Good morning. My name is Vaishnavi and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's Third Quarter Fiscal Year 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference call over to Jackie Burwitz, Vice President and Investor Relations. Please go ahead.

Good morning and welcome to Energizer's third quarter fiscal 2021 conference call. Joining me today are Mark LaVigne, President and Chief Executive Officer; Tim Gorman, Chief Financial Officer; and John Drabik, Corporate Controller and Chief Accounting 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 this 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, including those resulting from the ongoing COVID-19 pandemic, which may cause actual results to differ materially from those 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 the 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 in 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. This quarter e-commerce data is limited to our business as total category data is not currently available. It is uncertain when that data will become available in the future. Unless, otherwise noted all comments regarding the quarter and year pertain to Energizer's fiscal year and all comparisons to prior-year related to the same period in fiscal 2020. With that, I would like to turn the call over to Mark.

Thanks, Jackie, and good morning, everyone. It's great to be with you today to share the results from another solid quarter. Before jumping into the results, I want to focus on a few bigger picture headlines. First, our categories remain very healthy. In fact, each of our categories is showing solid growth when compared to pre-pandemic levels and we expect that consumer behavior is driving that demand will continue for the foreseeable future. Second, operating costs have risen rapidly and we are laser focused on offsetting those headwinds through cost reduction initiatives and pricing. And finally, global supply chain networks continue to be stressed and are prone to disruption. As a result, we have built inventory to service our customers with excellence and minimize supply chain disruptions as we approach the critical holiday season. In a few minutes, I will talk in more detail about each of these areas. But before we get to that, let's turn to the quarter where the benefit of our diversified portfolio and global footprint has shown through. Our topline grew nearly 10% from strong growth globally in our auto care business. Solid growth in our international battery business and currency tailwinds. These were partially offset by anticipated declines in our North America battery business. The topline growth combined with cost management, synergy realization, and interest savings translated into solid adjusted EPS and EBITDA growth. Headlines for the quarter; we maintain topline momentum with organic sales growth of 5.8%, including growth of more than 25% in our auto care business. In addition, we saw our international markets produce strong growth across all categories. Our gross margin was lower than last year by 160 basis points as synergies and favorable currency impacts did not fully offset rising industry wide input costs that accelerated in the back…

Good morning, everyone, and thanks Mark for the kind words regarding my retirement. It's been both the privilege and a pleasure to be part of the Energizer team through this transformative period beginning with our spin-off from Edgewell in 2015 and the acquisitions we've made since. With the acquisitions essentially fully integrated now is the right time to hand the baton to John Drabik. Many of you have had the opportunity to meet with John over the past year. He is an outstanding financial leader with 20 years of well-rounded experience as part of Energizer's finance team. I am confident, he will be a great CFO. Now turning to our results. In addition to the earnings release we issued this morning, a slide deck is included on our website highlighting additional key financial metrics. I will cover the results for the quarter and then turn the call over to John for an update on our outlook for fiscal year 2021. Our organic revenue growth of 5.8% combined with synergy realization, lower interest expense, and favorable currency tailwinds resulted in strong adjusted earnings per share of $0.74 up 48% versus the prior year third quarter and adjusted EBITDA of $144 million, up 7% compared to the prior year. Taking a deeper looking at organic revenue growth. Our Americas and International segments grew 4.7% and 9.1% respectively. In the Americas, auto care had strong double-digit growth due to elevated demand and distribution gains. This was partially offset by an expected decline in our US battery business, as we continue to lap elevated COVID related activity in the prior year. This battery trend is expected to continue over the next three quarters. In our International segment, battery sales were strong due to increased demand and replenishment versus last year when sales were down…

Thanks, Tim and good morning, everyone. Looking at our fiscal 2021 outlook, we are increasing our net sales outlook range of 8% to 9% growth. This increase is driven by the better-than-expected growth in our auto care business and the impact of favorable currencies. Gross margin is now expected to be down 80 to 110 basis points. Our previous gross margin outlook was flat year-over-year. However, inflationary pressures, which rose rapidly in May and June along with the mix impact of the growth of our auto care business will have a negative impact. Adjusted earnings per share outlook remains unchanged at 330 to 350 and represent significant earnings growth over the $2.31 delivered in the prior year. We also expect adjusted EBITDA of $620 million to $640 million, which is unchanged from last quarter and is an increase of 10% to 14% above the $562 million in 2020. Our year-to-date cash earnings are up roughly 30% versus the same period last year. However, as Tim discussed, we expect our working capital levels to remain elevated through the balance of the fiscal year. Anticipating that we are revising our outlook for adjusted free cash flow to exceed $225 million. This is a direct result of our decision to invest in inventory to support the upcoming peak battery season and to ensure we maintain high service levels for our customers. The steps we are taking are prudent ones giving ongoing disruptions that persist in the global supply network. Our combined two-year average for fiscal '20 and '21 is closer to 11% of net sales and is in line with our expected long-term outlook. We also view this investment a short term in nature and fully expect our inventory and free cash flow to normalize as the volatility and macro impacts of the pandemic abate. Now, I will turn the call back over to Mark for closing remarks.

Thank you, John. Through three quarters, we delivered strong topline growth with solid adjusted earnings per share and EBITDA results. Looking ahead, we are well positioned in the marketplace. Position anchored by our strong brands and innovation. Our focus today and moving forward will be to offset the cost headwinds, while ensuring our products are available to consumers around the world. We have complete confidence in our team's ability to operate with excellence drive productivity and accelerate the momentum in our business, despite any challenges which may come our way. With that, I will open the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Bill Chappell with Truist Securities. Please go ahead.

Thanks. Good morning.

Good morning, Bill.

Hi, Bill.

Good morning, Bill.

Just want to talk a little bit more about the kind of pricing cost offsets. I think you said you should be fully covered as you move into kind of the back half of next year, but obviously with the battery business, the majority of the earnings come in that first quarter. So just trying to understand are you fairly prepared for that or are we talking about more of a kind of a negative tailwind to gross margins through the key parts of the year?

I think Bill, I'll start and then turn it over to John because I think as we start to answer that question, we do think it's important to provide a little bit insight about '22 and I think we can start to shape that a little bit for you. On the pricing dynamic, as we mentioned in the prepared remarks, auto care has gone into effect, and we're going to start to see that benefit in August. In batteries, that price increase is still in process, we're committed to seeing that went through and getting it across the line. As we talked about before, I think you would -- we're going to expect to see minimal benefit in Q1 increasing benefit as you get through Q2 with the full impact in the back half of '22, which will help offset some of these headwinds that we're experiencing. But obviously there could be some delayed impact and John, why don't you kind of walk through a little bit of that?

Yes, maybe a little bit of composition. We've called the rest of this year down 80 to 110 basis points and that's really from an incremental $20 million, $25 million in costs this year. Half of that is going to come from transportation, which we've seen go up pretty significantly. We've seen container rates go up from something like $2,500 a container to almost $4,600. We've also seen pretty significant inflation in labor rates and then tariffs. We've also got hitting us with headwinds. And then I think we talked about this last quarter, but it's not a significant driver of this quarter, but commodities have really gone up continue to go up. We've been hedged and will be hedged through the remainder of this year, but as we look out into '22 obviously, we'll start dollar averaging into those higher costs. And so that will be a headwind for us. One of the things that we've decided not to do or we continue to do is we hedged, but we've done it at a slower rate opting not to lock into some of these costs at the highest hopefully. So as we go into '22, it probably makes a little bit of sense to give some more color, there are number of moving parts. So maybe to that point, we're going to provide guidance in November on our normal calendar, but it's obviously very volatile environment. So we're going to give a couple of thoughts on the road ahead. As we've talked about throughout the year and beginning to see this quarter, we're going to have difficult comparisons against the elevated sales levels that we saw during the COVID in the US last year. So we're expecting year-over-year declines in many of our categories over the next three quarters…

No, that's extremely helpful. Thanks. Thanks for the color. I guess one follow-up. As you look at auto care and I guess especially the comparisons for next year I mean the thought is the auto care season is largely behind us or maybe have a couple of months left at most. Do you considered this like a above peak year in terms of consumers out on the road, driving more than expected favorable conditions, do you considered this kind of normal more what you have kind of expected back to 2019, how do we look at it, especially from a comparison standpoint going into next year. Is there more growth on top of this or is this really probably better than you would have expected?

I think the trends have persisted this year a little longer than perhaps we would have expected, because we had some strong comparison. Now remember last March and April that channel was essentially shut down. So you've had some easy comps that you're cycling through this quarter. But as you get through the summer and into the fall that was where you saw elevated demand coming out of some of the lockdowns. So we'll continue to see those tough comps. But I mean there are consumer behaviors, which are continuing around cleaning particularly on the interior of the car. You've had an extraordinarily hot summer, which has been a benefit to our refrigerant business. You've also had a lot more miles driven this summer than last of the performance chemicals business has been elevated. So, you will go through some tough comps for the next several quarters on auto care similar to batteries. But I believe the long-term health of that category is still very encouraging.

Great. Thanks and congratulations Tim and John. Talk to you soon.

Thanks.

Thanks.

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

Great, thanks. Good morning, everyone. I want to talk a little bit about reinvestment. It was great to see spending on advertising this quarter coming in as you guys had planned actually higher than what I had expected. But as we look into whether it's '22 or just call the next couple of quarters. I was curious about reinvestment in SG&A and in light of things that you discussed earlier this year and mentioned again today about reinvesting in data capabilities, visibility into the supply chain and so I mean it sounds like from the decision to proactively manage inventory your visibility has improved versus this time last year, but I'd love to hear I guess one, progress made on that front and two, cost to get there and the degree to which that is a further headwind in the P&L certainly contemplated in your guidance, but something that we should be probably be thinking about as well? Thanks.

Lauren, I'll start and then let Tim and John add on where they think appropriate. I do think any of our current reinvestment plans have been built into the outlook we provided for the balance of the year. Any '22 investments I think will get into detail of that in November. But let me let me take a step back on the supply chain question, which was really the second part of your question. When you're talking about supply chain in today's environment, there's really two different elements. The first one is around consistency and predictability of supply chain networks. And the second around cost, which John touched on a few seconds ago. There has been a lot of disruptions in our supply chain and supply chains globally and you've got the Suez Canal, the Texas Freeze, you've got the recent Typhoon in China. All of these events create delays and availability of raw materials and component parts. In addition, in the US you have labor issues. I mean to give you some data points transportation from China to the US was previously pre-pandemic around 40 days, as of May it was 75 days, at times it's reached 90. There are restrictions on carrier availability with frequent delays in inbound and outbound imports are congestive. So I think all of these cause delays. As a result, we made the decision to invest in inventory. To your point, we saw that coming. We've anticipated, our visibility has greatly improved from where it was last year and the way for us to manage less efficient and less reliable supply chain situation is to invest in inventory to ensure that we can meet the demands of our customers. So we think it is a prudent investment, we think it's a short-term investment. And as John mentioned, we think it's going to normalize as we get into next year. I don't think you're going to see as you get into '22. Outsized investments in some of these data and analytics capabilities that we've talked about. We've built them into a lot of the work we've done this year. And you're going to see the benefit of that really starting to come to life in '22.

Okay, that's great. And that's super helpful. And then as you've also other mentioned all in this vein that you made on investing in internal capacity as well as third-party. Just thoughts on CapEx spending obviously you've got flexibility on your balance sheet with the decision through the ASR, but I'm just curious about CapEx additions. And again also on capacity if you're adding to I guess what is the underlying category size assumption. I know you're not going to give me a number, but just in terms of that consumption in auto and in batteries is to what degree higher today or in your vision of what steady state looks like versus what you might have predicted back in 2018 or 2019?

It's a great question, Lauren. I mean at the base of your question I think are we going to end up with too much capacity on the other side of what may be elevated demand. And we are confident that the answer to that is no. And that's in part because we have had a multifaceted approach to production. We insource and we outsource and we make sure that we balance prudently in between those two. We have started to bring some more capacity in-house and we will retain the ability to flex up and flex down both internally and externally. So that we make sure that we don't end up with an absorption issue and increased cost as a result of that. We bought a plant in Indonesia as you know last year we've increased the productivity of that plant in excess of 20%. We've added a couple of lines. We've talked about Fennimore and Asheboro. You can flex up and down and then we've added wipes lines and satin as well as in the UK. That's going to allow us to bring outsource product in-house. But we're still going to continue to use third-party providers as well to make sure that we can flex capacity and not have too much internal capacity that would have to be idled in the event that demand dropped.

Okay, that's great. Thank you so much. I'll pass it on.

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

Thank you. Good morning. Thanks for sharing some of the puts and takes into fiscal '22, but perhaps if you could give a little bit more on the cadence of the topline because you did mention the capital rates players being probably negative over the next couple of quarters. I just wanted to find out of what you're embedding in this guidance of the puts and takes that you gave us on the margin how we should be thinking on the platform?

Andrea, I think I've picked up your question. That was a little tough to hear you. I think in terms of the topline cadence, I mean, we're not going to get into the '22 guidance, but I think if you think about just Q4. I mean at this point it's essentially just math. I think we would expect auto care and batteries to be flat to slightly down.

Yes. It's about negative 5% is what we're looking for the fourth quarter.

Yes, now for sure. Now this is understandable, obviously, but I was thinking more and I apologize for the bad sound quality, but probably like more into as you said the fiscal '22 like more from a consumption perspective, how you're seeing as you get into the peak of the season, what are your retailers telling you in terms of consumption?

The consumption has been strong. We aren't seeing inventory levels elevated in any meaningful way across retailers. I think what you're going to have to -- you're going to have to cycle through the elevated cost particularly in batteries over the next three quarters. So I think you'll continue to see negative category trends, but that's going be important to continue to look at it against '19. I think you can distantly seeing consumers about a third of consumers tell us that they are buying batteries today or and then they continue to expect to buy additional batteries in the future. 90% of them are using them for immediate usage. Purchase frequency is up 2% versus the prior year and the spend for trip is up 9% against the previous year. So you're continuing to see healthy consumption trends out of consumers particularly in the battery category.

That's super helpful. Thank you. I'll pass it on.

The next question comes from Jason English with Goldman Sachs. Please go ahead.

Hey, good morning, folks. Excuse me. A couple of questions.

Good morning, Jason.

Good morning. So to build off the earlier CapEx question. I know you've lowered your CapEx expectations this year. What drove that? Is that just the deferral into next year and you mentioned that you're on track to complete the integration program this year. Well, how should we or what should we be expecting in terms of CapEx levels going forward once that falls out?

Yes, it's a good question, Jason. We've kind of looked at our CapEx needs as we go forward. We've historically run it about 1.5% to 2% of net sales. I think what we're viewing as we complete the program and kind of get into our normal run rate. Some of those investments that we talked about in technology as well as into our plants. We'd probably be towards the higher end of that, but still kind of within our normal long-term range some more around that 2%.

Okay, that's helpful. And then, you mentioned the accumulation of inventory this year. Is that just raw materials or is it finished goods and what sort of gross margin benefit are you seeing in terms of leverage of your plants, if that's the case?

Yes, a lot of what we've built incremental over the last quarter has been raw material with and so we've kind of built up, as Mark said, we are seeing some potential volatility out there in the global supply chain. So we've built up some of our ability to continue to turn that into finished goods next quarter and then we'd see that kind of sell-through in '22. So I would say there's not a significant impact to our gross margin from what we've done. It's kind of in line with sort of our normal, but we have stockpiled a bit.

Got it, helpful. Thanks. I'll pass it on.

[Operator Instructions] The next question comes from Rob Ottenstein with Evercore. Please go ahead.

Great. Thank you very much. Just to start off I just wanted to ask you a little bit about your share buyback program. Certainly I can understand wanting to buyback stock wherein it's so undervalued as it is today, but you don't usually see that with the kind of leverage that you guys have particularly in a tough uncertain general macro environment. Wondering if you can just give us a little bit more details behind this year buyback program and any signals that we should be getting from that in terms of future capital allocation?

Yes, Rob. I mean I think the first thing we'd say is that we've spent a lot of time over the last 12 month refinancing our debt capital structure. So we feel very comfortable with where that is right now. We've got basically our all-in coupons are below 4%. We've got very limited maturities over the next six years or so. So it freezes up about a bit to make capital allocations where we think we can get the best return. I'd say the second main point is that we expect significant cash flow generation over this quarter and as we go forward kind of back to a normalized level. So the ASR that we're talking about we think we can fund with those cash flows pretty comfortably along with our dividends that will continue to pay. Share repo has been an important component of our capital allocation strategy all along. So I think we've got confidence in our strategy and future growth prospects and really believe that this is a prudent investment to make given the value proposition that you talked about.

Absolutely. Great, thank you. And then, second can you talk maybe just a little bit more about and just on the battery side about the competitive environment that you're seeing. You mentioned that you've been gaining share, who are you gaining share from. Is it related to particular price points, particular channels? What's the consumer doing in terms of private label? Any thoughts along those tangents? Thank you.

Sure, Robert. From a private label standpoint you're seeing small upticks in the US, but nothing significant. And I wouldn't say nothing that's overly concerning. A lot of our distribution gains recently have come from Duracell. We are gaining share as you've seen in the recent dataset. And we expect to continue to gain some distribution through the balance of Q4 as well and into '22. So a lot of great work from the team standpoint. I would say overall the competitive dynamic is healthy both we and our competitors are competing on innovation, on brand building, and advertising spend, which is a great place to be, it's creating a nice healthy category. And I think right now our teams are competing well, you're seeing that in the measured data and we expect that to continue.

Terrific. Thank you very much.

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

Thanks for your time this morning and once again for joining our call and your ongoing interest in Energizer.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.