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Energizer Disappoints, Misses on Q1 Earnings, Revs

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Energizer Holdings Inc. (ENR - Analyst Report) reported first-quarter fiscal 2014 non-GAAP earnings of $2.10 per share, which lagged the Zacks Consensus Estimate of $2.16 per share.

Quarter Details

Revenues declined 6.6% from the year-ago quarter to $1.11 billion and it missed the Zacks Consensus Estimate of $1.16 billion too. The year-over-year decline in revenues was primarily due to customer losses in the Household Products segment and weaker-than-expected revenues in Personal Care.  

Revenues from the Personal Care segment decreased 0.7% from the year-ago quarter to $550.2 million primarily due to the effect of unfavorable currencies.

Household Products revenues declined 11.7% from the year-ago quarter to $563.7 million. The company realized approximately $140 million of gross savings as a result of its restructuring program.

Gross margin for the quarter was down 120 basis points (bps) to 45.9% from 47.1% reported in the year-ago quarter. Gross margin declined as the decline in revenues was greater than the decline in the cost of goods sold (COGS).

Year-over-year, selling, general & administrative expense increased 1.5%, while research & development expense declined 11.0%, primarily due to cost controls and restructuring initiatives.

Advertising and sales promotion expense decreased 14.6% on a year-over-year basis. The decreased spending was a result of the timing of promotion and innovation launch activity as compared to the prior year. Energizer remains committed to investing at its full year planned levels.

Energizer reported non-GAAP earnings of $2.10 per share which declined from $2.20 per share reported in the year-ago quarter. The company also increased its dividend by 24% to 31 cents. However, no shares were repurchased by the company during the quarter.

Guidance

Energizer expects fiscal 2014 adjusted earnings to be in the range of $7.00 to $7.25 per share while the Zacks Consensus Estimate for EPS in fiscal 2014 is pegged at $7.18 per share. Moreover, the company has raised its total project gross savings estimate from $225 million to $300 million. The increased savings are expected to be realized throughout fiscal 2015 and 2016, and the total run rate impact is expected to be realized in fiscal 2016.

Recommendation

ENR reported a dismal first-quarter fiscal 2014 result, with earnings per share and revenues missing the Zacks Consensus Estimate. Energizer believes that its results were negatively impacted by unfavorable global currencies, and pricing controls and import restrictions in certain Latin American countries.

We believe that product innovations coupled with higher pricing of Energizer’s household products and the restructuring initiatives would positively impact its results, going forward.

Moreover, lower-than-expected operating expenses and prudent product mix would expand margins in the near term. Also, the company’s partnership with Unilever’s (UN - Analyst Report) AXE brand is expected to result in market share gains, going forward. This apart, the acquisition strategy of the company is expected to reap benefits.

However, the expected declines in volumes in Household Product segment, unfavorable foreign exchange and increasing competition from companies such as Kimberley-Clark Corp. (KMB - Analyst Report) and Procter & Gamble Co. (PG - Analyst Report) are the near-term headwinds.

Currently, Energizer carries a Zacks Rank #3 (Hold).

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