Executive Summary / Key Takeaways

• Strategic Transformation Yields Results: Energizer Holdings (ENR) has successfully executed a multi-year operational overhaul, Project Momentum, which has restored gross margins and generated substantial savings, providing the financial flexibility to invest in key growth initiatives and enhance its competitive posture.
• Innovation and In-Region Production Drive Growth: The company's focus on product innovation, such as the Armor All Podium Series and Child Shield batteries, coupled with a strategic shift to "in-region for-region" manufacturing, is bolstering market share and mitigating external risks like tariffs and supply chain disruptions.
• Production Credits and Tariff Mitigation Bolster Earnings: Significant Advanced Manufacturing Production Credits, alongside proactive pricing and sourcing shifts, are expected to fully offset tariff impacts in fiscal 2025 and 2026, contributing $35 million to $40 million annually to gross margin, net earnings, and free cash flow.
• Strong Financial Performance and Deleveraging: ENR delivered robust Q3 2025 results with increased net sales, expanded adjusted gross margins, and strong adjusted EPS growth, while continuing to prioritize debt reduction with a long-term target of below 4x net leverage.
• Positive Outlook with Strategic Investments: Management has raised its fiscal 2025 guidance for net sales, adjusted EPS, and adjusted EBITDA, signaling confidence in continued earnings growth into fiscal 2026, supported by ongoing investments in distribution, e-commerce, and market expansion.

A Legacy Recharged: Energizer's Strategic Evolution

Energizer Holdings, Inc., established in 2015, stands as a global powerhouse in household batteries, portable lights, and automotive care products. The company's journey has been one of strategic adaptation, particularly following a significant debt burden from a 2019 acquisition. This challenge catalyzed a profound operational transformation, setting the stage for its current robust performance and future trajectory.

At its core, Energizer operates in two primary segments: Batteries & Lights and Auto Care. The battery category is characterized by its resilience and essential nature, typically exhibiting low-single-digit long-term growth globally, even amidst a cautious, value-seeking consumer environment. The Auto Care segment, conversely, benefits from an aging car fleet and a consumer shift towards do-it-yourself (DIY) maintenance, though it faces mixed impacts from broader consumer caution. In this dynamic landscape, Energizer's overarching strategy has pivoted towards restoring margins, investing in growth, and building an agile operational framework, a narrative thread that weaves through its recent history and current initiatives.

Competitive Landscape and Differentiated Technology

Energizer occupies a prominent position in its markets, leveraging a portfolio of iconic brands like Energizer, Eveready, and Rayovac. This brand strength fosters deep customer loyalty, potentially translating into recurring revenue and pricing power. The company's extensive distribution networks further enhance market access, supporting growth and capital efficiency. However, Energizer operates within a fiercely competitive arena, facing both direct and indirect rivals.

Direct competitors include Spectrum Brands Holdings (SPB), Panasonic Corporation (PCRFY), and Newell Brands Inc. (NWL). Spectrum Brands, with its diversified consumer goods portfolio and efficient supply chain, often competes on value and accessibility. Panasonic, a technological innovator, particularly in advanced battery chemistries, positions itself at the premium end, attracting tech-savvy consumers with superior efficiency and longevity. Newell Brands, with its broad product diversity and retail relationships, emphasizes operational scale and cost efficiencies. While Energizer's brand heritage and accessible consumer focus provide a distinct value proposition, it may, at times, lag behind rivals like Panasonic in cutting-edge technological innovation and some competitors in operational cost structure.

Energizer's strategic response to this competitive environment involves a strong emphasis on technological differentiation and innovation. The company's core battery technology spans various chemistries, including lithium, alkaline, and nickel metal hydride, catering to a wide range of consumer needs. A key innovation is the world's first three-in-one coin lithium Child Shield battery, introduced in fiscal 2024. This product boasts secure packaging, a bitter taste to deter ingestion, and a novel color alert technology activated by saliva, setting a new standard for safety in a fast-growing segment. This innovation not only addresses a critical consumer concern but also reinforces Energizer's leadership in specialty batteries.

Furthermore, Energizer is committed to sustainable innovation through its transition to plastic-free packaging, already implemented in European markets and slated for nearly 90% of North American products over the coming years. This initiative enhances consumer appeal and aligns with evolving environmental preferences. In the Auto Care segment, the launch of the Armor All Podium Series, developed in partnership with Oracle Red Bull Racing, represents a significant technological and brand-building effort. This super-premium line of automotive appearance and air freshener products is now available in over 15,000 stores globally. The Podium Series leverages the immense global reach of Formula One (with a TV audience exceeding 1 billion) to target a fast-growing, less price-sensitive premium segment of the market. These technological advancements and strategic brand partnerships are crucial for enhancing Energizer's competitive moat, supporting pricing power, and driving market share in key segments.

Operational Transformation and Financial Strength

Energizer's financial narrative is inextricably linked to its operational transformation, particularly through "Project Momentum." Initiated in November 2022 and expanded in July 2023, this enterprise-wide restructuring program aimed to recover operating margins, optimize global supply chains, and enhance organizational efficiency. Project Momentum has been a resounding success, generating approximately $196 million in savings since its inception, with $54 million realized in fiscal 2025 alone. The program is on track to deliver over $200 million in total pre-tax savings by the end of fiscal 2025, primarily impacting cost of products sold and selling, general, and administrative (SGA) expenses.

A cornerstone of this operational agility is the strategic shift to "in-region for-region" manufacturing. Acquisitions of facilities in Indonesia (2021), Belgium (2023), and Advanced Power Solutions NV (APS NV) in Poland (May 2025) have significantly expanded Energizer's production capacity in key regions, notably Europe. This strategy not only enhances supply chain resilience but also provides crucial optionality to mitigate the impact of tariffs and geopolitical disruptions. As a result, less than 5% of Energizer's consolidated cost of goods sold for U.S. consumption now originates from China, a testament to its de-risked supply chain.

The financial results for the third quarter and nine months ended June 30, 2025, underscore the effectiveness of these strategies. For Q3 2025, net sales increased 3.4% year-over-year to $725.3 million, with organic net sales up 0.1%. The APS NV acquisition contributed $20.8 million to net sales. Adjusted gross margin saw a substantial increase of 330 basis points to 44.8% in Q3 2025, and 140 basis points to 41.9% for the nine-month period. This margin expansion was significantly driven by $112.4 million in Advanced Manufacturing Production Credits recognized in Q3 2025, including $33.9 million for current fiscal year production and a $78.5 million retroactive adjustment to January 1, 2023. Project Momentum savings further bolstered gross profit, contributing approximately $12 million in Q3 and $44 million for the nine-month period.

Net earnings for Q3 2025 surged to $153.5 million, translating to $2.13 diluted EPS, while adjusted EPS grew 43% year-over-year to $1.13. For the nine months, net earnings reached $204.1 million, or $2.80 diluted EPS, with adjusted EPS up 18% to $2.47. These figures reflect a powerful combination of top-line growth, margin expansion, and disciplined cost management.

Segment-wise, Batteries & Lights reported a 5.1% increase in net sales to $535.1 million in Q3 2025, with organic growth of 0.5%. Segment profit for Batteries & Lights rose 22.7% to $158.8 million, driven by organic sales growth, gross profit improvements from production credits, and Project Momentum savings. The Auto Care segment, while experiencing a 1.1% net sales decline to $190.2 million in Q3 2025 (organic decline of 0.9% due to strategic pricing and mild weather), saw its organic segment profit remain flat. This was achieved through improved gross margins from Project Momentum savings, offsetting increased investments in SGA and advertising for the Podium Series launch.

Capital Allocation and Forward Outlook

Energizer's capital allocation strategy remains disciplined, with a primary focus on debt reduction. The company has successfully paid down nearly $500 million of debt over the past two years and aims for an additional $100 million in fiscal 2025, targeting a net leverage ratio below 4x in the long term. In March 2025, Energizer proactively refinanced and extended its $760 million Senior Secured Term Loan to 2032 and its $500 million Revolving Credit Facility to 2030, maintaining similar interest rates and a leverage-neutral position.

While debt reduction is paramount, management has demonstrated a flexible approach, opportunistically repurchasing approximately 2.8 million shares for $62.6 million in Q3 2025, and an additional 1.2 million shares in July, capitalizing on a material decline in equity value.

Looking ahead, Energizer has raised its fiscal 2025 full-year outlook, reflecting increased confidence in its strategic initiatives and recent performance. The company now anticipates net sales growth of 1% to 3% (up from flat to 2%), adjusted EPS in the range of $3.55 to $3.65 (up from $3.30 to $3.50), and adjusted EBITDA between $630 million and $640 million (up from $610 million to $630 million). These revised figures are underpinned by the significant impact of Advanced Manufacturing Production Credits, which are expected to contribute $40 million to $45 million in fiscal 2025 and $35 million to $40 million annually in future years.

Management expects to fully offset the earnings impact from tariffs in both fiscal 2025 and 2026 through a combination of pricing actions, cost initiatives, and these production credits. While unmitigated tariff headwinds could reach approximately $150 million (85% from China tariffs at a 145% incremental rate), Energizer plans to reduce its China-sourced product by half within 12 months and rebalance its internal supply network. Capital expenditures for fiscal 2025 are projected at $80 million to $90 million, including significant investments in Project Momentum's IT systems. Free cash flow is expected to be in the range of 6% to 8% of net sales for fiscal 2025.

Risks and Challenges

Despite the positive momentum, Energizer faces several pertinent risks. Ongoing macroeconomic and geopolitical instability could lead to continued inflation, higher commodity costs, and currency headwinds, potentially impacting profitability. The realization of Section 45X production tax credits is dependent on evolving federal regulations and guidance, introducing a degree of uncertainty. Furthermore, changes in assumptions used for fair value estimates of indefinite-lived intangible assets, such as the Rayovac and Varta trade names, could result in material impairment charges. The company also navigates volatility from economic reforms in highly inflationary markets like Argentina, which can affect financial results. Legal proceedings, including class action lawsuits alleging price inflation, represent ongoing contingent liabilities.

Conclusion

Energizer Holdings has successfully navigated a period of significant operational and financial transformation, emerging with a strengthened foundation and a clear path for sustained growth. The strategic execution of Project Momentum, coupled with targeted acquisitions and a relentless focus on "in-region for-region" manufacturing, has not only restored gross margins but also built a resilient supply chain capable of mitigating external shocks like tariffs. The company's commitment to innovation, exemplified by its Child Shield batteries and the premium Armor All Podium Series, positions it to capture growth in evolving consumer segments.

The updated fiscal 2025 guidance, reflecting higher net sales, adjusted EPS, and adjusted EBITDA, underscores management's confidence in its ability to leverage these strategic advantages. The substantial contribution from Advanced Manufacturing Production Credits, alongside proactive tariff mitigation efforts, is set to power profitability and free cash flow for years to come. While macroeconomic uncertainties and competitive pressures persist, Energizer's disciplined capital allocation, focused on debt reduction and opportunistic share repurchases, combined with its robust operational and technological framework, presents a compelling investment thesis for long-term value creation.