175 million to $200 million, so that's at the top end of our original guide. We should have some incremental debt pay down in Q4.

Okay, great. Thank you.

Thank you. Our next question comes from the line of William Reuter from Bank of America. Go ahead, please.

Hi. My question is similar to one that I asked last quarter, which is your leverage is coming down more quickly than you previously had expected. Last quarter, while you don't maintain a leverage target, you'd said that maybe over time four times makes sense. Given that leverage is improving so significantly, does it change your capital allocation plans in terms of would you do either share repurchases sooner than previously expected? Does it make sense to be at 4 times, or would M&A come into the picture? That's it.

Well, I'd still say that 4 times is a good target for us, and we're going to prioritize debt pay down. I mean, I think you've always got the options to do other things, but I think we'll focus very much on paying down debt. You know, we'll evaluate other opportunities, but we really want to get that debt level down. And I think if we look at M&A, kind of like what Mark talked about earlier, very close into the categories that we're in, and I would hope that they would be leverage neutral, so nothing of significance. So we'll continue to strive to pay down debt going forward for a while.

Got it. And then if I can just have one follow-up. In terms of when you've seen periods of greater consumer weakness, do you expect that consumers would either try and increase the size of the packs of batteries that they buy to attain better value, or are they more focused on trying to reduce the dollars that they spend in any period? And so maybe you move to smaller packs, which may have some higher margins.

Bill, the short answer is both. We are seeing consumers migrate up to larger packs, and as well as some of them migrating down to smaller packs to hit a lower price point. Right now, I would say the migration to larger packs is slightly greater than the migration to lower size packs, but you do see both dynamics playing out. And, you know, fortunately, our offerings allow for consumers to make that choice.

Great. That's all from me. Thank you.

Thank you so much.

Thank you. [Operator Instructions]. We have our next question coming from the line of Brian McNamara from Canaccord Genuity. Go ahead, Brian.

Hey, good morning, guys. Thanks for taking the questions. So we've heard from other suppliers recently that don't really have as optimistic a view as the home centers do for an improvement in calendar H2 relative to H1. I'm curious what's contemplated in your guidance for that channel in Q4 given its untracked and any thoughts into fiscal 2025 there?

Brian, we don't break it down by customers in terms of the external outlook we provided. I would say, all of the factors that we've talked about play into the call that we've had for flat, you know, Q4, but then, obviously delivering the growth in the back half. I would say, you are seeing improving trends in home center. You're seeing signs of life in B2B and OEM, but there is some caution, in terms of what's the state of the consumer, but you are seeing healthy volume growth in terms of the measure channels. Your volume's up 3% globally. In the battery category in the U.S., it's up 4%. So there's growth there to be had. You've got online, which is a source of growth club, a source of growth. So I think we are seeing those signs and so all of that baked in gives us the outlook we're providing and we're not overly beholden to just one channel to deliver that growth.

Great. And then secondly, on this nice gross margin recovery that we've seen, I think you alluded to the fact that this should continue into fiscal '25. Like how much legs does this still have? I mean, I would imagine the top line would have to start cooperating to get some leverage on that line or correct me if I'm wrong.

Well, you know, look, think about fourth quarter and then heading into next year, we still have a full year of momentum that's going to benefit gross margin. Our raw material input costs like spot rates have been pretty favorable. We've seen a little bit of increases in like things like zinc and manganese over the last couple of months, but still net-net, I think we're on a positive trend. And like freight rates were very positive for us this year. They've gone back a bit. I'd say we're hedged with a lot of our contracts, but that still should be a reasonably favorable trend going into '25. So we're optimistic that there's continued room to run on the gross margin line.

Great. Thanks, guys.

Thanks, Brian.

Thank you. This closes the Q&A portion of today's call. I'd now like to turn the call back over to Mr. Mark LaVigne for final closing comments.

Thanks, operator. Thanks to all of you for joining us today and your interest in Energizer. Hope everyone has a great rest of the day.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Have a lovely day.