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Good morning. My name is Nick, and I will be your conference operator today. At this time, I'd like to welcome everyone to Energizer's Third Quarter Fiscal Year 2023 Conference Call. [Operator Instructions] As a reminder, this call is being recorded.Now I'd like to turn the conference over to Jon Poldan, Vice President, Treasurer and Investor Relations. You may now begin your conference.
Good morning, and welcome to Energizer's Third Quarter Fiscal 2023 Conference Call. Joining me today are Mark LaVigne, President and Chief Executive Officer; and John Drabik, Executive Vice President and Chief Financial Officer. A replay of this call will be available on the Investor Relations section of our website, energizerholdings.com. In addition, a slide deck providing detailed financial results for the quarter is also posted on our website.During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters. These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements.Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC. We also refer in our presentation to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP financial measures is shown in our press release issued earlier today, which is available on our website.Information concerning our categories and estimated market share discussed on this call relates to the categories where we compete and is based on Energizer's internal data, data from industry analysis and estimates we believe to be reasonable. The battery category information includes both brick-and-mortar and e-commerce retail sales.Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer's fiscal year and all comparisons to prior year relate to the same period in fiscal 2022.With that, I would like to turn the call over to Mark.
Thank you, Jon. Good morning, everyone, and welcome to our third quarter earnings call. There are 3 key messages I would like to reinforce in my remarks today. First, when we laid out our priorities for fiscal '23, we highlighted 3 strategic areas of focus, restoration of gross margin, the return to healthy free cash flow generation and reduction of debt. Three quarters into the year, we have solidly delivered against all 3.Second, the demand environment has not progressed as we expected. And while we are tempering our top line outlook for the year, we are reaffirming our original ranges for both EPS and EBITDA, albeit at the lower end, which has been made possible by the terrific work from the organization to sustain the earnings power of our business. And third, we are making tremendous progress under Project Momentum, with the savings and cash flow generated in the first 3 quarters exceeding our expectations.We have also identified a substantial pipeline of incremental initiatives which will be executed over the next 2 years. As a result, we are increasing our savings expectations by $50 million for a total program savings of $130 million to $150 million by the end of fiscal 2025.Let's dig into the progress we have made. Gross margin recovery has outpaced our expectations through the first 3 quarters of the year and we are on track to achieve a gross margin of approximately 40% in the fourth quarter, which would represent a full year improvement of nearly 200 basis points. The over-delivery in gross margin is primarily driven by Project Momentum, which we expect to deliver between $45 million to $50 million in savings, an increase versus our previous forecast of $30 million to $40 million. We're not yet back to pre-pandemic levels, but we have come a long way this year and set ourselves up for further progress in 2024.We've also generated free cash flow of over $260 million year-to-date while absorbing the cash outlays required by Project Momentum. And finally, we have paid down $200 million of debt in the first 3 quarters and are on track to reduce leverage by over half a turn from our peak in fiscal 2022. While we have made significant progress against many of our key objectives, this year has also presented us with challenges, as consumers manage through the effects of high inflation, rising interest rates and economic uncertainty.Specifically in batteries, consumers continue to prioritize the category, but after those critical needs such as food, fuel and shelter. While volumes continued to improve in the quarter, they did not recover as quickly as anticipated. And value growth, which was largely driven by pricing, has slowed as we lapped those price increases.Some of the factors which have influenced the volumetric trends we have been seeing are as follows. First, a slowdown in the U.S. housing market, driving lower foot traffic at retailers who benefit from home sales, which is a key channel for batteries.Second, a shift in consumers engagement with devices from both buying new and using existing devices to spending more time and dollars on experiences like travel. And third, consumers across all income groups changing their behavior to offset their reduced purchasing power, including reducing their household inventory, which is contributing to a 1% reduction in purchase frequency.Our brands however, have outperformed the category, marked by continued global share growth in the latest 3 months. Looking ahead, we expect category volumes to continue to improve, with value more closely tracking volume as price increases are lapped. In the most recent reporting cycle, category volumes improved to low single-digit growth in the U.S.Now turning to the auto category, our appearance, Air Freshener and Performance Chemicals businesses all performed in line with expectations. Refrigerants, however, were impacted by mild weather during the quarter across much of the United States, which created revenue headwinds.We have seen positive sales trends in July, however, as the extreme heat across the country has stimulated consumer demand. While weather has been a challenge to top line growth, we have made significant progress improving the profitability of our auto portfolio.In the quarter, we improved segment profits by 270 basis points and year-to-date we have grown segment profit by 55%. This exceptional progress reflects a combination of focused cost measures, sourcing events and input cost favorability. We also continue to execute against our international growth plans, where we drove organic top line growth of more than 10% in the quarter.Moving on to Project Momentum, where we have accelerated many of our plans and enacted new initiatives to counter the impact of the challenging demand environment. To-date, Project Momentum has delivered $32 million in savings. The addition of a third year, as well as the inclusion of more initiatives into the program, will increase our savings range by $50 million to $130 million to $150 million by the end of fiscal 2025. These savings are independent of inflationary impacts.The incremental savings reflect opportunities uncovered by the team since the inception of the program and reflect additional benefits from further optimizing our batteries network, including executing longer lead time initiatives that weren't possible in the 2-year program and ultimately create a network that will enable us to even more efficiently and effectively serve our customers and consumers.The incremental opportunities also involve changes to our operating model to drive a step change in our cost structure, all of which is enabled by digital transformation through the implementation of global standard processes and tools that allow us to streamline the organization, reduce spans and layers to create a flatter or agile organization.Overall, roughly 60% of the program savings will be generated from operational and distribution network efficiencies, 20% from procurement savings and 20% from SG&A improvements. Consistent with our previous guidance, we expect 80% of the program's savings will be delivered through gross margin with a balance to SG&A.We are proud of the progress we have made on our strategic priorities to-date, encouraged by recent demand trends and very pleased with the early success of Project Momentum. This program should deliver significant savings over the next 2 years, which will help fuel our investments in sustainable growth and deliver long-term shareholder value.Now let me turn the call over to John to provide additional details about our third quarter performance and balance of the year guidance.
Thanks, Mark, and good morning everyone. I will provide a more detailed summary of the quarter and some additional color on the evolution of our outlook for the year.For the quarter, reported net sales were down 3.9%, with organic revenue down 2.7%. Lower volumes in batteries contributed about 600 basis points of the decline due to delayed volume recovery as macroeconomic headwinds and price increases negatively impact the category, weaker performance during the quarter in non-track channels as well as lower sales to device manufacturers as they delayed some new product launches in the quarter.Auto volumes were down roughly 300 basis points, almost entirely due to lower refrigerant sales owing to cooler weather in the first 2 months of the quarter. The negative volume impacts in both businesses were partially offset by 650 basis points of pricing in the quarter. Adjusted gross margin was 38.8% for the quarter, representing a sequential 90 basis point improvement over our second quarter performance.As you will recall, last year's third quarter input costs were favorably impacted by the building of excess inventories in a rising cost environment, all of which substantially reversed in the subsequent quarter. This year reflects a more normalized inventory level, resulting in more consistent gross margin performance and a 160 basis point decline in the third quarter versus the prior year. As I'll note in a few minutes, we expect our margins to continue to sequentially improve with a meaningful increase in the fourth quarter relative to the same period last year.Adjusted SG&A decreased $5.6 million, primarily driven by Project Momentum savings, favorable currency, and comping an elevated environmental charge in the prior year, partially offset by higher compensation expense and factoring fees tied to rising interest rates. A&P as a percent of sales was 5.4%, consistent with our investment levels in the prior year.Interest expense increased $1.1 million year-over-year due to an increase in interest rates, partially offset by lower average debt outstanding. We delivered adjusted EBITDA and adjusted earnings per share of $126.8 million and $0.54 per share. On a currency-neutral basis, adjusted EBITDA and adjusted earnings per share were $132 million and $0.58 per share respectively.Through the first 9 months of the year, we have generated $261 million of free cash flow or over 12% of net sales. We achieved these excellent results by combining strong operating earnings with a nearly 200 basis point improvement in working capital since the start of the year.We have also paid down $200 million of debt year-to-date and over $260 million over the last 4 quarters. Our debt capital structure remains in great shape with a weighted average cost of debt of around 4.75% and over 90% fixed with no meaningful maturities until 2027.Now turning to our outlook. As we entered the third quarter, we anticipated top line organic growth of 3% to 5% for the remainder of the year. Actual performance in the quarter was below that level, primarily due to a slower than planned recovery in volumes in the battery category, weaker refrigerant sales due to cooler weather in April and May, and much lower sales in non-tracked channels during the quarter.As we start the fourth quarter, we have seen an acceleration in battery category performance and warmer weather in June and July and now expect organic revenue in the fourth quarter to partially recover to roughly flat year-over-year. All in, we are now calling for full year organic revenue to be down low single-digits.We also expect gross margins in the fourth quarter to be up 350 basis points to 400 basis points, as they meaningfully benefit from input cost tailwinds, specifically freight and incremental Project Momentum savings, driving significant gross margin expansion year-over-year.We expect A&P spending in the fourth quarter to be slightly above prior year levels with a full year forecast of just below 5% of net sales. We expect that SG&A in the fourth quarter will improve by roughly 100 basis points relative to the prior year due to continuing Project Momentum savings.Fourth quarter interest expense is expected to be relatively flat to the prior year, with higher interest rates being offset by lower average outstanding debt in the year. And finally, at current rates, we expect the currency impact on earnings to be slightly positive in the quarter.2023 has presented many challenges which our team has been able to meet throughout the year. Recognizing we are still operating in a fluid environment, especially as it relates to the consumer, we now expect to deliver adjusted EPS for the fourth quarter between $1.10 and $1.20 per share and adjusted EBITDA of $173 million and $183 million.Based on our outlook for the fourth quarter, we expect to deliver full year earnings at the low end of our previously communicated ranges. We also remain on track to generate free cash flow at the high end of our long-term target of 10% to 12% of net sales.Now I would like to turn the call back over to Mark for closing remarks.
Thanks, John. Though the year has not progressed as expected, the impressive work from the organization gives us confidence to deliver adjusted earnings per share and adjusted EBITDA at the low end of our original guidance. I am proud of the progress we continue to make across our strategic priorities and remain confident that we are executing the right strategies to navigate the environment and deliver our long-term objectives.
[Operator Instructions] First question will be from Bill Chappell, Truist Securities.
As we talk about this journey, I wanted to understand the battery volumes, like why they took a dip this quarter even just sequentially? And I think you're kind of alluding to there was some elasticity, but it just didn't really understand why that was more so now than the prior couple quarters. And what gives you confidence that you said it's kind of stabilized? What's -- that continues as -- just because we lack the price increases taken a year ago?
Good question, Bill. I'll get started, and then I'll turn it over to John who can give a little bit of a year-over-year bridge. The Q3 definitely did not transpire as we expected. There was also significant positives to the quarter, but let me address your question first on top line. The volume trends are progressing from a trajectory standpoint as we expected, although it's at a slower pace, which was the reason for the call down on the top line. In tracked channels, volume trends remain negative, remain negative longer than we expected, although we've seen this turn positive. So that's a point for why we feel confident that we've turned the corner on that. If you look at the latest 4 week data that ended July 23, it was up volume 4.2%.In untracked channels with home center and hardware, those have trailed tracked channels. And that was also a drag on volume. OEM customers that we have contracts with for new device launches have paused or delayed some of their launches, which had an impact on volume. And then the final piece is refrigerants, which with the weather in May and June, was a volume drag on our business, but we've seen it pick back up in July as some of the record heat has hit across the U.S.As we take a step back, I think with all those factors, there's also a lot to be happy about with this quarter. And we don't want the top line to overshadow it. I mean, one, gross margin recovery is ahead of schedule, free cash flows at the high end of the range. We're on track to reduce leverage by a half a turn ahead of schedule and we've been able to find $50 million of additional savings and added that to momentum.So certainly a challenging quarter from a top line perspective, but we also feel like it validates a lot of what the work the teams are doing to make sure that we put the business back in the shape to compete long term and deliver value. John, do you want to talk Q3?
Yes, maybe just to put some numbers behind what you just said, Mark. The category volumes, improving but still negative, that was a 270 basis point decline year-over-year. The non-tracked channels issue, which is home, hardware and certain club stores, that was about 280 basis point drag. The device manufacturers delaying or reducing orders in the quarter, that hit us for about 150 basis points. And then the cooler weather in April and May impacting refrigerant sales, that was a 220 basis point decline. Those were partially all offset by still 650 basis points of pricing.And then maybe just to give a little bit of color of what we're thinking for the fourth quarter. We originally thought mid-single-digit growth, we're now calling for flat top line in the fourth quarter. We're seeing that slower category recovery. It's probably 100 basis point drag from where we thought. The non-measured performance issues in the U.S., that's probably a 200 basis point drag and then the device manufacturer's OEM sales is probably another 100 basis points. And that will shift our full year view to kind of from that up low single-digits to down low single-digits for the full year.
And Bill, on the volume trends, we did post a slide today which at least provides an illustration of the track channels which you can reference which shows some of the progress that we're referencing as well.
I mean, just as a follow-up. I think on batteries in particular, the street worries that we go back to the pre-pandemic trends of kind of flat to no volume growth category. And obviously, these past few years have been throwing everything for a loop and it's tough to forecast. But just trying to see, does anything you see make you change your kind of longer term outlook for battery volume growth?
Nothing has changed our long-term view, Bill. I would say as we look at the battery category today, it is still larger than it was pre-pandemic. I mean, we have some data that shows it's about 1 billion cells larger globally than it was pre-pandemic. In the U.S., it continues to be larger. So what we've said in the past is -- and we're in the process of establishing that new base, which will be larger than pre-pandemic and then you'll grow off of that new base at the same level that what we call which is sort of flat to low single-digit growth going forward.I do think we have worked our way through some choppy waters as it relates to macro pressures, cautious consumers as well as all the pricing that both Energizer as well as all CPG companies have taken over the last 12 months to 18 months. We're working through that cycle and think we're about through it.
Our next question will be from Lauren Lieberman of Barclays.
So first thing I just, sorry, I wanted to clarify you've given so much great detail, but on the non-tracked channel shortfall, was that destocking at these retailers in particular? Was there shelf space changes? I was just curious a little bit more detail on the non-tracked piece?
It is not reduced distribution. It is simply put traffic and POS. It's just lower sales in non-tracked channels.
Okay. The overall channel and not necessarily an inventory dynamic at those retailers?
Correct.
Okay. And then just following on that point, do you have a sense of inventory levels with those retailers such that there is or isn't risk of further headwinds in Q4 or even into Q1, if inventory levels are in excess of what foot traffic would demand?
We've taken a look at inventory levels across both autos and batteries as we head into Q4 and on balance, they're in a relatively normal position. There's some retailers that are a little light and some that are a little heavy, but specifically in non-track channels, we don't have inventory concerns related to those.
And then just as we look forward and as you said, the gross margin recovery is kind of coming through ahead of plan. I just want to maybe step back and think about kind of structural gross margin and profitability to the business because of Project Momentum and so on and the cost savings that you are in the midst of. So do you have any thoughts on kind of longer term gross margin or even just overall margin profile for the business?
John, why don't you talk through some of the Q4 gross margin improvement and what's driving that and then we can talk longer term?
Yes. Well, let me talk a little bit about the third quarter, where we delivered and then I think we can talk about where we think that's going, even a little bit further out. So when we're looking at the upcoming fourth quarter, last year we built excess inventory in a rising cost environment. I talked about that a couple of minutes ago. And that really resulted in third quarter margin last year above 40%. As we had some temporary benefit to the P&L, a lot of those costs got moved into inventory. They came back in the fourth quarter. That's going to give us a pretty easy comp going into this fourth quarter.I would say broadly, when you start to look at our raw material input costs, we've seen decent favorability across most of the input complex. And so spot prices, as I look at the list of the key ones that come for us, mostly favorable over the last couple of months and we'll start to see that come through our P&L really in the fourth quarter. I think it'll be the first time in a while that we've seen raw material input costs turn favorable overall. We still are seeing some headwinds from higher labor and energy costs, but I think that we're getting into a pretty good spot here.And then I think third, as you talked about, we've got momentum savings that we expect to contribute about 125 basis points this year. So all of those together, we think that the fourth quarter, we're going to be up 350 basis to 400 basis points. That's going to put us up for the year 150 basis to 200 basis points, which is ahead of where we originally thought we'd be. And as we look at the fourth quarter going into '24, all of the key indicators would say that we've got good positive momentum going into next year to see continued improvement in that gross margin line.
And then, Lauren, I think long-term, the number that we talked about and have circled is when we bought these businesses, the consolidated gross margin was 41.5%. That's certainly the first milestone we want to make sure that we get back to longer term. John and I both have aspirations beyond that, but we don't want to get too far ahead of ourselves and let's achieve that gross margin on a consolidated basis that has existed at the acquisition first and then go from there.
Our next question will be from Jason English, Goldman Sachs.
So one real quick tactical question. Lauren asked about inventory situation. Sounds like you feel it's clean, including on refrigerants, which is encouraging, given the seasonality there. Is the same true with OEM manufacturers? Are there any inventory issues to be concerned with there?
No.
Okay. And then I'm looking at your battery sales and it looks like we're down now versus pre-COVID levels, which is un-bought volumetrically, which is kind of shocking given what you've discussed many times of incremental devices in these homes, not to mention the Internet of Things, which you characterized as a bit of a secular trend for battery demand growth. Those are clearly should have been tailwinds that created more demand for batteries yet battery volume is down. So what's the offset? Has there been a reacceleration of the secular demand destruction within batteries? And if so where are you seeing that weakness?
Jason, we may be looking at different data and it may be worth a longer conversation to understand what datasets we're both using. I'm looking at data here just in North America that shows that volumetrically, the battery category is up versus pre-pandemic levels. Now our data includes both the measured universe in the U.S. as well as Amazon, which is where, as you've seen growth in that channel as well. It does not include home center, but it does include measured plus Amazon.If yours does not include Amazon, you're missing a big piece of the component of growth that existed during that period of time. If you have Amazon in your numbers, then maybe it's worth a longer conversation to understand where the disconnects may be. But we are showing volumes both in the U.S. and globally higher than pre-pandemic levels.
I'm just looking at your reported sales. Your battery sales are at 14.5% versus 2019 same quarter. You've taken more than 14.5% pricing. You're -- and you're telling me you grew share. So your global battery volume is down versus 2Q '19, I believe, assuming you've taken more than 14.5% pricing and you've said you've grown share, implicitly the category is down even more than that?
Well, if you're speaking specifically on quarter-over-quarter sales over a multiyear period, I want to make sure we went back and understood from a detailed level what was in and out of those quarters from a timing perspective. So let's make sure we follow up on that because at a broad level, the volume trends have held up nicely in the battery category in terms of the timing and sequence and cadence of our sales in a quarter over a 4-year period. I think we'd need to dig into that further and make sure we were comparing apples to apples.
Yes, that's fair. That's fair. There can definitely be timing issues quarter-to-quarter. All right, well, let's dig in afterwards.
Next question will be from Andrea Teixeira of JPMorgan.
So thank you for the bridge. It's super helpful in terms of the revenue for tracked and non-tracked, but also the volume side. So I was wondering, as we all ask about top line, how you're seeing in terms of what the consumer is doing at this point. It doesn't look like it's necessarily a [ CC ], but it seems that the consumer is taking inventory out of the pantry.So I was wondering if you can comment on that and how do you see that inventory shift? Or if you're seeing consumers more sensitive to your point in your prepared remarks that there are basic needs and then comes batteries, if you're seeing them making tough choices as it relates to their own choices there on the shelf, like perhaps private label picking up. We don't see the Amazon private label that much, so it's challenging for us on the south side to see what's the dynamic there, but if you can comment on first that consumer behavior and then second coming from your customers?
Sure, Andrea, a lot of topics within that question. Let me make sure -- let me give a shot at covering all of them. First, from a consumer standpoint, as we highlighted last quarter, consumers began to shop cautiously and we started to see their behavior shift. Certainly, they're needs-based. Food, fuel, shelter are going to come first in terms of the priority stack. Batteries is an essential product, but it's beneath those areas. And we did start to see consumers react to higher inflation, macroeconomic uncertainty. We did see a particular blip in sort of the April-May time frame as well.But -- and what we're seeing from what consumers are doing differently, they are using their devices less and then they're also leveraging their household inventory to buy batteries more judiciously. So they may be skipping a cycle, they may be just engaging in other activities and they may be borrowing batteries from one device to another in order to delay battery purchases. We have seen that turn around a little bit and we have seen trends improve as we mentioned in tracked channels in particular. We're starting to see volume growth so consumers are working their way through that.It's tough to blame it on elasticity. I would say our elasticity models have roughly held. I would say the recovery has taken a little bit longer than we anticipated. I'm not sure I would attribute that to our elasticity or pricing as much as just the general environment that consumers are shopping in as well as the need to absorb price increases which have occurred across the store.So I would say we are very confident heading into Q4 in terms of the recovery is underway, admittedly at a slower pace than we expected, which is why we call down the top line that we did. But as it flows through the P&L, we continue to make progress in all the areas that we can control, which is why we're able to hold the earnings ranges.
Next question will be from William Reuter, Bank of America.
I just have 2. The first is you had alluded to the fact that we could see some tailwinds from lower input costs in 2024. I know it's early and you're probably not going to want to say a lot, but is there anything you can expand on that in terms of which input costs specifically, and will these be offset by other areas of inflation?
Bill, there's puts and takes, but we have seen a number of inputs on both the battery and the auto side come down. So zinc has come down pretty significantly over the last couple of months, which we'll start to see flow through our COGS in the fourth and first quarter next year. Lithium has abated a little bit, although that one moves around a lot.We're still seeing the gas that we use in the refrigerant at a pretty elevated level, but it's kind of stabilized. We've seen some of the other, like silicone has come back for us on the auto side, jet fuel has come back for us. So those are coming, not all the way down to where they were pre-pandemic, but have come off their highs a bit over the last couple of months. So those are -- should be benefits to us.
Okay. And then given a little bit slower velocity at retail, are you expecting any changes in your promotional activity either surrounding the holiday period this year? Have you heard anything from your retail customers in terms of their expectations or hopes around how maybe that promotional strategy will change?
I wouldn't expect a material change in our promotional strategy. I mean, if you look at the latest 52-week data, you're at roughly pre-pandemic levels. If you look at the 13-1week data, you're actually below pre-pandemic levels. We're going to do some shifting between A&P and trade spend in order to have some of that spend be closer to the consumer. We're not interested in share promotion. What we're focused on is keeping the consumer engaged in the category, maintaining the premium end of the category, make smart investments in any promotion that we do engage in while continuing to improve gross margin overall.
Next question will be from Hale Holden, Barclays.
I had 2 questions. In Mark's discussion on 2 of the 3 issues that kind of drove the volume weakness was Home Depot, or home centers and pantry destocking. In the recovery that you're seeing in the current quarter or the current fiscal fourth quarter, is that sort of a blip that you think is ending and folks are back into a normalized demand state?
What we're seeing, the recovery that we're seeing is in track plus Amazon. So it's an amalgamation of those 2 channels. In terms of home center and hardware, we would expect that recovery to lag just based on what we're seeing from a home sales standpoint.
We specifically said that was probably a 200 basis point drag in the fourth quarter in the non-track channels.
Got it. And the last one is, off the long-term guidance, no change in the expectation of your ability to de-lever by about half a turn a year going forward?
No, that's still our expectations. We've made really good progress this year. We saw a little bit of a blip as the earnings dropped in this quarter versus last year's third quarter, but with the recovery in the fourth quarter and continued debt pay-down, we would expect to end this year at 5.5 or below.
Next question will be from Carla Casella, JPMorgan.
Most of my questions have been answered, but just one clarification. You talked a bit about inventory at retail on the battery side. Did you give a sense for inventory at retail, how comfortable you are with it on the auto side? Yes. And if you can give us some detail by channel, type of channel?
Well, I mean, it's mass and auto channels is really where you'll speak to in terms of inventory. And I believe our answer was meant to be sort of a consolidated inventory answer, but certainly it applies to auto care. We have slightly elevated or slightly lower inventory levels depending upon an individual retailer and an individual subcategory, but on balance, there are not inventory concerns that we have in that business.
This concludes our question-and-answer session. Now I'd like to turn the conference back over to Mr. Mark LaVigne for closing remarks. Please go ahead.
Thanks for your time today and I hope everyone has a great rest of the day.
Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.