Energizer Holdings Inc (ENR) 2017 Q4 法說會逐字稿

Good morning. My name is Alison, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's Fourth Quarter and Fiscal Year 2017 Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference over to Jackie Burwitz, Vice President, Investor Relations. You may begin your conference.

Good morning, and thank you for joining us. During the call, we will discuss our fourth quarter and fiscal year 2017 results and provide an outlook to fiscal 2018. With me this morning are Alan Hoskins, Chief Executive Officer; Tim Gorman, Chief Financial Officer; and Mark LaVigne, Chief Operating 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 also refer to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in the press release issued earlier today, which is available in the Investor Relations section of our website, energizerholdings.com.

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

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

Thanks, Jackie, and good morning, everyone. Our performance in fiscal year '17 was outstanding across a number of metrics. First, we are growing our business behind the investments that we made, not only throughout fiscal year 2017, but since our spin. Organic net sales were up 7.5% for the quarter and 3.7% for the fiscal year. Excluding the impact of storms, the organic sales growth was 3% and 2.4% for the quarter and fiscal year, respectively. This healthy organic sales performance was in line with our outlook and is a direct result of executing against our strategic priorities.

Next, we are delivering continued earnings growth. Adjusted diluted earnings per share for the fourth quarter was $0.54 and $2.98 for fiscal year 2017, up 29% versus fiscal 2016. In the quarter, hurricane volumes contributed approximately $0.08 to earnings per share as our integrated supply chain effectively delivered critical product to our customers during unprecedented storm activity. Excluding the impact from hurricane volumes, adjusted diluted earnings per share was $0.46 for the quarter and $2.90 for the fiscal year, in line with our previously communicated outlook.

Finally, in line with our primary objective to maximize our free cash flow, we continued to generate strong cash flow during the fiscal year, allowing us to continue rewarding shareholders and reinvesting in our business. For the fiscal year, free cash flow was $199 million, up 19% from the prior year. Nearly 2/3 of our free cash flow was returned to shareholders through a combination of both dividends of $69 million and opportunistic share repurchase of 1.4 million shares for $59 million, of which 1.2 million shares or $50 million occurred in the fourth quarter.

The performance of fiscal 2017 was strong as we continue to focus on our 3 strategic priorities of: lead with innovation, operate with excellence and drive productivity. These priorities are critical to everything we do and help drive our strong performance this year. I'd like to share a few specific examples of these strategic priorities.

First, leading with innovation. As we have talked about on previous calls, we continue to invest behind innovation. In the fourth quarter, we began the rollout of our longest-lasting Energizer MAX ever, a product where we have made significant runtime performance improvements, while maintaining the same quality and reliability that consumers have come to expect from Energizer, giving them the best overall battery experience. As you have seen since our spin, we have focused on innovation behind our core product offerings where it matters most, including Energizer MAX. We have a long history of bringing innovation and product news to the category. And our team continues to build out our pipeline for the years to come, ensuring we create value in the category for both our customers and consumers.

Next, we continue to operate with excellence. Fiscal year 2017 showed organic growth of 3.7%, including the impact of hurricanes, which exceeded our outlook of top low single digits. Over the course of the past fiscal year, we have increased distribution, implemented price increases in over 25 markets, grew our brick-and-mortar business, invested behind and grew in the e-commerce channel and innovated in and streamlined our portfolio through our portfolio optimization initiative. As a quick update on the status of this last initiative, new product sets have been rolling out at retailers and should be fully executed by the end of the second quarter. We have already seen significant increases in sales of Energizer Ultimate Lithium, with retail sales up 35% over the 13-week period ending October 7, 2017.

In addition to executing our strategic plans, this quarter was another great example of our ability to operate with excellence in the face of unexpected natural disasters. Our team responded to unprecedented hurricane activity that left millions without power. Thanks to the efforts of our integrated supply chain team, Energizer was able to do its part by rapidly supplying our retail partners with battery and flashlights that saw them through the storms. During these weeks and now in the aftermath, the Americas supply chain team has, in collaboration with our retail customers, gone above and beyond to ensure product availability on shelves in affected areas.

Our ability to execute with excellence has resulted in global market share value gains of 1.2 points to 35.8% in measured markets. In addition to growing -- in addition, in the growing e-commerce channel, we increased our value market share 2 points above prior year and maintained our branded leadership share of the channel. Growing in both the online channel and in brick and mortar remains a strategic priority for Energizer.

Our international business represents 47% of our global net sales and 31% of our total segment profit. During the quarter, we achieved distribution gains in several markets and were able to grow value share in the majority of our international markets. We were able to accomplish both of these by bringing innovation and news to the category by operating with excellence and delivering on our customers and consumers' needs. As currency becomes -- begins to become a tailwind, we believe international will continue to be a strong contributor to our global growth. In addition, we will continue to look for opportunities to grow both our battery and auto care businesses. As we indicated on our last call, we expect to double our international auto care business over the next several years.

Turning to our strategic priority of driving productivity. We implemented productivity improvements that resulted in gross margin and SG&A improvements year-over-year. Investing back in our business is one of the 3 pillars of our balanced approach to capital allocation and an important reason why we delivered strong results at the top and bottom lines in fiscal year 2017, and strong results since our spin. As we have shared on past calls, we will continue to invest behind productivity initiatives that generate run-rate cost savings in 5 core areas: trade investment, working capital, SG&A optimization, procurement and integrated supply chain. In a moment, Tim will discuss our plans for investment spending behind our continuous improvement efforts for fiscal year 2018 in his prepared remarks.

Category trends also remain solid. For the 13 weeks through August 31, 2017, the global battery category was up nearly 2% in value behind pricing actions, while category volume was down 1%. Energizer's total global battery value share was up 1.2 points, attributable to pricing actions taken in several markets and the continued shift to the premium and specialty segments. As we discussed last quarter, over the course of this year, we have implemented price increases in over 25 markets, including on our flagship Energizer MAX product in the U.S. Volume share was also up 1.3 points with distribution and shelf space gains driving the increase. Going into fiscal year 2018, we will begin to anniversary these distribution and shelf space gains.

We were able to deliver strong results for fiscal 2017 by maintaining focus on our strategic priorities. This focus will continue and will fuel our momentum in fiscal year 2018 with an earnings per share outlook of $3 to $3.10, representing a mid-single-digit growth rate versus normalized fiscal year 2017 earnings and a low single-digit organic sales growth, both of which exclude the impact of hurricanes. In addition, we intend to increase the dividend 5% beginning in the first quarter of fiscal year 2018, subject to board approval. We believe we have created a foundation for continued success, and we remain focused on delivering value for our shareholders.

Now I'd like to turn the call over to Tim Gorman, our Chief Financial Officer, who will review the financial results as well as a more detailed behind our fiscal outlook for fiscal year 2018. Tim?

Thanks, Alan, and good morning, everyone. I'll discuss the financial results for the fourth quarter, including providing detail on net sales and gross margins in the quarter. I will also walk through the details of our income statement and other metrics as we ended the current fiscal year. Finally, I'll provide our outlook for the upcoming fiscal year 2018.

For the quarter, adjusted earnings per share was $0.54, equal to the prior year fourth quarter and is inclusive of an $0.08 benefit from the hurricane activity in the current year fourth quarter. Excluding the hurricane activity, the decrease in adjusted earnings per share was primarily due to higher advertising and promotion spend in support of the portfolio changes as we enter the holiday selling season and a higher tax rate in the quarter. Both of these impacts were expected and were included in our previous outlook.

Total net sales for the quarter increased $33 million or 7.6% to $465 million with the growth comprised of the following components: Hurricane-related sales contributed $21.4 million in the quarter and were $20.5 million higher than hurricane activity in the prior year fourth quarter. This contributed 4.5% of organic net sales growth in the current quarter. Distribution gains in certain international markets and the timing of holiday activity with certain U.S. retail customers increased net sales by 3.5%. Improved pricing and mix increased net sales by 2.5% as price increases were executed across several markets globally, including the U.S.

The effect of our portfolio changes associated with repositioning Ultimate Lithium and exiting EcoAdvanced decreased net sales by 2%. We expect the impact of this portfolio change has been fully realized at the end of the fourth quarter, and we do not expect any further impact as we move into fiscal year 2018. The majority of EcoAdvanced batteries in the North American markets have been exited and replaced by Ultimate Lithium.

We also divested a noncore ad specialty business acquired as part of the HandStands acquisition. The divestiture of the ad specialty business, which occurred on May 1, decreased net sales by 1% in the current quarter as the prior year fourth quarter included net sales associated with this noncore business.

Finally, we experienced a minor benefit in net sales from the impact of foreign currency. This is the first positive impact from foreign currency since our spin-off. I'll comment on the impact of foreign currency on our outlook later in my prepared remarks.

Looking at revenues by geography. We experienced organic sales growth in all 3 segments. In the Americas, organic net revenues were up 7.4% due primarily to the hurricane activity, combined with the benefits of pricing and holiday activity, offset by the impact of the portfolio changes and the divestiture of the ad specialty business. In EMEA, organic net revenues increased by 10.8%, driven by distribution gains, the timing of holiday activity and benefits of improved pricing. In Asia Pacific, organic net revenues were up 4.3%, driven by replenishment, the phasing of holiday activity combined with improved pricing.

Before turning to the rest of the P&L, I also wanted to mention that based on historical trends, we exited fiscal year 2017 with normalized U.S. retail inventory levels.

Gross margin, excluding unusuals, was 46% in the fourth quarter, an increase of 80 basis points compared to the prior year fourth quarter. The improvement was driven by the following items and fairly consistent with the prior quarter: We lapped investments made in the prior year fourth quarter, resulting in approximately 120 basis point improvement. Second, improved margin associated with price increases and improved mix across several markets resulted in approximately 200 basis point further improvement in margin. Third, currency had a modest favorable impact on the rate of approximately 20 basis points. Offsetting these favorable improvements were unfavorable impacts of the investments made to support our portfolio changes noted above, which decreased margins by approximately 260 basis points. Overall, the gross margin rate was slightly better than expected as commodity headwinds were again offset by other procurement savings, which brought our full year gross margin rate improvement to 200 basis points on a year-over-year comparative basis.

A&P as a percent of net sales was 9.7%, an increase of 240 basis points compared to the prior year fourth quarter. As we discussed on last quarter's call, this increase was expected and supports our innovation and portfolio changes as we move into the holiday season.

SG&A spending, excluding acquisition and integration costs, was $96.3 million or 20.7% in the current quarter, an 80 basis point decrease compared to the prior year fourth quarter. On an absolute dollar basis, SG&A increased $3.5 million and was impacted in part by overhead costs associated with hurricane-related activity, including broker and merchandising costs.

Our ex unusual effective tax rate for the full year was 28.4% compared to 29.8% in the prior year. The current year benefited from a favorable tax benefit from our book provision to tax return reconciliation associated with our federal return, which was recorded in the third quarter. In addition, the negative tax impacts associated with repatriated earnings were higher in the prior year.

Looking at our balance sheet, we ended the year with $378 million in cash, substantially all of it held offshore. Our debt level at the end of the year was approximately $1.1 billion, essentially unchanged from last quarter. And we maintained our debt to EBITDA at roughly 2.8x on a trailing 12-month basis.

We generated free cash flow of $44 million in the current quarter compared to $41 million in the prior year fourth quarter, with the improvement driven by lower capital spending quarter-over-quarter. For the full year, we generated $199 million of free cash flow compared to $167 million in the prior year. The current year included $27 million from asset sales associated with several noncore international properties. Free cash flow generated from our strong operating performance was offset by higher working capital, including higher accounts receivable resulting from hurricane-related sales and increased inventory in support of our innovation, portfolio changes and changes to our manufacturing footprint being executed during the first half of fiscal year 2018. We expect this increased level of working capital is temporary and will normalize as we move through fiscal year 2018.

In the quarter, we paid a dividend of $17 million; and on a year-to-date basis, we paid approximately $69 million. During the fourth quarter, we repurchased 1.2 million shares of common stock for $50 million. For the full year, we repurchased 1.4 million shares of common stock for $59 million or an average cost of $42.23 per share. In total, through both dividends and share repurchase, we returned $128 million to our shareholders during the year, which represented nearly 2/3 of the free cash flow generated in fiscal year 2017. We will continue to take a balanced approach to capital allocation by investing in our business to support long-term growth; returning capital to our shareholders through a meaningful dividend and opportunistic share repurchases; and finally, pursuing M&A opportunities that are a right fit for Energizer. Since separation, we've demonstrated our commitment to pursuing a balanced approach in our capital allocation.

Now turning to our outlook for the upcoming fiscal year 2018. As Alan mentioned earlier in his remarks, we expect earnings per share to be in the range of $3 to $3.10. It is important to keep in mind that we are lapping significant hurricane activity in fiscal year 2017 that contributed approximately $20 million -- $26 million in net sales and $0.08 earnings per share. In addition, fiscal year 2017 included 7 months of results for the divested ad specialty business sold on May 1, which contributed approximately $7 million in net sales and approximately $2 million of operating profit.

Before I walk through the remainder of our outlook, I want to recall how the current year unfolded on a quarter-by-quarter basis, as it will be helpful as we look forward to expectations for the upcoming fiscal year. In the first quarter of fiscal year 2017, we achieved organic revenue growth of 7.2%, which included 3% carryover benefit from distribution gains, 3% from early replenishment and 1% from favorable pricing. In the second quarter, our organic revenue was flat as the favorable benefit of pricing and mix of 2%, combined with 2% growth from distribution gains, was entirely offset by the deload attributed to the early replenishment in the first quarter. In the second quarter, we also recorded a gain related to the sale of noncore real estate, resulting in a pretax benefit of $15.2 million. In the third quarter, our organic revenue declined by 2.6% as our revenue was negatively impacted by lapping the prior year distribution gains and associated promotional activity, and we began to execute our portfolio change of repositioning lithium and exiting the EcoAdvanced North America. Finally, in the fourth quarter, we achieved organic revenue growth of 7.5% which included the benefit of hurricane activity of 4.5%, distribution gain in the international markets and phasing of holiday activity of 3.5% and the benefit of pricing actions of 2.5%. These benefits were offset by 2% negative impact of portfolio change and the 1% negative impact of the divested ad specialty business. The divested ad specialty business was sold on May 1 and thus will cause negative comparison in the first and second quarter of fiscal year 2018. Approximately $7 million of net sales and approximately $2 million of operating profit related to the ad specialty business were included in fiscal year 2017.

Now turning to our outlook for fiscal year 2018. Net sales on a reported basis are expected to be up low single digits. Organic net sales are expected to be up low single digits, including lapping the impact of hurricane activity of approximately $26 million and lapping distribution gains in fiscal year 2017. Favorable movements in foreign currency are expected to benefit net sales by about 1% to 1.5% based on current rates.

Our expectations for organic revenue growth in fiscal year 2018 would represent the third consecutive year of organic revenue growth since our separation. The last time Energizer's battery and lighting products business experienced 3 consecutive years of organic revenue growth dates back to fiscal years 2005 through 2008. The organic revenue growth rate we have generated since spin has been a significant accomplishment for our entire organization and, coupled with our continuous improvement mindset to simplify and streamline our business processes to reduce costs, has resulted in significant gross margin improvement over the last several years. Our gross margin rate is expected to be essentially flat with the current year, excluding fiscal year 2017 acquisition and integration costs, as improved pricing is offset by increased commodity costs and the impact of -- from repositioning Ultimate Lithium. With respect to commodity costs, we are approximately 70% covered on our expected requirements for fiscal year 2018.

A&P spending is expected to be in the range of 6% to 7% of net sales, consistent with our long-term outlook. I also want to note that the timing of our A&P spending during fiscal year 2018 will be different than the timing of the current fiscal year 2017. We expect the A&P will be more balanced across the fiscal year.

SG&A as a percent of net sales is expected to be flat on a year-over-year basis, excluding fiscal year 2017 acquisition and integration costs. However, the timing of SG&A costs will not be evenly spread throughout the year. I'll address this comment further in a moment.

Pretax income is expected to be favorably impacted by the movement of foreign currencies by roughly $5 million to $10 million, net of hedge impacts based on current rates.

Our income tax rate is expected to be in the range of 28.5% to 29.5% based on the currently expected country mix of earnings. This guidance does not include any assumed potential impact of any currently proposed tax reforms. We will update our outlook should any tax proposal become finalized in fiscal year 2018.

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 $50 million.

Free cash flow is expected to be in the range of $210 million to $220 million, which includes lapping significant asset sale benefits in fiscal year 2017. The increase in free cash flow year-over-year also includes benefits associated with improved working capital. This improvement reflects anticipated lower accounts receivable and lower inventory levels. We exited fiscal year 2017 with accounts receivable associated with the hurricane activity, which have been collected in fiscal year 2018. In addition, as we discussed on the third quarter call, we expect improvements in our inventory levels beginning in the second quarter of fiscal year 2018 as we complete our portfolio optimization and roll out our improved Energizer MAX as well as executing a manufacturing footprint change in the first half of fiscal year 2018.

Energizer operates with a continuous improvement mindset that has been demonstrated in our results, as we close fiscal year 2017 with a strong performance. Since our separation from Edgewell, we have made investments in our business each year to grow top line and bottom line results. In the upcoming year, we will continue to make investments to improve our supply chain organization, including further optimization of our manufacturing footprint, simplifying and streamlining our organization and business processes and continuing to ramp up investments in our e-commerce capabilities.

The cost of these investments, which are included in our outlook, will be more predominant in the first half of fiscal year 2018. We expect to incur costs that will be reflected in SG&A of approximately $8 million to $10 million in the first quarter and approximately $2 million in each of the last 3 quarters. While these costs will be offset by expected savings, the majority of the savings are expected to occur during the second half of the year. In addition, we expect to occur -- incur additional costs related to continuous improvement associated with optimizing our footprint. Those costs will be reflected in cost of goods sold and are expected to be approximately $3 million to $4 million in the first quarter and approximately $2 million in the second and third quarters. There will be minimal savings expected in the current fiscal year, but we expect savings will more than offset our investment beginning in fiscal year 2019. As we move forward beyond fiscal year 2018, we will continue to make additional investments to improve productivity and efficiencies in support of our global business.

Finally, as I commented earlier regarding the timing of A&P spending in fiscal year 2018, it is not expected to be as back-end loaded as the current year. You should expect to see higher A&P spend by about $3 million to $5 million during each of the first 3 quarters, offset by lower spending in the fourth quarter.

Based on the cost of the investments we expect to incur in the first half of fiscal year 2018 and the calendarization of A&P spend, we expect the first quarter EBIT to be down approximately 5% to 10% and the second quarter to be down approximately 10% to 15%. The lower performance in the first half of the year will be more than offset by improved EBIT growth in the second half of the year, as we begin to realize savings from these investments. Full year EBIT is expected to increase on a year-over-year basis, up mid-single digits.

To reiterate the confidence in delivering our fiscal year 2018 results, the following are the key headlines from our outlook: low single-digit organic sales growth; earnings per share of $3 to $3.10, up mid-single digits; and free cash flow of $210 million to $220 million, up mid- to high single digits.

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

Thanks, Tim. Fiscal 2017 was another strong year for Energizer. As I stated earlier, this performance is a result of our colleagues' continued focus on our strategic priorities of leading with innovation, operating with excellence and driving productivity. We are building on this momentum with an outlook for top and bottom line growth in fiscal 2018. We believe that we've created a foundation for continued success. We are excited about the opportunities ahead of us, and we remain focused on delivering value for our shareholders. Operator, we can now open it up for Q&A.

Our first question will come from Nik Modi of RBC Capital Markets.

If I could just squeeze in both of my questions here. Just the first one, Alan, maybe you can talk about the trade spending initiative that you guys have putting into place, and how that's tied up with the net price realization in the quarter. Are you starting to see any benefits from that? And then the second question is just on M&A. Maybe you can just give us kind of a -- an overview of kind of what you're seeing in the market, and if there's anything out there that looks interesting to you guys.

You bet. So just first, why don't we go to trade investment. If you'll recall, when we spun off, we put dedicated resources in place behind trade investment, particularly focused on North America. They had primary responsibility at that time of making sure we provide a clear visibility and analytics to our trade investments. They were responsible for really making sure they governed all the spending behaviors that we were seeing around the globe as well as optimizing our spending. Since then, we've invested in both tools and technologies to support those resources. And as a result, we've been able to work directly with our retail partners, collaborating with them to identify what are ineffective activities, and then replacing those with more highly effective ones to drive a higher ROI. As you've seen in our results, the depth and frequency of our promotions have been reduced, and our average unit prices have increased. And I think it's important to point out while we've not set a target, this has really been about looking for inefficiencies and then -- and redressing those back into sustainable growth opportunities focused on category fundamentals. Think about availability and visibility. And this is helping drive our overall organic growth. It's improving profitability and it's growing our base share. So that's regarding trade investment. In terms of M&A, just a couple of comments on that. Since the last earnings call, we've participated in a number of reviews on assets. Some we liked, some we didn't. We've seen valuations in some cases that are too high. Others where operationally, we were concerned about their fit with the business. But we continued to look at opportunities. We've cast somewhat [true] as what I've shared in the past, a pretty wide net in the consumer goods space. We feel this really gives us a good opportunity to look at a number of assets without limiting ourselves to things that are just near adjacent. We like the targets that we're looking at. They have strong franchises and solid financial results, so think about that as really good free cash flow generation. We're also looking at targeting businesses that have similar operational profiles as existing business. That gives us a chance to both create synergy and leverage our broad geographic platform and strong distribution footprint to make sure that we can grow the acquired businesses. So we continue to be in the hunt again, but based on some valuations and fits, we've chosen to pass on some of those opportunities. But it is a core part of what we're looking at in terms of taking a balanced approach with capital allocation.

And our next question will come from Jason Gere with KeyBanc Capital.

And then I'll do the same, I guess I'll just ask the 2 questions and I'll let you guys answer. I guess the first one, Alan, if you could talk about the holiday activity coming in a little bit earlier, as we think about the comparisons for organic sales. And I appreciate the color on low single digit for the year. The first quarter, obviously, is a tough comparison. As you look right now and your, I guess, expectations of where retail inventory is, do you anticipate that organic sales for the first quarter could be flat to positive? Or do you think that because of some of it lapping the distribution gains, it might be slightly down? I know that kind of dovetails into your -- your guidance on the EBIT being down in the first quarter. The second question, I guess, more broadly speaking, if you could talk about online. What was the category growth of online in the quarter? I know you said you guys gained 2 points of share. Could you talk about what your growth was versus maybe some of the branded players or even some of the private label players out there?

Yes. Sure. Thank you, and good morning. So just real quick. When we look at overall holiday, we're very confident going into the holiday. We've seen, as we watch stores now, really solid merchandising visibility. And as you know, in international, we've improved our availability through expanded distribution. We like where we sit now. We believe that inventories are in a really good position having exited fiscal year '17, so we don't have a concern there. We like the programs that we put in place. So I'll give you a couple of examples. Not only is strong category fundamentals being executed, we've really beefed up our presence at retail to execute against that. And we've launched a lot of new innovation in the categories. When you think about automotive, we've already presented our fiscal year '18 auto fragrance innovation. And we've gotten really good reactions so far from the trade to that, and that's being set at shelves now. We're excited about the battery innovation that we brought to category, both in Energizer MAX as well as the repositioning as part of our overall portfolio changes. So going into holiday, we like what we've said in play. We like the way it's being executed. And then I'll ask Tim to comment a little bit on some of the backdrop.

Yes. So, Jason, that's why I kind of laid out in terms of how the year unfolded. So as you recall, we had a very strong Q1 in '17 with the early replenishment that contributed about 300 basis points. So you think about that in terms of timing. So we'll have difficult comps in both the first quarter and the fourth quarter as we lap hurricane activity. Relative to what we see in the first quarter with that difficult comp, we would expect to be essentially flat to slightly positive in the first quarter. And then the rest of the year will play out.

And then, Jason, this is Mark. I'll cover the e-commerce question. I mean, this is obviously a rapidly growing and important channel for us. And it's one where we're investing heavily in resources and expertise to make sure we drive results for the business. From an overall category growth rate within batteries over the last 52 weeks, online in batteries has grown 32%. From an AmazonBasics perspective, over the last 52 weeks, they've grown 59%. And Energizer has grown, over the last 52 weeks, 44%. In the latest 13 weeks, Energizer has grown 52%. And we continue to be the branded share leader in e-commerce for batteries. So our investments are paying off, and we're going ahead of the category trend that we're seeing online.

Our next question will come from Bill Chappell with SunTrust.

I don't know if I'm -- sneak both questions in at the same time. So I'll try one at a time, and we'll see if that works. Alan, just looking into the risk, I'm just trying to understand with the upcoming holiday season, let's say that we do see a continued massive shift online versus in-store. How does that play out in terms of inventory you're shipping into the brick-and-mortar stores? And does it lead to a massive deload in the second quarter? Or how do you account for that -- or how do you forecast for that over the next 2, 3 months?

Yes. I mean, we take into consideration trends in the business, both online and brick and mortar as well as the trends we're seeing in e-commerce with our brick-and-mortar partners that are moving to omnichannel. All that gets balanced into our forecast for the full year. We make sure that we align our shipments with the plans that we know we're capable of executing, meaning there's not an overload of the trade of inventory. We feel we can balance that and manage that properly through the year. So we don't personally see a risk there. We do anticipate growth online. And we feel that, again, given the investments that we've made, and our continued focus on making sure that availability content research and marketing are there to be able to reach that online consumer, that we're well positioned to compete and grow there too. I think what we've demonstrated over the last several quarters is our ability to follow. And that's an important callout, growing both online and in brick and mortar at the same time. A lot of this really stems back to good joint business planning with our retailers and our online partners to make sure that we stay out of that position.

Okay. And then Tim, just to switch back to fourth quarter. On the higher tax rate, I just want to make sure I understand. Did the share repurchase you had to repatriate cash, and that boosted the tax rate in the quarter? And then, are you assuming for 2018, there's no incremental share repurchase that would do -- would affect the tax rate?

Yes. In terms of the fourth quarter, Bill, part of what was driving the tax rate was the higher mix of earnings in the U.S., associated with the hurricane activity. So that was part of the driver of the higher tax rate is the income in the U.S. being taxed at the higher U.S. rate.

So you didn't have to pay a repatriation tax to repurchase the shares?

No. As I mentioned in the prepared remarks, on a year-over-year basis, the impact of taxes associated with repatriated earnings was actually lower in the current year versus a year ago. So we just -- we normally look at repatriating earnings on a tax-efficient basis. And there are times when we do incur minimal taxes as we bring that back.

Our next question will come from William Reuter of Bank of America Merrill Lynch.

Just one question on working capital. You talked a little bit about how you expect it to be a benefit next year. Can you talk about what type of benefit it will be? And then I guess, one more while I'm at it. How are you guys thinking about share repurchases this year, in light of what you guys completed in the fourth quarter? And I'll pass it on.

Yes, I'll take the last one first. As we talked about, we -- in terms of capital allocation, we remain committed to a balanced approach. So first is investing in the business. Second is a meaningful dividend. and then we do look at opportunistic share repurchase -- repurchases, and then finally M&A. With regard to working capital, so the free cash flow outlook that we've given, $210 million to $220 million, that's lapping $27 million of benefit of asset sales in fiscal year 2017. So you can kind of guess in terms of the magnitude of the improvement is really being driven by both the underlying business performance, but also working capital improvements, both in accounts receivable. Again, we had the benefit of hurricane-related sales. Those have been repaid in fiscal year 2018, so we've already seen that benefit. And then likewise, we expect the inventory will begin to normalize as we execute the portfolio change -- the full introduction of the improved MAX offering, and then lastly, execute the manufacturing footprint chain. So a combination of both accounts receivable and inventory improvement is driving the improved free cash flow performance next -- this coming year.

And Bill, with respect to share buyback and M&A, we believe we've got capacity to do both. And we're going to continue to seek opportunities to optimize returns using both overall.

Our next question will come from Faiza Alwy of Deutsche Bank

So I guess my first question is, could you disaggregate the 350 basis points of benefit that you got on new international distribution and the timing of shipments? Sort of how much of that is distribution that's expected to continue through the rest of the year?

Yes. If you look at the 3.5%, approximately 1.2% of that was associated with distribution gains, and the balance is the phasing.

Okay. Okay. Great. And then just on price -- on pricing. Is this -- I know there's incremental pricing that's supposed to come in, in 2018. Can you share sort of any feedback you're getting on that from retailers? Is that pricing expected to stick? And how should we think about -- is it going to build through the course of the year?

Yes. This is Alan. So over the past 12 months, we've taken pricing in 26 markets. We expect a annual -- the full annualized benefit of the pricing impact to occur in fiscal year '18. We have seen the price points increase on shelf in many of the markets. So you're aware of that. And I think what you're seeing play out in category value globally, and particularly the U.S., is value has improved as a result of the pricing action along with the mix shift to specialty and to premium. We believe that the pricing actions we've taken are also going to help us offset higher commodity costs in '18. And it further gives us the opportunity to reinvest back into innovation in our brand. So overall, we're pleased with the outcome and the organization's ability to execute against the pricing. And again, more importantly, we are seeing that appear on shelf in many markets.

Yes. And I think if you look back across fiscal year 2017, you'd see improved pricing and mix in each of the 4 quarters that we had in fiscal year 2017.

(Operator Instructions) Our next question will come from Kevin Grundy of Jefferies.

A couple of questions. I just wanted to come back to online first. You hinted last call at some potential broader strategy adjustments in that channel, utilizing either the Energizer or Eveready brand potentially. But it didn't sound like there is any sort of big unveiling today on this call. So just confirm that's the case, would be sort of number one, if there are no sort of big strategy adjustments either with respect to product and/or pricing. And then my second question relates to margins. So first on gross margins, you're expecting relatively flat year-over-year performance in '18. What's the ambition there longer term? What do you think the opportunity is to drive that higher? And if so, how? And then just one last one on the productivity piece, because it seems like that will become increasingly important in terms of driving earnings and free cash flow growth. Can you potentially frame that for us? You talked about some of the spending there to realize those savings. Maybe if you could put a number on that for us longer term, that would also be helpful.

This is Mark. I'll cover the e-com online question first and then turn it over to Tim for the balance of the questions. As I mentioned earlier, I would say there's no big unveiling today in terms of a new strategy in terms of online. But rest assured, we're laser-focused on this area. We recognize that it is a big opportunity for us. And when it comes down to strategy, it's not that different than what you'd see us execute in-store. It's all about visibility and availability. So when consumers are shopping online, we want to make sure they interact with our product in the same way that they do in store. And so it really gets down to the fundamentals of executing content and search, data and analytics to make sure that we're intersecting with the consumers at the right point in time. In terms of the 2 brands, that is something that we have in our arsenal at all times with Energizer and Eveready. And it is certainly something that we would look to leverage online to the extent that it would resonate with our consumers in doing so. So that's something that we always have available. We always look for it. And thus far, our investments are really paying off. Like I mentioned in the latest 13 week, our online sales rate, it's growing at 52%, which is well ahead of the category.

Yes. Kevin, with respect to gross margin, obviously, we've had significant improvements over the last several years in our gross margin rate. As we move forward, and what we've called out in our kind of long-term financial algorithm, is for gross margin to be flat to improving slightly. And that's kind of the long-term outlook that we have. The opportunities that we'll continue to look at is how do we continue to streamline our integrated supply chain. And those actions are being undertaken with the footprint change that we discussed in the prepared remarks. With respect to the benefit, the savings associated with the costs that we're incurring, as I mentioned in my prepared remarks, and I kind of laid out what the costs were going to be in each of the quarters and indicated that the savings would exceed that investment that we're making. And that is the expectation for the current year. And then as we move forward, we've identified additional opportunities that we'll continue to look to improve our overall streamlining our processes and reducing the complexity in the business. So that is part of our continuous improvement mindset that we have and we'll continue to execute against.

Tim, is there anything you can put a number on for us with respect to the return on that spend?

Yes. So the -- as I mentioned, the return is in excess of the investments we're making. And that's a run rate that we would expect to have exiting that. Run rate will be in the range of $15 million to $20 million.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Alan Hoskins for any closing remarks.

Thank you, operator. And thank you for joining us on the call today and your interest in Energizer.

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