Energizer Holdings, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Second fiscal quarter and six months ended March 31, 2024. Amounts are in U.S. dollars; financial amounts are in millions unless stated otherwise. Energizer sells batteries and lights and automotive care products.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $663.3 | $684.1 | $1,379.9 | $1,449.2 |
| Gross profit | $253.3 | $253.3 | $520.3 | $551.6 |
| Reported gross margin | 38.2% | 37.0% | 37.7% | 38.1% |
| Net earnings | $32.4 | $40.0 | $34.3 | $89.0 |
| Diluted EPS | $0.45 | $0.55 | $0.47 | $1.23 |
| Operating cash flow | — | — | $214.9 | $210.2 |
| Capital expenditures | — | — | $52.0 | $18.7 |
- Q2 sales declined 3.0%; organic sales fell 2.7%, reflecting planned pricing and promotional investments, partly offset by volume gains. Six-month sales declined 4.8%, with organic sales down 5.2%.
- Q2 adjusted diluted EPS was $0.72 versus $0.64; six-month adjusted diluted EPS was $1.30 versus $1.36. These are non-GAAP measures and exclude specified restructuring, acquisition, debt-extinguishment and Argentina-related items.
- Adjusted gross margin was 40.5% in Q2 versus 37.9%, and 40.0% for six months versus 38.5%. Management attributed improvement mainly to Project Momentum savings and lower input and freight costs, partly offset by pricing and promotional investments.
- Interest expense declined to $38.7 in Q2 and $79.4 for six months, from $42.0 and $84.9, respectively, primarily due to lower average debt, partly offset by higher interest rates.
Balance sheet, debt and liquidity
- At March 31, 2024, cash was $158.1, total current assets $1,358.3, and current liabilities $668.1. Cash was $223.3 at September 30, 2023.
- Debt, including finance lease obligations and current maturities, was $3,266.4, compared with $3,376.2 at September 30, 2023. The company prepaid $135.0 of term-loan principal in the first half. Cash less stated debt was approximately $3.1 billion.
- No revolving-facility borrowings were outstanding; $492.4 remained available after letters of credit. The company reported compliance with debt covenants and expects to remain compliant over the next 12 months.
- Six-month financing cash outflow was $193.9, including $141.4 of debt payments and $44.2 of dividends. Cash decreased by $65.2 overall, including a $21.6 adverse foreign-exchange effect.
Material changes and management commentary
- Segment mix: Q2 Batteries & Lights sales fell 4.9% to $481.0; Auto Care sales rose 2.3% to $182.3. For six months, segment sales declined 6.7% in Batteries & Lights and increased 3.5% in Auto Care. Q2 segment profit was $113.5 and $40.4, respectively.
- Project Momentum: The company estimates annual pre-tax savings of $160–$180 by fiscal year-end 2025, including $145–$160 from restructuring and $15–$20 from continuous improvement and working-capital initiatives. It expects $55–$65 of savings in FY2024 and reported approximately $96 realized since program inception, including $42 in FY2024 to date. Estimated program costs are $140–$150 cash operating, approximately $20 non-cash, and $75–$85 in capital expenditures. Six-month restructuring and related costs were $45.8.
- Argentina: The peso devaluation and economic reforms generated $22.0 of currency and related losses for the first half, including a $1.0 loss in Q2. Management said near-term operating profit could decline if local costs rise faster than pricing; the continuing effect is uncertain.
- Investment outlook: FY2024 capital expenditures are expected to be approximately $95–$105, including $35–$45 for Project Momentum initiatives. The filing provides no broader quantified sales or earnings forecast.
- Management cited continuing inflationary and geopolitical pressures, including potential transportation disruption (including the Red Sea), supply constraints, and higher commodity costs that could pressure margins.
Risks, contingencies and unusual items
- Currency, interest-rate and commodity-price exposure remain relevant. At March 31, variable-rate term debt was $841.0; a swap fixed the SOFR component on $700.0 through December 2024, with scheduled reductions thereafter.
- The company reported $15.6 of accrued environmental costs. It said environmental spending is not expected to materially affect total spending, earnings or competitive position, but estimates may change.
- Routine legal proceedings are ongoing; management does not believe the potential liability, after recorded accruals, is reasonably likely to be material. Purchase obligations were $5.9.
- A Belgium battery-asset acquisition was completed in October 2023 for a total purchase price of $11.6, including acquired raw materials. The purchase-price allocation remains preliminary in part.
- Disclosure controls were assessed as effective as of March 31, 2024; the filing reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether planned pricing, promotions and battery demand trends stabilize sales, and whether Auto Care growth continues.
- Whether Project Momentum delivers its stated savings on schedule and within the disclosed cash-cost and capital-spending estimates.
- How working capital, capital expenditures and foreign-exchange movements affect cash conversion and liquidity.
- Debt reduction progress, interest-rate exposure, revolver availability and compliance with covenants.
- Further Argentina reforms, exchange rates and cost inflation, including their impact on earnings and cash flows.
- Non-GAAP adjustments and reconciliations when comparing adjusted results with GAAP earnings.