Nov 8, 2017
Executives
Jacqueline E. Burwitz - Energizer Holdings, Inc.
Alan R. Hoskins - Energizer Holdings, Inc.
Timothy W. Gorman - Energizer Holdings, Inc.
Mark S. LaVigne - Energizer Holdings, Inc.
Analysts
Nik Modi - RBC Capital Markets LLC Jason M. Gere - KeyBanc Capital Markets, Inc.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
William Michael Reuter - Bank of America Merrill Lynch Faiza Alwy - Deutsche Bank Securities, Inc. Kevin Grundy - Jefferies LLC
Operator
Good morning. My name is Allison, and I will be your conference operator today.
At this time, I would like to welcome everyone to Energizer's Fourth Quarter and Fiscal Year 2017 Conference Call. After the speakers' remarks, there will be a question-and-answer session.
As a reminder, this call is being recorded. I would now like to turn the conference over to Jackie Burwitz, Vice President, Investor Relations.
You may begin your conference.
Jacqueline E. Burwitz - Energizer Holdings, Inc.
Good morning and thank you for joining us. During the call, we will discuss our fourth quarter and fiscal year 2017 results and provide an outlook to fiscal 2018.
With me this morning are Alan Hoskins, Chief Executive Officer; Tim Gorman, Chief Financial Officer; and Mark LaVigne, Chief Operating Officer. This call is being recorded and will be available for replay via our website, 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.
We 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.
Information concerning our category and market share discussed on this call relates to markets where we compete and are based on estimates using Energizer's internal data, data from industry analysis, and adjustments that we believe to be reasonable. Investors should review the risk factors in our Form 10-K and our other SEC filings for a description of the key factors affecting our business.
These risks may cause actual results to differ materially from our forward-looking statements. We do not undertake to update these forward-looking statements.
With that, I'd like to turn call over to Alan.
Alan R. Hoskins - Energizer Holdings, Inc.
Thanks, Jackie, and good morning, everyone. Our performance in fiscal year 2017 was outstanding across a number of metrics.
First, we are growing our business behind the investments that we made not only through our fiscal year 2017, but since our spin. Organic net sales were up 7.5% for the quarter and 3.7% for the fiscal year.
Excluding the impact of storms, the organic sales growth was 3% and 2.4% for the quarter and fiscal year, respectively. This healthy organic sales performance was in line with our outlook, and is a direct result of executing against our strategic priorities.
Next, we are delivering continued earnings growth. Adjusted diluted earnings per share for the fourth quarter was $0.54 and $2.98 for fiscal year 2017, up 29% versus fiscal 2016.
In the quarter, hurricane volumes contributed approximately $0.08 to earnings per share as our integrated supply chain effectively delivered critical product to our customers during unprecedented storm activity. Excluding the impact from hurricane volumes, adjusted diluted earnings per share was $0.46 for the quarter and $2.90 for the fiscal year, in line with our previously-communicated outlook.
Finally, in line with our primary objective to maximize our free cash flow, we continued to generate strong cash flow during the fiscal year, allowing us to continue rewarding shareholders and reinvesting in our business. For the fiscal year, free cash flow was $199 million, up 19% from the prior year.
Nearly two-thirds of our free cash flow was returned to shareholders through a combination of both dividends of $69 million and opportunistic share repurchase at 1.4 million shares for $59 million, of which 1.2 million shares or $50 million occurred in the fourth quarter. The performance of fiscal 2017 was strong as we continued to focus on our three strategic priorities of lead with innovation, operate with excellence, and drive productivity.
These priorities are critical to everything we do and helped drive our strong performance this year. I'd like to share a few specific examples of these strategic priorities.
First, leading with innovation; as we have talked about on previous calls, we continue to invest behind innovation. In the fourth quarter we began the rollout of our longest-lasting Energizer MAX ever, a product where we have made significant run-time performance improvements, while maintaining the same quality and reliability that consumers have come to expect from Energizer, giving them the best overall battery experience.
As you have seen since our spin, we have focused on innovation behind our core product offerings where it matters most, including Energizer MAX. We have a long history of bringing innovation and product news to the category.
And our team continues to build out our pipeline for the years to come, ensuring we create value in the category for both our customers and consumers. Next, we continue to operate with excellence.
Fiscal year 2017 showed organic growth of 3.7%, including the impact of hurricanes, which exceeded our outlook of up low single digits. Over the course of the past fiscal year, we have increased distribution, implemented price increases in over 25 markets, grew our brick-and-mortar business, invested behind and grew in the e-commerce channel, and innovated in and streamlined our portfolio through our portfolio optimization initiative.
As a quick update on the status of this last initiative, new product sets have been rolling out at retailers and should be fully executed by the end of the second quarter. We have already seen significant increases in sales of Energizer Ultimate Lithium with retail sales up 35% over the 13-week period ending October 7, 2017.
In addition to executing our strategic plans, this quarter was another great example of our ability to operate with excellence in the face of unexpected natural disasters. Our team responded to unprecedented hurricane activity that left millions without power.
Thanks to the efforts of our Integrated Supply Chain team, Energizer was able to do its part by rapidly supplying our retail partners with the battery and flashlights that saw them through the storms. During these weeks and now in the aftermath, the Americas Supply Chain team has, in collaboration with our retail customers, gone above and beyond to ensure product availability on shelves in affected areas.
Our ability to execute with excellence has resulted in global market share value gains of 1.2 points to 35.8% in measured markets. In addition, in the growing e-commerce channel, we increased our value market share two points above prior year and maintained our branded leadership share of the channel.
Growing in both the online channel and in brick-and-mortar remains a strategic priority for Energizer. Our international business represents 47% of our global net sales and 31% of our total segment profit.
During the quarter, we achieved distribution gains in several markets and were able to grow value share in the majority of our international markets. We were able to accomplish both of these by bringing innovation and news to the category, and by operating with excellence and delivering on our customers and consumers needs.
As currency begins to become a tailwind, we believe international will continue to be a strong contributor to our global growth. In addition, we will continue to look for opportunities to grow both our battery and auto care businesses.
As we indicated on our last call, we expect to double our international auto care business over the next several years. Turning to our strategic priority of driving productivity, we implemented productivity improvements that resulted in gross margin and SG&A improvements year-over-year.
Investing back in our businesses is one of the three pillars of our balanced approach to capital allocation and an important reason why we delivered strong results at the top and bottom lines in fiscal year 2017, and strong results in since our spin. As we have shared on past calls, we will continue to invest behind productivity initiatives that generate run rate cost savings in five core areas: trade investment; working capital; SG&A optimization; procurement; and integrated supply chain.
In a moment, Tim will discuss our plans for investment spending behind our continuous improvement efforts for fiscal year 2018 in his prepared remarks. Category trends also remain solid.
For the 13 weeks through August 31, 2017, the global battery category was up nearly 2% in value behind pricing actions, while category volume was down 1%. Energizer's total global battery value share was up 1.2 points, attributable to pricing actions taken in several markets and the continued shift to the premium and specialty segments.
As we discussed last quarter, over the course of this year, we have implemented price increases in over 25 markets, including on our flagship Energizer MAX product in the U.S. Volume share was also up 1.3 points, with distribution and shelf space gains driving the increase.
Going into fiscal year 2018, we will begin to anniversary these distribution and shelf space gains. We were able to deliver strong results for fiscal 2017 by maintaining focus on our strategic priorities.
This focus will continue and will fuel our momentum in fiscal year 2018, with an earnings per share outlook of $3 to $3.10, representing a mid-single-digit growth rate versus normalized fiscal year 2017 earnings, and a low single-digit organic sales growth, both of which exclude the impact of hurricanes. In addition, we intend to increase the dividend 5% beginning in the first quarter of fiscal year 2018, subject to board approval.
We believe we have created a foundation for continued success and we remained focused on delivering value for our shareholders. Now, I'd like to turn the call over to Tim Gorman, our Chief Financial Officer, who will review the financial results, as well as a more detailed behind our fiscal outlook for fiscal year 2018.
Tim?
Timothy W. Gorman - Energizer Holdings, Inc.
Thanks, Alan, and good morning everyone. I'll discuss the financial results for the fourth quarter, including providing detail on net sales and gross margins in the quarter.
I will also walk through the details of our income statement and other metrics as we ended the current fiscal year. Finally, I'll provide our outlook for the upcoming fiscal year 2018.
For the quarter, adjusted earnings per share was $0.54, equal to the prior year fourth quarter and is inclusive of an $0.08 benefit from the hurricane activity in the current year fourth quarter. Excluding the hurricane activity, the decrease in adjusted earnings per share was primarily due to higher advertising and promotion spend in support of the portfolio changes as we enter the holiday selling season, and a higher tax rate in the quarter.
Both of these impacts were expected and were included in our previous outlook. Total net sales for the quarter increased $33 million or 7.6% to $465 million, with the growth comprised of the volume components.
Hurricane related sales contributed $21.4 million in the quarter and were $20.5 million higher than hurricane activity in the prior year fourth quarter. This contributed 4.5% of organic net sales growth in the current quarter.
Distribution gains in certain international markets, and the timing of holiday activity with certain U.S. retail customers, increased net sales by 3.5%.
Improved pricing and mix increased net sales by 2.5%, as price increases were executed across several markets globally, including the U.S. The effect of our portfolio changes associated with repositioning Ultimate Lithium and exiting EcoAdvanced decreased net sales by 2%.
We expect the impact of this portfolio change has been fully realized at the end of the fourth quarter and we do not expect any further impacts as we move into fiscal year 2018. The majority of EcoAdvanced batteries in the North American markets have been exited and replaced by Ultimate Lithium.
We also divested a non-core ad specialty business acquired as part of the HandStands acquisition. The divesture of the ad specialty business, which occurred on May 1, decreased net sales by 1% in the current quarter, as the prior-year fourth quarter included net sales associated with this non-core business.
Finally, we experienced a minor benefit in net sales from the impact of foreign currency. This is the first positive impact from foreign currency since our spin-off.
I'll comment on the impact of foreign currency on our outlook later in my prepared remarks. Looking at revenues by geography, we experienced organic sales growth in all three segments.
In the Americas, organic net revenues were up 7.4%, due primarily to the hurricane activity combined with the benefits of pricing and holiday activity, offset by the impact of the portfolio changes and the divestiture of the ad specialty business. In EMEA, organic net revenues increased by 10.8%, driven by distribution gains, the timing of holiday activity, and benefits of improved pricing.
In Asia Pacific, organic net revenues were up 4.3%, driven by replenishment, the phasing of holiday activity, combined with improved pricing. Before turning to the rest of the P&L, I also wanted to mention that based on historical trends, we exited fiscal year 2017 with normalized U.S.
retail inventory levels. Gross margin, excluding unusuals, was 46% in the fourth quarter, an increase of 80 basis points compared to the prior year fourth quarter.
The improvement was driven by the following items and fairly consistent with the prior quarter. We lapped investments made in the prior year fourth quarter, resulting in approximately 120 basis point improvement.
Second, improved margin associated with price increases and improved mix across several markets resulted in approximately 200 basis point further improvement in margin. Third, currency had a modest favorable impact on the rate of approximately 20 basis points.
Offsetting these favorable improvements were unfavorable impacts of the investments made to support our portfolio changes noted above, which decreased margins by approximately 260 basis points. Overall, the gross margin rate was slightly better than expected as commodity headwinds were again offset by other procurement savings, which brought our full year gross margin rate improvement to 200 basis points on a year-over-year comparative basis.
A&P as a percent of net sales was 9.7%, an increase of 240 basis points compared to the prior year fourth quarter. As we discussed on last quarter's call, this increase was expected and supports our innovation and portfolio changes as we move into the holiday season.
SG&A spending, excluding acquisition and integration costs, was $96.3 million or 20.7% in the current quarter, an 80 basis point decrease compared to the prior year fourth quarter. On an absolute dollar basis, SG&A increased $3.5 million and was impacted, in part, by overhead costs associated with the hurricane-related activity, including broker and merchandising cost.
Our ex-unusual effective tax rate for the full year was 28.4% compared to 29.8% in the prior year. The current year benefited from a favorable tax benefit from our book provision to tax return reconciliation associated with our federal return, which was recorded in the third quarter.
In addition, the negative tax impact associated with repatriated earnings were higher in the prior year. Looking at our balance sheet, we ended the year with $378 million in cash, substantially all of it held offshore.
Out debt level at the end of year was approximately $1.1 billion, essentially unchanged from last quarter. And we maintained our debt-to-EBITDA at roughly 2.8 times on a trailing-12 month basis.
We generated free cash flow of $44 million in the current quarter compared to $41 million in the prior year fourth quarter with the improvement driven by lower capital spending quarter-over-quarter. For the full year, we generated $199 million of free cash flow compared to $167 million in the prior year.
The current year included $27 million from asset sales associated with several non-core international properties. Free cash flow generated from our strong operating performance was offset by higher working capital, including higher accounts receivable resulting from hurricane-related sales and increased inventory in support of our innovation, portfolio changes and changes to our manufacturing footprint being executed during the first half of fiscal year 2018.
We expect this increased level of working capital is temporary, and will normalize as we move through fiscal year 2018. In the quarter, we paid a dividend of $17 million.
And on a year-to-date basis, we paid approximately $69 million. During the fourth quarter, we repurchased 1.2 million shares of common stock for $50 million.
For the full year, we repurchased 1.4 million shares of common stock for $59 million or an average cost of $42.23 per share. In total, through both dividends and share repurchase, we've returned $128 million to our shareholders during the year, which represented nearly two-thirds of the free cash flow generated in fiscal year 2017.
We will continue to take a balanced approach to capital allocation by investing in our business to support long-term growth, returning capital to our shareholders through a meaningful dividend and opportunistic share repurchases, and finally, pursuing M&A opportunities that are right fit for Energizer. Since separation, we demonstrated our commitment to pursuing a balanced approach in our capital allocation.
Now, turning to our outlook for the upcoming fiscal year 2018, as Alan mentioned earlier in his remarks, we expect earnings per share to be in the range of $3 to $3.10. It is important to keep in mind that we are lapping significant hurricane activity in fiscal year 2017 that contributed approximately $26 million in net sales and $0.08 to earnings per share.
In addition, fiscal year 2017 included seven months of results for the divested ad specialty business sold on May 1, which contributed approximately $7 million in net sales and approximately $2 million of operating profit. Before I walk through the remainder of our outlook, I want to recall how the current year unfolded on a quarter-by-quarter basis as it will be helpful as we look forward to expectations for the upcoming fiscal year.
In the first quarter of fiscal year 2017, we achieved organic revenue growth of 7.2%, which included 3% carryover benefit from distribution gains, 3% from early replenishment, and 1% from favorable pricing. In the second quarter, our organic revenue was flat as the favorable benefit of pricing and mix of 2% combined with 2% growth from distribution gains was entirely offset by the de-loading attributed to the early replenishment in the first quarter.
In the second quarter, we also recorded a gain related to the sale of non-core real estate, resulting in a pre-tax benefit of $15.2 million. In the third quarter, our organic revenue declined by 2.6% as our revenue was negatively impacted by lapping of prior year distribution gains and associated promotional activity, and we began to execute our portfolio change of repositioning lithium and exiting EcoAdvanced in North America.
Finally, in the fourth quarter, we achieved organic revenue growth of 7.5%, which included the benefit of hurricane activity at 4.5%, distribution gains in international markets and phasing of holiday activity of 3.5%, and the benefit of pricing actions of 2.5%. These benefits were offset by 2% negative impact of the portfolio change and the 1% negative impact of the divested ad specialty business.
The divested ad specialty business was sold on May 1 and, thus, will cause negative comparison in the first and second quarter of fiscal year 2018. Approximately $7 million of net sales and approximately $2 million of operating profit related to the ad specialty business were included in fiscal year 2017.
Now, turning to our outlook for fiscal year 2018, net sales on a reported basis are expected to be up low single digits. Organic net sales are expected to be up low single digits, including lapping the impact of hurricane activity of approximately $26 million and lapping distribution gains in fiscal year 2017.
Favorable movements in foreign currencies are expected to benefit net sales by about 1% to 1.5%, based on current rates. Our expectations for organic revenue growth in fiscal year 2018 would represent the third consecutive year of organic revenue growth since our separation.
The last time Energizer's battery and lighting products business experienced three consecutive years of organic revenue growth dates back to fiscal years 2005 through 2008. The organic revenue growth rate we have generated since spin has been a significant accomplishment for our entire organization and, coupled with our continuous improvement mindset to simplify and streamline our business processes to reduce cost, has resulted in significant gross margin improvement over the last several years.
Our gross margin rate is expected to be essentially flat with the current year, excluding fiscal year 2017 acquisition and integration cost, as improved pricing is offset by increased commodity cost and the impact from repositioning of Ultimate Lithium. With respect to commodity cost, we are approximately 70% covered on our expected requirements for fiscal year 2018.
A&P spending is expected to be in the range of 6% to 7% of net sales, consistent with our long-term outlook. I also want to note that the timing of our A&P spending during fiscal year 2018 will be different than the timing of the current fiscal year 2017.
We expect the A&P will be more balanced across the fiscal year. SG&A as a percent of net sales is expected to be flat on a year-over-year basis, excluding fiscal year 2017 acquisition and integration cost.
However the timing of SG&A cost will not be evenly spread throughout the year. I'll address this comment further in a moment.
Pre-tax income is expected to be favorably impacted by the movement of foreign currencies by roughly $5 million to $10 million, net of hedge impacts, based on current rates. Our income tax rate is expected to be in the range of 28.5% to 29.5% based on the currently expected country mix of earnings.
This guidance does not include any assumed potential impact of any currently proposed tax reforms. We will update our outlook should any tax proposal become finalized in fiscal year 2018.
Capital spending is expected to be in the range of $30 million to $35 million. And depreciation and amortization is expected to be in the range of $40 million to $50 million.
Free cash flow is expected to be in the range of $210 million to $220 million, which includes lapping significant asset sale benefits in fiscal year 2017. The increase in free cash flow year-over-year also includes benefits associated with improved working capital.
This improvement reflects anticipated lower accounts receivable and lower inventory levels. We exited fiscal year 2017 with accounts receivable associated with the hurricane activity, which have been collected in fiscal year 2018.
In addition, as we discussed on the third quarter call, we expect improvements in our inventory levels, beginning in the second quarter of fiscal year 2018, as we complete our portfolio optimization and rollout our improved Energizer MAX, as well as executing a manufacturing footprint change in the first half of fiscal year 2018. Energizer operates with a continuous improvement mindset that has been demonstrating our results as we close fiscal year 2017 with a strong performance.
Since our separation from Edgewell, we have made investments in our business each year to grow top-line and bottom-line results. In the upcoming year, we will continue to make investments to improve our supply chain organization, including further optimization of our manufacturing footprint, simplifying and streamlining our organization and business processes and continuing to ramp up investments in our e-commerce capabilities.
The cost of these investments, which are included in our outlook, will be more predominant in the first half of fiscal year 2018. We expect to incur costs that will be reflected in SG&A of approximately $8 million to $10 million in the first quarter and approximately $2 million in each of the last three quarters.
While these costs will be offset by expected savings, the majority of the savings are expected to occur during the second half of the year. In addition, we expect to incur additional cost related to continuous improvement associated with optimizing our footprint.
Those costs will be reflected in cost of goods sold and are expected to be approximately $3 million to $4 million in the first quarter and approximately $2 million in the second and third quarters. There will be minimal savings expected in the current fiscal year, but we expect savings will more than offset our investment beginning in fiscal year 2019.
As we move forward beyond fiscal year 2018, we will continue to make additional investments to improve productivity and efficiency in support of our global business. Finally, as I commented earlier, regarding the timing of A&P spending in fiscal year 2018, it is not expected to be as back-end loaded as the current year.
You should expect to see higher A&P spend, by about $3 million to $5 million, during each of the first three quarters, offset by lower spending in the fourth quarter. Based on the cost of the investments we expect to incur in the first half of fiscal year 2018 and the calendarization of A&P spend, we expect the first quarter EBIT to be down approximately 5% to 10% and the second quarter to be down approximately 10% to 15%.
The lower performance in the first half of the year will be more than offset by improved EBIT growth in the second half of the year as we begin to realize savings from these investments. Full year EBIT is expected to increase on a year-over-year basis, up mid-single digits.
To reiterate the confidence in delivering our fiscal year 2018 results, the following are the key headlines from our outlook: low single digit organic sales growth; earnings per share of $3 to $3.10, up mid-single digits; and free cash flow of $210 million to $220 million, up mid to high single digits. Now, I would like to turn the call back over to Alan for closing remarks.
Alan R. Hoskins - Energizer Holdings, Inc.
Thanks, Tim. Fiscal 2017 was another strong year for Energizer.
As I stated earlier, this performance is a result of our colleagues' continued focus on our strategic priorities of leading with innovation, operating with excellence and driving productivity. We are building on this momentum with an outlook for top and bottom-line growth in fiscal 2018.
We believe that we've created a foundation for continued success. We are excited about the opportunities ahead of us.
And we remain focused on delivering value for our shareholders. Operator, we can now open it up for Q&A.
Operator
Thank you. We will now begin the question-and-answer session.
Our first question will come from Nik Modi of RBC Capital Markets. Please go ahead.
Nik Modi - RBC Capital Markets LLC
Thanks. Good morning, everyone.
Alan R. Hoskins - Energizer Holdings, Inc.
Morning.
Nik Modi - RBC Capital Markets LLC
If I could just squeeze in both of my questions here, just the first one, Alan, maybe you can talk about the trade spending this year that you guys have been putting into place and how that tied up with the net price realization in the quarter? Are you starting to see any benefits from that?
And then, the second question is just on M&A and maybe you can just give us kind of an overview of kind of what you're seeing in the market and if there is anything out there that looks interesting to you guys. Thanks.
Alan R. Hoskins - Energizer Holdings, Inc.
Thanks, you bet. So, just first, why don't we go into trade investment?
If you'll recall, when we spun off, we put dedicated resources in place behind trade investment, particularly focused of North America. They had primary responsibility, at that time, making sure we provided clear visibility in analytics to our trade investments.
They were responsible for really making sure they governed all the spending behaviors that we were seeing around the globe, as well as optimizing our spending. Since then, we've invested in both tools and technologies to support those resources.
And, as a result, we've been able to work directly with our retail partners, collaborating with them to identify what are ineffective activities and then replacing those with more highly effective ones to drive a higher ROI. As you've seen in our results, the depth and frequency of our promotions have been reduced.
And our average unit prices have increased. And I think it's important to point out, while we've not set a target, this has really been about looking for inefficiencies and then redressing those back into sustainable growth opportunities focused on category fundamentals.
Think about availability and visibility. And this is helping drive our overall organic growth.
It's improving profitability. And it's growing our base (32:28) share.
So that's regarding trade investment. In terms of M&A, just a couple of comments on that, since the last earnings call, we've participated in a number of reviews on assets.
Some, we liked. Some, we didn't.
We've seen valuations, in some cases, that are too high. Others where, operationally, we were concerned about their fit with the business.
But we continue to look at opportunities. We cast, somewhat close to what I've shared in the past, (32:55) a pretty wide net in the consumer goods space.
We feel this really gives us a good opportunity to look at a number of assets without limiting ourselves to things that are just near adjacent. We like the targets that we're looking at to have strong franchises and solid financial results.
So think about that as really good free cash flow generation. We're also looking at targeting businesses that have similar operational profiles as existing business.
That gives us a chance to both create synergy and leverage our broad geographic platform and strong distribution footprint to make sure that we can grow the acquired businesses. So we continue to be in the hunt; again, but based on some valuations and fits, we've chosen to pass on some of those opportunities.
But it is a core part of what we're looking at in terms of taking a balanced approach with capital allocation.
Operator
And our next question will come from Jason Gere with KeyBanc Capital. Please go ahead.
Jason M. Gere - KeyBanc Capital Markets, Inc.
Okay. Thanks and then I'll do the same.
I guess I'll just ask the two questions and I'll let you guys answer. I guess the first one, Alan, if you could talk about the holiday activity coming in a little bit earlier.
As we think about the comparisons for organic sales, and I appreciate the color on low single digit for the year, the first quarter, obviously, is a tough comparison. As you look right now and your, I guess, expectations of where retail inventory is, do you anticipate that organic sales for the first quarter could be flat to positive or do you think that because since it's lapping the distribution gains, it might be slightly down?
I know that kind of dovetails into your guidance on the EBIT being down in the first quarter. The second question, I guess more broadly speaking, if you could talk about online.
What was the category growth of online in the quarter? I know you said you guys gained 2 points of share.
Could you talk about what your growth was versus maybe some of the branded players or even some of the private label players out there? Thank you.
Alan R. Hoskins - Energizer Holdings, Inc.
Yeah. Sure.
Thank you. And good morning.
So, just real quick, when we look at overall holiday, we're very confident going into the holiday. We've seen, and as we walk stores now, really solid merchandising visibility.
And as you know, in international, we've improved our availability through expanded distribution. We like where we sit now.
We believe that inventories are in a really good position, having exited fiscal year 2017. So we don't have a concern there.
We like the programs that we've put in place. I'll give you a couple of examples.
Not only strong category fundamentals being executed, we've really beefed up our presence at retail to execute against that, and we've launched a lot of new innovation in the categories. When you think about automotive, we've already presented our fiscal year 2018 auto fragrance innovation, and we've gotten really good reaction so far from the trade to that and that's being set at shelves now.
We're excited about the battery innovation that we've brought to the category, both in Energizer MAX as well the repositioning as part of our overall portfolio changes. So, going into holiday, we like what we've set in play.
We like the way it's being executed. And then, I'll ask Tim to comment a little bit on some of the backdrop.
Timothy W. Gorman - Energizer Holdings, Inc.
Yes. So, Jason, that's why I kind of laid out in terms of how the year unfolded.
So, as you recall, we had a very strong Q1 in 2017 with the early replenishment that contributed about 300 basis points. So you think about that in terms of timing.
So, we'll have difficult comps in both the first quarter and the fourth quarter as we'll lap hurricane activity. Relative to what we see in the first quarter, with that difficult comp, we would expect to be essentially flat to slightly positive in the first quarter, and then the rest of the year will play out.
Mark S. LaVigne - Energizer Holdings, Inc.
And then Jason, this is Mark. I'll cover the e-commerce question.
This is obviously a rapidly growing and important channel for us. And it's one where we're investing heavily in resources and expertise to make sure we drive results for the business.
From an overall category growth rate within batteries, over the last 52 weeks, online in batteries has grown 32%. From an AmazonBasics perspective, over the last 52 weeks, they've grown 59%.
And Energizer has grown, over the last 52 weeks, 44%. In the latest 13 weeks, Energizer has grown 52%.
And we continue to be the branded share leader in e-commerce for batteries. So, our investments are paying off.
And we're growing ahead of the category trends that we're seeing online.
Operator
Our next question will come from Bill Chappell with SunTrust. Please go ahead.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
Thanks. Good morning.
Alan R. Hoskins - Energizer Holdings, Inc.
Morning, Bill.
Timothy W. Gorman - Energizer Holdings, Inc.
Morning, Bill.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
I don't know if I'm supposed to sneak both questions in at the same time. So I'll try one at a time and we'll see if that works.
You know, Alan, just looking into the risk – I'm just trying to understand. With the upcoming holiday season, let's say that we do see a continued massive shift online versus in-store.
How does that play out in terms of inventory you're shipping into the bricks-and-mortar stores and does it lead to a massive de-load in the second quarter or how do you account for that or how do you forecast for that over the next two, three months?
Alan R. Hoskins - Energizer Holdings, Inc.
Yeah, I mean, we take into consideration trends in the business, both online and brick-and-mortar as well as the trends we're seeing in e-commerce with our brick-and-mortar partners that are moving to omni-channel; all that gets balanced into our forecast for the full year. We make sure that we align our shipments with the plans that we know we're capable of executing, meaning there's not an overload of the trade of inventory.
We feel we can balance that and manage that properly through the year. So, we don't personally see a risk there.
We do anticipate growth online. And we feel that, again, given the investments that we've made, and our continued focus on making sure that availability, content, research and marketing are there to be able to reach that online consumer that we're well-positioned to compete and grow there too.
I think what we've demonstrated over the last several quarters is our ability to do both. And that's an important call-out; growing both online and in brick-and-mortar at the same time.
A lot of this really stems back to good joint business planning with our retailers and our online partners to make sure that we stay out (39:39) of that position.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
Okay. And then, Tim, just to switch back to the fourth quarter, on the higher tax rate, I just want to make sure I understand.
Did the share repurchase, you had to repatriate cash and that boosted the tax rate in the quarter? And then are you assuming for 2018 there is no incremental share repurchase that would affect the tax rate?
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. In terms of the fourth quarter, Bill, part of what was driving the tax rate was the higher mix of earnings in the U.S.
associated with hurricane activity. So, that was part of the driver of the higher tax rate is income in the U.S.
being taxed at the higher U.S. rate.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
So, you didn't have to pay a repatriation tax to repurchase the shares?
Timothy W. Gorman - Energizer Holdings, Inc.
No. As I mentioned in the prepared remarks, on a year-over-year basis, the impact of taxes associated with repatriated earnings was actually lower in the current year versus a year ago.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
Got it.
Timothy W. Gorman - Energizer Holdings, Inc.
We normally look at repatriating earnings on a tax-efficient basis. And there are times when we do incur minimal taxes as we bring that back.
William B. Chappell - SunTrust Robinson Humphrey, Inc.
Okay. Thanks so much.
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. Thanks, Bill.
Operator
Our next question will come from William Reuter of Bank of America Merrill Lynch. Please go ahead.
William Michael Reuter - Bank of America Merrill Lynch
Morning, guys. Just one question on working capital, you talked a little bit about how you expect it to be a benefit next year.
Can you talk about what type of a benefit it will be? And then, I guess, one more while I'm it, how are you guys thinking about share repurchases this year, in light of what you guys completed in the fourth quarter?
And then, I'll pass it on. Thank you.
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. I'll take the last one, first.
As we talked about, in terms of capital allocation, we remain committed to a balanced approach. So, first is investing in the business.
Second is a meaningful dividend. And then we do look at opportunistic share repurchases and then finally M&A.
With regard to working capital, so the free cash flow outlook that we've given, $210 million to $220 million, that's lapping $27 million benefit of asset sales in fiscal year 2017. So, you can kind of guess in terms of the magnitude, the improvement is really being driven by both the underlying business performance, but also working capital improvements both in accounts receivable.
Again, we had the benefit of hurricane-related sales. Those have been repaid in fiscal year 2018.
So we've already seen that benefit and then, likewise, we expect the inventory will begin to normalize as we execute the portfolio change, the full introduction of the new improved MAX offering and then lastly, execute the manufacturing footprint change. So, combination of both accounts receivable and inventory improvement is driving the improved free cash flow on this coming year.
Mark S. LaVigne - Energizer Holdings, Inc.
And, Bill, with respect to share buyback and M&A, we believe we've got capacity to do both and we're going to continue to seek opportunities to optimize returns using both overall.
William Michael Reuter - Bank of America Merrill Lynch
Thank you.
Operator
Our next question will come from Faiza Alwy of Deutsche Bank. Please go ahead.
Faiza Alwy - Deutsche Bank Securities, Inc.
Yes, hi. Good morning.
Thanks. So, I guess my first question is could you disaggregate the 350 basis points of benefit that you got on new international distribution and the timing of shipments, sort of how much of that is distribution that's expected to continue through the rest of the year?
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. If you look at the 3.5%, approximately 1.2% of that was associated with distribution gains and the balances is the phasing.
Faiza Alwy - Deutsche Bank Securities, Inc.
Okay, okay. Great.
And then just on pricing, is this another incremental pricing that's supposed to come in in 2018? Can you share sort of any feedback you're getting on that from retailers?
Is that pricing expected to stick and how should we think about – is it going to build through the course of the year?
Alan R. Hoskins - Energizer Holdings, Inc.
Yeah. This is Alan, so over the past 12 months, we've taken pricing in 26 markets.
We expect the full annualized benefit of the pricing impact to our current fiscal year 2018. We have seen the price points increase on shelf in many of the markets, so you're aware of that.
And I think what you're seeing play out in category value globally, and particularly the U.S., is value has improved as a result of the pricing action, along with the mix shift to specialty and to premium. We believe that the pricing actions we've taken are also going to help us offset higher commodity costs in 2018.
And it further gives us the opportunity to reinvest back into innovation in our brand. So, overall, we're pleased with the outcome and the organization's ability to execute against the pricing and, again, more importantly, we are seeing that appear on-shelf in many markets.
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. And I think, if you look back across fiscal year 2017, you see improved pricing and mix in each of the four quarters that we had in fiscal year 2017.
Operator
Our next question will come from Kevin Grundy of Jefferies. Please go ahead.
Kevin Grundy - Jefferies LLC
Thanks. Good morning, guys.
Alan R. Hoskins - Energizer Holdings, Inc.
Morning, Kevin.
Timothy W. Gorman - Energizer Holdings, Inc.
Morning.
Kevin Grundy - Jefferies LLC
Couple questions, I just wanted to come back to online first, you hinted last call at some potential broader strategy adjustments in that channel, utilizing either the Energizer or EVEREADY brand potentially, but it didn't sound like there was any sort of big unveiling today on this call, so to confirm that's the case would be sort of number one, that there are no sort of big strategy adjustments, either with respect to product and/or pricing? And then, my second question relates to margins.
So first on gross margins, you're expecting relatively flat year-over-year performance in 2018. What's the ambition there longer term?
What do you think the opportunity is to drive that higher and, if so, how? And then, just one last one on the productivity piece, because it seems like that would become increasingly important in terms of driving earnings and free cash flow growth.
Can you potentially frame that for us? You talked about some of the spending there to realize those savings.
Maybe if you could put a number on that for us longer term, that would also be helpful? Thank you for all those.
Mark S. LaVigne - Energizer Holdings, Inc.
Yeah. This is Mark.
I'll cover the e-comm online question first and then turn it over Tim for the balance of the questions. As I mentioned earlier, I would say there's no big unveiling today in terms of a new strategy in terms of online.
But rest assured, we're laser-focused on this area. We recognize that it is a big opportunity for us.
And when it comes down to strategy, it's not that different than what you'd see us execute in-store. It's all about visibility and availability.
So when consumers are shopping online, we want to make sure they interact with our product in the same way that they do in the store. And so it really gets down to the fundamentals of executing content and search, data and analytics to make sure that we're intersecting with the consumers at the right point in time.
In terms of the two brands, that is something that we have in our arsenal at all times, with Energizer and EVEREADY. And it is certainly something that we would look to leverage online, to the extent that it would resonate with our consumers in doing so.
So that's something that we always have available. We always look for it.
And thus far, our investments are really paying off. Like I mentioned, in the latest 13 week, our online sales rate is growing at 52%, which is well ahead of the category.
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. Kevin, with respect to gross margin, obviously, we've had significant improvements over the last several years in our gross margin rate.
As we move forward and what we called out in our kind of long-term financial algorithm is for gross margin to be flat to improving slightly. And that's kind of the long-term outlook that we have.
The opportunities that we'll continue to look at is you know how do we continue to streamline our integrated supply chain. And those actions are being undertaken with the footprint change that we discussed in the prepared remarks.
With respect to the benefit, the savings associated with the costs that we're incurring, as I mentioned in my prepared remarks, and I kind of laid out what the costs were going to be in each of the quarters and indicated that the savings would exceed that investment that we're making, and that is the expectation for the current year. And then, as we move forward, we've identified additional opportunities that we'll continue to look to improve our overall streamlining our processes and reducing the complexity in the business.
So that is part of our continuous improvement mindset that we have and will continue to execute against.
Kevin Grundy - Jefferies LLC
Tim, is there anything you can put a number one for us with respect to the return on that spend?
Timothy W. Gorman - Energizer Holdings, Inc.
Yeah. As I mentioned, the return is in excess of the investments we're making and that's a run rate that we would expect to have exiting that.
Run rate will be in the range of $15 million to $20 million.
Kevin Grundy - Jefferies LLC
Okay. All right.
Thank you, guys. Good luck.
Alan R. Hoskins - Energizer Holdings, Inc.
Thank you.
Operator
And, ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr.
Alan Hoskins, for any closing remarks.
Alan R. Hoskins - Energizer Holdings, Inc.
Thank you, Operator. And thank you for joining us on the call today and your interest in Energizer.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect your lines.