Energizer Holdings Inc. (ENR) reported fiscal fourth quarter 2012 non-GAAP adjusted earnings of $1.76 per share, which comfortably surpassed the Zacks Consensus Estimate of 1.55 per share and was up from $1.10 per share reported in the previous-year quarter.
Total revenue declined 4.6% year over year to $1.14 billion and was in line with the Zacks Consensus Estimate. The decline was primarily due to weak organic sales (down 1.5% year over year) and unfavorable foreign exchange (negative impact of 3.1%). Moreover, weak segment performance also affected the revenues.
Personal Care (52% of total revenue) decreased 2.5% year over year to $590.1 million, primarily due to negative impact of currency (down 3.0% year over year), which fully offset the marginal year-over-year increase in organic sales. The decline was primarily due to decline in Wet Shave sales (down 2.4% year over year), Feminine Care (down 13%) and Infant Care (down 7% year over year), which fully offset the 11% increase in Skin Care product sales.
Household Products (48% of total revenue) declined 6.8% year over year to $553.1 million, primarily due to unfavorable foreign currency (negative impact of 3.1%) and sluggish organic sales (down 3.7% year over year) in the quarter. Contracting market share and sluggish household battery market dented the segment’s organic sales.
Gross profit decreased 3.4% from the prior-year quarter to $527.4 million. Gross margin expanded 60 basis points (“bps”) on a year-over-year basis to 46.1%. Gross margin was positively impacted by increased prices of Household Products and lower trade promotional expenses in Personal Care segment.
Spending on advertising and promotion (A&P) was down 28.2% year over year to $99.6 million. Selling, general and administrative expenses (SG&A) decreased 1.1% year over year to $215 million. Research and development expenses (R&D) went up 0.6% from the prior-year quarter to $30.6 million.
Operating profit increased 15.1% year over year to $222.3 million. Operating margin improved from 16.1% in the previous-year quarter to 19.4% primarily due to lower operating expenses. Net adjusted income jumped 48.1% year over year to $112 million, primarily due to margin expansions and improved operating performance.
Energizer expects fiscal 2013 adjusted earnings per share in the range of $6.75 to $7.00 per share. Energizer expects its advertising and promotional expenses to remain or increase from 2012.
From the sales perspective, management expects fiscal 2013 sales to grow in low-single digits aided by mid-single digit sales growth in the Personal Care segment. Personal Care segment is expected to be positively impacted by improvement in the category. However, for the Household Products segment, management expects a decline in the low-single digits primarily due to lower volumes.
Energizer’s announced a restructuring program to be completed over the next two years that is expected to yield pre-tax cost savings of $200 million on an annualized basis. Management expects this 75% of the cost savings initiative to improve profitability and the rest would be ploughed back into the business for long-term growth perspective.
Energizer’s fourth quarter improved on the basis of stringent cost control and margin expansions. The company’s Schick Hydro and Hydro Silk products witnessed increased sales. Moreover, the company has also witnessed growth in its international markets.
We believe that product innovations coupled with higher pricing of its household products and the restructuring initiatives would positively impact its results going forward. Moreover, lower-than-expected operating expenses and prudent product mix would expand margins in the near term.
However, declines in volumes in the battery category, unfavorable foreign exchange and increasing competition from companies such as Panasonic Corp. and Procter & Gamble Co. (PG - Analyst Report) are the near-term headwinds.
We have a Neutral recommendation for Energizer over the long term (6-12 months). Energizer currently holds a Zacks #2 Rank, implying a short-term Buy rating on the stock.