Edgewell Personal Care Co (EPC) 2012 Q3 法說會逐字稿

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

(Operator Instructions)

As a reminder this call is being recorded. I would now like to turn the conference call over to Jackie Burwitz, Vice President Investor Relations. You may begin your conference.

Thank you, Jasmine, and good morning, everyone. Thank you for joining us on Energizer's third 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 expectations of management regarding our future plans and performance, including future results or events, future sales, earnings, earnings per share, investments, capital expenditures, advertising and promotional spending, cost savings related to our internal initiatives and working capital projects, the impact of price increases, currency fluctuations, raw material and commodity costs, category value, future plans for return of capital to shareholders and the future growth in 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 risks and uncertainties. These risks, 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 limitations those described under the caption risk factors in our annual report on form 10k, filed November 22, 2011. We do not undertake or plan to update these forward-looking statements, even though our situation may change and these forward-looking statements represent our views as of today only.

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. The 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.

Thanks, Jackie. For the third quarter, GAAP earnings per share were $1.06 compared to $0.94 in the third quarter of 2011. As outlined in the table in the press release, adjusted earnings per share were $1.18 for the June quarter compared to $1.37 in the same quarter last year. Net sales on an organic basis declined 6.6%, which I will explain in greater detail when reviewing the division results. Gross margin for the quarter was 47%, a 60 basis point improvement versus year ago and 130 basis point improvement excluding unfavorable currencies, due primarily to improved product cost and favorable product mix. Advertising and promotion expense was down 9% versus year ago, but was roughly flat as a percentage of sales due to the sales decline in the quarter. SG&A, excluding a $13.5 million litigation provision, increased $5.1 million or 2% during the quarter, but was up almost 200 basis points as a percentage of sales due to the sales decline.

Now turning to divisional results. In Personal Care, organic sales declined 5% due to lower sales across most major product lines. Organically, our wet shaves segment declined 5%, as gains within the Hydro franchise were offset elsewhere. Within Hydro, men's refills continued to grow at double digit rates and the Power Select and women's Hydro Silk products, both of which launched in the second quarter, provided year over year sales growth, partially offset by lower sales of Hydro men's razor handles. We also experienced sales declines in the other razor and blade sub-segments, which more than offset the growth in the Hydro franchise, including legacy men's and women's systems related to the Hydro launch and lower sales of disposable's. Sales of Hydro men's razor handles declined in the quarter due to comparatively high prior year razor handle shipments from trial generating investments.

Declines in the razor handle shipments are typical on a comparative basis as we move away from the initial launch period and consumers purchases shipped to refill blades. Importantly, refill sales have increased significantly every quarter since launch and were up 21% this quarter versus the third quarter of fiscal 2011 and 57% year-to-date. All segments of wet shave were impacted by intense competitive activity and spending levels. Net sales in Skin Care decreased 6% due to higher trade and promotional investments and unfavorable product mix. Our Banana Boat and Hawaiian Tropic lines increased versus prior year despite timing of the seasonal recess, which pulled pre-Easter shipments into the second quarter of this year. Net sales in Infant Care declined due to continued category softness, heightened competitive activity and higher promotional and trade support behind bottles. Feminine Care sales were relatively flat, as higher sales volumes of sport tampons were offset by lower volumes of general buy. Segment profit, excluding currencies, declined approximately 14% reflecting lower gross margin on the sales declines.

Turning to Household Products, net sales decreased approximately 12% for the third fiscal quarter of 2012 versus year ago, with 3% of the decline due to unfavorable currencies. Organically, net sales declined $44.4 million or 8.7%, driven by the negative impact on shipments and market share as a result of decreased shelf space and display activities at a key retailer in the United States, combined with increasing volume softness in the household battery category and an expected deload of inventory shipped in the second fiscal quarter, ahead of the February price increase. Segment profit for the quarter was $69.5 million, down $10.5 million or approximately 13%, versus the same quarter last year due primarily to unfavorable currencies. Operationally, household product segment profit declined $1.9 million or approximately 2%, as the top line short falls noted above were mostly offset by spending reductions and cost savings related to our 2011 restructuring program.

During the quarter, we repurchased 1.1 million shares at a cost of approximately $83 million. In addition, we repurchased approximately 600,000 shares from July 1 through July 27 at a cost of approximately $44 million. Thus far in fiscal 2012, we have repurchased a total of 3.6 million shares. With that overview of the quarter, I will know turn the call over to Ward.

Thank you, Dan. In Personal Care, we expected lower growth in the quarter due to significant promotional programs last year in the third quarter, as we invested significantly to drive Hydro razor trial. Also of note was strong prior year third quarter Sun Care sales, which had been significantly positively impacted by both timing of shipments around Easter and favorable Sun Care returns. However, we were impacted by category growth rates which were substantially lower than the previous two quarters. Additionally, we have seen an extraordinary change in the competitive environment in the razor and blade category, especially in the last four weeks. This increase in consumer coupons and promotional activity, primarily in the United States, do not appear to positively impact the overall wet shave category. For example, our major competitor in the wet shave market executed a 25% increase in FSI coupon activity, combined with price roll backs at a major customer during the quarter. The increased FSI activity was focused on buy one get one free offers. In addition, the competitor's measured media spend was up more than 30% for the quarter. Nevertheless, the US wet shave categories actually declined 4% in units for the quarter and was up a modest 1% in value versus a 52-week value trend of up 4%.

Despite weakness in shipments to customers, our market share across our categories remain relatively stable for the quarter. However, in the latest four weeks, we did begin to realize some share losses in the United States in wet shave due to heightened levels of competitive discounting and promotional activities. We expect these efforts to continue through most of the current quarter. Given the current environment and the challenging comparative prior year third quarter, I am encouraged that we have continued to grow our Hydro refill sales in the quarter and have continued to drive profitable Hydro men's franchise growth. Globally, sales of refill blades continue to grow double digits and we are seeing positive results with our Hydro Power Select razor, which also has helped drive refill blade sales. Similarly, the early market results of the Hydro Silk for women launch are positive and we've seen US market share for this outstanding new product grow to 7.5% in the latest 12-week data, driving our overall women's share up to 39.7%, an increase of 1.8 share points.

Importantly, Hydro Silk has also played a key role in growing the overall category in the markets where we've launched to date. This is another example of our strategy to grow the categories in which we compete through innovation versus temporary promotion burst. Our disposable business is under pressure, particularly the more value priced products, as aforementioned heightened competitive discounting and promotional activities have increased. Nevertheless, sales of our two most important brands in the segment, Extreme III disposable's and Quattro disposable's, continue to grow. Notably in emerging markets were trade up from a single and twin bladed products is occurring.

On Sun Care, the category growth in the third quarter was moderate, around 2% versus category growth run rates of 8% for the past 52 weeks. This is one example of the significant declines in growth we have seen in most of our major categories this past 13 weeks. Despite the significant slowdown in category growth, our market shares grew to 28% driven by Banana Boat. As noted last quarter, due to Easter timing and plan-o-gram changes, volume shifted more into the second quarter this year versus last year. We did increase volumes this quarter in our branded Sun Care business versus a high comparative volume base line last year. Due to higher trade investments and lower planned shipments of private label products, our overall net sales in North America declined in the quarter. Nevertheless, our innovation strategy in Sun Care has been successful with three of our new products achieving the top five ranking of new SKUs in Sun Care.

Finally, international Sun Care sales grew 10% in the quarter and are up 17% year-to-date. We have extended our market leadership in Australia by 5 points to over 29% fiscal year-to-date. In Italy, where we have recently made investments to grow the business, Hawaiian Tropic is the fastest growing brand in that market. This is a continuation of a five-year trend in double-digit growth of our international Sun Care business.

Results in Feminine Care are generally in line with our second quarter results, with net sales flat on higher sport tampon sales offset by lower Gentle Glide sales. Results year-to-date are above our expectations thanks to solid execution of our action plan to stabilize this business. Competitive activity has recently ramped up behind new product launches, and while our shares were stable in the quarter, the last four-week data showed modest market share declines due to this activity. Infant Care continues to decline with sales declines across feeding and soothing offset partially by increased sales of Diaper Genie. The Infant Care category remains in significant and persistent decline and competitive activity remains heightened, new product launches and higher spend levels. Finally, there was a recent jury verdict in a piece of litigation with one of our competitors in the Infant Care business. We prudently have reserved for this potential charge. However, we respectfully disagree with the verdict and intend to pursue all available avenues to have it overturned. Because we view this as continuing litigation, we will not be in a position to discuss it today.

Despite the challenges this quarter, we are pleased with Personal Care results this year. Within wet shave, we believe that our innovation and full portfolio has us well positioned to succeed despite the competitive environment, recent legacy declines and recent distribution losses within our value disposable business This is evidenced by our successful launch of Hydro Silk, which has achieved an almost 8% market share in the US and a 60% increase in year-to-date Hydro blade refill sales. Our Sun Care business continues to show momentum in a growing category as a result of successful product launches and expanded distribution in the United States and international markets. In Feminine Care, despite having to weather significant competitive product launches and promotional challenges, our business has stabilized, as the sport franchise continues to grow, up 19% year-to-date. We believe we have a full innovation pipeline across our Personal Care businesses that positions us well to effectively compete going forward.

Turning to our Household Products division, household battery category value has remained nearly flat versus year ago and the latest 12-week data due to increased retail pricing offsetting volume declines. However, volume remains a concern, as the rate of unit volume decline globally has actually accelerated, down 5% in the quarter. The soft category volume performance has contributed to unfavorable results, with third quarter organic sales approximately 9% below prior year. Much of the decline was in North America, as organic sales were approximately 13% below a year ago due to the negative impact on shipments from the previously discussed category softness, the market share losses resulting from decreased shelf space and display activities at a key retailer, and the expected deload of inventory shipped in the second fiscal quarter, ahead of the February price increase. We believe that the current drop in market share was due in large part to reduced shelf space as a result of initiating a price increase. Nevertheless, we remain confident in our strategies and as always will continue to monitor our results in the household battery category carefully.

Turning to Asia, we continue to experience top line softness in some of our key markets, due in part to a 2% decline in overall category volumes in the last 12 weeks. However, our market share position has remained strong. In fact, it increased 40 basis points in the latest quarter. Europe, organic top line results were nearly 5% below a year ago, again driven in part by overall category value declines of 3%. It's important to note that most of our top line declines were concentrated in western European markets, which were negatively impacted by the macroeconomic challenges in Europe. Finally, in Latin America, our business results have remained strong in many of our key markets. We have increased our market share leadership by 2.4 points across our measured markets in the latest 12-week data. In addition, price increases have been able to offset inflationary cost pressures, which have resulted in continued segment profit growth.

To recap, global battery category volume declines in Household Products were larger than expected. We continue to monitor category results and our market share positions very carefully. We have implemented cost containment measures cross the division in an attempt to offset the top line softness in the short-term. We also have longer term cost reduction initiatives under way, which I will discuss further in a moment.

As noted in our press release, we've maintained our outlook for the fiscal 2012 in the range of $6 to $6.20 per diluted share. For the upcoming fourth quarter, we expect organic sales to be flat in Personal Care, but this estimate is somewhat dependent on the intensity of the competitive activities. In Household Products, we expect organic sales to decline in the low-single digit range due to a weakening category, market share pressures primarily in the US and hurricane volume in the prior year quarter. Reported net sales and gross profit will be further negatively impacted by unfavorable currencies. Negative impact on lower sales will be more than offset by lower A&P in the quarter, as discussed in previous calls, due primarily to the timing of new product launches earlier in the year.

In addition to discussing the results of our operations, I'd like to highlight three important initiatives that are underway, two of which you are aware of and one that is new. First, on Monday, the Energizer board of directors announced a quarterly dividend of $0.40 per share payable on September 13, 2012. As you recall, we announced the intention to pay a dividend during our second quarter conference call. On an annual basis, this dividend level represents a payout of approximately 25% of consolidated net earnings and approximately 40% of annual US cash flow. As Dan previously mentioned, we also repurchased 1.7 million shares since the end of the second quarter.

Second, our net working capital reduction project is proceeding as planned. We are implementing the action plans necessary to achieve the 400 basis point improvement in working capital as a percent of net sales resulting in a reduction of $200 million in working capital. We have communicated our new corporate payables policy in terms to major suppliers and results are tracking as expected. Inventory reductions and improving sales terms take more planning and roll out time. However, we are on track with the specific action items originally identified. These results are expected to become more visible in our financial statements as we progress through the next five quarters.

Another important initiative, not previously announced, involves ensuring that we remain cost competitive long-term in order to deliver the financial returns deserved by our shareholders. The growth outlook appears increasingly challenged due to the economic conditions in Europe, persistent high unemployment in the US, sluggish and slowing economic growth in the US and Asia, continuing decline of the battery category, and a recent and pronounced decline in the growth rates of a number of other categories in which we compete. In order to better position the company for future growth, given these realities, we have launched a comprehensive enterprise wide review of our organization's cost structure and operating model. This review encompasses a number of areas across both operating divisions and all corporate functions. Specific areas being evaluated include procurement, manufacturing, supply chain and SG&A areas. We will update you on our action plan details during the fourth quarter earnings release.

Now, Dan and I would be happy to take your questions. Operator?

(Operator Instructions) Your first question comes from the line of Bill Chappell with SunTrust.

Just focusing on battery and trying to understand the share losses, I guess, at Wal-Mart. I think we had talked about this three, six months ago. I'm just trying to understand was it a surprise, was it a greater impact? Do you have a chance of getting that share back, and how should we look at that going forward?

Well, we don't talk about specific customers, so let me talk more in a generic sense. In terms of this major retailer, I would say it's yet to play out, really, in terms of the duration of the share impact from this. We certainly expect it's impacted this quarter. I think it's reasonable to expect it to impact for the balance of the calendar year. But as we've discussed in the past, this isn't necessarily the fist time we've gone through this particular issue with this particular customer. And each previous time as we work with that customer, we continue to focus on helping them grow their category in their stores, helping them achieve same-store sales growth. In the previous instances where this exact thing has happened, their category has suffered.

So, we continue to work closely with the key customer as we go forward to help them restore their category growth, and that's really the focus. I'm pretty confident that we'll be able to achieve that. It may be an 2013, early 2013 event, but it's really yet to play out.

Just to follow up on that. Can you maybe help me understand on the realignment plan? Is that related to what you're seeing in battery or is that just kind of a corporate wide decision?

It is -- I say batteries plays a big input into us making this decision, but it really is an enterprise-wide look. As you know, our battery division and the Personal Care division are quite integrated, frankly, throughout most of the world outside the US, and for economies of scale and efficiency reasons. And there has been a lot of synergies as a result of doing that.

When you look at enterprise wide opportunity like this, it really will involve both divisions. It is enterprise wide. Battery is one of the inputs for it. I think the other input for it is a little bit of slowdown in some of the other categories that we referenced in the prepared remarks.

Your next question comes from the line of Bill Schmitz with Deutsche Bank.

Can we talk a little bit more about what's going on in the razor business? First, is it mostly the US, or is the spending and some of the share losses global? The data we get suggests it's almost all disposables. If you look at the all outlet multi-channel date, it look like for you guys disposable sales are down about 17% and your competitors are up 5%. How do you kind of fix that?

A follow-up along those lines is if they are jacking up their spending and couponing more, why would you guys cut your spending? Wouldn't the response to higher competitive spending be more spending by you, as well?

A lot of questions there. Let me maybe back off and just give kind of a more general overview, at least as we see it. The heightened spending that we referenced in the prepared remarks is primarily US based. It's been most recent. It was really in the month of June, which happens to be the last month of our competitor's fiscal year. And so it was extraordinary, kind of over the top.

Again, the background for that, of course, is this has always been a highly competitive marketplace and that's the nature of the razor and blade market, given the market share structures of the two primary players. So, it's within that background that we've seen this heightened spending in the June/July, and as noted, more legacy products and disposable type products take the hit versus the Asian products we've been putting the money into, the Hydro line in particular.

Again, we're very happy with how Hydro's been performing, both Hydro for men. The Hydro for women launch actually is exceeding our expectations. Market share in women's is up. And overall, you look at our -- you look at market share on a global basis, on the 12 week basis it's basically flat. You look at our market share on a 12-week basis for the US, total Energizer razor and blade market share's actually up 0.2 of a point.

So what we are -- that's for the quarter, of course. What we are highlighting is competitive activity we have seen in the back-end of that quarter and some share losses and more short-term share losses you get out of that. As to why cut spending when they increase spending, well this is a pretty recent event, most recent 4-week data. But two, we have learned over the years that when you're competing with a competitive four times bigger than you in this particular category, a frontal assault of spending is normally not a prudent strategy for long-term growth.

So we'll continue to focus on introducing innovation in the category. We will be mindful of the promotion environment. We're confident with what we can deliver this quarter and we're in the process of putting together our plans for our new fiscal year, which begins October 1, as you know.

Just to follow-up. This what looks like a looming restructuring, do you think it'll be bigger in terms of cost and savings than the last one that you guys did?

I'd rather not speculate at all at this point in time. We have a lot of teams working on this project. I would say we have a broader part of the organization involved in this opportunity than we had before. How that rolls out in terms of dollars of cost dollars of savings and timing, we really are going to hold off until we get our ducks in line and share those details with you and the others at the next earnings call, if that's okay.

Your next question comes from the line of Ali Dibadj with Bernstein.

I guess first question, I'm having trouble teasing out from this top line short fall how much of it is kind of short-term and some of that sounds like it's competitive reactions. So I'm not sure you can predict, but some of it may be cyclical. Some of it certainly it sounds like its shelf space changes, which should have a little bit more short-term view. So how much of the impact do you believe from a top line perspective is short-term and by Household and by Personal Care versus how much is your concern about more secular challenges in the categories?

I think it's a great question. Let me first, I think, try to answer on the Household side, because there's a combination of factors that you kind of allude to. As I view the household battery business, there's a big secular issue there and that is the category trends. As you've been following us over the years, and as we talk about the category, certainly the category's going through declines, the result of devices, then the great recession hit. That actually made declines even worse for the category overall. We saw those rates of declines, which were high-single digits at times, start to moderate to mid-single digits and even to low-single digits.

I think we expected a year or two ago, for example, when we implemented our battery plant cost reduction for that category decline rate to continue to moderate. I'm not sure we ever saw it getting back to growth, per se, but I think we were expecting it to be closer to flat. Obviously, that's not the case. As we highlight in this call, the category as we view it is down 5% in units.

So that is a secular issue that won't go away and is part of the reason why we're taking a re-look on overall cost structure. I think to pile on that is the short-term issue with Wal-Mart, or sorry, with a key customer. And like I said that short-term hit is especially pronounced this quarter because this is a quarter when customer made some major changes in their stores in terms of taking products off pegs and product off shelves and rearranging to go forward with their plan this year. So you have a bit of inventory deload taking place in that customer, along with the reduced offtake you can expect by having less presence.

We're working closely with that customer to help them grow their category. And that remains our focus. It always has been. And over long-term that's always worked for us. So, that is certainly more temporary, but it's material. So those will be your two issues effecting the Battery business that I think are most pronounced.

Maybe the third one would be just Europe. I look at year-to-date net sales for Battery, and really for our total Business, when you had even Personal Care and Europe is the one down the most. So, there is a real European effect taking place. How secular that is, how temporal that is is anyone's guess.

And then going over to Personal Care, here you had really just kind of, I think in my view, a combination of one-offs, whether it's strong sales year ago behind all of the investment poured into Hydro razors, which carry a bigger dollar value and that impact on sales. Whether you have Sun Care returns, kind of a reversal in accrual last year that you're annualizing against. But then you have the competitive activity, especially in razors and blades, that we've commented on in this call, and whether that is a temporal or secular is anyone's guess. And we will evaluate as we put our plans together for '13 and be prepared for it being one or the other.

I guess in that context of, choose your word, temporal or secular, how do you frame the -- a review of operations and structure that you're doing? It is difficult to understand, I believe, but is there anything off the table in that context? So, the split up of the Company off the table, it a going private off the table, or at least pieces of it going public, or going private?

Those kind of options, Ali, are off the table in the sense that we're not doing one of those "strategic reviews" of splitting businesses or selling businesses. That's outside the purview. That's not part of this project. Those sorts of activities we do on an ongoing basis as we assess strategically where we want the Business going forward.

But that's not part of this. This is really a focus at raw cost structure and do we have certain costs in this Business. Are they adding the kind of value currently or going forward as they have in the past. That's really what the focus is.

Your next question comes from the line of Nik Modi with UBS.

Just a quick question, in terms of your international footprint as you think about the cost structure, and I'm curious on how big your top 10 countries are combined, since you do operate in over a hundred countries. If you're just thinking about potentially ways to scale back on some of those international markets where you have lack of a scale that's impacting some of your profitability, any context around how you think about the global footprint would be helpful.

I'm kind of looking at Dan here, because I am not sure we really disclosed top ten countries (Multiple speakers).

I guess one way to characterize it, Nik, is we've got 50 brick and mortar affiliates, 48 of which are outside the North America, which is US and Canada. We look at those on a regular basis. We think financially it makes sense to have infrastructure, individuals on the ground in those markets from a profitability and growth standpoint and the other 110 or so markets around the world where we sell products we do through distributors. We review that on a regular basis, but I think we talked about this on the last call. There is a scale issue outside of the US with all of those affiliates, but we think that they are justified from a profitability standpoint.

And so, this would not be part of that review, I guess, is the question.

Actually, it is part of the review. We're looking at our total legal entity structure. So, it is certainly within scope.

Great. Thank you very much.

Your next question comes from the line of Christopher Ferrero with Merrill Lynch.

Guys, on the A&P outlook and I apologize if you said this already, but even if EPS came in somewhere near what you thought it was going to this quarter, it seems clear that sales didn't. You kept the guidance 6 to 620. Is A&P going to be down more in Q4 than you had anticipated and I guess maybe you said this, but is that your reaction to heightened competition, right? You're bleeding elsewhere so you're going to save some on the A&P line? Is that kind of the way to think about it?

I think A&P is one of the larger discretionary items, obviously, one has when managing your overall cost profile. But as we have indicated in previous calls, actually, and are reiterating now, A&P levels for our fourth quarter, we're always planing to be down. It's really driven by Personal Care for the most part, and driven by kind of the normal cycle of efforts behind the Hydro launches worldwide.

Again, keeping in mind, Hydro's been rolled out continent after continent, quarter after quarter, so it's not clean for you see. But for us, in terms of the normal cadence on Hydro, this quarter that we're in now was one of where we planned to back off on spending. And as also noted in the comments, it's really Hydro. The Hydro franchise is doing just fine. So we're continuing to see great momentum in cartridges, as we pointed out. In terms of shares, overall shares are stable.

And so the A&P spending we are seeing by our competition right now really is more hitting the legacy sort of items, which we don't necessarily throw a lot of A&P into anyway. I think our fourth -- to kind of answer your question, I think our fourth quarter spending plans are in basically in line with how we planned all year.

On top of that there are some opportunistic savings that both division, both Battery and Personal Care, have been able to eke out to help offset some of the volume softness. It's not just A&P. We've seen some product cost savings, some overhead savings, these sorts of discretionary spending savings to kind of adjust to what we saw in the top line.

If I can just jump in, we mentioned that last quarter that our A&P was going to be most -- highest in the second and third quarters and would drop significantly in Q4, and it's really just due to the cadence versus year ago where we had -- I think in 2011, we launched Hydro in 13 markets. So, that's part of the normal launch cadence.

If your question is, did we cut A&P further to maintain the guidance range, the answer's really no. There's a few offsetting factors. One is, as you probably know, commodity costs certainly are coming down, so that's a favorability we really hadn't factored in, in our previous guidance. We also, and this is not contrary to what I just said on A&P, just due to the slowdown within European markets, we really backed off on some of the A&P spending there and we actually are seeing that in Q3. That is not really a Q4 event, but that will remain through the end of the year.

And then we had some favorable taxes. These are end period fiscal 2012 taxes, not prior period adjustments. As we look at our country mix and our foreign tax credit situation, so all three of those favorabilities have really offset the organic declines that we're seeing through the rest of the year.

I guess one other, you guys have traditionally opportunistically bought back stock. I am just curious why don't you guys continue to buyback stock, I guess, into July when you probably knew you were sitting on a fairly sizable mix relative to consensus?

Yes, Chris. The answer to that is the window periods are fairly short in duration and a lot of our share buybacks were through 10b5-1 plans, which we have to put in place in window periods when we don't necessarily have that information. So we put those in place and leave them in place typically.

Thanks, guys.

Thank you.

Your next question comes from the line of Jason Gear with RBC capital markets.

I guess one quick question, then just kind of a bigger question. So, obviously, you're talking about the product cost being more favorable. I was wondering maybe if you can guide us a little bit on the F X. It just feels like you haven't really been hit that hard by FX so far. I was wondering about the hedging policy and how that looks over the next maybe 6 to 9 months.

Then the bigger question's really just on your cash flow outlook for the year, and, really, the roll out of Hydro, in terms of using some of that cash flow probably from the battery side to reinvest in some of those market opportunities. And I think, Ward, you've said in, I think, the last quarter there's just a lot of opportunities out there. So just wondering your competence in the cash flow maybe this year and into next year, will that be able to continue to fund some of the contingent market expansion with wet shaving?

Jason, I'll start on the FX question. Our translation on the profit line for the quarter was about $12 million unfavorable is, I think, in the comments. That was offset by about $8 million of gains on hedges versus year ago. So pretty much was offset. As we look forward to Q4, the currency translation's going to get worse. It is going to be between both divisions around $24 million.

But with the hedges we have in place and also if you recall in Q4 last year, we had a fairly big exchange loss, that pretty much at existing rates will offset the translation. So, the net effect of currencies in Q4 is likely to be zero or close to zero at current rates. As we look forward into 2013, and we're really not going to give guidance until next quarter. But where we stand now it looks like it might be unfavorable around $10 million, but we'll update that and give you the details in November.

That $10 million is for the year?

Yes.

Okay, thanks.

Oh, the question on cash flow.

Well, maybe a general attempt to answer that question. Cash flow for the organization remains quite strong, quite positive. We're not having to invest a lot of capital into our Household Division and, frankly, Personal Care division investments, as well, CapEx is pretty reasonable. That combined with working capital project that Dan talked about in the prepared comments.

So, our cash flow's quite strong. I think, as you look out into next year, the question in my mind yet to be answered is just the cash flow impact of potential restructuring that we may be doing as a result of the study that's currently under way. We'll have a better handle on that again at the next earnings call. But even with a sizable potential restructuring or cash hit, and I'm not sure that will be the case, but our cash flows are not an issue.

Your next question will come from the line of John Faucher with JPMorgan.

As I look at the organic sales guidance heading into the fourth quarter, you talked about how things had gotten progressively, or not progressively necessarily, but fallen off toward the end of the quarter. So I guess, as we look at the sequential improvements in these trends, I'm just trying to figure out, okay, what's the positive as we head in there? What are you expecting to improve the underlying performance for the fourth quarter? Thanks.

Good question. I will take a stab at it and then maybe Dan can add some detail. But in the household side, I think we really took a majority of the hit in the third quarter due to some of the major issues that took place at our major customer, destocking and so forth.

Certainly, we'll have a lower run rate as we go forward in the fourth quarter, but that I don't expect we'll have any stocking on top of that. Also in the household side, we've had actually some major account wins in parts of Europe and Asia that we see as offsetting some of what we'll be experiencing with a major customer in the US. Those are some reasons to expect some moderation on household, although we are still calling for organic declines on household just to be clear.

I think on Personal Care, our businesses and our innovation pipeline continue to, for the most part, be working with. There's some of the one-time incidents, like the Sun Care return of third quarter last year that we annualize against this year that won't recur. Our Hydro business continues to crank along despite what we've seen in terms of extraordinary FSI promotional activity in the US in razors and blades.

I think as we call for flattish organic growth for Personal Care, that's within the context of 7, 8 plus quarters of growth. Flattish isn't necessarily robust prediction for Personal Care for the fourth quarter, but we think we can achieve it based on what we are seeing right now. I think the one outlier there is just the degree of competitive activity we'll continue to see by a major competitive in wet shave, and we're expecting it not -- for them not to back off for a while. And that -- the division still feels confident in that outlook. It is an outlook, though.

The only thing I would like to add is that we're now getting through the periods. We're anniversarying the pack upsizings. So, from a volume standpoint we're not going to have the negative impact that you're seeing today.

Thanks.

Your next question comes from the line of Connie Maneaty with BMO Capital Markets.

I am wondering about the cost structure review you're doing, if it's being done entirely internally or with the help of maybe outside consultants?

We have an outside resource helping us on this one.

I also imagine that you've done your own benchmarking of your cost structure versus what you would consider a good peer group. Can you tell us where you think you might be out of line, or where the opportunities just in broad buckets those, they might be?

I'd rather not right now, only because I don't want to put any idle speculation out there. I have 14,000 colleagues in this organization and we need to do it right. I think doing it right is with the help of outside resources, taking a comprehensive enterprise-wide look. And not to be coy, but we don't really have the answers to your questions and rather than speculate, we'll just, if I may, defer to our next earnings call in three months.

And just to follow-up on that, given the timing of things like this, if you were to announce some conclusions in November and then you put them all in place, the earliest they might have an effect would be the end of fiscal '13 and into '14. Does that time frame at least make some sense.

I don't know. It's probably reasonable to guess that, but until we have something, a tangible plan, I'd rather even not say on that, sorry.

And your next question is a follow-up from Bill Schmitz with Deutsche Bank.

I was just looking at the fourth quarter comparison. There's a $25 million other expense in the fourth quarter. Is that going away in the fourth quarter this year?

Yes, Bill, that's the other financing exchange loss we had last year. That's what I was mentioning. That's pretty much going to offset the trends. Since we won't have that this year on a comparative basis that will offset the negative translations.

I'm sorry, I missed that one. Then the tax rate, what are you guys thinking? Is there going to be favorability year-over-year in the fourth quarter?

There should be. What we have for the quarter, we're looking at 30% to 30.5%, which is lower than we have had historically. And again, that's a function of just how the country mix factors out. We've caught up for the first nine months in Q3, that's why there was the significant tax favorability. But we would expect that rate that we have on a year-to-date basis to continue into Q4.

That was our final question. I will now turn the call back to Ward Klein for closing comments.

Again, thank you, everyone, for joining us today and your continued interest in Energizer. I think that concludes everything. Thank you, operator.

Thank you. Ladies and gentlemen, thank you for participating in today's conference call. This call will be available for replay by the close of business via the Company's website. You may now disconnect. Have a wonderful day.