It has been about a month since the last earnings report for Energizer Holdings (ENR). Shares have lost about 4.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Energizer due for a breakout? 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 Q1 Earnings Top Estimates, Revenues Up Y/Y
Energizer Holdings posted sturdy first-quarter fiscal 2021 results, with the top and the bottom line increasing year on year and beating the Zacks Consensus Estimate. Results benefitted from growth across the company’s segments, resulting from favorable demand conditions. Moreover, the company provided an encouraging update on its fiscal 2021 view. Going ahead, management is focused on boosting the top line and margins, in addition to achieving operational excellence.
Q1 Performance Insights
Adjusted earnings came in at $1.17 per share, which surpassed the Zacks Consensus Estimate of 89 cents and rallied 37.6% from the year-ago quarter’s figure of 85 cents. The bottom line gained from growth in organic revenue and synergy realization. The upsides were slightly offset by COVID-19 costs of nearly $10 million and increased selling, general and administrative (SG&A) expenses.
The company reported net sales of $848.6 million, which beat the Zacks Consensus Estimate of $792.9 million. Also, sales rose 15.2% on a year-over-year basis, buoyed by strong demand for batteries, lights and auto care. Moreover, organic sales increased 12.7% to $93.3 million in the quarter under review.
Segments in Details
Batteries revenues increased 13.5% year over year to $706.1 million, while revenues in the Auto Care segment rose 29.4% to $101.8 million. Revenues in the Lights, Licensing and Others segment rose 12.4% to $40.7 million.
In the Americas, the company recorded revenues of $586.6 million, up 14% from the year-ago quarter’s figure. Revenues in the International segment amounted to $262 million, up 17.9% from the year-ago quarter’s levels.
Energizer’s adjusted gross margin contracted 110 basis points (bps) to 40.7% owing to higher COVID-19 costs, increased operating costs, unfavorable mix stemming from product channel and customer as well as lower margin profile of acquisitions. Management stated that COVID-19 costs were mainly related to air freight, fines and penalties as well as personal protection equipment. Apart from this, consistent with the global market inflationary trends, the company incurred higher tariffs related to increased volumes as well as commodity and transportation costs, which resulted in additional product costs. Further, management stated that gross margin gained from synergies worth $13 million and favorable currency.
SG&A expenses, excluding acquisition and integration costs, as a percentage of sales, amounted to 13.4%. The figure declined 170 bps from the year-ago quarter’s level of 15.1%, driven by synergy realization and lower spending resulting partly from travel restrictions. Further, advertising and promotion, as a percentage of sales, contracted 60 bps to 5.8%.
Adjusted EBITDA came in at $192.4 million, up 17.5% year over year owing to higher organic revenues and synergy realization.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $305.6 million, long-term debt of $3,345 million and shareholders' equity of $329.6 million.
Adjusted free cash flow from continuing operations was $90.2 million in the first quarter.
The company paid off over $80 million of long-term debt in the reported quarter, excluding refinancing activity. Management stated that it took advantage of the favorable situation in the debt market and refinanced its existing revolver, term loans and senior notes. The company anticipates annual interest savings of approximately $25 million with nearly $19 million of savings to be realized through the rest of fiscal 2021. Apart from this, the company made amendments to its credit agreement that is likely to create additional flexibility and capacity.
During the quarter, the company paid out dividends worth $22.7 million. Additionally, it repurchased shares worth $21.3 million.
Based on first-quarter performance and the expected interest savings, the company updated its fiscal 2021 view. Management expects revenues to grow at the higher end of the previously-projected range of 2-4%. Adjusted gross margin is expected to remain flat year on year. Further, it expects adjusted EBITDA at the higher end of the earlier projected range of $600-$630 million. Adjusted earnings are envisioned to be $3.10-$3.40 per share compared with the previous expectation of $2.95-$3.25. Adjusted free cash flow is continued to be estimated within the $325-$350 million range. Management is cautious regarding the ongoing coronavirus pandemic and its impact upon consumer demand. The company expects incremental costs associated with COVID-19 to gradually diminish through the year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 15.65% due to these changes.
At this time, Energizer has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
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.
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