Energizer (ENR) Up 1.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have added about 1.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Energizer due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Energizer Q3 Earnings Miss Estimates, Sales View Down
Energizer Holdings reported disappointing results in third-quarter fiscal 2023, wherein its top and bottom lines missed the Zacks Consensus Estimate and declined year over year.
Q3 Metrics
Energizer’s adjusted earnings of 54 cents per share fell short of the Zacks Consensus Estimate of 66 cents and decreased 29.9% from the year-ago quarter’s reported figure.
ENR reported net sales of $699.4 million, which lagged the Zacks Consensus Estimate of $748 million. The top line also decreased 3.9% from the year-ago quarter’s reading. Also, organic sales declined 2.7% in the quarter under review.
The decline was attributable to volume declines in the battery and auto care businesses, management’s decision to exit certain low-margin businesses and a decline in sales to device manufacturers. The downside was partially offset by the continued benefit of global pricing actions in the battery and auto care businesses, which contributed approximately 6.5% to organic sales.
Segments in Detail
On Oct 1, 2021, Energizer changed its segments from the two geographies of Americas and International to two reporting units, namely Battery & Lights and Auto Care. The move followed the acquisition of Spectrum Brands’ Battery and Auto Care units in the first quarter of fiscal 2022.
Energizer’s Batteries & Lights segment’s revenues dipped from $531.6 million year over year to $511.3 million in third-quarter fiscal 2023 and lagged our estimate of $539.8 million. Meanwhile, revenues in the Auto Care segment decreased from $196.4 million to $188.1 million. In the quarter, we expected revenues of $206.2 million from the Auto Care segment.
Margins
In the fiscal third quarter, Energizer’s adjusted gross margin contracted 160 basis points to 38.8% owing to increased operating expenses, including raw materials, inflationary trends, currency headwinds and the timing of inventory builds in the previous year. However, continued gains from the pricing initiatives, Project Momentum savings of $10.7 million and favorable impacts from exiting lower-margin battery businesses partly offset the decrease. The adjusted gross margin surpassed our estimate of 38%.
Excluding restructuring costs, this Zacks Rank #2 (Buy) company’s adjusted selling, general and administrative (SG&A) cost as a rate of sales was 16.2% compared with the 16.3% recorded in the prior-year quarter. We had expected adjusted SG&A cost as a rate of sales to be 15.3% in the quarter under review.
On a dollar basis, SG&A cost declined from $118.9 million to $113.3 million due to Project Momentum savings, lower environmental expenses and favorable currency impacts. This was somewhat offset by increased compensation expenses and factoring fees. Adjusted EBITDA was $126.8 million, down 12.9% year over year.
Other Financial Details
As of Jun 30, 2023, Energizer’s cash and cash equivalents were $202.4 million, with long-term debt of $3,377 million and shareholders' equity of $166.9 million. In the first nine months of fiscal 2023, ENR paid down $200 million of debt. At the end of, the fiscal third quarter, the company’s net debt to adjusted EBITDA was 5.7 times. In the reported quarter, it paid out a dividend of nearly $22 million.
The operating cash flow for the first nine months of fiscal 2023 was $296.3 million and the free cash flow was $261.6 million.
Outlook
We note that Project Momentum is on track, delivering savings of about $32 million in the first three quarters of fiscal 2023. It anticipates generating overall project savings of $45-$50 million for the year. ENR has added a third year to the program, which is expected to increase its savings to $130-$150 million by 2025-end. For fiscal 2023, total one-time cash project costs are envisioned in the range of $45-$50 million.
Management lowered its organic revenue guidance for fiscal 2023. Energizer currently anticipates organic revenues to decrease in low single digits compared with its earlier projection of low-single digits growth. It anticipates a recovery in gross margin, supported by Project Momentum savings. For the current fiscal year, it expects adjusted earnings per share and adjusted EBITDA to be at the lower end of its previously guided range.
Previously, ENR expected its adjusted EBITDA to be $585-$615 million and adjusted earnings per share of $3-$3.30 for the current fiscal year.
For fourth-quarter fiscal 2023, Energizer anticipates organic revenues to be roughly flat with a strong improvement in gross margin. For the quarter, adjusted earnings per share are envisioned in the band of $1.10-$1.20, with an adjusted EBITDA of $173-$183 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, Energizer has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Energizer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Energizer is part of the Zacks Consumer Products - Staples industry. Over the past month, Albertsons Companies, Inc. (ACI), a stock from the same industry, has gained 6.2%. The company reported its results for the quarter ended May 2023 more than a month ago.
Albertsons Companies, Inc. reported revenues of $24.05 billion in the last reported quarter, representing a year-over-year change of +3.2%. EPS of $0.93 for the same period compares with $1 a year ago.
Albertsons Companies, Inc. is expected to post earnings of $0.59 per share for the current quarter, representing a year-over-year change of -18.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Albertsons Companies, Inc. Also, the stock has a VGM Score of A.
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