Edgewell Personal Care Co (EPC) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Simon. I will be your conference operator today. At this time, I would like to welcome everyone to the Energizer Holdings Incorporated fiscal 2012 first quarter earnings results conference call. After the speakers' remarks there will be a question-and-answer session.

(Operator instructions)

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

Thank you, Simon. Good morning, everyone, and thank you for joining us on Energizer's first quarter fiscal 2012 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, energizerholdings.com.

During our prepared comments and the question-and-answer session that follows, we may make statements expressing the beliefs and expectations of Management regarding future performance, including future results or events; future earnings, investments, or spending initiatives; cost savings related to our restructuring project; the impact of certain price increases; anticipated A&P spending; currency fluctuation; raw material and commodity cost; and category value and future volume, sales and growth and our businesses. 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 risk, 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 risk and uncertainties include, without limitation, those described under the caption Risk Factors in our annual report on Form 10-K filed November 22, 2011. 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 the non-GAAP financial measures to the most directly 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. Management believes these non-GAAP measures provide investors valuable information on the underlying growth trends of the Business. With that, I would like to turn the call over to Dan to review the financial highlights for the quarter.

Thanks, Jackie. First quarter earnings per share were $2.15 versus $1.55 in the first quarter of fiscal 2011. Excluding unusual items, earnings per share were $2.05 in the first quarter of fiscal 2012 versus $1.68 in the first quarter of 2011. Net sales for the quarter increased $21 million or nearly 2% due to the inclusion of the American Safety Razor business. Organic sales declined $25.9 million or 2.2% as growth in Personal Care was more than offset by a decline in Household Products. Gross margin for the quarter was essentially flat at 47.1%, as favorable product mix in the quarter more than offset the unfavorable impact of the inclusion of the lower margin ASR products for the full quarter in 2012. Advertising and promotion as a percent of net sales was 8% versus 10.9% last year. A&P spending was higher in the first quarter of 2011 due to significant global launch activities. Selling, general, and administrative expenses increased $7.4 million versus last year's first quarter due to the inclusion of a full quarter of American Safety Razor, higher compensation expense due to increased amortization on stock awards, and higher actuarial pension expense.

Now turning to divisional results. In Personal Care, organic sales growth was 1.4%, primarily due to higher shipments of disposables and sun care, offset by lower sales of legacy men's wet shave systems products in international markets, infant care, and feminine care. Sales of Schick Hydro were essentially flat in the quarter, due to the significant pipeline fill in last year's first quarter related to launches in European markets. Segment profit grew 59% operationally, reflecting lower A&P expense and higher gross margin on the sales growth noted above, offset by higher overheads in the quarter due to the full quarter ownership of ASR. While the incremental sales for ASR in the current quarter have been separately disclosed, ASR segment profit is now included in overall Personal Care results. The Company does not believe the full quarter impact for ASR was material to the segment proper results when compared to a partial quarter in the prior year. While A&P spending was low in the current quarter, we expect spending for the next two quarters to increase significantly due, in part, to the support of two new product extensions of the Hydro technology -- Schick Hydro Silk and Schick Hydro 5 Power Select. But are being launched in our second fiscal quarter.

Turning to Household Products, net sales decreased 5.2% for the first quarter versus a year ago driven by a shift in timing of holiday deliveries and de-load of unused hurricane response inventories shipped in the prior-year quarter in the US. Pricing in the US began to stabilize this quarter as gains realized from price increases on C, D, and 9-volt batteries were able to offset higher retailer trade spending as the battery category environment was highly competitive. We continue to experience volume and pricing softness in Western Europe as result of economic and category challenges. In addition, the battery category in some of our measured Asian markets experienced declines, a change from the previous trend as category values and volume were below year-ago levels in the latest 12-week period. Finally, Latin America markets continue to expense value growth as price increases have been able to offset overall market inflationary pressures. Household Products segment profit for the quarter was $148.8 million, down $14.5 million or 9% versus the same quarter last year. Operationally, segment profit declined $13.7 million or 8%, due primarily to the top line declines noted above.

Our restructuring project, which was previously announced in the fourth quarter of fiscal 2010 is almost complete. For the first quarter, restructuring costs were $3.6 million, bringing the total project-to-date cost to $83 million. We expect that the remaining charges will be recorded by the end of this fiscal year. Savings from these efforts were approximately $6 million in the first quarter. These savings helped to partially offset increased commodity and other inflationary costs. Project-to-date savings have totaled approximately $17 million and we expect the remainder of the targeted savings to be realized throughout this fiscal year. We are tracking to the high end of the $30 million to $35 million range previously communicated. With that overview of the quarter, I will now turn the call over to Ward.

Thank you, Dan. Now we will walk you through each of our businesses and the key factors that are impacting them. In Personal Care, a key priority for 2012 is to leverage our unique Schick Hydro technology with two new product rollouts in the second quarter -- Schick Hydro Silk for women and Schick Hydro 5 Power Select for men. Schick Hydro Silk hydrates skin like no other razor. This is achieved using breakthrough technology, delivering a proprietary water-activated moisturizing formula that hydrates skin, coupled with the patented five blades with unique skin guards that protect sensitive skin. In consumer testing, women said they significantly preferred the new Schick Hydro Silk razor over the leading five blade women's razor currently on the market. We are launching this product currently in North America and Japan, with plans to launch in other markets during the balance of 2012 and 2013. The Schick Hydro Power Select razor features unique technology, including three vibration settings, easy-to-read indicators, and a one-touch control button, offering men a shave with custom power proven to reduce irritation while providing hydration through each shave. We are currently launching this product in North America and Japan. We continue to have a strong innovation pipeline in our wet shave business, and these innovations are consistent with our key goal of providing consumers with products that deliver unsurpassed performance. We will support these launches with strong media campaigns, as well as promotional activities through the next two quarters and so you can expect a higher A&P spending as a percent of sales versus the first quarter level.

In addition to these new product launches within the Schick Hydro franchise, we continue to grow our Schick Hydro men's system share across the markets where we've launched. While our net sales are flat this quarter, this was expected due to the significant pipeline in Europe last year. Importantly, refill sales are growing double digits. We continue to be pleased with the effectiveness of our promotional programs on trial and repeat. While our Hydro trends are positive, legacy men's brands are under pressure due to both cannibalization and high competitive activity in the quarter. The US Quattro business is relatively stable in our latest shares. However our legacy men's business outside the US lost share as a result of anticipated sales attrition related to the more recent Hydro launch.

In the disposable segment, net sales grew behind higher shipments in the United States this quarter, behind promotional programs, coupled with good momentum coming out of the fourth quarter of 2011. We continue to see strong shipment growth in other developing markets in our Asia and Latin American regions across all brands. Building on the success of the Quattro for Women disposable Raspberry Rain scented handles in January, Schick launched a new scented handle with a Skintimate Strawberry Tangerine scent. Recently, about 20% of the women's disposable segment consists of scented handles. This is an example of Energizer Personal Care leveraging synergies between its razors and shave prep businesses. Schick also launched in January new Xtreme 3 Eco razors, the first disposable razor to use 100% recycled plastic in the handle and 100% recycled paper in its packaging. Schick estimates it will save over 103,000 pounds of virgin plastic materials from going into landfills each year as well as 15,000 pounds of paper. Schick Xtreme 3 Eco will be available in both men's and women's variants.

Across many of our Personal Care categories, we have been effective in implementing price increases. Notably, in our US shave prep business, we implemented an 8% price increase, which is the first increase in the category in many years. In early December, we announced price increases across our razor, refill, and disposable businesses, up between 4% to 10%, effective March of 2012.

Finally, while quarter one is not a heavy sun care quarter in the US, sales grew approximately 30% versus prior year in key international markets, including the launch of Banana Boat in Brazil. In sun care, we have introduced and our current shipping three new product innovations -- new Banana Boat Natural Reflects is a line of sunscreens with naturally-derived ingredients that provides consumers interested in natural products a way to keep their families healthy and safe, with a reassurance that the product is natural yet as effective as our leading sunscreens. New Banana Boat Sport Cool Zone continuous sprays provide a unique, instantly cool and refreshing benefit to the skin to address the insight to consumers do not like applying sunscreen when active and hot outdoors. And thirdly, new Hawaiian Tropic Silk Hydration is the only sunscreen to offer hydrating ribbons for 12 hour moisturization and protection, a solution for drying after-effects of the sun. These new products have achieved strong distribution and current early season sales are strong. Finally, Energizer was one of the first manufacturers to respond to the FDA changes in the monograph for sun care products, with communications to both retailers and consumers. We are currently shipping monograph-compliant packaging on the majority of the portfolio.

Turning to our Household Products division, we continue to see battery category volume softness. However, we began to see positive signs of overall category value begin to stabilize the latest 12 weeks data. This is an improvement over recent trends as price increases, reduced promotional spending, and elimination of pack upsizing all helped to offset continued volume softness. In North America, total category value improved versus year-ago levels, as the overall level of promotional spending decreased. However, our October through December shipments were below prior-year, as selected large customers requested holiday deliveries in September which is earlier than in prior years. In addition, we experienced de-loading of unused hurricane inventories in states not directly impacted by the hurricane in the prior quarter.

We believe that retail inventory levels are at normalized levels as we enter fiscal quarter two. We continue to focus on reducing our level of promotional activity, as we do not believe it translates into long-term growth. As a result of scaling back promotional levels, we experienced a moderate share loss during the quarter. We made a conscious decision to focus on value-driving activities, such as implementing the C, D, and 9-volt price increase, the recently announced 6.7% alkaline and carbon zinc price increase, decreasing non-value added promotional spending and eliminating pack upsizing. We understood that this could result in some temporary share shifts. Nevertheless, we remain confident in our strategies and their potential to enhance shareholder value.

Turning to Asia, we saw decline in household battery category consumption in some of our measured markets in the last 12 weeks data. Category volume was down nearly 4% and value was down 2%. This is a departure from recent trends, where we have seen consistent growth over the past six quarters. We continue to analyze the drivers of the decline to determine if this is simply a temporary shortfall. In Europe and Latin America, a bunch of battery trends we have seen in previous quarters have remained unchanged. In Europe, category and overall economic conditions remain very challenging. Several Western European markets continue to be negatively impacted by the difficult economic conditions in a fierce competitive environment. In an effort to offset these unfavorable trends, and reduce our exposure to the volatile economic environment, we have focused on value driving activities such as reducing free bids and promotional spend. In addition, we benefited from reduced product cost as a result of our Swiss plant closure. We were able to replace volumes previously produced in the higher-cost Swiss plant with products produced in our lower-cost production facilities. In Latin America, we continue to see value accretion driven by price increases.

In addition to these operational highlights, I am also happy to report that during the quarter we repurchased 1.9 million shares. Over the past 12 months, we have returned over $410 million to shareholders in the form of share repurchases. This represents over 100% of our trailing 12-month free cash flow and over 150% of our US free cash flow. As you know, our preferred method of returning cash has historically been share buybacks instead of a dividend. We have liked the flexibility that share repurchases provide and while many of our shareholders are content with share buybacks as a means to return cash, others prefer dividends. In these volatile economic times, it appears that dividends are becoming more popular among investors. The discussion on how to best deliver value to shareholders is ongoing with our Board of Directors and the topic of share repurchase versus dividends is a topic we discuss regularly.

Looking forward, as noted in our release this morning, we have tightened our fiscal 2012 guidance range to $6.00 to $6.20. This represents a reduction of $0.10 to the top end of our previous guidance but we have not changed the low end of the range. This revised guidance reflects our objective to deliver meaningful earnings growth in fiscal 2012 despite increased challenges due to economic weakness in Europe from volatile currencies. We believe Personal Care will deliver solid year-over-year segment profit growth, higher gross margin driven by organic sales growth, coupled with lower A&P, as we anniversarying Hydro launch spending in fiscal 2011, will more than offset the negative impact of higher product cost and the economic weakness in Europe. We expect household product segment profit to be relatively flat versus year-ago. The benefits from the US pricing initiatives and manufacturing footprint restructuring savings are expected to be offset by unfavorable currencies, higher product cost, and continuing category pressures.

Other corporate cost, which includes certain corporate overheads, interest expense, and other financing costs are expected to be relatively flat to slightly lower versus year-ago, as higher pension, actuarial, and other compensation-related expenses are offset by lower other financing costs, as the prior-year did include losses on our FX hedging contracts. Overall, we reaffirm our theme of fiscal 2012 being a year of return on last year's year of investment. Our investments in truly innovative products are paying off and will continue. In addition, savings from the Household Products restructuring efforts are helping to offset difficult category and economic environment that was anticipated. Now, Dan and I will be happy to take your questions. Operator?

Okay. Thank you. Certainly.(Operator instructions) And our first question comes from the line of Bill Chappell from the SunTrust. Please go ahead sir.

Good morning.

Good morning.

Just want to get a little more color on the quarter battery sales. I guess, first, is there any way to quantify kind of what the early shipments in September and then the post-hurricane fall out -- what that did to the quarter? And then second, I think your implying that by leading the price increase, you got put in the penalty box by some retailers and that hurt some of your share. Does that imply that your competitors didn't follow or you just got put in the penalty box for leading that charge?

To the first part of your question, roughly half of the shortfall can be attributable to some of just the volume shifts we referenced as it related to September shipments into some customers and mortgaging following the hurricane in some states. As for being put in the penalty box, fortunately, we really have not been put in the penalty box, per se. But you do give up, just from the degree of promotions that were being executed versus our competitors I think there's a little bit of temporary share slippage there. To be specific on that, one key metric we look at, for example in the United States batteries, would be the percent of volume, battery volume, that's done on deal. And for the quarter, roughly 45% of our Energizer battery volume was done on deal, which is kind of high for the year but you can understand that being the holidays. But the comparable number for our major competitor for the same time frame is around 57%, 58% of their volume being done on deal. So as we provided more disciplined in terms of how we are managing our promotion and I think, as evident, in terms of the degree promotion you're seeing from us versus our competitor, that some temporary share loss can be expected. Again, these tend to be activities that rent share. I don't think they're activities that own share. And so it is not an overly big concerned.

And then in terms of the pricing going forward in February, would you expect everybody to be following?

Well, we don't know what others are going to do. All we know is that Duracell has announced they are going to follow the 6.7% price increase that we led. And Rayovac we've got we have not heard from yet.

Okay. And then just last question on that pricing, on the blade razor increase coming in March, would that put your prices above the Gillette portfolio, or do you expect the whole category to go up?

I'm not sure. It really depends on the specific SKU. I think, in general, we are following a number of price increases that were initiated by a competitor. Rather than lead the dynamics obviously in the razor blade category, share positions are much different than on household, so we tend to be more of a follower, I think, versus a leader, as we are in batteries.

Perfect. Thanks for the color.

Thank you.

Thank you for the question. And our next question comes from the line of Wendy Nicholson at Citi Investment Research. Please proceed.

Hello. First question is on the A&P outlook for the back half of the year. I think your last guidance was that the advertising side would come in kind of 10.5% to 11% for the year kind of back with 2009, 2010 levels. As you talk about the new products yet to come in personal care, is that going to skew more towards advertising so that ratio is going to be higher than previous guidance or more on the promo side or where are we tracking in the kind of 10.5% range?

Yes, Wendy. This is Dan. So, I guess, first of all, we stated in the prepared comments that A&P will increase significantly in the rest of year, especially due to the new product launches, and actually Q1 was a very, very low A&P, as we really didn't have any launch activity. In terms of the previous guidance, as we've re-looked at it this quarter, we anticipate we will probably actually come in a little bit below the range that we had previously guided. So I think we said that 2009, 2010 range, which I think was, like you said, roughly 10.5% to 11%. We would expect to be below that on a percent of sales basis and A&P spend.

Okay. Perfect. And then following up just on sort of the pricing and the restructuring that you are doing on the battery side. It is great that you're being the leader in terms of taking the pricing and the restructuring, but it still sounds like the business is sort of just destined to be lower margin than it has been in the past, it just sounds like it's a much more difficult category going forward. And so I guess my question is, would you contemplate another leg to the restructuring program, hey, a real desire to get those margins back up north of 20% on an ongoing basis? Is there another X number of factories or X number of SKUs or stuff that you can do, again, even if it doesn't drive growth in the category, at least it preserves the margin?

You know, there's no phased plan at this point in terms of any sort of major restructuring's on the household. We're pretty happy with what was achieved this past year. It was a pretty major restructuring for us that we just have under our belt. Obviously, you always look, keep your options opens as you go forward, depending on overall conditions. I think, I am less concerned about our ability to manage our margins on batteries, especially if we are successful on the price increases sticking going forward. It's the percent margins I'm less concerned about, it's the margin of the size of business which is the concern and again the size of business, really more relating to the category itself and where the category trends are. We've seen, globally, right now, the battery category value has somewhat stabilized but units are still down on a 12-week basis, around 3%, 4%. And so that remains the primary reason for the restructuring we did last year and I think it remains something we watch pretty as we go adroitly forward.

For enough. Thank you.

Thank you.

Thank you. Our next question comes from the line of Chris Ferrara of Bank of America. Please go ahead.

Hello, thank you. Guys, can you talk, I guess where the guiding change comes from specifically? I guess it sounds like a lot of it is currency or maybe some of it is currency but could you just flesh that out a little? Because the household business still sounds like you think segments profits are going to be flat. Where is the incremental change coming from especially considering the A&P I guess is going to be lower than you originally thought?

I will give you kind of a macro answer, maybe let Dan drill down a little bit for you. I think the two bigger changes versus when we gave guidance at the very beginning of the year is simply the devaluation of some currencies for us, especially European currencies, after we gave guidance first a quarter ago and that really tied with just general volatility, weakness, and uncertainty in Western Europe. And we have a pretty good-sized business in Western Europe and we do see consumers pulling back. And so those would be two of the material changes I think, that over the past 90, 100 days that makes us prudently, I think, bring down the top end of the range. We're pretty confident again that we can hit the range and the bottom didn't move. I don't know, Dan, if you had anything want to add?

Yes, I think, as we mentioned in the call, Europe continues to be very troublesome and then a lot of our measured markets in Asia turned negative so we're just a little bit more cautious and, as Ward said, with currencies, the volatility, even if you look over the past two weeks has been significance so we just felt it prudent to lower the top end and damper expectations a little bit from that standpoint.

Got it. And is there any connection between that revised macro outlook and the A&P number coming lower, whether that's to just to give you more flex around the guidance or whether that's just you don't want to throw good money after bad and tough markets? I mean, how do we think about the relationship between those two?

I think there's probably some impact of that. I guess it is also related to the fact that as we've kind of fine tuned our plans as we progress through the year, the spending that we planned to spend at the beginning of the year has simply come down. I think we are going to continue to support the major product launches that we've announced. But there certainly is an impact of the economic situation in the markets where we compete where maybe we aren't going to spend as much and keep some more in reserve.

Thank you.

Thank you.

Thank you and our next question comes from the line of Jason Gere of RBC Capital Markets. Please go ahead.

Okay. Thanks. Good morning. Just a couple questions. One, I guess I just trying to get an update on ASR, maybe the learnings so far. And then maybe your outlook on ASR growth this year relative to the core Schick line.

You know, I think that not much has changed really on the ASR story. We've been very happy since we bolted it on to our existing razor and blade business. Earnings were stronger the first year of it than we really anticipated. Integration has gone fairly smoothly. To what degree we've done integration, we have set up a Private Brands Group. They are getting traction. I think we have some work still before us as it relates to the innovation pipeline with ASR.

As you can imagine, they just didn't have necessarily the capabilities that our Schick business has had, as it relates to new products, quality, and quality enhancements and innovation. And that takes some time. That's not something that turns on a dime. And so I think this year is really a year where a lot of the focus on ASR as they continue to a good job of managing the sales of that business, our real focus is I think more behind the scenes, the upstream activities of innovation and product enhancements, product quality, and there's some very good road maps that have been put together. They know what they are doing. It is just a matter of executing over the next few quarters.

So is it fair to say that we will see probably more accretion from it in fiscal 2013 and '12?

I would say that's probably a fair statement although we won't be breaking that out but that would be my sense of the rhythm of the business.

Okay and then, I guess the next question is just thinking about organic sales. The last couple of years, you've been driving pretty consistent 2% organic sales and just with all the challenges that you've presented but also more pricing, kind of coming through. First quarter, obviously starting off negatively, are you still comfortable with that type of outlook and how do you see the sequential build for the rest of the year especially with, you know, and you have two big products coming out on Hydro, which are out now. But just can you give a little cadence, I guess, to how you see organic sales building over the course of the year?

Yes. Sure. I mean, it is still positive but it's not at that 2%, 3% range that you cite. And for the reasons I won't repeat on the battery side somewhat offset impacted a little bit on the quarter. But I think overall, when you look at the range of price increases across the range of categories, I mean, we are even doing it on shave prep, as we cited in our comments. A lot of the realization of those price increases, whether it's the 6.7% price increase on batteries, whether it is the price increasing we are doing on razors and blades or shave preps is before us and I think that should help tick up on the organic growth versus what you saw for the first quarter. And I think that will be part of it and then the other part of it simply is the innovation that we have that is hitting shelves literally in the next 30, 60, 90 days.

The Hydro for women, I have great expectations on. It is a great product. I mean, it's just outstanding good product and we look forward to women trying them because we know they will find that to be the case. The Hydro Power, it is not just another powered men's system razor, it is top-notch quality proprietary different and unique and men we will see that for those who prefer a power razor. And then on the sun care line up, really, they continue to just -- the innovation pipeline is being fully executed right now. So between those new products and all those price increases, I would expect the organic growth to tick up and obviously the big question always remains just the macro environment. In Europe remains a concern not just for Europe, but any spill out effects to the rest of the world is something that keeps -- it is on my top 10 worry list right now, but we are doing what we can.

Okay, so on the, let's say, the personal care side, would you be disappointed if volumes were not positive? I can understand the battery side and the challenges there and even with some of the pricing that you might still seeing negative organic sales over the course of the year, but higher expectations of the personal care side, is it a safe assumption that volume should tick up?

I expect volumes -- I mean, personal care volumes are ticking up and I continue to tick up and maybe at an accelerating rate. And on the battery side, I'm not sure, volumes yes will be soft, but value we are hoping remains stable if not tick up behind some of the pricing actions we've taken.

Okay, great, thanks a lot.

Thank you.

Okay. Thank you and our next question comes from the line of Connie Maneaty from BMO Capital. Please go ahead.

Good morning.

Good morning.

The decline in battery sales in Asia, what percentage does Asia represent of your battery sales? And are the declines limited to one country or is it widespread?

Hello, Connie. This is Dan. The declines really are widespread. It is both developed and developing markets. And it is roughly a quarter of our battery sales are in Asia.

I think one of the things exacerbating the Asian results and it is widespread but Australia is one of the most important markets in Asia and they are annualized through, if you recall a year ago, heavy typhoon and flooding in Australia, pretty severe historical standards for that country, and we had a good quarter, in terms of battery and flashlight sales during those traumatic times and so in that particular country, which is one of the lead countries in Asia, there's that one particular, I think one off that we can point to but to Dan's point, the softness is more than just Australia, so I'm not sure we can really attribute all of it to that, but I think that may be part of it. And it's something we are going to continue to monitor.

Okay. That's very helpful. You know, on the price increase in the shaving category, it was my understanding that even on legacy systems, the price went up almost every year. So what justifies such a big price increase in the category where there are always price increases?

Well, I'm not sure, I mean, generally what justifies the price increases that we take to the trade are real cost increases that we are experiencing whether it is in commodities, whether it is purchase product, whether it is labor, et cetera. And that is always part of it. I mean, certainly it is not news in this call, the general commodity and cost pressures many manufacturers have been facing have been real and that's true in the razor and blade category, so I think there's just an underlying fundamental reason to try to recoup some of those cost increases as it relates to razors and blades. I think the other aspect that is maybe unique to razors and blades is the constant introduction of innovation and we've brought innovation in disposable's, as has our competitor, and every time you bring innovation into the marketplace, you can command a premium price for that. And so I think those are really the two factors that have been the case for our razors and blades and are the case currently.

And one final question, the Press Release said that you took a percent of the gain on the sale of the Swiss factory for some incremental restructuring. If it is not in the battery business where has it been applied?

It is just basically below the line. It is in the -- I'll have to look in the -- it is in the household restructuring line that we used last year for the cost that we incurred.

Yes, so if you look -- Connie, this is Jackie -- if you look at the statement of earnings, you'll see the household products restructuring line under Research and Development, it is there. And you can see that it is not a charge this year, it is actually income of $9.2 million.

But wasn't there -- didn't you also do some incremental restructuring?

Well, there's some legacy restructuring cost coming out of the program of last year that we're going to be hitting this year. And so those would be offsets to the gain that Jackie just cited.

Okay, great. Thank you.

Thank you for all those questions and our next question comes from the line of John Faucher of JPMorgan. Please go ahead.

Yes, thank you. Just wanted to ask a little question. You talked about the cash return to shareholders and obviously it has been a big change over the past 12 months or so. Can you talk a little bit about your view on this, is it going to continue to be a little bit more opportunistic? Do you foresee this being a more regular program? And then also one separate question which is on the COGS line, we have seen some volatility in some of the underlying raw materialize but realize you guys tend to do a lot of hedging. Any sort of updated thoughts in terms of how your exposure looks on the COGS line? Thanks.

Yes, I may take the first part of your question. I'll maybe look to Dan to answer the second part. Really our approaching on returning cash back toward shareholders through opportunistic share repurchase, I don't think has changed. That really is our mentality and I think demonstrated again this past quarter. It is not a regular program per se. And so I don't think really anything has changed in that regard. I think what maybe has changed is our discussions of other ways to return cash to shareholders. I think we are spending more time on this question than we have in the past and namely the issue with dividends.

One of the things hanging out there as it relate to dividends, we don't like the inflexibility of dividends, one, but two, really don't like the uncertainty of the tax environment as we go forward here and the Bush tax cuts expire. But we do know that there's a number of shareholders that like to see dividends and so we validated a discussion to our Board of Directors. We are having some good discussions and doing some analysis in that regard. I'm not try to signal that there's any change in our policy in not doing dividends, but I do want to reassure everybody that it's something that we are considering seriously. Meanwhile we've continued with our opportunistic share repurchase approach. And then to Dan, I will turn it over for your question on cost.

Yes, John, on product cost, it is about $40 million for the years that we expect, $20 million per for each of the businesses. But within household because of those restructuring savings from Project 2020, it's going to net out to about zero, but the $20 million unfavorable will be realized within EPC, our Personal Care business.

Okay, thank you.

Thank you for those questions and our next question comes from the line of Ali Dibadj of Sanford Bernstein. Please go ahead.

Hello, thanks. A few things. One is just to get a sense of your cadence of battery growth going forward. I mean, you've very clearly laid out the past quarter, kind of what some of the one time drivers are, but as you look forward, how do you expect and I guess maybe when do you expect the pricing you are taking to offset some of the volume softness that you've described? And it would be helpful if you could given they're very different markets it sounds like to talk about, kind of US, Europe, and rest of world, separately, in that context?

Okay. Sure. I think we have seen, through some of the actions we have already taken, some improvements in the value performance of battery category. Battery category dollars relative to units. Again if you look back a year and a half or two years ago during the past, the package up-sizing, those efforts, you saw category units declining but category value declining even more. That is reversed and so basically, on the 12-week basis, we are seeing value basically stabilize units though still down. So I think you're already starting to see that. And that's before the 6.7% price increase that we've announced is implemented. And so it is our hope that the 6.7% price increase sticks going forward, that's our expectation. And that you'll start to see as result of that, certainly North America, value starting to uptick maybe plus 1%, plus 2%. Units are kind of going to do their own thing, and they may still be down minus 3%, minus 4%, minus 5%.

That's the long-term trend, that's the hardest for us to -- well, we can't control it, it's one we adjust to. I think the price increases in North America are significant and like I said, we've announced ours, it's been accepted pretty widely by the trade. Duracell has announced their price increase. Rayovac has not so there's always that wild card. But I think you should see positive value numbers for the category in North America going forward here versus the minus 0.5% in the most recent 12-week, so we are almost there. I think in Latin America, the category, we can get pricing in Latin America in the battery category. And o value stable or value growth is current right now, has been, and I expect will continue, despite unit softness we may experience there. In Asia, we generally, values and units growth rates have both been growing. And again, we've commented how we've seen after the last six or seven quarters that not to be the case and so we are calling that out. Part of which, I think is the Australia explanation I cited earlier, but that's not all of it, so we need to watch that.

And then on the down side in Europe and Europe is just -- Western Europe in particular, not so much Central and Eastern Europe, but I think it is very tough to get pricing in Europe right now. We are making and have been making serious efforts to rein in some promotional spending especially in markets like the UK where it is just destructive promotional spending that's been taking place. Without growing the category. And so I think price in Europe is going to remain more problematic going forward.

Okay, that's for helpful. In a different set of businesses -- so infant care and Fem care -- I think it is like 9%, 10% of your sales right now. Given the transaction we saw with Evenflo and how that business has, I guess, suffered pretty regularly recently, what you think about the strategic fit for you being in those businesses? I guess what would it take for you to exit those businesses?

Well, I think that is a good question and strategically, they're obviously not as important to us as batteries and blades and sun care. Those are the three businesses where are the big profit driver and growth opportunities in case of razors and blades and sun care, in particular, going forward. That said, Fem care and Infant care have kind of their own unique challenges. I think the one that is noteworthy on infant care, frankly is softness of category. And I'm looking at some US data, infant care value down 4%, units down 7% on the past 12 weeks -- that's, again, the category. 52 week basis, infant care is down 4% to 6%, I mean, those are negative trends worse than what we've seen in batteries. Fortunately, it is not than big a business for us. But I think it is indicative of really the economic hard times and people postponing having children. And obviously, infant care is the first category that is a bellwether for live births. And will that abate if and when the US economy starts hitting some strong numbers? I think so. But right now the overall category is relatively weak in infant care. Fem care, the category itself is relatively stable and so is our market share.

So even though the strategic importance of Fem care and infant care are less to us, they are good accretive deliverers of cash and profits and we will continue to just evaluate what we want to do in these categories going forward. And those are good questions as we go forward.

Okay and just my last question about cap allocation. I mean, I did want to revisit this dividend topic because on the last conference call, it sounded, you were very much leaning against it and things may have changed. I just want to get a sense of kind of what drove some of that change, kind of what happened to make you revisit that topic? And of course, we understand that it may give you less flexibility, but on the flip side, as you've mentioned, it gives investors more certainty, more discipline between these environments. So is that the environment that changed it, is there something else that's going on internally? Are there not great acquisition candidates? What changed your mind versus three months ago?

You know, actually, and that is a good question. And there's two or three factors that come to mind. One, we are spending more time obviously coming out and talking with our shareholders and this is one of the questions that we've been asking them in having discussions with. And so we are just getting a better understanding of different shareholders and their different needs. So I think one, it is just an impact of our outreach program and additional intelligence we are getting as we talked to our shareholders and what they wish. I think the second thing that I haven't seen much commentary about, but being on the Board of the Fed myself, the Fed has kind of done some extraordinary things this quarter in terms of laying out where interest rates are going to go, going forward.

And it is basically from what the Board of Governors are saying and I can't -- I'm not speaking on their behalf -- they basically promised current interest rates out through 2014 or beyond and so there seems to be a driving or increasing thirst for yields by investors, especially those that are on fixed incomes and fund that are serving people in that regard. And dividends become, I think, maybe more important as a steady source of revenue or income for people. And so that's another factor. I think that goes into it. And I think the third factor is your comment on acquisitions. We just -- we are not seeing a number of -- a robust pipeline of opportunities in that regard. And so these are all factors I think that come into play that have elevated the discussion and again, I don't want to signal that we are changing our approach on this, but I do you want to just let shareholders out there know and others know that we're taking it seriously and we're having some robust discussions with the Board of Directors right now on this point.

Okay. Thank you for all those question and our next question comes from the line of Alice Longley of Buckingham Research. Please go ahead.

Hello, this is Alice Longley and also Bill Schmitz so I'll begin with my question and move then on to Bill. I have some more questions about the assumptions for the battery business for the year. It sounds like the category globally in value terms you're saying is maybe flattish, but I guess globally you lost share, which is why your organic sales growth was down. Your guidance to us -- does that assume that your organic sales growth globally in batteries continues to be down, low to mid single digits?

I think, Alice, this is Dan. For the year remaining, we are expecting to be flat to slightly positive and a big element of that is the aforementioned pricing that we are taking in the US.

Do you expect to continue to lose share globally or to hold or gain for the rest of the year?

Yes, our expectation is not to lose share globally.

Okay. And then my only other question is about foreign exchange. Historically it's hurt your operating profits about three times as much in sales. Should I assume that will roughly continue for the next three quarters, that ratio?

I'm sorry. Could you repeat your question?

Historically, you've broken out the effect of foreign exchange on sales and operating profits by division, and foreign exchange has hurt operating profits about three times as much as sales historically. I'm just wondering if that would be the case going ahead for this year, too?

Yes I can't cite -- I can't really quote the ratio. I mean, certainly it's going to impact more on the top line. And in the back half of the year, we're facing some currency headwinds. So we are facing that both sales and profits going forward. And I guess just to provide a little bit of color, I think on the divisional side, it is about $20 million of un-favor ability for currencies, the majority of that is on the household side, and that's on the profit line in the back half of the year.

If I could add to that again, a lot our dollar cost, a lot of our cost-per-dollar [abased], especially in the battery side. And so when you have dollars strength and foreign currencies devaluing, there is that squeeze on margins.

Okay, thank you very much, and now Bill.

Hello, guys, can you just give us the volume and price mix for each of the segments for the quarter? So volume in household and then price mix in household and the same thing for personal care?

Yes, so, for -- I assume you're talking on the -- are you talking profit or sales?

On sales. Oh yes, both, if you don't mind?

So for on the sales line for household, volume was $34 million unfavorable, price mix was $4 million unfavorable.

Do you have in percentages? Because we don't have the base volume?

Let me just give you the dollars. Yes, we can take that offline, but if you look at the $33 million sales decline X currency, it is around $34 million is volume, around let's just say roughly $4 million is price mix, and roughly $5 million is a favorable impact to do elimination of pack up-sizing. Okay?

Okay.

And profitability-wise, that volume impact of negative $34 million resulted in about $11 million of reduced profitability and price mix falls 100% to the bottom-line so that's $4 million. And within Personal Care, volume was favorable -- and I'm going to take ASR out of this.

Okay.

Roughly $7 million and that was really driven by disposable's. Price mix is essentially flat and on the profit line, volume was about $9 million of favor ability and price mix was flat as well.

Okay, great and then, you know, I'm confused about the battery category because if you looked at the scanner data from last quarter, there was sort great volume and growth because of the combination of the hurricanes and then the floods. But if you look over a report of their numbers, nobody seems to be growing volume so I'm curious, was it just massive amounts of trade inventory going into the storms? Or was there something else at play here? Or was there a bunch of private label that we don't track that was coming into the category and selling through there?

No, I think it is the former. As we do call out that part of -- we saw mortgage in this quarter from inventories that went into the trade last quarter in response or in anticipation of that hurricane that got stuck at trade because the hurricane although it impacted some markets didn't impact the whole East Coast and we saw some retail stocking up the whole East Coast. So there is that kind of one-time -- we will see the occasionally with hurricanes that threaten major parts of the US and don't hit and then usually flushes out the following quarter so we've called that out. And that's about all I make of that.

Okay, but my point though is though that volume wasn't great shape last quarter either. Do you know what I mean? It's like you talked about pulling all this stuff forward, but if you looked at everybody, the category's reported results, volume was still pretty lousy.

Yes. No, you're right and I think part of that is our volume went into retail trade but it didn't come out. And so it got stuck at the Retail level. I think we saw that, I think there's also the other factor to keep in mind that and that is the elimination of pack up-sizing. And all those big large packs are being given away at cheap, cheap prices a year. We have gotten out of that business. And that pack up-sizing experience allowed us, the manufacturers, to load up consumer pantries with a bunch of free batteries that they've got to work down. And this is all part of the cloud or part into the US numbers for sure this past year.

Okay, thank you. That was our final question. I will now turn the call back over to Ward Klein for closing comments.

Well that really concludes the call and thank you everyone for joining us today. Have a good day.

Ladies and gentlemen, thank you for participating on today's conference call. This call will be available on replay from later on this afternoon. Thank you again for joining. You may now disconnect.