Energizer Holdings, the company known for its tireless bunny mascot and its dominance in the battery world, might have a hidden secret weapon driving its future growth: Auto Care. While analysts are buzzing about battery category recovery and Project Momentum savings, a deeper dive into Energizer's Q1 and Q2 2024 earnings transcripts reveals an intriguing narrative unfolding in their Auto Care segment.

This isn't just about solid performance; it's about a strategic resurrection, a turnaround fueled by smart investments and operational excellence. The Auto Care segment, acquired in 2018, was initially hit by pandemic-induced margin compression. Energizer, however, took a calculated step back, pausing international expansion to focus on restoring profitability. That calculated gamble seems to be paying off, and paying off big.

The Q2 2024 earnings call marked a watershed moment: Auto Care margins have not only recovered but have actually reached pre-pandemic levels, a full year ahead of the company's initial projections. This remarkable achievement wasn't a fluke or a matter of favorable timing. It was the result of deliberate cost reduction, strategic pricing, and relentless operational efficiency driven by Project Momentum.

The segment profit expanded by a staggering 600 basis points in Q2, showcasing the strength of this internal transformation. Energizer's management, in their Q1 call, had projected that this milestone would be achieved in fiscal year 2025, highlighting the surprising speed of this turnaround. And it doesn't stop there. They expect further margin expansion in the upcoming quarters, paving the way for reinvestment and sustained growth.

But the real story lies in the combination of this newfound profitability with the re-ignition of Energizer's international expansion plans. The company has a robust global footprint, established through its battery business, which provides a ready-made distribution network for its Auto Care products. They had initially leveraged this advantage, rapidly expanding the segment internationally until the pandemic forced a strategic pause.

Now, armed with restored margins and the lessons learned from the past few years, Energizer is poised to unleash a renewed wave of international expansion in Auto Care. This strategy goes beyond simply piggybacking on existing distribution; it involves strategic partnerships, targeted product innovation, and a focus on both modern and developing markets.

The company's Q2 transcript hints at several exciting developments in this area, including distribution gains at key retailers and the launch of new partnerships that promise to fuel growth. While details remain under wraps, the confidence expressed by the management about the strength of their innovation pipeline for Auto Care suggests we can expect significant announcements in the coming quarters.

The numbers tell a compelling tale. While the Q2 transcript focuses primarily on battery performance, Auto Care's organic net sales quietly increased by over 2%, following a 5% organic increase in the prior year quarter. This consistent growth, combined with the dramatic margin expansion, points to a segment that's not only healthy but poised for acceleration.

Here's the potential game-changer: if Energizer can replicate its U.S. margin recovery and growth momentum in international markets, the Auto Care segment could become a significant contributor to the company's top and bottom lines. This is further supported by the fact that international Auto Care sales are already growing at a double-digit rate, demonstrating strong early traction.

Project Momentum Savings

The following chart illustrates the projected cumulative savings from Project Momentum, based on data from the Q1 2024 earnings call.

The investment community, understandably focused on the dominant battery business, may be overlooking the potential of this "underdog" segment. But the clues are there in the transcripts, pointing to a strategic shift that could redefine Energizer's future. While the Energizer Bunny continues to be a symbol of their battery prowess, the next chapter of their growth story might be written on the hoods and dashboards of cars around the world.

"Fun Fact: Energizer manufactures and distributes batteries under several other brands, including Eveready, Rayovac, and Varta. The company also holds a Guinness World Record for creating the world's largest working battery, a giant replica of an Energizer AA battery, measuring over 20 feet tall."