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Energizer Holdings (ENR)

F1Q12 Earnings Call

February 1, 2012 8:30 am ET

Executives

Jacqueline E. Burwitz - Vice President of Investor Relations

Ward M. Klein - Chief Executive Officer, Director, Member of Executive Committee and Member of Finance & Oversight Committee

Daniel J. Sescleifer - Chief Financial Officer and Executive Vice President

Analysts

William Chappell - SunTrust Robinson Humphrey

Wendy Nicholson - Citi Investment Research

Christopher Ferrara - BofA Merrill Lynch, Research Division

Jason Gere - RBC Capital Markets

Connie Maneaty - BMO Capital Markets-U.S

John A. Faucher - JP Morgan Chase & Co, Research Division

Ali Dibadj - Sanford C. Bernstein & Co., LLC

Alice Beebe Longley - Buckingham Research Group, Inc

William Schmitz - Deutsche Bank

Operator

Good morning ladies and gentlemen. My name is Simon, I will be your conference operator today. At this time, I’d like to welcome everyone to the Energizer Holdings Incorporated Fiscal 2012 First Quarter Earnings Results Conference Call. (Operator Instructions)

I’d now like to turn the conference call over to Jackie Burwitz, Vice President, Investor Relations. You may now begin your conference.

Jacqueline E. Burwitz

Thank you, Simon. Good morning, everyone, and thank you for joining us on Energizer’s first quarter fiscal 2012 earnings conference call. With me this morning are Ward Klein, Chief Executive Officer; and Dan Sescleifer, Chief Financial Officer. This call is being recorded and will be available for replay via our website, energizerholdings.com.

During our prepared comments and the question-and-answer session that follows, we may make statements expressing the beliefs and expectations of management regarding future performance including future results or events, future earnings, investments or spending initiatives, cost savings related to our restructuring project, the impact of certain price increases, anticipated A&P spending, currency fluctuations, raw material and commodity costs and category value and future volume, sales and growth in our businesses.

Any such statements are forward-looking statements, which reflect our current views with respect to future events and are based on assumptions, and therefore are subject to risks and uncertainties. These risks, uncertainties, and other factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements.

These risks and uncertainties include, without limitations, those described under the caption Risk Factors in our Annual Report on Form 10-K filed November 22, 2011. We do not undertake or plan to update these forward-looking statements even though our situation may change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure is shown in the press release issued earlier today which is available in the Investor Relations section of our website, energizerholdings.com. Management believes these non-GAAP measures provide investors valuable information on the underlying growth trends of the business.

With that, I’d like to turn the call over to Dan to review the financial highlights for the quarter.

Daniel J. Sescleifer

Thanks, Jackie. First quarters earnings per share were $2.15 versus $1.55 in the first quarter of fiscal 2011. Excluding unusual items, earnings per share were $2.05 in the first quarter of fiscal 2012 versus $1.68 in the first quarter of 2011. Net sales for the quarter increased $21 million or nearly 2% due to the inclusion of the American Safety Razor business.

Organic sales declined $25.9 million or 2.2% as growth in Personal Care was more than offset by a decline in household products. Gross margin for the quarter was essentially flat at 47.1%, as favorable product mix in the quarter more than offset the unfavorable impact of the inclusion of the lower margin ASR products for the full quarter in 2012.

Advertising and promotion, as a percent of net sales, was 8% versus 10.9% last year. A&P spending was higher in the first quarter of 2011 due to significant global launch activities. Selling, general and administrative expenses increased $7.4 million versus last year's first quarter, due to the inclusion of a full quarter of American Safety Razor, higher compensation expense due to increased amortization on stock awards, and higher actuarial pension expense.

Now turning to divisional results. In Personal Care, organic growth – organic sales growth was 1.4%, primarily due to higher shipments of disposables in sun care offset by lower sales of legacy men’s Wet Shave Systems products in international markets, Infant Care and Feminine Care. Sales of Schick Hydro were essentially flat in the quarter due to the significant pipeline fill in last year’s first quarter related to launches in European markets.

Segment profit grew 59% operationally, reflecting lower A&P expense and higher gross margin on the sales growth noted above offset by higher overheads in the quarter due to the full quarter ownership of ASR.

While the incremental sales for ASR in the current quarter have been separately disclosed, ASR segment profit is now included in overall Personal Care results. The company does not believe the full quarter impact for ASR was material to the segment profit results when compared to a partial quarter in the prior year. While A&P spending was low in the current quarter, we expect spending for the next two quarters to increase significantly due in part to the support of two new product extensions of the Hydro Technology. Schick Hydro Silk and Schick Hydro 5 Power Select, both are being launched in our second fiscal quarter.

Turning to household products, net sales decreased 5.2% for the first quarter versus a year-ago, driven by a shift in timing of holiday deliveries and de-load of unused hurricane response inventories shipped in the prior-year quarter in the U.S. Pricing in the U.S. began to stabilize this quarter as gains realized from price increases on C, D and 9-volt batteries we’re able to offset higher retail trade spending as the battery category environment was highly competitive.

We continue to experience volume and pricing softness in Western Europe as a result of economic and category challenges. In addition, the battery category in some of our measured Asia markets experienced declines, a change from the previous trend as category values and volume were below year-ago levels in the latest 12-week period.

Finally, Latin America markets continue to experience value growth as price increases have been able to offset overall market inflationary pressures. Household product segment profit for the quarter was $148.8 million down $14.5 million or 9% versus the same quarter last year. Operationally segment profit declined $13.7 million or 8% due primarily to the top-line declines noted above.

Our restructuring project, which was previously announced in the fourth quarter of fiscal 2010, is almost complete. For the first quarter, restructuring cost were $3.6 million, bringing the total project to-date cost to $83 million. We expect that the remaining charges will be recorded by the end of this fiscal year. Savings from these efforts were approximately $6 million in the first quarter.

These savings helped to partially offset increased commodity and other inflationary costs. Project to-date savings have totaled approximately $17 million and we expect the remainder of the target savings to be realized throughout this fiscal year. We're tracking to the high-end of the $30 million to $35 million range previously communicated.

With that overview of the quarter, I will now turn the call over to Ward.

Ward M. Klein

Thank you, Dan. Now I will walk you through each of our businesses and the key factors that are impacting them. In Personal Care a key priority for 2012 is to leverage our unique Schick Hydro technology with two new product rollouts in the second quarter. Schick Hydro Silk for women, and Schick Hydro 5 Power Select for men.

Schick Hydro Silk, hydrates skin like no other razor. This is achieved using breakthrough technology delivering a proprietary water activated moisturizing formula that hydrates skin coupled with patented five-blades with unique skin guards to protect sensitive skin.

In consumer testing women said, they significantly prefer the new Schick Hydro Silk Razor over the leading five-blade women’s razor currently on the market. We’re launching this product currently in North America and Japan with plans to launch in other markets during the balance of 2012 and 2013.

The Schick Hydro Power Select Razor features unique technology, including three vibration settings, easy to read indicators, and a one-touch control button offering men a shave with custom power proven to reduce irritation while providing hydration through each shave. We’re currently launching this product in North America and Japan.

We continue to have a strong innovation pipeline in our Wet Shave business, and these innovations are consistent with our key goal of providing consumers with products that deliver unsurpassed performance. We will support these launches with strong media campaigns, as well as promotional activity through the next two quarters, and so you can expect higher A&P spending as a percent of sales versus the first quarter level.

In addition to these new product launches within the Schick Hydro franchise, we continue to grow our Schick Hydro men’s system share across the markets where we’ve launched. While our net sales were flat this quarter, this was expected due to the significant pipeline in Europe last year. Importantly, refill sales are growing double-digits.

We continue to be pleased with the effectiveness of our promotional programs on trial and repeat, while our Hydro trends are positive, legacy men’s brands are under pressure due to both cannibalization and high competitive activity in the quarter. The U.S. Quattro business is relatively stable in our latest shares. However, our legacy men’s business outside the U.S. lost share as a result of anticipated sales attrition related to the more recent Hydro launch.

In the disposable segment, net sales grew behind higher shipments in the United States this quarter, behind promotional programs coupled with good momentum coming out of the fourth quarter of 2011. We continue to see strong shipment growth in other developing markets in our Asia and Latin American regions across all brands.

Building on the success of the Quattro for Women Disposable Raspberry Rain Scented Handles in January, Schick launched a new Scented Handle with a Skintimate Strawberry Tangerine Scent. Recently about 20% of the women’s disposable segment consists of scented handles. This is an example of Energizer Personal Care leveraging synergies between its razors and shave-prep businesses.

Schick also launched in January, new Xtreme3 Eco Razors, the first disposable razor to use 100% recycled plastic in the handle and 100% recycled paper in its packaging. Schick estimates it will save over 103,000 pounds of virgin plastic materials from going into landfills each year, as well as 15,000 pounds of paper. Schick Xtreme3 Eco will be available in both men’s and women’s variants.

Across many of our Personal Care categories we've been effective in implementing price increases. Notably in our U.S. shave-prep business we implemented an 8% price increase, which is the first increase in the category in many years. Early December, we announced price increases across our razor, refill and disposable businesses up between 4% to 10%, effective March of 2012.

Finally, our quarter one is not a heavy sun care quarter in the U.S. Sales grew approximately 30% versus prior year in key international markets including the launch of Banana Boat in Brazil.

In Sun Care, we’ve introduced in our currently shipping three new product innovations, new Banana Boat Natural Reflex is a line of sunscreens with naturally-derived ingredients that provides consumers interested in natural products, a way to keep their families healthy and safe, with a reassurance the product is natural, yet is effective as our leading sunscreens.

New Banana Boat Sport CoolZone continuous sprays provide a unique instantly cool and refreshing benefit to the skin to address the insight to consumers who do not like applying sunscreen when active in hot outdoors.

And thirdly, new Hawaiian Tropic S ilk Hydration is the only sunscreen to offer hydrating ribbons for 12-hour moisturization and protection, a solution for drying after-effects of the sun. These new products have achieved strong distribution and current early sales – season sales are strong.

Finally, Energizer was one of the first manufacturers to respond to the FDA changes in the monograph for sun care products, with communications to both retailers and consumers. We’re currently shipping monograph from plenty of packaging on the majority of the portfolio.

Turning to our Household Products Division, we continue to see battery category volume softness. However, we began to see positive signs of overall category value beginning to stabilize in the latest 12-weeks data. This is an improvement over recent trends. As price increases, reduced promotional spending and elimination of pack upsizing, all helped to offset continued volume softness.

In North America, total category value improved versus year-ago levels as the overall level of promotional spending decreased. However, our October through December shipments were below prior-year as selected large customers requested holiday deliveries in September, which is earlier than in prior years.

In addition, we experienced de-logging of unused hurricane inventories in States not directly impacted by the hurricane in the prior quarter. We believe that retail inventory levels are at normalized levels as we enter fiscal quarter two.

We continue to focus on reducing our level of promotional activity as we do not believe it translates into long-term growth. As a result of scaling back promotional levels, we experienced an average share loss during the quarter. We made a conscious decision to focus on value-driving activities such as implementing the C, D and 9-volt price increase, the recently announced 6.7% alkaline and carbon zinc price increase, decreasing non-value added promotional spending and eliminating pack upsizing. We understood that this could result in some temporary share shifts. Nevertheless, we remain confident in our strategies and their potential to enhance shareholder value.

Turning to Asia, we saw a decline in household battery category consumption in some of our measured markets in the last 12-weeks data. Category volume was down nearly 4% and value was down 2%. This is a departure from recent trends where we’ve seen consistent growth over the past six quarters. We continue to analyze the drivers of the decline to determine if this is simply a temporary shortfall.

In Europe and Latin America, a bunch of battery trends we’ve seen in previous quarters have remained unchanged. In Europe, category and overall economic conditions remain very challenging. Several Western European markets continue to be negatively impacted by the difficult economic conditions and a fierce competitive environment. In an effort to offset these unfavorable trends and reduce our exposure to the volatile economic environment, we’re focused on value-driving activities such as reduced increases and promotional spend.

In addition, we benefited from reduced product cost as a result of our Swiss plant closure. We were able to replace volumes previously produced in the higher cost Swiss plant with products produced in our lower cost production facilities. In Latin America, we continue to see value accretion driven by price increases.

In addition to these operational highlights, I’m also happy to report that during the quarter we repurchased 1.9 million shares. Over the past 12 months, we’ve returned over $410 million to shareholders in the form of share repurchases. This represents over 100% of our trailing 12-months free cash flow and over 150% of our U.S. free cash flow.

As you know our preferred method of returning cash has historically been share buybacks instead of dividend. We’ve liked the flexibilities that share repurchases provide and while many of our shareholders are content with share buybacks as the means to return cash, others prefer dividends.

In these volatile economic times, it appears the dividends are becoming more popular among the investors. The discussion in how to best deliver value to shareholders is ongoing with our Board of Directors. And the topic of share repurchase versus dividends is a topic we discuss regularly.

Looking forward as noted in our release this morning, we’ve tightened our fiscal 2012 guidance range to $6 to $6.20. This represents a reduction of $0.10 to the top-end of our previous guidance, while we’ve not changed the low-end of the range. This revised guidance reflects our objectives to deliver meaningful earnings growth in fiscal 2012, despite increased challenges due to economic weakness in Europe from volatile currencies.

We believe Personal Care will deliver solid year-over-year segment profit growth, higher gross margin driven by organic sales growth coupled with lower A&P as the anniversaried Hydro Launch spend in fiscal 2011, will more than offset to negatively impact of higher product cost and the economic weakness in Europe. We expect household product segment profit to be relatively flat versus a year-ago. The benefits for the U.S pricing initiatives and manufacturing footprint, restructuring savings are expected to be offset by unfavorable currencies, higher product cost, and continuing category pressures.

Other corporate cost which include certain corporate overheads and interest expense and other financing cost are expected to be relatively flat, slightly lower versus year-ago. As higher pension, actuarial and other compensation related expense are offset by lower other financing cost is the prior year did include losses on our FX hedging contracts.

Overall, we reaffirm our theme of fiscal 2012 being a year of return on last year’s year of investment. Our investments in truly innovative products are paying off and we will continue. In addition, savings from the household products restructuring efforts are helping to offset difficult category and economic environment that was anticipated.

Now Dan and I will be happy to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you, certainly. (Operator Instructions). And our first question comes from the line of Bill Chappell from the SunTrust. Please go ahead sir.

William Chappell - SunTrust Robinson Humphrey

Good morning.

Daniel J. Sescleifer

Good morning.

William Chappell - SunTrust Robinson Humphrey

Just want to get a little more color on the quarter battery sales. I guess, at first, is there anyway to quantify kind of what the shipment – early shipments in September and then the post hurricane fall out, I mean, what that did to the quarter. And then second, I think you’re implying that by leading the price increase you got, put in the penalty box by some retailers and that hurt some of your share. Does that imply that your competitors didn’t follow or you just got put in the penalty box for leading that charge?

Daniel J. Sescleifer

To the first part of your question, roughly half of the shortfall can be attributable to some of -- just the volume shifts we referenced as it related to September shipments into some customers in mortgaging following the hurricane in some states. As for being put in the penalty box, fortune we really have not been put in the penalty box per se. But you do give up just from the degree of promotions that we’re been executing versus our competitors, I think there is a little bit of temporary share slippage there. To be specific on that, one key metric we look at, for example, in the United States batteries will be the percent of volume, battery volume that’s done on deal. And for the quarter roughly 45% of our Energizer battery volume was done on deal, which is kind of high for the year, but you can understand that being the holidays. But the comparable number for our major competitor, for the same timeframe is around 57%, 58% of their volume being done on deal. So as we’ve provided more discipline in terms of how we’re managing our promotion and I think it’s evident in terms of the degree of promotion you’re seeing from us versus our competitor that some temporary share loss could be expected. Again, these tend to be activities of rent share, I don’t think they are activity is at own share. And – so it’s not an overly big concern.

William Chappell - SunTrust Robinson Humphrey

And then in terms of the pricing going forward in February, would you expect everybody to be following?

Ward M. Klein

Well, we don’t know what others are going to do. All we know is that Duracell has announced they’re going to follow the 6.7% price increase that we led. And Rayovac we've not heard from yet.

William Chappell - SunTrust Robinson Humphrey

Okay. And then last question on that pricing, on the blade razor increase coming in March, will that put your prices above the Gillette portfolio or you expect the whole category to go up?

Ward M. Klein

I’m not sure. It really depends on the specific SKU. I think in general we are following a number of price increases that were initiated by a competitor, rather than lead, the dynamics obviously in the razor blade category share positioned much different than on households. So we tend to be more of a follower, I think, versus a leader as we’re in batteries.

William Chappell - SunTrust Robinson Humphrey

Perfect. Thanks for the color.

Ward M. Klein

Thank you.

Operator

Thank you for the question. And the next question comes from the line of Wendy Nicholson of Citi Investment Research. Please proceed.

Wendy Nicholson - Citi Investment Research

Hi. First question is on the A&P outlook for the back half of the year. I think your last guidance was that the advertising side would come in kind of 10.5% to a 11% for the year, kind of backward 2009-2010 levels. As you talk about the new products here to come in Personal Care, is that going to skew more towards advertising, so that ratio is going to be higher than previous guidance or more on the promo side or where we’re tracking in that kind of 10.5% range?

Daniel J. Sescleifer

Yeah Wendy, this is Dan. So, I guess, first of all we stated in the prepared comments that A&P will increase significantly in the rest of the year, especially due to the new product launches and actually Q1 was a very, very low A&P, and so we really didn’t have any launch activity. In terms of the previous guidance, as we relooked at it this quarter, we anticipate we will probably actually come in a little bit below the range that we had previously guided. So, we -- I think we said that 2009-2010 range, which I think was, like you said roughly 10.5% to 11%. We would expect to be below that on a percent of sales basis on a A&P spend.

Wendy Nicholson - Citi Investment Research

Okay, perfect. And then following up just on sort of the pricing and restructuring that you are doing on the battery side, it’s great that you’re being the leader in terms of price – picking the pricing and the restructuring, but it still sounds like the business is sort of just destined to be lower margin than it has been in the past, which just sounds like it’s a much more difficult category going forward. And so, I guess, my question is would you contemplate another lag into the restructuring program – a real desire to get those margins back up, north to 20% on an ongoing basis? Is there another X number of factories or X number SKUs or stuff that you can do, again, even if it doesn’t drive growth in the category at least it preserves the margin?

Ward M. Klein

There is no phase planned at this point in terms of, any sort of major restructurings on the households. We are pretty happy with the – what was achieved this past year. It was a pretty major restructuring for us that we’ve just have under our belt. Obviously, you always look and keep your options open as you go forward depending on overall conditions. I think I’m less concerned about our ability to manage our margins on battery, especially if we’re successful on the price increases sticking going forward. It’s that the present margins, I’m less concerned about it. The margin of the size of business, which is the concern and again the size of business really more relate into the category itself and where the category trends are. We’ve seen globally right now the battery category value have somewhat stabilized, but units are still down on a 12-week basis around 3% to 4%. And so that remains the primary reason for the restructuring we did last year and I think it remains something we watch pretty [adroitly] as we go forward.

Wendy Nicholson - Citi Investment Research

Fair enough. Thank you.

Ward M. Klein

Thank you.

Operator

Okay. And our next question comes from the line of Christopher Ferrara of Banc of America. Please go ahead.

Christopher Ferrara - BofA Merrill Lynch, Research Division

Hey, thank you. Guys, can you just talk about I guess where the guidance change comes from specifically? I guess it sounds like a lot of it is current year or maybe some of it is current year, but could you just flush that out a little like did the household business still sounds like you think segment profits are going to be flat. Where is the change -- where is the incremental change coming from especially considering the A&P, I guess, it’s going to be lower than you originally thought?

Ward M. Klein

I will give you kind of a macro answer, maybe let Dan drill down a little bit for you. I think kind of bigger -- two bigger changes versus when we gave guidance at the very beginning of the year is simply the evaluation of currencies for us, especially, European currencies after we gave guidance first – a quarter ago. And that really tied with just general volatility weakness and uncertainty in Western Europe, and we've a pretty good sized business in Western Europe and we do see consumers pulling back. And those will be two of the material changes, I think that, over the past 90-100 days that makes us prudently, I think bring down the top-end of the range. We’re pretty confident again that could hit the range and the bottom didn’t move. And well, Dan if you have anything you want to add.

Daniel J. Sescleifer

Yeah, I think as we mentioned in the call, Europe continues to be very troublesome and then a lot of our measured markets in Asia turned negative. So, we’re just a little bit more cautious and as, Ward, said with currencies the volatility, even if you looked over the past two weeks it’s been significant, so we just felt that prudent to lower the top-end and damper expectations a little bit from that standpoint.

Christopher Ferrara - BofA Merrill Lynch, Research Division

Got it. And is there any connection between that revised macro outlook and the A&P number coming lower, whether that’s just to give you more flexor on the guidance or whether that’s just, you don’t want to throw a good money after bad and tough markets. I mean, how do we think about the relationship between those two?

Daniel J. Sescleifer

Yeah, I think there’s probably some impact of that. I guess, its also related to the fact that as we kind of fine tune our plans, as we progress through the year, the spending that -- that we planned to spend at the beginning of the year has simply come down. I think we’re just going to continue to support the major product launches that we’ve announced. But, there certainly is an impact of, the economic situation in the markets where we compete, where maybe we aren’t going to spend as much and keep some more in reserve.

Christopher Ferrara - BofA Merrill Lynch, Research Division

Thank you.

Ward M. Klein

Thank you.

Operator

Thank you. And our next question comes from the line of Jason Gere of RBC Capital Markets. Please go ahead.

Jason Gere - RBC Capital Markets

Okay, thanks. Good morning. Just a couple of questions; one I guess, I was just trying to get an update on ASR, maybe the learning’s so far, and then maybe your outlook on the ASR growth this year relative to the core Schick line?

Ward M. Klein

I think that, not much has changed really on the ASR story. We’ve been very happy since we bolted it on to our existing razor and blade business. Earnings were stronger the first year of it, than we really anticipated. Integration has gone fairly smoothly to what degree we’ve done integration, we've set up a private branch group they’re getting traction. I think we have some work still before us as it relates to the innovation pipeline with ASR. As you can imagine they just didn’t have necessarily the capabilities that our Schick businesses had, as it relates to new products, quality and quality enhancements and innovation, and that takes some time. That’s not something that churns on a dime.

And so, I think this year, is really a year where a lot of the focus on ASR is, as they continue to do a good job of managing the sales of that business, our real focus is, I think more behind the scene, the up-screen activities in innovation and product enhancements, product quality and there’s some very good roadmaps that had been put together, they know what they’re doing, its just a matter of executing them in the next few quarters.

Jason Gere - RBC Capital Markets

So, is it fair to say that we’ll see probably more accretion from that in Fiscal 2013 and ’12?

Ward M. Klein

I would say that’s probably a fair statement, although we won't be breaking that out, but that would be my sense of the rhythm of the business.

Jason Gere - RBC Capital Markets

Okay. And then, I guess the next question is just thinking about organic sales, the last couple of years you’ve been driving pretty consistent 2% organic sales and just with all, the challenges that you’ve presented, but also more pricing kind of coming through, first quarter obviously starting off negatively. Are you still comfortable with that type of outlook and how do you see the sequential build for the rest of the year, especially with, I know you have two big products coming out on Hydro, which are out now. But, can you give a little cadence, I guess to how you see organic sales building over the course of the year?

Ward M. Klein

Yeah, sure, I mean, it’s still positive, but it’s not at that 2%, 3% range that you sight. And for the reasons that won't repeat on the battery side, someone also impacted a little bit on the quarter. But, I think overall, when you look at the range of price increases across the range of categories I mean, we’re even doing it on shave-prep as we sighted in our comments. A lot of the realization of those price increase is whether its 6.7% price increase on batteries, whether it’s the price increases we’re doing on razors and blades, or shave-preps is before us. And I think that should help, tick up on the organic growth versus what you saw for the first quarter. And I think that will be a part of it and then the other part of it simply is the innovation that we have its hitting shelves literally in the next 30, 60, 90 days.

The Hydro for women, I have great expectations on, it is a great product. I mean, it’s just outstandingly a good product and we look forward to women trying that, because we know they’ll find that to be the case. The Hydro Power, its not just another powered men’s system razor, its topnotch quality, proprietary, different and unique and then we’ll see that for those who prefer a power razor.

And then on the sun care line up, really they can – they need to adjust – the innovation pipeline has been fully executed right now. So, between those new products and all those price increases, I would expect the organic growth to tick up and obviously the big question always remains just the macro environment, and Europe remains a concern not just for Europe but, any spill out effects to the rest of the world is something that keeps, its on my top 10 worry list right now, but we’re doing what we can.

Jason Gere - RBC Capital Markets

Okay. Okay, so with that on the, lets say the Personal Care side; would you be disappointed if volumes were not positive. I can understand the battery side and the challenges there and even with some of the pricing that you might still see negative, organic sales over the course of the year, but higher expectations on the Personal Care side is it a safe assumption that volume should take up?

Ward M. Klein

I expect volumes, I mean, the Personal Care volumes are taking up and that continue to take up maybe at an accelerating rate. And on the battery side, I’m not sure, -- volumes, yes, it will be soft, but value we’re hoping will remain stable if not take up behind some of the pricing actions we’ve taken.

Jason Gere - RBC Capital Markets

Okay, great. Thanks a lot.

Ward M. Klein

Thank you.

Operator

Okay, thank you. And our next question comes from the line of Connie Maneaty from BMO Capital. Please go ahead.

Connie Maneaty - BMO Capital Markets-U.S

Good morning.

Ward M. Klein

Good morning.

Connie Maneaty - BMO Capital Markets-U.S

The decline in battery sales in Asia, what percentage does Asia represents of your battery sales? And are the declines limited to one country or is it widespread?

Daniel J. Sescleifer

Hey, Connie, this is Dan. The declines really are widespread, it’s both developed and developing markets. And it’s roughly a quarter of our battery sales are in Asia.

Ward M. Klein

I think one of the things acerbating the Asian results, and it is widespread, but Australia is one of those important markets in Asia and they’re annualizing through, if you recall a year-ago, heavy typhoon and flooding in Australia, pretty severe historical standards for that country and we had a good quarter in terms of battery and flashlight sales during those dramatic times.

So, in that particular country, which is one of the lead countries in Asia, there is that one particular I think one-off that we can point to that to Dan’s point, the softness is more than just Australia. So, I’m not sure we can really attribute all of it to that, but I think that maybe part of it. And it’s something we’re going to continue to monitor.

Connie Maneaty - BMO Capital Markets-U.S

Okay. That’s very helpful. On the price increase in the shaving category, it was my understanding that even on legacy systems the price went up almost every year. So what justifies such a big price increase in a category where there are always price increases?

Ward M. Klein

Well, I’m not sure, I mean generally what we’d justify as the price increases that we take to the trade are real cost increases that we’re experiencing whether it’s in commodities, whether it’s purchase product, whether it’s labor etcetera. That’s always – and that’s always part of it, I mean, certainly it’s not news in this call, the general commodity; cost pressures many manufacturers have been facing have been real. And that’s true in the razor blade category. So, I think there is just an underlying fundamental reason to try to recoup some of the cost increases as it relates to razors and blades.

I think the other aspect which maybe unique to razors and blades is the constant introduction of innovation and we brought innovation in disposables, we brought in -- as our competitor, and every time you bring innovation into the marketplace, you can command a premium price for that. And so, I think those are really the two factors that have been the case for our razors and blades and are the case currently.

Connie Maneaty - BMO Capital Markets-U.S

And one final question, the press release said that you took a percent of the gain on the sale of the Swiss factory for some incremental restructuring, is it’s not in the battery business, where has it been applied?

Ward M. Klein

It’s just basically below the line. It’s in the -- I’ve to look at the P&L, yes, in the household, yes, it’s a household restructuring line that we used last year for the cost that we incurred.

Jacqueline E. Burwitz

Yes, so if you look -- Connie, this is Jacqueline. If you look at the statement of earnings, you’ll see the household products restructuring line under research and development is there and you can see that it’s not charged this year, it’s actually at 9.2.

Connie Maneaty - BMO Capital Markets-U.S

But what’s -- didn’t you also do some incremental restructuring?

Ward M. Klein

Well, there is some legacy restructuring costs coming out of the program of last year that we’re going to be hitting this year, and …

Connie Maneaty - BMO Capital Markets-U.S

Okay.

Ward M. Klein

… so those will be offsets to the gain that Jackie just cited.

Connie Maneaty - BMO Capital Markets-U.S

Okay, great. Thank you.

Operator

Okay thank you for those questions. And our next question comes from the line of John Faucher of JP Morgan. Please go ahead.

John A. Faucher - JP Morgan Chase & Co, Research Division

Yes, thank you. I just want to little question, you talked about the cash return to shareholders and obviously it’s been a big change over the past 12-months or so, can you talk a little bit about your view on this? Is it going to be continuing to be a little bit more opportunistic? Do you foresee this being a more regular program?

And then, also one separate question, which is on the COGS line, we’ve seen some volatility in some of the underlying raw materials that realize you guys tend to do a lot of hedging. Any sort of updated docs in terms of how your exposure looks on the COGS line? Thanks.

Ward M. Klein

Yes, I may take the first part of your question and maybe look to Dan to answer the second part. Really our approach on returning cash back to our shareholders through opportunistic share repurchase, I don’t think it has changed, that really is our mentality and I think demonstrated again this past quarter is not a regular program, per se, and so I don’t think really anything has changed in that regard.

I think what maybe has changed is our discussions of other ways to return cash to shareholders, I think we’re spending more time on this question than we’ve in the past and mainly the issue with dividends. And one of the things out there that relate to dividends, we don’t like the inflexibility of dividends, one. But two, really don’t like the uncertainty of the tax environment as we go forward here and the Bush tax cuts expire, but we do know that there is a number of shareholders that likes to see dividends. And so, we validated discussion to our Board of Directors, we’re having some good discussions doing some analysis in that regard. I’m not trying to signal that there’s any change in our policy and not doing dividends, but I do want to reassure everybody that’s something that we’re considering seriously. Meanwhile we’ve continued with our opportunistic share repurchase approach. And then to Dan, I will turn over for your question on cost.

Daniel J. Sescleifer

Yeah, john on product cost, it’s about $40 million for the years that we expect $20 million for each of the businesses, but within household because of those restructuring savings from project 2020 it’s going to net up to about zero, but the $20 million unfavorable will be realized within EPC, our Personal Care business.

John A. Faucher - JP Morgan Chase & Co, Research Division

Okay. Thank you.

Operator

Okay thank you for those questions. And the next question comes from the line of Ali Dibadj of Sanford C. Bernstein & Co. Please go ahead.

Ali Dibadj - Sanford C. Bernstein & Co., LLC

Hi, thanks, I’ve got few things. One is, just to get a sense of your cadence of battery growth going forward, I mean, you very clearly laid out in the past quarter kind of what the one time drivers are. But as you look forward, how do you expect and I guess maybe when do you expect the pricing you’re taking to offsets on the volume softness that you described? And it would be help if you could give, there’re very different markets, it sounds like to talk about U.S., Europe, and rest of the world separately in that context.

Ward M. Klein

Okay, sure. I think we have seen through some of the actions we have already taken some improvements in the value performance of battery category, battery category dollars relative to units. Again if you look back a year and half or two years ago, during the past -- the package upsize in those efforts, you saw category units declining, but category value declining even more. That’s reversed. And so basically on a 12-week basis we basically stabilize units that are still down.

So I think you’re already starting to see that, and that’s before the 6.7% price increase, so that we’ve announced is implemented. And so it is our hope that the 6.7% price increase sticks going forward, that’s our expectation. And that you will start to see as a result of that certainly North America, value starting to up tick maybe plus 1%, plus 2%. Units are kind of going to do their own thing and they may still be down minus 3%, minus 4%, minus 5%, that’s the long-term trend, its the hardest for us to -- well we can’t control it, it’s one we adjust to.

I think the price increases in North America are significant and like I said we have announced ours, it’s been accepted pretty widely by the trade. Duracell has announced their price increase; Rayovac has not, so there’s always that wildcard. But I think you should see value, -- positive value numbers for the category in North America going forward here versus the minus 0.5% in the most recent 12-week. So we’re almost there.

I think in Latin America we -- the category is -- we can get pricing in Latin America in the battery category and so value is stable or value growth is current right now has been and I expect will continue despite unit softness we may experience there. In Asia we generally value’s and unit’s growth rates have both been growing. And again we’ve commented how we’ve seen that for the last six or seven quarters that not to be the case, and so we’re calling that out, part of which I think is the Australia explanation I said earlier, but that’s not all of it, so we need to watch that.

And then on the downside is Europe. And Europe is just -- Western Europe in particular, not so much in Central and Eastern Europe. But I think, it’s very tough to get pricing in Europe right now. We are making and have been making serious efforts to rein in some promotional spending especially in markets like the UK, where it’s just [distractive] promotional spending that’s been taking place without growing the category. And so, I think price in Europe is going to remain more problematic going forward.

Ali Dibadj - Sanford C. Bernstein & Co., LLC

Okay, that’s very helpful. In different set of businesses for Infant Care and Fem care, I think it’s like 9% to 10% of your sales right now. Given the transaction which was even slow, and how that businesses I guess suffered pretty regularly recently. What do you think about the strategic fit for you being in those businesses? I guess what would it take for you to accept those businesses?

Ward M. Klein

Well, I think it’s a good question. And strategically they are obviously not as important to us as batteries, blades and sun care. Those three -- those are the three businesses where -- are the big profit drivers in growth opportunities in cases of razors, blades and sun care particularly going forward.

That said, Fem Care and Infant Care have kind of their own unique challenges. I think the one that is not worthy on Infant Care, frankly a softness in category. And I’m looking at some U.S. data, Infant Care value down 4%, units down 7% on the past 12 weeks, that’s again the category. 52-week basis, Infant Care is down 4% to 6%, I mean those are negative trends worse than what we’ve seen in batteries. Fortunately it’s not that a big business for us. But I think it’s indicative of really the economic hard times and people postponing having children and obviously Infant Care is the first category that is bellwether for live birth and will that abate as if and when the U.S. economy starts hitting some strong numbers, I think so. But right now the overall category is relatively weak in Infant Care. Fem Care, the category itself is relatively stable in terms of market share. So even though the strategic importance of Fem Care and Infant Care, are less to us. They’re good accretive deliverers of cash and profits. And we’ll continue to just evaluate what we want to do in these categories going forward. And those are good questions as we go forward.

Ali Dibadj - Sanford C. Bernstein & Co., LLC

Okay. And just my last question about capital allocation, I mean, I do want to revisit this dividend topic, because on the last conference call it sounded you’re very much leaning against it, and things may have changed. I just want to get a sense of what drove some of that change, kind of what happened to make you revisit that topic. And of course we understand that it may give you less flexibility, but on the flipside as you mentioned, it gives investors more, more certainty, more discipline between these environments. So that the environment has changed, is there something else that’s going on internally, they are not great acquisition candidates; what change your mind versus …?

Ward M. Klein

Actually it’s a good question. There’s two or three factors that come into mind. One, we’re spending more time as we’re going out and talking with our shareholders and this is one of the questions that we’ve been asking them and having discussions with. And so we’re just getting a better understanding of different shareholders and their different needs. So I think one; it’s just an impact of our outreach program and additional intelligence we’re getting as we talk to our shareholders and what they wish.

I think the second thing that I haven’t seen much commentary about being on the Board of the Fed myself. The Fed has kind of done some extraordinary things this quarter in terms of laying out where interest rates are going to go going forward. And it’s basically from what the Governors are saying and I can’t, I’m not speaking on their behalf. They basically promised current interest rates are through 2014 or beyond. And so there seems to be a driving or increasing thirst for yield by investors, especially those who are on fixed incomes and funds that are, certain people in that regard. And dividends become, I think maybe more important as a steady source of revenue for -- or income for people. And so that’s another factor, I think that goes into it.

And I think the third factor is your comment on acquisitions. We just -- we’re not seeing a number of robust pipeline of opportunities in that regard. And so, these are all factors, I think, that come into play that have elevated the discussion. And again I don’t want to signal that we’re changing our approach on this, but I do want to -- let shareholders out there know and others know that we’re taking it seriously and we’re having some robust discussions with the Board of Directors right now on this point.

Operator

Okay thank you for all those questions. And our next question comes from the line of Alice Beebe Longley of Buckingham Research Group, Inc. Please go ahead.

Alice Beebe Longley - Buckingham Research Group, Inc

Hi, this is Alice Longley, and also Bill Schmitz. So, I’ll begin with my question and then move on to Bill. I have more questions about the assumptions for the battery business for the year. It sounds like you, the category globally in value terms you’re saying is maybe flattish that I guess globally you lost share, which is why your organic sales growth was down. Your guidance to us is that, does that assume that you’re organic sales growth globally in batteries continues to be down, low-to-mid single digit?

Daniel J. Sescleifer

Alice, this is Dan. For the year remaining, we’re expecting it to be flat to slightly positive and the big element of that is the aforementioned pricing that we’re taking in the U.S.

Alice Beebe Longley - Buckingham Research Group, Inc

Do you expect to continue to lose share globally, or to hold or gain for the rest of the year?

Daniel J. Sescleifer

Yeah, our expectation is not to lose share globally.

Alice Beebe Longley - Buckingham Research Group, Inc

Okay. And then my only other question is about foreign exchange. Historically, it’s hurt your operating profits about three times as much as sales. Should I assume that will roughly continue for the next three quarters, that ratio?

Daniel J. Sescleifer

I’m sorry. Could you repeat your question?

Alice Beebe Longley - Buckingham Research Group, Inc

Historically you’ve broken out the effective foreign exchange on sales and operating profits by division. And foreign exchange has hurt operating profits about three times as much as sales. Historically, I am just wondering if that would be the case going in ahead for this year or two.

Daniel J. Sescleifer

Yeah, I can't cite -- I can't really quote the ratio. I mean, certainly well its going to impact more on the top-line and in the back half of the year, we’re facing some currency headwinds. So we would -- we’re facing that both, sales and profits going forward. And I guess just to provide a little bit of color, I think on the divisional side, it’s about $20 million of un-favorability for currencies, the majority of that is on the household side and that’s also on the profit line in the back half of the year.

Ward M. Klein

If I could add to that, again, a lot of our dollar costs, a lot of our costs are dollar based, especially in the battery side. And so – when you have dollars strength and foreign currencies devaluating, there is that squeeze on margins.

Alice Beebe Longley - Buckingham Research Group, Inc

Okay. Thank you very much. And now Bill.

Ward M. Klein

Okay, go.

William Schmitz - Deutsche Bank

Hey, guys can you just give us the volume and price mix for each of the segments for the quarter, so volume in households and then price mix and household and the same thing for Personal Care?

Ward M. Klein

Yeah, so for -- and I assume you’re talking on the -- you’re talking profit or sales?

William Schmitz - Deutsche Bank

On sales, well both, if you don’t mind.

Ward M. Klein

So for, on the sales side for households, volume was $34 million, unfavorable price mix was $4 million unfavorable.

William Schmitz - Deutsche Bank

Do you have in percentages because we don’t have the base volume?

Ward M. Klein

Let me just give you the dollar, yeah we could take that offline, but if you look at the $33 million sales decline in our ex-currency its around, $34 million is volume around, lets just say roughly four price mix and roughly five is a favorable impact to do elimination of pack up-sizing, okay?

William Schmitz - Deutsche Bank

Okay.

Ward M. Klein

And profitability-wise, that volume impact of negative 34 resulted in about $11 million of reduced profitability and price mix being -- falls 100% to the bottom-line, so that’s $4 million.

And within Personal Care, volume was favorable and I’m going to take ASR out of this …

William Schmitz - Deutsche Bank

Okay.

Ward M. Klein

… roughly $7 million and that was really driven by disposables. Price mix is essentially flat, and on the profit line, volume was about $9 million of favorability and price mix was slight as well.

William Schmitz - Deutsche Bank

Okay, great. And then, I’m confused about the battery category because if you looked at the scanner data from last quarter, there was sort of great volume and growth because of the combination of the hurricanes and the flood, but if you look at the reported numbers, nobody seems to be growing volume, so I’m curious was it the just massive amounts of trade inventory going into the storm …

Ward M. Klein

I think …

William Schmitz - Deutsche Bank

… or something else play here or was there a bunch of private label that we don’t track that was coming into the category and [selling] through this?

Ward M. Klein

No, I think it’s the former. As we did call out that part of -- we saw mortgaging this quarter from enquiries that went into the trade last quarter in response or in anticipation of that hurricane. They got stuck at trade because the hurricane although impacted some markets, didn’t impact the whole East Coast and we saw some retail stocking up the whole East Coast.

So, there is that kind of one-time and we’ll see that occasions where hurricanes would threaten major parts of the U.S. and don’t hit and then usually flushes up following quarter, and so we file that out. That’s about all I make of that.

William Schmitz - Deutsche Bank

Okay, but my point is that volume was in great shape last quarter either, do you mean its like you talked about pulling out the stuff forward, but if you looked at everybody, the categories reported results …

Ward M. Klein

Yes.

William Schmitz - Deutsche Bank

… but the volume was still pretty lousy?

Ward M. Klein

No, you’re right. And I think part of that is our volume went into retail trade, but it didn’t come out. And so that’s stuck at the retail level. I think we saw that. I think there is also the other factor to keep in mind and that is the elimination of pack upsizing. And all those big large factor being given away at cheap, cheap prices a year-ago, we got out of that business.

And that pack up-sizing experience allowed us -- the manufacturers to load up consumer pantries with a bunch of free batteries that they’ve got to work down. And this is all part of the cloud, are part into the U.S. numbers for sure, this past year.

Operator

Okay, thank you. That was our final question. And now I’ll turn the call back over to Ward Klein for closing comments.

Ward M. Klein

Well, that really concludes the call. And thank you everyone for joining us today. Have a good-day.

Operator

Ladies and gentlemen, thank you for participating on today’s conference call. This call will be available on replay from later on this afternoon. Thank you again for joining. You may now disconnect.

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