Edgewell Personal Care Co (EPC) 2011 Q2 法說會逐字稿

Good morning my name is Keisha and I will be your conference operator for today. At this time I would like to welcome everyone to the Energizer Holdings Incorporated second quarter 2011 earnings results conference call. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions) As a remind this call is being recorded.

I would now like to turn the conference over to Jackie Burwitz, Vice President Investor Relations. Miss, you may begin your conference. Please proceed.

Thank you, Keisha. Good morning, everyone and thank you for joining us on Energizer's second quarter 2011 earnings conference call. With me this morning are Ward Klein, Chief Executive Officer, and Dan Sescleifer, Chief Financial Officer. This call is being recorded and will be available for replay via our website, Energizer.com.

During our prepared comments and the question-and-answer session that follows we will be making statements expressing the beliefs and expectations of management regarding future performance, including future earnings, investments on spending initiatives, the impact of recent events in Japan, restructuring charges and cost savings. The impact of the elimination of pack up-sizing and price increases, A&P spending, currency fluctuations, raw material and commodity costs and the ASR acquisition.

Any such statements are forward-looking statements which reflect our current views with respect to future events and are based on assumptions and therefore are subject to risk and uncertainties. These risks and uncertainties and other factors may cause our actual results, performance, or achievements to be materially different from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described under the caption risk factors in our annual report on Form 10-K, filed November 23, 2010. We do not undertake or plan to update these forward-looking statements even though our situation may change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

During this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release we released today, which is available on the Investor Relations section of our Website, Energizer.com. Management believes these measures provide investors valuable information on the underlying growth trends of the business.

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

Thanks, Jackie. And good morning, everyone. First, I would like to welcome you all to Energizer's first quarterly conference call that we have hosted in a number of years. We believe that now is an appropriate time to begin hosting quarterly conference calls, in order to provide a broader understanding of our business performance, and provide additional context around the actions we are taking for the future.

Shortly, I will turn the call over to Dan, to provide a detailed financial review of the quarter. Then, I will give an update on where we stand on the execution of our strategy, and the various initiatives we have under way, concluding with a review of our guidance for fiscal 2011. Dan and I will take your questions after the prepared remarks.

But first, since we have not done a conference call in a while, I want to say a few words about Energizer and who we are as a Company. As many of you already know, we have been an independent Company for 11 years, and have grown from strictly a battery and lighting products Company, starting with sales of $1.9 billion. Over the past decade, we have expanded both through organic growth and acquisitions. Our major acquisitions have included Schick-Wilkinson Sword in 2003, Playtex Products in 2007, Edge-Skintimates in 2009 and American Safety Razor in 2010. These acquisitions combined with internal growth have helped us increase revenues to a run rate of $4.5 billion, with roughly 50% of our sales in household products and 50% in personal care. Additionally, half of total sales are outside the United States.

We have one mission across the world and across all our businesses. That mission is, through innovation, to simplify and enhance the lives of customers and consumers better than anyone else. To us, this means first providing consumers with products that deliver unsurpassed performance. Second, delivering category expertise, and best-in-class solutions and programs to our trade customers, to help grow their business. And third, being recognized by stake holders as an outstanding organization to work for, to invest in, and to buy from.

Of course, it takes a talented and passionate work force to execution this mission. And since this is our first earnings call in a while, I want to recognize our colleagues around the world for their dedication and hard work. I am proud of the team we have in place, and we are pushing each other every day to improve and grow the business entrusted to us, in order to enhance shareholder value. With that, I'll turn the call over to Dan to review the financial highlights of the quarter.

Thanks, Ward. I will now provide a brief overview of Energizer's second quarter earnings, which were released earlier today. For the second quarter, earnings per share were $0.55 versus $1.25 in the second quarter of fiscal 2010. The $0.55 for the second quarter included charges for our household products restructuring, other realignment and integration activities and an expense for inventory write-up related to the ASR acquisition. Combined, the unusual items in the quarter negatively impacted earnings per share by $0.49.

Net sales for the quarter increased by approximately $100 million, as higher sales in wet shave driven by the addition of ASR and the launch of Hydro were partially offset by declines in household products and feminine care.

Gross margin for the quarter declined 230 basis points to 45.5%. 180 basis points of the decline was due to higher promotional activity in support of the Hydro launch, and 150 basis points of the decline was attributable to the inclusion of the lower margin ASR business for the full quarter. These declines were partially offset by an 80 basis points positive impact from favorable product mix and a favorable sun care returns adjustment in the quarter.

Advertising and promotion as a percent of sales was 9.7%, or up 150 basis points, versus the same period in 2010, primarily due to support behind the Hydro launch.

SG&A increased over $29 million versus the year-ago quarter. Approximately $12 million of the increase is from operating expenses, amortization, and integration related to the ASR business, which was acquired in this year's first fiscal quarter. The remainder of the increase is due to higher spending to support growth initiatives as well as higher corporate expenses.

Interest expense decreased $3.2 million, due to lower outstanding debt. Other financing items increased $2.4 million, due primarily to higher losses on foreign exchange hedging contracts in the quarter. These losses are offset by favorable currency and operating profit.

For the quarter, the effective tax rate was 35.9%, which was negatively impacted by the household products restructuring, as the majority of the costs incurred were in Switzerland, a lower tax jurisdiction. Exclusive of the impact of the household products restructuring, the effective tax rate for the current six months was 31.1%, which is our forecasted effective tax rate, excluding discrete items for the full year.

Now, I will go over the divisional results. In household products, sales were down 4%, including favorable currencies, and the impact of Venezuela operating results. Excluding these items, sales were down 6%, as retailers de-stocked inventory left over from the December quarter, and increased trade spending in the US this quarter. These shortfalls in the US were partially offset by strong comparative quarters in many Asian and Latin American markets. The dollar value of the battery category in global measured markets continued to decline, down approximately 2% in our latest 12-week data. We've taken steps to improve value by implementing previously announced price increases on C, D, and 9-volt sizes and by eliminating pack up-sizing in the US effective March 1, 2011.

Segment profit for the quarter was down 27%. Excluding the favorable impact of currencies, and Venezuela, segment profit declined 37%, due to lower gross margin resulting from the decline in sales noted previously. The restructuring project for our household products division announced in the fourth quarter of fiscal 2010, remains on track, as we expect to incur $75 million to $85 million in restructuring costs, with the vast majority in 2011. We anticipate annual savings of $25 million to $35 million by the end of fiscal 2012. The second quarter of fiscal 2011 includes pre-tax charges of approximately $37 million, related primarily to announced plant closures.

Turning to personal care, we experienced solid top-line growth during this quarter. Net sales were $610 million, up $117 million, or 24%, including approximately $72 million of incremental sales from ASR, and $9 million from favorable currencies. Excluding the impact of ASR and currencies, net sales increased approximately $36 million, or 7%. Wet shaved sales increased 41% for the quarter, excluding ASR and currencies wet shave sales increased 13%. Some of the factors that helped drive this increase include higher volumes from the launch of Schick Hydro men's systems and shave preps, higher sales of disposable's and higher women's sales driven by Intuition Plus and Quattro for Women Trimmer. These gains were partially offset by anticipated declines in Legacy Men's systems products.

Skin care sales increased 10% due to higher shipments of Wet Ones and a favorable adjustment for prior season sun care returns, partially offset by lower volumes due to the timing of shipments in the early stages of the sun care season. Infant care sales were down 1% due to lower sales of bottles and cups, partially offset by higher sales of Diaper Genie. Feminine care sales decreased 12% on lower sales of Gentle Glide, partially offset by the continued growth of Sport.

Segment profit for the quarter was $123 million, up almost $8 million, or 7%, versus the same quarter last year. Excluding ASR results and the favorable impact of currencies, segment profit declined approximately $6 million, or 5%, due primarily to increased A&P spending, primarily behind the Schick Hydro launch. With that overview of the quarter, I will now turn the call back over to Ward.

Thank you, Dan. The second quarter was in line with our expectations and is consistent with our guidance, regarding the year-over-year decline for this period. As I have previously stated, we view fiscal 2011 as a year of investment. We are making significant investments in both the personal care and household products divisions. Let me take this opportunity to walk you through our businesses and conclude with a recap of our fiscal 2011 guidance.

Within personal care, the Schick Hydro men's system launch has been the focus of most of our investments. We have launched hydro in most of our key markets, including North America, Japan, Western Europe, and other markets in Asia. Across all of these markets, we have significantly increased our men's system share, despite intense competitive activity.

In the United States, we currently hold a 12.8 value share of the men's systems category, 12-week FDMX, up 5.5 points versus year ago. We have exceeded a 10 share in 11 of the last 12 months, a major milestone for us in the men's systems category. We are heartened by strong consumer satisfaction scores and extraordinary repeat rates on Hydro. Despite a major competitive product launch, we have achieved our year one razor handle trial goals, and refill shares are accelerating accordingly.

In the latest four-week period, Schick's men's achieved 11.7 unit share of men's refills, our highest share since June of 1998. This supports the fact that Hydro is a revolutionary product and that consumers who try the product are converting at record rates. Our launches outside of North America are tracking as expected, given where we are within the marketing plan, despite heavy competitive launch activity. Hydro share in Japan was up 7.6 in February, pre-disaster, 1 full share point up since our CAGNY presentation. The major markets in Europe continue to sustain the market share growth and performances also discussed at CAGNY.

Our Hydro shave prep launch is also helping grow our overall shave prep market share, and continues to be mostly incremental, adding 3 share points since launch in the United States. Beyond our exciting Hydro franchise news, all of our other segments within wet shave are performing quite well this year. In disposable's, we experienced solid sales growth globally versus year ago, especially in our flagship Extreme 3 and Quattro disposable brands.

In women's systems, we held US share despite the strong Intuition Pomegranate system launch in the prior year quarter and significant competitive activity in the current year quarter. In Europe, we launched Intuition Plus during the second fiscal quarter. Globally we have seen growth in Quattro for women, and in large part due to the continued success of Trim Style.

ASR integration efforts are proceeding as planned. When we announced the acquisition of ASR, we saw three major opportunities to strengthen our total shaving business. First, expand our product range to value conscious consumers and shoppers. Second, provide total category solutions for our trade partners, including a continued commitment to private label. And third, accelerate growth in developing markets, in part by acquiring the additional production capacity needed to support that growth.

We have recently announced the formation of the Energizer Personal Care Private Brand group, which will have accountability to grow our private label shaving sales and profits and also share the responsibility of identifying opportunities and pursuing plans to strengthen share and profit in the value segment and across the entire shaving category. We have taken care to preserve a multi-functional leadership team, to ensure focus on our customer needs in wet shave private label, and industrial markets. We have also taken this opportunity to align support functions to the Energizer global structure, to facilitate best practice, and to leverage our greater scale.

Before leaving wet shave, I would like to take a moment to discuss the impact to our business, resulting from the earthquake and tsunami in Japan. Japan is the second largest market for our wet shave products with sales of approximately $175 million, in fiscal 2010. We estimate that 5% to 10% of our business is in the areas most impacted by the earthquake and tsunami. While there was an initial disruption in our ability to serve the affected areas, our products are now back in distribution in the majority of retail locations. Our wholesale distribution network remains intact in the affected areas, and the impact on our business will be determined by future consumer off-take, about which it is too early to draw any conclusions. While the impact of the disaster in Japan remains unclear, I would like to point out that we don't have plants or other major physical assets in Japan. I would also like to especially thank our Japanese colleagues for their professionalism and perseverance during this very difficult time in Japan.

Moving on to sun care, consumption continues to increase, as the selling season nears. Due to the lateness of Easter this year, the timing of shipments has shifted more into April/May this year. We feel well positioned going into the June quarter. Initial consumption data on our new products and SKU's such as Hawaiian Tropic Shimmer and Banana Boat Sport SPF110 continuous spray is encouraging.

In feminine care, shipment and consumption declines in Gentle Glide were partially offset by gains in Sport. Our Gentle Glide business in particular continues to be negatively impacted by significant competitive activity in the feminine care category. We are developing action plans to reverse the negative trends, including a new packaging re-stage across the entire line expected later this year. We continue to be pleased with the Sport brand, and the ongoing double digit growth rates in consumption, as well as continued distribution gains on Sport.

Looking forward, exclusive of the impact of ASR, we expect the incremental impact of the Schick Hydro launch will drive mid-to-high single digit growth in personal care net sales for the remaining two quarters of fiscal 2011. As we approach the anniversary of the Schick Hydro launch during the third fiscal quarter, we anticipate that A&P spending as a percent of net sales will begin to moderate on a year-over-year comparative basis over the course of the final six months of fiscal 2011.

In household batteries, we have seen some difficult conditions emerge over the last few years. In most developed markets, such as the US and Western Europe, we have seen softening in household batteries, as household devices have changed. In emerging and developing markets, we are seeing growth in household batteries, due to improving economies, and increased device penetration in households. As a result, we are shaping our business operationally with product innovation to adapt to these changes.

We are focused on three things. First, expanding our distribution capability of our brands, Energizer and Eveready in emerging markets. Second, building our capabilities in adjacent categories, where we see category growth and innovation opportunities. And third, restructuring our manufacturing footprint and simplifying our business to better compete, while maintaining responsiveness to seasonal and weather-related volume surges.

The dollar value of the battery category in global measured markets has continued a negative trend, down approximately 2%, in our latest reported 12-week data. In terms of pricing, category value declines in North America and Europe have been partially offset by volume and value growth in Asia and Latin American markets. However, high continued levels of promotion spending, which do little to drive ultimate consumer usage, continue to reduce the value of the category. In North America, to improve this category value, our aforementioned pricing and tax size initiatives are under way. Effective March 1, we increased prices on C, D and 9-volt batteries 7% and eliminated pack up-sizing. It will take a few months for the upsized packages to work their although retailers' inventories. In addition we are maintaining our focus on driving brand equity in batteries, rolling out innovation within lighting products and portable power and improving value for the overall category.

In European developed markets, category volumes were flat, but value declined again due to continued high promotional spending and bonus pack activity in markets such as the UK. We have recently reduced bonus pack activity, which unfortunately has resulted in a short-term share decline. Nonetheless, we remain committed to our overall goal of improving value in the battery category. Also, we have seen growth in large parts of Central and Eastern Europe, as we focus on these markets.

Moving on to Asia, where in many key markets we are the clear leader. The battery category continues to recover, due to consumption increases in important markets such as Australia and Korea. Our businesses are especially strong in markets where we employ a two brand strategy, leveraging both the Energizer and Eveready brands across a wide range of product offerings that compete for all of consumers' needs.

Finally, in Latin America, we have seen positive signs of the category rebounding in terms of value growth. Consumer trade-up from lower priced carbon-zinc batteries to alkaline constructions has helped fuel this trend. While we have very strong market shares in many countries, we continue to see opportunities for household battery growth in this region. As we build for the future, we believe that Energizer and Eveready brands resonate with consumers within the household lighting and portable power categories.

In our household products business, we continue to invest in technology initiatives and emerging markets, aimed at improving our overall growth opportunities. In the US, we have recently introduced an Energizer night light product line leveraging LED technology. This is just an example of our abilities to brand and distribute products to multiple channels. We continue to work to expand our product offerings through collaboration with key suppliers and retailers.

Within emerging markets we believe that our portfolio of battery and lighting products places us in a position to compete effectively by meeting a variety of consumer needs. We have decided to ramp up investment in selected strategic markets in an effort to expand our distribution and share. Throughout our history, we have successfully competed in emerging markets across the globe and hold a leading share position in many of these markets today.

Over the years, we have been able to maintain a competitive manufacturing cost structure by developing a lean culture and investing in cost reduction and equipment performance improvements. In support of our growth opportunities, and to align our manufacturing footprint to meet today's market needs, we announced in March the closing of our carbon-zinc manufacturing facility in the Philippines, and our alkaline manufacturing facility in Switzerland. We are still on track to close these facilities by the end of the third fiscal quarter. Given current and projected battery category volume trends, we believe these capacity reduction decisions were necessary to simplify our manufacturing footprint, and improve our overall cost structure, while maintaining the flexibility to be responsive to seasonal and disaster-related demand. We expect to implement substantially all of the remaining elements of the restructuring plan by the end of fiscal 2011.

It is important to note that this is our second head count reduction effort in household products in the last 24 months. The first initiative executed at the end of fiscal 2009 resulted in a net head count reduction of over 300 colleagues, and $18 million of annual savings. The current program is expected to result in an approximate net head count reduction of an additional 400 colleagues, an annual savings of $25 million to $35 million. Combined, these two cost reductions have reduced the household division head count in excess of 8% over the past 24 months.

For the remainder of the fiscal year, we expect segment profit for household products to be below a year-ago with categories values expected to continue to decline. Raw material and commodity costs are estimated to be unfavorable, but we continue to invest in the emerging markets and technology initiatives discussed. These negative impacts will be partially offset by favorable currencies and the benefits of our previously-announced US price increase in C, D and 9-volt cell sizes, which should add $4 million to $6 million in the next six months, along with the elimination of US pack up-sizing which should reduce product costs by $6 million to $8 million in the back half of the year.

Regarding the impact of the disaster in Japan on our household products division, it is a fairly small market for our household batteries, however we do have multiple suppliers in Japan that provide either raw materials or source batteries to us, but we do not see any significant supply risk to Energizer at this time.

That concludes a review of our businesses. Stepping back, we believe the second quarter results demonstrate that we are making progress on the strategic investments and other initiatives we believe are necessary for our business going forward. Over the next two quarters, and into the next fiscal year, we anticipate our investments will moderate. But they were necessary to re-establish our earnings momentum in 2012 and beyond. As we previously disclosed, we repurchased 1 million shares in February. Share repurchase remains a consideration for the use of cash, but we do have to strike a proper balance, considering our short-term business investment needs and our ongoing commitment to maintaining a strong and flexible balance sheet.

Before moving on to 2011 guidance, I would like to take a moment to discuss the 2012 compensation plan. Which is being modestly revamped consistent with our view of 2011 as a year of investment. The nominating executive compensation committee, upon the recommendation of management, has decided that the performance goals under the Company's executive incentive compensation plan for fiscal 2012 will be based on the higher fiscal 2010 earnings per share, instead of the lower fiscal 2011 earnings per share. Performance targets, award amounts, and other elements of the Company's executive incentive compensation for fiscal 2012 will be set during the normal compensation committee process in the fall.

Moving on to fiscal 2011 guidance we expect earnings per share for the fiscal year to be in the range of $4.00 to $4.20 which reflects the significant impact of the household products restructuring and ASR transaction, and integration expenses, including the inventory step-up. Excluding unusual items, most notably restructuring on ASR integration costs, we reiterate that earnings per share for fiscal 2011 are expected to be in the range of $5.10 to $5.30. Within this guidance, we are including the forecasted results for ASR, and the impact of the 1 million shares repurchased, which we believe will be sufficient to offset the negative impact of the disaster in Japan. On a quarterly basis, we expect earnings per share ex-unusuals to be below a year-ago for the third quarter and favorable versus year-ago in the fourth quarter.

In closing, while we have much more work to do, our year of investment activities continue as planned. As we right-size our household division, fund the expansion of our global wet shave business, and execute various international markets, and new product initiatives. We are confident this effort and investment will drive our top and bottom line growth in 2012 and beyond. Now, Dan and I will be happy to take your questions. Operator?

Thank you. (Operator Instructions.). Bill Smith, Deutsche Bank.

Hi, guys. Good morning.

Good morning, bill.

I have 10 years of questions for you.

[ Laughter ] I don't think we have that much time. But go ahead.

Can you talk about the difference between volume growth and total sales growth in the quarter? Just because it seems like there was such a heavy level of promotional activity in the quarter.

Are we talking on batteries in particular or --

If you could do it by both segments, that would be great.

Well, certainly in terms of -- and I'll ask Dan to step in as appropriate. On the battery side, what you are really seeing is just the value deflation we've been talking about. I'm not sure it's anything different from what we had at CAGNY or what we said before. It was quite pronounced. I think over the past six months, the amount of promotional activity on top of the pack up-sizing was extraordinary. And that is what we're trying to fix, through the price increases that we've announced, through the pack up-sizing that we've discontinued, and others have agreed to follow. But the amount of discounting that remains is pretty intense.

I think on the personal care side, again, obviously a lot of promotional support, as well as the A&P support, going into the Hydro launch. These are massive numbers for our Company of our size. And so they really can affect the entire division and company numbers, and you're seeing that. I think you'll continue to see that as you have the last few quarters in terms of what its impact on net sales or gross margins along with the increase in A&P. Dan, If you have anything to add?

The only thing I'd add to that is obviously the margins in that business, the segment margins are down significantly on a percentage basis, and a lot of that is just due to the fact that a lot of this was trade spending and pricing, which follows dollar for dollar from sales through operating profit. We did have some volume declines as we mentioned in the prepared remarks and I believe in the release, related to some trade de-stocking during the quarter. But the big hit on the top line and the bottom line was the trade spending.

You can just give us a ballpark number or take a stab at it?

On --

On sort of the contra sales.

Yes, our pricing, the pricing un-favor ability was about $16 million during the quarter.

Okay. And that includes all of the trade spend, though? Or is that just --

That includes all of the trade spend. I'm sorry, that's in household, Bill.

That's in household? Okay.

That's in household, yes.

Do you have the number for [shaving]?

Well, I'd prefer not to, because we have a lot of promotional spending that really is -- we prefer not to have our major competitor understand that.

Totally fair.

But obviously, that impacted gross margin. I think we mentioned 180 basis points impact in the quarter for that.

Can you just say what -- what are your primary drivers of when you decide to repurchase stock? Like what was magic about February and when do you think you'll be in the market again? Because I think you still have about 7 million shares authorized.

You're correct on the authorization that's outstanding. And the share repurchase, again, as our balance sheet has gotten more normative, and has provided us more flexibility, the share repurchase just is a use of cash, versus the other alternatives at that point in time. And also we take into account what the share price is, and how undervalued we feel it may be at that particular moment, what the balance sheet is looking like at that particular moment, what internal investment opportunities are at that particular moment. So, I think we've been pretty consistent over the years in terms of favoring share repurchase, but doing it in an opportunistic manner. I'm not sure that really has changed.

And one last one, quickly. Is the 11.5% of sales in advertising you put in this quarter, is -- I'm sorry, the 9% -- is that kind of going forward, or is that going to tick up in the back half? I know you said it was going to be down year-over-year, but can you just say sequentially what the ratio is going to be?

I'm not sure we want to -- again we're so conscious of a major competitor of ours who listens into this that to signal exactly our A&P spend over the next few quarters beyond what we've already talked about, we would rather not do. Again, as said in the prepared remarks, we're annualizing through the launch that took place in the United States last June, so as we annualize through that, I would think it's fair to expect that A&P as a percent of sales will start, on razors and blades in particular, will start to trend down. Keep in mind though that our sales base is much larger now than it was a year ago. So in terms of actual raw dollars being spend in terms of supporting our brands, there is still going to be substantial.

Wendy Nicholson, CITI Investment Research.

Hi. I just warranted to follow up on that exact statement on the ad spending, because I would imagine since you're not advertising the private label stuff, the American Safety Razor stuff, it's probably logical to think that you're advertising ratio will go down in the future. Is that right? So a sub-10% type number on an annual basis, is something to expect, isn't that right?

I think that would certainly contribute to it. Because you're right, you pick up the ASR razor sales and there's not much A&P with it, so even if you kept the same ratio on your other brands, just by adding that, it would come down. I would go on to say though that really, if you look at the branded side of the business, the A&P as a percent of sales will also trend forward as we move forward.

Okay. Fine. And then I had a question back on the changes you've made in compensation and the targets for 2012. I think it is great and I applaud the fact that you're using 2010 as a base as opposed to the depressed 2011, but it strikes me as interesting, or strange, that you're using 2010 because 2011 is depressed because of the investment spending. I think that's probably a normal run-of-the-mill sort of ordinary course of business. I'm surprised that you're not changing your strategy on compensation, or the way you think about your targets, simply to exclude the restructuring charges, because that strikes me as something that really is above and beyond and unusual. So, I'm curious as to whether these compensation targets are going to change, kind of depending on your new product pipeline, et cetera, et cetera, and how do we have sort of any confidence in maybe the consistently of your earnings growth going forward?

There's a lot of questions actually in that one. In terms of the reasons for looking at '10, we consider '10 a more normalized year than '11 for the reasons that you mentioned and we discussed. In our discussions with the committee, this was an issue that had popped up, I think, in discussions we'd have with others, and it wasn't clear kind of what our intent is. Our intent is long-term stable earnings per share growth, 8% to 10% minimum range. And all of the investments we're doing and all of the efforts we're doing is really focused on getting back on that track. In fact, we've exceeded that track, as you know, in the past 10 years, our earnings per share growth has been in low double digits. And for it to be consistent, we would love for it to be consistent. Achieving consistency in earnings per share growth has been a bit challenging, not just for us, but I think most companies, over the past 36 months. But the investments we're making right now, we think will get us back on that track, and our compensation program has served us very well over the years, in terms of time management's pay, into EPS growth, which is what it's all about and what our focus remains to be.

Okay.

And that really has changed in that regard.

Okay. But still, if there are restructuring charges that spill into 2012, I know you're saying they'll be minimal, but still that will pressure your earnings and cap your compensation, potentially?

It is pretty speculative on that. We don't see anything material spilling no '12, so it's kind of hypothetical to begin with. We have tended to focus in on all-in EPS as a management team and as a board. I'm not sure that there are reasons to move off of that. And as we go into '12 and beyond, again, the compensation structure and targets for '12 will be picked up this fall with the compensation committee. All we're saying right now is we have agreement with the compensation committee to use '10 as a base, not '11.

Got it. And my last question, I know you said at the very beginning 50% of the business is outside the US. Can you comment just on foreign exchange, and what your outlook is, in terms of impact on the top line? But also, given your manufacturing base, which I don't think is 50/50 International/US, how currency might affect the bottom line more so than the top line this year? Thanks.

I will give you a quick general comment, but maybe really turn it over to Dan on some detail on this. In our manufacturing base, it's pretty global, frankly. And on the battery side, it doesn't really matter where it's located because it is mostly dollar-based, because it's mostly tied to commodities like zinc and steel and so forth. And that's just kind of a natural part on the battery side. On the personal care side, especially with razors and blades and products like this, the local content, local labor content isn't necessarily that high, so it is semi kind of dollar-based as well. So in that macro comment, a weak dollar conversely strong foreign currencies help us, certainly given all of the business we do overseas. And this environment we're in right now is becoming more favorable, as the dollar weakens across most major currencies. I don't know, Dan, if you want to add anything?

Just a couple of things. I think one negative we're going to see this year is due to the fact that our restructuring is in Switzerland and that currency has increased in value. We have a little bit higher estimate on the restructuring charges. I think you probably noticed we narrowed the range from $65 million to $85 million , to $75 million to $85 million, and that's a primary reason for that. And from a translation standpoint, we're going to have favor ability clearly with both businesses, Household and with personal care with some offset on the hedges. But I think net of that we expect about $20 million favor ability to be

Great. Thank you.

Thank you.

Bill Chappell, Sun Trust.

Good morning.

Good morning, Bill.

Just digging back into the battery pricing promotion, and the backdrop we're seeing right now. As we're two months after the bonus packs have been shipped, are you seeing promotions just be switched from bonus packs to just trade promotions? Or is this a real price increase we're going to see as kind of the existing packs get out of the channel?

Well, you certainly will see a real price increase on C, D, and 9-volts. Actually, you should be seeing that now in some retailers. You should be seeing a real effective price increase as we all stop shipping the up-sized packages and go back to more normative packages. So those two, I think enhancements to value, I am expecting we'll see, and we quantified those in our comments. You have to understand, though, that underlying or overlaying all of that is just the ongoing trade promotion activity that's taking place. And the trade promotion spending we're seeing by our major competitors has been extraordinarily high, not just this past quarter, not just this past six month, but for some time. And that, I think remains to be seen.

The bonus pack activity that takes place in Europe is a good example. We've pulled back on bonus packs. Again this is different from the pack up sizing issue which is mostly a US issue. In Europe, heavy use of bonus packs, extraordinarily high use of bonus pack, especially in Western Europe, places like the UK, we pulled back on that. Again, because of the value problems it brings to the category, especially for our retail customers, and for all players. But it remains to be seen how sustainable that is, if your leading competitor continues to discount at this level going forward, then you have to respond. But right now, it is our intent to bring value back to the category. We think the category needs it. We know the retailers want it. We know that based on just cost increases we're seeing in terms of zinc and steel, the manufacturers deserve it. It is a matter of actually doing it.

And just to give you a reference point on that, if you look at -- take C, D, 9-volt and the up-size packs, previously up-sized packs in the US, that's combined about 30% of our North American business, which since that's half of our global business in household, is about 15% of our global business. So there's 85% outside of that, and some of that, especially batteries and lighting products, but there is a number of batteries and certainly markets, as Ward has said, like in the UK, that are still experiencing intense promotion.

Okay. And switching to the wet shave business, as we look to the gross margin hit this quarter, should we view this as kind of the peak? And the only reason I ask that is you'll be lapping the US and presumably the promotions will ease off, and at the same point you kind of had this quarter launched everywhere, and I would imagine those businesses start to mature to some extent as well. So how should we look at the gross margin, or are you going to continue to be -- to be full steam ahead for three or four more quarters?

Again, I think our prepared comments, we kind of hint at the fact that by the fourth quarter, you will see some easing off in this regard. But again, for competitive reasons, I'd rather not be any more specific, or further out than that.

Okay. Great. Thank you.

Thank you.

Connie Maneaty, BMO Capital. Please proceed.

Good morning.

Good morning, Connie.

I just have a couple of questions. They're pretty small. Back to the trade promotion in the US, is it your impression that the increase in trade promotion is due more to market share strategies by other competitors most recently? Or is it due more to reducing inventory after the holidays and clearing the category of the bonus packs?

I think it is due to the former.

Okay. And a follow-up on A&P, back in November, I think, when you put out your first outlook for 2011, I think you targeted A&P at 11.5% to 12% of sales. Given where we are in the first half of the year, is it likely that it gets that high?

Connie, I'm not going to comment on the exact percentage, but one of the things we've continued to do is reallocate A&P from what we would call media and brand building to promotional spending, which is more building of trial, coupon, and in-store merchandising, and so that's what we disclosed, and the reason for the some of the gross margin decline. But there has been a reallocation up to the net sales out of A&P .

Okay. That makes sense. That's all I had. Thank you.

Thank you.

Dara Mohsenian, Morgan Stanley. Please proceed.

Good morning.

Good morning.

Can you give us an update on your view of the secular growth potential in the battery category from a volume standpoint, longer term, both domestically as well as globally? And if that view has evolved at all over the last few quarters here?

I would say that the declines we've been seeing really since '08 or so seem to be abating from a unit point of view in the US and Western Europe. But are still, you know, zero plus or minus 1%. These are not tremendous growth rates on units. We are seeing some growth in our Asian markets, Latin American markets as we talked about earlier. Those aren't as big of markets, so you would need a lot of growth to offset the sluggishness we've seen in the developed world. But we are seeing some growth there on a unit point of view.

From a value point of view, again, we kind of belabored that, but values have been, even though units have gotten close to zero, value remains I think minus 2 the last time I looked in the category, for the US. Values down, in most of Western Europe. And so I think those are the value issues, the issue that the industry -- that we're trying to address, and I think it won't be as bad as it has been, okay? But I'm not sure, to answer your question, it's going to be a lot better than it is. It's kind of how we view things right now.

Okay. That's helpful. And then you mentioned the release, Q3 earnings will be down year-over-year. Would you expect that to be more of a modest decline? Or something more substantial, similar to this quarter?

I'm not sure we've added any additional color on that. I'm looking to Dan. I don't know if --

I don't know how you define modest [laughter].But just to kind of provide you maybe just a little bit of understanding on the phasing, we have continued investment growth initiatives, which we've discussed previously at CAGNY and were discussed in the prepared comments today, and we do have some A&P spending in household, which is really timing and we discussed that in the release. And obviously in Q4 we expect that to be up because Q4 last year was severely depressed due to the Hydro launch, which we're going to be really going to be anniversary through. That's really all I can say on kind of the quarterly split.

Okay. Thanks.

Thank you.

Ali Dibadj, Sanford Bernstein. Please proceed.

Hi, guys. How are you?

Good.

Thanks for holding the conference call. I had a couple of questions. One is just around the trends you've seen so far. I mean certainly it sounds like you've had to ship more from the A part, or I guess the immediate part as you call it, to kind of the growth to net line. Are you seeing any of that ease off at all? Are you expecting it to ease off? I mean clearly your bigger competitor, biggest competitor has been aggressive, both in batteries but also seems to be picking up a little bit as well, given a re-launch of one of their new innovations. How should we think about it going forward? How are you thinking about going forward, in terms of growth to net going forward? And by that, I mean trade spend.

Are you talking on household, are you talking on razors and blades or are you talking on both?

Both.

On household, again to reiterate, we're taking steps to improve value in the category. That would include optimizing trade spend. That is what we've been doing, really, and we laid that out in CAGNY, that is still our plan. We can't speak to what our competitors are doing in that regard. In terms of razors and blades, we're aware of quote, "a re-launch of a new product", that has been announced. I can tell you that the amount of competitive spend that our major competitor in razors and blades has put on the table in the past 12 months has been enormous. It sounds like that will continue. I wouldn't expect otherwise. And we'll continue to focus on generating trial of Hydro. Because we know when people try Hydro, they really like it.

So you're not seeing any ease-off necessarily yet. It's kind of status quo in some sense and you are banking for that when you come up in your guidance?

Well, when you say status quo, you have to keep in mind that we're much stronger now than we were 12 months ago in this category. So status quo for us is off a much stronger base.

Okay. A little bit of a clarification on the compensation change, which is intriguing. If the 572 that we should be thinking of, right, as a 2010 base? And then that 572 applies both to the one year, 8% to 16%, as well as the three-year, 8% to 10% and 15%, three-year CAGR? Is that the right way to think about it?

It is premature to get into that sort of detail, because we really need to work with our compensation committee and it's their decision, and that's not going to not happen until the fall.

But it is the base?

We stated that's what the base is for that discussion to take place in the fall.

But unclear about either the 8% to 16%, or 8%, 10% and15%, is that fair?

None of that has been discussed, even yet with the comp committee. The normal cycle for that would be in August.

So that gets decided later. Okay. And then on -- I guess reacting to an answer you gave before, which is around kind of your supply chain, your manufacturing base, being global, but a lot of the costs being in US dollars and not a lot of labor costs elsewhere. Then what is the purpose for having such a large, global supply chain? Is it all about specialization of the plant to get the benefits? Because you're not getting any other benefits, as you seem to mention in your answer, I don't get the point of having such a global supply chain?

You have to understand, we have a global business. First of all, you have to understand we're meeting demand, 50% of our demand is outside the US, so to put a plant closer to demand is not an unusual idea. In terms of our particular approach to it, what it allows us to do is specialization, which is one of your points. Also, economies of scale. Which is another point. And then you have to think about this, all within the reality of our company, which is most of our products are what we call "very high value density". When you think about shipping AA batteries on a 40-foot container or razor blade cartridges in a 40-foot container, transportation costs per se is not unusually high. In fact, it's probably unusually low. So it can allow us to put together manufacturing facilities that are very large, very specialized, meeting global needs, from a global footprint.

Sarah Donnelly, Gabelli. Please proceed.

Hi, good morning. Thanks for hosting the call.

Sure.

I just wanted to follow up a little bit on batteries. You can you just talk about the R&D and other investments that you're making to improve your portable power business?

I would love to, but that's one area I will have to just say no comment. When we had talk about our innovation pipelines, which we have in all of our businesses, including the battery business, flashlight business, there is some robust and interesting activities taking place in the household side. But for competitive reasons, I just dare not get into it. So I'm sorry about that.

Okay. Is it safe to say, I mean you mentioned the JC, that you're also looking at innovation within consumer round cell technology as well?

Kind of, yes. And also, outside that.

Thank you.

Sure.

Alice Longley, Buckingham Research. Please proceed.

Hi, good morning. I have a question on blades. In your guidance, are you assuming that you continue to gain share with Hydro? On a year-over-year basis, or a sequential basis?

I would rather --

Okay. Go ahead.

I would rather answer in a sense that for us, ironically, it hasn't necessarily been a drive per share per se, in razors and blades. The real magic in razors and blades has always been trade-up from lower value to higher value products. Hydro obviously is a key example of that. An opportunity to drive trade-up from our own franchise and competitive franchises. But we're really trying to drive up users into higher value, highly profitable items with a better-performing product. That said, we may take some share, at times. As we outlined, have taken some share over the past 12 months behind this innovation. Whether that continues, I'd rather not speculate. But we will continue to generate and grow trial of Hydro.

A related question is I know you said that your competitor has continued to spend heavily in the category. They have said that they intend to intensify spending, now that they have enough capacity to meet demand. Are you assuming that in your guidance that they increase their spending and therefore you might have to respond to that, or lose share?

I think it would be safe to say we don't underestimate our competitor.

And a question on the battery category. Could you tell us how much the category in the US was, I guess, down in the March quarter at retail, if you put all of -- including all of the retails, and how much was it, and could you break out volume and value in the US alone?

The numbers I'm looking at -- actually, I don't have US in front of me, I have global, but units were up one, value was down two, globally, in the way we look at the primary battery category. I'm not sure that the US -- the US I guess volume was actually down two for the quarter and value down seven. So a little bit of destocking taking place it looks like, for the quarter, and the US.

Chris Ferrera, Bank of America. Please proceed.

Thanks, guys. Commodities, I guess you guys in the last quarter had said $20 million to $25 million in pressure for the remainder of the year, and I know currency is going the other way and helping your dollar costs, but can you talk a little bit about that inter-play? And whether the commodities, the commodity impact for the rest of the year is really going to be not much worse than what you'd originally said?

Yes, Chris, it's actually a little bit worse than we've previously disclosed, and it's going to be primarily in zinc, silver, which is I think at a multi-year high, and also steel. And I don't know, is there another part to your question?

Yes, and that is fine. That is fine, just you didn't update the $20 million to $25 million number and I just didn't know if that meant that there was really no change to it.

I will kind of update it for you. We were about $8 million unfavorable in the quarter okay, and we're about $18 million to $20 million for the rest of the year. So maybe it's slightly higher than the range we had given you before.

That's perfect. And then on the ship business, and again, just -- it's kind of simple math, right, but if you're sitting 180 basis points of gross margin drag from promotion, to the total Company, it kind of suggests wet shaving saw a 500 basis points drag, something that significant, right? Which you consider 50% gross margin, that this is all kind of gross to met promotion, I mean you could be talking about a 10 percentage point impact to the top line on the wet shave business. I mean does that make sense, or is that way off in left field?

I'm not going to comment on the exact number, but clearly, it clearly impacts top line significantly, and margin. We simply look at it as promotional spending and whether it is A&P or whether it is coupon or other trade promotion, it has to hit net sales, we kind of look at it in one bucket and unfortunately, the accounting rules result in different treatment.

Thanks. That's helpful. I appreciate it.

Thank you.

John Faucher, JPMorgan. Please proceed.

Thanks. A quick question. In the Press Release, you talk about the revenues for household being down $27 million ex the adjustments and operating profit down $27 million ex the adjustments. I think you said $16 million of that was just a straight flow through of the trade spending,, I think. And I guess on that trade spending number, you said it sort of flows through at 100%. I guess that theoretically I would think there would be some sort of positive offset from a volume standpoint. Is that more of a net number than a gross number?

No, I mean --

I'm sorry, go ahead.

I was going to say volumes are going to have a margin offset, but pricing flows just naturally flow straight through. This is just basically reduced pricing. The other thing maybe that we didn't mention but is in the Release, is commodities were unfavorable -- well I just mentioned it, $8 million for the quarter.

Got it. I again, I apologize if I'm not catching you here, but I mean there will be -- so that $16 million is after -- I mean if you spend the money, you think there will be some volume impact setters a [parlous]. So that was absent any volume impact, or including the offset of any volume you got from that extra spending?

It's just pricing. It's related to the volume we sold, basically.

Okay. And then normally when we see price increases go through, and a lot of consumer categories, you actually see an up-tick in trade promotion, spending, sequentially as stuff gets dealt back. How do you feel about sort of the efficacy of the price increases as we look out, with the pack size changes, the C, D, and 9-volt, do you think there'll be additional spend back from that standpoint?

I don't think we're really seeing that, nor expect that. These C, D, and 9-volt are specially sized batteries, and I'm not sure they warrant that sort of reaction. And the pack up sizing is what it is. Once that larger packs are gone, they're gone.

Okay. Great. Thank you.

Thank you.

Jason Gere, RBC Capital Markets. Please proceed.

Thanks. Good morning.

Good morning.

Just going back to personal care, I guess your main competitor took pricing on wet shaving this quarter and I don't think you guys have, so I was just wondering, one, if you can give an update if are you going to take some pricing there. Also, it's kind of widened the price points on the handles for the five blades, so I was just wondering if you could talk about the pricing strategy first.

Yes, it's my understanding on the razor and blade business, our business, we have taken pricing on everything, except the Hydro. Hydro being obviously in still kind of launch mode, is something that we haven't taken pricing on. But on disposable's, we took around a 5% to 6% price increase. On women's around a 4% to 5% price increase, so we have followed on that.

I apologize. I was referring to the Hydro. But the price gap has widened?

It's kind of hard to measure what price gaps are, between Hydro and Fusion Pro Flide right now, based on level of promotion taking place. So I wouldn't be so focused on that right now.

Fair enough. And just in terms of the mid to high single digit number for personal care, that's an organic number not inclusive of FX? Is that correct?

It includes it.

That would include FX.

It does include FX. Okay. Then can you just parcel between the Playtex side of thing, where feminine care obviously has been struggling a little bit, and maybe if you could talk a little bit about that, but Sun Care sounds like you should have a pretty healthy season. Can you just kind of separate the two there? Thanks.

Yes, we haven't spent much time talking on the Playtex side, but actually on Playtex, we're pretty happy with where the brands are right now, with the exception of Gentle Glide. We've showed share increases this past quarter, in Baby Care, and Sun Care, and Wet Ones, and Gloves. Obviously, it's a low quarter for Sun Care. But we're very encouraged by plan-o-gram sets we have lined up for the coming summer and very encouraged by some of the initial sales that we're starting to see now for Sun Care. Just need to have the sun come out.

Feminine care, to your point on Gentle Glide and on Sport, nothing really has change from what we talked about at CAGNY or before. Sport continues to do well, it's growing fairly substantially as a brand. It's placed in the plastic tampon segment, which is the one part of the Fem Care business that actually has some growth to it. So not a bad place to be. Obviously, the down side is the Gentle Glide, more of a legacy product. I think the reality on Gentle Glide and Feminine Care in particular is simply again what we talked about at CAGNY, we're just in plastic tampon's. We're not in other parts of the Feminine Care space, and yet there's been some massive competitive spending taking place between the two major competitors of Feminine care and I think a legacy brand like Gentle Glide has got caught in the middle of that a little bit.

Going forward, we have a packaging re-stage that will be happening later this year, with some promotional efforts behind it, and continue to focus on Sport. It is resonating with young women, which is a great target audience to be resonating with in that category. So that is kind of how we're going at it.

And just kind of last thing. If I look at the next two quarters and thinking about organic sales, should we be looking at personal care really kind of growing low to mid single digits, and maybe the household side being kind of flattish? Is that the kind of the right way when you put all of the numbers together?

I'm not sure we want to give or provide more detail than we already have. I think we kind of talked about household and the challenges of facing the efforts to increase value in the categories we've taken. Personal care side, we have given more specificity on some of the growth we're seeing on razors and blades in particular, behind our investment efforts, and the rest of the personal care businesses, with the exception of Gentle Glide tampon's seem to be holding in there fairly well.

Fair enough. Thanks a lot, guys.

Thank you.

Nik Modi, UBS. Please proceed.

Good morning. Thanks.

Hey, Nick.

Hey, just two quick questions, Ward. As you go through the restructuring process, just curious if you're looking or finding additional opportunities. That's the first question. An the second question is, can you just give us your philosophical viewpoint on dividends?

Okay, on the restructuring, it's pretty much being executed as planned, and that's no small feat. There's a lot of work that has gone into this restructuring, closing plants in Europe is no easy feat. And yet the teams have done an excellent job of managing that process from A to Z with no surprises.

In terms of additional savings, we're always looking for additional savings. I think especially from an SKU point of view, from a process point of view, weeding out some processes, when you take out these two additional plants, it provides some opportunities in that regard. I'm not sure it's anything material or anything I'd call out. But I do feel that there is some additional opportunities that the teams are pursuing as they do an excellent job frankly of executing that project on the manufacturing platform. What was the second question? I'm sorry.

The dividends.

The dividends. Our philosophy really hasn't changed at this point. We've been pretty consistent in our preferred uses for cash over time. We have found share repurchases to be more flexible, in terms of returning value back to shareholders. Returning value to shareholders remains a top priority for us. And we just have to balance that with the investment opportunities we have on the acquisition side, and certainly the investment opportunities we've had in our own internal efforts, like Hydro. And given the uncertainty over tax laws, and the inflexibility of dividends, it's just not really moving up at this point anyway in terms of how I view things philosophically.

Great. Thank you very much.

Thank you.

Lauren Desanto, Morningstar. Please proceed.

Yes, thank you for taking my call.

Sure, Lauren.

My question was primarily around the feminine care kind of business, and it has been answered. I guess kind of just more visibility in terms of where do you see your position in the category stabilizing? Obviously, you lapped a fairly strong quarter from last year, but I'm just kind of -- how do you see the next four quarters spilling out, assuming that the Gentle Glide, the Legacy brands fall off, and you kind of -- do you see Sport kind of being able to take the place of that over time?

Well, I think the re-stage we're going to be doing, packaging re-stage and some of the promotional efforts we're doing on feminine care in general later this year is a good step in the right direction. It is tactical. But it's knife-fighting kind of tactical in the trenches. And that's kind of what's needed in that business right now as we stabilize Gentle Glide. But the more exciting part of that story is of course the continuous growth of Sport. I think both brands are still very viable in that space, have very loyal users, perform very well, and so this is an example of where we can have laser-like focus on it, if people are going to buy plastic tampon's, they're going to buy ours. And that's maybe the offset to not having positions across the feminine care space.

So we're going to remain competitive in that regard. And be more in a tactical sense than a strategic sense. Again, these are -- this is a business that gets a lot of -- not a lot of questions, but some questions, and I just want to keep in perspective the size of the tampon business for this Company is less than 5% of our sales.

Understood.

We make a good margin on that, that we have.

Right. And then just kind of as a follow-up question. You mentioned the 3Q earnings below last year, ex unusual, and then 4Q, was that higher?

Yes.

Great. Thanks.

Thank you.

That was our final question. I would now like to turn the call back over to Ward Kline for closing remarks. You may proceed.

Okay. Well again, thank you everybody for your interest in Energizer and thank you for your questions. We are = committed to providing another forum to provide color. Not only to our quarterly results, but also on our progress and executing our strategy, and the long-term outlook for our business. We look forward to speaking with all of you again next quarter to review our third quarter results. Operator, I will turn it back over to you.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. And have a great day.