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Why Is Energizer (ENR) Down 0.6% Since Last Earnings Report?

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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 0.6% in that time frame, outperforming 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 Lags Q2 Earnings, Trims View

Energizer Holdings, Inc. reported second-quarter fiscal 2019 results, wherein both the top line and the bottom line missed the Zacks Consensus Estimate. However, the company’s net sales surged year over year, earnings per share fell from the year-ago period. Management lowered its earnings view for fiscal 2019.

Q2 in Detail

Adjusted earnings came in at 20 cents per share, which lagged the Zacks Consensus Estimate of 22 cents and declined significantly from the year-ago quarter number of 45 cents. This may be due to increase in cost of goods sold, rise in SG&A expense and higher interest expenses.

The company, which recently concluded the buyout of transformational Battery and auto care, reported net sales of $556.4 million. The top line fell short of the Zacks Consensus Estimate of $557.5 million. Nonetheless, the same soared 48.6% on a year-over-year basis. This increase was driven by contribution from acquired business.

Meanwhile, organic sales improved 1.9% during the quarter. The improvement was buoyed by gains from distribution and better pricing in the second quarter, partially offset by 290 basis points (bps) due to adverse currency fluctuations.

Segment Detail

Batteries revenues (75.4% of total revenues) increased around 27% year over year to $419.4 million, while revenues at the Auto Care segment grew significantly from $23.4 million to $108.6 million. Revenues at Lights and Licensing segment improved 37.2% to $28.4 million.

In the Americas, the company recorded revenues of $381.6 million, up 70.3% compared with the year-ago quarter. Revenues at the International segment amounted to $174.8 million, mirroring an increase of 16.3% from the year-ago quarter.

Margins

Energizer’s gross margin contracted 440 bps to 40.6% due to the buyout of lower-margin profile businesses and adverse impact of foreign currency.

SG&A expenses, excluding acquisition and integration costs, amounted to $112.2 million, reflecting an increase of $24.5 million from the year-ago quarter.

Other Financial Details

Energizer ended the quarter with cash and cash equivalents of $332.9 million, long-term debt of $3557.1 million and shareholders' equity of $645.3 million.

Cash flow generated from operations was $1.8 million during the first six months of fiscal 2019, while capital expenditures incurred during the quarter were $20.7 million. Adjusted free cash flow summed $101.1million in the second quarter.

During the quarter under review, Energizer paid dividend of approximately $21 million. The company remains committed toward optimum capital allocation with focus on lowering debt load.

Guidance

FY19

Management lowered its earnings guidance for fiscal 2019. The company now expects earnings per share in the band of $2.90-$3.00, down from the prior view of $3.45-$3.55. 

Net sales on a reported basis are expected to be in the range of $2.52-$2.57 billion and on organic basis to be up by 3-3.5%.

The company expects Battery acquisition to benefit net sales in the range of $350-$370 million for the nine months included in fiscal year 2019. Auto Care acquisition is projected to add $350-$360 million for the eight months included in fiscal year 2019.

Currency headwinds (excluding Argentina) are likely to hurt net sales by 1.5-2%. Argentina operations is also expected to hurt net sales growth by 30 bps on account of inflationary pressure. Nonetheless, the company expect net sales gain of about $5-$7 million from Nu Finish.

Gross margin, excluding acquisition and integration costs, is now expected to decrease 400-440 bps to a range of 41.7-42.3%. Adjusted EBITDA is projected to be in the range of $540-$560 million. Adjusted SG&A (as a percent of net sales) is anticipated to be in the range of 17-17.5%.

Capital expenditures are projected in the range of $60-$65 million. Adjusted free cash flow is anticipated in the range of $220-$250 million.

FY20

For fiscal 2020, the company projects earnings per share in the band of $3.25-$3.45.

Net sales on a reported basis are expected to be in the range of $2.79-$2.85 billion. The company expects Battery acquisition to benefit net sales in the range of $2.24-$2.28 billion. Auto Care acquisition is projected to add $555-$575 million.

Organic net sales are expected to increase in low single digits in fiscal 2020 with combined battery anticipated to increase organically in the range of 1 and combined auto care expected to rise 2%.

Gross margin, excluding acquisition and integration costs, is expected to increase by 30-70 bps to a range of 42-43%. Adjusted SG&A (as a percent of net sales) is anticipated to be in the range of 16-17%.

Capital expenditures are projected in the range of $60-$65 million. Adjusted free cash flow is anticipated in the range of $330-$370 million.

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 -9.18% due to these changes.

VGM Scores

Currently, Energizer has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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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