Energizer Beats Q3 Earnings, Lags Rev
Energizer Holdings Inc. (ENR) reported third-quarter 2013 non-GAAP earnings of $1.57 per share, which comfortably beat the Zacks Consensus Estimate of $1.34. Earnings per share also improved 33.1% from the year-ago quarter.
Quarter Details
Revenues not only declined 1.1% from the year-ago quarter to $1.11 billion but also lagged the Zacks Consensus Estimate of $1.15 billion. Revenues for the quarter were affected by unfavorable currencies in Asia and Latin America.
On an organic basis, revenues remained flat due to higher volume in Household Products which offset declines in revenues from Personal Care segment.
Revenues from Personal Care segment decreased 3.6% from the year-ago quarter to $649.5 million primarily due to the effect of unfavorable currencies. Organic sales declined modestly on a year-over-year basis.
Household Products revenues increased 2.5% from the year-ago quarter to $462.0 million. Organic sales increased 3.7% on a year-over-year basis, primarily attributed to volume increases and soft year-over-year comparisons. Moreover, higher promotional activities in the U.S. and distribution gains in Asia also helped the segment’s organic sales.
Gross margin for the quarter was down 110 basis points (bps) to 45.9% due to the impact of unfavorable currencies and charges related to restructuring initiatives. Excluding these adjustments, gross margins remained flat at 47.0% on a year-over-year basis primarily due to an increase in the price of its household products, which was offset by an unfavorable product mix in the Personal Care segment.
Operating margin increased from 15.9% in the year-ago quarter to 19.0% primarily due to lower-than-expected costs. During the quarter, selling, general and administrative expense declined 13.7% from the year-ago quarter primarily due to cost controls and restructuring initiatives.
Advertising and sales promotion expense declined 14.7% due to change in spending schedule. Research and development expense was down 15.4% year over year. The company reported third-quarter restructuring savings of $30 million.
Energizer reported non-GAAP net earnings of $99.3 million which improved from $77.7 million. The company also increased its dividend by 25% to 50 cents.
Guidance
Energizer reiterated fiscal 2013 adjusted earnings per share guidance in the range of $6.75 to $7.00. From the sales perspective, management expects Personal Care segment’s organic sales to remain flat in fiscal 2013, down from the prior forecast of low single-digit growth. The company expects gross pre-tax restructuring savings to be $80 million in fiscal 2013.
For the fourth quarter, management expects low single-digit organic sales growth from its Personal Care segment while for the Household Products segment management continues to expect a 10% decline primarily due to loss of market share, change of timing in the promotional activities and shipments. Moreover, storm-related volume in the prior-year quarter will also impact Household Products segment.
Management expects advertising expenses to increase in the latter half of 2013. The company expects the costs of restructuring for the remaining part of fiscal 2013 to be between $35 million and $45 million.
Recommendation
We believe that product innovations coupled with higher pricing of Energizer’s household products and the restructuring initiatives would positively impact its results, going forward.
Moreover, lower-than-expected operating expenses and prudent product mix would expand margins in the near term. Energizer’s partnership with Unilever’s (UN) AXE brand will also boost its shaving market share, going forward. Additionally, the company’s proposed acquisition of feminine hygiene business from Johnson & Johnson Inc. is expected to boost its feminine care brands.
However, the expected declines in volumes in Household Product segment, unfavorable foreign exchange and increasing competition from companies such as Kimberley-Clark Corp. (KMB) and Procter & Gamble Co. (PG) are the near-term headwinds.
Currently, Energizer carries a Zacks Rank #3 (Hold).
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