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DATE
Thursday, February 5, 2026 at 10 a.m. ET
CALL PARTICIPANTS
- President and Chief Executive Officer — Mark S. LaVigne
- Chief Financial Officer — John J. Drabik
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TAKEAWAYS
- Gross Margin Outlook -- Management guided to over 300 basis points of sequential gross margin expansion from Q1 to Q2, with an additional 300-400 basis points anticipated by year-end.
- Debt Reduction -- The company paid down more than $100 million in debt during the quarter and targets $150 million to $200 million in total paydown for the year.
- Return of Capital -- Nearly $28 million was returned to shareholders through dividends and share repurchases as part of the capital allocation strategy.
- Tariff Impact -- Tariffs represented an approximately 300 basis point headwind to gross margin in Q1, with expectations for improvement as impacted inventory cycles out.
- APS Transition -- The transition of APS customers to Energizer branded product is expected to contribute $30 million in sales, equating to roughly 200 basis points of organic growth.
- Distribution Expansion -- Management projects 400-500 basis points of growth in the second half, driven by increased distribution, portfolio innovation, and e-commerce growth.
- Panasonic Inventory Sell-Through -- The company sold $65 million of Panasonic branded product in Q1, which management indicated will not recur and produced a 200 basis point drag on gross margin.
- Input Cost Pressures -- First quarter input cost and production inefficiencies impacted gross margin by about 80 basis points, with zinc mostly hedged for 2026 at over 90% fixed cost coverage.
- Battery Category Consumption -- December showed positive volume inflection, with "very positive volume growth" expected in January due to U.S. winter storms, though full-year guidance excludes storm impact.
- Leverage Target -- The stated year-end leverage goal is approximately 5x or below, enabled by ongoing paydown initiatives.
- Auto Care Trends -- Management noted "a pronounced bifurcated consumer" within Auto Care, with higher-end products driving category growth and lower-end consumers delaying or skipping purchases.
- Tax Credit Benefit -- Management expects tax credits to increase by roughly 50% over last year, adding to back half margin improvements.
- Private Label Dynamics -- An uptick in private label and aggressive pricing at certain retailers boosted volumes but eroded category value, with retailers already recalibrating toward value-premium balance.
SUMMARY
Management provided detailed visibility into back half gross margin recovery, outlining the projected margin progression and expected improvement as one-time headwinds subside. Category volume inflected positively in December, and the company gained share in the latest periods, supported by planned shelf expansion and innovation initiatives. The company maintains a flexible approach to guidance, reflecting the ongoing unpredictability of consumer demand patterns and external events, such as winter storms. Debt reduction and balanced capital return priorities were reiterated, including continued evaluation of smaller, leverage-neutral M&A opportunities. Management described unique challenges within Auto Care and Battery segments, each with tailored strategies addressing shifting consumer behaviors and retailer actions.
- President and Chief Executive Officer LaVigne said, "These actions position us to deliver over 300 basis points of gross margin expansion from Q1 to Q2, with another 300 to 400 basis points anticipated by year-end."
- Chief Financial Officer Drabik stated, "tariffs were almost a 300 basis point impact in the first quarter. We're."
- Drabik also highlighted, "$65 million of Panasonic branded product in Q1," confirming this impact will not recur over the balance of the year.
INDUSTRY GLOSSARY
- APS: Third-party distributor/customer transitioned from Panasonic to Energizer branded product, impacting sales and gross margin performance.
- POS: Point of Sale — refers to retail sales transactions and data tracking product movement at the retail level.
- NPD: New Product Development — process and pipeline for introducing new innovations into the market.
- Planogram: Visual merchandising tool determining product placement on retail shelves, impacting distribution and sales growth strategies.
- Leverage: Financial ratio of net debt to EBITDA, used by management to measure balance sheet strength and debt paydown progress.
Full Conference Call Transcript
Mark S. LaVigne: The supply chain realignment is central to restoring margin. These actions position us to deliver over 300 basis points of gross margin expansion from Q1 to Q2, with another 300 to 400 basis points anticipated by year-end. We also delivered robust cash generation that allowed us to pay down over $100 million of debt while returning nearly $28 million in capital to shareholders through dividends and share repurchases, reinforcing the durability of our cash flow model. Finally, I wanted to spend a brief moment on our capital allocation strategy, which remains a cornerstone of long-term value creation. We will continue to prioritize reducing debt, which directly shifts value to equity holders while strengthening our balance sheet.
In addition to reducing leverage, our free cash flow supports a balanced shareholder-first capital allocation strategy. We intend to return capital through an attractive dividend, which reflects our confidence in ongoing cash generation, and through share repurchases when market conditions create attractive entry points. This disciplined deployment of cash, paying down debt, maintaining an attractive dividend, and buying back shares reinforces our commitment to maximizing long-term shareholder value. Thank you for your continued confidence in Energizer Holdings, Inc. And with that, let's open the call for questions. Thank you.
Operator: Your first question comes from Lauren Rae Lieberman from Barclays. So one quarter into the year, wanted to just get a sense for how you're thinking about things broadly versus what you might have said three months ago. So thinking about the consumer backdrop, maybe what you're seeing in terms of category trends, any kind of uptick from private label. We know the continued pressure on the lower-end consumer has been a dynamic. And it just feels like there's a lot of moving parts in now a very back half-weighted year. So just kind of degree of confidence in hitting that ramp in the second half. Thanks.
Mark S. LaVigne: Sure. Good morning, Lauren. Let me start high level. So when we were building our plan for '26, we knew it was going to be a transitional start to the year. We saw softening consumer trends in October and November. We were lapping last year's hurricane-driven demand, and we had some orders which were planned for the first quarter, which benefited '25. On the cost side, we were managing through elevated tariff pressures, which were the result of tariffs levied at higher than the current rates. In light of that, we were reshaping our network, which also created some short-term operational inefficiencies, including some absorption.
These affected results at the end of last year, and we expected them to continue into '26. These were understood going in, were fully embedded in our plan, and the quarter thus far has unfolded largely as we expected. Looking ahead, we're encouraged by the trends we're seeing in the business. Consumer demand has stabilized. We saw a strong rebound in December volumes in the U.S., which remains our largest market. We also strengthened our in-store presence with broader and higher quality distribution across major retailers, which you'll see over the back half of the year. At the same time, we've done additional work to reposition our cost structure, and that's starting to take hold.
We are starting to cycle through inventory impacted by those higher rates, and our mitigation efforts are starting to come to fruition. That includes relocating production capacity in the U.S., diversifying sourcing, and investing in efficiencies to make the network more efficient. We've taken targeted steps to increase production, to increase the tax credits, which we expect to earn this year, which should drive a benefit of roughly 50% above last year. These dynamics are all coming together and setting us up for a strong acceleration of net sales and earnings in the back half. So while the first half reflected short-term factors, the underlying trajectory is improving.
This year is really about restoring growth, restoring margins, restoring free cash flow. And thus far, we're off to a great start. Specific, Lauren, to your question on battery consumption trends, we saw meaningful improvement in the quarter, as I just mentioned. December inflected the volume growth. You see in the scanner trends, the thirteen-week volume was slightly negative. But then when you see the December data, in the four weeks, that was where volume inflected the positive. Obviously, January is going to have very positive volume growth with the winter storms in the U.S. The balance of the year, we expect the category to be stable.
And the trajectory of the category is essentially what we assumed going into the year. Anything I missed?
Lauren Rae Lieberman: No. I think that was perfect. Thank you.
Mark S. LaVigne: Thanks, Lauren.
Operator: Your next question comes from Peter K. Grom from UBS. Please go ahead.
Peter K. Grom: Great. Thank you. Good morning, guys. I guess I wanted to follow-up on that last point, right, just on the January trends and kind of the impact of weather. So I asked this in the context of you mentioned in the release that your outlook does not contemplate any impact from the recent winter storm activity. So just whether it's based on what you've seen thus far, maybe what you've seen over time, can you maybe just help us understand what this could do to your guidance as it relates to either the second quarter or to the full year outlook? Thanks.
Mark S. LaVigne: Sure, Peter. Why don't I start with the storm impact and then maybe John can bridge a little bit of the front half back half dynamic that we're seeing. I mean, storm volume in the U.S. clearly was a benefit POS. I mean, one week numbers were significant. Category value north of 50%. It is really too early to quantify the impact that this will have on our business as we'll need to work through replenishment orders. We need to manage through any shipments which may have been disrupted because of the weather, as well as work through resulting inventory levels at retail. Retailer inventory levels.
It will certainly be a benefit for our business, but it's just too early to tell how much. I would say there's just more to come on that in connection with the Q2 earnings call. You want to walk through kind of the bridge as we think through the balance of the year?
John J. Drabik: Yeah. Mark, I can take us down maybe a level from where you were setting it up. So, you know, our view for the back half of the year or the rest of the year is really that the category is relatively flattish. And as Mark said, kind of what we've seen in December and into January. So we've got a good base to build on. Some of the key drivers on the top line that we're looking at, we've called out, you know, the transition of APS customers to Energizer branded product. It's like we expect that to contribute $30 million or roughly 200 basis points of organic growth.
One of the other things we have plans to really increase distribution in the back half of the year, and that's by leveraging innovation and leaning into our full portfolio. That's across both brick and mortar and fast-growing e-commerce. Based on current planogram changes that we've got as well as NPD sell-in, and then that e-comm growth, we're expecting 400 to 500 basis points of growth in the back half. And then we've got some carryover pricing and as well as some targeted tactical pricing that we expect to have kind of a 50 to 100 basis point benefit as we go into the back half of the year.
So we're seeing good things within our plan on the top line. And then gross margin, obviously, the first quarter was really impacted by a number of factors. A lot of them are not going to continue. So we kind of wanted to give some color around that. I mean, the first one is the tariffs were almost a 300 basis point impact in the first quarter. We're still flushing through some of that inventory that we bought in the spring and in the summer. So, you know, the rate was higher at that point. We expect that to improve as we go throughout the second quarter and into the rest of the year.
We also you'll see in our report, we sold, about that's really related to the APS transition $65 million of Panasonic branded product in Q1, so we sold through, we're losing that market. At December 31 and we've lost it already. We sold through all that inventory and worked with our customers there in Europe to try to transition. That had a pretty big impact on gross margin. So that was a 200 basis point hit. That's not going to recur as we go throughout the rest of the year. The other big one that we've been talking for a while are the transitional product cost impacts. Those were almost 100 basis points.
We've done a lot of work to reset the global supply chain. We should flush through most of that we get through Q2 and then the rest of the year, we should be in really good shape. So, you know, as we look at Q2, we expect 300 basis points of sequential improvement. And then we, you know, see continued expansion as we go through into Q3 and Q4. Think our plan is to get back into the low 40s, which is kind of where we were, you know, before the tariffs really hit. I think we're gonna get, you know, past these transitional one-time costs and, you know, leverage targeted pricing.
And then optimize production credits really in the back half of the year. So we've got some good trends going on. Peter, brought your question a little bit. We thought it was important to sort of highlight that front half back half.
Peter K. Grom: No, that is helpful. I mean, guess, one follow-up to that. I mean, in the building blocks are really helpful, but it remains a pretty volatile uncertain environment. So you know, how would you characterize or how did you think about layering in flexibility or cushion as you think about the guidance from here?
Mark S. LaVigne: You know, Peter, we always try to build in enough flexibility in the plan to be able to deal with uncertainty. I mean, what you just described has been a constant over the last five or six years. So every year evolves differently than you expect going in. I think if one thing this organization developed over that time period is the muscle memory to be able to read and react to the situation and adjust your plans accordingly. And that's a daily occurrence around here. So I think we've got the right plans in place. We're confident in the outlook that we provided.
It may not play out exactly as we forecast sitting here today, but, ultimately, if we feel like we can deliver the financials we've laid out.
Peter K. Grom: Great. Well, thank you so much for that, and best of luck.
Mark S. LaVigne: Thanks, Peter. Thanks, Peter.
Operator: Your next question comes from Robert Edward Ottenstein from Evercore. Please go ahead.
Robert Edward Ottenstein: Great. Thank you. I think you may have just answered my question, but wanna make sure. So, batteries much stronger than we would have expected. Less increase in gross profit than we would have expected. Is that have you just basically totally explained what happened there in terms of Panasonic and the tariffs, or are there other factors, or do I just have that all wrong?
John J. Drabik: No. That's right, Robert. It's the three items. It's the higher tariffs, APS was really a it was a 200 basis point drag on its own in the quarter. And then it's the product cost transitional nature of some of those changes that we've got going that should continue to improve.
Robert Edward Ottenstein: Great. And then can you talk about the strength in December? Was that the category, or was it more you? And does that tell us anything about potential market share gains in '26? And maybe you could touch on, what you see in calendar '26 in terms of shelf space, just points of distribution, you know, those sorts of drivers.
Mark S. LaVigne: Sure, Robert. The category certainly improved in December, but we also have gained share in the latest reporting periods as well. So that's continuing to be so the category is improving and we're improving slightly ahead of the category. As we look ahead in calendar '26, we do expect our distribution footprint to increase both in these broader distribution footprints, but also higher quality distribution. We're leveraging our full portfolio to do that from value to premium. To make sure that we're meeting consumers where they are. We also sold in some exciting innovation in both batteries and Auto Care that you're going to see in Q2 and Q3.
So we're excited about the plans we have with our retailers as we head into the rest of the year.
Robert Edward Ottenstein: Thank you very much.
Mark S. LaVigne: Thanks, Robert.
Operator: Your next question comes from Andrea Faria Teixeira from JPMorgan. Please go ahead.
Andrea Faria Teixeira: Hi, good morning, everyone. Thank you for taking the question. I just want to drill down a little bit on the top line. And, obviously, you said that stable categories, and you're also taking pricing, selective pricing. I was curious to see how the dynamics within private label in particular, obviously, are the largest e-commerce partner that you have. Like, how are you thinking of pricing against volume within that guide? And from there, like, what is your expectation in terms of shelf resets? You did say I believe you did say, as usual, like, some additional shelf space. So just thinking of that.
And since we haven't discussed the autos yet, like, just a state of the union there, that'll be great. Thank you.
Mark S. LaVigne: Sure, Andrea. Let me start with auto. I mean, it's the smallest quarter we have in auto in Q1. There was a slight impact from weather as well as some timing as well within the auto business. We're heading into peak season. We're really excited about your CURE podium series. We have additional innovation that we're launching across the portfolio. We always are excited about the prospects of international growth as well as growth in e-commerce. You are seeing a little bit more of a bifurcated consumer in the auto category where higher-end parts of the category are showing growth, where middle to lower ends of the category you're having some consumers that are delaying purchases or opting out altogether.
I think that makes the Podium series launch all the more timely for us, which we're participating now in growth at the high end. So as we head into the Auto Care, for the balance of the year, still expecting growth, but you are seeing a little bit more of a pronounced bifurcated consumer in that part than maybe what you're seeing in batteries. Now if I want to switch over to batteries, I mean, let's just talk consumers generally. I mean, consumers are continuing to search for value. You are seeing consumers stressed about finances. In light of those dynamics, they're comfortable switching channels, retailers, brands, pack size, so they're willing to rotate their purchases to meet their needs.
It's critical that we meet them where they are, and this is where Energizer Holdings, Inc. is uniquely positioned. With our full portfolio. Private label plays a role in the category. Certainly, some retailers are looking to connect with consumers in light of those trends. In the first quarter, we did see an increase in private label at certain retailers as well as some aggressive pricing. This results in volume growth for those retailers, but actually erodes category value at the same time. And our view is this is all about balance, and we've already seen some retailers recalibrate their approach and bring more balance to both private label value and premium equation.
Even with those dynamics, we gained share over the holiday period, and we're excited about some of the plans that we're leveraging in order to be able to compete with private label, but also leverage our value brands and our premium brands to connect with the consumer.
Operator: Your next question comes from Carla Casella from JPMorgan. Please go ahead.
Carla Casella: Hi. I'm wondering if you're with your guidance, you have a leverage target where you think you would like to get to by the end of this year?
John J. Drabik: Yeah. I think by the end of this year, we're expecting to get five or a little bit below. We're going to continue to prioritize debt pay down. We feel like we can we've paid down over $100 million in the first quarter. Still targeting $150 million to $200 million. So I think that's what will drive the leverage level for the rest of the year.
Carla Casella: Okay. Great. And should we assume that M&A is backburner until you delever, or are you looking at M&A opportunities?
Mark S. LaVigne: We will always look at M&A opportunities. I think any deals that we would look at would be leverage neutral and not impact our debt pay down trajectory that we're looking to achieve. So they would be on the smaller side.
Carla Casella: Okay. Great. And then I know in the past, you've often talked about storms. Affecting the hurricanes, winter storms. Are there much are there distinct differences between winter storms and summer storms? Do you refer one or the other? Just curious.
Mark S. LaVigne: Well, I mean, hurricanes tend to be a little more isolated in terms of impact, whereas this winter storm that we saw over the last couple of weeks really covered a broad section of the country. Which is a little different. So the response is going to be different and the impact on our business will be different. But I wouldn't say we prefer either, but we make sure that we can deliver products when consumers need them. And, you know, obviously, this is something that the organization excels at.
Carla Casella: Great. Yes. I can't figure out to word that. It's horribly worded, thank you. You got my gist. Don't worry.
Mark S. LaVigne: We struggle with that too.
Carla Casella: Thanks a lot. Thanks, Rob.
Operator: Pardon me. As a reminder, if you like to ask a question, your next question comes from William Michael Reuter from Bank of America. Please go ahead.
William Michael Reuter: Good morning. The first, you mentioned that there were impacts of products that were produced during periods when tariffs were elevated, which has since normalized, to the current levels. Can you talk about what the amount of impact that we should kind of normalize this quarter's EBITDA by, based upon the elevated tariff rates?
John J. Drabik: Like, I think I'd probably I think we're calling for something like $60 to $70 million of tariffs or around $60 was maybe the last where we were. I still I think that'd be relatively fixed as you go through. We took maybe a bigger hit in the first quarter, but that should be the run rate.
William Michael Reuter: Okay. So I guess I thought you guys had highlighted that there were, you know, the elevated tariff rates, the $1.45 probably on some products impacted you. Did I misunderstand that?
John J. Drabik: Yeah. It will go down a bit as you go through the year. I don't have the exact and the tariff hit in the first quarter. Got it. Okay. We'll come back to you on that exact number. But it does get a little bit better. Plus, remember, we've got pricing and credits, and the credits the tax credits that we've got will continue to grow as we go throughout the year. So you know, the total impact that we're calling for tariffs will improve as we go throughout.
William Michael Reuter: Got it. And then on the gross margins, you were explicit that the second quarter will improve 300 basis points. And then you said an additional 300 to 400 by the end of the year. So does that mean you will see a sequential improvement from the second to the third and fourth quarters of 300 to 400 basis in each of okay. That's exactly right, Bill. It'll be sequential.
John J. Drabik: And we did I mean, I did I our first quarter tariff impact was about 300 basis points. That will get better on a margin rate as we go forward. For sure.
Mark S. LaVigne: Bill, just to clarify, just to make sure you're not walking away with a different model. So it's 300 basis points from Q1 to Q2. Then 300 to 400 between Q3 and Q4, not in each of Q3 and Q4. That's right.
William Michael Reuter: Not in each. Okay. I might send you an email to make sure I understand that correctly. Lastly, for your input costs, certainly, there's some inflation in some of those metals. Can you talk about what you're seeing now how much you have locked in, and then, what that might mean for you know, necessary price increases next year for products which you haven't hedged if these elevated input costs remain?
John J. Drabik: Yes. We did see a bit of a drag in the first quarter as about 80 basis points. And we had some momentum offset to that. But it was really input cost especially freight and some of our production inefficiencies. Raw materials were right now, we're about a bit of a push, but I'm spot prices, we're seeing, especially zinc has gone up. We've also seen some moves, you know, some negative moves in lithium obviously silver, and then r one thirty four a, which is the gas and a lot of our refrigerant products. On zinc, we're over 90% fixed for '26. We've got between contracts and inventory. We're probably in a decent position on a lot of these.
You know, I think we'll continue to see pressure as we go more into '27. We've also taken some targeted pricing, on the auto side for some of those cost impacts. That should come in, in the second and third quarter. That's a little bit what we alluded to earlier. So all in, the trends are slightly negative. I don't expect it to be a huge impact to '26, but it's something that we've got to continue to manage.
William Michael Reuter: Got it. Alright. That's all for me. Thank you. Hey. Hey, Bill. One follow-up on your question on margin, we have a slide within the earnings deck that provides a little bit more color on the margin progression over the balance of the year, which I think you may find helpful. But happy to connect after the call as well.
Mark S. LaVigne: Great. I'll take a look at that. Thank you.
William Michael Reuter: Thanks.
Operator: And there are no further questions at this time. I will turn the call back over to Mark LaVigne for closing remarks.
Mark S. LaVigne: Thanks for joining us today. Hope everyone has a great rest of the day.
Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.