A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have lost about 7.3% 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 Q2 Earnings Beat Estimates, Sales Dip Y/Y
Shares of Energizer Holdings, Inc. bottom line beat the Zacks Consensus Estimate but the top line missed the same. However, the company’s top line declined year over year.
Energizer’s adjusted earnings of 64 cents per share beat the Zacks Consensus Estimate of 51 cents and increased 36% from the year-ago quarter’s reported figure. The bottom line also surpassed our consensus estimate of 50 cents.
It reported net sales of $684.1 million, falling short of the Zacks Consensus Estimate of $687 million and our estimate of $685.5 million. The top line also decreased 0.2% from the year-ago quarter’s reading. However, organic sales increased 2.6% in the quarter under review. This rise was driven by continued benefit of global pricing actions in the battery and auto care businesses, which contributed approximately 13% to organic sales. This upside was partially offset by declining volumes and management’s decision to exit certain low-margin profile battery customers and products, which further contributed to the decline.
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 dipped from $516.5 million year over year to $505.9 million in second-quarter fiscal 2023 and lagged the consensus mark of $517.7 million. Meanwhile, revenues in the Auto Care segment increased from $168.9 million to $178.2 million and beat the consensus mark of $167.7 million.
In the fiscal second quarter, Energizer’s adjusted gross margin expanded 300 basis points to 37.9%. This was mainly backed by continued gains from the pricing initiatives, Project Momentum savings of $10.7 million and favorable impact from exiting lower-margin businesses. Increased operating expenses, including material and ocean freight costs, inflationary trends, and currency headwinds, partly offset the increase.
Excluding restructuring costs, the company’s adjusted selling, general and administrative (SG&A) cost as a rate of sales was 17% compared with the 17.2% recorded in the prior-year quarter. On a dollar basis, SG&A declined from $117.6 million to $116.5 million due to Project Momentum savings and favorable currency impacts. This was somewhat offset by increased stock-compensation amortization and factoring fees. Adjusted EBITDA was $139.5 million, up 21.7% year over year.
Other Financial Details
As of Mar 31, 2023, Energizer’s cash and cash equivalents were $193.7 million, with long-term debt of $3,414.6 million and shareholders' equity of $148.4 million. In the first half of fiscal 2023, it paid more than $158.2 million of debt, reducing its leverage by 1/2 turn year over year. In the reported quarter, it paid out a dividend of nearly $22 million.
The operating cash flow for the first half of 2023 was $210.2 million and the free cash flow was $192.2 million.
We note that Project Momentum is on track, delivering savings of about $20 million in the first half of fiscal 2023. It anticipates generating overall project savings of $30-$40 million for the year. The one-time project expenses for the current fiscal year are likely to be $25-$35 million and capital expenditure is expected to be $15-$20 million. The company is on track to generate total savings and one-time expenses over the life of the program.
Management reaffirmed its guidance for fiscal 2023. Energizer projects organic revenues to grow in low-single digits for the current fiscal year. The company anticipates a low-single-digit decline for reported revenues. It expects currency headwinds on pre-tax earnings of $20 million and 22 cents per share, based on the current rates.
Adjusted EBITDA is forecast to be $585-$615 million. Management envisions adjusted earnings per share of $3-$3.30 for the current fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -25.64% due to these changes.
At this time, Energizer has a strong 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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