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Energizer's (ENR) Q2 Earnings Beat, Revenues Miss Estimates - Analyst Blog

Energizer Holding Inc.ENR reported mixed second-quarter fiscal 2015 results wherein its bottom line topped the Zacks Consensus Estimate but the top line missed the same. The company's non-GAAP earnings of $1.97 per share beat the Zacks Consensus Estimate of $1.72 and increased 4.8% year over year.

Energizer Holdings Inc. - Earnings Surprise | FindTheCompany

The bottom line mainly benefited from the company's efficient restructuring saving initiatives as well as lower tax rates, which more than offset the negative impact from currency translations and increased advertising and sales promotion (A&P) expenses. On a GAAP basis, Energizer posted a loss per share of $1.41, which compared unfavorably with earnings of $1.57 in the year-ago quarter.

Revenues

Energizer's revenues for the quarter decreased 5.1% from the year-ago quarter to $1.008 billion and missed the Zacks Consensus Estimate of $1.023 billion. The year-over-year decline was mainly due to unfavorable currency exchange rates. However, the company's revenues registered a 0.3% organic growth, excluding the impact of increased sales in Venezuela.

Personal Care (64.6% of revenues) dipped 5.5% year over year to $651.1 million. Organic net sales decreased 1.3% year over year due to lower volumes across Feminine Care, Wet Shave and Infant Care products, offset by improved price/mix in Wet Shave. The company registered increased competition in many of its U.S. personal care product lines.

Household products declined 4.4% from the year-ago quarter to $356.9 million. However, organic net sales were up 3% due to the launch of EcoAdvanced, the first battery made with recycled batteries.

Margins

Gross margin expanded 200 basis points (bps) to 49.8%. The growth was primarily backed by savings from the 2013 restructuring project and lower commodity costs.

The company recorded A&P expense of $107.9 million. As a percentage of sales, A&P expenses increased 160 bps year over year to 10.7%. The increased spending was incurred to support innovation launch activities and brand building programs at both the segments.

Selling, general, and administrative (SG&A) expenses, as a percentage of sales, also rose 340 bps year over year. However, excluding one-time items, it decreased 90 bps.

The company recorded lowered interest expense of $28.9 million compared with $31.3 million in the year-ago quarter owing to lower average interest rate on outstanding debt.

Personal Care segment's operating profit was $165.1 million, down 3.3% year over year. However, excluding the impacts of currency movements and year-over-year results in Venezuela, segment profit increased 3.1% primarily driven by restructuring savings and improved price mix which more than offset higher A&P expenses.

Household Products segment's operating profit was $67.9 million, up 5.8% year over year. However, excluding the impacts of currency movements and year-over-year results in Venezuela, segment profit increased 36% year over year. The growth drivers were restructuring savings and improved price mix which more than offset higher A&P expenses.

Balance Sheet

In the second quarter, working capital, as a percentage of revenues, was 15.3%, up 30 bps from fiscal 2014-end.

Dividend Payments

The company paid total dividend of $31 million in the reported quarter.

2013 Restructuring Project Update

Restructuring savings increased approximately $27 million from the prior-year quarter. The primary impacts of the savings were reflected in improved gross margin and lower overhead expenses. Project-to-date savings total was approximately $310 million.

The company expects to achieve $315 million of savings through Jun 30, 2015. Total project savings is expected to be $330 million through fiscal 2016.

Spin-off Program

On Apr 30, 2014, Energizer announced its intention to spin off the Household Products business and create two independent, publicly traded companies. The spin-off is expected to be completed by Jul 1, 2015.

The company estimates total spin-off and spin restructuring related costs through Jun 30, 2015 to be within $350-$425 million.

  • $200 million to $225 million related to the transaction evaluation, planning and execution
  • $150 million to $200 million related to spin restructuring initiatives

As a result, the company will incur incremental costs to evaluate, plan and execute the transaction. In the first six months of fiscal 2015, the company reported $137.4 million as pre-tax charges. Total spin-off transaction costs came in at approximately $182.1 million on a project-to-date basis. The company will incur additional costs to execute the transaction.

Guidance

For the first nine months of fiscal 2015 ending Jun 30, 2015, organic net sales are expected to be down in the low single-digit range. Personal Care organic net sales are expected to be flat, while Household Products organic net sales are anticipated to be down in low single-digits.

Gross margin is expected to increase marginally as a result of higher restructuring savings. A&P expense, as a percentage of net sales, is expected to increase more than 150 bps year over year.

Our Take

We believe that product innovations coupled with higher pricing and restructuring initiatives will drive results in the long run.

Moreover, the company's prudent product and price mix would expand margins in the near term. Also, the company's partnership with Unilever's UN AXE brand should lead to market share gains, going forward. Apart from this, the company's acquisition strategy is likely to yield benefits.

However, the expected decline in volumes in the Household product segment, unfavorable foreign exchange and increasing competition from the likes of Kimberley-Clark Corp. KMB and Procter & Gamble Co. PG are the near-term headwinds.

Further, increased spending on advertising and promotion will hurt profitability in the near term.

Currently, Energizer has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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