Energizer Q3 Earnings & Revenues Beat Estimates, Fall Y/Y - Analyst Blog

Energizer Holdings, Inc. ENR reported third-quarter fiscal 2015 non-GAAP earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 56 cents but declined from 66 cents earned in the year-ago quarter The bottom line was affected by negative currency translation, organic revenue declines and increased advertising and sales promotion expenses.

Revenues

Revenues of $374 million surpassed the Zacks Consensus Estimate of $363 million but were lower than $412 million generated in the third quarter of fiscal 2014.

Energizer Holdings Inc. - Earnings Surprise | FindTheBest

Alkaline batteries revenues declined 9% year over year to $233.9 million and Other batteries and lighting products revenues dropped 9.5% year over year to $140.4 million

In North America the company recorded revenues of $184.9 million, down 3.7%. In Latin America, revenues amounted to$27.8 million, down 30% and in Europe, the Middle East and Africa (EMEA) region, revenues were $82.3 million, down 12.7%. Asia Pacific also recorded revenues decline of 7.5% year over year to $79.3 million.

Margin

Gross margin inthe thirdquarter expanded 200 basis points (bps) to 45.6% driven by continued cost reductions and favorable commodity pricing. SG&A expenses as a percentage of net sales improved 280 bpsdue to cost effectiveness.

Balance Sheet

Cash flow from operating activities was $23.7 million for the nine months ended Jun 30, 2015 compared with$378.7 million for the same period of the prior year.Capital expenditures were $72.4 million for the nine months ended Jun 30, 2015 compared with$55.0 million overthe same period last year.

Spin-off Program

On Jul 1, 2015, Energizer completed the spin off itsHousehold Products business.Following the spin-off, two independent, publicly traded companies were creatednamely Energizer Holdings, Inc. and Edgewell Personal Care Company

Energizer along with Edgewell Personal Care Company incurred restructuring related charges of $19.4 million in the third quarter and $199.7 million on a project-to-date basis. In addition, spin-off and restructuring related charges amounted to$76.2 million in the third quarter and $166.9 million on a project-to-date basis, inclusive of the cost of early debt retirement. Restructuring savings wereover $218 million.

Guidance

For the fourth quarter fiscal 2015, net sales are expected to be unfavorably impacted by $25 to $30 million and pre-tax earnings (net of the hedge impact) are estimated to be reduced by $12 to $15 million. Organic revenuesareexpected to decline in mid- to high-single digits. Gross margin rate is expected to decline by up to 300 basis points.

Further, Energizer expects to incur incremental charges related to the spin transaction during the fourth quarter of fiscal 2015 and through fiscal year 2016.

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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