Energizer Beats EPS, Revs Fall Shy

Energizer Holdings Inc.’s (ENR - Analyst Report) first quarter 2012 non-GAAP earnings of $2.05 per share not only surpassed the Zacks Consensus Estimate of $1.91, but also increased 22.0% from the previous-year quarter.

Revenues

Revenues edged up 1.8% year over year to $1.19 billion, but fell short of the Zacks Consensus Estimate of $1.24 billion.

Household Products: Household Product, which comprised 52.9% of total revenue, decreased 5.2% year over year to $633.7 million, due to shift in timing of holiday deliveries and de-loading hurricane response inventories. On an organic basis, net sales declined 5.0% year over year.

Personal Care: Personal Care, which comprised 47.1% of total revenue, increased 11.0% year over year to $564.4 million. The increase was primarily attributable to the ASR inclusion and favorable currency fluctuations. Organic sales growth for the quarter was 1.4%.

Wet shave sales (including ASR) climbed 15.2% in the quarter. Organic sales for the segment grew 2.2% due to higher shipments of disposables, which was offset by lower sales of legacy men's products.

Operating Performance

Gross profit increased 1.6% from the prior-year quarter to $564.5 million. Gross margin of 47.1% was relatively flat on a year-over-year basis. The gross margin remained flat due to the impact of a favorable product mix that more than offset the impact of the low-margin ASR acquisition.

Spending on advertising and promotion (A&P) was down 25.1% year over year to $96.4 million. Selling, general and administrative expenses (SG&A) were $214.1 million, up 3.6% from the year-ago quarter.

The year-on-year increase was primarily led by the ASR and higher compensation expenses. Research and development expenses (R&D) was up 9.4% from the prior-year quarter to $25.6 million.

Net income (non-GAAP) increased 14.5% from the year-ago quarter to $137.1 million. Net margin for the quarter was 11.4% versus 10.2% in the previous-year quarter.

Guidance

For the fiscal 2012, management expects its EPS to be in the range of $6.00-$6.20. Management believes uncertain economic conditions in Europe and higher currency fluctuations to act as headwinds in the near term.

Moreover, management expects advertising and promotional expenses to increase in the coming two quarters for the promotion and launch of chick Hydro Silk and Schick Hydro 5 Power Select, Energizer’s latest offerings from its personal care segment.

We have a Neutral recommendation on Energizer over the long term (6-12 months). However, we believe higher commodity costs coupled with intense competition from companies such as Panasonic Corp. () and Procter & Gamble Co. (PG - Analyst Report) will hurt profitability in the near term. Energizer currently holds a Zacks #3 Rank, implying a short-term Hold rating on the stock.