Edgewell Personal Care Co (EPC) 2014 Q1 法說會逐字稿

Good morning. My name is Celia, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer Holdings' first-quarter fiscal 2014 results conference call. After the speaker's remarks, there will be a question-and-answer session. As a reminder, this call is being recorded.

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

Thank you, Celia, and good morning, everyone. Thanks for joining us on Energizer's first-quarter fiscal 2014 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 he 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 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 restructuring, the amount and timing of changes to our working capital metrics, currency fluctuations, cash rates, raw material and commodity costs, category values, 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 risks, including those described under the caption risk factors in our annual report on Form 10-K filed November 21, 2013. These risks 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, EnergizerHoldings.com. Management believes these non-GAAP measures provide investors valuable information on the underlying trends of the business.

With that, I would like to turn the call over to Dan for a review of the first-quarter results.

Thanks Jackie, and good morning, everyone. I'll start with the headlines for the quarter. First, adjusted earnings per share was near our expectations as lower spending and upside from the feminine care acquisition helped offset organic top line softness and unfavorable currencies.

Second, net sales were soft in the quarter due to expected shortfalls in Household Products and weaker than expected revenue in Personal Care.

Third, acquisition integration efforts are underway, and financial performance of our newly acquired feminine care business is exceeding our expectations.

And finally, we continue to make excellent progress by our cost reduction efforts, and our Board has authorized us to expand the scope of the program to include the balance of the organization.

Now some details for the quarter. Earnings per share, ex-unusuals, was $2.10 per share, or 4.5% [over] the prior year. Sales shortfalls across both divisions contributed to the decline. Within Household Products, top line results were in line with expectations. Organic net sales were 10% below a year ago, with about 6 points of the decline due to the previously mentioned loss of distribution in two key retail accounts in the US, 3 points due to lapping prior-year Hurricane Sandy volumes, and 1 point due to import restrictions in Venezuela and Argentina. However, Personal Care sales were much softer than expected.

Organic sales declined 6% below a year ago, with about 3 points of the decline due primarily to weak category volumes and some share declines, 1 point due to timing of prior-year innovation launch volumes, and 1 point due to pricing controls and import restrictions in Venezuela and Argentina. Ward will provide more details behind the categories and our share performance later in the call.

As for Venezuela and Argentina, we continue to monitor the developing situations in these countries. Price controls and currency restrictions are continuing challenges in Venezuela, as are import restrictions, price controls, and the recent devaluation in Argentina. In addition, [that] are [tightly] risk of a devaluation in Venezuela based on recent government statements.

The accretion from the recent feminine care acquisition exceeded our expectations during the quarter, providing $14 million of segment profit and $0.14 of earnings per share accretion. Our original estimates for the full fiscal year of approximately $0.10 of accretion was conservative, as there has been upside due to better than anticipated product costs. In addition we did not have any A&P spending behind these brands in the quarter.

Overall, this business generates gross margin percent significantly below our average Personal Care margins. Nevertheless, projected margins are above what was factored into our original financial outlook. We continue to make excellent progress in integrating this business and feel more bullish than before with the projected fiscal 2014 benefit. However, we will ramp up brand-building support as we progress throughout the year, resulting in the majority of accretion occurring in the first half of the year.

As we complete the integration of this new business, we estimate full-year adjusted earnings-per-share accretion will be approximately $0.25. This projection excludes any acquisition-related costs that have been [spiked] out of unusual items in the tables provided in the release.

Now breaking down the P&L. Gross margin, excluding acquisition costs and currencies, increased 50 basis points versus the prior year. This favorability is a continued trend and the result of our restructuring efforts. Commodity costs were also favorable versus prior year. SG&A spending, excluding restructuring and acquisition-related costs, was below prior year as restructuring savings and tight spending controls helped offset inflationary costs and increased expenses related to mark to market changes incurred as part of our unfunded deferred compensation liability. Due to its unfunded status, we adjust the liability balance to account for market price volatility. We have recently taken actions to reduce the volatility by freezing the program and modifying the investment options. This is yet another example of the depth of our restructuring program and efforts we are taking to limit the volatility within our P&L.

A&P as a percent of sales was 7.3%, or 60 basis points below a year ago. The decreased spending was a result of the timing of promotion and innovation of launch activity as compared to the prior year. We will remain committed to investing at our full-year planned levels. Interest expense was about $2 million below a year ago due to lower average debt outstanding.

Other financing costs were favorable in the quarter due to a small gain on foreign currency hedging contracts net of revaluation losses on nonfunctional currency balance sheet exposures. This compares to a nearly $8 million expense last year. Last year's number was impacted by foreign-exchange losses related primarily to the yen and the loss from mark to market adjustments on certain commodity contracts.

Finally, the effective tax rate in this quarter was 28.9% and 29.5% on an ex-unusuals basis. This is in line with our full-year ex-unusuals estimate.

Moving to the balance sheet, we continue to make significant progress with our working capital initiatives. As mentioned during our fourth-quarter call, we surpassed our original project goals and believe there's more opportunity ahead. In the quarter, working capital as a percent of sales was 17%. This represents an improvement of 110 basis points versus our year-end results and a 590 basis point reduction from the 2011 baseline period established at the beginning of the improvement initiative.

In terms of capital allocation, dividend payments in the quarter were $31 million as compared to $25 million last year. And during the quarter, we did not repurchase any shares.

Before turning the call over to Ward, I wanted to briefly comment on the status of the opening balance sheet and valuation efforts associated with our acquisition. We have recorded preliminary estimates including the inventory valuation adjustment. We expect to finalize our valuation and report any final adjustments during the second quarter.

With that as the overview of the quarter, I will turn the call over to Ward.

Thank you, Dan, and good morning, everyone. Before we discuss the quarter results, let me first cover what we are as a Company. At the onset of the restructuring last fiscal year, we focused on 2/3 of our overall global corporate footprint, including almost all of the household business, the goal of reducing our cost and increasing our competitiveness in the declining category. We've been pleased with the level of engagement from our organization and the results of those efforts. We feel that the renewed focus on the core business, the reinvestment in our brands, will yield tangible results for the business in the future. We are now in the process of expanding this restructuring program across the remainder of the Personal Care division, particularly in line with the recent weak category trends we've been seeing. The goal of the program is to simplify our processes and organization to improve our marketplace agility and to enable reinvestment back into the business. We believe increased investment in innovation, brand equity, and critical capability development will benefit our consumers and customers and provide the opportunity to resume the growth of our portfolio.

Now turning to the quarter. As Dan stated, first-quarter adjusted earnings-per-share results were in line with our expectations. However, there were certain trends that we believe will persist in the first half of our fiscal year, which led to our decision to adjust our full-year earnings outlook. I will get into the details of our updated estimates a little bit later.

First, I'd like to discuss segment performance. As Dan already alluded to, Personal Care organic sales were down 6% versus a year ago. This is below our expectations, as we originally assumed that the North American Personal Care categories in which we compete would stabilize after a turbulent year of heavy promotions. However, this was not the case. This is evident in the latest 12-week US category results. Men's razors and blade system category volumes were down nearly 16%, and category value was down almost 11%. Women's system category was down nearly 3% in volume and 2% in value. Disposable category was down nearly 3% in volume and 1% in value. And shave [crafts] category was down 3% in volume and 3.5% in value. The FemCare category was down nearly 3% in volume and 1% in value; infant care category down 6% in volume, 3% in value. And sun care category volumes were up 3% volume and 8% in value, but, as you know, this is a relatively light quarter for sun care sales.

On an aggregate basis, the categories in which Energizer Personal Care competes were down almost 4% in value (inaudible) 12 weeks. We believe many of these category trends will continue through at least the first half of our fiscal year. As a result, we modified our top line outlook from low single-digit organic growth in Personal Care to flat versus a year ago. It is important to note that we believe this is a short-term setback for these categories. Longer-term growth projections remain positive due to innovation, creative opportunities, and, most importantly, the strong brands and products we have to offer our customers and consumers.

In the context of the very weak category trends, our US share results were positive to mix over the 12 weeks ending in December 2014. In our largest Personal Care segment, shaving, our total US razor and blade share grew 90 basis points, led by continued double-digit volume growth behind our Hydro franchise. Sun care share grew 170 basis points due in part to the carryover benefit of our new products introduced last year. However, shave crafts, infant care, and sun care shares declined, due primarily to aggressive competitive promotional activity. On a global basis, our razor and blade share grew 30 basis points.

Before leaving Personal Care, I did want to comment on our acquisition of the Stayfree, Carefree, and o.b. brands that closed in the quarter. Integration efforts are progressing well. As Dan mentioned, we are more bullish in our financial outlook than our original estimates, primarily due to a more improved cost and margin structure. We are confident these brands will round out our feminine care portfolio and will make this category segment an important component of our overall Personal Care business.

It is also important to note that we remain committed to increasing (inaudible) support levels behind these brands. Increasing investments will be concentrated in the back half of the year as we fully integrate these brands into our overall feminine care marketing plans.

Now turning to Household Products. As Dan mentioned, sales declined 10%, but this was in line with our expectations. Previously disclosed loss of distribution contributed about 6 points of the decline. The lapping Hurricane Sandy response times contributed another 3 points. Global category value was down nearly 7% in our latest 12-week period. However, nearly half the decline was due to lapping prior-year hurricane response volumes in the US. Excluding this impact, category results remained in line with our expectations, being down 2% to 4%.

In terms of market share, we experienced a 1.9-point decline due solely to the previously disclosed loss of distribution at two US retail customers. However, outside of these accounts, our global share actually grew 60 basis points, and our US share grew 140 basis points. So we've been able to leverage our marketing innovation and expand our merchandising presence and distribution across many key markets. This is a clear sign that our battery business remains strong and healthy and continues to represent an important part of our overall portfolio.

Looking ahead, we continue to expect the global category to be down 2% to 4% from the remainder of fiscal 2014, with our market shares beginning to stabilize in July as we anniversary the customer losses.

Before moving to our revised full-year outlook, I wanted to provide an update on our restructuring project. We continue to make excellent progress with over $140 million of savings realized thus far. We have met our headcount reduction goal, and initiatives are tracking as planned. As a result of the increased growth and success of the original project initiatives, we have increased our total project gross savings estimate from $225 million to $300 million. We expect the actions necessary to complete the program will be completed by the end of fiscal 2015, and the full run rate of savings are expected to be realized in fiscal 2016. This represents an additional year to the program and an additional $75 million of expected savings. Due to the planning and implementation time needed to execute this program, we believe the incremental savings will begin in fiscal 2015.

In this volatile and competitive environment, we believe it's critical to optimize our cost structure to provide for increased financial flexibility, to offset future volatility, and to allow for incremental investments in our business.

As a result of the negative category and currency trends we saw in Q1 and our expectations that many of these headwinds will continue through at least the first half of our fiscal year, we have decided to adjust our full-year earnings outlook by lowering our adjusted EPS outlook from $7.25 to $7.50 range, down to $7.00 to $7.25 range. Most importantly, this 3% reduction reflects our commitment to hold to our original brand investment plans. We believe that we cannot and should not adjust our spending plans down due to the temporary category declines we experienced.

Included within the adjusted outlook are the following assumptions. Total organic net sales, excluding the impact of the acquisition in currencies, are expected to climb the low single digits. Personal Care organic sales are projected to be flat as compared to the prior year. The revised outlook reflects a shortfall realized in the first quarter, anticipated category headwinds through the first half of fiscal year, and impacts from the [court] restrictions and price control in Venezuela and Argentina.

For Household Products, organic net sales are expected to decline in mid-single-digits, consistent with our previous outlook. Restructuring savings of $100 million versus the prior year, which is at the high end of our original estimated range. And it's important to note that the impact of the soap expansion just announced is not expected to have a material impact in fiscal 2014 results.

A&P as a percent of net sales will be in the range of 10.5% to 11%, consistent with our original plans, as we remain committed to investing in the long-term health of the brands. And EPS accretion of approximately $0.25 from the acquisition of the feminine care brands, excluding the impact of (inaudible) and integration costs and the inventory step-up adjustment. This is higher than our expectations in November for the reasons Dan stated previously.

Unfavorable foreign currency affecting operating profit of approximately $45 million to $50 million. This is higher than our original range of $20 million to $25 million; and an effective tax rate excluding unusual items in the range of 29% to 30%, again, consistent with our original outlook.

As we look at the quarterly cadence of earnings, we continue to expect earnings-per-share growth through the end of back half of the year, as the sales [prompts] in the first half will be negatively impacted by many of the trends we saw in Q1. In addition, we have several new products that will be launched this year. Within Personal Care, we will be launching Hydro Silk Sensitive and Hydro Groomer, a four-in-one shaving tool for grooming all areas of the body. In addition, we will be adding the ribbons moisturizing technology used in our sun care products into our new intuition ribbons (inaudible) system products. We will also be introducing -- a first to tampons -- odor shield technology to defend our position as the number one sport tampon brand.

In sun care, we have several new products including a line of Banana Boat for men and Banana Boat Sport Power Stick technology to further enhance our position as the number one brand in the sport category. We are also extending Hydro Silk and Hydro disposables to additional international markets.

In closing, the primary objectives for 2014 remain unchanged -- restoring longer-term growth in Personal Care by continuing to focus on and fund innovation, expand distribution within Household Products and leverage our strong brand equity, integrating the acquisition with our existing Playtex feminine care business, and executing against our restructuring and working capital initiatives. We are confident that the plans we have are in the best interest of our shareholders and will position us for long-term success.

Operator, you can now open up the line for questions.

(Operator Instructions). Bill Chappell, SunTrust.

Thanks for the question. Ward, just maybe trying to understand the Personal Care issues and the competitive landscape. Can you -- do you think it's just one player being irrational, or are you seeing kind of overall deflation as some of the players (inaudible) are starting to see more favorable commodity costs? And is this deflation that we would expect through the year? Give us more color on why you think this is happening.

Great question, Bill. I think it varies by category, at least the categories in which we compete. The big news for us was the razor and blade deflation and declines that we saw for the quarter, much more than we expected. But as we dig into the numbers, a lot of it seems to be related to substantially reduced promotional activity out of our major competitor in that category. So even though -- and we are up against extremely high levels of promotion in that category a year ago to now. So, frankly, our assessment on razors and blades right now is the loaded [pantries]; the discounting to get to those loaded pantries is abating. I think it's going to take this quarter and maybe the [January-February-March] quarter to work through that. But, in a way, it's somewhat healthy for the category I think long-term as we see, at least in the razor and blade portion, discount levels and promotional spend get back to more normative levels. We haven't quite seen that in shaved press; and in fact our main competitor in shaved press, the hyper levels of promotional activity we've been dealing with over the past calendar year, we continue to see in the quarter. And its impact on both our share but actually on the overall categories is pretty evident. So I'm not quite sure what to make of that. And I think the big news really for us is razors and blades.

Okay. Thanks. And then just follow up, have you seen any competitive change on feminine care post-acquisition? I mean, did it become more aggressive to kind of put now that there's new ownership of those brands?

I'm not aware of anything in particular. Of course, we just acquired those brands, as you know, in the past quarter. And so how that plays out remains to be seen. I think that category typically has been viewed as a battle of two titans kind of taking on each other. And that's kind of been the nature. We obviously have a much larger position but, I think, a stronger position, more easily defendable position, as a result of these acquisitions. But again, our approach in that category, as in all categories, is really to compete through innovation and strengthening our brand equities, and I don't see us really changing that strategy for that category.

Got it. Thanks.

Nik Modi, RBC Capital Markets.

Good morning, everyone. Quick question on cost savings. Ward, if you can just address how you're thinking about in terms of the trade spending, the international affiliate structure -- if you could just talk about how much of that is included in the expansion of the program. If those are things that you still need to look into. Thank you.

I'll turn it over to Dan for the numbers on that. But really as (inaudible) approaches massive cost program, we look at everything. And so all the items you have listed have been on the table and remain on the table as we find just better ways to compete. So as you know, we've looked very heavily at corporate overhead, we've made a lot of changes to corporate programs that Dan has alluded to in the past. A lot of work has been done on the Household Products division and seen the bulk of the work -- not all of the work, but a bulk of the work this past year, year and a half.

And really what we are signaling is expansion as well to the Personal Care division. We're really looking at a lot of the same things. We are looking at procurement, we're having a great deal of success in terms of centralizing our procurement operations and savings we are seeing out of that. Supply chain, we're looking at great success there. Affiliate structure, we see opportunities to consolidate these functions -- if not actual affiliates, but back-office functions for example, support functions at international affiliates. So we are all on the table. There are number different work streams that have been involved in these projects. Again, it's gone faster and deeper and better than we originally anticipated, and see this rollout to the other third of the Company to be kind of a natural extension of the success so far.

But I don't know, Dan, if you want to add anything to that.

Yes, just a couple of things. The increase to $300 million that we announced today really involves continued success on the original scope and then broadening the scope to the rest of the organization. And you can really read into that in the Personal Care division, and that announcement went out internally this morning.

We do believe there are opportunities in trade promotion spending. There's a separate initiative that is underway at this point in time. Those dollars are not included in this amount, and we really have not quantified what that opportunity is.

As far as the affiliate structure goes, as Ward has said, we see opportunities in some of those savings from affiliate changes already incorporated into the savings estimate that we have. And in addition, we have another initiative really targeted at inventory days within the supply chain organization that we have not quantified. We know that there are opportunities to reduce working capital even more through lower inventory levels.

Thank you very much.

Bill Schmitz, Deutsche Bank.

Just the J&J assumptions. Tell me if my math is wrong. I think it was $225 million of sales. You paid $170 million for it. It was financed mostly with overseas cash, so probably interest rate 2%-ish. Are those reliable assumptions?

Yes, Bill, we financed -- I think it $135 million of the [$185 million] purchase price was overseas. The sales are roughly maybe a little bit lower than what you have just stated. But, yes, that's -- those are correct assumptions.

Okay. I mean, so just sort of gapping between the 31% operating margin this quarter and kind of what you guys think it does for the rest of the year, does that mean the delta is just going to be a massive uptick in A&P spending?

There's a lot of support behind the brands going forward, so the answer to that is yes.

Just keep in mind, there really wasn't any A&P support behind the brands during these first 10 weeks that we've owned it.

Okay, all right. I got you. And then just on the blades and razors piece, what's the good environment for you? I know last year was a problem because promotional spending was super intense. And then this year the category's declining in because the promotional spending came back down. So what kind of environment would you guys want to be able to sort of optimize growth in the business?

I think, again, an environment where it's driven by innovation, which is kind of a classic trade-off opportunity which we still have. We think a lot of legroom and [ceiling], for us anyway, in our franchise. And to be able to focus on introducing innovation, supporting innovation, supporting the brand equities; those sorts of activities I think are healthier for the overall category.

You know, the amount of hyper-promotion and now the yanking of that is -- and the [mortgaging] that follows that is, I think, just highly disruptive for our customers and is not necessarily the way we prefer to compete. You know, we have been very successful over the years with innovations like Hydro and Intuition and the earlier (inaudible) Quattro. And the Hydro franchise continues to grow double digits well into its fourth year as we expand that platform as well as geographically as well as new products. That is a healthy category in my mind.

I know you shaved your mustache, but it seems like people are shaving less now. (laughter). I mean, what's like the long-term -- is there a long-term [implication] for maybe just like a change in consumer usage behavior?

You know, we are seeing a lot of the press take up on that. But we are not really seeing that in the numbers. There's much more macro impact on these category numbers right now than what that may be. And, you know, from a fashion trend point of view, as you know, I am a fashion trend leader. I'm sure the world will come around to shaving its mustaches.

(Laughter) All right, thanks guys. I appreciate the time.

Ali Dibadj, Bernstein.

Thanks. So the return on the incremental $75 million that you announced this time of savings are much lower than the original cost cutting, given how high the charges are versus the savings, and they are further in the future. So could you use that to talk a little bit about -- to give us a sense, I guess, of what that may mean in terms of future cost savings above and beyond the $300 million? And in that context, can you talk a little bit about where we are on the original idea, that 80% of the cost savings drop to the bottom line?

This is Dan. I think the factor of between the cost saves and the cost incurred -- or the cost reduction versus the cost incurred is pretty much in line with what we did originally. I mean, we originally were at $200 million of savings and factors about [one] and [$1.25 million] of that would be the cost, and we're fairly close to that with this announcement as well. So I think it's pretty much still in line with what we had announced before.

And on the 80% of savings going to the bottom line?

Well, you know we announced before when we upped our target to [$2.25 million] was that the additional savings all would go to the investment. Okay? So that means [$1.50 million] dropped to the bottom line and [$75 million] invested. With respect to the additional amount that we just announced this morning, those savings won't be realized probably until fiscal 2015; we really haven't decided what the use of those can be.

Okay. And then just a broader question in terms of how you're thinking about the business. Years ago, many of us had a long list of things that we are hoping the Company could do, whether it be a dividend, whether be restructuring cost savings, whether it be changing the compensation incentives, working capital improvements, et cetera, et cetera. And to your credit you've done many of those things, which is great. The big thing that's left on the list -- I wanted your perspective on that in particular -- is portfolio change. So buying bigger things. Maybe this J&J trend is one thing you're going to continue, or on the flipside splitting up or selling the company outright. How are you thinking about those options in that bucket that hasn't been fully tackled, at least publicly?

I think we certainly look at our options on a regular basis including many of the ones you described. On the acquisition front, we have been prudent in all the acquisitions we have done. We're happy with all the acquisitions we have done. The J&J one we just closed on is, I think, a prime example of that, which are bolt-on, closed-in acquisitions with leading brands, so those are the ones we like the most. Frankly, there's just not that many that come along. And so we can be patient and we don't (inaudible) for acquisitions [saved]. But we have -- we will acquire, when we find the right property at the right price.

And I would say that, on the acquisition side, we are seeing a few step up in properties coming on the market right now. So 2014, I think -- at least the way we view it, I'd characterize 2014 as a little bit more active in the M&A area than the past couple of years have been. And we are actively engaged in potential opportunities there. So I think you're right in terms of a lot of the things we've focused on. Innovation with working capital reductions, cost reductions have all been part of our effort to enhance value for our shareholders. Acquisitions have been part of that as well. And again, we just closed on one this past quarter. So I don't see a material change in it. But, as you know, it does get a bit opportunistic when you look at acquisitions, and as we look at share repurchase. And we've kind of always been opportunistic. I don't think that will change as we go forward.

And what about the other way that divestitures or splitting or sales?

You know, we haven't done much in the way of divestitures. Frankly, we don't have a lot of practice with that, but we are not opposed to that. And when we look at our portfolio, if we see some business units that maybe don't fit and if there's a way to reconfigure that in a way that's accretive for shareholders, we are always open to that. I think when you get things out of the portfolio to do something in a way that is accretive to shareholders, maybe (inaudible) a challenge. And I get more reluctant in pruning the portfolio, as it's highly dilutive, unless we really have a (inaudible) case in the business, and I don't think any of our businesses qualify as that.

Okay. Thanks very much guys.

Wendy Nicholson, Citi.

Hi. I just want to clarify just a couple things. First of all just on the concept of the share buyback. Is any share buyback reflected in your EPS forecast for this year? And then on your outlook for the Personal Care business, just to be clear, are you forecasting that the backdrop, the competitive landscape, changes, or that we just see more of the same and the recovery just comes from easier comps and you gaining more share?

On the first one, our estimate does include a little bit of share repurchase to offset the dilutive effects of compensation programs of the past. That's fairly modest; I think maybe 0.5 million shares. So that is in the forecast, to answer your first question.

The second question, from the competitive environment point of view, is totally dangerous to speculate what it will be like. We do know what we are up against historically. We know we are up against a extraordinary amount of competitive discount spending, especially razors and blades this past quarter. And there's still some extraordinary levels of discounting from last year before change in management of our major competitor that we will be up against. But as you anniversary through that, we certainly saw in the OMD quarter a substantial reduction in the hyper-promotion activity. Again, I wouldn't want to speculate whether that's going to be the case going forward. But this is -- we do have a current quarter I think it still going to be a challenge for these categories -- (inaudible) categories. They are up against hyper (inaudible) promotional activity that took place that is just going to take a while (inaudible) hyper level of promotion to also work its way out. As you see those two factors hitting on the list.

Okay. And then could you update us on -- and I'm sorry if you commented on it, but just the Axe razor raiser business at Wal-Mart, kind of how that's doing? Is it meeting expectations and any plans to expand that, or kind of where we stand on that? Thank you.

Unfortunately, I'm (inaudible) to talk about specific customers or market tests, and the one you're talking about qualifies as both. But I think we have indicated that that market test has maybe run its course. And so it's probably best maybe just to kind of leave it at that.

Okay. I'm sorry, run its course; does that mean it's over and it's going to be leaving, or you're finished with the test and (multiple speakers) -- I'm not sure how to interpret that.

Well, we are finished with the test, and again given the nature of doing market tests in particular customers I (inaudible) leave it at that. So I (inaudible).

Okay, no problem. Thanks so much.

Chris Ferrara, Wells Fargo.

Thanks guys. I just had a question on the 2014 EPS guidance. And I'm not looking to get down to the total nitty-gritty, but I guess big picture, the guidance was cut by like $0.125 cents to the midpoint. But the incremental effects drag is $0.28, so I know you're getting some back from savings and from boosting the J&J accretion. But you also took a couple of points out of organic sales. I'm just wondering how the math works. Is there another source of EPS that's allowing you to be at $7.00 to $7.25, given that incremental effects and the sales cut?

This is Dan. You're right. You cited the two negatives. We do have some upside with respect to higher restructure savings. And so we blend all those together, and it really kind of came down to lowering it by $0.25 on each end.

You really did a good job of hitting the puts and the takes. Those are kind of the major positives and negatives that have gone into the number and the small revision in the (inaudible).

And I think the other element, which Ward talked about, is we are committed to spending against our planned A&P. And so despite the fact that we were relatively low in Q1, which is not a high product launch quarter for us, we will spend against plan irrespective of the level of sales.

I think maybe one thing I would add to that would be there is a more normalized assumption regarding the sun care market for the US in our plans. We will wait and see if that pans out. But as you recall, last year's sun care market got off to a very slow start in the US and was unusually light for the year. We think this year will be a little bit more normalized.

There's actually one more piece I need to add. The accretion from the FemCare acquisition is higher than we originally had forecasted as well.

Right, okay. Thanks. And just bigger picture on the Personal Care stuff, and again more specifically on blades and razors. Is there anything you can do? Obviously, you guys want an innovation-led category, and this stuff has been going on for a little while now. Is it just a sort of a statement that innovation in the category, whether it's from you or Proctor, just isn't enough to sort of push normalized unit and value growth in the category? And I appreciate near-term there may be a -- may have been pantry loading, but this has been going on for, I guess, longer than that. So I'm just curious your take on that.

Our long-term view of razors and blades -- actually if you look, the overall category units have been in perpetual decline for years. It's at a small rate, 1% to 2% to 3%. And unlike the unit declines we saw for this quarter, which I don't think is normal, we view the category as continuing in that trend long-term. Net result is just people trading up more expensive systems, [ways] to last longer, results in those unit trends. The important one is, of course, value trends. And we just -- the industry just passed another round of the price increases in razors and blades. We believe our competitor was in the 3% to 4% range; I believe we were in the 6% to 7% range. And of those price increases oftentimes being justified, based on the quality of products innovation we bring into the category. I don't think those fundamentals have changed or need to change. It's one -- it's really this level of hyper-promotional activity that we have (technical difficulty) that's gotten in the way. And so we still think there's opportunities in the categories through growth through innovation.

Thanks guys.

Kevin Grundy, Jefferies.

Thanks for the question. Most of my questions have been answered, but I just wanted to follow on kind of in line with Ali's question earlier about the portfolio. So Ward, you've been pretty consistent now about talking about the rate of decline from a top line, from an industry perspective with respect to the battery business. Can you provide a little bit of context for your near-term and long-term expectations as far as profit and cash flow growth go for that business? It would be helpful to kind of think about ascribing values to different parts of the portfolio. Thanks.

Sure. You know, we really view Household as long-term continued profit and cash generator. The segment profit side of that business are north of $400 million. It is a challenge for our organization to keep it there. The amount of investment required to go into that organization has been not all that great, and frankly with the restructuring efforts even diminished. So cash flows have been very strong out of that business.

And we do have a fairly good international footprint on that side of the house, where there are some markets that are growing. So the challenge really for the Household division is to take those 2%, 3%, 4% unit declines and offset them either through mix pricing or geographic portfolio management to keep it stable. And one doesn't normally brag about keeping something stable, but we have a very healthy, big, global, multibillion dollar brand of cash flows and profit like that in the category that nevertheless is in a systemic decline that's really kind of the challenge in the jug.

Olivia Tong, Bank of America.

Thanks. Good morning. On Personal Care, given the number of moving parts in the margin this quarter, can you give a little bit more granularity on how much of the margin improvement is ongoing versus a function of timing? Because I don't think there was a lot of savings on the Personal Care side of the business' [quarter]. So I'm just trying to understand what your thoughts are on Personal Care margins going forward.

The one negative on margins just a percent standpoint is by factoring in an acquisition it has a substantially lower gross margin, Olivia. So gross margin will be reduced from historical levels. But aside from that, you're right. I mean, going forward as we expand the scope into that division, we would expect to see some gross margin improvement and probably some SG&A improvement, but that's yet to be quantified in terms of the geography of the P&L.

Got it. And then on A&P, I understand there might be some timing issues. But why would A&P be down, given a pretty difficult competitive environment right now? And I'm just trying to understand if is at all timing? Is there some -- what drives that Q2-to-Q4 improvement in A&P as well?

On the A&P, first of all, varies by division. Our actual investment -- A&P investment in our household division -- is up for the quarter. That was offset by A&P held back in the Personal Care division in the quarter. But a lot of that being really tied to the time of innovation. A lot of new products, I mentioned in the formal call -- part of the call, our new products that are going to be launched or are being launched early this quarter and next. And some of that launch activity taking place this quarter, but a big chunk of it taking place in what's our third quarter. And then our A&P is tied to that. So you've got to guess that by the amount of A&P spent in the first quarter, and yet by the total number we are holding to for the year, I think it gives you a sense of (inaudible) innovations in the back half of the year.

All right. Thank you.

Connie Maneaty, BMO Capital.

Good morning. I guess I'm kind of stunned by the price increases that you and Proctor took in shaving. So I guess my question is this. Other than the category is essentially controlled by a duopoly, what justifies price increases of this magnitude, given that inflation is so minimal? And don't you think the two of you run the risk of pushing consumers into the online subscription services or alternative ways of buying products that seem to be getting more and more expensive?

I'll answer your maybe the last part of your question first. I -- we're watchful of those alternative mechanisms of buying product, but the point is, in the end, what product are you buying? And the quality and the patent IT protection behind the quality of our portfolio, and I would venture to say our competitor's portfolio, is quite strong.

And so what's more important to how you buy the product is what product are you buying? And I think the quality of our products justify the ability to raise the prices. I will say this that, as you look at pricing in the razor and blade market, because of the strength of our competitor's branding versus ours, we tend to be and have always been priced somewhat of a discount. And in that sense, hitting (inaudible) price points that the consumers push back on, I think is less dilution for us than maybe our competitor. But the quality is there. People are -- with these three-blades, four-blades, five-blades products, are getting a better shave experience; in some cases, using their shaves longer -- those razors longer; and our price elasticity [work] supports the sort of price initiatives we should take.

Jason English, Goldman Sachs.

Good morning, folks. Thank you for the question. I just have a couple of quick follow-ons; a lot of questions have already been asked. The spend behind the back half innovation -- can you give us some more color on the types of initiatives that you're bringing to market in the back half?

Speaker^ Really kind of what we mentioned earlier, I would say some of the bigger initiatives for us is certainly getting the razor and blades side -- Hydro Sensitive; going after a sub-segment of Hydro users with sensitive skin. We have a great product coming out there. The Groomer, which is kind of a battery-powered groomer all-in-one, you do hear more about women, in particular, shaving parts of their body. And this groomer is an ideal product for that.

And I invariably carry over into sun care. Sun care line, we've had a great deal of success with the moisturization, introducing moisturization into sun protection. And we are just extending that into additional SKUs and [forms] and (inaudible) for the coming years. So I would say those are some of the big ones. But we also have internationally opportunities to continue to roll out parts of the Hydro franchise. So even the Hydro disposable, Hydro Silk for woman, these are successful -- very successful launches we had over the past year, 18 months. That's still yet to hit a number of our international markets, and so those activities will also be taking place.

So it's really pretty much across the board even in infant care. There has been some innovation that will it will be bringing when it's improved diaper pails, whether Genie continues to be an opportunity, the indication of our bottles and cups lines is an opportunity. So frankly just a lot. Again, I would characterize it as mostly singles and doubles, not huge home runs like the Hydro launch platform. But a fair amount of innovation activity that we will be hitting, really the late spring through summer or fall. And kind of what the A&P increase is tied to.

That's helpful. Thank you. And one other follow-on onto Bill Schmitz's question on the J&J math. The math that he was going down does lead you to EBIT margins for that business in the low single digit range before the rest of the year. It was suggesting you're going to spend in high 20s as a percentage of sales and A&P. Why does it make sense to spend that much? Are there specific initiatives you're excited about that warrant that level of investment? Can you just give a little more color on why such a heavy, heavy spend for that business?

I'm not sure I agree with exactly how you characterize the heavy, heavy spend. We are calling out, we are going to spend behind the business. And when that's versus no spend, that's a pretty big increase in and of itself. I think the real opportunities as we see on FemCare is really leveraging across a line of tampons in the brands we picked up. And so we've always done some promotional activities, say, between Gentle Glide and Sport, with Carefree and Stayfree. I don't know if we've done much with o.b. But there's just a wealth of opportunities in that regard. And obviously it takes us a few quarters to get those programs [nailed] down and along with customer plans.

But that gives you a sense of it's a huge step up in A&P, but albeit it's from zero for the past quarter. And a lot of that investment is behind the brand, stabilizing brand. Keep in mind, we picked these brands up at a pretty good price, but there was a reason for that, and that was (inaudible) bit in long-term, systemic decline. And so the focus really is to stabilize that business as you go into the back half of the year.

Okay. Thanks a lot, guys. I'll pass it on.

Jason Gere, KeyBanc.

Thanks. Good morning, guys. I guess the question I have is about -- it's on Personal Care but not on the, I guess, the developed markets as I think it's been a little bit exhaustive. But maybe more the emerging markets or the international rollout opportunities that still seem underpenetrated by you guys. As you think about the cost savings, you are at the almost the halfway mark of this $300 million program that's out there. I'm just wondering, as you think about the next half that comes through, what is kind of limiting you from seeking some of those opportunities in the emerging markets to kind of expand Personal Care where I think growth would be a little bit better? And is that precluded by just what's going on obviously the promotional environment and the changes going on in the developed markets? So I was wondering if you can provide a little bit of color about that and maybe as you see the next couple of years if there is more of an opportunity to expand beyond just the developed markets.

That's a great question. For us, as you know, since we acquired Schick in 2003, we've done a fairly good job of growing the Personal Care space over international battery footprint. And we continue to do that in both developed international markets and some developing international markets. I would say maybe at a pace, it's been a measured pace, but we frankly have some pretty big gaps despite our international footprint.

So you look at a market like India, we are not in India. You look at a market like Brazil. We have a pretty small presence, frankly, in Brazil. You look at a market like China; we've been in China for a number of years. But in the case of the Personal Care side, I would say modest development.

So as much as we've had success in many international markets, whether it's Europe, Central Europe, parts of the Middle East, certain parts of Southeast Asia where we've had very strong operations, we do have a couple of huge gaps there. And it's very, as you can imagine, tough to greenfield (inaudible) into a market the size of India, Brazil for a Company of our size. It really is more a matter of buying a wagon from which we can grow our brands versus trying to grow your brand's greenfield. And I think trying to grow the brand's greenfield in markets of that size is -- will be endless years of losses.

So it kind of is an interesting question about buying the wagon in some of these big markets that we are not in. And as we talk about acquisitions in the past and as we still look at opportunities, there are a few of these markets where we're as interested in wagons as we are in the product categories that might be available. So I hope that kind of characterizes it for you. That's really the -- kind of the strengths and weaknesses, puts and takes as it relates to our Personal Care expansion internationally, which has been going on. But a [decent] guess.

Okay, great. Thank you.

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

Operator, thank you for handling the conference call today. And for everyone listening, thank you for your interest in Energizer Holdings. Thank you again.

Thank you for participating in today's conference. This call will be available for replay beginning one hour after the meeting ends. You may now disconnect. Have a great day.