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.

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 risks 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 file 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.

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 acquisitions 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 acquisitions 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 brands, we gained 2.2 share points 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…

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 the 6% organic growth in the prior year quarter. Robust demand and distribution gains in Auto Care delivered 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…

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.

[Operator Instructions]. The first question comes from Kevin Grundy with Jefferies.

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 are -- 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.

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 as pricing actions 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 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're 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 in 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 categories overall increase. And then, John, maybe in terms of the gross margin and commodity input.

Yes, Kevin, maybe I'll start a little bit. September was a really volatile month as we were 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 save initiatives. But we're expecting now about 150 basis points total margin erosion compared to the 100 that I saw. As we look at the full sort of impact to '22, a couple of points. I would say we are projecting cost pressures going into '22 about a little over 300 basis points of material and manufacturing inflation, about 150 basis points of transportation of impact and then 40 basis points of labor. I think I said a little over 300 material and inflation costs. It's close to 500 basis points in total.

Okay. 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.

Yes. In general, Kevin, it is going to flow down through the P&L. I mean we still expect on marketing spend to come in between that 5% and 6%, probably at the low end of that amount. And 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 put in place that 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.

The next question comes from Lauren Lieberman with Barclays.

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 you to project what happens with some of these material costs and so on. But as you think about building blocks or ability to rebuild margins, what are the key building blocks to be able to get there?

Lauren, I think in the near term, when we've seen the inflationary environment that we've seen initially our focus on making sure that we're dollar hold and then over time, where there's 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, if 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's additional opportunities for us to continue to drive efficiency that we're going to go after as soon as the operating environment permits it.

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 through next year?

Yes. 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's probably 3 things driving the balance right now. It's just overall cost is higher. So that's made -- the cost of what we're carrying is higher. There's 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 3 buckets as kind of 1/3, 1/3, 1/3 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.

The next question comes from Bill Chappell with Truist Securities.

Just maybe I'm oversimplifying the cost pressures. But I mean is it fair to say, I mean, you have priced 85% of your portfolio but the costs have kind of crept up further over the past 2, 3 months? And while you're going to pass on additional prices, the peak season for batteries is 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?

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 that will 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. And so any pricing that we've taken will have to be sufficient for now.

Okay. And then on the supply chain issues, I guess, are you -- when you're talking about freight and ports, are we primarily talking about Auto Care because I thought majority of your batteries at least in the U.S. are made in the U.S. And so I was just trying to understand if that's the issue or if there are some other issues that I might be missing.

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 it 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.

The next question comes from Andrea Teixeira with JPMorgan.

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 implied gross margin reduction for fiscal '22. Is that including, as you said, 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?

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 it 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 in the largest geographies first. We also went after the areas that were 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?

Yes. And Andrea, 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's no improvement or worsening anticipated in our plan for the year.

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

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 are going to head 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 do you think that some of those issues will kind of subside as we get 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 of CPG. So just wanted to get an understanding of how much visibility you have in terms of the business there.

Yes. Nik, I'll get started, and I'll have 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 rates. On the Battery side, we continue to be the branded cheerleader. We've mentioned previously, we're no longer providing overall category information, but we're confident we're the branded cheerleader in that space. In 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 rate 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.

The next question comes from Wendy Nicholson with Citigroup.

And that was actually a perfect lead-in to 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, et cetera, et cetera. So there's been a spike in sort of everything auto related, but you 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's 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?

Sure, Wendy. That is -- that business is doing very well for us. I mean if you look at the aggregation of the 4 categories that we participate in, it was up 3.5% for the 3 months ending in October. So that shows the strength that's continuing within those 4 subcategories. Over the 2-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 U.S., as we've 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 got 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 and 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.

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's 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.

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 and the category. And so you're seeing right now pricing on shelf and I'll just speak in general terms, in the 48-10 packs, up roughly 7% on shelf pricing. Pack sizes around 16, 20, 24, 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 set 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.

The next question comes from Rob Ottenstein with Evercore.

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 calendar is locked in? And is there any kind of flexibility that you can build into the promotional calendar given the margin pressures?

I'll answer that -- reanswer that question. Generally, I would say what we are doing is there's full price displays and then there's 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.

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

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

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

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 should change your thought process there.

I would say we have an emphasis right now. I think we're recognizing it in terms of our overall leverage levels that there's 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 with -- I would emphasize debt pay down for us for the foreseeable future, but still kicking around M&A as it becomes available.

[Operator Instructions]. The next question comes from Carla Casella with JPMorgan.

I know you've seen 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? Or would we revert back to more of a 2019 cadence? Or is it last year a good cadence to look at?

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

Okay. So not like shipments moving from 1Q into 2Q or vice versa, which I think is what happened last year or something like that?

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

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

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

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