Energizer Holdings, Inc. Announces Fiscal 2022 Fourth Quarter and Full Year Results and Financial Outlook for Fiscal 2023

• Achieved fiscal 2022 Net Sales, Adjusted Earnings Per Share and Adjusted EBITDA in line with our Outlook.¹
• Net Sales for the fourth quarter up 3.2% to prior year, driven by organic growth of 7.4%, primarily due to pricing actions.¹
• Free cash flow in the fourth quarter at 12% of Net Sales and net debt decreased by over $100 million.¹
• Company expects to deliver low single digit organic revenue growth, Adjusted EBITDA in the range of $585 to $615 million and Adjusted earnings per share in the range of $3.00 to $3.30 for fiscal 2023.¹
• Announces Project Momentum, a profit recovery program, with targeted annualized savings of $80 to $100 million over the next two fiscal years.

ST. LOUIS, Nov. 15, 2022 /PRNewswire/ -- Energizer Holdings, Inc. (NYSE: ENR) today announced results for the fourth fiscal quarter and full fiscal year, which ended September 30, 2022. 

"We finished the year strong, delivering full year net sales, adjusted earnings per share and adjusted EBITDA in line with our outlook," said Mark LaVigne, Chief Executive Officer. "Despite a volatile operating environment and significant headwinds, we achieved our seventh consecutive year of net sales growth, driven by strong organic growth across both of our operating segments. We generated $95 million in free cash flow in the fourth quarter, paid down debt and reduced net leverage by 0.3X."  

"We are making necessary adjustments to advance our strategy and position the business for long term success in a dynamic environment. As such, we are launching a profit recovery program, Project Momentum, which accelerates our efforts to restore margins, enhance free cash flow and strengthen the balance sheet. The benefits of Project Momentum are expected to be realized over a two year period and begin to restore both gross margin and earnings growth in fiscal 2023. I am confident the program will position the business to drive value creation for our key stakeholders – customers, consumers and shareholders alike." 

Net sales were $790.4 million for the fourth fiscal quarter compared to $766.0 million in the prior year period and $3,050.1 million for the fiscal year compared to $3,021.5 million for the prior fiscal year.

For the fiscal quarter, organic net sales increased 7.4% due to the following items: ¹

• Pricing executed in both battery and auto care drove an organic increase of approximately 13.3%;
• Partially offsetting increased pricing were volume declines in both battery and auto care related to those pricing actions, the lapping of elevated demand in the prior year and the impact of inflationary pressures on consumer demand, resulting in a 5.9% decrease to organic sales.

For the fiscal year, organic net sales increased 3.1% due to the following items: ¹

• Pricing executed in both battery and auto care drove an organic increase of approximately 7.6%; and
• New distribution globally across both battery and auto care contributed approximately 0.8% to organic growth.
• Offsetting these increases was a net volume decrease of approximately 5.3% as a result of lapping the elevated battery demand in the prior year and declines in both battery and auto care related to the previously mentioned pricing actions.

Gross margin percentage on a reported basis for the fourth fiscal quarter was 36.1%, versus 36.5% in the prior year quarter, and was 36.7% for fiscal 2022, versus 38.4% in the prior year. Excluding the current year costs from the flooding of our Brazilian manufacturing facility and exiting the Russian market and the acquisition and integration costs in both years, the Gross margin was 36.2% for the fourth fiscal quarter, down 150 basis points from the prior year quarter, and was 37.3% for the fiscal year, down 230 basis points from prior year.¹

The Gross margin decrease for the quarter and fiscal year was driven by higher operating costs, including transportation, material and labor costs, consistent with ongoing inflationary trends. The quarter was further impacted by operating inefficiencies related to reduced production volumes as we lowered overall inventory levels on hand. Partially offsetting these margin impacts was the positive impact of executed price increases in battery and auto care.

Additionally, the full year was positively impacted by the elimination of prior year COVID costs and synergies of  approximately $6 million.

SG&A for the fourth fiscal quarter, excluding restructuring costs, was 15.1% of net sales, or $119.2 million, as compared to 14.3% of net sales, or $109.4 million, in the prior year excluding acquisition and integration costs and acquisition earn out. The increase was primarily driven by increased recycling fees, IT spending related to our investment in digital transformation and an increase in compensation costs year over year.¹   

SG&A for fiscal 2022, excluding restructuring costs, acquisition and integration costs, acquisition earn out and the exit of the Russian market was $467.3 million, or 15.3% of net sales, as compared to $443.8 million, or 14.7% of net sales, in the prior year when excluding acquisition and integration costs and the acquisition earn out. The increase was primarily driven by increased environmental costs related to a legacy facility that had been sold by the Company, recycling fees, travel and higher IT spending related to our investment in digital transformation.¹  

A&P was 3.5% of net sales for the fourth fiscal quarter and 4.5% of net sales for fiscal 2022. A&P spending in the prior year was 5.4% for both the fourth fiscal quarter and for fiscal 2021. For the quarter, this was a decrease of 190 basis points, or $14.0 million and for fiscal 2022 this was a decrease of 90 basis points or $25.0 million.

The net loss for the quarter and year are driven by the non-cash pre-tax impairment charge recorded of $541.9. For the fourth quarter, the improvement in Adjusted EBITDA and Adjusted diluted net earnings per common share reflect the positive impact of price increases from both segments as well as the lower A&P investment spending. This improvement was partially offset by higher input costs, higher SG&A and overall unfavorable currency impacts. Adjusted diluted net earnings per common share further benefited from lower taxes partially offset by higher interest expense in the current quarter as well.

For the full year, Adjusted net earnings per share was significantly impacted by higher input costs throughout the year, which were only partially offset by the price increases. In addition, unfavorable currency movements significantly impacted the full year results. These headwinds were partially offset by the reduction in A&P spend, lower interest costs due to the refinancing over the past two years and lower taxes.

For the quarter, currency had an unfavorable pre-tax impact of $9.7 million, or $0.11 per share, and for fiscal 2022, currency had an unfavorable pre-tax impact of $25.9 million, or $0.29 per share.

• Operating cash flow for the fourth fiscal quarter was $107.2 million, and free cash flow was $95.3 million, or 12% of Net Sales, as the Company returned to more normalized working capital levels.
• Debt pay down in the quarter was $58.3 million and net debt decreased by $106.2 million. Net debt to Adjusted EBITDA was 5.8 times as of September 30, 2022.
• Subsequent to year-end, the Company paid down an additional $25 million of debt.
• The Company paid dividends in the quarter of approximately $21 million, or $0.30 per common share. Dividend payments for the year were $84.9 million, or $1.20 per common share.
• In January 2022, the mandatory convertible preferred stock automatically converted to approximately 4,700,000 shares of common stock. Prior to the conversion, dividend payments were $8.1 million for the year.

For fiscal 2022, we were able to deliver results on both the top and bottom line through pricing actions and consistent operational execution. As we worked through various initiatives to navigate the remaining impacts of the pandemic, persistent inflation on our input costs and a rapidly appreciating US dollar, we have identified a pipeline of incremental initiatives to support long-term growth and normalized working capital. These initiatives have now been built into a profit recovery program, Project Momentum, which includes an enterprise-wide restructuring component. Under Project Momentum, we will further leverage the foundation we built through the first phase of our fiscal 2022 transformation programs by implementing a set of initiatives intended to recover operating margins, cash flow and organizational efficiency. Project Momentum has targeted annualized pre-tax savings of approximately $80 million to $100 million, with approximately $30 million to $40 million of those savings to be recognized in fiscal 2023.

The restructuring component is estimated to generate annualized pre-tax savings of approximately $65 million to $80 million of the total savings, and anticipated one-time pre-tax costs of $40 million to $50 million over the next two years.

Looking specifically at our key metrics for our fiscal 2023 outlook:

• We expect organic revenue to increase low single digits, as continued pricing actions are partially offset by category volume declines across both the battery and auto care segments. We also expect low single digit declines for reported revenues when considering negative currency headwinds of approximately $90 million, based on September 2022 rates.
  
  
  
• Adjusted EBITDA is expected to be in the range of $585 million to $615 million, up approximately 10% on a currency-neutral basis at the mid-point, and Adjusted earnings per share is expected to be in the range of $3.00 to $3.30, up approximately 12% on a currency-neutral basis at the mid-point. We anticipate negative currency headwinds on earnings of approximately $27 million and $0.30 per share based on September 2022 rates.

In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. eastern time today. The call will focus on fourth quarter and fiscal 2022 financial results and the financial outlook for fiscal 2023. All interested parties may access a live webcast of this conference call at www.energizerholdings.com, under "Investors" and "Events and Presentations" tabs or by using the following link:

https://app.webinar.net/ZrwLEwdJ6pl

For those unable to participate during the live webcast, a replay will be available on www.energizerholdings.com, under "Investors," "Events and Presentations," and "Past Events" tabs.

This document contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future sales, gross margins, costs, earnings, cash flows, tax rates and performance of the Company. These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "should," "forecast," "outlook," or other similar words or phrases. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this document are only made as of the date of this document and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:

• Global economic and financial market conditions, including the conditions resulting from the ongoing conflict between Russia and Ukraine as well as the COVID-19 pandemic, and actions taken by our customers, suppliers, other business partners and governments in markets in which we compete might materially and negatively impact us.
• Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
• Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
• We must successfully manage the demand, supply, and operational challenges brought about by the COVID-19 pandemic and any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
• Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
• Loss of any of our principal customers could significantly decrease our sales and profitability.
• Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
• We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
• If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
• Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
• Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
• Changes in production costs, including raw material prices, freight and labor, have adversely affected, and in the future could erode, our profit margins and negatively impact operating results.
• The manufacturing facilities, supply channels or other business operations of the Company and our suppliers may be subject to disruption from events beyond our control.
• We may be unable to generate anticipated cost savings (including from our restructuring programs), successfully implement our strategies, or efficiently manage our supply chain and manufacturing processes, and our profitability and cash flow could suffer as a result.
• Sales of certain of our products are seasonal and adverse weather conditions during our peak selling seasons for certain auto care products could have a material adverse effect.
• A failure of a key information technology system could adversely impact our ability to conduct business.
• We rely significantly on information technology and any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.
• We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
• We may experience losses or be subject to increased funding and expenses related to our pension plans.
• The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from our projections, which may adversely affect our future profitability, cash flows and stock price.
• If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
• The 2019 auto care and battery acquisitions may have liabilities that are not known to us and the acquisition agreements may not provide us with sufficient indemnification with respect to such liabilities.
• Our business involves the potential for claims of product liability, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
• Our business is subject to increasing regulation in the U.S. and abroad, the uncertainty and cost of future compliance and consequence of non-compliance with which may have a material adverse effect on our business.
• Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on sustainability issues, including those related to climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
• We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition.
• We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term stockholder value, and share repurchases could increase the volatility of the price of our stock and diminish our cash reserves.

In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements. The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly filed documents, including those described under the heading "Risk Factors" in our Form 10-K filed with the Securities and Exchange Commission on November 16, 2021 and in our Form 10-Q filed August 8, 2022.

ENERGIZER HOLDINGS, INC.
Supplemental Schedules
Introduction to the Reconciliation of GAAP and Non-GAAP Measures
For the Quarter and Twelve Months ended September 30, 2022

The Company reports its financial results in accordance with accounting principles generally accepted in the U.S. ("GAAP").  However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period. These non-GAAP financial measures exclude items that are not reflective of the Company's on-going operating performance, such as impairment of goodwill and intangible assets, acquisition and integration costs, restructuring costs, an acquisition earn out, the costs of the May 2022 flooding of our Brazilian manufacturing facility, the costs of exiting the Russian market, the gain on finance lease termination, the loss on extinguishment of debt and the one-time impact of Tax structuring. In addition, these measures help investors to analyze year over year comparability when excluding currency fluctuations as well as other Company initiatives that are not on-going. We believe these non-GAAP financial measures are an enhancement to assist investors in understanding our business and in performing analysis consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or superior to, the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in methods and in the items being adjusted.

We provide the following non-GAAP measures and calculations, as well as the corresponding reconciliation to the closest GAAP measure in the following supplemental schedules:

Segment Profit.  This amount represents the operations of our two reportable segments including allocations for shared support functions. General corporate and other expenses, amortization expense, impairment of goodwill and intangible assets, interest expense, loss on extinguishment of debt, the gain on finance lease termination, other items, net, the charges related to acquisition and integration costs, restructuring costs, an acquisition earn out, the costs of the flooding of our manufacturing facility in Brazil and the costs of exiting the Russian market have all been excluded from segment profit.

Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Common Share (EPS).  These measures exclude the impact of the impairment of goodwill and intangible assets, costs related to acquisition and integration, restructuring costs, an acquisition earn out, the costs of the flooding of our manufacturing facility in Brazil, the costs of exiting the Russian market, the gain on finance lease termination, the loss on extinguishment of debt and the one-time impact of Tax structuring.

Non-GAAP Tax Rate. This is the tax rate when excluding the pre-tax impact of impairment of goodwill and intangible assets, acquisition and integration costs, restructuring costs, an acquisition earn out, the costs of the flooding of our manufacturing facility in Brazil, the costs of exiting the Russian market, the gain on finance lease termination and the loss on extinguishment of debt, as well as the related tax impact for these items, calculated utilizing the statutory rate for where the impact was incurred, as well as the one-time impact of Tax structuring.

Organic.  This is the non-GAAP financial measurement of the change in revenue or segment profit that excludes or otherwise adjusts for the change in Russia and Argentina operations and impact of currency from the changes in foreign currency exchange rates as defined below:

Change in Russia Operations. The Company exited the Russian market in the second quarter of fiscal 2022 due to the increased global and economic and political uncertainty resulting from the ongoing conflict between Russia and Ukraine. This adjusts for the change in Russian sales and segment profit from the prior year post exit.

Change in Argentina Operations. The Company is presenting separately all changes in sales and segment profit from our Argentina affiliate due to the designation of the economy as highly inflationary as of July 1, 2018.

Impact of currency. The Company evaluates the operating performance of our Company on a currency neutral basis.  The impact of currency is the difference between the value of current year foreign operations at the current period ending USD exchange rate, compared to the value of the current year foreign operations at the prior period ending USD exchange rate, as well as the impact of  hedging on the currency fluctuation.

Adjusted Comparisons.  Detail for adjusted gross profit, adjusted gross margin, adjusted SG&A, adjusted SG&A as percent of sales and adjusted Other items, net are also supplemental non-GAAP measure disclosures. These measures exclude the impact of costs related to acquisition and integration, restructuring costs, an acquisition earn out, the costs of exiting the Russian market and the costs of the flooding of our manufacturing facility in Brazil.

EBITDA and Adjusted EBITDA. EBITDA is defined as net earnings before income tax provision, interest, depreciation and amortization.  Adjusted EBITDA further excludes the impact of the costs related to acquisition and integration, restructuring costs, acquisition earn out, the costs of the flooding of our manufacturing facility in Brazil, the costs of exiting the Russian market, the gain on finance lease termination, impairment of goodwill and other intangible assets, and share-based payments.

Free Cash Flow. Free Cash Flow is defined as net cash provided by operating activities reduced by capital expenditures, net of the proceeds from asset sales.

Net Debt. Net Debt is defined as total Company debt, less cash and cash equivalents.

Currency-neutral. Currency-neutral excludes the Impact of currency as defined above on key measures. Hyper inflationary markets are excluded from this calculation.

Energizer Holdings, Inc.
Supplemental Schedules - Segment Information and Supplemental Sales Data
For the Quarter and Twelve Months ended September 30, 2022
(In millions, except per share data - Unaudited)

As of October 1, 2021, the Company has changed its reportable segments from two geographical segments, previously Americas and International, to two product groupings, Battery & Lights and Auto Care. This change came with the completion of the Spectrum Holdings, Inc. Battery and Auto Care Acquisition integrations in the first fiscal quarter of 2022. The Company changed its reporting structure to better reflect what the chief operating decision maker is reviewing to make organizational decisions and resource allocations. The Company has recast the information for the quarter and twelve months ended September 30, 2021 to align with this presentation.

Energizer's operating model includes a combination of standalone and shared business functions between the product segments, varying by country and region of the world. Shared functions include the sales and marketing functions, as well as human resources, IT and finance shared service costs. Energizer applies a fully allocated cost basis, in which shared business functions are allocated between segments. Such allocations are estimates, and do not represent the costs of such services if performed on a standalone basis. Segment sales and profitability, as well as the reconciliation to earnings before income taxes for the quarters and twelve months ended September 30, 2022 and 2021, respectively, are presented below:

Supplemental product information is presented below for depreciation and amortization:

For the quarter ended September 30, 2021, the diluted net earnings per common share is assuming the conversion of the mandatory convertible preferred stock to 4.7 million shares of common stock and excluding the mandatory preferred stock dividends from net earnings. For the year ended September 30, 2021, the Adjusted Weighted average shares of common stock - Diluted includes the dilutive impact of our outstanding performance shares and restricted stock as they are dilutive to the calculation. 

SOURCE Energizer Holdings, Inc.