Energizer Holdings Inc. (
reported third-quarter fiscal 2014 non-GAAP earnings of $1.46 per
share, which missed the Zacks Consensus Estimate by 9 cents.
Earnings per share (EPS) decreased 7% year over year due to higher
expenses on brand promotion.
Revenues inched up 1.7% from the year-ago quarter to $1.13
billion, which marginally beat the Zacks Consensus Estimate of
$1.12 billion. The year-over-year growth was driven by additional
sales from the feminine care brand acquisition and organic growth
within the Personal Care segment.
Personal Care (63.6% of revenues) increased 10.6% year over year
to $718.3 million. Organic net sales increased 1.9% driven by
higher Sun Care sales and growth in women's razor and blade systems
revenues. Acquisition contributed revenues of $56.6 million in the
Within Personal Care, Energizer launched several products namely
Hydro Groomer, Hydro Sensitive formulations and Playtex Sport Fresh
Balance. In Sun Care, the company continued to invest in the Banana
Boat Protect and Hydrate platform and Hawaiian Tropic Self
Household products decreased 10.9% from the year-ago quarter to
$411.7 million. Organic net sales decreased 9.5% due to loss of
distribution within two U.S. retail customers, higher promotional
spending, increased competitive activity and pricing controls and
inventory import restrictions in certain Latin American
In Household products, Energizer is investing in Energizer Max
with Power Seal technology, which is currently being rolled out in
Gross margin for the quarter expanded 180 basis points (bps) to
47.7%, driven by savings from 2013 restructuring program and higher
pricing within the Personal Care segment.
However, Energizer's results were negatively impacted by higher
expenses. Selling, general & administrative expense (SG&A)
climbed 10 bps, while advertising & sales promotion expense
expanded 340 bps. Research & development expense declined 10
bps in the reported quarter.
Personal Care segment profit increased 0.8% year over year to
$112.2 million. Acquisition contributed profit of $6.7 million in
the quarter. Household products segment profit decreased 15.9% year
over year to $84.2 million.
Adjusted net income was $90.8 million or $1.46 compared with
$99.3 million or $1.57 reported in the year-ago quarter.
Energizer Holdings Inc - Earnings Surprise |
In the third quarter, working capital as a percent of revenues
was 15.4%, an improvement of 270 bps versus 2013 year-end results
and a 750 bps reduction from the 2011 baseline period established
at the beginning of the initiative. Total cash flow generated by
Energizer's working capital Initiative now exceeds $300
2013 Restructuring Project
Restructuring savings in the quarter increased approximately $32
million from the year-ago 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 $220 million.
For the fiscal year, Energizer estimates gross savings to
increase approximately $135 to $150 million year over year. As a
result, the estimated cumulative total project gross savings are
expected to be in the range of $235 to $250 million at the end of
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
Restructuring related charges are estimated to be $115 to $125
million for fiscal 2014 bringing project-to-date costs to $270 to
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 (by Jul
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. Personal Care, on the other hand, is
expected to be a leading pure-play consumer products company with
an attractive portfolio of well-established brand names.
For the fourth quarter, organic sales are expected to remain
flat with the year-ago quarter. Personal Care organic sales are
forecasted to remain flat, while Household products sales is
expected to stabilize.
For the fiscal year, organic net sales are expected to decline
in the low- to mid-single digits. Personal Care organic net sales
are expected to decline in the low-single digits, while Household
products organic net sales are expected to decline in the
Advertising & promotion, as a percentage of sales, is
expected to be in the range of 10.5% to 11%, up 100 bps from
Energizer expects fiscal 2014 adjusted earnings to be in the
range of $7.00 to $7.25 per share. The feminine care brands
acquisition is expected to accretive in the range of 35 to 40 cents
for the fiscal year. Spin-off transaction related charges are
estimated to be $25 to $30 million for the fiscal 2014.
We believe that product innovations coupled with higher pricing
and restructuring initiatives will drive results in the long
Moreover, its prudent product mix would expand margins in the
near term. Also, the company's partnership with Unilever's (
) AXE brand is expected to result in market share gains, going
forward. Apart from this, the company's acquisition strategy is
expected to reap benefits.
However, the expected decline in volumes in Household product
segment, unfavorable foreign exchange and increasing competition
from companies such as Kimberley-Clark Corp. (
) and Procter & Gamble Co. (
) are the near-term headwinds.
Further, heightened spending on advertising & promotion will
hurt profitability in the near term.
Currently, Energizer carries a Zacks Rank #3 (Hold).
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