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Energizer (ENR) Beats on Q1 Earnings, Updates FY19 View

Zacks Equity Research

Energizer Holdings, Inc. ENR 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. This might be one of the reasons behind the Zacks Rank #3 (Hold) stock’s dismal run on the bourses. In the past three months, shares of this St. Louis, MO-based company have lost 22.3% against the industry’s growth of 1%.

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.

Energizer Holdings, Inc. Price, Consensus and EPS Surprise

Energizer Holdings, Inc. Price, Consensus and EPS Surprise | Energizer Holdings, Inc. Quote

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.

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