Disappointing 3Q for Energizer - Analyst Blog
02 Agosto 2012 - 2:45PM
Zacks
Energizer Holdings Inc.
(ENR) reported third quarter 2012
non-GAAP earnings of $1.18, which missed the Zacks Consensus
Estimate by 14 cents. Earnings plunged 14.0% year over year
primarily due to weak revenue growth in the quarter.
Quarter Details
Total revenue declined 9.0% year
over year to $1.12 billion and was well short of the Zacks
Consensus Estimate of $1.21 billion. The decline was primarily due
to weak organic sales (down 6.6% year over year) and unfavorable
foreign exchange (negative impact of 2.3%). Revenue growth suffered
from weakness across all the segments.
Personal Care (60% of total revenue)
decreased 7.1% year over year to $673.5 million, primarily due to
lackluster organic sales (down 5.1% year over year). The decline
was primarily due to sluggish sales in Wet Shave (down 8.0% year
over year), Skin Care (down 6.0% year over year) and Infant Care
(down 12% year over year) product segments.
Household Products (40% of total
revenue) declined 11.5% year over year to $450.6 million, primarily
due to unfavorable foreign currency (negative impact of 2.8%) and
sluggish organic sales (down 8.7% year over year) in the quarter.
Organic sales decline was due to a significant market share loss at
one customer, sluggish household battery market (volumes down 5.0%)
and inventory de-stocking.
Gross profit decreased 7.7% from the
prior-year quarter to $528.8 million. Gross margin expanded 60
basis points (“bps”) on a year-over-year basis to 47.0%. Gross
margin was positively impacted by favorable product mix and
stringent cost control.
Spending on advertising and
promotion (A&P) was down 9.2% year over year to $141.8 million.
Selling, general and administrative expenses (SG&A) increased
8.6% year over year to $233.8 million. Research and development
expenses (R&D) went up 2.9% from the prior-year quarter to
$28.6 million.
Operating profit slumped 28.3% year
over year to $124.6 million. Operating margin decreased 300 bps to
11.1%, due to higher operating expenses. Net income plunged 19.5%
year over year to $77.7 million, primarily due to lower operating
income base and higher interest expense (up 14.1% year over year)
in the reported quarter.
Energizer repurchased 1.1 million
shares for approximately $83 million in the third quarter.
Guidance
Management reiterated its earlier
guidance for fiscal 2012, with earnings expected to remain within
the range of $6.00 to $6.20 per share. A lower advertising and
promotion expense is expected to fully offset continuing weakness
in the household product segment for the remainder of the year.
For the fourth quarter, management
expects organic sales to remain flat in the personal care segment.
In the household product segment, organic sales are expected to
decline in the low single-digit range due to intensifying
competition and lower volumes.
Recommendation
Energizer’s fourth quarter guidance
fails to impress us. We believe that sluggish domestic battery
market, unfavorable foreign exchange and increasing competition
from companies such as Panasonic Corp.
(PC) and Procter & Gamble Co.
(PG) will hurt profitability in the near
term.
However, lower advertising &
promotion expense will offset some of these headwinds going
forward. We believe Energizer’s diversified product portfolio,
innovative product pipeline and loyal customer base will drive
top-line growth going forward. Moreover, the ongoing restructuring
efforts (net working capital reduction project) will expand margins
going forward.
Thus, we remain Neutral over the
long term (6-12 months). Energizer currently holds a Zacks #3 Rank,
implying a short-term Hold rating on the stock.
ENERGIZER HLDGS (ENR): Free Stock Analysis Report
PANASONIC CORP (PC): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
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