PC Panasonic Corp.

Energizer Holdings Inc.’s (ENR) second quarter 2012 non-GAAP earnings of $1.22 per share not only surpassed the Zacks Consensus Estimate of $1.09, but also increased 17.3% from the previous-year quarter.

Quarter Details

Total revenue increased 6.4% year over year to $1.10 billion and beat the Zacks Consensus Estimate of $1.04 billion. The upside was primarily attributed to the organic growth in the personal care and household products segment. Overall, the company recorded 6.8% organic growth in the reported quarter.

Personal Care, which comprised 59.1% of total revenue, increased 6.7% year over year to $651.5 million, primarily on the back of robust sales in the Wet Shave and Skin Care segments. Organic sales growth for the quarter was 6.9%. Household Products, which comprised 40.9% of total revenue, increased 6.0% year over year to $450.3 million, primarily due to price increase in the US. On an organic basis, net sales increased 6.8% year over year.

Gross profit increased 9.8% from the prior-year quarter to $517.2 million. Gross margin expanded 140 basis points on a year-over-year basis to 46.9%. The gross margin was positively impacted by favorable product mix and lower trade spending on Household Products.

Spending on advertising and promotion (A&P) was up 11.3% year over year to $111.7 million. Selling, general and administrative expenses (SG&A) were $232.2 million, up 7.1% from the year-ago quarter. Research and development expenses (R&D) went up 5.3% from the prior-year quarter to $27.7 million.

Total operating profit increased 12.5% from the previous-year quarter to $197.4 million. Operating margin increased 90 bps to 17.9%, compared with 17.0% in the previous-year quarter due to operational efficiencies.

Net income (non-GAAP) increased 9.8% from the year-ago quarter to $80.8 million. Net margin for the quarter was 7.3%, versus 7.1% in the previous-year quarter.

Guidance

For fiscal 2012, management expects its EPS to be in the range of $6.00-$6.20. The Zacks Consensus Estimate of $6.10 for fiscal 2012 lies at the mid-point of management guidance. Further, management expects advertising and promotional expenses to increase in the coming two quarters for the promotion and launch of Hydro products.

We have a Neutral recommendation on Energizer over the long term (6-12 months). However, we believe higher commodity costs coupled with intense competition from companies such as Panasonic Corp. (PC) and Procter & Gamble Co. (PG) will hurt profitability in the near term. Energizer currently holds a Zacks #4 Rank, implying a short-term Sell rating on the stock.

 
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