S&P adjusts the outlook for Jinliang Holdings to negative due to leverage concerns

Investing.com – S&P Global Ratings on Friday revised the outlook for Energizer Holdings, Inc. (NYSE: ENR) from Stable to Negative, while affirming the company’s B+ rating and debt ratings.

This adjustment reflects the company’s expected leverage ratio of approximately 6.3x in 2026, higher than the previous S&P forecast of below 6x, which is the agency’s downgrade threshold. The negative outlook indicates that weak consumer spending and input cost fluctuations could hinder the improvement of credit metrics, preventing them from reaching the levels projected by S&P’s baseline forecast, which anticipates a post-adjustment leverage ratio of around 5x in 2027.

Energizer’s first-quarter fiscal 2026 performance was weak but in line with expectations, and its second-quarter forecast shows organic sales declines in batteries, lighting, and automotive care. The company’s full-year guidance largely depends on a recovery in the second half. S&P has lowered its baseline forecast to reflect continued weakness in both business segments, driven by soft consumer spending and retailers tightening inventory management.

The company’s profit margins are under significant pressure from tariffs and restructuring-related costs. Management estimates that unresolved tariffs in 2026 will cost between $60 million and $70 million, while acquisition and restructuring costs will total between $60 million and $75 million. The company expects to partially offset these costs through targeted pricing measures and productivity improvement initiatives.

S&P expects most restructuring-related costs to be eliminated by 2027, especially those associated with the “Power Solutions” segment, as Energizer extends this project to further optimize its supply chain in response to tariffs. The agency anticipates that production tax credits will provide upside potential, with management expecting approximately $60 million added to gross margins in 2026, up from $41.6 million in 2025, benefiting from increased U.S. capacity. S&P currently forecasts adjusted EBITDA to decline about 6% to $534 million in 2026, then improve to approximately $565 million in 2027.

Energizer’s deteriorating credit metrics are due to its decision to accumulate inventory related to the transition to plastic-free packaging. This had a significant impact on reported free operating cash flow in 2025, reducing cash available for debt repayment and pushing leverage above 6x. The company focused on selling this inventory, which benefited first-quarter 2026 cash flow by $87 million. Coupled with approximately $35 million in net refunds from production tax credits, the company used these funds to prepay $90 million of term debt.

S&P estimates that, assuming proceeds from working capital releases, the company will generate about $250 million in free operating cash flow in 2026, and approximately $230 million in 2027 as working capital investments normalize.

The company has historically used discretionary cash flow to reduce debt, including repaying about $200 million of term loans in 2023 and 2024. In 2025, it repurchased $90 million of stock, believing the shares were undervalued. S&P’s model forecasts repurchase amounts of about $50 million in 2026 and 2027.

S&P expects consolidated organic revenue in fiscal 2026 to remain constrained but to show sequential improvement in the second half, driven by better organic battery sales, growth in automotive care sales due to innovation and international distribution, and price increases.

The agency assumes that commodity costs in 2026 will have a neutral impact, as Energizer has locked in most input prices. However, the company still faces risks of input price increases in 2027 for zinc, nickel, lithium, R-134a, silver, steel, and aluminum, which could limit profit margin recovery and deleveraging expectations.

If management does not prioritize using cash flow to reduce debt, or if operating performance falls below expectations—including weaker profitability and cash flow—the agency forecasts that the adjusted debt-to-EBITDA ratio will remain above 6x, potentially leading to a downgrade.

Conversely, if Energizer improves operational performance by enhancing consumer trends, executing its sales recovery and cost-saving strategies, and prioritizing debt reduction over shareholder returns, maintaining an adjusted leverage ratio below 6x, the outlook could be revised back to Stable.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.