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Energizer (ENR) Beats on Q3 Earnings, Raises FY21 Sales View

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Energizer Holdings, Inc. (ENR - Free Report) posted sturdy third-quarter fiscal 2021 results with both the top and the bottom line increasing year over year and surpassing the Zacks Consensus Estimate. Results benefited from growth across the company’s segments, led by favorable consumer demand. Robust performance in the auto care business also contributed to this upside. The company’s international markets delivered solid growth across all categories.

Management is focused on boosting the company’s top line as well as its margins in addition to achieving operational excellence. Energizer realized synergies of around $15 million in the fiscal third quarter, bringing the total to $55 million in fiscal 2021. It drew synergies of approximately $124 million from its battery and auto care acquisitions, surpassing the initial targets. Management raised sales guidance but reiterates earnings view for the current fiscal year.

Q3 Metrics

Adjusted earnings came in at 74 cents per share, which surpassed the Zacks Consensus Estimate of 66 cents and grew nearly 50% from the year-ago quarter’s level. The bottom line gained from growth in organic sales, synergy realization and reduced interest expense.

The company reported net sales of $721.8 million, which beat the Zacks Consensus Estimate of $653 million. Also, sales rose 9.7% on a year-over-year basis, mainly buoyed by strong growth in its auto care business.

Energizer Holdings, Inc. Price, Consensus and EPS Surprise

Energizer Holdings, Inc. Price, Consensus and EPS Surprise

Energizer Holdings, Inc. price-consensus-eps-surprise-chart | Energizer Holdings, Inc. Quote

Organic sales climbed 5.8% to $38.3 million in the quarter under review. This upside was backed by 3% year-over-year growth in volumes, globally, on elevated demand and the timing of orders in its auto care business. Also, new distribution, predominantly in North America, contributed 1.8% and a favorable pricing of about 1% drove organic growth.

Segments in Detail

Batteries segment revenues inched up 2.6% year over year to $482.9 million while revenues in the Auto Care segment increased 27.9% to $206.4 million. Revenues in the Lights, Licensing and Other segment rose 25.5% to $32.5 million.

In the Americas, the company recorded revenues of $525.2 million, up 6.8% from the year-ago quarter’s figure. Revenues in the International segment amounted to $196.6 million, up 18.4% from the year-ago quarter’s level.

Margins

Adjusted gross margin contracted 160 basis points (bps) to 39.2% as synergies of $14 million and positive currency impacts were unable to fully compensate for the elevated industrywide input costs that accelerated in the back half of the reported quarter. Higher operating expenses with increased labor costs, tariffs and transportation also caused this downside.

As a percentage of sales, adjusted SG&A expenses were 14.8%, down 140 bps from the year-ago quarter’s level of 16.2%, driven by higher sales and cost-reduction efforts. As a percentage of sales, advertising and promotion (A&P) costs were 6.1% that fell 40 bps year over year.  

Adjusted EBITDA came in at $144.4 million, up 7.3% year over year owing to higher organic revenues and synergy realization, slightly offset by an increased A&P on an absolute dollar basis. However, adjusted EBITDA margin declined 50 bps to 20%.

Other Financial Details

This presently Zacks Rank #2 (Buy) company ended the quarter with cash and cash equivalents of $207.7 million, long-term debt of $3,355.6 million and shareholders' equity of $340.6 million.

The company generated cash flows from continuing operations of $17.5 million during the nine months ended Jun 30, 2021. Adjusted free cash flow from continuing operations was $42.6 million at the end of the reported quarter. During the quarter, the company paid out dividends worth $20.5 million on common stock and $4 million of mandatory preferred convertible stock.

Management intends to enter into an accelerated share repurchase program worth $75 million during the fourth quarter of fiscal 2021. It expects funding these repurchases with cash and revolver borrowings. This program is estimated to be completed before the end of the current year.

Outlook

Management updated view for fiscal 2021. It now envisions revenues to grow between 8% and 9%, driven by distribution gains, higher demand and favorable currency impacts. Earlier, the metric was projected to increase in the band of 5-7%.

Adjusted gross margin is expected to decline 80-110 bps on rising inflationary cost pressures. However, additional productivity management efforts, synergies and positive currency impacts are likely to help compensate for the operational costs. Previously, the metric was anticipated to remain essentially flat year over year.

Adjusted free cash flow is forecast above $225 million in the current fiscal year. This will be driven by investments in inventory to efficiently serve the upcoming peak battery season. Management expects this investment to be short-term in nature while inventory is likely to normalize in 2022. The company predicts investment in inventory to be a prudent move, given the ongoing disruptions in the global supply-chain network.

Energizer continues to project adjusted EBITDA in the bracket of $620-$640 million for the current fiscal year. Adjusted earnings per share are still envisioned to be 3.30-$3.50 compared with $2.31 earned last fiscal year. The Zacks Consensus Estimate for the metric is currently pegged at $3.47.

Price Performance

Over the past month, shares of the company have decreased 3.2% compared with the industry’s 0.5% dip.

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