Energizer Holdings, Inc 2026 Q3 Earnings Call

Please go ahead. Good morning, and welcome to Energizer's third quarter fiscal 2026 conference call.

Joining me today are Mark LaVigne, President and Chief Executive Officer, and John Drabik, Executive Vice President and Chief Financial Officer. In just a moment, Marc will share a few opening comments, and then we'll take your questions. A replay of this call will be available on the investor relations section of our website, energizerholdings.com. In addition, please note that our earnings release, prepared remarks, and a slide deck are also posted on our website. During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters. These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements.

Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC. We also refer in our presentation to non-GAAP financial measures. The 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 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 2025. With that, I would like to turn the call over to Marc.

Good morning, and thanks for joining us today. As in prior quarters, we posted prepared remarks on our website that provide a detailed review of our third quarter performance and our outlook. I wanted to begin with a few brief comments. As we move through fiscal 2026, our priorities remain centered on strengthening the earnings power of the business, generating strong free cash flow, and continuing to improve our balance sheet. In the third quarter, we delivered organic growth across both batteries and lights and auto care, while sustaining the margin recovery achieved since the beginning of the year. These results reflect the actions we've taken over multiple years to strengthen our brands, improve execution, streamline our cost structure, and build a more resilient organization.

While consumer demand moderated in the quarter, our business continues to benefit from the progress across key strategic initiatives, enabling Energizer to meaningfully outperform the battery category. We expanded distribution, advanced innovation, and made further progress on the transition of APS sales into the Energizer branded portfolio. At the same time, Project Momentum has improved our operational flexibility and positioned us to navigate a range of operating environments while maintaining a focus on profitability and cash generation. Looking ahead, we remain confident in our strategy and the actions already underway across the business. We expect strong fourth quarter earnings growth to be supported by productivity initiatives, supply chain optimization, and the work we have done throughout the year to strengthen the profitability of the business. We believe these actions position us well to continue creating value through strong free cash flow generation and disciplined capital allocation.

Thank you for your continued interest in Energizer. With that, let's open the call for questions.

Thanks. Good morning, Lauren. When we spoke in May, our expectation at that time was that the back half of the year would deliver around 4% organic growth.

Today, we expect the back half to be roughly flat to up 1%. Clearly there's been a change in the demand outlook. The primary driver behind this is in the battery category. At the time of the Q2 call, we expected the category to be roughly flat through the balance of the year. Since then, consumers have remained more cautious than we anticipated, and the battery category trends have softened by roughly 200 to 300 basis points relative to those expectations. Those items have been reflected in the outlook we've provided today. This is more of a category adjustment than it is really an Energizer adjustment. The business is actually performing well within the environment that we're seeing.

We continue to gain share, we're expanding distribution, we're launching innovation, and we're outperforming the category. While we've taken a more prudent view on our top-line demand, our confidence in the business has not changed at all. The actions we've been taking are working. We're improving the quality of the portfolio, rebuilding margins, and strengthening the earnings power and increasing financial flexibility. I would also point out the earnings and cash flow story remains very much intact. Gross margin has improved more than 430 basis points from first quarter levels. We expect fourth quarter gross margin to be north of 40%, and we expect 25% adjusted EPS growth at the midpoint in Q4. At the same time, we expect strong free cash flow generation and meaningful debt reduction.

All in, that's kind of the way we were thinking about the balance of the year and wanted to provide that outlook for Q4 as well as finishing up 2026.