Why Is Energizer (ENR) Down 5% Since Last Earnings Report?
A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have lost about 5% 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 the most recent earnings report in order to get a better handle on the important drivers.
Energizer Q4 Earnings & Sales Beat Estimates, Up Y/Y
Energizer reported impressive results in fourth-quarter fiscal 2023, wherein its top and bottom lines surpassed the Zacks Consensus Estimate and grew year over year.
Q4 Metrics
Energizer’s adjusted earnings of $1.20 per share came ahead of the Zacks Consensus Estimate of $1.14 and increased 46.3% from the year-ago quarter’s reported figure.
ENR reported net sales of $811.1 million, which beat the Zacks Consensus Estimate of $791 million. The top line also increased by 2.6% from the year-ago quarter’s reading. Organic sales grew 2% in the fiscal fourth quarter.
The increase was driven by the continued benefit of global pricing actions in the battery and auto care businesses, which contributed approximately 1.5% to organic sales and an increase in battery volumes. The upside was partially offset by volume declines from lost battery distribution in international markets.
For fiscal 2023, the company’s adjusted earnings came in at $3.09 per share, up by a penny from the previous fiscal’s reported figure. For the fiscal year, net sales were $2,959.7 million, down 3% year over year.
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 increased from $639 million year over year to $656.1 million in fourth-quarter fiscal 2023 and beat our estimate of $639 million. Meanwhile, revenues in the Auto Care segment increased from $151.4 million to $155 million. In the quarter, we expected revenues of $150.3 million from the Auto Care segment.
Margins
In the fiscal fourth quarter, Energizer’s adjusted gross margin expanded 380 basis points to 40%, driven primarily by the Project Momentum savings of $19 million, continued gains from the pricing initiatives, lower product and other costs and positive currency impacts. The adjusted gross margin came in line with our estimate.
Excluding restructuring costs, this company’s adjusted selling, general and administrative (“SG&A”) costs, as a rate of net sales, was 14.2% compared with 15.1% recorded in the prior-year quarter. We had expected adjusted SG&A cost as a rate of net sales to be 14.1% in the quarter under review. On a dollar basis, SG&A cost declined from $119.2 million to $115.5 million due to Project Momentum savings. Adjusted EBITDA was $185.4 million, up 27% year over year.
Other Financial Details
As of Sep 30, 2023, Energizer’s cash and cash equivalents were $223.3 million, with long-term debt of $3,332.1 million and shareholders' equity of $210.7 million. In fiscal 2023, ENR paid down $225 million of debt. At the end of the fiscal fourth quarter, the company’s net debt to adjusted EBITDA was 5.2 times. In the reported quarter, it paid out a dividend of about $22 million.
The operating cash flow for fiscal 2023 was $395.2 million and free cash flow was $339.1 million.
Outlook
We note that Project Momentum is on track, delivering savings of more than $50 million in fiscal 2023. It anticipates to continue generating savings from the project going forward. The company is expected to focus on its strategic priorities, including gross margin restoration, free cash flow generation and paying down debt for fiscal 2024.
Management provided its organic revenue guidance for fiscal 2024. Energizer currently anticipates organic revenues to be flat to down in the low single digits. For fiscal 2024, adjusted earnings per share are expected in the band of $3.10-$3.30, while adjusted EBITDA is envisioned to be in the range of $600-$620 million.
For the first quarter of fiscal 2024, Energizer anticipates organic revenues to decline by 6-8% due to projected category trends and shifts in the timing of holiday orders in fourth-quarter fiscal 2023. For the quarter, adjusted earnings per share are envisioned in the band of 50 cents to 60 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -27.48% due to these changes.
VGM Scores
Currently, Energizer has a strong Growth Score of A, 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 A. 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. It's no surprise Energizer has a Zacks Rank #4 (Sell). We expect a below average 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, International Flavors (IFF), a stock from the same industry, has gained 6.4%. The company reported its results for the quarter ended September 2023 more than a month ago.
International Flavors reported revenues of $2.82 billion in the last reported quarter, representing a year-over-year change of -7.9%. EPS of $0.89 for the same period compares with $1.36 a year ago.
For the current quarter, International Flavors is expected to post earnings of $0.77 per share, indicating a change of -20.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.5% over the last 30 days.
International Flavors has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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