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Energizer Holdings Inc (NYSE:ENR)
Q4 2021 Earnings Call
Nov 10, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Betsy and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's Fourth Quarter and Fiscal Year 2021 Conference Call. [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 of Investor Relations. Please go ahead.

Jacqueline E. Burwitz -- Vice President, Investor Relations

Good morning and thank you for joining us. During the call, we will discuss our results for the fourth quarter and fiscal 2021 as well as our outlook for fiscal 2022. Joining me today on the call are Mark LaVigne, President and Chief Executive Officer and John Drabik, Chief Financial Officer. A replay of this call will be available on the Investor Relations section of our website, energizerholdings.com. In addition, a slide deck providing detailed financial results for the quarter is also posted on our website.

During the call, we will make forward-looking statements about the Company's future business and financial performance among other matters. These statements are based on management's current expectations and are subject to risk and uncertainties, including those resulting from the ongoing COVID-19 pandemic, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements. Other factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in reports we filed with the SEC. We also refer in our presentation to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in our press release issued earlier today, which is available on our website. Information concerning our categories and market share discussed on this call relates to markets where we compete and is based on Energizer's internal data, data from industry analysis and estimates we believe to be reasonable. Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer's fiscal year and all comparisons to prior year relate to the same period in fiscal 2020.

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

Mark S. LaVigne -- President and Chief Executive Officer

Thanks, Jackie, and good morning everyone. Despite operating in what remains an incredibly volatile environment, we delivered on our previously provided 2021 outlook for net sales, synergies, adjusted earnings per share and adjusted EBITDA. 2021 was our sixth consecutive year of organic revenue growth behind elevated demand and distribution gains. This top line growth, combined with synergies we achieved from the Spectrum acquisition and interest expense savings translated into strong adjusted EPS and EBITDA growth. In a few moments John will provide details on the fourth quarter and full year. However, before he does some key headlines from our fiscal 2021 performance.

For the first time our Company exceeded $3 billion in net sales. We also maintained top line momentum with organic sales growth of 7.3% including growth of nearly 17% in our auto care business. Our battery and auto care businesses benefited from elevated demand and distribution gains in North America. Auto care further benefited from the expansion in our international markets, reaching $100 million in sales in those markets for the full year. We also delivered synergies of $62 million for the year, resulting in total synergies from the Spectrum acquisition in excess of $130 million, 30% higher than our initial estimate. And we continue to invest in our brands, resulting in strong brand preference globally. With more consumers selecting our battery brand, we gained 2.2 share point in the last 12 months. This performance is a tribute to our team and their resiliency. Since the beginning of the pandemic, we have consistently adapted in real-time to ensure business continuity and repositioned Energizer for the future. The hard work of our global colleagues to produce and deliver products to our customers and consumers in a time of heightened demand and significant disruption has been impressive to witness on a daily basis.

In a moment, I will provide headlines for our 2022 outlook. However, before I do I want to provide an update on a few key topics that will set the stage for the future. First, our categories remain healthy and are showing solid growth when compared to pre-pandemic levels and we expect the consumer behaviors supporting that demand will continue for the foreseeable future. Specifically in batteries, there are two drivers. Devices owned per household are up mid single digits in the US and an increase in the amount of time those devices are being used. Consequently, consumers are using more batteries, which has resulted in new buying patterns versus a year ago, including increased purchase frequency and spending per trip. As a result, on a two-year stack basis without e-commerce, the global battery category has grown by 2.9% in value and 3.7% in volume. In the near term, we will see the category decline as it did in the three months ending August 2021 where it was down 6.9% in value and 5.3% in volume due to comping elevated demand from a year ago. However, as we look to the long term, we anticipate the category to experience flat to low single-digit growth, albeit on a higher base as the category has increased in size due to consumers' behavior during the pandemic. Within the category, our iconic brands remain well positioned. Our brands outpaced the category, resulting in a 2.2 share point gain versus last year as we increased distribution in the US and internationally with share gains in those markets representing 70% of our total battery revenues.

Turning to the auto care category. Over the last five years the auto care category has shown consistent growth, a trend that continued in the latest 13 weeks with category value up 3.5% versus year ago and 16.3% versus 2019. The growth is being driven by consumers continuing the do-it-yourself behaviors established during the pandemic, including higher levels of cleaning and renewed interest in car care as a hobby, a higher number of cars in the car park and an increase in the age of vehicles given the shortage of new vehicles and the recovery in miles driven given the increase in personal travel. All of this increased US household penetration to nearly 75% with the resulting buy rate that is up 20% as consumers are buying the category more frequently and spending more per trip.

As we look ahead, we anticipate the auto care category will settle in at low single-digit growth once it has cycled through the COVID-related demand. In the US, we continue to be the market leader in this large and growing category driven by our Armor All brand, which continues to have positive momentum due to the strength of our innovation and brand-building activities. As I mentioned earlier, our efforts to leverage our geographic footprint and expand our auto care brands internationally are proving successful.

While the categories are showing resilience, the macro environment in which we are operating is volatile, which leads me to the next important topic around operating costs. Costs related to commodities, transportation and labor, continue to rise. We saw a significant escalation in these costs during the fourth quarter and we expect these headwinds to continue throughout 2022, resulting in over $140 million of increased input costs versus 2021. In order to mitigate the impact of these costs, we have executed or planned pricing against roughly 85% of our business. In addition to raising prices to cover input cost inflation, we have also strategically redefined our battery pricing architecture to reestablish relative value across pack sizes, resulting in a progressive rate increase on larger pack sizes. Currently, we are exploring the opportunity for additional pricing opportunities across our business. We expect these pricing actions, improved mix management and cost reduction initiatives to partially offset the impact on our gross margin rate.

As you all know, in addition to the challenges companies are experiencing related to increased costs, the global supply chain network is under pressure from increased demand and pandemic-related disruption. Earlier this year, we made the decision to proactively build inventory to ensure we have product for the peak battery selling season and upcoming auto care resets. The change is in response to both the potential for supply disruption we have seen in recent quarters and the higher level of in-transit inventory versus historical levels due to shipping delays and port congestion. As such, our inventory at the end of fiscal '21 was up 42% versus the prior year. This action has given us flexibility to avoid disruption and ensure we service our customers as reliably as possible in this environment.

With that backdrop, I'll turn to a high-level overview of our 2022 outlook. The two headwinds I mentioned earlier, the decline in demand to more normalized level and inflationary cost trends have impacted our outlook. In fiscal 2022 organic sales will be roughly flat with auto care growth and pricing actions across our businesses, offset by volume declines in battery as we comp prior year elevated demand in the first half of the year. Despite our cost reduction initiatives and pricing actions, we expect to see gross margin rate erode, given the escalating costs resulting in year-over-year declines in EBITDA and EPS. Given the macro environment, we are proactively exploring additional options to reduce our costs, enhance our mix as well as evaluate additional pricing to further offset these cost headwinds.

Now let me turn the call over to John to provide additional details about our financial performance and outlook.

John J. Drabik -- Chief Financial Officer

Good morning, everyone. I will provide a more detailed summary of the quarterly financial results and then the highlights for fiscal 2021 before turning to our 2022 outlook. As a reminder, we have posted a slide deck highlighting our key financial metrics on our website.

For the quarter reported revenue grew 40 basis points with organic revenue down less than 1% versus 6% organic growth in the prior-year quarter. Robust demand and distribution gains in auto care delivered a 11.5% growth in the quarter, which offset the expected decline in battery. We expect these difficult comparisons in batteries to continue for the first half of 2022.

Adjusted gross margin decreased 70 basis points to 37.7%. The combination of $9 million in synergy benefits and the elimination of $19 million of COVID-related costs from the prior year did not fully offset inflationary cost pressures related to commodities, transportation and labor. In addition category mix impacted our gross margin as our lower margin auto care business achieved significant growth relative to battery in the quarter.

Excluding acquisition and integration costs, SG&A as a percent of net sales was 14.3% versus 15.6% in the prior year. The absolute dollar decrease of $9.4 million was driven primarily by a reduction in compensation costs. In the quarter, we realized $9 million in synergies, bringing the total for 2021 to $62 million. We have delivered over $130 million of synergies related to our battery and auto care acquisitions, well exceeding our initial targets. Interest expense was $13.4 million lower than the prior-year quarter as we are benefiting from significant refinancing activity over the past 18 months.

During the fourth quarter, we entered into a $75 million accelerated share repurchase program. Approximately 1.5 million shares were delivered in fiscal 2021 and we expect another 400,000 shares to be delivered in the first quarter of fiscal '22, bringing the total number of shares repurchased under the ASR program to approximately 1.9 million.

Now turning to the highlights for fiscal 2021. As Mark mentioned, we delivered our full-year 2021 outlook for revenue, adjusted EBITDA and adjusted EPS. Net sales grew 10.1%, including organic sales up 7.3% as we experienced robust growth in both the Americas and International and across all three product categories, batteries, auto care and lighting products. Adjusted gross margin was down 100 basis points, as higher input costs were partially offset by synergies and the reduction of COVID-related costs incurred in 2020. Interest expense, benefiting from significant refinancing activity, decreased $33 million. Adjusted earnings per share increased 51% to $3.48 as higher sales, synergies and lower interest expense more than offset the higher input costs. And adjusted EBITDA increased 10%.

At the end of 2021, our net debt was approximately $3.2 billion or 5.1 times net debt to credit defined EBITDA with nearly 85% at fixed interest rates, no near-term maturities and an all-in cost of debt below 4%. Our adjusted free cash flow for 2021 was $203.5 million. The decline versus the prior year primarily reflects working capital investments as we proactively invested in incremental inventory given the continued volatility in the global supply network and uncertainty around product sourcing, transportation and labor availability.

Now turning to our fiscal 2022 outlook. As Mark discussed, our categories remain healthy and are showing solid growth when compared to pre-pandemic levels. As we enter fiscal 2022, we are benefiting from significant pricing actions. However, input costs continue to rise. The outlook we are providing for next year reflects pricing actions that we have executed or planned as well as the assumption that our input costs remain at current levels for the full year. Organic revenue is expected to be roughly flat with auto care growth and pricing actions across 85% of our businesses, offset by declines in battery as we comp prior year elevated demand in the first two fiscal quarters. We also expect reported revenue will be negatively impacted by foreign currency headwinds of $20 million to $25 million at current rates.

As we have talked about for the last couple of quarters, input costs including raw materials, labor and transportation costs, are rising rapidly and supply chain networks continue to be stressed. Last quarter I highlighted the potential for an additional 100 basis points of gross margin headwinds in 2022 if input costs did not improve. And as of today, the trends have worsened. While we expect the absolute dollar amount of these rising costs to be offset by the pricing actions and cost reduction efforts that our team has undertaken, we now project gross margin headwinds of approximately 150 basis points, based on current rates and assumptions. These inflationary cost pressures, combined with the anticipated volume declines in battery in the first half of the year, are expected to result in adjusted earnings per share in the range of $3 to $3.30 and adjusted EBITDA in the range of $560 million to $590 million.

As we look at our capital allocation priorities during this volatile macro environment, we will continue to invest in our businesses and brands for the long term while returning cash to shareholders and paying down debt.

Now I would like to turn the call back over to Mark for closing remarks.

Mark S. LaVigne -- President and Chief Executive Officer

Thanks, John. While 2021 was a solid year for Energizer and one that we are proud of, our focus today is on moving forward and working to further mitigate the cost headwinds we are facing while ensuring our products are available to consumers around the world.

With that, I will open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from Kevin Grundy with Jefferies. Please go ahead.

Kevin Grundy -- Jefferies & Co. -- Analyst

Great. Thanks. Good morning, everyone.

Mark S. LaVigne -- President and Chief Executive Officer

Good morning, Kevin.

John J. Drabik -- Chief Financial Officer

Hi, Kevin.

Kevin Grundy -- Jefferies & Co. -- Analyst

Hey. I just wanted to start on gross margin and just how you're currently thinking about the opportunity to take additional pricing. Mark, I think the decision was made. I know you guys gave a lot of thought to wait until you got through the holiday period to implement some of the pricing increases that you intend to put into place. On the look back was there any thinking perhaps you should have moved more quickly and to a greater degree to offset some of this? Maybe just comment as well on what you expect the competitive response to be from Duracell. And then, John, maybe just comment on what is embedded in your commodity cost outlook. Then I have a quick follow-up. Thanks for that.

Mark S. LaVigne -- President and Chief Executive Officer

Sure. Kevin, I'll get started with that one. I think as we've talked about before, we were proactive in taking pricing last year. I would say the comment we made in the prepared remarks was around 85% of our business has pricing actions that we've already -- that we've already been working on against it. I would say 65% of those have been fully executed and are representative in the marketplace. The other 20% are further along and we'll be rolling out as we get through '22. That 85% is included in the outlook that we provided today.

To your point, Kevin, we are continuing to look at the remaining 15%, other pricing opportunities there. Is there the need to go back on the 85% for additional rounds of pricing, that's something that we continue to look at on an ongoing basis.

You are seeing -- in terms of battery pricing, you are seeing shelf price go up. You're seeing it across the category, not just with Energizer, but you're seeing with competitors and private label as well. I'll leave any pricing outside of Energizer's pricing to be spoken to by competitors and retailers, but that's what we're seeing in the marketplace. So that's an encouraging sign that you're seeing, the category's overall increase.

And then, John, maybe in terms of the gross margin and commodity input.

John J. Drabik -- Chief Financial Officer

Yeah. Kevin, maybe I'll start a little bit. September was a really volatile month as we are finishing up the year. So we saw an acceleration of some of these negative trends. Out of that going into '22 we expect, compared to where we were originally, we expect commodities to be about 100 basis points worse than we were seeing back when we gave our outlook in August. And then freight also has gotten about 100 basis points worse relative to our P&L. So we're going to offset that absolute dollar impact with pricing and cost saving initiatives. But we're expecting now about 150 basis points total margin erosion compared to the 100 basis points that I saw.

As we look at the full sort of impact to '22, a couple of points. I would say we are projecting cross pressures going into '22 about a little over 300 basis points of material and manufacturing inflation, about 150 basis points of transportation impact and then 40 basis points of labor. I think I said -- a little over 300 basis points of material and inflation costs.

Kevin Grundy -- Jefferies & Co. -- Analyst

Got it. Thank you.

John J. Drabik -- Chief Financial Officer

It's close to 500 basis points in total.

Kevin Grundy -- Jefferies & Co. -- Analyst

Okay. Just -- thank you both for that. Just a quick follow-up, the EBITDA margin guidance implies about 19%. It seems like the gross margin commentary you guys have provided then, the cost pressure there, the erosion in gross margin basically sort of flows through with little offset from SG&A and marketing spend. Please just confirm if that's correct, number one. Number two, just how you're thinking about those areas efficiency within SG&A and current marketing spend levels? And then I'll pass it on. Thank you, both.

Jacqueline E. Burwitz -- Vice President, Investor Relations

Yeah. In general, Kevin, it is going to flow down through the P&L. I mean, we still expect marketing spend to come in between that 5% and 6%, probably at the low end of that amount. And then SG&A, we expect to be up a little bit as we head into '22 and that's really -- we had a number of cost-savings initiatives that we've put in place are offsetting inflationary pressures. But we've done a fair amount of integration and technology investments over the last couple of years. You're starting to see some of that depreciation come back into the SG&A line.

Operator

The next question comes from Lauren Lieberman with Barclays. Please go ahead.

Lauren Lieberman -- Barclays Investment Bank -- Analyst

Great. Thanks. I was curious taking a longer-term view, I know Mark one of the things you've talked about is the objective to rebuild gross margin. So if we look beyond '22, how do you think about kind of the structural profitability of the business? Not asking to project what happens with some of these material costs and so on. But as you think about building blocks or ability to rebuild margin, what are the key building blocks to be able to get there?

Mark S. LaVigne -- President and Chief Executive Officer

Lauren, I think in the near term when we've seen the inflationary environment that we've seen initially our focus is on making sure that we're dollar hole [Phonetic] and then over time where there is rate erosion we consider that to be a medium, long-term effort to continue to improve margin rate overall. I think as the teams are digging into it, there's going to be opportunities as we get into a more normal operating environment to continue to drive efficiencies and cost savings. So I would say we've accomplished what we needed to for purposes of fiscal '22 by making sure that we recoup dollars as it related to inflation. But longer term, there is additional opportunities for us to continue to drive efficiency that we're going to go after as soon as the operating environment permits it.

Lauren Lieberman -- Barclays Investment Bank -- Analyst

Okay. That's great. And then just thinking about the intentional inventory build ahead of fourth quarter, I was curious as you look through '22 just thoughts on inventory in '22. Will you want to continue carrying kind of a higher level of inventory than is normal or do you think you can -- this kind of works down and the logistics side of things gets a bit more predictable as you move to next year?

Mark S. LaVigne -- President and Chief Executive Officer

Yeah. Lauren, we're definitely being cautious as we go into '22. So we have built that inventory. I think as -- I break it down there is probably three things driving the balance right now. It's just overall cost is higher. So that's -- the cost of what we're carrying is higher. There is more product on the water and imports just because of supply chain issues. So that is something that we're dealing with. And then we've built that safety stock and WIP. And so I would kind of look at those three buckets as kind of a third, a third, a third of the $200 million that we've built up. Our expectations going into '22 is that we would like to pull back on that. But, obviously, that's in the environment we're operating in. So we're going to be thoughtful about it, but we do have plans to bring that back down.

Operator

The next question comes from Bill Chappell with Truist Securities. Please go ahead.

Bill Chappell -- Truist Securities -- Analyst

Thanks. Good morning.

Mark S. LaVigne -- President and Chief Executive Officer

Going morning, Bill.

Bill Chappell -- Truist Securities -- Analyst

Just maybe I'm oversimplifying the cost pressures. But I mean, is it fair to say you've priced -- you have priced 85% of your portfolio. But the costs have kind of crept up further over the past two, three months. And while you're going to pass on additional prices the peak season for batteries is the next few months. And so you won't, in this fiscal year, be able to fully kind of capture it. Is that the best way to look at it?

Mark S. LaVigne -- President and Chief Executive Officer

I think over the long run -- we look at this longer than just quarter to quarter, but that's fair. I think, costs have crept up more than they were at the time we announced our battery price increase back in the summer and at that we'll go back into the equation that we look at in terms of is there a rationale to take additional pricing in any parts of our portfolio. But your point is right, which is we're in the midst of the peak season for batteries. So any pricing that we've taken will have to be sufficient for now.

Bill Chappell -- Truist Securities -- Analyst

Okay. And then on the supply chain issues, I guess, when you're talking about freight imports, are we primarily talking about auto care because I thought majority of your batteries at least in the US are made in the US. So I was just trying to understand if that's the issue or if there's some other issues that I might be missing?

Mark S. LaVigne -- President and Chief Executive Officer

I would say it affects -- the supply chain congestion affects both of our businesses. We do import products for our battery business in addition to auto care. So container rates, availability of ocean freight, cost of ocean freight all play into account in both businesses. And then over the road transportation, rail transportation, packaging capacity, availability of certain raw materials, all of that plays into account, and I would say, impacts batteries as much as it has auto care.

I think our teams have done a phenomenal job getting us in a much better position this year than we were going into peak season for battery last year. And so we feel really good about where we are. Obviously, to John's point, our inventory levels are higher than we would like them to be. But I think that was a prudent step earlier in the year that we took. And as we go into next year, we'll work those down over time, but do so cautiously.

Operator

The next question comes from Andrea Teixeira with JP Morgan. Please go ahead.

Andrea Teixeira -- JP Morgan -- Analyst

Yes. Good morning, everyone. So I was hoping you did announce the 85% and I appreciate, Mark, that obviously you can't take pricing in the peak season. But just curious, the other 15% what are you embedding into the fiscal '22? Is that a function of price letters that you believe are appropriate or those are the items that are not being pressured as much as before?

And just also a follow-up on a clarification of your guidance. So the 150 basis points imply the gross margin reduction for fiscal '22, is that including, as you said [Phonetic] including spot prices and some assumptions? So can you clarify if that's mostly spot prices or are you also assuming some decline in the back end of the fiscal? Thank you.

Mark S. LaVigne -- President and Chief Executive Officer

Yeah. Andrea, I'll get started and then I'll kick it over to John for kind of the assumptions built into the cost pressures. Your question on pricing, the pricing on 85% of the portfolio that has either been executed or is in advanced planning or execution is embedded in the guidance that we provided. Pricing on the remaining 15% as well as pricing -- additional pricing on the 85% has not been included. I would say we went after the largest margin pools and the largest geographies first. We also went after the areas that we're getting impacted the most in our pricing approach. But we'll continue to mine the rest of the portfolio on the 15% and then double back on the remaining portion to see if there's any additional pricing we can take. In the event that we do take pricing on that part of the portfolio, it would be in addition to what's provided in the outlook.

And John, on the gross margin?

John J. Drabik -- Chief Financial Officer

Yeah. Andre, on the gross margin, we updated our plans to the current spot rates and then we assume that those stay consistent through the entirety of '22. So there is no improvement or worsening anticipated in our plan for the year.

Operator

The next question comes from Nik Modi with RBC Capital Markets. Please go ahead.

Nik Modi -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone. If I could just follow up on that last question and then I'll ask my other questions. But just when you think about your cost basket and think about some of the kind of geopolitical macro dynamics that are at play, I mean where would your bias be in terms of where some of these costs have been ahead as we move forward, because obviously using spot is fine, because it's hard to forecast these things. But just wanted to get a sense on the underlying drivers of some of these cost increases. And if you think that some of those issues will, kind of, subside as we get deeper into the year?

And then the broader question is just online, Mark, if you can provide any context on kind of how the business is doing online? It seems like consumers are very sticky in this category right now or generally across all CPG. So just wanted to get an understanding of how much visibility you have in terms of the business there. Thanks.

Mark S. LaVigne -- President and Chief Executive Officer

Yeah. Nik, I'll get started and ask John layer in any additional color on this one. I think in terms of the way we approached our assumptions going into the year from a geopolitical just macro environment is we just decided we were going to assume that the current environment persists through '22. To John's point, no improvement, no worsening and felt like trying to get overly predictive on either one of those was going to be counterproductive given the frequency and the speed with which things change.

On e-commerce, we continue to see consumers migrate to e-commerce. No surprise there. Coming out of the pandemic, it is sticky. And so consumers are going back there frequently for purchases. Robust growth rate. On the battery side, we continue to be the branded share leader. We've mentioned previously, we're no longer providing overall category information, but we're confident we're the branded share leader in that space. And auto care, we're making great inroads with our auto care portfolio. A lot of emphasis for us on appearance where we're showing healthy growth rates and continuing to drive that business which is embedded in the overall growth rates with auto care, which was, as you know, up 17% for the year. So that -- we couldn't be happier with the way the auto care business is performing.

Operator

The next question comes from Wendy Nicholson with Citigroup. Please go ahead.

Wendy Nicholson -- Citi -- Analyst

Hi. And that was actually a perfect lead into my question, which was just on the auto care business. The 17% growth, obviously, we've heard a lot about how people didn't go on normal vacations this year. They drove places, etc., etc. So there's been a spike in sort of everything auto related, but your business has been especially strong. I guess as you look into next summer, which I know is a lifetime away, but can you talk about, number one, kind of any plans you have to sustain that growth? Do you think there is incremental distribution opportunity? Is there a particular innovation that's coming out just because that's going to, obviously, be a tougher comp as you look into, I guess, it's the back half of your fiscal year?

Mark S. LaVigne -- President and Chief Executive Officer

Sure, Wendy. That is -- that business is doing very well for us. I mean, if you look at the aggregation of the four categories that we participate in, it was up 3.5% for the three months ending in October. So that shows the strength that's continuing within those four subcategories. Over the two-year period, it's up 16%. So really strong growth.

We're going to continue to do what we've done thus far, which is invest in innovation, invest in brand-building activities. In the US, as we talked about before, it was a fairly mature business in terms of distribution, but we've still been able to get incremental distribution in club and home center, which is driving some of the nice growth you've seen in our business.

I would say as we get into -- as we've gotten into this year and next year, you're going to see a lot of growth coming out of the international auto care growth plan, which is off to a great start. And so, we expect auto care growth year-over-year in our '22 outlook. And so we're going to continue with the momentum that we have.

I would say structurally you're seeing consumers, you're seeing household penetration go up, you're seeing consumers continue to engage in do-it-yourself activities. We're going to watch those consumer habits to see how many of those truly are sticky and how many of them may revert back to the way they were pre-pandemic. But we feel very bullish about that business right now, particularly when you layer on the ability for us to accelerate growth through our international platform.

Wendy Nicholson -- Citi -- Analyst

That sounds great. And then I actually had a follow-up, and I might have totally misheard it, so I apologize if that's the case. But I think when you were talking about pricing, you talked about doing something different with either your large packs, this is on the battery side. Did I hear something different because I'm just curious if there is maybe more price pack architecture thinking creeping into the battery category? And just kind of what you're seeing competitively if you're doing anything maybe different than the other branded guys?

Mark S. LaVigne -- President and Chief Executive Officer

You did not hear that wrong, Wendy. In fact, as we were going into pricing with the battery business back in the summer, we decided to take a look at some of the price, pack disparity and attempted to address that through a progressive price increase. So as pack sizes got larger, we took a larger price increase to help reset some of the disparity that was existing within our business in the category. And so you're seeing right now pricing on shelf and I'll just speak in general terms. In the 4, 8, 10 [Phonetic] packs, up roughly 7% on shelf pricing. If the pack size is around 16, 20, 24 [Phonetic] it's roughly between 10% and 12%. So what we're trying to do is address that value equation. And if you recall, early on in the pandemic, we were seeing some gross margin erosion from pack size trade-up and we're just trying to address that through our pricing actions as well as encouraging retailers who ultimately shelf price to follow suit. In terms of what competition will do. I'll defer to them in terms of how they want to approach it. But that's the way we're approaching the category.

Operator

The next question comes from Rob Ottenstein with Evercore. Here we go.

Robert Ottenstein -- Evercore -- Analyst

Great. Thank you very much. I was wondering for starters, if you can remind us on the battery side about roughly how much or what percentage of your volume is sold on promotion and to what degree over the next 12 months the promotional's calendar is locked in. And is there any kind of flexibility that you can build into the promotional calendar given the margin pressures?

Mark S. LaVigne -- President and Chief Executive Officer

I'll answer that -- let me answer that question generally. I would say, what we are doing is there is full [Phonetic] price displays and then there is pricing promotion. And obviously in today's demand environment, we're going to take a hard look at pricing promotion and make sure that we can pull back wherever we're able to. I think you're going to continue to see us mine that -- the trade investment spending along those lines to make sure that we can achieve any optimization we can. In some of the data that you get full price displays get picked up as promotional items and they're not -- there's not a price reduction involved in that.

Robert Ottenstein -- Evercore -- Analyst

And can you give us a rough sense of what percentage of volume is sold on promo?

Mark S. LaVigne -- President and Chief Executive Officer

Bob, let's follow up with you on that one.

Operator

The next question comes from William Reuter with Bank of America. Please go ahead.

Bill Reuter -- Bank of America -- Analyst

Hi. I just have one. Given the volatility in the market, would you continue to pursue M&A? The last couple of times this question has been asked, you guys have said you'd still be active. But given the situation, which is so dynamic I was wondering if that's changed your thought process there. Thanks.

Mark S. LaVigne -- President and Chief Executive Officer

I would say we have an emphasis right now. I think we're recognizing with -- in terms of our overall leverage levels that there is a premium on paying down debt. We will still leave all of the levers from a capital allocation standpoint open with dividend, buying back shares and paying down debt with an emphasis on paying down debt to try to bring our leverage levels down.

We'll continue to investigate M&A, but I think the filter for us executing M&A in terms of the size would have to be fairly strict. So I would emphasize debt paydown for us for the foreseeable future but still kicking around M&A as it becomes available.

Bill Reuter -- Bank of America -- Analyst

Perfect. Thank you.

Operator

[Operator Instructions] The next question comes from Carla Casella with JP Morgan. Please go ahead.

Carla Casella -- JP Morgan -- Analyst

Hi. I know you fielded [Phonetic] a couple of questions in terms of just the auto care and promotion. But if we look back at last year, it was pretty choppy in the first half. I'm wondering if there are any major changes in the seasonality or timing for this year, would we revert back to more of a 2019 cadence or last year, a good cadence to look at?

Mark S. LaVigne -- President and Chief Executive Officer

I think from an overall cadence perspective, I wouldn't think that there is not any material deviations from last year.

Carla Casella -- JP Morgan -- Analyst

Okay. So no like shipments moving from 1Q into 2Q or vice versa, which I think is what happened last year or something like --

Mark S. LaVigne -- President and Chief Executive Officer

I think we saw AC [Phonetic] kind of move around in the second and third quarter last year. It should be a pretty normal pattern.

Carla Casella -- JP Morgan -- Analyst

Okay. Great. Thank you. The rest of my questions have been answered.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mark LaVigne for any closing remarks.

Mark S. LaVigne -- President and Chief Executive Officer

Thank you, all, once again for joining our call today and your ongoing interest in Energizer. Hope everyone has a great day.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Jacqueline E. Burwitz -- Vice President, Investor Relations

Mark S. LaVigne -- President and Chief Executive Officer

John J. Drabik -- Chief Financial Officer

Kevin Grundy -- Jefferies & Co. -- Analyst

Lauren Lieberman -- Barclays Investment Bank -- Analyst

Bill Chappell -- Truist Securities -- Analyst

Andrea Teixeira -- JP Morgan -- Analyst

Nik Modi -- RBC Capital Markets -- Analyst

Wendy Nicholson -- Citi -- Analyst

Robert Ottenstein -- Evercore -- Analyst

Bill Reuter -- Bank of America -- Analyst

Carla Casella -- JP Morgan -- Analyst

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