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Energizer (ENR) Down 14% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Energizer Holdings (ENR - Free Report) . Shares have lost about 14% 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 drivers.

Energizer Q1 Earnings & Sales Beat on Solid Demand

Energizer reported first-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. However, both metrics declined year over year. Strong demand, pricing and cost-saving efforts, better inventory, and expanded distribution contributed to the quarterly results. On the flip side, input cost inflation, higher transportation expenses and ongoing supply-chain disruptions remained headwinds.

Q1 Metrics

Energizer’s adjusted earnings of $1.03 per share surpassed the Zacks Consensus Estimate of 93 cents but decreased nearly 12% from the year-ago quarter’s level. The bottom line gained from dismal margins, stemming from higher input costs as well as interest savings driven by debt refinancing.

Energizer reported net sales of $846.3 million, which beat the Zacks Consensus Estimate of $800 million. The top line inched down 0.3% on a year-over-year basis. Organic sales remained flat in the quarter under review. Distribution gains of 1%, as well as benefits from pricing of about 2%, offset the decline in replenishment.

Segments in Detail

On Oct 1, 2021, Energizer changed its segments from two geographies — Americas and International — to two reporting units — Battery & Lights and Auto Care. The move came after the acquisition of Spectrum Brands’ battery and auto care units in the first quarter of fiscal 2022.

ENR’s acquisition of Spectrum Brands’ Global Battery and Portable Lighting Business, and the Global auto care business has been helping in enhancing its international footprint and broadening manufacturing capabilities. Moreover, SPB’s battery and auto care units have brought synergies of accelerated innovation and a wider product range, alongside cost efficiencies, to compete in the category.

Energizer’s Batteries & Lights segment’s revenues declined 0.5% year over year to $740.2 million in first-quarter fiscal 2022, while revenues in the Auto Care segment increased 1.3% to $106.1 million. The segments gained from continued demand, pricing actions and distribution gains. However, the inflationary input cost pressures acted as woes.

Margins

In the fiscal first quarter, Energizer’s adjusted gross margin contracted 320 basis points (bps) to 37.5%. The downside was caused by higher input costs like labor, material and transportation, as well as a rise in operating expenses and continued inflation. The downsides were partly compensated by positive impacts of foreign currency, the favorable impacts of price rise in battery and auto, synergies worth $6 million, and the elimination of the pandemic-related expenses.

As a percentage of sales, adjusted SG&A expenses (excluding acquisition and integration costs) were 13.2%, down 20 bps from the year-ago quarter’s levels. As a percentage of sales, advertising and promotion (A&P) costs expanded 30 bps to 6.1%.  

Adjusted EBITDA was $161.8 million, down 16% year over year.

Other Financial Details

As of Dec 31, 2021, Energizer’s cash and cash equivalents were $221.2 million, with long-term debt of $3,318.3 million and shareholders' equity of $409.4 million.

For the three months ending Dec 31, 2021, the company used $54.6 million cash from continuing operations.

In the quarter, Energizer paid out dividends worth $20.5 million on common stock and $4 million of mandatory preferred convertible stock. The company completed the $75-million Accelerated Share Repurchase program by repurchasing 1.96 million shares worth $38.3 million in first-quarter fiscal 2022 and fourth-quarter fiscal 2021.

Outlook

The company retained its view for fiscal 2022. It expects revenues to be flat year over year. For fiscal 2022, Energizer expects adjusted earnings per share of $3.00-$3.30 and adjusted EBITDA of $560-$590 million.

However, management expects inflationary pressures to persist in fiscal 2022. Input costs, including raw materials, labor and transportation costs, have been rising rapidly. The company expects additional gross margin headwinds of 50 basis points. This excludes the 150-bps gross margin headwind stated earlier. Nevertheless, it has been undertaking pricing actions and cost-reduction efforts, which are likely to aid the gross margin recovery in the second half of fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -34.78% due to these changes.

VGM Scores

At this time, Energizer has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 C. 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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