Jacqueline E. Burwitz - Vice President of Investor Relations Daniel J.

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

Dara W. Mohsenian - Morgan Stanley, Research Division William Schmitz - Deutsche Bank AG, Research Division Wendy Nicholson - Citigroup Inc, Research Division John A.

Faucher - JP Morgan Chase & Co, Research Division Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division William B.

Chappell - SunTrust Robinson Humphrey, Inc., Research Division Jason M. Gere - RBC Capital Markets, LLC, Research Division Christopher Ferrara - BofA Merrill Lynch, Research Division Constance Marie Maneaty - BMO Capital Markets U.S.

Thanks, Patrick, and good morning, everyone. Thanks for joining us on Energizer's Second Fiscal Quarter 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 expectations of management regarding our future plans and performance, including future sales, earnings, earnings per share, capital expenditures, advertising and promotional spending, product launches, the amount and timing of savings and costs related to restructurings and other initiatives, the amount and timing of changes to our working capital metrics, the impact of price increases, currency fluctuations, tax rates, raw materials and commodity costs, category value, future plans for return of capital to shareholders and future growth in our businesses. Any such statements are forward-looking statements, which reflect our current views with respect to future events.

These statements are based on assumptions and are subject to risk and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K filed November 20, 2012. These risks and uncertainties may cause our actual results to be materially different from those expressed or implied by our forward-looking statements.

We do not undertake to update these forward-looking statements even though our situation may change, and these forward-looking statements represent our views as of today only. During this call, we will refer 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 measures 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 trends of the business. With that, I would now like to turn the call over to Dan for a review of the quarter.

Thanks, Jackie. For the second quarter of fiscal 2013, adjusted net earnings per diluted share increased $0.58 or 48% to $1.80.

Organic sales were essentially flat in the quarter, with an increase in Personal Care top line results offset by a decline in Household Products. With sales flat, the year-over-year increase in adjusted earnings per share was primarily due to improved margins across both divisions.

Adjusted net earnings excluding unusuals were up $32.8 million or 41%, while shares outstanding were 3.4 million lower in the quarter versus the prior year quarter. Turning to division results.

In Personal Care, organic sales increased 1.3% versus the prior year quarter. This result was below expectations due in part to declining dollar trends in our U.S.

measured categories, down 2.3% in the latest 12-week period as compared to up 1.1% in the latest 52 weeks. Wet Shave organic sales declined approximately 1%, primarily due to a year ago pipeline fill of Hydro Power and Hydro Silk and the weak category trends, which were partially offset by the launch of Hydro disposables in North America.

We began to ramp up distribution of the AXE Schick co-branded product launch and expect to achieve full distribution during the third fiscal quarter. This launch did not have a meaningful impact in the March quarter.

Internationally, we posted strong organic growth in men's and disposables, driven by promotional programs, especially in Asia. Finally, Shave Prep sales were down 8% due to increased discounting and promotional activity by competitors.

In our other Personal Care categories, organic sales increased 5% for the quarter. Global Skin Care sales were up 8% despite difficult comparatives from the prior year quarter on strong volumes and favorable price mix.

Growth was particularly strong in the U.S. despite slow category trends early in the Sun Care season, which only represents a small portion of total annual U.S.

consumption. Within Infant Care, sales increased 3%, driven by Diaper Genie distribution gains and increased pail sales as we continued to invest behind trial for this product line.

And finally, these gains were partially offset by declines in Feminine Care, which declined 6% due in part to a competitive new product launch and the timing of our promotional programs. Segment profit increased 10% for the quarter, driven primarily by higher sales and lower overhead spending.

For Household Products, organic sales decreased 1%, due primarily to the continued decline in category unit volumes, which was partially offset by favorable pricing in the U.S. We have now passed the one-year anniversary of the price increase in the U.S.

Volumes declined in North America and Europe, but these declines were partially offset by organic growth in Asia and Latin America. Household Products operating profit increased $31.8 million or 46%, driven by favorable product costs, lower A&P spending and reduced overheads.

These results include benefits realized in the early stages of our restructuring efforts. Now I would like to provide a little bit more insight on a couple of key line items on the consolidated P&L.

Advertising and promotion spending was down $9.2 million in the quarter, primarily due to lower spending in Household Products, as a result of the timing of promotions that is shifted to the back half of the year. Total selling, general and administration expenses were down -- were lower by $22.3 million, equating to 190 basis point reduction as a percent of net sales.

This reduction reflects effective spending controls and the favorable impact of the early stages of our restructuring initiatives. In the second quarter, we realized $15.4 million of savings related to the 2013 restructuring initiative, the majority of which was recognized in the Household Products P&L.

For the second quarter, our overall effective income tax rate was 25%. However, this rate was favorably impacted by approximately 3 percentage points due to the retroactive reinstatement of the R&D tax credit as part of the recently passed tax legislation and certain favorable prior year foreign tax adjustments.

For the remainder of fiscal 2013, we estimate that our effective tax rate, excluding unusuals, will be approximately 30%. During the second fiscal quarter, we continued to make progress on our working capital initiative, achieving a 270 basis point reduction from the baseline working capital level of 22.9% at the end of fiscal 2011.

We are 6 quarters into this initiative and on track to achieve the targeted reduction of 400 basis points by the end of fiscal 2014. To date, we have realized progress in all 3 areas: days payable outstanding, days sales outstanding and days in inventory.

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

Thank you, Dan. I think one of the most noteworthy observations from this past quarter is that in the Personal Care categories in which we compete, category dollars declined 2.3% in the quarter versus category growth of 6% in the prior year quarter and growth of 1.6% in the December quarter.

The decline in the current year quarter accelerated in the most recent 4-week data. For example, the total U.S.

razor and blade market declined 0.2% this past 12 weeks versus an increase of 6.3% in the year ago quarter and a 52-week growth trend of 1.7%. This significant slowdown in the razor and blade category growth was most pronounced in men's systems, where category value was actually down 3.6% in the most recent quarter.

This deflation of the U.S. razor and blade category seems in part due to hyper levels of promotional spending by our leading competitor.

For example, according to measured market data, their percent of units on -- sold on promotions this past quarter rose over 500 basis points on men's systems and rose 470 basis points on women's systems. In contrast, Schick's percent of volume on deal actually declined for the quarter.

Despite these trends, we held our men's system market share behind continued growth in Hydro. In addition, by our estimation, our competitor's total A&P spend rate against razors and blades during the last 9 months has increased measurably, with no material benefit to category growth or relative market share positions.

We remain confident that we will continue to benefit from our focus on introducing innovation, as noted with the recent expansion of the Hydro franchise in the men's and women's disposables, as well as the AXE Schick co-branded Wet Shave launch. Turning to Shave Preps, the category is down 2.5 points, and Personal Care share was also down 1 point.

Competitive pressures in this category also remained intense. Competitive spending spilled over from razor and blades as evident in the significant increase in promotional spending in preps seem to also be putting some deflationary pressure on this category.

The unusually cold wet weather in the United States negatively impacted the Sun Care category, which was down 18% for the quarter. Personal Care showed a modest share gain, driven by Banana Boat.

Currently, 7 of our new products are in the top 20 new item ranking report, with 3 of them making the top 10. International Sun Care continues to be a strong growth story for us, growing double digits in Asia and Europe this quarter and contributing to overall Sun Care net sales growth of 9%.

Finally, Litter Genie continues to gain traction behind advertising and strong consumer acceptance. This product has had an extremely positive response, resulting in improved shelf presence.

Repeat rates continue to exceed our goals for refills-to-pail ratios. We still have an opportunity to gain additional distribution and accelerate pail trial, and we'll continue to support this exciting new innovation with ongoing media and promotional campaigns.

Turning to Household Products. Global consumption trends remain consistent, with volume down 2% and value down 1%.

Value trends have tracked above volume trends this past year, driven by the retail price increase in the United States last year and by inflation in Latin America. The U.S.

began to comp the retail price increase in the March quarter. And as a result, the value trends are expected to more closely align with volume trends going forward.

Given these category dynamics, competitive activity has escalated, and as a result, we have experienced both gains and losses in distribution. While we have regained shelf space at a major retailer, we were recently notified of distribution losses elsewhere.

In the near term, we project a net loss of market share and a decline in net sales in fourth quarter of fiscal 2013. We will look to offset these losses through distribution and market share gains driven by our 2 strong brands and our full product portfolio.

These shelf space shifts are an indicator of the challenging competitive environment in the battery category, and we expect that such activity will continue, resulting in increased volatility in sales of market share for battery manufacturers in rising cost of doing business. We entered fiscal 2013 with a focus on the rationalization and streamlining of our cost structure to improve our competitiveness given this environment.

The escalating competitive environment underscores the importance of our restructuring efforts. I will cover the progress of the restructuring project in a few minutes, but I did want to cover a few recent category and market share trends to provide more context to the quarterly results.

North American battery sales declined in the low single digits, consistent with expected trends, driven by lower volume, largely offset by favorable price mix, mostly due to the February 2012 price increase. In Asia-Pacific, we grew net sales by mid-single digits and grew share by 4 points to 65%, based on incremental shipments and consumption as we significantly increased distribution in a key retailer.

Overall, the category volume remains flat to slightly negative while category value is down 3%. And in Europe, Middle East, Africa, sales declined in the mid-single digits due to timing of distributor shipments mostly in the Middle East and Africa, as well as category declines in Western Europe.

Within Europe, the category was down approximately 2.6% in value but our market share remains relatively stable. Finally in Latin America, our sales increased low single-digits on higher volumes across several markets.

Category value increased by 9% while volumes were essentially flat. Our market share was up slightly to 43%.

Now turning to the update of our 2013 restructuring program. Significant progress has been made with our restructuring efforts.

The organization has embraced the changes, and we are building positive momentum across all the savings initiatives. Implementation of these plans is ahead of our original assumptions and savings have started to be realized.

As a result, we have revised our fiscal year 2013 gross savings estimates to $50 million to $60 million from the original estimates of $25 million to $35 million. We've also revised the total gross savings estimated for the restructuring project to $225 million, an increase of an additional $25 million of growth savings, as a result, identification of additional opportunities.

As previously noted, we plan to reinvest a portion of our savings to provide the operating flexibility needed to invest in our businesses, grow our brands and help accelerate innovation efforts, which we believe are critical to ensuring long-term sustainable growth. The increased savings opportunities will provide additional flexibility to meet our goals as we continue to estimate that $150 million of the $225 million estimated gross savings will be used to improve profitability.

Thus far, over 700 positions or nearly 1/2 of our targeted headcount reductions have been eliminated. We initially focused on organization realignment in non-plant locations across North America.

The timing of manufacturing footprint changes remains on schedule, with facility closures expected through the balance of this calendar year. In addition, changes within our international markets are planned to be implemented against -- throughout the balance of the calendar year.

In addition, procurement initiatives are progressing well. We continue to work with our suppliers to identify and eliminate non-value added waste and cost in targeted areas.

We are successfully implementing our announced restructuring plans and will continue to challenge the organization to search for additional opportunities. In addition to the progress being made on our restructuring activities, as Dan mentioned, we continue to make substantial progress on our working capital initiative, with working capital as a percent of sales down 270 basis points versus the 2011 base level.

As noted in the release, we are reaffirming our financial outlook of $6.75 to $7 for fiscal 2013. Before making my concluding comments and opening the call up to questions, we believe it is appropriate to provide further insight into our outlook for the remainder of fiscal 2013 so you can better understand how we see the remainder of the year playing out.

By reaffirming our outlook for fiscal 2013 of $6.75 to $7 per adjusted earnings per share, we are forecasting $2.75 to $3 for the back half of the current year, as compared to $2.94 in the back half of last year. We have provided insight into several areas.

But to summarize, included in our range for the back half of the current fiscal year are the following: Personal Care organic sales growth of 3% to 5%; Household Products organic sales declines of 3% to 5%; continued realization of restructuring savings; and increased investment spending to support our brands. Other items included in our year remaining outlook are a benefit from lower shares outstanding versus a year ago, which we anticipate will be offset by increased year-over-year tax rates in the back half of the year.

And lastly, we anticipate that currencies and interest expense will be modestly unfavorable.

We have covered a lot of ground in our prepared comments, so I would like to leave you with 3 key takeaways: First, it is a very challenging environment across many of our categories; second, our restructuring efforts and cost savings initiative are working well; and third, we remain intensely committed to investing in our brands and growing for the long term. We will now be happy to take your questions.

Operator, can you please open up the lines?

So from a top line standpoint, clearly, you highlighted the difficult competitive situation on the Personal Care side as well as in batteries, which I guess is more related to distribution. But can you give us more detail on how much the environment has deteriorated here?

And more importantly, do you think this is more of a short-term phenomenon or could it continue into next year? And also how much visibility do you have that the higher A&P spending will help solve some of the market share issues here?

Or do you think you may need to make some price adjustments at some point?

Okay, all good questions. I think, first, on the categories, I think as we've said in our comments, a bit of a surprise was just the weakness in the Personal Care categories, many of the categories in which we compete in.

Sun Care, I think, is self-evident based on the sort of spring the U.S. is having, so I'll put that aside.

And I think more on the kind of the overall razor and blade market, the softness in the categories is, I think, softer than we were expecting. We do think that the hyperactivity that's taking place in the category is leading to the deflation of that category.

And trying to predict where that will go is probably not a worthwhile exercise. I think, from an A&P point of view, our A&P spending plans all along have planned for higher A&P in the back half of the year versus the first half of the year.

A lot of that higher A&P already planned and to be implemented was tied into the innovation that we've talked about that is really kind of back half year loaded and is underway as planned. And so as we move forward, I think the good news from our perspective is that the cost savings that we're reaping out of this Transformers project is giving us even more flexibility, operating flexibility, as it relates to our spending plans as we move forward.

And that's why we identified the additional $25 million of restructuring savings that the organization's committed to. But really, we're putting all that into A&P to support our brands, given the competitive environment.

Okay. And can you give us some sense for how severe the level of competitive pressure is, because we'd already seen it ramp up over the last few quarters here, and now we have another layer on top of that?

So it seems like it's pretty severe, but I was hoping you could put it in context maybe versus longer-term trends in these categories.

Yes, it has been hyper for probably last 3 quarters, so I'm not sure I'd layer on top of the past couple of quarters. It's just a continuation of what really we've been seeing since the middle of last year.

And like I said, I think the disappointing part of that is you see all this additional promotional spending going on, which is not leading category growth and I think leading to just the opposite. And frankly, it's not leading to real material share changes.

I mean, someone may be up or down 50 basis points, but there's not a real major share run going on right now. I mean, our Hydro, our share continues to be -- continues to be growing in the face of that and of course, that's where our focus has been.

Can you just give us some more color on the distribution changes in batteries? I mean, I think we know who the big customer is, but can you just take what channel you're losing in and sort of the order of magnitude at the puts and takes from the 2?

Yes. As usual, I won't get into customer-specific comments.

It's just we don't do that. I think overall, I'd characterize -- you look at the last couple of quarters.

Last quarter, I think we had more distribution gains and losses, frankly. I think this year, this quarter, that we're kind of -- we finished, I would still say we probably came out on the positive side from the distribution point of view of gains versus losses.

I think some recent events indicate that we can probably expect maybe a few more distribution losses than gains at the back half of this year. So it's kind of the cadence of the battery business, these things ebb and flow.

That's kind of how it's ebbed and flowed over the past 9 months, and I think that process will continue.

Okay, great. And then can you -- how did the quarter come in relative to your internal expectations?

And then maybe, is there any risk that you're going to get some pressure from retail to roll back some of the pricing? Because if you look at all the companies that reported so far, there's pretty significant gross margin gains.

So are you seeing any economic pressure from some of the retailers to maybe deal back or even roll back pricing?

On that -- on your latter part of your question, I'd say no. The -- like I said, given the level of competition that exist in many of these markets, it's -- and especially in promotional spending, advertising spending, obviously, pricing per se is part of that.

But I think everyone respects that there's a lot of competition already out there, and so to roll back pricing, there's no undue pressure from any retailer to do that. It's -- from a gross margin point of view, really, a lot of that gross margin improvement you're seeing for us is due to the cost savings we're achieving more than to any sort of pricing we're taking.

So I don't feel our pricing is out of line. And as to your first part of your question, in terms of just how the quarter came out versus our expectations, I would say, on the downside, we're disappointed in the lack of growth in the Personal Care categories in which we compete, that would be kind of the little downside surprise versus our expectations.

That's more than offset by our progress on our restructuring and working capital initiatives, which I think have just been outstanding in terms of how that program is progressing, and obviously plays a big part in what is a very strong, frankly, earnings report for the quarter.

I know you said that AXE sell-in was very small in the second quarter, but can you talk about sort of dimensionally how big will it be in the third quarter, maybe just trying to help us get comfortable with the guidance for the 3% to 5% overall Personal Care growth in the back half? And then, a second question, if you don't mind.

Is the working capital -- you're making fabulous progress there, but I can't help believe -- but believe that there isn't more room to go even after you get the 400 basis points of improvement. So is that something that maybe we can look for or am I just too early on that?

First, on AXE, again, that's really a product launch, really a test in one very important customer. So I don't really want to get into details on that.

We're proceeding forward on that exciting launch in tandem with Unilever and with that customer and are implementing accordingly. As it relates to the organic growth and heightened A&P spending on Personal Care at the back half, certainly, that is part of that, but there's many innovations coming out, and so there's many contributors to both the organic growth number that we've given and the A&P that we expect.

As for working capital, beyond 400 basis points, we'd like to think so. We'd like to get 400 basis points under our belt first, and we're well on our way, as you can see, on doing that.

But as we get better in terms of managing our working capital, I would hope to think that after 400 basis points, we uncover even additional opportunities, but we're just not really -- we'll get to the 400 basis points first, I think.

I want to talk a little bit about the Sun Care business, and I get the whole issue of a weak start. We've seen this in a number of different categories across multiple companies.

But I just want to see, you highlighted growth in Sun Care as one of the reasons for growth in Personal Care in the quarter. And so I'm just wondering what we saw in terms of the cadence of the shipments and how much we should need to think about that business negatively impacting organic revenues in Personal Care over the back half of the year?

I'm not sure I can dissect down to quite that level of detail that you're asking for, so maybe just a general comment. Obviously -- yes, obviously, Sun Care is a weak start as a category in terms of offtake at retailers because of the weather.

Our shipments had been strong. Again, a lot of that strength this quarter -- it's been -- it's a low quarter, frankly, for Sun Care.

And a fair amount of the growth that we are seeing is actually outside the United States. And as many of you are aware, the Sun Care business, we've been growing the Sun Care business internationally double-digit year after year ever since we acquired Playtex back in '07.

And so after that many years of double-digit growth, our Sun Care international business has actually started to be kind of material to our total Sun Care segment. So the good news there is you kind of balance off your weather risk, so to speak.

So we're seeing a fairly significant downturn in the category in the U.S. but nevertheless, we're able to offset that with some of the international growth.

Just to add to that, John, Sun Care was up 8% to 9%, that actually was very good versus a year ago, we just had much higher expectations. And really, if you look at what the category did, down almost 20%, it was really a category-driven -- weather-driven issue.

And so it was up and again below what we expected.

And I guess, my final comment on Sun Care is you are going to have higher variability in this business for most businesses because of the seasonality and that dependence on weather. But in terms of long-term trends, we continue to be very bullish on Sun Care being on trend in terms of aging baby boomers, awareness of skin cancer and increased usage opportunities that exist on people protecting themselves.

Okay, great. Because it -- so basically, what it sounds like is it wasn't something where shipments moved out of the back half and into the first half.

It was just more of an offtake issue, and the results that you put up this quarter were sort of real results from that standpoint?

Yes, I mean, the results we've put up are our shipments obviously, and their -- as David -- Dan just outlined, fairly strong. The down 18% is retail offtake, and that obviously reflects in the weather.

So as I think back, one of the concerns we had coming out of the Analyst Day was whether you're investing -- or you were anticipating to invest enough to keep your market shares to grow in your categories given competition, given category dynamics, et cetera. And so now it seems like with this extra $25 million, that fear has kind of come true.

And I want to ask around how do you think about whether that number is enough going forward. So how do you think about that internally, why do you think it's enough?

And then also, it's great that it came -- it come out of incremental savings. So how much more do you think incremental savings do you have in the business to cover if there's any more of this type of pressure?

On the latter part of your question, Ali, I would say, right now, we've committed the $225 million in gross savings and we feel pretty comfortable about that. Whether there's more than that, I would like to think so.

I think the organization's working very hard as they proceed on this project to uncover more. Whether that would go to the bottom line or to further A&P spending is speculative, so I don't want to really go there right now.

But we have identified that of that $225 million, $75 million is going into the businesses. And so the way we talk about that in the past, as you know, is taking kind of a general spend level for the total company from 10% to 11%.

And with that additional $25 million, it's reasonable to think that we're starting to target for total A&P spend as percent of sales a little bit over 11%. How or why we think that's enough, that's a judgment call quarter-by-quarter based on what's going on by competition.

I will say this. We can never outspend our competition in some of our categories nor would we ever try to or is that realistic.

And what to me is surprising is the enormous amount of spend that our competition has put into some of these categories and the negative impact it's had on the categories and the de minimis impact it's had on market shares. So money doesn't buy everything, and I think in the end, it's the best innovation that wins.

And I continue to think that's where our focus should be and that's where our focus will remain.

Okay. And then -- that's helpful.

And then just to follow-up on that a little bit. I think there's anticipation that some of this pressure continues for a while, certainly among some investors, really among us.

So how should we think about kind of the go-forward in terms of your cash use in that context? So does it become more likely that you might want to buy something to get scale on some of these categories, Sun Care as an example?

Or you actually say, "Look, we're not really as growthy as we were before, so we do have to give even more of a dividend or buy back more stock"? So is there a shift at all as you think about certainly long-term battery growth, long-term Personal Care growth?

You've already shifted your stance a while ago in Household Care growth to be more negative. How should we think about those shifts and then the shifts that you may be making as a corollary to that for your cash use going forward?

I don't think you know us well enough to know kind of our preference use of cash historically, share repurchase and then more recently, implementation of a dividend, and then on top of that, acquisitions that make sense for us. And those remain the 3 uses of cash.

And do we get it back to shareholders or do we see an investment opportunity that we think is going to be immediately accretive for -- in the benefit of long-term shareholders? That dynamic doesn't change.

Acquisition opportunities come and go. We evaluate a lot.

We move on very few. I don't think that changes.

To get scale in the categories in which we're in, as you know, we're really #1 or #2 in most every category we're in already. Nevertheless, we'll look at bolt-on opportunities when they come along.

And for us, really, the new part of that 3-part equation is kind of the dividend side, and we're in our first year still paying out a quarterly dividend. And we'll then reassess dividend policy when the board is ready to hear in the next quarter or 2, see if there should be any changes or enhancements to that.

But I think, obviously, all 3 will play a role in terms of how we use our cash. Again, just focusing on what's the best opportunity to improve shareholder value.

Just briefly on shave preps, I mean, I think we've seen or understand the pressure in kind of the Wet Shave category, but shave prep seems to be a bit little bit new. Is that just a complement of the promotional of kind of packages from bundling with Wet Shave in terms of doing promotions and that's why it's down, or is there something else going on?

I think, as I said in my comments, I really do think it's really kind of spillover on what's going on in razors and blades. When a competitor doubles the number of FSIs, for example, against you in razors and blades, oftentimes, that will be packaged with shave prep coupons and/or promotions with shave preps.

So you're seeing the increased promotional activity in shave preps as well as razors and blades. And just as that hypercompetitive activity is lower, the value of the men's systems category, 3.5%, 4% this quarter, we're seeing 2% to 3% deflation in shave prep category.

So I think it is mostly promotion related and kind of a spillover what's going on in main razors and blades.

Okay. And then switching just kind of to the -- understanding your full year guidance, I mean, I guess the biggest question mark was gross margin that -- and that -- it was so strong year-over-year this quarter.

I'm just trying to understand why that improvement will moderate? I mean, is there -- are there major investments in terms of promotion and reinvestment or is it largely A&P or there -- is there another raw material or something else, that kind of starts to slow that growth as we look to the back half?

Yes, Bill, a lot of the gross margin -- almost all the gross margin improvement was on the Household side, and a lot of it was absorption and really some adjustments we had a year ago that we comped and were favorable this year. We had about maybe $6 million of favorable raw materials.

So in the back half of the year, we do anticipate declines in that business that generally has a negative effect on gross margins. So it's not going to be a significant decline.

But overall, we don't expect that huge margin improvement that we did experience in the first half of the year to repeat in the back half, so that's really the story there. And then obviously, if you look across, especially with that business, as that business has a sales decline and you think about overheads flat to slightly down with an improvement from the restructuring initiatives, our SG&A as a percent of sales isn't necessarily going to improve as much.

And then we do have some spending in A&P in the back half of the year that, as Ward said, is really part of the plan just for our brands going forward.

I just want to talk a little bit about emerging markets and your position in the Wet Shaving category there. So I know once upon a time, Ward, not that long ago, you said there are more opportunities than you knew what to do with.

So I guess, one, I want to just get a sense of how far along are you in terms of the markets you want to pursue in emerging markets? Is there still more runway of growth there; and two, just with some of the challenges that you're seeing now, Western Europe, the U.S., what you've laid out today, does that slow down the pace at all?

Or is some of that incremental savings still kind of going towards building infrastructure in the markets that you want to be longer term?

That's a great question, and it kind of -- you framed it right in terms of there's more opportunities than we can actually go after at any one time. And I would say that the opportunities on the Personal Care side, we're really talking Personal Care because as you know, our battery business already has an excellent presence in emerging markets.

It's strong and in many of those markets, it's doing well. On the Personal Care side, I would have to say our real priority has been getting this innovation out the door in the existing developed markets.

So that is the Japans and the U.S., the North Americas and to a lesser extent -- well, to some extent, Western Europe, where we're still rolling out, even things that we launched last year at Hydro Silk in the U.S. is going into Europe this year, Power, these sorts of things.

So I'd say, with our limited resources, our focus is on launch innovation in developed markets. That unfortunately kind of moved some of the emerging market opportunities we do see, I think a little bit further down on the priority list, but they're still there.

And there's some work going on in Personal Care in some emerging markets. But I wouldn't, like I say, the real materiality right now is more on the innovation in the developed markets.

If we had more resources and I think a healthier overall global economy, the opportunities we have for emerging markets would rise up on that list. And we'll see where the macro economy goes.

It's with these category declines that we've quoted, we've got to -- we're focused on those right now.

And then can you just put that into context with the margins on the Personal Care business? So you've seen some improvement over the last couple of years.

Obviously, there's some investment here in the back half behind the innovation. But as you put that in terms of, I guess, infrastructure build, will margins kind of hold where they are or will they -- or pull back and then gradually improve once you get greater scale?

I won't go so far as to give you guidance on margins, but I would say is, just keep in mind kind of the natural margin enhancement that takes place in the razor and blade business over time when you move from razor handles per se to cartridges. And our cartridge market share in U.S.

Hydro continues to be at or above our hopes and expectations. That obviously, that mix change towards cartridges from razor handles is a material contributor to enhance gross margins on the Personal Care side.

And again, to enhance gross margins on the Household side are due to a really hard and good work being done in terms of the restructuring program we've talked about. So I was actually pretty happy with the margin performance for the quarter.

Guys, I guess I'm trying to get a little better handle on the flow of the earnings. And I guess kind of starting with Q2, all right, so just taking a step back, you guys put up, call it, 50% more EPS than you've ever put up in any Q2 in the history of the company.

And I get restructuring is picking up, it was $15 million, but it wasn't the biggest driver of this. I mean, core SG&A and core COGS are bigger and we could talk about the comp period, but is just an enormous quarter relative to others, and I'm trying to understand what the major drivers of that were.

So any clarity you can give, that would be really helpful.

Yes, Chris, so gross margin was a big beat and as we just talked about on either last question or a question before, a lot of those cost savings are really kind of one-time in nature and aren't really going to continue through the back half of the year. We actually expect overall across the divisions' costs to be relatively flat versus a year ago.

And I think the big drivers are essentially, on the positive side, is the organic sales growth from EPC, even though -- or Personal Care, even though it's lower than we have previously expected plus the additional savings from our restructuring project. But then again, on the negative side, you've got the decline in Household Products sales and we think that, that will really probably be much greater in Q4 and possibly positive in Q3, but certainly down year remaining.

And then the reinvestment that is yet to come and then in addition, something we really haven't talked about, we have unfavorable interest and currencies in the back half of the year that will still be a drag as well.

And I guess, so following up, I mean, how big is that A&P reinvestment expectation for the back half of the year? Because what I hear you on interest expense and FX being a slight negative, but I think you did say a slight negative.

The detail you gave around -- obviously, you're looking for $2.75 to $3 in the back half of the year versus $2.94 first half. That makes sense, but you're also going to kick in, I don't know, $0.40, $0.50 of restructuring.

So it's really implying kind of a core down 16% number on EPS. And again, with $40 million in restructuring, it's hard to believe A&P is going to be up by that much.

So I guess, can you just talk about order of magnitude, how much A&P will be up? And if it's not that huge a number, why do you think the core EPS x restructuring will be down so much?

Yes, a couple of things. I think that your $40 million to $50 million on restructuring goes beyond the range that we've provided in the outlook.

I think it's a little bit lower than that, so that's a little bit high. And really, on A&P, just think about it, back half of the year will certainly be higher than first half and higher than a year ago.

So last year, I think we were slightly below 11%, so I think what we're looking at is 11% plus in the back half of the year. Those decisions in terms of what that specific amount have not been finalized and I'm not going to give a quarterly cadence.

But expect it to be higher than a year ago, which I think was in the 10.6% range.

You had mentioned in your prepared remarks that you saw the cost of doing business is going up. How will you know what the right level of support for that is?

And do you see those rising costs as medium-term or long-term changes?

I guess how you'll know what's the right level is based on management's 25-plus years of doing batteries in the case of the Household side. And assessing -- that's the daily work on the Household side.

So we have a pretty good handle in terms of our expectations, of where the cost of business is and we'll remain competitive, I guess, is the best way to answer that. On -- I'm sorry, blanking on the second part of your question.

I guess you pretty much answered it. But if I could follow-on, what is the order of magnitude of sales pressure from the distribution loss you're going to incur in the fourth quarter?

What does that look like for fiscal '14 because when these things start, they run for 4 quarters, right?

Well, yes, it depends on the situation. I'll tell you that obviously, whatever distribution gains and losses that we've experienced are reflected in guidance we've given for this year, so that's imputed in that.

And of course, we haven't given guidance for next year yet and won't for a little bit. As we work through distribution gains and losses that have happened or may happen, that will be fully reflected in the guidance we'll give for '14.

So I'm just kind of begging off on that because it's kind of a guidance number and we're not ready to do that.

Well, that really does conclude the call today. Thank you all for your attention and your interest, and have a good day.