Overview
S&P Global Ratings on Friday revised its outlook for Energizer Holdings Inc. (NYSE:ENR) to negative from stable, while keeping the company’s B+ issuer and debt ratings unchanged. The outlook adjustment follows S&P’s updated forecast that Energizer’s adjusted leverage will be approximately 6.3x in 2026, higher than the agency’s earlier projection of below 6x and above the threshold S&P views as a signal for potential downgrade action.
What drove the change
The negative outlook reflects the possibility that weak consumer spending and volatility in input costs could prevent Energizer from improving credit measures in line with S&P’s base-case. In its base-case scenario, S&P still expects adjusted leverage to decline to the high-5x area in 2027, but the elevated 2026 leverage projection prompted the agency to shift the outlook.
Operational performance and guidance
Energizer reported a first-quarter fiscal 2026 performance that S&P described as weak, which was broadly in line with expectations. The company’s guidance for the second quarter factors in continued organic volume declines across both its batteries and lights segment and its auto care segment. Energizer’s full-year outlook depends heavily on a recovery in the second half of its fiscal year.
S&P has trimmed its base-case forecasts to reflect ongoing softness in both core segments, attributing the weakness to subdued consumer demand and tighter inventory management by retailers. Those dynamics are weighing on near-term revenue and cash-flow expectations.
Margin pressure from tariffs and restructuring
Profitability has been materially affected by tariffs and by costs related to acquisition and restructuring activity. Management estimates unmitigated tariff costs of $60 million to $70 million in 2026, and acquisition and restructuring-related costs of $60 million to $75 million for the year. Energizer plans to offset some of these headwinds through targeted pricing and productivity savings.
S&P expects that most restructuring-related costs will abate in 2027, particularly costs tied to Project Momentum, which Energizer extended to further optimize its supply chain in response to tariffs. The agency also sees a benefit from production tax credits: management projects these credits will contribute roughly $60 million to gross margins in 2026, up from $41.6 million in 2025, reflecting increased U.S. production capacity.
EBITDA and leverage forecasts
Under S&P’s latest assumptions, adjusted EBITDA is forecast to decline by about 6% in 2026 to $534 million, before recovering to approximately $565 million in 2027. The agency notes that elevated leverage in 2026 is a key driver of the outlook revision.
Cash flow, inventory, and balance-sheet actions
The firm’s credit metrics deteriorated after Energizer built inventory related to its shift to plastic-free packaging. That inventory build substantially reduced reported free operating cash flow in 2025, limiting cash available for debt reduction and pushing measured leverage above 6x. Management has prioritized selling down that inventory; the company reported an $87 million cash-flow benefit in its first quarter of fiscal 2026 associated with inventory reduction.
Alongside roughly $35 million in net refunds from production tax credits, Energizer used proceeds to prepay $90 million of term loan debt. S&P estimates free operating cash flow will be about $250 million in 2026—assuming working-capital unwinding benefits—and about $230 million in 2027 as working-capital investment normalizes.
Energizer has a record of using discretionary cash flow to reduce borrowings, including roughly $200 million of term loan repayments in each of 2023 and 2024. In 2025 the company repurchased $90 million of shares, citing a view they were undervalued. In its modeling, S&P assumes approximately $50 million in share repurchases in each of 2026 and 2027.
Revenue drivers and commodity exposure
S&P projects consolidated organic revenue will remain constrained through fiscal 2026 but anticipates sequential improvement in the second half. The expected recovery is driven by an uptick in organic battery volumes, growth in auto care volumes stemming from product innovation and expanded international distribution, and price increases.
For 2026, S&P assumes commodity costs will be neutral because Energizer has locked in pricing for most inputs. However, the company remains exposed to the risk of higher input prices in 2027. S&P identifies specific inputs that could pressure margins and slow deleveraging, including zinc, nickel, lithium, R-134a, silver, steel, and aluminum.
Potential ratings paths
S&P says it could lower Energizer’s ratings if management does not prioritize cash generation for debt reduction or if operating performance underdelivers relative to forecasts. The agency would be particularly concerned if profitability and cash flow prove weaker than expected and adjusted debt to EBITDA remains above 6x.
Conversely, S&P notes the outlook could be returned to stable if Energizer executes on volume-recovery and cost-saving initiatives, improves consumption trends, prioritizes debt reduction ahead of shareholder returns, and sustains adjusted leverage below 6x.
Bottom line
While S&P left Energizer’s B+ rating intact, the switch to a negative outlook underscores the agency’s concern that near-term leverage will exceed its downgrade threshold amid weak volumes, tariff and restructuring costs, and the effects of a strategic inventory build. The path back to a stable outlook depends on second-half operating recovery, successful cost offset measures, and demonstrated prioritization of debt paydown.