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Why Is Energizer (ENR) Down 3.5% 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 3.5% 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 Beats on Q1 Earnings, Updates FY19 View

Energizer Holdings reported first-quarter fiscal 2019 results, wherein adjusted earnings surpassed the Zacks Consensus Estimate for the second time in a row. The company’s bottom line also improved year over year buoyed by increase in organic revenues, cost saving initiatives, lower tax rate and decline in adjusted SG&A expenses. Notably, the better-than-expected bottom-line results prompted management to raise its earnings view for the fiscal year.  

Adjusted earnings came in at $1.64 per share, which exceeded the Zacks Consensus Estimate of $1.53 and increased 5.8% from the year-ago quarter number. For fiscal 2019, management expects earnings per share in the band of $3.45-$3.55, up from prior guidance of $3.40-$3.50. The company’s guided range is comfortably above the Zacks Consensus Estimate of $3.26.

However, the company’s top-line performance was unimpressive. Revenues fell short of the consensus mark and also marked two straight quarters of decline.

The company, which recently concluded the buyout of Spectrum's battery and portable lighting business and the auto care business, reported net sales of $571.9 million. We note that the top line fell short of the Zacks Consensus Estimate of $575 million and also decreased 0.2% on a year-over-year basis. Notably, this was the first quarter of a revenue miss in the last six quarters. The year-over-year revenue decline was a due to negative impact from Argentina operations and unfavorable currency impact of 1.5%. This was partially offset by Nu Finish acquisition. Meanwhile, organic sales improved 1.7% during the quarter.

Quarterly Details

Batteries revenues (91.7% of total revenues) almost remained flat year over year at $524.3 million, while revenues at the Other segment (8.3%) fell 2.5% to $47.6 million.

In Americas, the company recorded revenues of $373.5 million, nearly flat compared with the year-ago quarter. Revenues at the International segment amounted to $198.4 million, down 0.9% from the year-ago quarter.

Margins

Energizer’s gross margin contracted 30 basis points (bps) to 48.2% on unfavorable foreign currency translations, partially offset by reduced production cost and investment initiatives. SG&A expenses, excluding acquisition and integration costs, amounted to $85.7 million, reflecting a decrease of $7.8 million from the year-ago quarter.

Other Financial Details

Energizer ended the quarter with cash and cash equivalents of $607.3 million, long-term debt of $975.4 million, long-term debt held in escrow of $2,346.2 million and shareholders' equity of $70.4 million.

Cash flow from operations were $118.9 million for the first quarter, while capital expenditures incurred during the quarter totaled $4.8 million. Free cash flow amounted to $114.2 million and adjusted free cash flow summed $150.9 million. During the quarter under review, Energizer paid dividend of $19.8 million and repurchased no shares. The company remains committed toward optimum capital allocation with focus on lowering debt load.

FY19 Guidance

Net sales on a reported and organic basis are expected to be up low single digits.

Currency headwinds (excluding Argentina) are likely to hurt net sales by 1.5-2%, up from previous guidance of 1-1.5%. Argentina operations is also expected to hurt net sales growth by 60 bps on account of inflationary pressure. Nonetheless, the company continues to expect net sales to gain from the Nu Finish’s acquisition to the tune of about 30-40 bps.

Gross margin, excluding acquisition and integration costs, is now expected to shrink 10-50 bps compared with the prior view of 30-70 bps of contraction. Adjusted SG&A is anticipated to decrease by 40-70 bps.

Capital expenditures are projected in the range of $30-$35 million. Adjusted free cash flow is anticipated to remain flat.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -38.93% due to these changes.

VGM Scores

Currently, Energizer has an average Growth Score of C, though it is lagging a bit 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 B. 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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