Energizer Holdings (ENR) Alan R. Hoskins on Q1 2016 Results - Earnings Call Transcript

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Energizer Holdings, Inc. (NYSE:ENR)

Q1 2016 Earnings Call

February 03, 2016 10:00 am ET

Executives

Jacqueline Burwitz - Vice President - Investor Relations

Alan R. Hoskins - Chief Executive Officer & Director

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Analysts

William B. Chappell - SunTrust Robinson Humphrey, Inc.

William G. Schmitz - Deutsche Bank Securities, Inc.

Stephen R. Powers - UBS Securities LLC

Janani Reddy Ganta - Bank of America Merrill Lynch

Kevin Grundy - Jefferies LLC

Carla M. Casella - JPMorgan Securities LLC

Operator

Good morning, everyone. My name is Jamie and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer's First Quarter Fiscal 2016 Conference Call. After the speakers' remarks, there will be a question-and-answer session. As a reminder, today's event is being recorded.

At this time, I would like to turn the conference call over to Jackie Burwitz, Vice President of Investor Relations. Ma'am, you may begin your conference.

Jacqueline Burwitz - Vice President - Investor Relations

Good morning and thank you for joining us. During the call, we will discuss our fiscal first quarter results and provide an update to our outlook for fiscal 2016. With me this morning are Alan Hoskins, Chief Executive Officer; and Brian Hamm, Chief Financial Officer. This call is being recorded and will be available for replay via our website at energizerholdings.com.

During the call, we may make statements about our expectations for future plans and financial and operating performance. Any such statements are forward-looking statements, which reflect our current views with respect to future events. Investors should review our SEC filings for a description of the risk factors affecting our business. Those risks may cause actual results to be different from our forward-looking statements. We do not undertake to update these forward-looking statements.

During this call, we will also refer to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in the press release issued earlier today, which is available in the Investor Relations section of our website, energizerholdings.com.

With that, I would like to turn the call over to Alan.

Alan R. Hoskins - Chief Executive Officer & Director

Thanks, Jackie. And good morning, everyone. As you've seen in our earnings release earlier this morning, our team delivered solid results in the first quarter, and fiscal 2016 is off to a strong start. Overall in the quarter, organic revenues were up 9.5% and adjusted earnings per share were up 1.8% versus prior year, despite significant currency headwinds. As Brian will talk about in a few moments, there were three drivers of the organic revenue gains versus prior year.

First, timing. Approximately $15 million of the outperformance related to a favorable year-over-year comparison due to a shift in the timing in holiday sales between September and December quarters over the last two years. We also saw earlier replenishment orders as approximately $12 million of sales shifted into the first quarter from the second quarter.

Second, innovation. We continue to rollout EcoAdvanced in targeted markets around the globe. EcoAdvanced sales totaled $15 million in the quarter. And third, organic sales were driven by distribution gains, price increases and favorable mix impacts. We were able to execute effectively in both measured and non-measured channels during the holiday season. In addition, favorable pricing and mix impacts were realized across many of our major markets. In total, price mix and distribution gains added approximately 1% to our first quarter organic revenue growth.

Overall, we continue to see positive signs that the strategies and objectives that we have put in place since our spinoff are paying off. Our teams were able to increase distribution and implement price increases in several markets, while continuing to closely manage costs. Through our important holiday selling season, we continued to see positive signs in the battery category. Global category value outperformed volume performance, as we saw a continued mix shift from the price segment to the premium, performance and specialty segments of the category, and a reduction in the frequency and depth of promotional activity.

Overall, total global category volumes were down 0.3%, and value was nearly flat in our latest 12 weeks data. In our largest market, the U.S., total category value was down 0.9%, and volumes were down 3.6% during the holiday season, reflecting a decrease in promotional volume as the category lapse elevated prior-year deep discounted activities that were not repeated this year.

As an organization, we continue to focus on our three core strategic priorities: leading with innovation, operating with excellence and driving productivity gains, and these have not changed since what we announced on Investor Day. Energizer continues to bring new innovation and marketing news to the category. We continue to roll out EcoAdvanced, the world's first battery made with 4% recycled batteries in our priority markets. EcoAdvanced allows us to capitalize on the growth within the performance segment of the category by driving trade-up.

During the quarter, we also launched an upgrade to our flagship Energizer MAX brand, now our best-ever performing MAX products. And we plan to continue to launch innovation in other areas of our portfolio throughout the remainder of the year.

We also remain focused on operating with excellence, and our strong first quarter results demonstrated our ability to do so. Our teams delivered strong operating performance driven by a high level of execution, as we were able to offset the impact of currencies, our go-to-market changes and prior year temporary shelf gains that were not repeated. In addition, we implemented price increases in several markets to partially offset the impact of the strong U.S. dollar.

And finally, we continued to drive productivity through the organization. We have worked very hard over the last two years, and through the spin, to embed a cost-conscious culture in our organization. Most recently, we implemented zero-based budgeting efforts and as a result, have seen improvement in our SG&A levels. We continue to make strong progress as we move forward with our productivity initiatives on both trade investment and integrated supply chain optimization, as well as working capital improvement and procurement savings.

And now, I will turn the call over to Brian for a more in-depth financial review of the quarter and an update to the outlook for fiscal 2016. Brian?

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Thanks, Alan, and good morning, everyone. I'll begin by discussing the financial overview of the quarter and then provide an update to our full-year outlook.

As Alan mentioned, we had a strong start to our fiscal year. Sales, gross margin and earnings all performed well despite significant currency headwinds. As we discussed on our November call, we expected favorable comparisons this quarter due to a shift in timing of holiday orders from the fourth quarter to the first quarter. Not only did this occur, but we also experienced earlier than expected replenishment orders. In total, net sales increased 1%; breaking that down, organic net sales increased more than 9% due to the favorable timing of volume shifts, hurricane response sales, incremental innovation, increased distribution, pricing gains, and a favorable mix shift to premium, performance and specialty segments.

Foreign currency headwinds impacted our top-line by approximately $33 million, resulting in nearly a 7% decline. The impact of our go-to-market changes, including the exit and shift to distributors in certain markets, resulted in a 1% decline in net sales. However, it's important to highlight that the net impact of the go-to-market changes generated a positive impact on operating profit. And Venezuela deconsolidation reduced sales by approximately $3 million, or less than 1%.

Looking at our organic sales performance across the four segments. North America organic sales increased $32 million, or 12.5%, driven primarily due to favorable volumes due to the shift in timing of holiday shipments, earlier than expected replenishment orders at the end of the quarter, and hurricane response sales. In addition, we realized improvements from increased year-over-year EcoAdvanced shipments, and we continued to perform well in both measured and non-measured channels. These gains were partially offset by the previously mentioned prior-year promotional activities that were not repeated in the current year. We've now fully lapped these activities, which impacted our fourth quarter 2015 and first quarter 2016 comparatives.

Our Europe, Middle East and Africa organic sales increased $10 million, or 8%, due to distribution gains, price increases and timing of distributor orders. We continued to gain share in targeted European markets and EcoAdvanced continues to perform well in certain European markets where consumers are more environmentally focused, which plays into their purchase decision.

Latin America organic sales were up nearly $5 million, or 12%, driven by pricing actions across multiple markets, timing of shipments in distributor markets and strong sales in Argentina, due to pricing gains and increased inventory availability. As you're aware, the Argentine peso experienced a significant devaluation in mid-December. At current rates, the impact is projected to generate an additional $11 million of foreign currency headwind for the full fiscal year at the net sales line, and $8 million in segment profit. We have already taken actions to increase pricing to partially offset the full year impact.

In Asia-Pacific, organic sales were up $1.4 million or nearly 2%, primarily due to increased volumes. However, we expect the competitive environment across Asia, and particularly in Australia to remain fierce through the balance of the year due to increased private label activity driven by certain discount retailers.

Now on to gross margin. The gross margin rate for the quarter was 45.3% or 130 basis points below prior year. The decline was primarily driven by unfavorable currencies as most of our raw materials are denominated in U.S. dollars, which unfavorably impacts the gross margin rate as foreign currencies weakened. Excluding the impact of currencies, go-to-market changes and Venezuela, our gross margin rate increased 190 basis points. This improvement was primarily due to lower commodity cost and a favorable product mix as higher margin premium, performance and specialty product shipments increased.

These favorable items were partially offset by higher costs related to investment behind product performance improvements. A&P spending was below prior year by $4 million or 100 basis points on a percent of sales basis with nearly $2 million due to the impact of currencies. The operational decrease in the current quarter is primarily related to the lapping of the increased A&P support ahead of the EcoAdvanced launch in the prior year and reduced spending associated with our international go-to-market changes.

SG&A as a percent of sales excluding unusuals decreased 230 basis points due to timing of certain expenditures, the benefit of our zero-based budgeting efforts and leverage from higher sales in the quarter. EPS on an ex-unusual basis was $1.16 or 1.8% above prior year which included a $0.33 negative impact from unfavorable currencies. Spin and restructuring-related charges in the first quarter were $10 million, of which $6 million was recorded within SG&A and $1 million was recorded within cost of goods sold. We expect to incur up to $15 million of final charges for the full fiscal year 2016.

Moving to the balance sheet, we ended the quarter with $556 million in cash, an increase of $54 million versus the end of fiscal 2015. Approximately 87% of our cash is held offshore. We generated $88 million of free cash flow in the quarter, driven in part by improvements in days in inventory. Days in inventory is a targeted initiative (12:32) of ours and we made good progress this quarter. Our debt level is approximately $1 billion which equates to 2.8 times debt-to-EBITDA. And in addition to paying our quarterly dividend, we also repurchased 600,000 shares of stock, approximately 1% of total outstanding shares.

Now turning to our full-year outlook. As Alan stated earlier, we're off to a strong start to the fiscal year. As a result, we have identified several investment opportunities in the back half of the year, which will likely result in increased cost in fiscal 2016, but which we believe will benefit the long-term outlook for our business. I'll touch on a few key 2016 financial metrics in our full-year outlook.

First, net sales. Total net sales are now expected to be down low-to-mid single digits, an improvement versus our prior outlook of down mid-single digits. As organic sales are now expected to be flat-to-up low-single digits, reflecting the positive performance in the first quarter while accounting for the timing impacts as some sales were shifted from the second quarter into the first quarter due to holiday replenishment orders received earlier than normal.

Unfavorable foreign currencies are expected to reduce net sales by $65 million to $75 million, or 4% to 5%. This is an increase versus our previous outlook due primarily to the impact of the Argentina devaluation and further weakening of the Canadian dollar, the pound and the Russian ruble. International go-to-market changes are expected to reduce net sales in the low-single digits, consistent with our previous outlook, and change in Venezuela results, due to the previously announced deconsolidation, will reduce net sales by $8.5 million, or 0.5% for the full year.

Next, gross margin rates are expected to decline by up to 250 basis points as favorable commodity cost and improved product mix are more than offset by unfavorable currency, international go-to-market changes and the impact from the Venezuela deconsolidation, and higher product cost related to product improvements. This is an improvement versus our previous outlook, reflecting increased favorability in commodities and purchased product cost.

We are still expecting full-year SG&A as a percent of sales to be in the low 20%s. First quarter SG&A, excluding spin and restructuring charges, was 15.3% on a percent of sales basis due in large part to the benefit of an improved top-line performance and timing of certain expenditures. Pre-tax income is expected to be negatively impacted by the movement in foreign currencies of $55 million to $65 million, net of hedge impact, slightly more unfavorable than our prior outlook. Our income tax rate is expected to be in the range of 30% to 31%. This is consistent with our previous outlook.

Adjusted EPS outlook remains unchanged at $1.90 to $2.10. However, we are now projecting the high end of that range as we expect a portion of the quarter one favorability to flow through to the full year, partially offset by the previously mentioned increased investment spending and additional currency headwinds. EBITDA is also expected to be at the upper end of the previously provided $275 million to $295 million range. Free cash flow is now expected to exceed $150 million. CapEx is still expected to be in the range of $35 million to $45 million. It's important to note that our updated outlook is based upon current currency rates and trends within our competitive environment. In the event either materially change, we may need to update our outlook accordingly.

Before I turn the call back over to Alan for closing remarks, I want to review the quarterly flow for the remainder of the year versus fiscal 2015. These are largely the same as they were last quarter, but I thought it would be helpful to remind investors of these items as we move through the year.

In the second quarter, there will be a challenging prior year comparison, as last year organic sales were up due to the launch of EcoAdvanced in the U.S. In addition, approximately $12 million of replenishment orders this year shifted from the March quarter to the December quarter and will likely impact results over the next two quarters. Also, based upon current currency rates, we expect the continuation of significant currency headwinds on a year-over-year basis. We'll continue to experience the impact of the go-to-market changes. And finally, this will be the last quarter we experience the effects from the Venezuela deconsolidation.

In the third quarter of fiscal 2015, organic sales were nearly flat. In addition, we will begin to fully lap the impact from the go-to-market changes. In total, we expect this to be the quarter where many transitional items will begin to moderate and the year-over-year organic revenue comparisons become more meaningful. However, we will continue to experience foreign currency headwinds and year-over-year comparability issues within SG&A and other financing as prior year amounts are based upon carve-out accounting and not necessarily representative of our standalone cost structure. As a result, we expect a significant unfavorable comparison within SG&A and other financing versus the prior fiscal year.

Finally, although the fourth quarter of fiscal 2015 organic sales were down 8%, we do not believe it will have a material impact from a year-over-year comparison standpoint, as the decline was a result of certain fiscal 2014 promotional activities that were not repeated. As such, the year-over-year organic revenue comparison in the quarter will be more normalized. This will also be the first quarter in which our prior year SG&A, interest expense and other financing comparisons are based upon our standalone results.

Now I'd like to turn the call back over to Alan for closing remarks.

Alan R. Hoskins - Chief Executive Officer & Director

Thanks, Brian.

To reiterate, fiscal 2016 is off to a strong start, and the organization is focused on executing our strategies and delivering top-tier free cash flow performance. The underlying fundamentals of our business continued to improve, and we have a strong foundation to drive long-term shareholder value. As we have said before, our goal of delivering long-term shareholder value isn't comprised of an either-or approach in regard to our strategic priorities, but a combination of reinvesting in our business, returning cash to shareholders, and adding value to our portfolio through acquisitions.

During the quarter, we continued to invest in our business with innovation and productivity improvement initiatives. We also returned cash to shareholders through our quarterly dividend of $15 million, and share repurchases of $21 million or 600,000 shares. We also continued to look for M&A opportunities very aggressively. We will continue to balance these three drivers in order to maximize long-term shareholder value.

This completes our prepared remarks. And at this point, we'll be happy to take your questions. Back to you, operator.

Question-and-Answer Session

Operator

Ladies and gentlemen, we're ready to begin the question-and-answer session. Our first question today comes from Bill Chappell from SunTrust. Please go ahead with your question.

William B. Chappell - SunTrust Robinson Humphrey, Inc.

Thanks. Good morning.

Alan R. Hoskins - Chief Executive Officer & Director

Morning, Bill.

William B. Chappell - SunTrust Robinson Humphrey, Inc.

Can you – good morning. Can you just talk a little bit more about – I'm just trying to understand, especially in North America, kind of what organic growth would've been, excluding the kind of pull-forward pushback? And also maybe a little more color on the early replenishments. I'm just trying to understand, that seemed to happen both in the U.S. and around the world. Like, why would that be happening? Is it just faster sell-through? Or is it more of inventory management from the retailers?

Alan R. Hoskins - Chief Executive Officer & Director

Yeah. Bill, it's Alan. Let me take the second question first. Then I'll ask Brian to address the first one. So as you think about the pull-forward from Q2 to Q1, it was really January into December. As we went into our planning with our customers this year, not only is there a balance between trying to make sure you've got the right level of inventories in the store, in the backroom and in the DCs, it's also making sure that we put in place the proper inventory and sort of mitigate any potential out-of-stock situation that might occur. This was really important for our retail partners this year, to make sure that the pegs were full and that we didn't generate any lost sales.

So this year was probably a much more balanced approach to making sure there was sufficient inventory on the floor. We did see, because of the softer comp we had in Q1, strong sales. And as a result, you saw early replenishment flow through from January into December. And I'll turn it over to Brian on the second, in terms of organic sales.

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Bill, obviously, there's a lot of moving parts within the quarter, and even over the balance of the year, it's going to be a bit choppy. The way to think of our organic sales for, globally, a 9.5% organic sales increase. About 3% was driven by timing, those sales shifting from quarter four into quarter one. We knew that there was going to be a soft prior-year comparison. We would get that benefit. About 3% was EcoAdvanced sales. Innovation – which we launched in the second quarter, so we had a favorable year-over-year comp there. We had the 2% driven by the quarter two sales, the early replenishment, shifting into quarter one and the final piece, it's 1% of distribution and pricing gains.

And so as we entered into the quarter, we knew that we had a strong lap, because there were certain promotional activities that we decided to not repeat. We talked about that over the last couple of calls. We knew that that was going to be a headwind. We were able to gain additional distribution to offset that impact, and then we saw pricing and favorable mix flow through. And so, the combination of the net of the distribution gains, plus positive pricing and mix, generated the 1% organic growth, and that's really the underlying driver of the business that we – that's included in our full year guidance as well.

William B. Chappell - SunTrust Robinson Humphrey, Inc.

Okay. That's very helpful. And just quickly on share repurchase, I understand you did some in the quarter, but it's still been relatively small since you've been a standalone company. Was that in part because you were blacked out – there were only so many days or is – you're really trying to just hold back for a couple of quarters to see what other options there are out there?

Alan R. Hoskins - Chief Executive Officer & Director

Yeah. So, Bill, Alan. During the quarter, we repurchased 600,000 shares, so we have 6.9 million shares left under authorization. The total we spent on the repurchase was roughly $21.8 million at an average price of $36.25 per share. We intend to continue to fully put our capital to work. But as I've indicated consistently since Investor Day, we really want to make sure we strike the right balance. And again, first priority for us is reinvesting in the business and we're starting to see that show as you can see in our results.

Second, we will continue to pay a meaningful dividend as part of that balance. And after that, we're going to opportunistically repurchase shares and pursue selective and disciplined M&A. I think the headline I give you is keep in mind these aren't mutually exclusive. Rather, we feel that the strategies that we have is really about leveraging all of these alternatives to create what we believe will generate the best long-term value for our shareholders. So overarching strategy has not changed, and maybe I'll let Brian expand a little bit in terms of go-forward.

Brian K. Hamm - Chief Financial Officer & Executive Vice President

No, I think it summarizes it well. It's really trying to strike that balanced approach and looking at short-term, mid-term and long-term cash needs and opportunities. And ultimately, it's going to depend upon what we believe will generate the best long-term value for shareholders.

William B. Chappell - SunTrust Robinson Humphrey, Inc.

Great. I'll turn it over. Thanks so much.

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Thanks, Bill.

Alan R. Hoskins - Chief Executive Officer & Director

Thanks, Bill.

Operator

Our next question comes from Bill Schmitz from Deutsche Bank. Please go ahead with your question.

William G. Schmitz - Deutsche Bank Securities, Inc.

Hi. Good morning.

Alan R. Hoskins - Chief Executive Officer & Director

Good morning.

William G. Schmitz - Deutsche Bank Securities, Inc.

Hey, is there any way to sort of desegregate how much of the margin upside was driven by the pull-forward from the fourth quarter and the pull-in from the second quarter?

Brian K. Hamm - Chief Financial Officer & Executive Vice President

In dollar terms? In Alan's prepared remarks, about $15 million of sales were shifted from quarter four to quarter one. About $12 million of sales were shifted from quarter two into quarter one. You can imply overall gross margin rate of 45.3% and get pretty close.

William G. Schmitz - Deutsche Bank Securities, Inc.

Gotcha. But wouldn't there be a ton of incremental margin because you've already absorbed the overhead from those sales? Because the SG&A ratio was way lower than we thought it was going to be.

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Oh, I'm sorry, Bill. I thought you were talking about gross margin.

William G. Schmitz - Deutsche Bank Securities, Inc.

No. I was talking about just like the EBIT impact.

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Yeah. So, most of our SG&A cost structure, a portion of it is variable. But a large portion of it is fixed compensation-related items. And so a lot of that gross margin flow-through would flow through to the bottom line as well. There are some variable components, but a lot of the gross margin would flow through to EBIT.

William G. Schmitz - Deutsche Bank Securities, Inc.

Okay. Got you. And then it looks like in some of the scan data, and I know it's not very exhaustive at all, but it seems like the category is massively inflecting (26:37) your sales. So, I'm curious of what's going on in terms of sell-through because the year-over-year comparison wasn't anything to speak of, either up or down. So I'm curious why that category has gotten so strong recently. And then maybe some commentary on Europe because you guys have had some great results in the year ago, at least in some of the syndicated stuff. And now it seems like shares are declining a little bit and sales are down.

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Yeah. So let me kind of give you a walkthrough on the category, Bill. And this may address some of the other questions that come up. So overall, the category continues to show signs of stabilizing. As you think about category value trends, during the latest 12 weeks, are actually consistent with the 52-week trends. Value also continues to outpace volume globally and in the U.S. So as you look at the latest 12-week data for total battery category globally, volume was down three-tenths of a percent. Value was up one-tenth of a percent.

In the U.S., it's a little bit different, with volume down 3.7% and value down nine-tenths of a percent. A couple things to call out there. As you look at developed markets, we see those continue to show signs of stabilizing during the latest 12 weeks. They're basically down about 0.1%, but developing markets continue to grow. They're up 1.3% on a value basis during the latest 12 weeks. I think the headline to kind of take into consideration that each market is very different. So, let me kind of give you the headlines out of each of the four areas in the world where we compete.

North America is very focused on value maximization, bringing innovation to the category and driving trade-up. We are seeing that in other markets as well, but there are more prevalent trends that seem to be occurring.

In Asia, it's really about competition. The environment right now is very fierce and I'll take Australia as an example. You're seeing the entrant of extreme-value retailers that have strong private-label programs and that's creating a lot of competitive activity there. Lat Am, it's really about the fact that there's a lot of hyper-inflationary markets.

And in the Europe, Middle East and Africa, to answer the latter part of your question, a lot of that, in Europe in particular, is a result of the fact that private-label has very high penetration that the branded manufacturers have to compete with. When you look at the value share within Europe, it sits right at around 25% and that compares to 12% in the U.S., mid-single digits in Asia and low-single digits in Latin America.

We did see some growth in Germany and Spain, in particular, on a unit basis. In Europe, however, AUPs were actually down almost 4.9% and, overall as a result, we did see our private-label value decline during the quarter 1.3%.

So I think all-in, as we look at the category, it's really different market-to-market. But if you take the largest battery market, which is the U.S., it's where we are seeing the biggest improvement in the trends, and again the 12-week being consistent with the 52-week, as there is a shift from what you would consider to be Price segments to Premium, Performance and the Specialty segments. And as a result of that, you're seeing higher valuation in the category and that's flowing through.

The second thing is, the big trend driver there is innovation. So within the performance alkaline segment, you've seen all three manufacturers bring innovation. As an example, Energizer's EcoAdvanced performance alkaline and that's enabled us to drive trade-up both within the category and then from the Price and Premium segments into the Performance segment.

And then lastly, in particular in the U.S., you're seeing a decrease in promotional activity in both frequency and the depth of promotion. So the overall category dollars sold on promotion is down versus the prior year.

So all-in, we'd remain successful as a result of the fact that we've been able to gain profitable share. And we've done that by staying squarely focused on the three strategic priorities that we've shared with the community starting on Investor Day, which was leading with innovation, driving productivity gains and operating with excellence. And I wouldn't discount the importance of the last one. We have spent a significant amount of time and energy to ensure that we win at retail by focusing on very effective category fundamentals which have helped us in our overall base share (31:11). So, that's a snapshot of what's going on in the category, both globally and more particularly the U.S.

Operator

Our next question comes from Steve Powers from UBS. Please go ahead with your question.

Stephen R. Powers - UBS Securities LLC

Great. Thank you. Maybe just to start – a follow-up on repurchases and I apologize in advance, there's a good deal of numbers in this question. But I'm just looking to frame your capacity for more buybacks going forward without adding leverage or having to repatriate overseas cash. And it sounds like you have about $70 million-$75 million in U.S. cash today, plus an incremental $60 million or so in free cash flow still to come beyond the strong Q1 performance, which I've seen a good deal of in the U.S. But a lot of that looks like it's just going to be earmarked for the dividends. So if I do the math, is $70 million a good round number to use in terms of excess U.S.-based cash that you may be able to deploy before borrowing or repatriation?

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Yeah, our U.S. cash balance at the end of the quarter was $70 million. You're right, the dividend, which is funded out of the U.S., will be $15 million roughly per quarter at our current dividend rate. And then generating, for the balance of the year, free cash flow generation in total, we're projecting to exceed $150 million of free cash flow generated for the full year. Roughly about half of that is generated in the U.S. The other half is abroad, and we'll always look for tax-efficient ways to bring international cash back to the U.S.

Stephen R. Powers - UBS Securities LLC

Okay. Thank you. That's confirming. And I guess, stepping back, looking – thinking about your M&A aspirations in the context of market volatility, I'm just curious to see, to have your thoughts on how that volatility impacts potential timing of M&A from your perspective. Do you see the volatility more as an opportunity, especially in light of the strong performance so far this year? Or does it make you more cautious and actually raise the bar on your saying yes to a deal near term?

Alan R. Hoskins - Chief Executive Officer & Director

Yeah, it's a great question. I think for us, as we've said from the beginning, we're going to be very selective and disciplined in our approach to M&A. And keep in mind, again, I want to reiterate, it's really about striking a balance between reinvesting in the business, providing return of capital to shareholders, and M&A. And if you think about it, since the spin, we've either executed against or analyzed all three of these.

So let me give you a little bit of background. We've reinvested in our business in initiatives that improve our cost, performance of our products and efficiency. And the example would be installing SAP in Europe, investing in our product improvements, or our revenue management initiatives, which we can talk about a little bit later in the call. We've also provided a meaningful and competitive dividend and recently repurchased 600,000 shares. And on the M&A front, we have been very aggressive in evaluating M&A opportunities. We will continue to do so.

Again, by being disciplined, we are making sure that we continue to use an approach that's very selective, very disciplined, and what we believe will allow us to generate long-term shareholder value. And again, as we have talked about earlier, this is really about leveraging our global footprint, the broad channel span that we have, making sure that whatever we look at financially has stable margins, strong cash flows and reasonable growth, you know, our ability to be able to take the category and expand it further. And then finally, we want to make sure that whatever we look at, we can operationalize across our business. And these are just to name a few.

So the management team has really been, and will continue to be, proactive in analyzing the best ways to put our capital to use. M&A will continue to be one of those. I will tell you, for the things that we have looked at so far, candidly, they've either not been a fit, or the financial or business characteristics weren't in line with our expectations and the criteria that we've set. And as a result chose not to pursue them any further. But we will continue to look at assets that become available, based on the criteria we set to determine whether or not they're going to add that long-term shareholder value.

Brian, anything you want to add?

Brian K. Hamm - Chief Financial Officer & Executive Vice President

Just to build on a couple of points. Obviously, over the last 30 days to 60 days, there was some volatility within the debt markets. We're mindful of that. And the cost of capital has increased a bit from what we saw earlier in the year, in the summer and into the fall. And so we take all of those factors into account. And, just to reiterate a point that Alan made, we're not going to do M&A for M&A's sake. However, we do have a global footprint and distribution in multiple channels and, as a result, we think that we owe it to our shareholders to continue to look at opportunities as they arrive, and striking that right balance we've talked about several times.

Operator

Our next question comes from William Reuter from BofA. Please go ahead with your question.

Janani Reddy Ganta - Bank of America Merrill Lynch

Hi. This is Janani on for Bill today. Thanks for taking my questions. So you mentioned that there is a favorable product mix shift to premium performance and specialty products. What do you think is driving this shift?

Alan R. Hoskins - Chief Executive Officer & Director

Yes. So, hi, it's Alan. So a couple things. Again, a little background for you. The premium segment in the category is relatively flat. It's up 0.1%. The performance segment is up 2.2%, and the price segment is actually declining 2.7%. This is on a latest 12-week value basis. And again, these trends are very consistent with what we've seen on a 52-week basis. So there's a couple things that have occurred within the category. That shift is being driven primarily as a result of, if you take the top three manufacturers in the category, all have introduced innovation to the category to add value to the category. And as a result of that, you're seeing trade-up, which is a key component to driving value, occur within the category. Again, shifting from price to premium and then premium to performance.

The second thing is, you're seeing pretty good growth in what we consider to be, or what we call the specialty segment. The specialty segment really consists of electronic batteries and hearing aid batteries and photo batteries. And most of the growth in that particular fast-growth segment is really coming from both the electronic and the hearing aid sub-segments. It's a fast-growing segment. Matter of fact, it's up 4.8% in volume and 3.8% in value during the latest 12 weeks. It's a very profitable segment to the retailer, so they get behind this both from a merchandising and a listing standpoint. And for Energizer, in particular, it's helpful because we have a 45% share in that particular segment and we're up 1.8 points. So that is a second factor that we're seeing within the mix shift that's occurred.

The other is, candidly, our estimation when we had talked about the category being in low-single-digit decline over time, our forecast for the price segment was to decline probably at more moderate rates than what we're seeing. We're actually seeing the price segment decline much faster than what we had modeled. So those three things are really driving the mix shift that you're seeing occur in the category. Now keep in mind it's different market to market, area to area, but in general those are the trends that are pretty consistent around the globe.

Janani Reddy Ganta - Bank of America Merrill Lynch

Great. Thank you. And then on the incremental gains from EcoAdvanced you mentioned, have they come from your existing products? Or do you think you've gained more shelf space with that?

Alan R. Hoskins - Chief Executive Officer & Director

Yes. So a couple things. The headlines I'd give you on EcoAdvanced is we continue to be really pleased with the launch. We are meeting all of our ACD distribution and display share goals at this point in the launch, so we're pleased with that. We're certainly seeing share grow, so the value share sits around 1% in the U.S., 1.5% overall. When you look at some Western European markets where consumers have a higher environmental focus, our shares are actually high-single-digit, approaching low-double-digit shares. So this is in line with our share expectations of 2% to 15%, depending on the market over time.

Since launch we've shipped roughly $56 million in sales and we expect that to continue as its trial accelerates post-holiday. We've launched in all of our major markets. We are now launching in secondary markets. Inventory levels are a little high again because of the off-shelf display locations that we've been driving, requires more inventory and that's where you've seen us pick up space beyond the main home (40:12) location. We're very pleased with both the trial and repeat purchase rates. So trial right now for us is at a level similar to other competitive launches in the space and our repeat purchase rates are actually higher than what we've seen from competitive launches. So all in we're very pleased with that.

As you think about where the volume is coming from, we're sourcing a majority of the volume from competitive products. So cannibalization at this point is very minimal and we're very pleased that the copy that we've been running is very effective. So we've seen improvements in our brand equity measures as a result both of the media wave we've put behind the launch and the effectiveness of the copy.

Operator

Our next question comes from Kevin Grundy from Jefferies. Please go ahead with your question.

Kevin Grundy - Jefferies LLC

Thanks, guys. Good morning.

Alan R. Hoskins - Chief Executive Officer & Director

Good morning.

Kevin Grundy - Jefferies LLC

So my first question, Alan, I just wanted to come back, you provided a lot of helpful detail on the call, but going back to your longer-term algorithm of the low-single-digit decline that you expect in the category, I just want to make sure that I'm not sort of mischaracterizing some of the commentary today. That's still your outlook despite some of the encouraging data that we've seen in Nielsen. A lot of the commentary today seems to be more on the opportunity with respect to innovation and mix. Is that sort of a fair characterization? There's not necessarily a move away internally on the company's part from the low-single-digit declines expected from a volume perspective globally?

Alan R. Hoskins - Chief Executive Officer & Director

Yes. Kevin, I think that's an accurate statement. Our outlook continues to be that the category will be down low-single-digits over time. And let me give you a little background on why. We don't really anticipate given the research that we do that there'll be any device or demographic trends that would make us think any differently about that projection. Although some mix shifts have occurred as an example within the price segment declining faster than our outlook, we're still pretty much holding true to that.

Now I think what you'll find is we're going to stay true to the core strategies that we've put in place to continue to bring value to the category given that current projection, and we believe we can do that through both innovation and really driving trade up within the category to higher priced alternatives given that consumers have a need and the desire for those types of products. So we're going to continue down that path. That is working well for us.

Kevin Grundy - Jefferies LLC

I see. And, Alan, can you put some numbers on that in terms of the portion of the category that is premium now that you think you can sort of premiumize over a period of time and drive consumer trade up. Can you put some numbers on that in terms of helping us understand where you think the opportunity is over time?

Alan R. Hoskins - Chief Executive Officer & Director

Yes. That's a great question. I'd prefer candidly not to speculate on what that would be. What I can tell you is almost two-thirds of all the category sales are in the premium and performance segment. And given what we're seeing over the latest 52 weeks in terms of the shift from the price segment to premium and performance, you can probably do some rough math on your own to come up with a pretty good estimate. But we're confident that the plans we have in place will be able to continue to drive those trends.

Kevin Grundy - Jefferies LLC

Okay. Thanks...

Brian K. Hamm - Chief Financial Officer & Executive Vice President

I just want to reiterate. By maintaining our long-term outlook of low-single-digit decline in the category, it really speaks to our emphasis and continued focus on cost reduction and driving productivity improvements. That hasn't changed. In order for us to win and grow that low single-digit EBITDA that we've communicated previously, we have to continue to find the ways to take cost out of the business and continue to operate more effectively, and so that focus has not changed one bit.

Kevin Grundy - Jefferies LLC

Okay.

Operator

And our next question comes from Carla Casella from JPMorgan. Please go ahead with your question.

Carla M. Casella - JPMorgan Securities LLC

Hi. You talked about inventory. And you see the inventory days coming down. Do you have a specific target or amount you expect to reduce inventory for the year?

Alan R. Hoskins - Chief Executive Officer & Director

Yes. As we executed our 2013 restructuring project, internally we call it Project Transformers, we made several significant changes to our manufacturing footprint. We reduced our number of manufacturing facilities from 14 down to seven. As a result, we made a conscious decision to not target days in inventory. We knew that as our global supply chain adjusted, there would be an uptick in days in inventory and we saw that.

However, days in inventory since we're post the restructuring, our manufacturing footprint, our supply chain has stabilized and as a result improving days in inventory is definitely a target and a focus for us. We went from 113 days of inventory as we ended the year – the September quarter, and we improved it six days ending the 12/31 quarter to 107 days of inventory. We'll continue to make progress on that. We did not discuss externally the specific target around days in inventory, but it's a key driver that's going to allow us to continue to grow free cash flow on a year-over-year basis.

Carla M. Casella - JPMorgan Securities LLC

Okay, great. And then you mentioned on the M&A front you'll continue to look for opportunities. How comfortable are you with leverage? How far up would you take leverage for the right M&A opportunity?

Alan R. Hoskins - Chief Executive Officer & Director

It really depends and we haven't speculated as to how high we would be willing to go. It would depend upon the deal, the amount of synergies we could get, the cash flow that would generate from the business and so it's all deal-dependent.

Carla M. Casella - JPMorgan Securities LLC

Okay, great. That's all I have.

Alan R. Hoskins - Chief Executive Officer & Director

Thank you, Carla.

Operator

Ladies and gentlemen, at this time I'm showing no additional questions. I'd like to turn the conference call back over to the speakers for any closing remarks.

Alan R. Hoskins - Chief Executive Officer & Director

Yes. So, again, I want to thank everyone for joining us on the call today. Obviously a very positive quarter. As Brian alluded to in our prepared remarks and in the Q&A, we do have some tough comps in Q2, and we feel we've got very strong plans to continue to drive continued value in the category. And I just want to reiterate because we've been very consistent from Investor Day. We will squarely remain focused on our three strategic priorities of leading with innovation, driving productivity gains and operating with excellence. We believe that in doing so it positions us well to win in the category, regardless of the scenario we face. So we're getting traction behind that. We'll continue to remain focused on that. And, again, we appreciate everyone's time today in joining us on the call. Thank you. Operator?

Operator

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.

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