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Why Is Energizer (ENR) Down 3.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Energizer Holdings (ENR - Free Report) . Shares have lost about 3.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Energizer Holdings Q3 Earnings Lag Estimates, Sales Top

Energizer Holdings posted third-quarter fiscal 2020 results, wherein the bottom line lagged the Zacks Earnings Estimate while sales beat the same. Further, both metrics improved year over year. The company remains on track with executing its integration plans, which are likely to deliver more than $100 million in synergies by the end of 2021, backed by a strong and broad portfolio, expanded distribution in the United States and international markets, and increased investments in the auto care unit.

Q3 in Detail

Adjusted earnings came in at 50 cents per share, which missed the Zacks Consensus Estimate of 59 cents butrose 35.1% from the year-ago quarter’s 37 cents. This can be attributable to improved sales, elevated gross profit and a decline in SG&A expenses. On the flip side, adverse impacts of COVID-19, including operating costs of roughly $9 million and high interest of nearly $4 million in a bid to strengthen liquidity, acted as deterrents.

The company reported net sales of $658 million, which beat the Zacks Consensus Estimate of $638 million. Also, sales rose 1.7% on a year-over-year basis, buoyed by strength in batteries and auto care. However, currency woes hurt sales by 1.7% during the quarter.

Meanwhile, organic sales grew 3.4% in the quarter under review, driven by sturdy demand for batteries and auto care in the United States as well as higher pricing, somewhat offset by sluggish international markets. The company has been witnessing significant disruption in auto care and other international markets. Meanwhile, solid demand in battery sales across North America provided some cushion. Auto care and international sales have started recovering from the second half of the quarter.

Segments in Detail

Batteries revenues increased 3% year over year to $427.7 million, while revenues inthe Auto Care segment grew 0.4% to $161.4 million. Revenues in the Lights and Licensing segment improved 11.3% to $25.9 million.

In the Americas, the company recorded revenues of $491.9 million, up 5.8% from the year-ago quarter. Revenues inthe International segment amounted to $166.1 million, reflecting a decline of 8.8% from the year-ago quarter.

Margins

Energizer’s adjusted gross margin expanded 80 basis points (bps) to 40.8% on gains from improved pricing and realized synergies, partially offset by the adverse impact of foreign currencyand elevated costs related to the COVID-19 crisis.

SG&A expenses, excluding acquisition and integration costs, as a percentage of sales, amounted to 16.2%, contracting 120 bps from the year-ago quarter’s 17.4%. This decline was driven by gains from realized synergy owing to the exit of the transition service agreement (TSA) and a fall in spending related to COVID-19 restrictions. Further, advertising and sales promotion expenses totaled $37.3 million, highlighting a rise of 8.7% from the year-ago quarter, owing to increased investments in theproduct portfolio.

Adjusted EBITDA came in at $135 million, up 6% year over year on the back ofsolid battery demand stemming from the ongoing COVID-19 pandemic, improvements in auto care sales and synergy savings.

Other Financial Details

Energizer ended the quarter with cash and cash equivalents of $595.6 million, long-term debt of $3,252.5 million and shareholders' equity of $385.8 million.

Adjusted free cash flow from continuing operations was $243.7 million year to date. During the quarter, the company paid out dividends of 30 cents per share, which totaled $20.6 million. It also paid out dividends of $4 million for mandatory preferred convertible stock.

Looking Ahead

Despite the uncertainty surrounding the COVID-19 situation, management issued a fiscal 2020 view. The company expects sales growth of 9-10% with organic sales growth of 1-1.5%. Adjusted earnings are envisioned to be $2.45-$2.55 per share, which includes elevated cost and interest expenses of 19-22 cents. Also, currency headwinds are likely to mar the bottom line by roughly 16 cents. Adjusted EBITDA is projected to be $575-$585 million, including negative impacts related to COVID-19. Moreover, adjusted free cash flow is estimated to be more than $300 million.

Given its several initiatives, the company generated savings of $15 million in the fiscal third quarter and expects to save$45-$50 million in the fiscal year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -17.19% due to these changes.

VGM Scores

At this time, Energizer has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Energizer has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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