Energizer (ENR) Up 16.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Energizer Holdings (ENR). Shares have added about 16.5% 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 drivers.
Energizer’s Q3 Earnings & Sales Misses Estimates
Energizer Holdings posted dismal third-quarter fiscal 2019 results. We note that both the top line and the bottom line missed the Zacks Consensus Estimate. Although the company’s net sales increased year over year, earnings per share fell from the year-ago period. In fact, this marked the second consecutive quarter of earnings and sales miss. Also, management lowered its sales view for fiscal year 2019.
Q3 in Detail
Adjusted earnings came in at 37 cents per share, which lagged the Zacks Consensus Estimate of 47 cents and declined significantly from the year-ago quarter’s figure of 54 cents. This was due to the impact of weather on auto refrigerant business and change in the allocation of interest partly offset by better cost efficiencies and synergies. The downside may also be due to increase in cost of goods sold and rise in SG&A expenses.
The company reported net sales of $647.2 million, which fell short of the Zacks Consensus Estimate of $675.9 million. Nonetheless, the same soared 64.8% on a year-over-year basis. This increase was driven by contribution from acquired business.
Meanwhile, organic sales improved 3.6% during the quarter. The improvement was buoyed by strength in battery business from distribution gains and better pricing in the third quarter, partially offset by 190 basis points (bps) due to adverse currency fluctuations.
Segment Detail
Batteries revenues (70.6% of total revenues) increased 30.6% year over year to $457.2 million, while revenues at the Auto Care segment grew significantly from $24.1 million to $160.8 million. Revenues at Lights and Licensing segment improved about 57% to $29.2 million.
In the Americas, the company recorded revenues of $465.1 million, up significantly from 241.3 million in the year-ago quarter. Revenues at the International segment amounted to $182.1 million, mirroring an increase of 20.2% from the year-ago quarter.
Margins
Energizer’s adjusted gross margin contracted 480 bps to 40% due to the buyout of lower-margin profile businesses and adverse impact of foreign currency.
SG&A expenses, excluding acquisition and integration costs, amounted to $112.5 million, reflecting an increase of $23 million from the year-ago quarter.
Other Financial Details
Energizer ended the quarter with cash and cash equivalents of $206.4 million, long-term debt of $3,493.2 million and shareholders' equity of $570.7 million.
Cash flow generated from operations was $7 million during the first nine months of fiscal 2019, while capital expenditures incurred during the quarter were $36.4 million. Adjusted free cash flow summed $137.6 million in the third quarter.
During the quarter under review, Energizer paid out dividend of approximately $21 million. The company remains committed toward optimum capital allocation with focus on lowering debt load.
Guidance
Management reiterated its earnings guidance for fiscal 2019. The company continues to expect earnings per share in the band of $2.90-$3.00.
However, the company revised its net sales view for fiscal 2019. Net sales on a reported basis are now expected in the range of $2.48-$2.50 billion. Management informed that robust battery business is likely to be offset by softness in the auto care business. It had previously projected net sales in the band of $2.52-$2.57 billion. Organic net sales are still anticipated to be up by 3-3.5%. Currency headwinds (excluding Argentina) are still likely to hurt net sales by 1.5-2%.
The company expects acquired battery net sales to be at the low end of the earlier guided range of $350-$370 million. Acquired auto care net sales are envisioned to be in the range of $310-$320 million. For fiscal 2020, the company projects Auto Care net sales in the range of $510-$525 million compared to previous projection of $555-$575 million.
Gross margin, excluding acquisition and integration costs, is now expected to be in the range of 42.5-42.9%. Earlier, the company projected gross margin to decline 400-440 bps to a range of 41.7-42.3%. Interest expense for 2019 is now estimated to be around $160 million. Adjusted EBITDA is still expected in the range of $540-$560 million. Adjusted free cash flow is anticipated in the range of $220-$250 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 12.5% due to these changes.
VGM Scores
Currently, Energizer has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been 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.
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