Energizer (ENR) Down 10% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Energizer Holdings (ENR). Shares have lost about 10% in that time frame, underperforming 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 Q1 Earnings Lag Estimates, Fall Y/Y

Energizer Holdings posted an earnings miss in first-quarter fiscal 2020, wherein the metric declined year over year. The top line however improved year over year. Moreover, the company reiterated the view for fiscal 2020.

Q1 in Detail

Adjusted earnings came in at 85 cents per share, which missed the Zacks Consensus Estimate of 99 cents and declined 48.2% from the year-ago quarter’s $1.64. This can be blamed on the decline in earnings before income taxes as well as higher interest expenses.

The company reported net sales of $736.8 million, which beat the Zacks Consensus Estimate of $736 million by a slight margin. Also, sales rose 28.8% on a year-over-year basis buoyed by strength in acquired businesses, partly offset by lower organic sales and adverse currency fluctuations, excluding Argentina. Meanwhile, organic sales fell 3.4% during the quarter, mainly because of lower replenishment and phasing of holiday promotional activity.

Segments in Detail

Batteries revenues (84.4% of total revenues) increased 19.2% year over year to $621.9 million, while revenues at the Auto Care segment grew from $20.5 million to $78.7 million. Revenues at Lights and Licensing segment improved 22.7% to $36.2 million.

In the Americas, the company recorded revenues of $514.5 million, up 37.8% from the year-ago quarter. Revenues at the International segment amounted to $222.3 million, mirroring an increase of 12% from the year-ago quarter.

Margins

Energizer’s adjusted gross margin contracted 640 basis points (bps) to 41.8%, primarily due to the buyout of lower-margin profile businesses, increased product costs, and adverse impact of foreign currency and tariffs. This was partly compensated by gains from pricing and realized synergies.

SG&A expenses, excluding acquisition and integration costs, amounted to $111 million, reflecting an increase of $25.3 million from the year-ago quarter. This includes the addition of $23.5 million from the acquired business. Further, advertising and sales promotion expenses totaled $46.8 million, highlighting an increase of 14.4% from the year-ago quarter. Furthermore, the company reported earnings before income taxes of $58.7 million in the quarter. This represents a decline of 34.8% year over year.

Other Financial Details

Energizer ended the quarter with cash and cash equivalents of $293.5 million, long-term debt of $3,383.6 million and shareholders' equity of $587.5 million.

Cash flow generated from operations was $123.5 million in the first three months of fiscal 2020, while capital expenditures grossed $11.7 million. Adjusted free cash flow summed $136.7 million at quarter-end. During the quarter, the company paid dividends of $22.7 million for its common stock and $4 million for mandatory preferred convertible stocks.

Other Developments

Subsequent to the quarter, Energizer completed the sale of its Europe-based Varta consumer battery business to Germany-based VARTA Aktiengesellschaft (VARTA AG). The $2-billion battery business operates in Europe, the Middle East and Africa. The deal will help VARTA AG expand its product portfolio and strengthen position in the portable battery space.

Guidance

Management reaffirmed its fiscal 2020 view. The outlook includes a full-year impact of the acquisitions concluded in the second quarter of last fiscal. However, it excludes gains related to the storm activity in current fiscal, which if occurs, will be incremental. Energizer continues to project fiscal 2020 reported net sales growth in the range of 9-10%. This includes organic growth in combined battery business of 1-2% and combined auto care business at 3.5%.

Further, the company continues to anticipate gross margin expansion of 10-40 bps for fiscal 2020. Depending on the first-quarter gross margin performance, management projects an improvement of 200-240 bps in the metric over the remainder of the fiscal year.

Moreover, adjusted EBITDA is expected in the range of $610-$640 million. The company still expects adjusted earnings per share in the band of $3.00-$3.20. Adjusted free cash flow is anticipated in the range of $310-$340 million for the current fiscal.

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 -6.08% due to these changes.

VGM Scores

At this time, Energizer has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 has been net zero. Notably, Energizer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.