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Why Is Energizer (ENR) Down 2.8% 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 2.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Energizer Beats on Q3 Earnings, Raises FY21 Sales View

Energizer 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.

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.

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, 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

The 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -15.98% due to these changes.

VGM Scores

At this time, Energizer has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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.

Outlook

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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