Energizer Misses, Guides Low - Analyst Blog

Energizer Holdings Inc. (ENR) reported first quarter 2011 non-GAAP earnings (excluding charges) of $1.68 per share, well below the Zacks Consensus of $1.92 per share, based on increased expenses, poor margins and lower profit from the battery business in the quarter. Earnings per share (EPS) declined 9.2% year over year.

Including charges and one-time items, earnings came in at $1.55 per share in the quarter, down 12.9% year over year from $1.78.

Gross margin was 47.1%, compared with 47.6% in the year-ago quarter. The decline was primarily attributable to increased coupon and trade promotional activity for the Schick Hydro product launch that adversely affected margin by approximately 120 basis points. The decline was partially offset by a favorable product mix.

Spending on advertising and promotion (A&P) escalated 45.1% year over year (10.9% of total first quarter 2011 revenue versus 7.5% in the year-ago period) due to increased spending support for the Schick Hydro launch.

Revenue

Revenue was flat year over year at $1.18 billion in the first quarter and in line with the Zacks Consensus Estimate. Revenue was impacted by lower Household Product sales, offset by higher Personal Care sales.

Revenue in the quarter was affected by increase sales in Hydro wet shave products and shave preparations that exceeded the company's expectations, offset by a decline in other product categories and the negative impact from Venezuela.

Household Products: Household Product revenues declined 5.0% year over year to $668.5 million, primarily due to challenging economic conditions and currency devaluation in Venezuela. Excluding the impact of Venezuela, net sales decreased 3% in the quarter.

Low margin volume loss, unfavorable timing of holiday shipments and the negative impact of the U.S. pack upsizing and other promotional pricing activities were offset by the favorable impact of distribution gains and a strong comparative quarter in Asia.

Management noted that the dollar value of the battery category remained sluggish and dipped 2% due to the negative pricing impact of pack upsizing in the U.S. The company plans to eliminate pack upsizing by the end of second quarter 2011.

Personal Care: Personal Care revenues increased 8.0% year over year to $508.6 million. The American Safety Razor (ASR) acquisition made in November 2010 contributed $27.0 million to sales in the quarter. This was partially offset by the unfavorable impact of currency devaluation at Venezuela and unfavorable economic conditions. Excluding the impact of ASR and Venezuela, net sales increased 4% in the quarter.

Wet shave sales (including ASR) increased 15% in the quarter, driven by higher volumes from Schick Hydro men's systems and shave preparations launched in North America, Japan and key Western Europe markets, higher sales of Edge and Skintimate and incremental shipments of disposables. This was partially offset by a decline in legacy systems products for men.

Skin Care sales decreased 14% year over year, due to lower shipments of Wet Ones while Feminine Care sales fell 5.0% year over year on lower sales of Gentle Glide partially offset by continued growth in Sport tampons. Infant Care sales were down 6% year over year in the quarter lower sales of bottles and Diaper Genie.

Guidance

Management provided its earnings forecast for fiscal 2011. Energizer expects segment profit for Household Products to be depressed for 2011 while profit for Personal Care to be modestly up.

The company expects EPS in the range of $4.30 to $4.50, including the impact of the expected Household Products restructuring charges.  Excluding unusual items, EPS for fiscal 2011 is expected in the range of $5.10 to $5.30, below the Zacks Consensus Estimate of $6.16 per share.

Management expects a significant year-over-year decline in the second quarter followed by a lesser decline in the third quarter. The fourth quarter is expected to witness a year-over-year improvement.

Segment-wise, Energizer expects the incremental impact of the Schick Hydro and new value brand launches in a key U.S. retailer to drive a mid to high single-digit growth in Personal Care net sales for the remaining three quarters of fiscal 2011. Segment gross margin is expected to continue to trend lower over the next two quarters due to increased promotional activities.

Although management anticipates some improvement in the battery category in the second half of 2011 due to the elimination of pack upsizing and price increase in the U.S., the battery category dollar value is expected to remain slightly negative for the year. As a result, Household Products revenues are expected to grow in the low single digit for the remainder of the year.

Energizer expects raw material costs to increase by $20 million to $25 million year over year, for the remainder of fiscal 2011, primarily due to higher zinc, silver and steel costs.

Energizer's multi-year program aimed at improving its competitive prowess remains on track. According to the plan, Energizer will accelerate its investments in both geographical and product growth opportunities going forward.

The restructuring plan is expected to result in pre-tax charges in the range of $65.0 million to $85.0 million in 2011 and generate annual savings of approximately $25 million to $35 million, by the end of fiscal 2012.

 

Energizer faces intense competition from Panasonic Corp. (PC) and Procter & Gamble Co. (PG). Energizer is currently a Zacks #3 Rank stock (short-term Hold rating) and has a Neutral rating over the long term.

 
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