Edgewell Personal Care Co (EPC) 2013 Q4 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everybody to the Energizer Holdings fourth-quarter and fiscal 2013 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 over to Jackie Burwitz, Vice President, Investor Relations. You may begin your conference

Thank you, Michelle. Good morning, everyone, and thank you for joining us on Energizer's fourth-quarter and fiscal 2013 earnings conference call. With me this morning our 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, www.energizerholdings.com.

During our prepared comments and the question-and-answer session that follows, we may make statements about our expectations for future plans and performance, including future sales, earnings, capital expenditures, advertising and promotional spending, product launches, the amount and timing of savings and costs related to restructurings and other initiatives, the amount and timing of changes to our working capital metrics, the impact of price increases, currency fluctuations, tax rates, raw materials and commodity costs, category value, acquisition or integration plans, and future plans for return of capital to shareholders. Any such statements are forward-looking statements, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to risk and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K, filed November 20, 2012. These risks and uncertainties may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not undertake 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 refer 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, www.energizerholdings.com. Management believes these non-GAAP measures provide investors valuable information on the underlying trends of the Business. With that, I will turn the call over to Dan for a review of the results for the quarter

Thanks, Jackie, and good morning, everyone. I will first take a few minutes to review our results for the fiscal fourth quarter. Adjusted earnings per share for the quarter was $1.38 per share, down $0.38, or 22% versus prior year. The decline versus a year ago was primarily driven by the sales shortfall in household products due to the loss of distribution at two US retail customers, which we discussed last quarter. In addition, A&P spending increased $22 million as we began to reinvest some of our savings from our restructuring program. And finally, we had a $10 million net unfavorable impact from foreign currencies. On the positive side, we did see a return of organic sales growth of nearly 3% within personal care and realized approximately $47 million of gross savings from our 2013 restructuring program, which helped to provide an offset to the shortfalls mentioned above.

Before moving on to a breakdown of the P&L, I would like to take a minute and talk about some of the details behind the 2013 restructuring savings. For the quarter, approximately $26 million benefited gross margin and approximately $18 million resulted in a reduction to overheads. For the year, those numbers were approximately $48 million and $46 million, respectively. These savings were driven by headcount reductions, procurement savings, the early stages of facility closings and streamlining, and other cost savings initiatives. This morning, we posted schedules in the investors relations section of our website to provide a further breakdown by P&L line item and by segments.

Now, on to the P&L. For the quarter, the organic net sales decline was consistent with our expectations, down nearly 5%. Personal care organic sales were up nearly 3% but were offset by a 13% decline in Household Products due primarily to the distribution losses discussed last quarter. Gross margin increased 210 basis points, excluding the impact of currencies, and restructuring-related costs. This is tremendous progress and is a direct result of the benefits derived from the restructuring program and lower product costs. A&P spending increased $22 million, or 270 basis points. The accelerated restructuring savings allowed us to make incremental investments behind our brands, which plays an integral role in driving long-term, top line growth. Overhead also benefited from our restructuring program, decreasing more than $7 million versus prior year. Right-sizing our cost structure was a focus of our restructuring program, and we expect to make continued progress going forward.

Interest expense and other financing were modestly improved versus prior year due to lower average debt outstanding and increased foreign currency hedging contract gains, respectively. Additionally, we recorded a $70 million pretax curtailment gain in the quarter related to discontinuing certain post-retirement benefits. This gain is driven by [actuarial accounting rules and is not] included in our adjusted earnings per share numbers. Finally, the effects of -- the effective tax rate in the quarter was 34.2%, due in part to the impact of the curtailment gain. For the full year, the effective tax rate was 28.3% and was 29.5% on an ex-unusuals basis. This compares to 29.1% on a similar ex-unusuals basis in the prior fiscal year.

Now, I'll highlight just a few areas from our segment results for the quarter. In Personal Care, organic sales increased nearly 3%, split almost equally between volume and favorable pricing mix. Our North American sales were up nearly 4% after five consecutive down quarters, and our international sales continued to post gains throughout the year. The main drivers behind the organic sales increase were wet shaved sales up 4%, and Feminine Care sales up 10%.

Within wet shaved, sales of our Hydro franchise increased $22 million. This increase was partially offset by lower sales of shave preps and lower legacy systems sales due primarily to heightened competitive activity. In Feminine Care, higher sales of Sport were partially offset by declines in gentle glide. The gains in wet shaved and Feminine Care were partially offset by declines in infant and skincare. Excluding the impact of currencies, segment profit increased 12% due primarily to the margin impact from higher sales and $11 million in restructuring savings that were realized in the quarter.

For Household Products, organic sales decreased 13% due primarily to the loss of distribution in two US retail customers mentioned earlier and the exit from non-core product lines that occurred early in fiscal 2013 as part of our restructuring program. In addition, the prior-year fourth fiscal quarter results included approximately $7 million in Hurricane Isaac-related sales. We expect top line declines to continue through the first three quarters of fiscal 2014 as a result of the distribution losses, and overall revenue to decline in the mid-single digits for the full, fiscal 2014 fiscal year. Segment profit in Household Products decreased $28 million in the quarter, excluding the negative impact of foreign currencies. Sales declines and increased investment spending were partially offset by savings from our restructuring programs and favorable product input costs. In summary, fourth-quarter sales and EPS were in line with our expectations. However, restructuring savings were larger than our revised forecast. The accelerated savings allowed us to make incremental investment in our brands, which we believe will help drive top line growth over time. With that as an overview of the quarter, I will now turn the call over to Ward.

Thanks, Dan, and good morning, everyone. Overall, fiscal 2013 was another successful year for Energizer Holdings. Adjusted EPS increased more than 12% to $6.96, which is at the high end of our outlook range. In addition, fiscal 2013 performance marked our second consecutive year of double-digit adjusted earnings per share growth. We also delivered on our commitment to return cash to our shareholders by raising the quarterly dividend 25% to $0.50 per share.

Contributing to the successful year was significant progress in our 2013 restructuring project and working capital initiatives. We realized over $100 million in gross savings from our restructuring initiatives. This is well ahead of our original assumptions. Headcount reductions have come earlier than originally expected. We have already eliminated nearly 1,400 positions, over 90% of our total project estimate of 1,500. We continue to make significant progress with establishing a center-led procurement team, and results are exceeding our expectations.

The timing of manufacturing footprint changes remains on schedule. Our St. Albans, Vermont plant closed on September 30, and our Maryville, Missouri plant will close on December 31. In addition, organizational structure changes within our international markets are in progress and will continue to be implemented throughout fiscal 2014. We remain focused on delivering on our original project objectives and are currently evaluating additional opportunities that can provide for increased financial flexibility to offset future volatility and allow for incremental investment in our businesses. In addition, we surpassed our targeted working capital reduction goal by achieving a 480 basis-point reduction versus the 2011 baseline established at the beginning of our initiative. This equates to over a $250 million reduction in average working capital over this time period.

Freeing up cash has allowed us to further invest in our business and return additional cash to shareholders. This year alone, our strong free cash flow allowed us to increase our quarterly dividend by 25% to $0.50 per share, to pay $105 million in annual dividends, and reduce our debt by $295 million while also incurring over $100 million in cash restructuring cost. We continue to identify additional opportunities to further reduce our working capital and expect to make additional progress as this continues to be an area of focus.

Now, turning to the Business results, aside from the top line shortfall within Household Products, I'd like to shape up our P&L as we finish the fiscal year. We saw a return of top line growth in Personal Care of close to 3%. We realized gross margin expansion of 210 basis points in the quarter and 90 basis points for the full year due primarily to the benefits of restructuring savings and lower product cost. Overhead spending was below year-ago levels. We saw a significant uptick in our A&P spending, up $22 million in the quarter and up 270 basis points as a percent of net sales. However, we're obviously disappointed in the loss of the two US retail customers we mentioned during the third-quarter call. It is important to note that volatility in the battery business is exactly why we aggressively executed our restructuring program and continue to diversify our portfolio through acquisitions. We needed the savings to provide offsets at the bottom line and to provide funds necessary to invest behind our brands, and we have delivered both.

Turning to Personal Care, the categories in which we compete remain very competitive. We estimate that our main competitor has increased spending by $170 million to $200 million in wet shaved and Feminine Care in the US alone in its last fiscal year. Despite this, we have essentially held wet shaved share flat within the US and globally over the past year. For the year, the Hydro franchise -- men's, women's, and disposables -- achieved over 20% growth, approaching $0.25 billion in global net sales. Within the US market, Schick's men's systems share continued to exceed 10%, marking 28 straight months at or above a 10% share. In women's systems, Hydro Silk achieved over an 8% share of total women's systems, up almost 3 points versus a year ago. Importantly, Hydro Silk refills experienced a 34% repeat rate, the highest repeat rate of all the women's systems launches in the last 10 years. Since the launch earlier this year of Hydro Disposable has driven growth of $1.8 share points for total Schick disposables. Hydro Disposables has exceeded expectations, has driven total disposable razor category growth of almost 5% this year, and has been incremental to the Hydro platform.

In Feminine Care, the tampon category was down slightly. However, Playtex beat category trends behind increased promotional support and the launch of Sport Jumbo X. Sport's fourth-quarter shares hit a record high of 11.2%, up 1.5 points versus a year ago. Our international Sun Care sales continued strong year-over-year organic growth of almost 7% in the quarter and 12% for the year as we continue to focus on expanding this business internationally. In summary, we are pleased with the strong results in Personal Care during the fourth quarter.

Turning to our initial financial outlook for fiscal 2014, we are estimating mid-single-digit EPS growth in a range of $7.25 to $7.50 on an adjusted earnings per share basis. On the heels of consecutive double-digit adjusted earnings per share growth years and in light of significant headwinds we faced within our Household Products business and unfavorable currency rates, we believe this is an appropriate outlook for the coming year.

Included within this outlook are the following assumptions. Continued benefit from the restructuring savings. Low, single-digit organic sales growth within Personal Care, excluding the impact of the acquisition. Mid-single-digit organic sales declines in Household Products as we realize the full-year impact from the loss of distribution in the two US retail customers. Modest earnings accretion, but more significantly, year-over-year sales accretion from the Stayfree, Carefree, and o.b. brand acquisitions. As we look at the quarterly cadence of earnings, we expect EPS growth to be in the back half of the year as the sales comps in the first half will be materially negatively impacted by the customer losses and first-quarter Hurricane Sandy response sales in fiscal 2013.

In a separate release today, we announced the addition of James Johnson to our Board of Directors. He has joined the Board effective immediately and is serving on the nominee and executive compensation committee. James is currently the General Counsel of Loop Capital and serves on the Boards of Ameren and HanesBrands. We welcome him to the Board and look forward to his many contributions.

Before closing, I wanted to make a few comments about the recently announced closing of our acquisition of the Stayfree pad, Carefree liner, and o.b tampon feminine hygiene brands in the US, Canada, and the Caribbean. We believe these brands provide a solid complement to our existing Playtex feminine care brands and strengthen our overall Feminine Care product portfolio. In fact, the inclusion of these brands within our existing Feminine Care portfolio makes this one of our largest product categories comparable in size to our global Sun Care business. Although we expect only modest earnings accretion in 2014, we believe that this acquisition aligns with our diversification strategy and strengthens our overall Personal Care business.

In closing, our primary objectives for fiscal 2014 will continue to be restoring growth in Personal Care, expanding distribution within Household Products, integrating the acquisition with our existing Playtex Feminine Care business, and executing against our restructuring and working capital goals. We are confident that we can achieve our mid-single-digit adjusted earnings per share growth off of two very strong years while continuing to invest to help drive long-term growth. Operator, you can now open up the line for questions.

(Operator Instructions)

Bill Chappell, SunTrust.

Good morning.

Morning, Bill.

Just trying to understand on the household product side -- on the guidance, I'm just trying to couple the down double digits you saw in the September quarter with only being down kind of mid-single digits for the full year of 2014. Especially when you've got the hurricane, it sounds like you exited some business, and I'm not sure if currency gets much better. So, can you help us understand what kind of the puts and takes to get to that mid- single-digit decline in 2014? And then, also, as you look at restructuring, as you talked about finding more savings. Is the footprint the right place for battery? Or, do you need to cut further in terms of capacity utilization?

Yes, let me -- two good questions. I think the sales expectations for household are somewhat shaped as we've described by the loss of these two customers and a big Hurricane Sandy that will be annualizing through this current first quarter. And so, I think it's reasonable to expect still significant negative trend on household first quarter of this fiscal year as both customer losses and Hurricane Sandy kind of double up on each other. The declines then start to abate as you go through the second and third quarter, and by fourth quarter of fiscal, year you pretty much have annualized through the customer losses. And, in our expectations we normally don't budget in expectations for hurricanes. It's just is to hit and miss, so there is no real hurricane or storm expectations in the number we've given you for fiscal '14.

As for your second question, as to footprint, we have materially changed, or are in the process of materially changing the footprint as described with the closure really of two important facilities this year. The Saint Albans, Vermont facility in September and the Maryville, Missouri facility in December. As we go forward, it continues to consolidate our battery footprint to a very few, very large global facilities that run very well, have for many years, and benefit from the absorption of these overheads through pouring increased volumes into those remaining facilities. So, we continue to look at our footprint throughout everything we do, but those have been the main drivers right now.

Bill, this is Dan. Just to give a little bit more background on your first question. We gave a roadmap back at last quarter's release to talk about why we expected sales to be down for household greater than 10%, and roughly about 50% of the decline is really due to the customer losses. But, there are a number of other items. There are some timing items where some shipments for this quarter were actually pushed or pulled into Q3. Last year, we had some Christmas orders in this quarter -- or in the fourth quarter that actually this year will be in the Christmas season. So, there were a number of one-offs. And, added to that as Ward said, Hurricane Isaac a year ago, and there is no hurricane this year and the discontinuation of products. So, we didn't want people to think that the whole 13% is an ongoing. It's up to about 50% of that for the quarter, and for Q1, given the Christmas season, that's going to be the biggest decline year-over-year for the customer losses. And then, Hurricane Sandy is going to make it much larger and it will abate as the year goes -- the decline will abate as the year goes on

Thanks. That helps. And, Dan, while I have you, can you throw up ideas for interest expense and tax rate for 2014?

Our tax rate is going to be somewhere in the 29%, 30% range is what we're estimating, and interest expense is going to decline as we pay down debt. We have some maturities issued -- we don't have a lot, but I wouldn't -- it's maybe similar to what you saw this year.

Great, thank you.

Bill Schmitz, Deutsche Bank.

Hi, good morning.

Morning, Bill

Hey, I'm having a tough time on the accretion for the J&J deal? So, can we just walk through some of these assumptions? Because -- first, are the purchase accounting adjustments and the financing costs -- or the transaction costs, are they going to be pro forma'd out? Or, are you going to include those in that guidance you gave? And then, if I look at some of the public comps in terms of margins in Feminine Care, we know the segment margin for the Playtex business you bought was in the low 30%. And then, P&G just restated some of their segment data so you can kind of back into their Feminine Care margins, and they are also in that 33% to 34% range. So, what is the anomaly in the Business you bought, and what's the opportunity? And, can you just kind of clarify some of the accretion assumptions?

Yes, the accretion number we provided is really an ex-unusuals number. It is not going to include the one-time integration costs, which will be spiked out in the P&L. A couple of things going on. First of all, it is a Business we're going to have to reinvest in, so we realize that. And so, we're very conservative in our expectations from a profit standpoint.

The other negative that's going to probably persist most of the year is the fact that we have a fairly heavy transition services agreement charge that we have to pay as long as it's on the J&J platform and not on ours, and we expect to transition off of that late in the year. But, it's a pretty big drag. But, we will offset from an accretion standpoint, we will consider the interest expense that we incurred due to the acquisition.

Got you. How about those margin assumptions I made. Is this business that dissimilar to some of the other ones out there?

I wouldn't say so. It's a lower margin business on the gross margin side versus really most everything in our portfolio. And again, you tack on to that some of the A&P spending. I think you can understand why at least the accretion will be modest early on.

But, how about relative to the comps? Because you probably have the same numbers I have, and if you look at the margins of some of those public comparables, they are pretty high on the operating line?

I don't have those numbers in front of me, so I -- on an operating side. So, I really can't comment on that right now, but I'd be happy to take it off-line if you want.

Okay, great. That's great. Then, just in terms of restructuring, it seems like you really haven't attacked promotional spending efficiency yet. So, is there an opportunity there going forward to drive some significant savings? I know it's a pretty big bucket if you looked at your gross sales in the P&L?

Yes, the promotional spending is a big bucket. It's a huge bucket, actually, especially on the household side but sizable as well in Personal Care. And, as part of our overall efforts, especially some of the additional efforts we're looking at -- some of the further efforts go beyond what we've been doing. That is very much an area of interest for us. In terms of kind of the classic improving return on spend, return on marketing investment, return on trade investment. Using some of the newer tools there, and dissecting, are we just getting the most for it. So, I would say those -- that bucket is under -- is being looked at very seriously as we go through 2014 and then into 2015.

Okay, and then one just last quick housekeeping one. If you looked at the quarter, there was a $21.1 million sales hit from FX, but there was like a $17 million profit hit. I know some of that came out below the line on the hedging side. What's the big driver of that? Because that's huge? It should be $3 million, $4 million of translation, and the rest seems like it's transaction. So, is there any way to offset that with the anomalies in the quarter? And, how should we look at that going forward?

The actual -- Bill, the translation impact is if you add up Household Products and Personal Care, it's about $17 million for the quarter. The yen is a big driver of that on the Personal Care side. Of the $9.5 million positive on the exchange gain, about $7 million of that is due to our transitional hedging program. So, what you really need to do is net the $17 million unfavorable at the segment profit line with the $7 million favorable, and it's really a net $10 million unfavorable, which was in the script comments.

Got you. so are you protected on the hedge -- on the yen for the rest of the year? Similar --?

The way our hedging program works is it's about a 16-month program. We're a little under 50% locked in for next year, actually at favorable rates.

Okay, great. Thanks.

But, we're exposed for the rest

Thank you very much.

John Faucher, JPMorgan.

Thank you. In looking at the ad spending, I know you had talked about the focus on the new products. It still came in higher than what we were anticipating, can you talk a little bit in terms of maybe some of the return you're seeing on that? And, how effective you think the advertising is behind the new products? And then, going back to the comments on the Feminine Care acquisition, where do you see the biggest need for reinvestment in those brands? Is it going to be R&D? Is it going to be straight up advertising? Trade promotion, what have you? Thank you.

Good questions. On the -- in terms of the increase in A&P and where we use it, how we use it. Obviously, we have a preference towards spending on brand equity building. So, think of that as advertising, whether it's classic advertising our digital. And, we have a preference for spending that behind new products, and we have -- we continue to view Hydro as the new product platform. We're seeing substantial growth continuing out of the Hydro platform, and we're seeing very good returns on our investment behind the Hydro platform.

We are seeing similar positive experiences with a product called Litter Genie. It comes out of the Diaper Genie area. It is much smaller than Hydro, but it is growing nicely. We're very happy with the repeat rates, customer satisfaction on that product and continue to work on building distribution and then awareness through advertising. So, really it's kind of the big goal for going through all this cost restructuring and cost reduction is to refill and boost these brand-building efforts. These are all long-term brand-building efforts, and it, frankly, has the organization fairly well energized, no pun intended, in terms of finding where we can do things better so we can plow it back into our businesses. You're starting to see that in the fourth quarter with increased A&P. We expect that to continue in 2014 and to continue through 2015 as we continue to reallocate from the restructuring effort of some of those savings. I'm sorry, your second question now?

It was sort of asking a similar question on the Feminine Care side?

Yes, on Feminine Care, the biggest challenges are kind of similar. These are great, classic brands with great technology behind them, great IP protection that we think there's an opportunity to pay a little focused attention on. And, that focused attention will be evident both in terms of support levels for the brands at the trade, but importantly with consumers. So, I think, again, kind of what our modus operandi is on the regular line of businesses will be applied to some of the J&J brands. So, we'll just take some time. As I thought Dan did a good job of outlining, we've got to get through kind of service agreements and get the full integration underway and get some stabilization on these brands. But, we're very happy with the quality of the products that we picked up, and frankly, we think the equities are something that can be resuscitated with some deliberate effort.

Okay, great. Thank you.

Thank you.

Olivia Tong, Bank of America.

(Dropped audio) SG&A, recognize that there was some lots leverage this quarter, and that the SG&A as a result was up relative to revenue. But, it was also up sequentially in dollars, too? So, can you talk a little bit about some of the puts and takes there? And, perhaps, can you give us a sense of the FX impact specifically to SG&A?

And then, the follow-up is -- Dan, last quarter you did make some pretty bold statements on cost savings. You said -- you were challenging the organization to identify new cost savings opportunities, yet we didn't hear the cost targets -- the savings target for the full program haven't changed yet? So, did the -- is the process to try and identify these still in place? Or, have you already concluded that? Thanks.

Let me answer the second question. We really have our plate full with the targeted savings at $225 million, and so we're really focused on completing that playbook at this point in time. But, as we've said before, this is not a one and done. This is a continuous improvement. It's going to be a cost savings mindset in areas that currently aren't or have not been in scope, at least under the initial restructuring effort, will become in scope down the line, and we will update you as we proceed. But again, we have $80 million to $100 million of cost savings that we expect to experience here in 2014, so that's really what are focus is.

And, on the overhead, I don't have that in front of me. I'm going to try to find that here. I know that from an ex-currency, our overheads are actually down across both businesses. But, as you mentioned, the fact that we lost the sales on a percent of sales business certainly negatively impacted us. But, we are -- we did disclose within -- it's in the Investor Relations website. You can see that overheads are actually favorable, quite a bit -- versus from Transformers.

Got it. Thank you. And, just following up on the new Board member addition. Can you just talk a little bit about why you added him, and what his background brings to this table?

Sure. We're excited -- we had an extensive process of looking to bring on a Board member. We have some who are -- retirement is on the horizon at some point and so to replenish the ranks. In our [vein], Jim came through loud and clear as someone we're very interested in. And, I think two of his real strengths are certainly on the legal side, but within a financial institution with Loop Capital. But, also importantly for us, kind of the international understanding, and that's through many years of work at Boeing. And, as you know, over 50% our business -- or 50% of our business is roughly overseas, and so it was an opportunity to strengthen, I think, those two areas on our Board, and we're excited to have him.

Olivia, just to give you a little bit more background, we're down about $4 million quarter-over-quarter, ex-currency on overheads for Personal Care and about $8 million on Household. So, again, it's the loss of sales that makes the metric not look so good when you're doing a percent of sales basis.

Got it, thank you.

Chris Ferrara, Wells Fargo. Hello, Chris, your line is now open. He may be on mute. Shall I go onto the next question?

Yes, please.

Kevin [Grandy], Jefferies.

Good morning.

Morning, Kevin.

So, a couple questions. First, just to kind of follow-up on John's question before with the advertising and marketing spending. Are you comfortable with current levels as well as your share of voice as far as relative to your market share in key categories? And, understanding that it moved up in the fourth quarter, you're relatively flat year-over-year as a percent of sales? And, kind of going back to some of the past commentary, I think the hope was that you had probably about 150 basis points to deploy between trade promotion and advertising and marketing as we move through the restructuring. So, it would be great to get your thoughts on should we expect it to move up this upcoming year? And, maybe you could put some parameters around that? Or, is it possible that the trade environment is such -- that the competitive environment is such, that it's not going to move up materially when we come out of the other side of this restructuring program?

Overall, I'm not happy with our A&P as a percent of sales. And, that's why -- one of the major reasons why we're doing the restructuring is to increase that level of support of our brands for long-term growth. And, in the fourth quarter, you've started to see that. We are calling A&P will continue to increase as a percent of sales in 2014, but we're not going to quantify that. We're not going to quantify in which businesses we're doing it, obviously, for competitive reasons. But, this is very much our intent to increase the support of our key brands, our innovation efforts. Our competitors are doing the same thing. We intend to remain competitive. We intend to deliver solutions to our customers and trade customers better than anyone else. That requires these kind of resources. So, that is our intent.

Thanks for that. And then, Ward, can you also give us a sense broadly of what the underlying category growth assumptions are in your guidance? I know this is going to vary by geography and by specific category, but just broadly, the underlying category assumptions and whether you expect to gain market share? Set aside the customer losses, of course, in batteries?

I think our review on the battery category worldwide really hasn't changed. I think we were the first ones to call it out. I think we have been proven right, and we continue to call out really systemic declines on household battery globally of whether it's 1% to 3%, or 2% to 4% -- roughly in that range. And yet, it is our intent on the household side to hold our business and our profitability stable in that declining environment. You can do that through some share increase. You can do that through attacking the cost structure. Obviously, we're attacking the cost structure very aggressively. Some share will be given up in North America as a result these customer losses. These were measured customers, we know that. But overall, globally, our market share has actually been stable to up in many markets and in many areas outside the US. We do view it as a global category, not just a US Nielsen-reported category.

On Personal Care, I think the verdict is out a little bit more maybe than the surety I just gave you on Household. And, as we've talked in previous earnings calls, the weakness in some of the Personal Care categories in the US anyway that we've seen are kind of unprecedented. I'm really talking about razors and blades, in particular, although some of the other categories where we actually have seen some shrinkage in razors and blades and still do. Interestingly, the most recent quarter for razors and blades data I look at is -- continues to be down in primarily in the men's systems area. We attribute a lot of that just to the deflationary discounting that has been taking place pretty elevated levels over the past 12 to 18 months. Although, you look at razors and blades, the set categories -- for example disposables, where we just launched Hydro Disposable this year, as you know. That is an example of us through innovation growing the category, and so even though total razors and blades may be down in the US --disposables is up. So, it's a little bit more of a mixed bag in the Personal Care from a category point of view. And, we're going to continue to focus on innovation and grow in those parts where we compete.

Okay, and just one more quick one, if I may. Dan, can you talk about the potential timing around the resumption of share repurchases?

You know, our program is opportunistic. We didn't repurchase any shares during fiscal 2013. We bought a lot at the end of 2012. And, with all the restructuring efforts, it was not something we felt made sense last year. But, all I can say, it's opportunistic, and it's an arrow in the quiver. And, it's still part of the capital allocation plan going forward.

Okay, thanks.

Thank you.

Connie Maneaty, BMO Capital Markets.

Good morning. I have a question on A&P spending in the restructuring savings. When I go back to your September, 2012 announcement of what you expected in savings, and what should be reinvested, I think you said back then that 70% to 80% of the savings would drop to earnings. And, with today's comments that A& P spending as a percentage of sales needs to rise, I'm wondering how this works? So, do you think your restructuring program will generate above the target that you most recently talked about? Or, do you think you'll be reinvesting more than you initially thought?

Connie, as you may recall, the original restructuring program called for $200 million in savings and $50 million of that being put back into the businesses. For a net of $150 million. Then, as you will recall, we increased that to $225 million with that $75 million of the $225 million going into supporting the businesses. And, that's been the plan all along, and frankly, that plan hasn't changed. And, I think the opportunity is if we can uncover additional savings above and beyond what we've identified so far, it's our intent to really direct most of that incremental savings into A&P But, of the original -- the program that's underway right now, it's really $75 million out of $225 million, not 70% of the savings, per se. So, hopefully, that provides a little bit more guidance on that.

It does. What do you think now that you're finding working capital savings -- what do you think the potential for savings is in working capital?

Well, it has been pretty enormous so far. Really, Dan has been leading this project and his team. I'll let him answer how much they've saved and what opportunities may exist.

Yes, Connie, we think there's more to be had where we're down 480 basis points from our original level of the end of fiscal 2007. So, we're beyond the amount that we have committed to achieving. We think there are additional opportunities really across all three working capital items, and we're going after them. So, we'll keep you updated, but I don't have an ultimate number in mind because we're very prescriptive in how we do it. We look at specific businesses in specific regions and where those opportunities are, and then, we execute against those. And so, it's really a matter of the original scope has pretty much been executed very well, and we're looking for additional opportunities. But, we do expect that the working capital number to continue to decline.

And, if I could ask one final question on the J&J acquisition. Now, you've got four brand names -- o.b., Playtex, Stayfree, and Carefree. What are your initial thoughts on how to market these? Is there a way to bring them under sort of one umbrella so that consumers would shop everything you offer? Or, do they just kind of go from one brand to the other, and are sort of indifferent to you?

Well, I think the brands stand on their own in a sense that that is what the consumer most relates to, and we have the opportunity to strengthen all four brands. The real opportunities are in terms of just how we manage everything from upstream activities of our Feminine Care business unit to -- all the way down to planograms and trade promotion and in-store visibility and so forth. We have a much bigger presence now, and I think a much bigger say as we go forward, which we think can help benefit both presentation of these different brands and each having quite strong relevance in the particular segments they are in. And then, what additional kind of umbrella-branding opportunities there may be which is maybe what you're alluding to in your question, I think that remains to be seen. Certainly, there could be an opportunity there, and the brands teams will be taking a look at those opportunities

Great, thank you.

Chris Ferrara, Wells Fargo.

Thanks, sorry about that before.

Hey, Chris.

I guess the first question on this quarter's gross to margin, right? Even with strong cost savings, I guess it's a little surprising that household gross margins were strong as they were -- up I think you said 210 basis points on a down 13% organic number. I guess I'm wondering, are there other big drivers there? Is there a timing issue? Is it possible you didn't yet feel the manufacturing deleveraging of that down 13% on the gross margin in the quarter? Or, were you feeling that in all of it's glory already?

Well, it's really -- I think our gross margin you are referring to is really across both businesses. We had pretty favorable commodity prices on both businesses, which helped, and then we're starting to see some of the benefits from project Transformers, which is there internally for the restructuring project where some of the fixed costs from the plants are going away. We'll start seeing a lot more favorable impact in 2014 because of the plant footprint reduction and better utilization of existing plants. So, it really was in line with what we expected.

Okay, great. As I look through your guidance, it seems like -- I know it's hard to do this -- but net of savings and net of the negative FX, if you combine those two. You're really looking for essentially a mid-single-digit EPS decline on a core basis ex- the acquisition on flat organic sales. Where is the spending going up in fiscal 2014? I think you might have touched on A&P before, but is there something we should be thinking about in 2014 that would cause base margins ex- savings to go down like that? Is it an A&P reinvestment, or other stuff?

Well, as Ward said, we're going to reinvest dollars. A&P as a percent of sales and A&P dollars will be up, but it's really some countervailing forces. You have the loss of the customers at least through the first three quarters of the year, so all that margin loss on the Household side being offset by pretty significant savings from the restructuring project. And then, as you said, Chris, we do have some currency wins especially through the first half of the year

Got it. And, one last thing going back to buybacks and deals? When you look at hurdle rates on deals, on M&A, do you look at that relative to buybacks? In other words, if you see a deal, and it eclipses your hurdle rate, and it looks like it makes sense. Do you then go back and look at it relative to the return you'd presume you'd see on a buyback? And, if it doesn't eclipse that, you'd do a buyback instead? I'm wondering how you think about that stuff relative to each other?

I would say that we always look at use of money for buyback as one option. And so, when we're looking at an M&A transaction, certainly that is in the consideration set. Is that M&A opportunity the best use of money versus a buyback per se. But, there's many factors that go into an M&A consideration. And, that really is only one of them. So, it's not a litmus test per se, but we do it within the context of evaluating them.

So, in other words, the desire to diversify further away from batteries gives you some leeway in that ROI decision internally? Is that the right way to think about it?

I guess. Every deal stands on its own, and we all, in each deal I think, in essence, we need to see a clear path adding value. That really kind of is a fundamental for us. If we don't see how we can add value then we really question whether we should be using shareholders monies for it. And, if we can answer that question in terms of adding value, and then also strategic fit. If it happens to contribute to our diversification efforts, that's great. If it happens to have a better short-term ROI than share repurchase, that's great. But again, there's a lot of variables that go into it.

Got it, thank you.

Thank you.

Thanks for your question. That was our final question. I would now turn the call over to Ward Klein for closing comments

Thank you, Michelle. And, thanks, everyone for joining us today and for your interest in Energizer Holdings. And, with that, we're done.

Thank you for participating in today's conference call. The call will be available for replay approximately one hour after the call has ended. To access the replay, you can either dial plus-1-617-801-6888 or 1-888-216-8010. The access code is 69562802. You may now disconnect. Please enjoy the rest of your day.