Energizer Holdings Inc (ENR) 2017 Q1 法說會逐字稿

Good morning. My name is Stephen and I will be your conference operator today. At this time I would like to welcome everyone to Energizer's first-quarter FY17 conference call.

(Operator Instructions)

I would now like to turn the conference call over to Jackie Burwitz, Vice President, Investor Relations. You may begin your conference.

Good morning, and thank you for joining us. During the call we will discuss our first-quarter FY17 results, and provided update for full-year outlook for FY17. With me this morning on the call are Alan Hoskins, Chief Executive Officer; and Brian Hamm, Chief Financial Officer. This call is being recorded and will be available for replay via our website, Energizerholdings.com.

During the call we may make statements about our expectations for future plans and financial and operating performance. Any such statements are forward-looking statements which reflect our current views with respect to future events.

We will also refer to non-GAAP financial measures. The reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in the press release issued earlier today which is available in the investor relations section of our website, Energizerholdings.com.

Information concerning our category or market share discussed on this call related to markets where we compete and are based on estimates using Energizer's internal data, data from industry analysis, and assessments that we believe to be reasonable. Investors should review the risk factors in our Form 10-K and our other SEC filings for description of key factors affecting our business. These risks may cause actual results to differ materially from our forward-looking statements. We do not undertake to update these forward-looking statements.

With that I would like to turn the call over to Alan.

Thank you Jackie, and good morning everyone.

As you've seen in our earnings release this morning, our team delivered strong results on the first quarter on the top and bottom lines. FY17 is off to a fast start driven by top line growth, improved margins, and tight cost controls. We also continue to see improvement in the overall battery category, as volume and value are up slightly, primarily due to the impact of Hurricane Matthew in the US. In addition, the category benefited from improved product mix, along with the decline in the depth and frequency of promotions during the quarter in several key markets, including the US. We view both of these data points as positive signs for the category.

Now turning to our first quarter results. Organic sales were up 7% and adjusted earnings per share were up 30% versus the prior year. As Brian will talk about in a few minutes, there were four primary drivers of the organic revenue gains this quarter. Distribution shelf space gains, incremental holiday activity, improved pricing and mix, and storm volumes. We've been able to gain distribution and space by executing against our strategic priorities, leveraging our full portfolio into a brand strategy. Energizer's global value shares up by approximately three points in the latest 13-week data in measured markets where we compete. We were able to leverage the increased distribution and space through exceptional in-store execution that drove strong performance throughout the holiday season. Our team drove topline improvement including pricing actions in select markets while continuing to closely manage costs.

Gross margins, including unusuals, improved 290 basis points versus prior year, and we held SG&A costs in line with our expectations. As a result, we delivered $91 million of free cash flow, and continue to forecast in excess of $180 million for the year. We have achieved our financial objectives by leveraging our three strategic priorities: [leading] with innovation, operating with excellence, and driving productivity gains. In the quarter we continue to leverage the innovation we rolled out across our battery portfolio in FY16 to help drive distribution gains which contributed to our organic mid-sales increase of 7%. The ongoing commitment to innovation in our auto care business is also an important driver of our performance, which remains on track to meet our expectations. Investing in innovations is a key driver of delivering value to Energizer consumers and retail customers in FY17 and in the years to come.

We continue to operate with excellence by executing effectively on the fundamentals across the value chain. Success in this or any holiday season is all about leveraging innovation, our integrated supply chain, and in-store execution, and our team delivered. In addition to strong holiday volume we saw increased demand from stores. Focused efforts of our supply chain and merchandising teams insured our retail customers had the right product at the right location at the right time. Our team is also executing our auto care integration with excellence, and we continue to meet our goals while delivering on both the top and bottom lines.

In order to position ourselves for long-term success, we continue to drive productivity. Our focus on efficiency was one of the drivers of the approximately 290 basis-point improvement in the gross margin rate versus the prior year. In addition, SG&A as a percent of sales, excluding standard acquisition and integration costs was 14.4%, down from 15.3% in the prior-year quarter. This was a result of higher sales and continued tight cost controls. We also maintained our balanced approach to capital allocation as we continue to invest in our business for the long term. We paid a $0.275 per share dividend, which it represents a 10% increase over the prior year, and repurchased 182,000 shares during the first quarter.

The fast start to the year and solid underlying business fundamentals have provided us the financial flexibility to increase investments in support of innovation, our product portfolio, and productivity initiatives, while overcoming unfavorable currency and commodity cost headwinds. As a result, we are maintaining our full-year FY17 adjusted earnings per share outlook of $2.55 to $2.75.

Now I would like to turn the call over to Brian for our financial review and a more in-depth review of our outlook for the remainder of the year. Brian?

Thanks, Alan. Good morning, everyone.

During my prepared remarks I will discuss the financial results for the first quarter and provide an update to our outlook for FY17. Before getting into the numbers, a quick housekeeping item: as you may have noticed in our press release we've changed our segment reporting to better reflect how we manage the business. We have combined North America and Latin America into the Americas. Asian-Pacific, and Europe, Middle East, and Africa will remain separate segments.

Now turning to our quarter results. Adjusted EPS increased 30% versus prior year due to strong top line performance and improved gross margins, continued tight cost controls, and favorable tax rate, and a four set contribution from the auto care acquisition. I will touch on each of these. Global net sales were up $53 million or 10% as organic sales increased 7%, and the contribution from our auto care acquisition was 5%, partially offset by a negative 2% impact from unfavorable currency.

As Alan mentioned, the organic sales growth of 7% was primarily attributable to four items. First, the carryover benefit of new distribution and shelf space gains achieved throughout FY16 contributed 3%. We expect to see some of these benefits impact the balance of the year, but we will begin to lap the prior year distribution gains in the related fill volumes beginning the second quarter. Second, incremental holiday activity added another 3%. Third, favorable pricing actions in certain markets and product mix added approximately 1%. And finally, increased volumes related to storms contributed to the remainder of the organic growth.

Strong sell-through early in the holiday season resulted in replenishment orders prior to the end of the quarter. As a result, we believe certain retailers ended the quarter with elevated inventory levels versus our historic norms, but comparable to the levels at the end of the first quarter of FY16. Similar to last year, we anticipated inventory deload to occur. However, the timing may differ as we expect the deload to occur in the second quarter compared to the fourth quarter in the prior years.

Looking at our net sales performance across the three geographic segments for the first quarter. Americas net sales increased $51 million or 16%. Organic sales in the base business increased approximately 11% as a result of distribution shelf space gains, strong holiday activity, and pricing in certain markets. The auto care business contributed another 7.5%. These increases were partially offset by unfavorable currency impacts by approximately 2%. Our Europe, Middle East and Africa net sales decreased approximately $3 million or 3%. Organic sales in the base business were up nearly 1%. Inclusion of the auto care business contributed 2% percent growth; however, these gains were more than offset by unfavorable currency impacts of negative 5.5%. In Asia-Pacific, net sales were up nearly 6%. Organic growth in the base business and the inclusion of the auto care business each contributed 2.4% with favorable currency impact slightly over 1%. Your organic sales growth was primarily driven by distribution gains, strong holiday activity, and pricing in select markets.

Now moving to the rest of the P&L. Gross margin excluding unusuals in the quarter was 48.5%, an increase of 290 basis points as compared to the prior year. Approximately one-third of the favorability was driven by productivity initiatives, which we expect to continue through the balance of the year. Approximately a third was driven by a favorable overhead absorption due to strong organic sales during the holiday season. We view this as one-time in nature. The remaining third is due to lower commodity and purchased product cost which we expect to reverse in the back half of the year as commodity prices have increased across many of our key raw material inputs. We also saw 90 basis point headwind due to unfavorable currency, which we were able to offset this quarter through favorable pricing and other items. Based upon recent rates we expect the currency headwinds will persist through the balance of the year.

A&P as a percent of sales was 6.1%, up slightly versus the prior year. SG&A spending, excluding span acquisition and integration costs associated with the auto care acquisition, was approximately $81 million or 14.4% on a percent of sales basis, compared to $78 million or 15.3%, as a percent of sales on the prior year. The improved percentage comparison versus the prior year reflects the benefit of our strong top line performance and tight cost controls. Pre-tax income was negatively impacted by approximately $9 million from the movement in foreign currencies net of hedge impact. Our ex-unusual effective tax rate of 28.8% in the quarter was favorable versus prior year due to a larger than expected benefit from the adoption of the stock compensation accounting guidance and our country mix of earnings. Finally, our auto care acquisition continued to meet our financial expectations. In the quarter the auto care business generated incremental net sales of $28 million, segment profit of $8 million, and added $0.04 to our earnings per share.

Moving to the balance sheet. We ended the quarter with approximately $300 million in cash, and our debt level at the end of the quarter was approximately $1 billion, which equated to 2.8 times debt to EBITDA on a trailing 12-month basis inclusive of our auto care business. We also generated $91 million of free cash flow driven by our strong operating performance. Finally, during the quarter we repurchased 182,000 shares for approximately $8 million. Since our spinoff, we have repurchased approximately 1 million shares, with 6.5 million shares remaining on our Board's repurchase authorization.

Before turning to our full-year outlook, I want to quickly recap the quarter. It was a strong start to the year. We had strong organic revenue growth and improved margins, and continued to control costs. However, it is important to note that the quarter also benefited from several timing-related and one-time items that are not expected to continue over the balance of the year. First, net sales benefited from incremental holiday activity, storm volumes, and elevated inventory levels of certain retailers, which we [expect to deload] in the second quarter. Second, of our gross margin favorability, approximately two-thirds was due to timing, or onetime items that are not expected to continue over the balance of the year. These include commodity favorability that we expect to reverse in the back half of the year and favorable overhead absorption due to strong holiday volumes. Finally, earnings per share benefited approximately $0.02 from tax impact from the stock compensation accounting change. In addition, in the back half of the year we will face increased headwinds as it relates to currencies and the impact from increased investment spending.

Now turning to our outlook for the full year FY17. As you are aware, we have experienced significant currency volatility over the past few months and since the date we communicated our original outlook for FY17. In total unfavorable currencies are expected to reduce net sales by 1.5% to 2.5%. And pre-tax earnings by $15 million to $20 million versus the prior year. This represents an approximate $10 million unfavorable pre-tax impact versus the outlook we provided at the beginning of November. Thus far we have been able to offset a significant portion of this unfavorable impact through pricing actions, cost reductions, and the strong start to the fiscal year. As a result, we are maintaining our current adjusted earnings per share outlook of $2.55 to $2.75, and based upon current assumptions, our outlook is trending toward the middle of the range. However, we are operating in a macro environment with heightened volatility. As we experience additional negative currency movement, it will become increasingly difficult offset within the current fiscal year.

Looking at our specific assumptions in more detail: total reported net sales for the year are expected to be up mid-single digits. Organic net sales are expected to be up low single digits. Over the balance of the year we expect the carryover benefit of prior-year distribution gains to be offset by prior-year fill volumes and storm activity in the second and fourth quarter of FY16. Although retail inventory levels are elevated by approximately $14 million versus historical norms as we exit the first quarter, they are comparable versus the prior year and should not have a material impact on year-over-year comparability, but may impact quarter by quarter comparability depending upon the timing of deload activity this year as compared to FY16.

Incremental revenue from the auto care acquisition is expected to increase net sales by approximately 5% to 6%. These gains are expected to be partially offset by 1.5% to 2.5% of currency impacts, based upon recent exchange rates. Our full-year gross margin rate is expected to increase 50 to 100 basis points versus the prior year, driven primarily by productivity improvements. The strong growth margin improvement in the first quarter is expected to be partially offset by unfavorable currency, increased commodity costs, and investment spending in the back half of the year. SG&A, excluding acquisition integration expenses on a percent of sales basis, is expected to be in the range of 19% to 20%, representing an improvement of 50 to 100 basis points versus the prior year. The income tax rate excluding integration costs and other unusual items is now expected to be in the range of 29% to 30%. In addition, we expect acquisition and integration cost of $5 million to $10 million related to the auto care business. These costs are excluded from our adjusted earnings per share outlook of $2.55 to $2.75.

We have made good progress with our integration efforts, and expect the back office will be fully integrated by the end of the third quarter, and remaining integration efforts will be completed by the end of FY17. The auto care business continues to achieve results consistent with our original expectations, and remains on track to contribute $0.15 to $0.20 adjusted EPS for FY17. This represents an increase of $0.10 to $0.15 above FY16, as the prior year results included one quarter of earnings. Capital spending is expected to be in the range of $30 million to $35 million, and depreciation and amortization is expected to be in the range of $40 million to $45 million inclusive of the full-year impact of the auto care amortization. Free cash flow is expected to exceed $180 million. Maintaining our adjusted EPS Outlook not only recognizes the solid underlining business fundamentals and strong operating performance in our first quarter, but also the significant currency headwinds which have negatively impacted our results, and we expect to persist throughout the remainder of the year.

Before turning the call back over to Alan, I would like to highlight certain prior year comparisons that will impact the remainder of FY17's results. Last year's second-quarter organic sales were up 0.5% due to the favorable impacts of winter storm volumes, and the initial pipeline sale as a result of new distribution and space gains. Both the third and fourth quarter of last year included the impact of distribution and shelf space gains and related fill volumes, partially offset by the deload of retail inventories during the fourth quarter. In addition the fourth quarter included our auto care acquisition results, and the benefit of hurricane volumes.

Now I would like to turn the call back over to Alan for closing remarks.

Thanks, Brian.

Before we open for Q&A I would like to wrap up with a few key takeaways. First, we had a fast start to the year; we had a strong operating performance that also benefited from one-time and timing-related items. In total, EPS was 30% above prior year. In addition, we continue to see several positive signs in the category, including improved volume and value performance, a favorable product mix shift to premium brands and specialty types, and a reduction in the depth and frequency of promotion. Second, for the full year we are projecting strong performance with double-digit EPS growth versus the prior year. This includes overcoming significant currency headwinds in excess of our original outlook. Finally, our team continues to deliver. We delivered on our financial commitments, executing our strategic priorities, enhancing value to shareholders through solid earnings growth, and increasing dividend and share repurchase. And we successfully integrated our auto care acquisition.

I am very proud of how well the Energizer colleagues around the globe have executed, encouraged by favorable trends within the category, and believe that we will continue to build a solid foundation for long-term success for our shareholders, customers, consumers, and colleagues. Thank you for your time and interest in Energizer holdings.

We will now open it up to Q&A, Operator.

Thank you.

(Operator Instructions)

Our first question comes from Wendy Nicholson, Citi Research, please go ahead.

Hi good morning. Two questions if I may.

First, I know you said on the call that HandStands came in in line with your forecast. But the [20] was a little bit less than what we had been modeling. Because I thought 130 for the year had been spread more evenly. But was that my mistake and not understanding the seasonality of the business. But I wanted to clarify if $130 million is still the right run rate for the fiscal year?

And then my second question is just with regard to distribution gains, I know that has been a driver and contributor to your strong growth. Are there any big retailers -- I don't care who they are -- but just conceptually that you expect to lose? It still feels like your guidance is conservative. I understand all the moving pieces, but I'm just wondering are you sure you're not embedding any loss distribution to come? Or on the other hand are there -- is there upside to the extent there's more distribution gains to be won over the next few quarters? Thank you.

Wendy, this is Brian. I will take number one and the last part of number three, and allow Alan to comment on distribution wins and changes.

First, HandStands. Quarter one, because of seasonality is the lightest quarter. As you would expect in the auto care category spring and summer tend to be the strongest quarters. So nothing has changed versus our expectations and our full-year outlook on the top and bottom lines as it relates to HandStands.

As a relates to our full-year guidance. Quarter one was very strong. And the underlying fundamentals of the business are solid. But based upon recent current assumptions, we do believe our full-year outlook is appropriate.

As we mentioned in our prepared remarks there is a number of moving parts in quarter one. There are some onetime benefits that we do not expect to continue over the balance of the year. As well as some benefits in quarter one like commodities that we expect to reverse over the course of the year.

We will have the accretion benefits from HandStands in the second and third quarter. But a lot of that favorability is going to be offset by the currency headwinds, because currencies continue to worsen and we've updated our full-year outlook accordingly. We will continue to benefit from distribution in space gains that we achieved over the past four quarters. But we will begin lapping a lot of this activity and quarter to along with some of the related fill volumes.

In addition we had two storms in the prior year. Winter storms in quarter two, and hurricanes in quarter four. And because we can't predict that, that repeating that level of activity is not in our guidance. And the commodity of favorability we saw in quarter one because of rising commodity costs, we expect that to reverse in the back half of the year. Now for the full year 2017 we think commodities are going to be about flat on a year-over-year basis, but that quarter one favorability is expected to reverse.

And finally, our fast start has allowed us to accelerate and increase some investment spending. Find innovation, and our product portfolio and product innovations. So a lot of moving parts. But based on current assumptions we do feel that our Outlook of $2.55 to $2.75 is appropriate. I will turn it over to Alan.

Good morning Wendy.

A couple of things. So on the distribution, and let me kind of tick through those, the two questions related to that. First, any anticipated losses, we have actually done a really good job of not only holding our distribution, but capturing a new few points of distribution around the globe that have added to that organic sales growth that Brian talked about.

In terms of the losses, we do not anticipate any. It has really been more about lapping prior-year events. So it fill volumes on the space and distribution gains. It's really about comping the storm activity and things like that, that Brian talked about both in his prepared remarks and his response just now.

As we think on new opportunities. Here's how I would probably tee is up to you. Keep in mind that we are a global company. We operate in over 140 markets around the world. We currently hold a number one or number two share position in the majority of markets in which we compete.

We believe that there is always opportunity to build our base share through distribution. But it is really going to differ by market, its going to differ by channel, its going to differ by customer. But we believe remaining focused in our three core strategies and remaining committed to bringing innovation to the category as an example. Operating with excellence in the stores; we have a really strong end to end supply chain team. And certainly leveraging our two global brands, Energizer and Eveready, is part of our strategy we believe are probably the best ways to not only to keep current distribution but to build potentially new distribution.

And the same would really apply to our HandStands business. We all see opportunity both in retailers where we currently sell and in retailers where we do not, to both expand distribution in our presence in the store. Brian, anything else for you?

That sums it up

Thank you, Wendy.

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

I guess you know obviously the distribution and shelf space gains sort of lap as you get into the second half. But those alone should probably contribute, I would assume, about a point and a half to the year. So if I understand you may expect some of the benefits to slow as the year progresses but your guidance almost assumes that some of the benefits you got actually reverse.

I'm not exactly sure why that would be the case? Because it doesn't seem like your category assumptions are shifting. So can you help me understand that first and then I have a follow-up?

Olivia, it's Brian.

It's not reversing but also keep in mind it's in embedded within our guidance, specifically for organic sales growth, includes lapping some of the fill volumes. Any time you obtain new distribution increased space there is inherently a fill volume impact. We will be lapping that in quarter two, three, and four. And also lapping some storm activity from prior year.

So we do expect to see continued benefit of that increased space in distribution. But there are going to be some pretty sizable prior-year laps that are going to be offsetting a lot of that as well.

Got it. Thanks.

And then just from the gross margin. You mentioned that two-thirds of the benefit or two-thirds of the expansion that you saw this quarter sort of turns around. But that would seem to suggest you're at a plus 100 basis point run rate then, relative to your 50 to 100 basis point Outlook range.

So can you talk through that a little bit and break down the gross margin expansion? If you can break it down to like commodities and pricing and things like that for the quarter? That would be great.

So in the quarter, ex unusuals, a 290 basis point improvement. About 100 basis points was driven by productivity initiatives. It is the cost savings that our operations and R&D teams have executed and will continue to execute. Now we expect that benefit to continue across all four quarters.

The absorption impact is also added about another 100 basis points within the quarter. That is really ramping up production volumes, fully leveraging our overhead, but we do view that as one time in nature. So a benefit for the quarter, not seeing a benefit in quarter two, or not modeling a benefit in quarter two through quarter four.

Commodities were also about 100 basis points of benefit within the quarter. Or about $4 million to $5 million worth of benefit in quarter one, but as I said in my prepared remarks. We do expect that to reverse. About 85% of our commodity and purchase product needs are already locked up for FY17. And so for the full year we expect that to be about flat on a year-over-year basis but that will reverse.

Currency was about a 90 basis point headwind in the quarter. And we expect that unfavorability to continue. But within quarter one we were able to offset a lot of that currency unfavorability through favorable pricing and product mix and other items.

So in total a lot of moving parts, but we still feel comfortable with our full-year outlook of 50 to 100 basis points improvement in the gross margin line.

The next question comes from Bill Schmitz, Deutsche Bank, please go ahead.

Hey guys, it is actually Deutsche Bank not Dutch bank.

I'm still a little confused on the guidance just practically. Because if I look at what you guys did in the first quarter, you are already at -- given the year-over-year EPS growth -- you're already above the mid point of the EPS range for the year. And you're at the high end of the gross margin range.

So is the assumption that EPS is flat or down in the next three quarters, and that gross margin declines year-over-year? And then I have a follow up.

So for the balance of the year based on the Outlook we provided, $2.55 to $2.75, and it does imply that quarter two through quarter four will be about flat year-over-year.

But again, keeping mind that there is going to be some items that benefit in quarter one that will reverse itself out. There will be some laps of fill volume, and laps of some storm activity.

And then also we took the opportunity, because of the fast start to the year to increase investment spending behind innovation our product portfolio and continuing to drive productivity initiatives. And so that investment spending is probably missing piece within the math.

Okay, that is helpful.

And then the $300 million of cash on the balance sheet, is most of that overseas? Are there any changes in terms of repatriation? What can you do with that? And then maybe some broad comments on the M&A appetite and some of the stuff you're focusing on?

I will take the first one and turn it over to Alan for the M&A environment.

So $300 million in cash, about 95% of that is overseas. We were able to use a significant portion of international cash for our auto care acquisition. We also have a significant international footprint that we put that cash to use.

We will always keep abreast of changes in potential tax reform that may allow us to utilize that cash in a tax-efficient manner. So it is something that we are constantly looking at and how best to put that to work.

Bill, on the M&A, nothing has changed from last quarter or previous quarters. Brian, John, and I continue to aggressively pan the landscape for opportunities that, again, are good fits for our business. And really our approach, the disciplined approach we've taken to this around making sure it is the right business at the right time at the right price. And within our operation is a good fit continues to be on the top of our agenda, and is something that the three of us are heavily engaged with day to day as we go through and look at opportunities.

That has not changed and will continue to be part of our balanced approach as we look at how we use our cash going forward to make sure we deliver long-term value to our shareholders. So no change there from what you have seen before.

The next question comes from Kevin Grundy, Jefferies, please go ahead.

Thank you, good morning guys. I want to pick up on the topic of tax, but specifically ask on the potential for border adjustment tax. Which is pretty topical now.

So I'm not sure if you can share any of this detail, but what percentage of your US cost of goods are sourced from outside of the US? What is the company doing at this point to plan for any potential implications? Perhaps you can share some thoughts on pricing and additional productivity measures that you would potentially take to offset the BAT should it come to fruition?

It's Brian, I will start and then Alan can chime in.

So we are staying really close to what is being discussed as relates to tax reform. Right now it would be premature to draw any conclusions.

From a manufacturing footprint, sourcing perspective, I think it is important to highlight that we believe we are in a good place from a competitive standpoint as far as the geography of our plants. The amount made in the US versus the amount sourced internationally. So from a competitive standpoint, we do not think we are disadvantaged.

It is important to highlight that a fair amount of product that we sell in the US is produced domestically in Asheboro, North Carolina one of the world's largest alkaline plants, and also in Bennington, Vermont where we produce some of our specialty battery types. So with that we are definitely staying close, working closely with our advisors, and once some of the tax reform measures become more solid then we will definitely provide some updated outlook.

As far as our percent of mix produced in the US versus sourced internationally, for competitive reasons we don't want to give out that information. But I will reiterate that a fair amount of what we sell the US is produced in Asheboro and also in Bennington. I'll turn it over to Alan.

Kevin, the only add I'd have to it is depending on what gets passed, and new policy changes that are put in place, we will monitor those as we do with the rest of the financial criteria that we look at as a business and determine how that impacts the business and the necessary steps we need to take going forward to do to accommodate and administer that.

Thank you for that. I guess we will kind of stay tuned.

One follow-up for me if I may. Share gains have obviously been very strong and the margin performance in the order was obviously very strong as well. Alan, a key competitor suggested that the recent distribution gains -- and we are seeing this Nielsen Data -- which is up double-digits suggested that it was very aggressively priced.

So the question would be is that a fair characterization? Admittedly that would seem to be at odds with the strong margin performance we're seeing in the quarter. Talk little bit about that. Maybe how you're balancing market share objectives and profitability and cash flow?

And then with respect to Duracell, being about a year in since that deal was closed, and that business changed hands. Any observations now being sort of twelve months in or close to it, since that deal closed with respect to comparative behavior? Thank you.

Great question Kevin. And thanks for asking. Appreciate you for clarifying with us.

So here's the way I think about promotion and overall share gains that we have had. I think the audience will remember, and Kevin, you know from our investor day we have been very clear that my direction to the team is to focus not on share, but maximizing free cash flow. That is our primary objective. It's in our incentive plan both short and long term, and its the focus of our entire organization.

As you take that into context, to be able to drive that the organization has been intensely focused on our working capital initiatives, as well as driving the top line but gaining profitable share. And the way we do that we do that is by focusing on category fundamentals.

So the example would be merchandising in-store, exceptional in-store execution, making sure we that we have the right mix of products in the store, making sure we have the right customers we're focusing against, and really leveraging our supply chain to operate and deliver with excellence. That has been from day one our focus. I can tell you, around the globe is the focus, and will be continuing going forward.

A couple of things just to sort of fact check the comment that perhaps was suggested by a competitor. Over the holiday, retail activity, and I'm going to talk promotion for a moment and think US latest thirteen weeks. When you look at the overall holiday activity, it was similar to last year. However there's a couple of unique callouts I need to reference.

In the US, depth and frequency of promotion declined in the latest thirteen weeks. That was down 1%, almost percent volume on promotion and when you look at the percent discount it was down almost 1.9%.

The other thing I wanted to raise is that premium alkaline AUPs have increased. So you've seen the migration from price brands to premium and specialty. As a result we're also seeing the premium alkaline branded AUPs increase. So those are up almost a percent during the latest thirteen weeks. One other note, when you think about the thirteen week data, those same trends, albeit not as significant, are prevalent for the 52 week period as well.

If you take that, combined with the fact that we had roughly an [8% to 10%] organic top line benefit from price mix. So think a shift more toward premium, and a shift toward specialty, and even certain pack sizes. And the fact that we improved our gross margin by 290 basis points. It is sort of tough to argue that price was our primary objective and driving that down in the market is how we gained share. Really what we've done is we've been able to go back through joint business plan, work with our customers, and identify opportunities to increase merchandising space in the store. But also the relevance and the productivity of that space.

Should Energizer decide to participate in promotions, the one thing I will say -- and Brian has done a great job leading this in the organization along with our COO -- is to decipher which types of promotional activities and events we want to participate in. Our revenue management or trade investment process that we have installed has allowed us to step back and look at which events generate the best return. And assuming that those align with what our partners are trying to do within their own marketing mix, we'll choose to participate. But I have to tell you -- and I want to reiterate for everyone -- our focus is on maximizing free cash flow, not driving share.

Just a couple of items to build on that. And Alan mentioned this earlier. As it relates to market share gains, our focus has been on leading with innovation and continuing to execute in store, leveraging our full product portfolio and also our dual brand strategy. We believe it is a competitive advantage, because we can offer consumers and retailers along all of their needs. Whether it is the flagship Energizer Max or the value offering with our Eveready brand, including the world's longest lasting battery in Energizer Ultimate lithium.

And one final comment in building on Alan's point of focusing on free cash flow. Our comp measures do not include market share. Our comp measures include net revenue, SG&A as a percent of sales, operating profit, and free cash flow. With think that provides a really good balanced approach to generate consistent year-over-year earnings and to maximize free cash flow.

When we constructed that incentive plan at the time of spin we really did it with the shareholders best interest in mind. So that's a line across all of our colleagues including the management team. We are pretty pleased with the results we are getting. But again that focus is really on driving and maximizing free cash flow.

Thanks Kevin.

The next question comes from Bill Chappell, SunTrust, please go ahead.

Thanks good morning.

Just tell me about [may] those in the quarter and going forward on the market share distribution gains. Can you kind of give us an idea of how much of that is weighted towards US North America versus -- you know, are you gaining share, or gaining share faster outside the US?

The best way I can describe it to you Bill -- here is how I position it. We are seeing share gains across all four areas. So during the latest thirteen weeks, if you take dollar share as an example. Our global share is up for the quarter. That's the thirteen week period.

We are also seeing the same thing in the US, Latin America, Europe, and Asia. Each of those are a little different based on different things. So when you think about the way we are working share gains in the US, a lot of that is through space and distribution changes. Some pricing activity in Latin America within the Americas group, but overall we are seeing Energizer global share up 3.1 points versus the prior year during the latest thirteen weeks. North America is up 3.9, Latin America is up 1.7, Europe is up 1.0, Asia's up 1.4, and the US is up 3.2.

If you take each of the regions and dig into those a little bit more, looking at the measured markets, Energizer has gained share in most of the markets we compete in around the world. And a lot of that again, is with very clear focus and direction we have given to the teams on in-store execution, really focusing on streamlining our supply chain, making sure we're focused on space and distribution, out post locations. Again, all the fundamentals that we know from our experience in the category are the things that drive base share activities. And that's really what we have done to drive that share.

So I think you can see from those comments, its not just a US phenomenon. It can be Canada, it can be again across markets as we go through them. We are going to continue to focus on that, because we know it is right not only for growing the category, but it is good for building business with our retailers that way as well.

When you think about the work we have done, where Energizer won, our retailers won as well. They tended to gain share as Energizer gained share. So we are pretty pleased with that result, too.

Just one item to build on, Bill, when we talk about a lot about the US, but we've had really nice performance internationally as well. And it's not just measured accounts. We have had really nice performance, distribution and space gains in non-measured accounts, channels, geographies as well. And so the team is actually executing very well.

Just kind of on the same note. With your change to collapse the Latin American businesses from a reporting standpoint to North America. Is that a change of how you are going to market, or management?

I know it's a different market. A little more zinc carbon versus alkaline, and maybe a little bit smaller than some of your other geographic regions. Any change we should read into the change of reporting?

No. It's really how we manage the business. You know where North American and Latin America are under one leader. Also it is important to note that Latin America has decreased quite a bit in terms of overall size. And so by breaking that out separately, it's not how we look at it internally, and we didn't think that it provided a meaningful benefit to our shareholders either because of its size, and the decrease in size is primarily due to the currency devaluations that have occurred.

And then operationally Bill, there are a lot similar go-to-market approaches we've taken. You've got customers that transcend borders, both Latin America and North America, so it just made a lot of sense to do it.

The next question comes from Jason English, Goldman Sachs, please go ahead.

Thank you, good morning folks. Thank you for letting me ask the question. Congratulations on the strong results this quarter, congratulations on the market share momentum.

I appreciate the figures you've given in terms of market share growth. Can you give us the absolutes in terms of where you are sitting now?

Overall, these again will be the latest thirteen weeks would be best way to describe it to you, Jason, when you think about it. So when you look at overall global share, we sit right at a 35. And during that latest period we are the leader in that by a slight margin.

For North America was sit at roughly a 37 share, value share during the latest thirteen weeks. Latin America is at 34, Europe is at around 21, 22, but keep in mind that is relatively strong among the branded players because of the high level of private label penetration in those markets. In Asia we set right at roughly a 63. And then in US again Nielsen measured for the thirteen week on dollar basis right around just below a 36.

That is helpful.

So if we contemplate 3.1 growth kind of getting you to a 35, it implies share gains have added almost 10% to your growth. And that the category is taking away to get you down [that 7 to] organic. So categories globally tracking down two to three. Is that the right way to think about it?

And assuming it is because it's kind of the math. As we think about the forward, is that a reasonable rate to assume? We've got, we're lapping some events that may have helped it and maybe they don't help it anymore. At the same time commodities are moving up, maybe we get a little more price.

Maybe you just give us some of the puts and takes in terms of how to think about global category growth?

So globally our long-term outlook is still flat to low single-digit decline. Recently it has performed better than that. A lot of that is attributed to the hurricane activity that drove increased demand in volume.

But that is a global number and its obviously not a one-size-fits-all and varies a little bit by geography. I will turn it over to Alan to add some additional detail.

A couple of more comments for you, a little bit on the Outlook.

So we don't as a general rule talk about future pricing actions, but pricing does come into play. We take pricing each year and it varies by market depending on the macroeconomic conditions. And if we can bring added value to the category for example through innovation, so we are always looking for ways to maximize long-term value in the category.

When you think about the category Outlook going forward, it's going to differ region to region. That is one way to think about it. And then just the category in general, when we think category volume it's really being driven by volume, volume being driven by devices, disasters, and demographics. And over the past several years it's been flat to slightly down.

And our projection going forward it's flat to low single digit decline. And that is really driven by couple of things. You've got the stabilization of devices that is going to occur as conversion to battery on board is nearly complete. And then you have the advent of the internet of things technology. And that's going to have a positive effect on the total number of devices in the market.

So why our call is flat to down low single digit decline, there is potential to out pace those growth expectations, but it's really going to be contingent on a few things. We are anticipating there may be some shift to smaller cell sizes. Those -- think AA, AAA, quad A specialty batteries -- as devices continue to miniaturize. You are going to have some growth in hearing aid as there is greater adoption of hearing aid devices by the users, and the population continues to grow, and the age of that population continues to increase. And then finally, while device and demographic trends are positive, we believe that the battery innovation will continue to improve with runtime.

So that is sort of an overall of what drives volume in the category. Regionally it's a little bit different. In North America you can probably expect volume to decline low single digit values estimated to trend more positively. Most of that is a result of the mix shift that is occurring to premium and specialty away from price.

In Asia, particularly Australia, where you got pretty heavy price competition as discount retailers have entered the market, and regional players are responding. We expect volume growth, but value may lag now we are lapping a lot of the price competition that is occurring in the market. So that potentially could change.

In LatAm because of high inflation, volume trends are starting to normalize. But as we cycle through pricing actions we are expecting value to continue to outpace volume.

And then in Europe because, again, of the heavy private label penetration we expect modest volume growth. Some value improvement, and most of that is going to come through growth in specialties.

So to give you a little bit more color was going on behind the scenes in terms of our projections.

The next question comes from Stephen Powers with UBS.

Great, thank you.

Two questions one just to clean up on the guidance a bit more, and then a longer-term strategic question. On the guidance, I understand that you expect input cost be about flat on the year. How much in dollar terms is that sort of more negative than your prior Outlook? Or less advantaged.

It's consistent with our prior Outlook. I think when we provided our 2017 guidance last November, we talked about commodities being flat on a year-over-year basis, and it is consistent with that.

There is obviously some quarter over quarter swings versus a year ago, really depending upon the contracts we have entered into with our suppliers. But for the full year flat, and that is consistent with our previous Outlook.

Okay, so just to clean that up. Your guidance has changed, between the FX getting worse and the tax getting a little better, it seems like it is $0.07 incremental headwind that you're offsetting with the Q1 strength net of any incremental investments. Is that the right way to think about it?

There's definitely a lot of moving parts. But the thing we want to make sure we highlight is the incremental investment spend that were planning in the back half of the year.

So the quarter one start provided some benefit that allowed us to increase investment spend, some timing items that will reverse itself out. But I think in total the full year guidance is consistent with November.

Next question comes from Dara Mohsenian with Morgan Stanley, please go ahead.

So sticking to the greater investment in the balance of the year as you just mentioned behind the business. Is that more innovation driven? Is it related to advertising spending? What's implied in the full year guidance in terms of A&P as a percent of sales year-over-year?

And also if you could discuss innovation contribution versus last year, given last year was such a strong innovation year, that would be helpful.

I'll take the first part and then turn it over to Alan. As it relates to investment spend, it's going to be related to innovation continuing to invest in our product portfolio, and also certain productivity initiatives. We did that last year and will continue to do so this year to continue to focus on costs. For competitive reasons I really don't want to tip our hand too much as to the specific areas in which we're going to invest, but it will be around those three areas.

The one thing I would add to that is that the pipeline of innovation remains strong for 2017. It is comparable to 2016, more concentrated in the back half of the year. Again, as Brian indicated its going to be supported by investments. Not only behind the innovation, but behind the strong Bigger Better Bunnier marketing campaign that we have out there.

Okay, and then, Brian, on the productivity front you mentioned some investments of projects that can drive longer-term productivity. Can you discuss any of those projects as we look out beyond this fiscal year? Or if you feel like you have a pretty robust pipeline beyond this year?

We do have a good pipeline. Last year we executed a couple of productivity initiatives that's benefiting cost of goods sold. We saw that flow through our gross margin rate this quarter, and we expect that to continue for the full year. So our operations and supply teams continue to do a fantastic job in taking cost out and being more efficient.

And also SG&A. So for the year we are projecting SG&A a 50 to100 basis point improvement. SG&A continues to be a focus for us. Both of those are going to be a driver allowing us to drive consistent year-over-year earnings growth and it is embedded in that Outlook.

The next question comes from William Reuter, Bank of America Merrill Lynch, please go ahead.

I have two questions.

The first, I was wondering if you could provide an update on what percentage of your products -- or I guess your customers -- are eCommerce retailers? And how do you see this share shifting?

And secondly if you could provide us with an update on what your target leverage metric is? Thank you.

I will take the first one and pass it over to Brian. On an eCommerce, just from a strategy standpoint, for competitive reasons we have not shared our eCommerce strategy externally.

What I can say is that we have a really well developed eCom strategy for product portfolio that will allow us to position our brands and extend them out to consumers. We will do that through pure play online retailers, and brick-and-click retailers.

Today total eCommerce sales of batteries are relatively small. Its about 5% of measured battery sales globally. We do recognize it as an important channel going forward. And as such, we've developed a strategy to be able to capture that potential growth.

But in terms of its size today, it is around 5%. The majority of that is in the US, and that is predominantly Amazon.

Bill, it's Brian.

As for as target leverage level its not something we provide. Currently we sit at 2.8 times. We think that puts us in a very good position to capitalize upon opportunities as they arise.

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

Thanks Operator. As always, thanks for joining us on the call today and for your continued interest in Energizer. We appreciate it. Have a good day.