Energizer (ENR) Exhibits Bright Prospects Despite Headwinds
Energizer Holdings Inc. ENR has been making efforts to drive productivity by streamlining the organization, improving operational execution and optimizing its manufacturing footprint. The company’s Project Momentum program, which includes an enterprise-wide restructuring component, has also been proving beneficial.
ENR implemented several initiatives to recover operating margins, cash flow and organizational efficiency under the Project Momentum program. It also remains committed to delivering savings through network optimization, strategic sourcing initiatives and cost management. In the first nine months of fiscal 2023, it generated savings of $32 million with this program. It has added a third year to this program, which is anticipated to generate $130-$150 million in run-rate savings by the end of fiscal 2025.
ENR believes in strengthening its businesses through the addition of assets. The company’s deal with Green Global Holdings, LLC to purchase a North Carolina-based company focuses on specialization in developing formulations for cleaning tasks (Formulations Acquisition). In December 2020, it concluded the acquisition of Formulations in a cash deal worth of $51.2. Notably, this integration enabled it to add key innovation capabilities to formulations.
Also, in October 2020, Energizer acquired FDK Corporation’s subsidiary PT FDK Indonesia, a battery-manufacturing facility, to increase its alkaline battery production capacity.
For fourth-quarter fiscal 2023, management anticipates organic revenues to be roughly flat with a strong improvement in gross margin. It estimates to generate gross margin of about 40% in the fourth quarter, indicating a year-over-year improvement of 200 basis points. For the quarter, adjusted earnings per share (EPS) is envisioned in the range of $1.10-$1.20 compared with 82 cents earned in the prior-fiscal-year quarter.
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This Zacks Rank #3 (Hold) company’s shares have gained 5.8% in the past six months against the industry’s decline of 12.2%.
However, ENR has been grappling with weakness in its battery and auto care businesses. In the fiscal third quarter, the Batteries & Lights segment’s revenues declined 3.8% year over year to $511.3 million. For fiscal 2023, management expects low single-digit dip in its organic revenues.
Energizer is subject to foreign exchange woes owing to its extensive presence across international markets. In the first three quarters of fiscal 2023, currency headwinds had an adverse impact of $48 million on its net sales. Although inflationary pressure has somewhat eased, rising interest rates do not bode well.
Stocks to Consider
Here we have highlighted three top-ranked stocks, namely J&J Snack Foods Corporation JJSF, MGP Ingredients, Inc. MGPI and Grocery Outlet Holding Corp. GO. While J&J Snack Foods and MGP Ingredients sport a Zacks Rank #1 (Strong Buy) each, Grocery Outlet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
J&J Snack Foods is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. JJSF has a trailing four-quarter earnings surprise of 4.7%, on average. The Zacks Consensus Estimate for JJSF’s current fiscal-year sales and EPS suggests growth of 11.1% and 62.3%, respectively, from the year-ago reported figures.
MGPI Ingredients produces and markets ingredients and distillery products for the packaged goods industry. MGP Ingredients has a trailing four-quarter earnings surprise of 18%, on average. The Zacks Consensus Estimate for MGPI’s current financial-year sales and EPS implies rises of 5.8% and 10.4%, respectively, from the year-ago reported numbers.
Grocery Outlet is a retailer of consumables and fresh products. GO has a trailing four-quarter earnings surprise of 14.3%, on average. The Zacks Consensus Estimate for GO’s current financial-year sales and EPS indicates improvements of 11.2% and 4.9%, respectively, from the year-ago reported numbers.
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