Edgewell Personal Care Co (EPC) 2014 Q2 法說會逐字稿

Good morning. My name is Tracy, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Energizer Holdings Second-Quarter FY14 Results conference call. After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)

As a reminder, this call is being recorded.

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

Thank you.

Good morning, everyone. Thanks for joining us on Energizer's Second-Quarter FY14 Earnings conference call.

With me this morning are Ward Klein, Chief Executive Officer, and Dan Sescleifer, Chief Financial Officer. This call is being recorded and will be available for replay via our website, EnergizerHoldings.com.

During our prepared comments and the question and answer session that follows, we may make statements 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 metric, currency fluctuations, tax rates, raw materials and commodity costs, category value, acquisitions or integration plans, future plans for returns of capital to shareholders, whether the separation of the household products and personal care businesses is completed as expected or at all.

The timing and terms of any such separation, whether the conditions to the separation can be satisfied, whether the expected operational marketing and strategic benefits of the separation can be achieved, and whether the cost and expenses of the separation can be controlled within our expectations.

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, 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.

In addition, we have posted a presentation to our Investor Relations section of our website with slides that provide an overview of the transaction that was announced today, which Ward will discuss later the call.

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

Thank you, Jackie.

Good morning, everyone.

We are here today not only to tell you about our Second-Quarter FY14 Earnings call, but also to discuss the important announcement our Company made earlier this morning. Our Board of Directors has authorized management to pursue a plan to separate the Company's Household Products and Personal Care divisions into two independent, publicly-traded companies.

The separation is planned as a tax-free spin-off to the Company shareholders, and is expected to be completed in the second half of FY15. I look forward to discussing this milestone in detail, but first I'd like to turn the call over to Dan for a brief discussion of our second-quarter fiscal results.

Dan?

Thanks, Ward.

I will now cover a few financial highlights of the quarter.

Earnings-per-share, ex-unusuals, was $1.88, an increase of 4.4% over the prior year. Earnings were in line with expectations and above prior year due to the incremental benefits from the Feminine Care brand acquisition, cost savings from restructuring, strong margins, and the timing of the A&P spend.

Let me briefly cover each of these items.

First, the accretion from the Feminine Care acquisition continue to exceed our expectations, providing $15 million in operating profit, $0.15 of earnings-per-share accretion. As mentioned in the outlook section of the release, we are now estimating that the full-year accretion, excluding any acquisition-related costs, will be in the $0.30 to $0.35 range.

We started to invest behind these (inaudible) during the second quarter, and plan to increase this investment throughout the remainder of the year. As we stated last quarter, we anticipate less accretion in the back half of the year as we ramp up our investment spending.

Next, we continue to make excellent progress with our restructuring initiatives, as we recognized nearly $50 million of year-over-year savings. This brief the project-to-date savings total to over $190 million.

Third, margins were strong as we benefited from restructuring savings and pricing gains in the Personal Care division.

Finally, A&P spending was modestly below prior year due to the timing of this year's promotional and product launch activity as compared to last year. We remain committed to investing behind our brands, with a significant amount of activity expected in the back half of this fiscal year. We continue to make excellent progress on our restructuring initiatives, and these cost savings continue to offset competitive challenges in both divisions.

The Household decline was somewhat expected due to the previously-discussed launch of distribution into US retailers. However, the level of promotional activity was at elevated levels and led to a larger decline than previously expected.

The decline in Personal Care was primarily due to continued category softness in many of our product groups, notably men's shaving; the timing of sun care shipments, due to the later Easter holiday; and elevated promotional activity in shave preps, offset by initial innovation shipments in wet shave and feminine care.

Infant care was down significantly, as we comped higher sales due to increased promotions in the prior year, as well as ongoing elevated competitive activity in the current quarter.

Now turning to the rest of the P&L.

Gross margin, excluding the impact of the currencies and acquisitions, increased 150 basis points versus the prior year. This favorability is a continued trend resulting from our restructuring efforts, along with improved pricing in personal care.

SG&A, excluding restructuring and acquisition-related costs, continue to improve versus prior year levels, due to restructuring savings and tight spending controls. Both absolute dollars spending and SG&A as a percent of sales improved versus year-ago levels.

A&P as a percent of sales was 9.1%, down slightly from a year ago due to the timing of new product launches in both periods. As stated in the release, A&P, as a percent of sales for the fiscal year, is expected to be 10.5% to 11%, indicating that we remain committed to our brand investment plans for the back half of the year.

Interest expense was slightly lower in the second quarter as a result of lower average debt outstanding. Other financing was $1.5 million of income, versus $10 million [expensed] in prior-year quarter. The current year includes gains from hedging contracts, offset by revaluation losses and nonfunctional currency balance sheet exposures. The prior year includes the Venezuelan devaluation of $6.3 million and foreign exchange losses due to the strengthening of the US dollar.

For the quarter, our effective tax rate was 27.5%, and 28.2% in the first six months of the year. On an ex-unusuals basis, the effective tax rate was 29.3%, in line with our full-year estimate of 29% to 30%.

Moving to our balance sheet, we continue to make excellent progress on our working capital initiatives. In the quarter, working capital, as a percent of sales, was 16.1%, an improvement of 200 basis points versus our FY13 year-end results and a 680-basis-point reduction from the 2011 baseline period established at the beginning of the initiative.

In terms of capital allocation, dividend payments in the quarter were $31 million, as compared to $25 million last year, as a result of our dividend increase to $0.50 per share in September 2013. In addition, we repurchased 1 million shares at the beginning of the second quarter.

As we mentioned last quarter, we're continuing to invest in our brands. Within Personal Care, we have several new product launches in 2014: Hydro Groomer, Hydro Sensitive Formulations, and Playtex Sport Fresh Balance. In sun care, we continue to invest behind the Banana Boat Protect & Hydrate platform and Hawaiian Tropic Silk Hydration, as well as other product extensions.

Our latest innovation in the battery category is the launch of Energizer Max with power seal plus technology, which is currently rolling out in the US. This innovative new product meets consumers' desire for a long-lasting alkaline battery that protects their devices from damaging leaks through our proprietary technology.

Our proprietary power seal technology provides a distinct benefit to the consumer by providing peace of mind that their devices are safe from damaging leaks. We believe that it is critically important to continue to provide news on the category, and we are excited to be able to offer this superior assurance to our consumers.

Now turning to our outlook for FY14.

Our full-year earnings-per-share outlook remains unchanged, in the $7 to $7.25 range. Our assumptions have changed slightly since the first-quarter update. We are still projecting organic net sales to (inaudible) low single digits, with Personal Care flat and Household Products down beneath the high single digits.

We expect topline performance to improve in the second half for our Personal Care division behind strong execution of our innovation plans and improved category performance. However, the outlook within Household has worsened versus our previous assumptions due to heightened competitive activity.

We are now estimating that our incremental restructuring savings will be in the range of $100 million to $125 million. This is a an increase over the $100 million that we were previously estimating, and is a reflection of the excellent progress we continue to make with our initiatives. We continue to expect that our A&P as a percent of sales will be in the range of 10.5% to 11%.

We are forecasting EPS accretion in the range of $0.30 to $0.35 from the acquisition of the Fem Care brand, excluding the impacts of acquisition and integration costs and the inventory step-up. This is an improvement from our first-quarter outlook.

We are assuming an unfavorable foreign currency impact of $45 million to $50 million pretax based upon recent rates. This is consistent with the outlook provided last quarter. Our outlook for the ex-unusuals tax rate remains at the 29% to 30% range.

Although there have been some effective changes within our assumptions, we are maintaining our outlook range of $7 to $7.25.

Before turning the call back over to Ward, it is important to call out that our second-quarter results and full-year earnings outlook were both translating our Venezuelan results at the official exchange rate of 6.3 Bolivars per US Dollar.

While we recognize that there is considerable risk of devaluation, we continue to receive payment for imports for both batteries and personal care products at the 6.3 rate. Therefore, we believe this remains the most appropriate rate to translate our results.

In the event of a change of the translation rate to the Sicad 1 rate of 10.7, we would incur a one-time devaluation charge of $29 million based on the current level of our net monetary assets.

In addition, translating at the 10.7 Sicad 1 rate will result in an unfavorable impact to our operating results of approximately $12 million to $15 million on an annual basis. We continue to monitor the situation in Venezuela very carefully.

Now I would look to turn the call back to Ward for a review of the separation announcement from this morning.

Thanks, Dan.

The Energizer Board of Directors and management teams have continually explored opportunities to improve performance and increase long-term shareholder value. We've taken meaningful steps to enhance shareholder value over the last three years, including executing a multi-year cost reduction plan, improving working capital, and initiating a dividend.

Today, we're taking what we believe is the next logical step in our efforts to unlock even greater value for Energizer shareholders by announcing our intention to separate our Household Products and Personal Care divisions. Having benefited from the initiatives we have already taken, and given the scale we have achieved with our Personal Care division, we believe both divisions are now well-suited to realize their full potential on a standalone basis.

We expect the separation to create two strong, independent public accompanies with distinct brands, categories, and corporate strategies that are well-positioned to maximize strategic flexibility and value to shareholders.

Since becoming an independent company in 2000 after its spinoff from then Ralston Purina, Energizer has built two successful divisions.

Household Products' batteries, and lighting products are distributed globally and its brands and icons are recognized around the world. The Household Products division, a global business, reported annual revenue of approximately $1.9 billion over the 12 months ending March 31, 2014, and has routinely delivered strong operating margins of around 20% and substantial free cash flows.

Personal Care has strong positions in large developed markets, and its products hold number one and number two positions in their categories. Beginning with our Schick-Wilkinson Sword acquisition in 2003, we have successfully created a Personal Care portfolio with over $2.6 billion in revenues. This dramatic growth off the original Schick-Wilkinson Sword base has been achieved through a combination of strong organic growth through innovation like Hydro, Quattro, and intuition razors, as well as prudent strategic acquisitions such as Playtex, Edge, and American Safety Razors.

The resulting Personal Care division has grown into a multi-billion dollar business that has critical mass and is strong enough to compete and win on its own in the global personal care space.

Household Products of batteries and portable lighting products is expected to continue to generate strong margins and significant cash flows, and will be anchored by our universally recognized Energizer and diverted brands.

Personal Care is expected to be a leading peer play consumer products company, with an attractive stable of well-established brand names and a scale of the wet shave side in skin care, home care and infant care categories.

Following the separation, each Company will be able to intensify its focus on its distinct commercial priorities; allow their own resources to meet the needs; allocate their own resources to meet the needs of each business; pursue distinct capital structures and capital allocation strategies; and provide a clear investment thesis and visibility to attract a long-term investor base suited to each business.

Importantly, the split also strengthened the link between each print Company's performance, shareholder returns, and management assessment and incentives.

Let me now discuss what we expect the two future companies to look like.

We expect Household Products will create value by leveraging its leading battery and lighting brands to generate significant cash flows. Its globally-recognized brands and products are sold throughout the world, and it is well-positioned to maintain strong market positions in its categories.

Household Products has world-wide scale, a broad product portfolio, healthy margins, high household penetration, and each product category remains an important basket builder for retailers. Its broad product portfolio will include lithium, rechargeable, performance, premium and value alkaline, carbon zinc, and especially batteries. The Company will also sell lighting products.

As a standalone Company, we believe Household Products will be attractively positioned to build market share through distribution and investments and effective trade, customer, and category fundamentals. It will drive relevant consumer-led marketing innovation, and will accelerate initiatives to optimize its global cost structure.

As a result of its proven ability to generate substantial free cash flow, we believe it will be able to return significant capital to shareholders.

Looking now at Personal Care, we expect it will create value by building on its established track record of innovation in product development and marketing to drive topline growth and to win market share. Its broad portfolio of leading global brands include Schick and Wilkinson Sword in wet shave; Edge and Skintimate in shave press; Playtex, Stayfree, Carefree, and O.B. in feminine care; and Banana Boat and Hawaiian Tropic in sun care.

Importantly, Personal Care has strong positions in large and developed markets including North America, Japan, and Germany. It's products hold number one and number two positions in their categories.

As an independent entity, we believe Personal Care will be able to accelerate growth across all categories. The standalone company should be able to execute a focused global go-to-market strategy and continue to grow through disciplined strategic acquisitions. In addition, it should generate substantial free cash flow and is expected to enable a combination of re-investments and capital return.

In addition, the Board of Directors also named leadership for both Companies upon completion of the separation. I am expected to serve as Executive Chair of the Board of Personal Care.

David Hatfield, currently President and Chief Executive Officer of Energizer Personal Care, is expected to serve as Chief Executive Officer of standalone Personal Care.

J. Patrick Mulcahy, currently Chairman of the Board of Energizer Holdings, Inc. is expected to serve as a Executive Chairman of Household Products.

Alan Hoskins, currently President and Chief Executive Officer of Energizer Household Products division, is expected to serve as Chief Executive Officer of standalone Household Products.

The Company plans to provide further details about the Board and management teams of the separate Companies at a later date.

Given our global footprint, there's a lot of work to be done before the separation, which is expected to be completed in the second half of 2015. Furthermore, our timeline for completing this transaction is designed to ensure the ongoing costs in working capital reduction initiatives we are already undertaking are successfully completed.

Specifically, our restructuring project continues, with announced projected total project savings of $300 million. Similarly, our working capital reduction project continues, as evident in this quarter's results of working capital as a percent of sales hitting a new low of 16.1%.

With regard to the separation process, there are a few important conditions for us to complete the transaction. The proposed separation is subject to customary closing conditions, including receipt of regulatory approvals, an opinion of counsel regarding the tax-free nature of the separation, the effectiveness of a form 10 filing with the SEC, and final approval by our Board of Directors.

As we work toward achieving this new milestone in Energizer's history, we will continue to focus on achieving our business priorities for FY14 and caring our polished momentum into FY15.

These priorities include restoring long-term growth in Personal Care by continuing to focus on and fund innovation. The standing distribution within Household Products, leveraging our strong brand equity and continuing to invest in innovation, continuing to integrate the acquisition in our feminine care business, and executing against our restructuring and working capital initiatives.

By achieving these objectives, we are in a strong position to take this significant next step, creating two independent Companies that have very different opportunities to enhance long-term shareholder value.

With that, I will open things up for questions.

(Operator Instructions)

Nik Modi, RBC Capital Markets.

Thank you. Good morning everyone.

I guess if you could just talk -- I know you guys been talking about this at the Board, and you are very open about that dialogue when we saw each-other in Boston a couple weeks ago. What prompted the decision to happen so quickly? It struck me as, maybe, there were some things you are waiting to see on the cost-cutting side to ascertain whether you would do this or not. So I just would love to get your perspective on the timing of all of this? And what really drove the decision?

Sure. As you know, we've had these discussions with our Board of Directors, frankly, over the years, as we on a routine basis evaluate our strategic options as a Company. We have an annual strategic plan with the Board of Directors and then intervening quarterly discussions. So, the option of spinning a division or separating the Company has been an ongoing conversation for years, not for weeks.

The timing right now feels good to us for a number of reasons. I think, first and foremost, major strategic initiatives we've been pursuing including the cost reduction project and the working capital initiative reduction project, have been -- we're well into those projects, well over halfway, and I think we see light at the end of the tunnel in terms of coming to conclusion on those major projects. Not that we won't continue to work on reducing working capital or cost, but we're really about a year away.

So, when you look at how long it takes to effect a separation -- looking at about 12 to 18 months to effect this -- the timing now seems right. That, as we conclude those strategic initiatives about a year from now, we are in really good shape to take this step. As part of those initiatives has been, of course, the IT enablement that we've been investing in, that has been part and parcel to the cost reduction efforts; and that IT enablement project will come to completion early next calendar year.

So, in terms of our ongoing efforts to enhance shareholder value, this seems -- in the timing it will take to effect the separation, it really is a natural next step, and sequence those accordingly.

If I could just follow quickly on some business related questions. Remind us when you will be [lapping] the distribution losses in batteries? And if there's any opportunity to gain distribution as you look out the next 12 months? And then, in blades and razors, just curious on your state of the union on the competitive environment and systems, and the blade and razor business in particular?

Yes. Sure.

The low [buy] estimate on loss of those two [natured] customers that we've been talking about for a number of quarters now, we will be lapping that basically around August 1. July to August, depending on the customer. So, we still have an April, May, June, quarter ahead of us that we will not have lapped that loss, so you can expect the impact accordingly. But, having lost those two customers a year ago, we offset that with gains elsewhere.

It's kind of a typical yin and yang, so to speak, in terms of customer distribution, distribution gains, distribution losses. We call that two major distribution losses. We have had gains during the process. We continue to work on expanding distribution.

We do believe that we have a better portfolio than our competition. We do believe we have more focus on the category than our competition. And, frankly, with the Power Seal Plus technology we're rolling out right now, we believe we have a competitive advantage in terms of product performance in the area of leakage that we're just starting to talk about. So, I'm quite bullish right now on what the household products division is doing as they move forward.

On your question about the razor and blade market -- again, we have unfortunately had a number of quarters here where the category itself has been quite weak. And unfortunate, and we call that -- we see that really ebbing this quarter. And that has turned out to be the case in terms of US razors and blades right now. I'm looking at value down 5% and units down 5%. All of that being led again by [mens'] systems, which has been the weakest category performer, down over 10%.

We do, nevertheless, expect those negative trends in razors and blades to recede as we move forward at this point. Again, a large part of that negative category performance we've attributed to very heavy, unprecedented discounting last year and loading up consumer pantries as a result. As those pantries de-load, we think that the category will get back to more normative position.

Stephen Powers, UBS.

Thank you.

Ward, I was wondering if you could talk about how you envision -- what assumptions you are making around the capital structure of the future Companies? And how they differ between the two? As well as talk a little bit about the dis-synergies that you expect to encounter and how to overcome that? Thanks.

Sure. Unfortunately, we are really early in the process, and so we don't have a lot more to add as it relates to potential capital structures of the two divisions. I would say, nevertheless, that the context of that comment is from an overall total corporate balance sheet right now. Our balance sheet is the strongest it's been in probably seven, eight years. That is a good thing.

I also -- the overall context of both -- probably decisions like capital structure will be made is in light of very strong margins and positive cash flows both divisions already generate. So, we have, frankly, a great deal of flexibility in terms of how we make those decisions on capital structure. But, we're just very early in the process right now. As decisions are made, we will certainly be transparent about those.

On the dis-synergy question?

Yes, the dis-synergies -- obviously, there's going to be some dis-synergies at the corporate level as you set up two corporate structures for these publicly held Companies going forward. We think a large portion of those dis-synergies can be offset by opportunities we see more in the operating levels of the Company. There will be some. We're not prepared, quite, to disclose that.

Frankly, we have a lot more work to do on that, and one of the reasons for -- again, as I said earlier, for announcing the separation at this point in time is we're at that level of analysis where we really want to rein in our teams from around the world on attacking some of the nitty-gritty and tactical issues as it relates to separation.

Again, keeping in mind that we already have a global footprint. We have operations on the ground in 50 countries, and we do business in 150 countries. There's a lot of tactical and operating opportunities that we need to tackle and we need to bring the teams in to do that. We couldn't do that until we went public with this.

If I could just -- maybe related to the dis-synergy question; less so from cost, but somewhat, maybe, from revenue and customer relations -- I know in the past you have spoken about the strength of the combined portfolio giving you more influence with large retailers, given more points of presence in store. How do you think about that now as two separate Companies? Do either company lose negotiating power? And if so, does it skew to one versus the other?

That's a really good point; and, frankly, when we started this journey back when we had just Schick-Wilkinson Sword, a little $625 million personal care business grew as it spread around the world, that was really the case. That the [haspry] that the household brought with customer relationships, customer coverage, really helped in early days of the personal care division.

But, as we have grown the personal care division over time, as we've gone from that $625 million business to $2.6 billion, personal care really has been in a position to stand on its own with customers and from a visibility and impact point of view. So, I don't think we could have done the separation a few years ago, given the size personal care was then. But, we feel very confident that we can do it now, given how much personal care has grown.

All right. Thanks.

Bill Chappell, SunTrust.

Good morning.

Good morning, Bill.

My first question is just to make sure I understand -- on the timing of the separation -- I go to a similar St. Louis company; took [Roth] over about six, seven months to spin out [pers]. You're saying it's kind of a year. This is really more Company, not necessarily regulatory. You should be able to get past regulatory stuff faster than a year. Is that the right way to look at it?

Yes. I think on the regulatory you are right.

There's a lot of differences between what we're going to be doing here and what our friends over at [Rothwood]did. And, a lot of that goes back to that global footprint we are talking about. We're much bigger. We are much more geographically dispersed. And so it will just take longer.

And, as we work with our advisors on the separation analysis, they laid out the typical timing of these things. The 12 to 18 months that we are citing is maybe on the long end of the curve, but it's not unusual. Given the nature of our operation and the work yet to be done, we were advised that's probably the time frame to expect.

Okay. And then core business.

What you may have talked about -- you said, with personal care picking up over the next two quarters, your thoughts or what the impact there is from the new Gillette razor? Does that help? Does that hurt? Is that baked into your plans?

And then also on sun care, with the Easter shift and favorable comps, are you expecting -- I would imagine that's pretty strong season over the next three to four months for that business?

I will focus on the latter, less on the former. The innovation, so-called Finesse by our competition -- I think as we view it, certainly they will invest a lot behind it.

We've done our source volume analysis; we see don't an inordinate amount of that volume being sourced from us. I think it will be sourced from the competitor's existing franchise. I think the good news on that is, it's really just another improvement within the fusion platform. It's not a new platform. I think that's the important thing. Where you really run into unusual share challenges is when a totally new platform is introduced. This is really the same old platform that our competitors had out there; just a new razor handle on that platform.

So, I think it will be competitive. We may give up a little bit of share. But we're very happy with where our razor and blade portfolio stands right now. In fact, on a global basis, our share of men's manual shave continues to grow. It's up about 30 basis points in the most recent quarter, globally.

A lot of that, of course, is due to Hydro and the growth of Hydro. We still have a lot of trial -- I think, trial opportunities with Hydro, and once people try it, they love it. That's how I'm viewing razor blades right now and the recent announcement by a competitor.

As for sun care, certainly, Easter falling later is going to help. Maybe there's a greater probability that the sun will be out than last year. Last year, as you know, was pretty cold and wet, especially in eastern Mississippi, well into June. We're hoping that is not the case this time. But, even if it is, I think with Easter falling a few weeks later that will be certainly a positive for that category, not a negative.

Perfect. Thanks.

Thank you.

Chris Ferrara, Wells Fargo.

Ward, can you talk about the personal care infrastructure internationally? I know that was one of the obstacles you guys had to overcome. A lot of that infrastructure was more Energizer household-side related. Have you or do you have a preliminary plan as to how you are going to globalize personal care on a standalone basis? And, what's your thought process on international growth in personal care, post-split?

Sure.

Going back to when we acquired Schick and started merging that with the Energizer Company at the time, there were a number of opportunities we went after as to grafting, so to speak, personal care opportunities onto that legacy battery platform. Again, pursuant to some other policies you all know, the battery business has an enormous global footprint; dates back to the 1900s, and a fairly good presence in many emerging markets. There's a few key ones we are not in, but we are otherwise in very strong positions in a number of emerging markets. Also, very strong position not only in the modern class of trade, but traditional class of trade.

It was off that base that we're able to take some of the personal care lines, in particular razors and blades and sun care, and get some growth on those personal care businesses. With all that said, the personal care business nonetheless remains more of a developed market business, whereas batteries has a higher skew in developing markets. The personal care business is more of a modern class of trade business. Whereas, again, batteries is strong in both modern but also traditional class of trade.

So, as we focus on the developed markets and modern class of trade, we are very comfortable with personal care standalone. They have done a great job, and will continue to do a great job there. From an emerging market point of view, with a focus on modern class of trade only, there is a pretty clean line of sight in terms of how to grow personal care, even at some of those emerging markets that we feel comfortable personal care can pursue when it is its own Company.

Got it. Thanks.

And any early thoughts on any potential inhibitors to being able to sell, or for any of these businesses to give it ultimately be taken out on an individual basis? Is there a situation with the tax-free nature of a spinoff would require those businesses to remain standalone for any period of time? Just wondering what your thoughts are on that.

I'm not sure we've really given that much thought. Our focus, and I think the beauty of what we are proposing is the tax-free nature of separating this business and spinning off one of these divisions to shareholders in a tax-free manner. That's what this project is all about.

Once you have those two self-standing multi-billion dollar Companies, it's our intent to position them to continue their trajectories of long-term growth. Again, healthy balance sheets, very strong cash flows, very strong margins, and a laser-like focus on their categories and providing innovation and product distribution. That's what this is all about.

Okay.

Ali Dibadj, Bernstein

Hey, guys.

So, I do want to preface my question with, I think this split is certainly a good idea; but I want to go back to March 12, where publicly, Ward, you said, we don't see where separating the business, incurring all those dis-synergies and costs, are really going to be accretive for shareholders. So I'm trying to figure out what's changed in 45, 46 days.

Was it the tougher earnings than expected, here? Was there an activist involved? Because it feels like that also impacts the fact that the delay to the split is taking a little bit longer than we would have anticipated. So I am just trying to get a better understanding of what went on behind the scenes in the past 45 days.

I'm not sure anything really has gone on behind the scenes in the last 45 days. This is been an ongoing discussion we've had with the Board and ongoing analysis. And, as I've alluded to in one of the earlier questions, in terms of focusing on enhancing long-term shareholder value, we had just seen a natural cadence of the projects we've been walking on. That had to do with that. Again, the cost reduction project and working capital initiative project, IT enablement project -- they're reaching their natural conclusion.

Given the amount of time it does, we've been advised and are expecting spin analysis to take, this is really just natural timing coming out of those earlier shareholder value-accreting steps. So, the idea of spinning a division, of splitting the Company, is not something new that just came up in the past 45 days. We've been having this conversation with our Board for years.

But what's changed your mind in the past 45 days, I guess? Was an activist involved?

I'm not sure if my mind has really changed. And, I'm not sure the characterization you give [up front in] your question, I'm not sure I agree with. We've been asked off and on, on the idea of splitting; and the answers are given how we felt at the time. At this point in time, we feel it makes perfect sense for the reasons that were already cited.

Was there activist involved --

Will Schmitz, Deutsche Bank.

Can you just give a little bit more details on Chris Ferrara's question about the conversations? Were there any formal conversations about some of the businesses prior to the spin? Because I think that, probably, is the biggest inhibitor in terms of deferring the tax-free nature of the deal for two years past? And then, I have a follow-up.

I'm not sure when you say conversations. We certainly evaluate all options with our Board of Directors, and on that being an option of many that they've talked about over the years as we evaluate capital structure and evaluate overall corporate strategy.

In terms of with outside entities and so forth, our focus has -- No. Our focus has been on growing our business and evaluating, does a spin make sense, and if so when? That's been what we focused on the past 45, 60 -- really, past 60 to 90 days of this discussion.

Have you talked to tax counsel about the conversations you had? Did they give you any color on whether or not you could do a deal if one came up within that two-year window?

We feel very confident that we can do a tax-free spin based on the facts that are at hand. But we rely on our legal counsel, our tax counsel, on, obviously, when to deal with regulatory authorities. That takes time; there is no assurance.

So, we give that caveat on this transaction that it is typical that, until you get a hard opinion on that and formal confidence on that, that's obviously a big consideration. It's our belief that we can do a spinoff of one of the divisions in a tax-free manner.

Okay. Got you.

Olivia Tong, Bank of America.

Thanks. Good morning.

I guess, following up a little bit on the why now question. Does this help you accelerate the cash payout on either side of the business? Maybe a dividend, particularly on the household side? Or is it -- by splitting the two, can you get more aggressive on cost as two separate entities?

Is there something that you think you're not getting credit for right now that you would get credit for if you were two different Companies? How much of the change in your opinion is due to the way the industry has evolved, particularly on the battery side, versus how much is Energizer just shifting in terms of the evolution of your business and now as the right time? Has your outlook changed meaningfully on either side of the business? Thank you.

Sure.

I'm not sure our outlook has really changed meaningfully. Batteries has always been a very competitive market at the trade customer level. Personal care has always been a very competitive market in terms of consumer level. One's more of a push business, one's more of a pull business. I don't think those dynamics will ever change.

Again, what really is from a timing point of view, having us [state this stuff] is, as we already discussed, the completion of our strategic projects and the natural cadence coming out of that. It just seems to be a logical step that we can take now that we see a light at the end of the tunnel on the cost reduction with capital initiatives.

In addition to that, I would have to say that the completion of transactions on the feminine care brands that we acquired last fall, which really took what was a standalone classic tampon brand and now gave us a major presence across all of fem care, has really provided us three legs of a stool for personal care. And, as we've filled out the portfolio of personal care over time, with acquisitions such as Edge, with -- such as American Safety Razor, and Playtex, and most recently involved with the J and J brands, we feel very comfortable with the scale and the focus and the strength of those personal care businesses.

So, again, it's really more of these issues that have told us that now is the right time to take this step, and in order to do that step properly, the amount of time we expect it will take to execute it.

I guess just to follow up, it does sound like, while it's the right time for you, it doesn't necessarily do a lot in terms of accelerating any cost savings potential or cash payout on either side of the business. Is that a fair characterization?

I'm not sure I think of it that way, to be honest. The cost reduction initiatives, like I said, we're about two-thirds of the way through our project transformer. We still have a third of that cost-reduction initiative to complete. Our teams are focused on that. On the working capital initiatives, as Dan talked about earlier, we're down to 16% working capital, which is a great deal of progress versus where we are -- or where we were.

We still think there's some opportunities there, so we're not going to give up on that. And the operating divisions are not giving up in terms of progressively bringing solutions to our consumers and trade customers through innovation. I think this Power Seal Plus technology we're just introducing on batteries is the most recent example of that.

We have plenty of innovation that we're launching in the back half of the year in personal care that we talked about. Whether it's Hydro Sensitive or Hydro Power, whether it's strategic drive on hydration and sun care products, whether it's the relatively high level of A&P that we've indicated that we're planning to send to the back half of the year. So, all those value-accreting -- all those actions are value-accreting. They don't stop. We just see that -- the end of that 12 months from now, these two divisions are in a very strong position to go forward as two separate Companies. I don't see that impairing our ability to succeed going forward.

Connie Maneaty BMO Capital Markets.

Good morning.

When do you expect to issue split offs and financials?

Connie, it's going to be a while. Our external audit firm, Price Waterhouse, is fully engaged in that. Our fiscal year doesn't end, obviously, until September, so sometime after that period those financials will be prepared.

Okay. And which business, personal care or household, is most exposed to Venezuela?

We actually sell -- both divisions are in Venezuela. So, they're both exposed, and so I don't know that it's meaningfully different for one versus the other.

Okay. And I just have a follow-up on the battery business.

How is the strategy for batteries do you think going to be -- or how could it be, hypothetically, different as an independent company then the way it is operated now?

I'm not sure their operating strategy is fundamentally different. I do think they see some additional opportunities from an operations point of view, but I think they can move on those, frankly, either as part of Energizer Holdings or as [standalone]. And, I also don't think they're fundamentally different in terms of the focus on innovation.

Although the execution of the current innovation plan is probably more heightened that it has been. This Power Seal Plus technology is a real competitive advantage versus our competitor, especially when it comes to areas of post-discharge leakage of batteries. So, both those efforts will continue.

I think what you get, nevertheless, is even greater focus on alignment, especially in international portfolios, when you separate against executing those. Again, I think one of the big pluses of separation is, especially in those parts of the Company where people are managing a whole portfolio, responsible for both personal care and household, is the laser-like focus this separation provides those teams and the linkage of compensation to their actions, and more freedom they have of allocating their own resources -- all bode well for these two Companies going forward and their ability to compete.

Kevin Grundy.

Good morning guys. Thanks for the question.

I wanted to come back -- I think Steve had asked a question earlier with respect to dis-synergies. When would you expect to have clarity on that? And would that be something that you would share with the Street in understanding what I think you said that you would expect to be able to offset some of that? So the question is around timing, and would that be something you will share with investors?

I think we certainly have a top-down estimate on a lot of these factors. We had to do quite a bit of work in preparing the recommendation to the Board and getting them where they are. As indicated, the work to be done now really requires us bringing in our teams, which we can do now that this is public. From a timing point of view, I don't know. Dan, if there's any specifics you've got at this point?

I don't know if we will disclose dis-synergies or not. Clearly, when these businesses are spun off we will provide some outlook on the financials, which will include all costs. But we are well along in terms of a top-down analysis, as Ward had said, but the real work begins now as we have to make the real decisions on how to separate the businesses.

Okay. A couple more from me, if you wouldn't mind.

Can you guys, from an M&A perspective or even just capital deployment, does that change much now with this announcement? Infant care has been talked about maybe being non-core. What's your thoughts now with respect to buyback? Would you not do M&A now? Is it just a wait and see approach until we get to this deal closing? What should we expect with respect to capital deployment and maybe even further pruning of the portfolio?

I think from a capital deployment point of view, first and foremost I expect the Board to continue to approve the dividend payouts. I don't see that changing. Of course, that's a Board decision.

As it relates to M&A, we've always been opportunistic. We will continue to be opportunistic and take a look at what may come along and what may makes sense, and then factor that in to our new reality of, how does that fit in with this separation of two divisions?

I don't think it prevents us from doing it, necessarily. I don't it encourages us to do it more. I think we'll continue to look for those opportunities and then just assess with them the future that we're planning here.

As it relates to other capital decisions, again, we have a fair amount of work still to do in terms of what sort of capital structures the two divisions should have as they go forward. Again, the benefit, as I cited earlier is, overall the corporate balance sheet is the strongest it's been in years; the cash flows are the highest they've been. We're in a pretty good position from that point of view to make those decisions.

If I could just slip in one more. This is with respect to the quarter.

The personal care performance is probably not what you would like, but it was still considerably better than what we are seeing in track channels. Can you talk a little bit about the gap? Did you do to significantly better? Was there some shipments there that you benefited from which will reverse in the upcoming quarter?

In terms of personal care, the quarter played out pretty much as expected, and the plans to really ramp up the A&P spend on these businesses for the back half. We've been pretty transparent about that all along, and that continues to be the plan. So, I don't see anything fundamentally different.

We are holding. Like I said, our share of razors and blades is actually up about 20 basis points, and that's on a US basis. About 30 basis points on a global basis. I just wish these categories weren't as soft as they are. But, we've already discussed why we think they have been and where we think they're going and why.

And so, personal care -- the competitive environment has changed a little bit, and certainly razors and blades is still an extreme promotional environment [and shave press], based on how our competitors chose to go after that category. Fem care business -- I'm kind of curious to see. It's performed stronger than we expected when we acquired it. Now as we start investing behind fem care, which we really haven't done up to now, I'm looking forward to seeing some good results of there.

From a sun care point of view, [our lap] is as strong as ever, this focus on hydration as well as protection. It resonates with consumers. We just need the sun to come and for it to get hot.

thank you. I would now like to turn the call over to Ward for closing remarks.

Thank you, Operator.

We appreciate everyone's interest in the Company and I'm sure you will continue to have many questions, many of which we cannot address at this time. As you understand, our Board has just authorized Management to actively pursue the plan, and we are in the early stages of the separation process. There's still a lot of work to be done and a lot of decisions to be made. We plan to communicate regularly throughout this process as appropriate, and we look forward to providing you with an update on our third-quarter call at the end of July.

Thank you for your time, and, Operator, this concludes the call.

Thank you, Ward.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Thank you and have a good day.