Energizer Holdings Inc.
) reported second-quarter fiscal 2014 non-GAAP earnings of $1.88
per share, which convincingly beat the Zacks Consensus Estimate
of $1.73 per share.
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Also, earnings increased 4.5% from $1.80 reported in the year-ago
quarter. The year- over-year increase was primarily on account of
incremental benefit from the feminine care brand acquisition,
cost savings from restructuring, strong margins, and the timing
of advertising & promotion (A&P) spend.
Following the announcement of the spin-off coupled with the
release of the second quarter earnings, Energizer's shares were
up 8.0% year-to-date. On a yearly basis, it has risen 16.7%.
Revenues declined 3.1% from the year-ago quarter to $1.06 billion
and missed the Zacks Consensus Estimate of $1.08 billion too.
The year-over-year decline in revenues was primarily due to
customer losses in the Household Products segment, unfavorable
foreign currency rates, pricing controls and import restrictions
in certain Latin American countries, soft category dynamics and
increased competitive pressures across both segments.
Incremental sales from the feminine care brands, acquired in Oct
2013, provided a partial offset to the aforementioned shortfalls.
Revenues from the Personal Care segment increased 5.6% from the
year-ago quarter to $689.0 million in the reported quarter mainly
due to pricing gains. Household Products revenues declined 15.8%
from the year-ago quarter to $373.4 million.
Gross margin for the quarter was down 120 basis points (bps) to
45.9% from 47.1% reported in the year-ago quarter. Gross margin
declined as the decline in revenues was greater than the decline
in cost of goods sold (COGS).
Year over year, selling, general & administrative expense
declined 4.6% and research & development expense declined
8.5%, primarily due to cost controls and restructuring
Advertising and sales promotion expense decreased 5.3% on a
year-over-year basis. The decreased spending was a result of the
timing of promotion and innovation launch activity compared to
the prior year. Energizer remains committed to investing at its
full year planned levels.
Adjusted net income was $118.0 million in comparison to $113.6
million reported in the year ago quarter.
Dividend payments in the quarter were approximately $31.0
million, or $0.50 per share, compared with $25.0 million, or 40
cents per share, in the prior-year quarter. Share repurchases
totaled approximately 1 million shares in the quarter at a cost
of $94 million.
The company continues to invest in developing new and improved
products. The Personal Care segment's new product pipeline for
2014 comprises Hydro Thermer [ph], hydro-sensitive formulations,
and Playtex Sport Fresh Balance. In Sun Care, the company
continues to invest in the Banana Boat Protect & Hydrate
platform and Hawaiian Tropic Silk Hydration as well as other
2013 Restructuring Project
Restructuring savings in the quarter increased approximately
$50.0 million versus the prior year quarter. The primary
impacts of savings were reflected in improved gross margin in
Household Products and lower overhead expenses. Project-to-date
savings are estimated to be over $190 million.
For the fiscal year, the company estimates gross savings to
increase approximately $100 to $125 million versus the prior
year. As a result, the estimated cumulative total project
gross savings are expected to be in the range of $200 to $225
million at the end of fiscal 2014.
The company expects total project gross savings to be
approximately $300 million. The incremental savings are
expected to be realized throughout fiscal 2015 and 2016 and the
total run rate impact is expected to be realized in fiscal 2016.
On Apr 30, 2014, Energizer announced its intention to separate
the company's Household Products and Personal Care divisions into
two independent, publicly traded companies. The spin-off is
planned as a tax-free spin-off to the company's shareholders and
is expected to be completed in the second half of fiscal 2015.
Energizer believes that creating two public companies offers a
number of benefits to the standalone businesses. Following the
separation, each standalone company will be able to focus on its
distinct commercial priorities and allocate its own resources to
meet the needs of its business.
Household Products, with batteries and portable lighting
products, is expected to generate strong margins and significant
cash flows going forward. The Household Products division
reported annual revenue of approximately $1.9 billion in the
trailing twelve month period ended Mar 31, 2014.
Personal Care, on the other hand, is expected to be a leading
pure-play consumer products company with an attractive stable of
well-established brand names. The Personal Care division had
annual revenue of approximately $2.6 billion in the trailing
twelve month period ended Mar 31, 2014, adjusted on a pro-forma
basis for the feminine care acquisition.
Energizer expects fiscal 2014 adjusted earnings to be in the
range of $7.00 to $7.25 per share while the Zacks Consensus
Estimate for the same is pegged at $7.11 per share.
The company estimates incremental restructuring savings to be in
the range of $100 million to $125 million. This is an increase
over the previously estimated figure of $ 100 million and a
reflection of the progress Energizer continues to make with its
A&P, as a percentage of sales, is expected to be in the range
of 10.5% to 11.0%. Unfavorable foreign currency impact is
expected to be between $45.0 million and $50.0 million, pretax
based on recent rates.
Energizer reported a mixed second quarter fiscal 2014, with
earnings per share beating the Zacks Consensus Estimate and
revenues missing the same. Energizer believes that its results
were negatively impacted by unfavorable global currencies,
pricing controls and import restrictions in certain Latin
We believe that product innovations coupled with higher pricing
of Energizer's household products and restructuring initiatives
would positively impact its results, going forward.
Moreover, its prudent product mix would expand margins in the
near term. Also, the company's partnership with
) AXE brand is expected to result in market share gains, going
forward. This apart, the acquisition strategy of the company is
expected to reap benefits.
However, the expected declines in volumes in Household Product
segment, unfavorable foreign exchange and increasing competition
from companies such as
Procter & Gamble Co.
) are the near-term headwinds.
Currently, Energizer carries a Zacks Rank #3 (Hold).