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DATE
Monday, Aug. 4, 2025, at 10 a.m. ET
CALL PARTICIPANTS
- President and Chief Executive Officer — Mark LaVigne
- Executive Vice President and Chief Financial Officer — John Drabik
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TAKEAWAYS
- Adjusted EPS guidance: Management raised adjusted EPS guidance to $3.55–$3.65 for fiscal 2025, citing higher earnings from pricing, tariff mitigation, and production credits.
- Adjusted EBITDA forecast: Adjusted EBITDA expectations increased to $630 million–$640 million for fiscal 2025.
- Production credits impact: Chief Financial Officer Drabik stated, "our expectation is that we are going to see about $35 million to $40 million in our base earnings now, and that's really going to come through gross margin, net earnings, and free cash flow. And that's through about 2032."
- Production credit timing: Credits will be recognized annually through 2032 for the fiscal years. Retroactive amounts of $78 million were allocated to prior years, and $34 million to the current period, as explained on the call.
- Organic earnings performance: Adjusted EPS was $0.78 excluding credits for the fiscal third quarter ended June 30, 2025, noted as above both internal and consensus expectations before credits.
- Net sales from acquisition: The Advanced Power Solutions acquisition is projected to add $40 million–$50 million in net sales for fiscal 2025.
- Shareholder returns: $84 million was returned to shareholders through dividends and repurchases in the fiscal third quarter, with an additional $27 million repurchased in July 2025.
- Share repurchase detail: Approximately five percent of outstanding shares were repurchased during the fiscal third quarter, following a notable equity value decline after second quarter earnings.
- Free cash flow expectation: Free cash flow is expected to reach 10%–12% of sales over the next few years, following inventory investments for packaging transition and tariff mitigation.
- Capital expenditure guidance: Capital expenditure (CapEx) is projected to be near two percent of net sales over the next few years.
- Global consumption trends: Developing and distributor markets are showing stronger growth than the United States and other developed markets in the current fiscal year.
- Tariffs: Tariff impacts are now expected to be fully offset in fiscal 2025 and 2026 through pricing, cost actions, and production credits.
- Auto segment update: The podium series has launched to 15,000 doors and is progressing "very well," while Auto Care segment performance was softer due to mild weather.
- Category trends: The battery category was described as "resilient" with stable competitive activity.
- Segment composition: Batteries comprise 75%–80% of total business in fiscal 2025, with both battery and auto segments anticipated to benefit from fourth quarter pricing actions. The Auto segment may show stronger sequential improvement in the fiscal fourth quarter.
- Inventory commentary: Retail inventory levels are "slightly elevated," while consumer battery inventories are lighter due to stretched purchase cycles.
- Pricing actions: Tariff-related price increases were implemented earlier in fiscal 2025, with no additional increases for recent tariff rounds. The on-shelf impact is beginning and will be more pronounced in the fiscal fourth quarter.
- Project Momentum savings: The company has achieved $200 million in cost savings through network optimization and operational improvements over the past three years.
- Capital expenditure focus: Recent capital expenditure has targeted automation, capacity expansion, and digital transformation, with further investment balanced with continued debt reduction.
SUMMARY
Energizer's (ENR -0.50%) management attributed its improved near- and medium-term outlook to tariff mitigation and production credits, which are now fully offsetting previously anticipated headwinds. The Advanced Power Solutions acquisition expands European manufacturing scale and adds flexibility to manage further market or regulatory shifts. Higher free cash flow expectations reflect reduced inventory build for packaging changes and supply chain security. The company affirmed continued share repurchases in response to prior equity declines and maintained a flexible approach to capital allocation, prioritizing debt reduction. Full-year guidance for both adjusted EPS and adjusted EBITDA was formally increased for fiscal 2025 during the call.
- Chief Executive Officer LaVigne said, "we are in a position of strength moving forward," referencing organic growth and gross margin improvement as critical contributors in the fiscal third quarter.
- Chief Financial Officer Drabik stated, "Annual production credits of $35 million to $40 million will be 'effectively accruing' to base earnings and will directly support gross margin, net earnings, and free cash flow each year for [Energizer's] fiscal years through 2032."
- Auto segment momentum, led by the podium series, is expected to improve sequentially in the fiscal fourth quarter as the segment catches up from previously soft performance.
- Lighter consumer pantry levels and slightly elevated retailer inventories are integrated into current guidance.
- No bottom-line benefit from the Advanced Power Solutions deal is projected for this fiscal year, but management emphasized the long-term strategic benefit for supply chain resilience and local market expansion.
- Management emphasized the ability to adapt pack size, channel, and portfolio mix to evolving consumer behavior.
- Incremental top-line growth is anticipated from distribution expansion wins, developing market momentum, and innovation-based pricing, supported by new investments from production credits in fiscal 2025.
- Capital expenditure will normalize at a lower rate following elevated spending on network expansion, and "algorithmic" earnings growth is targeted from the new, higher base for fiscal 2026.
INDUSTRY GLOSSARY
- Production credits: U.S. federal tax incentives that directly increase a company's base earnings, gross margin, and free cash flow, provided for qualifying domestic battery production activities, with accruals recognized annually and extending through 2032.
- Project Momentum: Energizer Holdings' multi-year strategic initiative focused on optimizing the company's global manufacturing and supply chain network to drive cost savings and operational efficiency.
- Podium series: A new product line within the Auto Care segment, specifically referenced as a source of improved momentum and expanded retail distribution in the earnings call.
Full Conference Call Transcript
Mark LaVigne, President and Chief Executive Officer, and John Drabik, Executive Vice President and Chief Financial Officer. In just a moment, Mark will share a few opening comments, and then we will take your questions. A replay of this call will be available on the Investor Relations section of our website energizerholdings.com. In addition, please note that our earnings release, prepared remarks, and a slide deck are 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 risks and uncertainties 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 the reports we file with the SEC. We also refer to non-GAAP financial measures. 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 estimated market share discussed on this call relates to the categories where we compete and is based on Energizer's internal data, data from industry analysis, and estimates we believe to be reasonable. The battery category information includes both brick-and-mortar and e-commerce retail sales.
Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer's current fiscal year, and all comparisons to the prior year relate to the same period in fiscal 2024. With that, I would like to turn the call over to Mark.
Mark LaVigne: Good morning, everyone, and thanks for joining us today. As you can see, we have altered our approach for releasing earnings. I hope you have had a chance to review our press release along with our prepared remarks posted on our website this morning. I will open today's call with a high-level summary and then open it up for questions. We had a strong third quarter. Results came in ahead of expectations, and that is a direct reflection of the work we have done over the past few years to strengthen our business. We have been focused on restoring margins, investing in growth, and building a more agile operation. And it is paying off. Let me hit a few highlights.
First, our categories remain resilient. In spite of a cautious consumer, we had a solid performance in batteries and lights, and while Auto Care was a bit softer due to mild weather, our new podium series is off to a great start. Second, the projected impact of tariffs on our business has materially improved. Current tariff rates are significantly lower relative to our guidance last quarter. And we have a comprehensive plan under which we have already several initiatives to mitigate any remaining impact to earnings. Through a combination of pricing, cost initiatives, and production credits, we now expect to fully offset the earnings impact from tariffs in both fiscal 2025 and 2026.
A big part of that is the production credits we are now receiving as a result of our continued investment in U.S. production. These credits are meaningful. We expect them to contribute $35 million to $40 million of gross margin, net earnings, and free cash flow on an annual basis prior to any reinvestment. We also completed the acquisition of Advanced Power Solutions in May. The acquisition further expands our ability to manufacture in-region and provides additional optionality to mitigate the impact of tariffs and supply chain disruption. The acquisition also provides greater scale to our European business and provides the opportunity to expand with key retailers in strategic markets.
We expect the acquisition to contribute $40 million to $50 million of net sales in the current fiscal year. We returned $84 million to shareholders through dividends and share repurchases this quarter. We also repurchased an additional $27 million of shares in July while maintaining leverage, demonstrating our confidence in the business and our commitment to disciplined capital allocation. We are increasing our outlook to reflect the higher level of earnings generated by pricing, tariff mitigation efforts, and the inclusion of production credits. We now expect adjusted EPS of $3.55 to $3.65 and adjusted EBITDA between $630 million and $640 million.
We have a high level of confidence in delivering our fiscal 2025 outlook and generating continued earnings growth in fiscal year 2026. With that, let's open the call for questions.
Operator: Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star followed by the number one on your telephone keypad. To withdraw your question, please press star followed by the number two. Before we take your questions, I would like to kindly ask everyone to please limit your question to one primary question along with a single follow-up. If you have any further questions, please rejoin the queue. With that, our first question comes from the line of Lauren Lieberman with Barclays.
Lauren Lieberman: Great. Thank you so much. Good morning. There was a lot to digest this morning in the release, and having the prepared remarks early definitely helped explain all the moving pieces. But just to be clear, I want to know if you could first lay out for us the key fundamental underlying drivers for the quarter this quarter and next, and really just thinking about organic sales and profitability and kind of stepping away from the production credit. And then I have a follow-up question on the credits.
Mark LaVigne: Sure. Good morning, Lauren. Look, I will start with the overall themes, and then I will turn it over to John for a little more detail. The key takeaways from this morning's release are that we delivered a very good third quarter, and we are in a position of strength moving forward. For the quarter, we delivered organic growth, gross margin improvement, and earnings growth. For the fiscal year, we expect to deliver growth, gross margin improvement, as well as 7% to 10% EPS growth. I think the most important and exciting part of this quarter is that we have done an exceptional job setting up to drive earnings growth not only this year but into fiscal 2026.
And so, John, I think if you just want to walk through a little bit more of those details.
John Drabik: Sure. Yeah, Lauren. The organic sales were strong in the quarter. That was very helpful. You know, the battery category continues to perform well for us. Auto was a little bit lower, but the podium series has been launching very well. We are in 15,000 doors and beating the good setup. As we called out, EPS for the quarter was at 78¢ excluding the credits. So, you know, that was well out of our outlook and the consensus. So even on that basis, it was a really strong operating quarter for us. As Mark mentioned, the tariff impact has really materially improved.
So I think, you know, we are going to see a little bit of noise as we get through the fourth quarter. But heading into next year, you know, we believe that the exposure is minimal. And we really have plans in place to, you know, fully offset the bottom line impact. And then, you know, the production credits as a domestic manufacturer of qualifying battery and battery inputs, we qualify for production tax credits. So that, you know, our expectation is that we are going to see about $35 to $40 million in our base earnings now, and that's really going to come through gross margin, net earnings, and free cash flow. And that's through about 2032.
So, you know, really bolster our earnings as we go forward. And then the other big thing is we, you know, we acquired the legacy Panasonic Europe battery business. We are actively transitioning customers to the Energizer portfolio right now. I think for the full year, we are going to get about $40 to $50 million of revenue. But there is no bottom line impact to earnings that we are expecting this year. So really, really strong quarter, really strong position heading into next year.
Lauren Lieberman: Okay. Great. And then just on the production credits, maybe a little bit of a remedial question. But just if you could explain a little bit more the genesis of these, sort of why recognize it now because there's this retroactive piece as well as the go forward. And you mentioned investment, and I wasn't clear if that was, you know, before any, like, chosen reinvestment in the business that you would have maybe done otherwise, if there's a required level of continued investment domestically to maintain these credits going forward.
John Drabik: So, you know, there's no required investment required. This is a production credit, so we just need to continue producing the batteries and the inputs kind of as we have. And that should get us $35 to $40 million. A little bit about the timing. So you do file for these credits with your tax returns. We just filed our 2024 return. We are going to amend our 2023. Those are the catch-ups that you are seeing that we are excluding from our normal ops. And that's the $78 million or so. We've got about $34 million coming through, which is the '25, and we are effectively accruing that.
So we will file a return next year to get our 2025 credits back. And then every year thereafter, you should be getting kind of one year of activity in the P&L and one year of cash back into the business.
Lauren Lieberman: Okay. Great. Alright. Thank you.
Mark LaVigne: Thanks, Lauren.
Operator: And your next question comes from the line of Robert Ottenstein with Evercore. Please go ahead.
Robert Ottenstein: Great. Thank you very much. A couple of questions for me. So first, can you put the, you know, the latest acquisition of basically capacity Advanced Power Solutions, within the framework of, you know, multiple initiatives to improve your overall manufacturing footprint and maybe just talk about how that has been transformed over the last three, four, five years. In terms of reliability, cost advantage, logistics, and then present net that you'll be able to do local production in terms of the U.S. Thank you.
Mark LaVigne: Yeah, sure, Robert. Great question. I think as we take a step back and look at all of the evolution of our network over the past four to five years, I think it starts during the pandemic. We made an acquisition of a facility in Indonesia in 2021. We followed it up with an acquisition of a facility in Belgium in 2023. So with the latest one, with Advanced Power Solutions in May. Those were the acquisition-related elements of the network changes. But we also undertook, for the past three years, Project Momentum, which was altering and optimizing our network across the globe, including in North America where we've made significant investment in North America.
You know, we've made a $50 million investment to increase the workforce, increase innovation, increase automation. And really been driving the in-region, for-region strategy of our network that you mentioned. All of those pieces sort of click together and create a dynamic network for us to address tariffs, supply chain disruption, optimize costs, and it's all starting to come together. And we're really well positioned from a network standpoint, moving forward.
Robert Ottenstein: Great. And then, you know, kind of maybe veering off that, you know, you bought back stock, which you had for a little while. Can you talk about how we should be thinking about capital allocation over the next one to two years? Where are you thinking about in terms of taking the leverage down? Are there further, you know, capacity acquisitions that are on the radar screen? What does CapEx look like? You know, dividend. Just kind of update us on, you know, the general outlook for cash flow and capital allocation over the next one to two years?
John Drabik: Robert, let me start with the cash flow because, you know, we have invested a fair amount into inventory this year for two reasons. One is really the plastic-free packaging transition that we're undertaking in North America. And then we've got a fair amount of inventory that we built up as we were, you know, working to offset some of these tariff impacts. We really expect that to start coming out next quarter, our fourth quarter here. You know, I think that's going to bolster the cash flow. And our expectation is that over the, you know, coming couple of years, we should be generating 10% to 12% free cash flow compared to sales.
So, you know, I think that's going to put us in a good position. I'll turn it over to Mark to kind of talk about the capital allocation.
Mark LaVigne: Yes. Robert, I think on just a general capital allocation discussion, I mean, obviously, over the last couple of years, we prioritized debt reduction. And felt that was really important to do. As we look at our debt capital structure, it is fixed at very favorable rates. And following the Q2 earnings, we saw a material decline in our equity value. And that created, you know, that presented an opportunity to pivot and to create an outsized return through share repurchase. We've been able to repurchase about 5% of our outstanding shares over the last quarter. Going forward, I would expect us to continue to prioritize debt reduction.
It is an important and a primary focus for us, but we also have to continue to evaluate all options to drive the highest return. So we're not going to be overly rigid in our approach, and we're going to pivot as opportunities present themselves from a capital allocation perspective.
Robert Ottenstein: And just can you just help us model out, you know, kind of tying in a little bit with Lauren's question? Just help us model out CapEx over the next couple of years.
John Drabik: Yes. We've been running at a, I'd say, relatively elevated rate. As Mark mentioned, some of the production assets that we've invested in this year. We've also had a lot going into digital transformation. But my expectation is it will run closer to 2% of net sales for the next couple of years.
Robert Ottenstein: Terrific. Thank you very much.
Mark LaVigne: Thanks, Robert.
Operator: And your next question comes from the line of Bill Chappell with Truist Securities. Please go ahead.
Bill Chappell: Thanks. Good morning. Excuse me. Mark, quite a journey. Question just on the competitive landscape because we can see, you know, the Energizer brand in the U.S. continues to do well, but maybe your largest competitor Duracell has lost, you know, some more of the share to private label to others. And so just as you're going in or, you know, currently, this is the, I guess, the time frame where you're competing for holiday sets and stuff like that. Do you see more competitive activity coming out of your main competitor? Do you see it staying fairly stable? Is that a concern at all?
Mark LaVigne: Bill, I think we look at the competitive landscape, both in the U.S. and international, I mean, shares are stable, private label is flat, and I think we're in a great position. I think when we take a step back and look at our business holistically, we're the best-positioned battery business. We have the strongest portfolio of brands. We have the best-performing products. We just talked about with Robert, we've created a dynamic network to manage through any macro environment that we need to. And that optionality, we have the ability to partner with our retailers to bring their particular strategies to life. And so we have the opportunity to meet consumers where they are.
With all of those assets at our disposal, it gives us and we expect to deliver consistent year-over-year growth that may take different forms online versus in-store. It may take different forms retailer to retailer. But at the end of the day, the results are going to be there. Consumers, as we mentioned, they're a little bit cautious, and that manifests itself differently depending upon which category you're talking about. But when consumers engage in the battery category, as you said, they're purchasing our brand. So we're in a great position. We're going to continue to drive our business going forward.
Bill Chappell: So, you know, what is your initial outlook for the upcoming holidays in terms of I realize it's fiscal 2026, but in terms of both category sets and where you're placed and the consumer.
Mark LaVigne: Yeah. I would say right now, we're planning for a normal holiday season. And I think the one alteration you're starting to hear from retailers is that the holiday season is going to start a little bit earlier this year, and consumers are going to stretch out their shopping season. And so we need to be ready to address that and be ready to pivot from a timing standpoint. So as of now, we are planning for kind of a basically normal holiday season.
Bill Chappell: Got it. Thank you.
Mark LaVigne: Thanks, Bill.
Operator: And your next question comes from the line of Dara Mohsenian with Morgan Stanley. Please go ahead.
Dara Mohsenian: Hey, guys. Good morning.
Mark LaVigne: Morning, Dara.
Dara Mohsenian: Historically, you've talked about investing to drive top-line growth, talked about expansion in emerging markets, expanding auto care internationally, investing in innovation, digital, expanding distribution, etcetera, etcetera. I won't run through everything. But just curious strategically as you take a step back, as you think about these production credits coming in longer term, so looking beyond this year and even next year when you have the tariff impacts, does this allow you to spend incrementally buying the business? Where might those incremental investments be? And I guess, b, just are you actually spending some of this back? How do you think about that net amount as you look out longer term?
Mark LaVigne: Dara, I think you mentioned the five growth areas we've mentioned in the past, and we've mentioned distribution, and we're seeing $15 million of distribution wins in 15% in Q3. We've grown 25% year to date. Market expansion, we continue to see strong growth in developing markets. Pricing, we have innovation-based pricing, and then innovation, you see podium series. So we have continued to leverage those sort of five key areas to drive growth going forward. And certainly, the production credits allow us to invest in our business, both from a network standpoint, but also on a growth standpoint. But that, you know, production credit's only adding to what we've already done with Project Momentum.
So we've driven $200 million of savings through Project Momentum over the last three years. Which not only helped us restore margins, it also allowed us to have a greater ability to invest for growth. So all of these things add up to the ability to invest where we need to, to be able to drive the top-line growth that you expect.
Dara Mohsenian: Okay. I guess, generally, it sounds like you feel like you've already been stepping up the investment. So it's not like most of this is reinvested back when you look out a couple of years you could see a decent amount of the production credits drop to the bottom line. Is that a fair way to look at it?
John Drabik: Dara, what I'd say is, you know, we've called up our things for '25, and I would view that as kind of a new base. And I think as you head out over a longer period of time from here, we should expect to grow algorithmically off that. I think the credits will really help to drive it.
Dara Mohsenian: Okay. Great. That gets me to my next question, which is the comment about growing EPS in EBITDA in '26. Is that just meant to communicate look, we've got a higher base in '25, but we also think we can grow off that even with tariffs. And giving us a little more insight, the various factors out there, including tariffs, or are you signaling more that '26 could be a really outsized growth year? Just wanted to understand a bit more of the motivation behind that open up the window a bit to ask.
I understand you won't be giving us a specific number, but there's also a lot of sort of puts and takes as we think about the production credit, tariffs, and reinvestments. So again, just trying to understand the motivation there. And a bit how those three areas, some of which offset each other, some insight into how we should think about that next year.
John Drabik: I think it goes into the comment that I just made. So we are calling up earnings for '25, and our intention, and we're not going to give a 2026 number, but we do believe that's embedded in the base. So when you net it all out, we can offset the tariffs. We can continue to invest in the business. That new higher level of earnings, we think we can grow off of that. We'll have better visibility and give real numbers in November. But we didn't want to, you know, signal that we had offset a lot of the things we had seen this quarter, and we're going to be able to grow off the new level.
Dara Mohsenian: Okay. Thanks, guys. Take care.
Mark LaVigne: Thanks, Dara.
Operator: And your next question comes from the line of Andrea Teixeira with JPMorgan. Please go ahead.
Andrea Teixeira: Thank you, Mark, and good morning, everyone. I just wanted to go back to, Mark, what you talked about the underlying consumption trends. In both batteries and autos and then across the, you know, across the globe, if you can. I understand that you had some in the U.S. specifically some potential pull forward in the July 4 and the Prime Day event. If there's any reason that the implied, you know, fourth quarter, which is a touch lighter, I think that probably we all thought would be because you had a better third quarter. So can you talk to us a little bit more on those puts and takes?
And then a clarification on the pricing, I understand, which is your tariff impact came in better than anticipated. About half of it would be coming through the mitigation efforts would be coming through pricing as you put in the on the comments. On the prepared remarks. Any timing of it and how you're going to execute and if that was already announced with your retail partners in the U.S., how we should be thinking of that pricing action and potential for elasticity there. Thank you.
Mark LaVigne: Sure, Andrea. Let me talk a little bit about Q3. I mean, to answer the question simply, there was a fourth of July shipments as well as Prime Day shipments with shifted into June instead of July. As a result, we did have a little bit of pull forward into the quarter. So that I think, mainly explains some of the disconnect from what you're seeing from our U.S. number or U.S. consumption numbers versus our financials. On your second question on pricing, I mean, we took pricing earlier this year. It was based on innovation as well as existing tariff headwinds. We did not take any additional pricing in connection with the liberation day tariffs.
We fully work through these pricing discussions with our retailers. It's starting to show up on shelf with some retailers. You're going to see that benefit really start to flow through in Q4. And what, again, as John just talked through, it allows us to deliver earnings growth this year and sets up to deliver earnings growth next year. I think from a tariff standpoint, the message we'd leave you with is we fully offset tariffs. So a lot of puts and takes, but we fully offset tariffs in '25 and going into '26.
Andrea Teixeira: And while you answer that, that's super helpful. On the private label pricing. Right? I understand that you said private label has been stable. With their production coming mostly from abroad, do you have any indications of, like, price gaps that you are between? Because it's hard for us, we can look at it in the track channel data, but not so much with, obviously, Amazon Choice and things like that and Amazon Basic. If you can comment on what you're thinking would be embedded in your guide, the price gaps for e-commerce.
Mark LaVigne: Yeah, Andrea. I think when we watch price gaps externally, we have seen some movement in private label pricing against those tariffs. So we have seen some private label pricing move around in the latest reporting period. I think it goes back to what I said earlier. I think it was to Bill's question around, you know, we're the best-positioned battery business out there. We have a portfolio of brands that we can leverage to meet the value needs of consumers, whether that's Energizer, whether that's Rayovac or Eveready.
So we have the optionality as the environment settles from a post-tariff regime, and we respond and leverage our portfolio to maximize, you know, the retailer strategy as well as our business with that retailer.
Andrea Teixeira: Great. And then trends in Europe, if you can comment.
Mark LaVigne: Yeah. What I would say is the U.S. has been a little bit softer than the rest of the world. The way I would break it up, Andrea, is sort of modern developed markets following roughly consistent with what you're seeing in the U.S., and then developing and distributor markets are a little bit healthier.
Andrea Teixeira: Okay. Thank you again. I'll pass it on.
Operator: And your next question comes from the line of Peter Grom with UBS. Please go ahead.
Peter Grom: Thanks, operator. Good morning, guys. Maybe just a few housekeeping. Maybe just a follow-up on Andrea's question. Just the fourth quarter organic items, where I would imagine you have pretty good visibility. But just the step back that you're kind of talking to, is that really just a function of shipment timing or is that, you know, a sign around maybe underlying trends or category performance deteriorating a bit?
Mark LaVigne: Well, you do have the shift from Q4 into Q3, so there is an element of that. You're also you have POS trends that were roughly consistent with what our outlook is for top line in the quarter. So I would say the category has proven to be resilient. At times consumers will make different choices. They'll stretch out their purchasing patterns. They'll shift channels. They'll shift pack size. But at the end of the day, expect, you know, healthy trends in the battery category. It's just from quarter to quarter. Occasionally, you see some consumer softness, but it doesn't persist for very long.
John Drabik: Yeah. We haven't changed our full-year view, so it's still, you know, flat to 2%. Seeing that move a little bit between third and fourth quarter, but it's still relatively healthy.
Peter Grom: Okay. And then just on that point, just any thoughts in terms of how we should be thinking about the composition of growth between the two segments in the fourth quarter? You alluded to some unfavorable weather. I would imagine that's improved in auto. So just kind of curious how we should be thinking about that from a segment perspective.
John Drabik: Yeah. I think the battery, you're going to see roughly in line with our call overall. And, obviously, that's 75% to 80% of the business, so that should be pretty synced up. Auto, we expect to do a little better as they do some catching up in the fourth quarter. Both businesses or both segments should benefit from that pricing that we've taken for tariffs that you'll see come through in the fourth quarter. So I expect pricing to be a little bit of a driver in the quarter. A little bit better on the auto side than battery, though, kind of, if you look at the numbers.
Peter Grom: Great. Thanks so much. I'll pass it on.
Mark LaVigne: Thanks, Peter.
Operator: And your next question comes from the line of Brian McNamara with Canaccord Genuity. Please go ahead.
Brian McNamara: Hey. Good morning, guys. Thanks for taking the questions. I'm curious about your view on current battery inventories both at the level and the consumer pantry level? We heard some companies other companies that talk about retailer destocking in calendar Q1. I'm curious where they stand today.
Mark LaVigne: Let's start with consumers first, Brian. I think as consumers sort of stretch out their purchase cycle, I think inventory levels tend to get a little bit lighter in these times. I think when you're looking at retailer inventory levels, I would say right now, they're slightly elevated, and that qualification changes retailer to retailer. But we took all that into account as we guided to Q4.
Brian McNamara: Great. And then a quick follow-up. I guess, how would you describe the overall health of the consumer that, you know, you guys serve? You mentioned private label shares are flat. Which is a bit counterintuitive based on what we're hearing from other companies.
Mark LaVigne: You know, from a consumer standpoint, you know, Brian, I think that yeah, I think that's a tough question to answer with a succinct answer. I think consumers are certainly acting cautiously. They're seeking value. They're willing to make changes to get what they want. But how that manifests itself really does change category to category. And when you look at the battery categories, John 75% of our business. It is a resilient category. Consumers need batteries. They may stretch out their purchase cycle. They may switch channels. They may trade down in pack size. But at the end of the day, our portfolio serves their needs and allows us to drive the growth that we need.
Brian McNamara: If I could just squeeze one last one in on the pricing element. When did the actual tariff-related price increases hit the consumer at the retailer level? Has it happened already? Are you expecting it to happen in the, you know, the next couple of months? Like, what we've heard mixed messages from other companies.
Mark LaVigne: Well, I mean, that's going to be a retailer-based decision. I mean, so we will negotiate our pricing with retailers, and then it's, you know, retail shelf at their discretion. So that would be a question for retailers.
Brian McNamara: Fair enough. Thanks.
Operator: Thank you. And once again, if you would like to ask a question, simply press star 1 on your telephone keypad. Our next question comes from the line of William Reuter with Bank of America. Please go ahead.
William Reuter: Hi. I just have two quick ones. The first, you know, there was a little bit of a change in your capital allocation. Does your leverage target still remain being below four times over the long term? And I guess, I feel like M&A has been completely off the table for some time. Does that still remain to be the case?
John Drabik: I think we will still prioritize paying down debt. So I think getting below 4% is a target that we'd like to continue towards. As far as M&A, we've done small very small deals. I think any deals we would look at would not materially change our leverage, at least for the foreseeable future.
William Reuter: Got it. And then just, you kind of touched upon this in the last question, but you mentioned you may see a trade down in pack sizes. Have you seen that thus far, and has this helped on your margins at all in the third quarter? And I guess, do you expect it could in the fourth?
Mark LaVigne: Well, so Bill, we have a bifurcation that's going on. Consumers are either trading up to larger pack sizes or they're trading down to smaller pack sizes for an aggregate purchase price. On balance, we sort of work all of those, the aggregation of those dynamics into our call for the gross margin, which we've provided.
William Reuter: Got it. Alright. That's all for me. Thank you.
Mark LaVigne: Thanks, Bill.
Operator: And we have no further questions at this time. I would like to turn it back to Mark LaVigne for closing remarks.
Mark LaVigne: Thanks all for joining us today. Hope you have a great rest of the day.
Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.