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Energizer Holdings Inc
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Good morning. My name is Joe, and I will be your conference operator for today. At this time, I would like to welcome everyone to Energizer’s Third Quarter Fiscal Year 2022 Conference Call. [Operator Instructions] After the speakers’ remarks, there’ll be a question-and-answer session. [Operator Instructions]
As a reminder, this call is being recorded. I would now like to turn the conference over to Jackie Burwitz, Vice President, Investor Relations. You may begin your conference.
Good morning. And welcome to Energizer’s third quarter fiscal 2022 conference calls. 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.
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, 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. 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 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 2021.
With that, I’d like to turn the call over to Mark.
Thanks, Jackie, and good morning, everyone. I want to start the call by thanking the Energizer team for their continued commitment and passion to serving our consumers and customers across the globe.
Starting with a few headlines on our results in the quarter, where our business performed at a high level and we delivered another solid quarter. On the topline, our pricing actions and operational execution generated 4% organic revenue growth.
The combination of our pricing, productivity and digital transformation initiatives are also creating momentum in gross margin, driving 120 basis points of expansion in the quarter and adjusted earnings per share were $0.77, an increase of 4% from the prior year. Our strong earnings are a testament to our relentless focus on delivering results in a challenging environment.
Before turning it over to John for details on the quarter, I want to provide some color on three areas, macro trends influencing consumer demand, the health of our categories and our key focus areas for the balance of the year and into fiscal 2023.
Starting with a macro trends which emerged in the quarter, rising interest rates and increasing prices in virtually every aspect of consumers lives have led to declining consumer sentiment and shifting shopping habits.
Consumers started to prioritize their spending in the third quarter, putting critical categories like rent, food, gas and utilities first, and then moving to essential categories like Batteries, while deprioritizing categories they deemed non-essential.
More specifically in our categories, in Batteries, while category value decreased approximately 4.5% in the latest 13 weeks, the long-term fundamentals remain strong. Today consumers own more devices than pre-pandemic and the average number of Batteries that typical consumer purchases has increased in that time. As a result, the category is meaningfully larger than prior to the pandemic with value up over 14% on a three-year stack basis.
In the most recent data, the category trends are being impacted by the macro environment I just mentioned, although value is outpacing volume as a result of pricing taken across the category. Our business continues to outpace the category resulting in a 2.5 sharepoint gain versus the prior year.
During that same period, we experienced value growth driven by pricing, expanded U.S. distribution and strong performance across our key international markets. As we begin to lap these distribution gains in the fourth quarter, we anticipate our performance to roughly mirror the category on both a volume and value basis.
Now turning to Auto Care, where the long-term fundamentals of category health are also strong, with growth in both the number and average age of vehicles in the carpark, resulting in category value growth of nearly 26% on a three-year stack bases.
In the most recent three-month period, the category grew 4% in value, primarily from pricing and refrigerants, and growth of Performance Chemicals. Volumes in the quarter were impacted by some of the same macro economic factors I previously mentioned, which cause consumers to defer certain types of vehicle maintenance.
As an example, our refrigerant segment experienced a volume impact from consumers deferring maintenance. When you combine this trend with the cool start to the selling season, we saw lower than expected replenishment. This drove nearly all of the year-over-year decline in our Auto Care net sales.
Looking at our other Auto Care segments, we experienced strong growth in Performance Chemicals as consumers look to products to extend vehicle mileage and performance. Appearance chemicals, our largest sub-segment also grew in the quarter behind our Armor All brands. This is on top of 16% organic growth in the prior year. Fragrance declined as consumers prioritize spending away from this discretionary category in favor of more essential needs. And finally, our international auto expansion plans continue to pay dividends, where we have driven double-digit growth in the quarter.
While we expect volatility to continue, we have the right portfolio of iconic brands to maintain our connections with consumers. Our broad range of offerings in Batteries and Auto extend from value brands like Rayovac and Tough Stuff to premium brands like Energizer and Armor All. While private label is growing across many consumer categories, we saw private label declines in both Batteries and Auto Appearance in the quarter.
Now turning to the progress we’ve made in the focus areas we highlighted last quarter. As we previously noted, we’d redoubled our efforts to address gross margin across our business and regions. This program has generated an extensive list of initiatives to drive improved gross margin, while continuing to capitalize on growth opportunities. It has shown early signs of success and we expect additional gross margin expansion in fiscal 2023.
Equally important the reduction of our working capital has begun, with our improved visibility from our digital investments, as well as stability in the global supply chain, we reduced our levels of inventory over the last two months by $50 million from the peak in May to the end of July. We expect this trend to continue resulting in a resumption of our historical free cash flow generation beginning in the fourth quarter.
With that, I will now turn the call over to John who will dive deeper into our financial performance for the quarter and provide more details about our outlook for the fiscal year.
Good morning, everyone. First, I will provide an overview of our financial performance for the quarter, followed by a discussion of our full year outlook. Starting with revenue, reported sales this quarter were up 1% to $728 million and organic sales were up 3.8%.
Breaking those results into our two segments. Battery and Lights organic revenue increased 7.4%, as the favorable impact of pricing and distribution gains offset the elevated demand in the prior year, as well as expected lower volumes due to our pricing actions.
As a reminder, the benefits of our pricing actions are broadly in place and fully benefiting our results, including the first round of increases executed by December 2021 and the second round, which were executed by mid-March of 2022.
Auto Care organic sales declined 5.1%, largely due to lower than expected sales of premium refrigerants, as well as our decision to deemphasize low margin straight gas offerings. Despite the very high temperatures across the country in June, we believe elevated gas prices had a negative impact on miles driven, customer foot traffic in the category and a tendency for drivers to defer non-critical maintenance. Despite these challenges, as Mark mentioned, our Auto Appearance business performed well and our Performance Chemicals led by STP delivered double-digit growth in the quarter.
Adjusted gross margin increased 120 basis points to 40.4% as the price increases in both Battery and Auto Care more than offset input cost inflation, which included material, transportation, labor and currency headwinds.
While we are seeing early signs of stability in many of our input costs, inflationary pressures totaled roughly $130 million through the first nine months of the year and we anticipate continued headwinds to impact the fourth quarter. With successfully implemented pricing, we expect full year gross margins to be roughly in line with our previous outlook of 37% to 38%.
A&P as a percent of sales was 5.3% for the quarter, compared to 6.1% in the prior year. On an absolute dollar basis, A&P spending was $5.6 million lower. We now expect A&P as a percent of sales for the full year to be slightly below our 5% to 6% range.
SG&A as a percent of net sales was 16.3%, up from 14.8% in the prior year. On an absolute dollar basis, SG&A increased $12.3 million, due primarily to environmental costs related to a legacy facility, recycling fees and higher IT spending related to our investment in digital transformation.
Total segment profit was up $10 million, with Battery and Lights up $28.8 million and Auto Care down $18.8 million. In Battery and Lights pricing and new distribution more than offset higher input costs and while pricing benefited our Auto Care segment, higher input costs and lower volumes more than offset the benefit.
Interest expense increased $2.5 million in the quarter related to the $300 million bond issuance in March. We ultimately use the proceeds to term out a revolver balance. Our debt capital structure is now at 5% fixed at a blended average interest rate of 4.2%, with minimal maturities prior to 2027, which positions us well in the current rising interest rate environment.
Adjusted earnings per share were $0.77, an increase of 4% from the prior year. This is inclusive of $12 million or approximately $0.13 of foreign currency headwinds that we experienced in the quarter. These results are a testament to our colleague’s relentless focus on continuous improvement across the business.
Turning to our outlook for 2022. I would like to compare our original guidance provided in November on our key metrics to where we now stand. In November, we indicated that organic revenues would be flat, while reported revenues would be negatively impacted by foreign currency headwinds of $20 million to $25 million.
In the second quarter, we revised our organic growth outlook up to low-single digits, which still holds. However, our reported revenues are now expected to be negatively impacted by approximately $60 million to $65 million of currency headwinds for the full year, $40 million higher than our original outlook.
Adjusted earnings per share and adjusted EBITDA are expected to be in the ranges of our initial outlook of $3 to $3.30 and $560 million to $590 million, respectively. However, we expect the impact of the rapidly strengthening U.S. dollar and our exit of the Russian market to result in headwinds for the full year of approximately $20 million or $0.22. Inclusive of these impacts, we are now expecting full year adjusted earnings per share and adjusted EBITDA to be at the low end of our previous outlook.
We are incredibly proud of the results that we have delivered in the first nine months of the year. Our team has done an excellent job holding to the original outlook despite currency headwinds and the unexpected exit from the Russian market.
Now I’d like to turn the call back to Mark for closing remarks.
Thanks, John. Our investment and the team’s work and dedication are evident in our results and have transitioned us into a much more resilient and agile organization. We’re well-positioned in the marketplace and remain confident that we are executing the right strategies to navigate the volatile macro environment and deliver on our long-term objectives.
With that, I will open the call for questions.
[Operator Instructions] Our first question will come from Bill Chappell with Truist Securities. Please go ahead.
Thanks. Good morning.
Good morning, Bill.
Hi, Bill.
First on FX and just kind of the expectation this year and maybe a little bit color on next year. Is there a better way to break out FX versus the Russia exit and then, I know there’s a or at least historically, there’s been a fair amount of hedging for currency that kind of rolls off as you move into the next fiscal year. So any way to kind of give us an idea with current spot rates, kind of what the headwinds would be for 2023.
Yeah. Bill, I mean, so the dollar is really appreciated pretty rapidly against most currencies in the third quarter. In total, we’re now expecting about 150 basis points to 200 basis points of headwinds for the full year. That’s versus our original view of like 70 basis points to 80 basis points. And that’s resulting in about $25 million to $30 million of earnings impact or about $15 million to $20 million more than when we gave our outlook last quarter. As you look into longer term, I think, what I’d say is, at current spot rates, we’re probably expecting around 250 basis points to 300 basis points of net headwind on the topline.
For -- going forward, you mean on a kind of annualized basis?
Yes. Yeah. On an annualized basis, that’s the current spot. Yeah. We’re looking at about three months or four months away. So we’ll continue to watch it. But it’s definitely a headwind.
Okay. And then moving to Auto Care, just -- Mark, maybe you can give us a little more color of kind of how you think it’s performing -- would last year be viewed as a difficult comp as we were reopening for the first time, was whether a bigger impact than you expected, are you seeing trade down faster, it’s just kind of the -- a lot of moving parts, so trying hard to see if this is an A rated, B rated, B+, B- that kind of thing in terms of expectations?
Bill, I think, as you know, weather plays a big component in the Auto Care business, when we were talking last quarter it was a colder start to the season and normally you have plenty of time to recover from that. In this season, what we saw is consumer behavior shifted around the same time that some of the heat hit, which as you know, impacts our refrigerant business the most.
I would say most of our organic declines in the quarter were related to the refrigerant business. So what happened is you had a colder start to the season, you then had consumers shifting more their behavior towards essential and vehicle maintenance -- not all vehicle maintenance is viewed as essential that consumers really migrated toward keeping their cars running and with refrigerant, there’s always the option to roll down the window. So I think from this standpoint, you did see consumers trade down a little bit in refrigerants. They also deferred maintenance.
Across the other part of the portfolio, though, with Performance Chemicals, you saw consumers really migrate to that categories, they were trying to get enhanced fuel mileage out of their vehicles and so you saw some nice growth in that business. Appearance grew as well, and as we mentioned, in fragrance, it -- consumers moved away from that, because it’s more of a discretionary purchase.
So I would say it’s a balanced performance by the Auto Care portfolio. You are going to be impacted by some of the consumer behavior. But at least half of the portfolio performed quite well in the quarter and most of the negative trends in this quarter were solely related to the lack of refrigerant replenishment that we saw.
Our next question will come from Lauren Lieberman with Barclays. Please go ahead.
Hey. Thanks. Good morning. I want to talk a little bit about Batteries, and I know you mentioned specifically that private label, there’s really been no change. But I was curious and how you’ve begun to possibly leverage your broader portfolio, if there’s anything you’re doing in terms of merchandising and putting more emphasis on Rayovac or incremental distribution for Rayovac, or any switching you’re seeing within the portfolio?
Yeah. Lauren, it is Mark. I’ll start there. I think the consumer right now is being impacted by inflation and the macro factors. And they are adjusting their shopping behaviors and focus on essential products. Batteries, as a category is viewed as essential. So, from that standpoint, the category is strong, our broad portfolio of brands obviously helps us and we can leverage Ever Ready and Rayovac has value brands within that portfolio.
Today we are not seeing trade down in any meaningful way inside the Battery category. You are seeing some evidence of pack size trade down. But from a brand trade down, you’re seeing Rayovac grow slightly, like, up 0.1 sharepoints and Energizer continues to carry our share growth within the category.
So thus far, certainly, not seeing it, but it’s something we’re watching very carefully. And as consumers or our retailers want to sort of emphasize the value end of the category, we certainly have a lot of assets that we can leverage to make sure that we’re meeting their shopper needs.
Okay. Great. And then on the advertising, it’s in millions of dollars, is not a huge change, but I was curious why the change in plans for spending, particularly as gross margin seems to be coming in we stronger and faster than I’d expected. But maybe it’s right as you had expected it to be?
It’s good question. All right. Well, we were -- when we’re looking for efficiencies within the organization. We really look everywhere. And in this case, I think, the point to emphasize is, there was no difference in consumer facing investment from an A&P perspective. Those efficiencies really came from nonworking dollars back of the house type spend. So from a consumer standpoint, they’re seeing very much the same this year as they did last year from us.
And so, given those savings have been realized, do you think now something closer to 5% is like a better range for you, because you’ve just on better efficiency or do you think you maintain the range and just had better quality spend at comparable levels to historical?
I think as we look ahead to future fiscal years, we always target to be in the range of 5% to 6% and adjust accordingly within that range. This year, obviously, there were a number of moving pieces, so we’ll be a little bit below that range this year. But for planning purposes, we always look at as a starting point 5% to 6%.
Okay. All right. Great. I’ll leave it and come back if there is time. Thanks.
Yeah.
Our next question will come from Andrea Teixeira with JPMorgan. Please go ahead.
Thank you. Good morning. Can you please elaborate a little bit more on how you were seeing Batteries and Auto Care categories consumption as you exit the quarter? I know you mentioned some deceleration for Auto Care, but just curious on Batteries? And can you also comment on the inventory levels and we all heard from the retailers trying to contain some of the inventory levels there? And given that you have a long shelf space, perhaps, seeing how these retailers can deal with that and how do you see the levels there? And also clarification to Bill’s question on FX, you did mention like the translation impact, probably, coming into fiscal 2023 200 basis points to 300 basis points. But if you look at how you have trans -- you multiply on the transaction side, how to think about that? Thank you.
I’ll start and then maybe I’ll turn it over to John, just in terms of how we’re looking at quarter-over-quarter trends within the categories. But let’s start with inventory levels. What we’re seeing at retail right now is, I think, we would define it as slightly elevated inventory levels.
We do understand retailers focus on inventory levels. And I think, as we watch it, it’s not anything that we view that’s going to be problematic in future quarters, but it is something we’re mindful of both Batteries and Auto Care slightly elevated.
In Auto Care, obviously, as we get towards the end of the season, retailers will starting to wind down some of their inventory levels in some of our main categories. But we don’t view that as an extraordinary headwind or a tailwind that we’re fighting against.
In terms of our inventory levels, one thing I would note in the quarter is, we did pivot and it has been a bit of an inflection point for us from a working capital standpoint. In the third quarter, our inventory levels peaked. We brought them down into subsequent months. And as a result, as you heard in the prepared remarks, we do expect to resume sort of normalized free cash flow generation in the fourth quarter, as well as in fiscal 2023. And then, John, in terms of phasing with Q3 and Q4 within the categories.
For -- yeah. I think as we’re projecting forward, I think we’re expecting the fourth quarter looks similar to the third quarter. So continued strong performance in Battery and then some of that softness that we saw on Auto we expect to continue. And then, Andrea, on your transactional side, we exercise a fair amount of hedging below the line and so we usually don’t project any changes based on transactional currency impacts.
Great. Appreciated all the color. Thank you. I’ll pass it on.
Our next question will come from Jason English with Goldman Sachs. Please go ahead.
Hey, folks. Thanks for letting me in.
Hi, Jason.
Hi, Jason.
A couple questions, first, input costs, the degree of headwind dropped materially this quarter? Is this a turning point? You no longer looks like your $250 million forecast for the years in reach? It looks like you’re going to come in well below that. Is that right? If so, what’s the level? And why are you guiding for sequential gross margin erosion, if we’ve turned a corner on cost?
Yeah. That’s good question. So we have made really good progress on gross margin improvement Jason. And we did see in the third quarter pricing better than the cost input pressure that we’re feeling. So we’re on pace for the back half improvement of 200 basis points that we said last quarter, but that’s really kind of over the six months. We’re still expecting the full year to be 37% to 38%.
And what we’ve seen, we built this inventory kind of elevated levels, we did that in a rising cost environment and we’re continuing to see some of those costs come through. So we’re expecting and we’ve got pretty good visibility, that’s going to come through in the fourth quarter and take it back to that sort of run rate 37%, 38%.
Now, we think that’s really the baseline for us and then heading beyond this year, we think that’s where we’re going to set the base and then we can improve from there through a lot of our programs to improve costs. That does not factor in any sort of input cost changes, we’re kind of neutral on that right now, but we’ve seen those kind of level off and that’s kind of baked into our 37%, 38%, right?
Got it. So -- and actually I don’t get it. I’m still kind of confused. So is it a utilization factor then that drove your gross margins this time and it sounds like you’re saying, no, no, like, costs will actually bounce back in the fourth quarter. Am I hearing this right? And if so, like, what are the dynamics is causing a bounce back?
Yeah. It’s not really utilization. It’s -- we were carrying incremental inventory. So we’re up to like, 160 days, 170 days. We built that inventory and rising cost environment. So those costs are coming through kind of phased and they’re still growing into our fourth quarter. And so you -- that’s why you saw pricing fully in place in the third. You’ll see the pricing fully in place in the fourth. But we’re going to have some incremental costs come through in the fourth quarter.
Okay. Okay. I’ll pass it off. Thanks.
Thanks.
Our next question will come from Robert Ottenstein with Evercore. Please go ahead.
Great. Thank you very much. I’d like to kind of circle back to the private label question. And I was just wondering if you could give us more of an insight into how your discussions are going with retailers in terms of managing the category, managing gaps between different segments, are retailers -- how are retailers thinking about private label, we were recently in some targets and we actually didn’t see any. So I’m not sure if there’s been any change of strategy there. So really trying to get a sense of those discussions and what’s going on in terms of managing the category given the tightness for consumers? Thank you.
Robert, I think, the best way that I will speak at a general sense without getting into any specific retailer discussions. But retailers all approach private label a little bit differently. They will approach private label within the Battery category a little bit differently.
Consumers are searching for value and value can differ depending upon at the individual consumer at the times that can be they want to trade down from a premium brand to a value brand and a private label, it can be traded down in terms of pack size and so I think consumers and individual retail shoppers are looking for different things.
I think from a macro perspective, if you look at private label share, globally it was down 1.4 sharepoints in the U.S., it was down 1.9 sharepoint. So consumers are still continuing to migrate towards premium brands, like, as I’ve mentioned in previous questions, some of those are trading down in terms of pack size.
But in terms of the category emphasis within Batteries, premium brands still are strong, consumers are still seeking them out and I think when you see those types of trends, certainly retailers will take notice and follow suit.
So I think, it’s not anything we take for granted, we’re going to continue to invest in our brands and continue to invest with our retailers to find the right strategy for them. We’re perfectly positioned to do that within the Battery category with both premium and value brands. And I think we’re the best partner that retailers can lean into at a time when they may start to change their approach with consumers, because we can meet any need that they have.
No. I appreciate all that, what I’m trying to get at is, is there any attempt by you and retailers to shape how consumers are working with the category, by managing the price pack architecture or is it more reactive?
No. It absolutely is proactive management of the category, which is something that we do quite well. I mean, we partner with our retailers very closely to shape individuals shopping experiences and shape how consumers interact with the category.
We also have a pricing and revenue management teams that lean in from a price pack architecture and from a promotional strategy standpoint to make sure that we’re getting the best return on the dollar -- on dollars and that we’re maximizing our ability to generate healthy category value growth for our retailers, as well as for Energizer.
Great. Thank you very much.
Our next question will come from William Reuter with Bank of America. Please go ahead.
Good morning. On the question of input costs in the fourth quarter, it does make sense to me that you’ve capitalized these on the balance sheet. It’s some elevated levels based upon where input costs were several months ago, but it would seem like this may be a tailwind for fiscal year 2023 based on what’s happening with some of these. Is that the case and should we expect some expansion in next year, just based upon lower inventory costs flowing through?
Yeah. Bill, what I would say is, we’ve still got a fair amount of inventory, so we’ve got good visibility on the first quarter, the two quarters in the next year. As far as input costs, we’ve seen some puts and takes, and so I think right now, we think that they’re sort of pausing at these levels, although, still elevated, and we’re keeping an eye on it as we get ready for 2023. But we’ll continue to push to improve from here, for sure.
Got it. And then just a follow-up, in terms of the -- you mentioned, you’ve generated $50 million of working capital from lower inventories. It sounds like you expect that these levels are going to continue to come down from here, do you have any sense for either over the next quarter or maybe by the end of 2023, what we might see from a working capital benefit?
I don’t think we’re going to look that far out. But what I would say is, we expect to continue to have those inventory and levels come down and really try to optimize for working capital. As Mark said, over the course of, May we saw the peak, June and then July after the quarter, we’ve decreased that balance in inventory by about $50 million. We’ll continue to push to improve that. We think that as we get into the fourth quarter we should start generating free cash more along the lines of the 10% to 12% of sales that we’ve historically generated and that’s what we’ll look to continue to do going into 2023.
Okay. I understand it’s difficult. Okay. Thank you.
Our next question will come from Carla Casella with JPMorgan. Please go ahead.
Great. Thanks for taking my question. I’m wondering…
Hi, Carla.
… if you could talk a little bit about labor and wage rates and is 2Q kind of a stable level or are you seeing rates go up even as you look into the next couple of quarters?
Carla, I think right now we’re seeing is relatively stable Q3 labor rates over Q2.
Okay. And are you seeing -- you mentioned -- you talked a bit about elasticity? Does it very heavy change in elasticity by category either Battery or Auto and then also by segment within Battery?
Yeah. Elasticity does change by category. I mean, our historical elasticity models have held in recent period, with a couple of maybe outliers on that. As I mentioned earlier, I mean, refrigerants, this has proven to be a little bit more elastic than what historical models would have shown. Performance Chemicals, perhaps, a little less elastic than what historical models have shown.
And a lot of that, I would say is, you have to point to the moving pieces in the analysis, in terms of the prior year comp period, you are dealing with a lot of COVID driven demand from either new habits and routines, certainly financial stimulus, as well as reallocation of consumer spending.
In the current year period, you’re dealing with increased prices, not just in our categories, but pervasively across the store, rising interest rates, broad based inflation. So, I think, in those -- in both the present period and the comp period you have a lot of moving pieces, but if I were to separate those out, elasticity models on balance are holding with maybe a few outliers within the Auto Care portfolio.
Okay. Great. And then I think there’s been some confusion over your covenant level. Could you just give us where you stand in terms of both maintenance and current covenants on the debt?
Yeah. We’ve got significant headroom. We refinanced our credit agreement last year, Carla, and I think, what we currently have is, I am sorry, blank out.
Two quarter senior secured.
Two quarter senior secured.
Yeah. Net.
Net. So we have significant headroom. There really aren’t -- there aren’t significant maintenance covenants there.
Okay. Great. Thanks.
This concludes our question-and-answer session. I’d like to turn the conference back over to Mark LaVigne for any closing remarks.
Thanks again for joining the call today and your 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 your lines.