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May 4, 2010
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Energizer Holdings, Inc. (ENR) posted increased profitability in the second quarter of 2010 on higher sales, beating the Zacks Consensus Estimate.
Results were above expectations due to higher sales of razors in the quarter and a favorable foreign currency impact. Moreover, the quarter benefited from the successful integration of the Edge and Skintimate brands, which the company acquired from Johnson & Johnson (JNJ) in June 2009 resulting in higher sales.
Operating Performance
Excluding charges, earnings per share came in at $1.23 in the quarter, well above the Zacks Consensus Estimate of $1.08 and up 7% year over year from $1.15 per share.
Better-than-expected profit partially came from reduced spending on advertising and promotional (A&P) expenses, which fell 3.6% year over year (8.2% of total second-quarter 2010 revenue versus 9.1% in the year-ago period). The company had earlier projected higher spending on advertising and promotion.
Although, A&P spending was lower in the first half of fiscal 2010, Energizer Holdings expects to increase its investment levels in both advertising & promotion and other targeted growth initiatives. Advertising & Promotion expenses as a percentage of sales are expected to be in the range of 11% to 12% in 2010.
Energizer's Debt to EBITDA Ratio for the last four quarters was 2.99 to 1.00. This ratio includes the negative impact of the Venezuela devaluation charge as a reduction of EBITDA. As of March 31, 2010, the company's debt was $2.40 billion, with $2.22 billion, or 92%, at fixed rates averaging 5.19%. ENR exited the quarter with $396.2 million in cash.
Revenue
Total sales increased 6.2% year over year to $935.1 million in the quarter due to an increase in revenue from Household and Personal Care Products. Moreover, the favorable impact of foreign currencies of approximately $41 million and the inclusion of Edge and Skintimate shave preparations added $32 million to net sales for the quarter. This was partially offset by lower net sales for Venezuela of approximately $13 million due to the negative impact of the devaluation, partially offset by favorable pricing actions.
Net sales in the Household Products category increased 5.9% year over year to $441.8 million, due primarily to favorable currency impact, partially offset by lower net sales in Venezuela. Excluding the impact of currencies and Venezuela, net sales increased approximately $10 million, or 2%, due primarily to higher sales in other international markets.
The premium alkaline category witnessed year-over-year unit growth, however it was flat to slightly down on a dollar basis due to the negative pricing impact of pack upsizing in the U.S.
Further, overall pricing and product mix impacted the top line unfavorably by $2 million due primarily to lower pricing in the U.S., partially offset by price increases in other areas of the world. Segment profit increased in the quarter, due to favorable currency impact and the positive impact of raw material pricing.
Net sales in the Personal Care segment increased 6.5% year over year to $493.3 million, boosted by the shave preparation acquisition of the Skintimate and Edge shaving gels and creams business, which added approximately $32 million to the top-line. Revenue also increased due to a favorable currency impact. Excluding these impacts, net sales decreased approximately 3%. Therefore, segment profit increased due to a favorable currency impact, as well as the inclusion of Edge and Skintimate brands.
Under the Personal Care segment, revenue from Wet Shave, excluding the Edge and Skintimate brands, decreased 8% on lower volumes across all segments due to the launch of Quattro for Women Trimmer razors and replacement blades in the year-ago period and lower promotional activity in men's systems and disposables.
Skin Care sales increased 2% due to higher shipments of Hawaiian Tropic, partially offset by lower shipments of Wet Ones due to high levels of retail inventory as consumption related to H1N1 declined.
Infant Care sales increased 4% due to continued growth in Diaper Genie and cups, partially offset by lower sales of bottles. Feminine Care sales increased 2% due to higher shipments of Sport tampons, partially offset by lower sales of Gentle Glide.
Guidance
Management remained cautious regarding the battery category, as consumption remains sluggish and the effect of increasing number of devices using built-in rechargeable battery systems, particularly in developed markets may create a negative impact on the demand for batteries.
Further, Energizer's batteries are up against increased competition from Procter & Gamble (PG) in the battery (Duracell) segment. Therefore, sales in the Household Products category may be impacted, going forward.
Management did not provide any earnings forecast for the third quarter. However, the company said that excluding Venezuela, currencies will favorably impact operating profit by approximately $15 to $20 million in the third quarter. Management expects raw material and commodity costs to be $8 to $10 million in the second half of 2010.
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