Shares of Energizer Holdings were up $5.47 or 9.9% and closed at $60.72 after the company exceeded the analysts’ earnings expectation but reported revenues were in line with the expectation.
Results were above expectations due to the launch of new Schick Hydro men’s shaving in the quarter and the inclusion of Edge and Skintimate shaving products purchased last year, in addition to the favorable foreign currency impact. Moreover, the company’s battery business contributed to the growth despite negative battery category trends.
Operating Performance
Excluding charges and one-time gain, earnings per share came in at $1.60 in the quarter, well above the Zacks Consensus Estimate of 96 cents and up 40.4% year over year from $1.14 per share.
Gross margin was 48%, compared with 46% in the year-ago quarter, and was favorably impacted by 90 basis points due to currencies.
Although spending on advertising and promotional (A&P) expenses upped 21.7% year over year (13.5% of total third quarter 2010 revenue versus 12.0% in the year-ago period), profits improved due to higher sales and margin. Advertising & Promotion expenses, as a percentage of sales, are expected to be in the low end of the range of 11% to 12% in 2010.
Energizer’s Debt to EBITDA Ratio for the last four quarters was 2.78 to 1.00. This ratio includes the negative impact of the Venezuela devaluation charge as a reduction of EBITDA. As of June 30, 2010, the company’s debt was $2.36 billion, with $2.19 billion, or 92%, at fixed rates averaging 5.20%.
ENR exited the quarter with $488.8 million in cash versus $396.2 million in cash in the previous quarter. Capital expenditures were $25.3 million and depreciation expense was $31.2 million in the quarter.
Revenue
Total sales increased 7.9% year over year to $1.08 billion in the quarter due to an increase in revenues from Household and Personal Care Products. The favorable impact of foreign currencies of approximately $18 million and the inclusion of Edge and Skintimate shave preparations added $41 million to net sales for the quarter. The quarter also benefited from the launch of Schick Hydro men shaving system. This was partially offset by lower net sales of approximately $12 million in Venezuela due to the negative impact of the devaluation, partially offset by favorable pricing actions.
Net sales in the Household Products category increased 4.2% year over year to $487.6 million, primarily due to a favorable currency impact of $11 million, partially offset by lower net sales of $7 million in Venezuela devaluation. Excluding the impact of currencies and Venezuela devaluation, net sales increased approximately $15 million, or 3%, primarily due to higher sales in other international markets, distribution gains and merchandising improvements.
The premium alkaline category witnessed year-over-year unit growth; however, it was down on a dollar basis due to the negative pricing impact of pack upsizing in the U.S. Management pointed out that battery consumption remains sluggish and the effect of increasing number of devices using built-in rechargeable battery systems, particularly in developed markets and heightened price competition have hurt its battery sales.
Further, overall pricing and product mix impacted the top line unfavorably by $14 million primarily considering a lower pricing due to pack upsizing in the U.S., partially offset by price increases in other areas of the world. Segment profit increased in the quarter, attributable to a favorable currency impact and the positive impact of raw material pricing.
Net sales in the Personal Care segment increased 11.3% year over year to $589.2 million, boosted by the shave preparation acquisition of the Skintimate and Edge shaving gels and creams business, which added approximately $41 million to the top line. Revenues also escalated due to a $7 million favorable currency impact. These increases were partially offset by lower net sales of $6 million from Venezuela, primarily due to currency devaluation. Excluding these impacts, net sales increased approximately 3%. Therefore, segment profit spiked up due to a favorable currency impact, as well as the inclusion of Edge and Skintimate brands. Moreover, increased shipments for the Schick Hydro were more than offset by higher A&P in the quarter in support of the launch.
Under the Personal Care segment, revenues from Wet Shave increased 10% due to the launch of Schick Hydro in North America and a favorable pricing on disposables due to lower promotional activity.
Skin Care sales dropped 1% due to lower shipments of Wet Ones, given high levels of retail inventory as consumption related to H1N1 declined, partially offset by increased shipments of Banana Boat and Hawaiian Tropic.
Infant Care sales increased 1% due to a continued growth in Diaper Genie and cups. Feminine Care sales fell 14% due to lower sales of Gentle Glide as a result of increased competition, partially offset by growth in Sport tampons.
Guidance
Management did not provide any earnings forecast for the fourth quarter. However, the company said that excluding Venezuela, currencies will have a marginal impact on operating profit in the fourth quarter. Management expects raw material and commodity costs to be $3 million to $5 million, favorably impacting the fourth quarter of 2010.
Energizer Holdings has a Zacks rank of #3, indicating a short term Hold rating on the stock.
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