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Energizer (ENR) Up 4.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have added about 4.3% 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 Holdings Beats Q4 Earnings & Sales Estimates

Energizer Holdings reported robust fourth-quarter fiscal 2019 results, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate. Also, earnings and sales improved on a year-over-year basis. Moreover, the company provided guidance for fiscal 2020.

Q4 in Detail

Adjusted earnings came in at 93 cents per share, which surpassed the Zacks Consensus Estimate of 81 cents and improved 12% from the year-ago quarter’s figure of 83 cents. This was driven by higher revenues and lower interest expenses.

The company reported net sales of $719 million, which outpaced the Zacks Consensus Estimate of $713 million. Also, the same soared 57.3% on a year-over-year basis. This increase was driven by contribution from acquired business and robust global organic revenues.

Meanwhile, organic sales grew 9.2% during the quarter. This marked the fourth consecutive year of organic growth. The improvement was buoyed by strength in acquired businesses in the fourth quarter, partially offset by 120 basis points (bps) due to adverse currency fluctuations and $0.2 million due to negative impacts from Argentina operation.

Segments in Detail

Batteries revenues (78.1% of total revenues) increased 37.7% year over year to $561.4 million, while revenues at the Auto Care segment grew significantly from $26.5 million to $119.4 million. Revenues at Lights and Licensing segment improved about 67% to $38.2 million.

In the Americas, the company recorded revenues of $514.6 million, up significantly from 297.1 million in the year-ago quarter. Revenues at the International segment amounted to $204.4 million, mirroring an increase of 27.7% from the year-ago quarter.

Margins

Energizer’s adjusted gross margin contracted 340 bps to 42.1% due to the buyout of lower-margin profile businesses and adverse impact of foreign currency and tariffs. This was partly offset by gains from pricing and recognition of synergies.

The company’s SG&A expenses, excluding acquisition and integration costs, amounted to $123 million, reflecting an increase of $34.9 million from the year-ago quarter.

Other Financial Details

Energizer ended the quarter with cash and cash equivalents of $258.5 million, long-term debt of $3,461.6 million and shareholders' equity of $543.8 million.

Cash flow generated from operations was $149.5 million during the fiscal 2019, while capital expenditures incurred during the period were $55.1 million. Adjusted free cash flow summed $256.2 million for fiscal 2019. The company bought back approximately 1,036,000 shares for $45 million.

For fiscal 2020, the company expects capital spending (excluding integration) in the band of $40-$45 million. Adjusted free cash flow is anticipated in the range of $310-$340 million.

Guidance

Management expects fiscal 2020 net sales on a reported basis to increase in the range of 9-10%. This comprises an incremental three months of acquired battery and four months of acquired auto care. Organic net sales are projected to be up low single digits with battery business up in the range of 1-2%. Combined auto care business is anticipated to increase 3.5%.

The company expects earnings per share in the band of $3.00-$3.20.

Gross margin, excluding acquisition and integration costs, is expected to improve 10-40 bps. Management highlighted that benefits of synergies and improved operating efficiencies will be partly offset by adverse currency fluctuations of $15-$20 million and approximately $10-$15 million incremental tariffs and Brexit costs.

SG&A, excluding acquisition and integration costs, is projected 16.5-17% of net sales.

Adjusted EBITDA is expected to be $610-$640 million.

By the end of fiscal year 2020, the company expects net leverage in the range of 4.2-4.4 times (on a credit defined basis).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -13.84% due to these changes.

VGM Scores

Currently, 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 B on the value side, putting it in the top 40% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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