Good morning. My name is Chad and I will be your conference operator today. I would like to welcome everyone to Energizer's First Quarter Fiscal Year 2023 Conference Call. All participants will be in listen-only mode. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to Jon Poldan, Vice President, Treasurer and Investor Relations. You may begin your conference.

Good morning, and welcome to Energizer's first quarter fiscal 2023 conference call. Joining me today 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. 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 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 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 fiscal year and all comparisons to prior year relate to the same period in fiscal 2022. With that, I'd like to turn the call over to Mark.

Good morning, everyone. Before we talk about the results of the quarter, I want to introduce Jon Poldan, who has been with the organization for 13 years. He is Energizer's Vice President and Treasurer, and he will lead our Investor Relations efforts going forward. Now on to the results. Our fiscal year is off to a strong start. During our call last November, we highlighted how the restoration of margins, free cash flow generation, and debt reduction were key focus areas as we commenced the new fiscal year. Our first quarter results demonstrate significant progress across all of these areas. Let me walk through how we've been able to get off to this great start. It all starts with our categories. In batteries, the category remains resilient despite the economic environment as it is an essential category for consumers. On a three-year stack, U.S. category value is up over 20% in the 13 weeks ended November with volume up over 4% during the same period. In the quarter, global category value was up almost 6% with volumes down roughly 3%, and consumers prefer our brands with Energizer outpacing the category. Our value share was up 1.2 points globally versus the prior year behind a strong performance in the U.S. Now turning to Auto Care. Category-leading indicators remained strong and each of our four subcategories has experienced double-digit value growth since pre-pandemic levels. Year-over-year, the category value grew over 3% with the benefit of pricing more than offsetting volume impact. While this is the smallest quarter of the year for Auto Care, both Armor All and STP grew share, including in the important appearance subcategory, which represents nearly half of our total Auto Care portfolio. As John will explain in a moment, our first quarter sales did not track with syndicated data across our categories. We mentioned last quarter that retailers entered the quarter with slightly elevated inventory levels, particularly in batteries, which partially contributed to that disconnect. As the quarter progressed, retailers also began to more aggressively manage inventory levels despite the strong consumer demand. After a strong holiday season, many of our customers were either below or at the low end of their historical inventory levels. While this impacted our net sales in the quarter, the strength of our categories, our performance at shelf, and lower retail inventory gives us the confidence in delivering our full-year outlook. Against the backdrop of those strong category fundamentals, our focus on restoring gross margins has begun to pay dividends. First, let's cover pricing. As we discussed in previous quarters, we have taken multiple rounds of broad-based pricing across both Battery and Auto Care to offset the inflationary headwinds we were experiencing. And we expect to continue to benefit from favorable comps in the first two quarters of the fiscal year. Looking ahead, any additional pricing actions are expected to be more targeted in nature. In addition to pricing, savings from the initiatives under project momentum have driven gross margin improvement year-over-year as benefits from reengineering our products, consolidating suppliers, and improving labor efficiency are beginning to flow through. The Auto Care business has been a point of emphasis as gross margins were impacted significantly by inflation and is one where we are already making great progress. Our considered efforts around pricing, combined with the benefits of project momentum contributed to a significant improvement in segment profit in the quarter. Project momentum is not just improving gross margin; it is also driving much improved working capital efficiency, which John will provide more detail on later in the call. The combination of our expanded margins and leaner balance sheet helped to generate over $150 million of free cash flow in the quarter, which we used to pay down over $100 million of debt in the first four months of the year. As we look ahead, debt pay down continues to be our primary capital allocation priority. Now let me turn the call over to John to provide additional details about our financial performance.

Thanks Mark and good morning, everyone. I will provide a more detailed summary of the quarter and update on project momentum and some additional color on our outlook for the remainder of the year. For the quarter, reported net sales were down 9.6% with organic revenue down 5.4%. Our initial outlook for the quarter was for low-single-digit organic declines, due to lower current year volumes in response to pricing actions over the last year, the exit of lower margin battery business and slightly elevated retail inventory levels entering the quarter. While our categories performed in line or better than our original expectations, retailer inventory management across both Battery and Auto Care businesses at the end of the quarter created additional headwinds of 300 basis points to 400 basis points. The volume declines in the quarter were partially offset by roughly 950 basis points of pricing. Adjusted gross margin increased to 150 basis points to 39%, driven by pricing actions, savings generated from project momentum, and the benefit of exiting that lower margin battery business in the quarter. While the cost environment has stabilized, we continue to see elevated operating costs, including material and ocean freight costs and unfavorable currency impacts versus the prior year quarter. Adjusted SG&A increased $2.5 million, primarily driven by higher stock compensation amortization, factoring fees tied to rising interest rates, and depreciation expense related to our digital transformation initiatives. The increases were partially offset by project momentum savings and favorable currency impacts. A&P as a percent of sales was 7%, up from 6.1% in the prior year. The increase was driven by planned brand support and shifting spend from Q4 of the prior year to Q1 of this year to better align with the holiday season. Interest expense increased $5.9 million year-over-year, due mainly to rising interest rates, partially offset by lower average debt outstanding. We delivered adjusted EBITDA and adjusted earnings per share of $145.6 million and $0.72 per share respectively. On a currency-neutral basis adjusted EBITDA and adjusted earnings per share were $155.6 million and $0.83 per share respectively. We also generated over $152 million of free cash flow in the quarter, nearly double our long-term algorithm of 10% to 12% of net sales. We achieved these excellent results by combining strong operating earnings with a nearly 250 basis point improvement in working capital as a percent of net sales since the start of the year. In the quarter, we paid down over $50 million of debt through a combination of term loan retirement and open market bond repurchases. Our strong cash flows also enabled us to pay down another $53 million of the term loan in January. Including this payment, we have paid down over $100 million of debt in the first four months of the fiscal year and over $170 million in the previous five months. Our debt capital structure remains in great shape. With a weighted average cost of debt of around 4.75% and 87% fixed with no meaningful maturities until 2027. Project momentum is also off to a solid start in the quarter with savings of $7.3 million. Our plans are focused on generating savings through network optimization, strategic sourcing efforts and SG&A savings enabled by our digital transformation. As previously mentioned, we expect the benefits of these efforts to impact each of our segments. The program is on track to deliver $80 million to $100 million in run rate savings with roughly 80% of those benefits impacting gross margin and the remainder recognized throughout the rest of the P&L. We anticipate $30 million to $40 million of those savings will benefit our results in fiscal 2023. Working capital improvements are also off to a fast start with project momentum generating over $20 million of improvement this quarter, bolstering our efforts across inventory, payables, and receivables management. We continue to expect our initiatives to deliver over $100 million in working capital improvements over the life of the program, further supporting our free cash flow efforts. And finally, I would like to provide additional color on our outlook for our second quarter and the remainder of the year. We expect our top line in the second quarter to continue benefiting from pricing actions, partially offset by lower volumes with organic growth in the low to mid-single digits. On a reported basis, we expect reported revenue of flat to low-single digits. While our cost of goods will continue to reflect the negative impact of inventory previously built at higher total costs, our gross margin should benefit from both pricing actions and project momentum savings with gross margins expected to improve by 150 basis points to 200 basis points from the prior year quarter. We expect A&P as a percent of sales to begin consistent with investment levels in the prior year quarter and SG&A roughly flat on a dollar basis. Interest expense is expected to be up $4 million to $5 million from the prior year, driven by higher interest rates and partially offset by lower average outstanding debt in the quarter. And finally, at current rates, we forecast currency headwinds to impact the quarter's pretax earnings by approximately $8 million to $10 million. We remain on track to deliver the full-year as guided in November. Despite top line softness in Q1, we still expect low-single-digit organic net sales growth led by pricing and recovering category volumes as we progress throughout the year. Pricing, mix management, and project momentum savings are expected to result in improved gross margins of 100 basis points to 150 basis points year-over-year. We've also seen a weakening of the U.S. dollar relative to a number of our currency exposures and now expect full-year negative impacts of $50 million on the top line and $20 million on pretax earnings. Combined with continued cost management down the rest of the P&L, we are reaffirming our outlook for adjusted EBITDA in the range of $585 million to $615 million and adjusted earnings per share of $3 to $3.30, both of which represent in excess of 9% growth at the midpoint on a currency-neutral basis. Now, I'd like to turn the call back over to Mark for closing remarks.

Thanks, John. We delivered a strong first quarter. Project momentum is already delivering savings, and we remain confident the program will achieve $80 million to $100 million in run rate savings, and over $100 million in working capital improvement. Our ability to execute projects like momentum and our digital transformation positions Energizer to deliver for our customers and consumers while also delivering our financial algorithm and driving long-term shareholder value. With that, I will open the call for questions.

Thank you. We will now begin the question-and-answer session. The first question will be from Lauren Lieberman with Barclays. Please go ahead.

Great. Thanks. Good morning.

Good morning.

Good morning. I've received several inquiries today regarding foreign exchange being less of a challenge for the full year. I'm interested in your thoughts on that decision and why there wasn't an improvement in the range considering foreign exchange is less unfavorable.

Sure. Let me talk just specifically Lauren to the FX treatment. So the currencies that move the most for us were euro and pound. Those are also our largest hedge position, so coming into the year, we had a pretty significant offset when those turned over in the last couple of months, the benefits that you're seeing on the top line aren't going to flow through the bottom line as much because the hedge actually reverses. So and as you know, we average into these positions, so it's going to take a little while for some of those benefits to come through. And as we talked about, we're only getting $5 million to $7 million of benefit on the bottom line incremental to, let me say, versus the downside that we expected originally. So we're picking up only $5 million to $7 million, so not a significant change overall to our outlook for the year.

Okay, great. I've received another question regarding the gross margin commentary for the second quarter. It seems that the expansion is about half what I projected in my model for that quarter. Is there any timing issue affecting the gross margin buildup? I know this quarter exceeded expectations, but could you also share insights on the second quarter outlook?

Yes. Well, 2Q, I mean, partially you get mix impact, so it's going to be more Auto than Battery. It's also one of our smaller quarters, we expect to be 150 basis points to 200 basis points better than last year. So I think a lot of the improvement that we've been seeing will continue to flow into the second quarter. And then as we go throughout the year, we're still expecting 100 basis points to 150 basis points of total improvement. So we expect pretty good improvement in Q2 and then full-year improvement to be in a pretty good place.

Okay, great. Can you provide some commentary on the volume in relation to the inventory destocking and exits you've mentioned? I'm interested in understanding the elasticity you are observing in the market and how it aligns with your expectations. I know the market share performance is positive, but how would you describe elasticity? Thanks.

Yes, Lauren, I believe we're off to a strong start for the year and it's mostly in line with our expectations. The one unexpected issue we encountered was how closely retailers managed their inventory during the holiday season. However, in terms of elasticity, both categories performed exceptionally well, with Batteries increasing nearly 6% and Auto Care rising 3%, which exceeded our expectations. Our Batteries are gaining market share, indicating that we're outperforming in that category. From an elasticity perspective, both categories appear to be performing better than our historical data suggested. We feel confident in our position, and as John mentioned, we're experiencing improvement in margins along with healthy free cash flow, allowing us to reduce debt. We're off to a promising start, and while we acknowledge that there's more to come this year, we're pleased enough to reaffirm our outlook and have begun the year positively.

Okay. All right. Thanks so much. I'll pass it on.

The next question will be from Bill Chappell with Truist Securities. Please go ahead. Bill, your line is open. Perhaps you're muted on your end. Please proceed.

Can you hear me?

There we go. Hey, Bill.

Thanks. Good morning. I'm trying to understand the inventory reductions at retail during the quarter. Did you anticipate this when you provided guidance in November? Is this in line with your expectations, or were you surprised by how significant the reductions were? Is this impacting the cushion you had planned for the year? Also, do you expect to offset this with Battery sales during the off-season?

There are a few different aspects to your question, and John and I can address them separately. To start, we anticipated a low-single-digit decline for the quarter, but we ultimately experienced a mid-single-digit decline. This was primarily due to changes in how retailers managed their inventory, especially in December as we approached the holiday season. The decline we observed is fully explained by these inventory management practices. We're beginning to see some recovery; specifically, some retailers are now far below their historical averages. For those retailers on the more extreme end, we noticed a reversal starting in January, moving closer to normalized levels. For others who trended down to the lower end of their historical range, the change wasn’t as sudden, but we expect them to gradually return to their typical performance over the year. We see signs of this already, but December did show a notable shift. Additionally, your question touches on the differences between scanner data and our results, and John can provide a breakdown of those distinctions, as they are related but not the same.

Many of the changes align with our outlook, but there was also some incremental variation. We observed lower current year volumes and unit responses to pricing actions as anticipated in our outlook. The shift in holiday orders had a noticeable impact, and we discussed exiting some low-margin battery business as part of our margin management strategy. That decision was beneficial for our margins, although it did affect our top line. Additionally, track channels performed very well, but non-track channels underperformed, contributing negatively to our overall results.

Got it. Yes, and then just a follow-up on Auto Care. What are your expectations for the upcoming season, considering that in the four or five years you've owned this business, there has never seemed to be a normal year? We've dealt with weather issues, COVID, or both. So what does a normal year look like? Are we expecting a normal year? Will there be easier comparisons? How are you approaching this year?

Well, from the overall year, we expect organic growth and then we're going to expecting organic growth in both auto care and batteries, which is built into the outlook that we provided. You're right, every year plays out a little bit differently than the previous year and certainly that as expected. But when we go into the year, you followed us long enough to remember when there's been a particularly bad weather year for A/C Pro. We modeled what we would consider to be sort of normalized demand. And so it's not an extreme heat; it's not extreme cold. So we moderate in terms of what the expectations are in that organic growth call, we do expect volumes to be down, but that's consistent with batteries as you work our way through the fiscal year. Pricing is really going to carry the day from an organic growth standpoint, volume is going to pick up as you progress through and by the time you get to sort of Q4, you're going to be at flat volumes and then you're going to move forward on kind of a normalized category basis from that point forward.

Got it. Thanks so much.

Thanks, Bill.

Thanks, Bill.

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

Hey, good morning, folks.

Good morning, Jason.

Good morning.

A couple of quick questions. First, I don't understand this timing on holiday orders. Can you provide a little more detail on that?

You recall, Jason, in Q4, we talked about we were going into the holiday season slightly elevated inventory levels. There was a pull forward of some orders into Q4 from Q1. We noted that on the previous call. That was at least part and that was a known item as we provided outlook for the low-single-digit declines in Q1. The incremental piece to that is related to retailers was the inventory destocking that went on as we got into December. They were separate in terms of what caused the impact on our P&L.

Yes, yes. I got that. Okay. And then looking at your gross margin bridge, this is a lot of volume decline, yet you're not calling it out as a drag on gross margin. Why are you not seeing more substantial deleverage there?

I believe we are addressing costs comprehensively. The project momentum is targeting many of these areas. While we've noticed some impact, we experienced similar challenges last year, which have carried over into this year. Overall, I feel we're in a fairly strong position.

Okay. And gents, it sounds like you're looking for your categories to firm biometrically as the year progresses. Yet you came in highlighting now consumption level from both the value and volume perspective are still above pre-COVID levels. Why wouldn't we expect a continued reset lower? In other words, why shouldn't we expect volumes to remain a headwind for much longer than your guidance suggests?

Well, I think we're seeing the categories perform in a really healthy way, Jason. I think as we've had negative volume trends as we did in this quarter, but we just expect them to moderate as we get through the quarters. I mean, one, you're going to see pricing settle into the market. Last year was a very active year from a pricing standpoint that obviously has an impact on consumer behavior, you have this general macro trend that's impacting consumer behavior. But really, I think at the end of the day, batteries in particular are an essential category to consumers; they continue to shop the category and it showed those healthy trends as we got through holiday and we expect. And also as you get through the year, Jason, you're going to have mitigating impacts of the COVID comps as you work your way through this fiscal year because at this time last year, we were still having a little bit of elevated demand from COVID not to mention some of the overall category dynamics.

Okay, okay. Thank you.

Thank you. The next question will be from Nik Modi with RBC Capital Markets. Please go ahead.

Yes, thank you. Good morning, everyone. I was hoping you can comment on inventories, but not necessarily battery inventories. I'm more worried about end market demand and inventory levels for the batteries go into. So I'm just curious kind of how you guys think about that? Have you kind of thought about that in terms of the guide and would that present any potential risk down the road?

Are you talking in terms of the consumer inventory levels, Nik?

Yes, I'm referring to the end market demand for controllers, TV remotes, and similar products. Retailers are clearly reducing their inventories overall. However, I believe there is still some potential for them to hold back on certain discretionary items. That's the essence of my question. It's not about the painter inventory; it's more focused on the retailer inventories for the products that use batteries.

Understood. Well, I do think Nik in terms of as you worked your way through the pandemic, you saw a great deal of pull forward of consumers purchasing devices as they were stuck at home during the pandemic and gaming controllers are certainly one of them. When consumers buy devices, the great thing is that just expands the installed base that they have in their home. And 60% of the devices that consumers have in their homes take primary batteries. Those devices are still there. What's really going to drive our consumption is going to be the usage of those devices. There is an ample installed base of devices already existing within consumer homes to more than drive our categories. What we want to make sure is one, as devices consistently, they'll roll off in terms of usage or some devices convert into battery onboard, but you see new devices come online. And I would say that what we're seeing in new devices is roughly the same percentage of those devices take primary batteries. So there's a constant replenishment in consumers' homes for batteries. And then as they engage with those devices, as they utilize them more, then the change-out frequency increases and they consume more batteries. The consumption of batteries per household is still up. We would expect that to continue. We just would expect the growth to moderate. I think we said a number of times the category is larger. Coming out of the pandemic from a growth rate standpoint, it will revert back to where it was pre-pandemic, but also is a larger base. So I would say from a device universe standpoint, from an installed base standpoint, categories as healthy as it's been in a long time.

Very helpful. Thank you. I'll pass it on.

Thank you. The next question will be from Andrea Teixeira with JPMorgan. Please go ahead.

Thank you. Good morning, everyone. I have a question regarding the inventory related to the non-tracked channels you mentioned. Was this primarily based on sellout? Or was there any inventory drawdown with your largest e-commerce partner? If so, is that situation mostly normalized now? Additionally, regarding distribution, you gained significant market share during COVID. Do you anticipate any changes in that trend as you are likely lapping much of that share this year? I'm interested in understanding what's happening from a distribution perspective. Thank you.

Andrea, on the first point, it was mostly sellout, but probably both impacted the performance there.

And on the distribution side, you're right. I mean, we did gain a lot of distribution during the pandemic. We've had a very long run of share gains, particularly in the U.S. Any distribution gains or losses is built into the outlook we provided, I think we've mentioned a number of times share is not the ultimate objective for us. I think if from a share standpoint of if we were to have share moderate, if we were even to lose a little bit of share, but we were able to improve the financials of our business, that's an okay trade-off for us. So it is not something that we're focused on in terms of preserving it. We're more focused on improving the financials and driving gross margin improvement. But thus far we've been able to hold share while doing that at the same time, which is a great place to be in.

No, that's fair. Can you clarify the commentary about exiting one of the contracts? If I understood correctly, could you explain how that change impacted the quarter and what the implications are for the next few quarters?

The OEM business has very low or no margin on the battery side. Therefore, it won't be very noticeable to you beyond what is reflected in our financials.

Right, you are not on the compliance?

It will continue through sort of at that pace.

Okay. Alright, thank you.

The next question will be from Kevin Grundy from Jefferies. Please go ahead.

Hey, good morning, everyone. The question on the guidance and I'm just trying to sort of reconcile a bit the tone on the call versus the way the market is digesting your quarter today. It sounds like from your perspective is currency is a little bit better, but you're still within the range. Are you toward the midpoint of the range? Are you toward the high point of the range? Is it currency got a little bit better, but the first quarter maybe a little bit worse? So it kind of gets you squarely back to the midpoint of the range. I'm just trying to sort of understand based on what you know and understanding the volatility of the environment? How are you guys just, kind of, digesting the quarter relative to the full-year guidance? And then I have a follow-up on Nielsen data.

Yes, Kevin, I may repeat something I've mentioned before, but I'll start and then John can provide more details as we discuss the outlook. From our perspective, we're off to a fantastic start. Categories are performing better than we expected in Q1. We did encounter an inventory issue with retailers that we're addressing, and we're beginning to see improvements as we move into Q2. Our margins have exceeded our plans due to effective pricing strategies and strong project momentum, which is progressing quickly. We have a clear path to achieving $80 million to $100 million in savings. Working capital is also off to a strong start with $21 million, and we're anticipating a total improvement of $100 million throughout the program. All of this gives us significant confidence as we move forward this year and sets a strong foundation for 2024. We feel optimistic about the beginning of the year, although there is still much work ahead. The only unexpected development has been in retail inventory, but we are working through it this quarter. John, do you have any specific details regarding the outlook?

The only thing I would add, Mark, so Kevin, you hit on the FX and so a slight benefit from what we originally had in our outlook. I'd also say if you look at the way we're calling gross margin for the full-year, there's a little bit of headwinds going into the back half and what we're seeing is some of our raw material costs are a little bit higher, as well as some of the energy surcharges that we're seeing. So we're still calling for 100 basis points to 150 basis points up, but probably not as much push here as we had if it was just the FX and that's not a little bit headwind.

Okay. That's helpful. One follow-up, and I would also agree with Lauren's point earlier, I think some of that around transactional FX, I think is probably driving some of the disappointment. But sitting on the side, just tying together some of the commentary around the Nielsen data and then the retailer commentary in destocking? Should we expect now given your commentary that you feel comfortable, it was sort of a seasonal sort of dynamic that your U.S. business should start tracking much more closely to what we see in the Nielsen, because obviously the gap was very, very wide. So I'm just trying to connect your commentary with you seeing reasonably comfortable with where they are now. So is that to say that investors should be relying much more closely again on sort of what we see in terms of retail takeaway and the Nielsen going forward, then I'll pass it on. Thank you.

Yes, Kevin, it's a great question. I mean, I think certainly as inventory levels would recover, you would expect Nielsen, as well as our financial results to track more closely together. But I caution a little bit because there are other things which impact our business, both positively and negatively at times and one is the on-track channels that we've mentioned. And the other piece is the international part of our business, which is frequently not captured in that scanner data. So I would say, yes, as inventory levels, sort of, recover that there will become closer alignment, how closely is remains to be seen both given, sort of, the ordering patterns of the quarters, but then also the other untracked pieces of our business, which impact the overall financials.

Okay. Understood. Thanks for the time and good luck.

Thanks, Kevin.

And the next question is from Rob Ottenstein with Evercore. Please go ahead.

Great. Thank you very much. A couple of follow-ups from the opening commentary. Can you give us maybe a little bit more color on the plan savings, what particular operations, functions are involved? And maybe most importantly, are those savings going to fall to the bottom line? Are they net of reinvestment in some of the systems improvements you're talking about? So that's the first question. And then possibly related to that, I was just wondering if you could give us more detail, more specific detail on the working capital programs and other debt pay down programs and given everybody's desire right, to manage working capital. What gives you the confidence that you're able to execute on them? Thank you.

There's a lot to unpack, Rob. I'll start addressing different points and we can focus on areas we might have missed. Just to remind everyone, the overall details of the program indicate that we're targeting $80 million to $100 million by the end of 2024. The cost to implement this program is about 50% of the savings. In Q1, we've already achieved $7 million in savings and $21 million in working capital benefits. We anticipate $30 million to $40 million in savings from the program in fiscal '23, with approximately 80% of that contributing to gross margin and 20% to SG&A. The remaining savings will be realized into '24, and we aim for these to positively impact the bottom line. However, I want to be cautious about making predictions for '24 too early. The program is designed to enhance margins and improve the company's earnings as we progress, ultimately driving additional earning capacity through '24 and '25.

And John, maybe in the working capital, kind of, the details of that.

Yes. The only thing I’d add to that Mark is on the $30 million to $40 million, that's going to drop. And that really is very much in gross margin that's helping us drive those gross margin numbers this year. And offsetting some of those inefficiencies in my comments, some of those volumes came down to an earlier question. On the working capital, Robert, we've really prioritized inventory and continue to do that even outside this program. Just over the last quarter, we've taken out close to $100 million of our working capital, we were able to go after inventory AR and AP, it will continue to be a high focus. I think you'll see some normalization as we go throughout this year, this was a very good quarter for us and obviously close to 20% free cash flow as a percentage of net sales, we're calling for more like 10% to 12% for the full-year and I think that'll give us the opportunity to really fund the momentum project in the back half of the year. So free cash flow is really a positive number for us this quarter and we expect it to be really strong throughout the rest of the year. As far as debt pay down, still number one priority for us for capital allocation. As we talk about in the prepared remarks, we paid almost $170 million over the last five months. So something we'll continue to focus on as we go throughout the year.

Have you kind of disclosed and had approved your working capital objectives with your supply chain? Alright, because there's two sides to every kind of transaction?

Understood, Rob. I mean, there's certainly a counterparty in some of these changes we're trying to drive through, but we have confidence in our ability, I mean, some of the things are just better internal working capital management, which are sort of unilateral actions we can take and have taken to implement. But then it's also working with your counterparties to improve your working capital and we certainly have confidence in our ability to do that.

Terrific. Thank you very much.

Thanks, Robert.

Thanks, Robert.

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

Hi. This is Mary on for Bill. Thanks for taking our questions. So first, I know you touched on some of the value share increase is in the quarter, but are you seeing any signs of trade down to private label?

We are not. Private label, particularly in the battery category is basically flat. You're seeing some increases in international markets, but as of now private label is just staying consistently flat in the reporting periods we've seen thus far.

Got it. And I know that reduction is your primary focus, but is there any potential for M&A? And if you could share your expectation for debt reduction for the year if you have one?

I think with our stated priority of debt pay down, I mean, M&A would be on the sideline. I mean, I think, it's very difficult to speak in absolutes with something like M&A, but with our stated priorities and our point of emphasis of paying down debt, M&A would certainly be a secondary consideration right now for the business.

And we're looking to pay down around a half a turn from the beginning of the year and that's both through debt pay down and earnings growth.

Great. Thank you very much.

Thanks.

Thank you. Can you clarify how much of the debt reduction was from bonds compared to the term loan? Additionally, in each of the quarters when you executed buybacks?

Yes. In the first quarter, it was about half and half bonds versus term loan. And then when we paid down, it was all term loan to start the second quarter.

Okay, great. You mentioned that there were some timing differences in brand support this quarter. As we approach spring, summer, and the next holiday season, should we expect any changes in your brand support strategy? Is this influenced by the situation with the retailer, or can it be planned a month in advance? Was this change unexpected?

No, it wasn't a surprise. Last quarter, we had talked about shifting some of this into the holiday season; that's why you saw it higher. I think in, general, our biggest quarters are going to be first quarter and third quarter because you've got the holiday for battery and then you've got the summer for the auto care. So I would expect as we talked about 5% to 6% for the full-year, but you're going to spike in the first and third quarter, you'll be the lowest in the second and you'll be also lower in the fourth.

Okay, great. And then could you give a little more clarity, you mentioned about some cost, you made some comments on the cost and you called a material ocean freight. Can you just talk about any more color you can give there? And is it still inflationary and when we should see the cost come down and how much of that is because what you've locked in versus just where the markets are?

Well, so we're about 75% locked for the year in our total cost positions and that's inventory on hand and what we've already experienced. So we're in a pretty good shape for knowing what's coming down at us for the rest of the year. What we are seeing is a little bit of headwinds in some of these metals really on the battery side. So zinc, lithium; we're also seeing energy, which energy impacts our own plants as well as some of the conversion costs for those metals. So all of that's a bit of a headwind for us as we're building this next round of inventory for the back half. But we've seen ocean freight moderate. Now we had kind of anticipated some of that in our outlook. So it's not a big upside to what we were originally calling, but it's still positive. And then I did call some outperformance in the first quarter, warehousing and distribution, which was mostly in North America, and that also was a little bit lower than we had anticipated. So a positive there.

Okay. That's great. Thanks.

The next question is from Hale Holden from Barclays. Please go ahead.

Good morning. I just had two quick ones. You called out in the script negative headwinds from higher factoring rates. And I was wondering if you could sort of give us a sense of what that looked like and if it changes your view on whether factoring is an attractive source of cash?

Yes, that's a good question. We called it out because that factoring goes through SG&A. And it is kind of variable rate, so we are looking at whether we can optimize that and I think there's to the extent that we use it, it might be less. We'll also look to use pro. We have multiple programs; we'll try to find the ones that are the best for us, but it is something that we're evaluating.

Great. The second question was, I was wondering if you could tell us which bonds you bought back in the fourth quarter. I can wait for the queue if you need me to.

Let me follow-up with you on that one; I get you the details.

The next question is from Brian McNamara from Canaccord Genuity. Please go ahead.

Hey, good morning, guys. Thanks for taking the question.

Good morning.

I hate to beat a dead horse on the inventory levels. You guys mentioned the stocking at retailers I'm curious which business are channel inventories in better shape at the moment, auto care or batteries? And then secondly, I'd be curious your opinion of consumer inventory in terms of pantry loading or lack thereof in both businesses? Thank you.

No, we're happy to revisit this obviously it’s an important point. I think from a consumer standpoint, we continue to see consumers buying for immediate needs. So we do not anticipate nor are we seeing that pantries are loaded from a consumer standpoint. They are migrating either to larger pack sizes or smaller pack sizes depending upon the individual consumer and value means something different to most consumers. But in the overall research that we're seeing, we are seeing that a very high percentage of consumers are buying for immediate need. Retailer standpoint, when you go October, November, December, it's a critical quarter for batteries. You tend to see inventory levels shift quite a bit during that time period. We are now entering peak season for auto care, so it will be inventory builds as we work our way into the spring season, which Q2 and Q3 tend to be the big quarters for that business. So I would say we're seeing a recovery on the battery side, which was the main impact that you saw in Q1. But in auto care, we're also going to see a recovery, but that's also just going to be because you're heading into peak season.

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

Thanks once again for joining the call and your ongoing interest in Energizer. I hope everyone has a great day.

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