Business context and reporting period
The supplied filing is Energizer Holdings, Inc.’s unaudited Form 10-Q for fiscal Q1 ended December 31, 2013, with comparisons to the quarter ended December 31, 2012. This differs from the request metadata naming Edgewell Personal Care; the filing itself identifies Energizer Holdings as the registrant.
Energizer reported two segments: Personal Care and Household Products. In October 2013, it acquired the Stayfree, Carefree and o.b. feminine care brands from Johnson & Johnson for approximately $185 million.
Financial performance and liquidity
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Net sales | $1,113.9 million | $1,192.5 million |
| Gross profit / margin | $511.8 million / 45.9% | $561.6 million / 47.1% |
| Net earnings | $107.9 million | $129.8 million |
| Diluted EPS | $1.71 | $2.07 |
| Adjusted net earnings / diluted EPS (non-GAAP) | $132.6 million / $2.10 | $137.7 million / $2.20 |
| Cash from operations | $51.1 million | $71.6 million |
| Capital expenditures | $20.3 million | $15.4 million |
At December 31, 2013, cash was $881.5 million, total borrowings were $2,299.9 million, and total debt facilities were $2,719.9 million. The company had $407.8 million available under its revolving credit facility. Debt covenant ratios were 2.4x debt to EBITDA and 5.8x EBIT to interest expense; the filing states respective limits of 4.0x and a minimum 3.0x interest coverage.
Total assets were $6,800.5 million and shareholders’ equity was $2,534.5 million. Current assets were $2,517.8 million and current liabilities $1,181.3 million. The company paid a $0.50-per-share dividend, totaling $31.3 million.
Material changes versus the prior comparable period
- Sales fell 6.6% reported: organic sales declined 8.3%, currency reduced sales 2.0%, and acquisitions added 3.7%.
- Gross margin decreased 120 basis points. Management attributed approximately 110 basis points of pressure to currency and 60 basis points to acquired-inventory valuation; excluding those effects, margin increased 50 basis points, primarily from restructuring savings and favorable product costs.
- Personal Care sales were $550.2 million, down 0.7% reported; segment profit increased 12.1% to $130.3 million. Household Products sales were $563.7 million, down 11.7%; segment profit fell 16.9% to $133.4 million.
- Operating cash flow declined to $51.1 million, primarily reflecting lower earnings and working-capital timing, including receivables related to the acquisition transition-services arrangement. Investing cash flow included the $185.3 million acquisition payment.
- Reported earnings comparisons were affected by restructuring costs of $24.4 million versus $49.0 million and the absence of the prior-year $37.4 million pension curtailment gain. Current-quarter GAAP earnings also included $4.9 million of feminine-care acquisition and integration costs and $6.4 million of acquired-inventory valuation expense.
Outlook, management commentary and risks
- The restructuring plan was expanded in January 2014. Total project charges were raised to approximately $350 million, while expected gross savings increased to approximately $300 million. Actions are expected to be completed by the end of fiscal 2015, with savings fully realized in fiscal 2016.
- For the remainder of fiscal 2014, the company estimated restructuring and related IT costs of $75 million to $105 million. It estimated fiscal 2014 restructuring costs overall at $100 million to $130 million. Fiscal 2014 gross savings were estimated at approximately $100 million; project-to-date savings were estimated above $140 million.
- Fiscal 2014 capital expenditures for normal operations were estimated at $100 million to $120 million. No specific full-year earnings or sales guidance is provided in the supplied text; management noted it could not reconcile forward-looking adjusted EPS because of uncertainty in restructuring costs, currency and raw-material prices.
- Management cited lost distribution at two U.S. retail customers, weak category conditions, prior-year storm-related sales that did not recur, competitive pressure, and Latin American import restrictions—especially in Venezuela and Argentina—as sales headwinds. Household Products category value was estimated down about 7% in the latest twelve weeks, or 3% to 4% excluding prior-year hurricane demand.
- Venezuela held approximately $65 million of net monetary assets at the official exchange rate. Possible remeasurement at a higher SICAD rate could result in an additional devaluation charge that management said could be material. Currency exposure, restrictions on cash conversion, restructuring execution, acquisition integration, raw-material costs and debt covenant compliance are additional risks.
- Purchase-price allocation for the feminine-care acquisition remained preliminary and was expected to be finalized by March 31, 2014; resulting valuation changes could be material. The filing says pending legal proceedings were not reasonably likely to be material, based on information then available.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Energizer Holdings, Inc., not Edgewell Personal Care.
- Track whether the expanded restructuring achieves projected savings and whether charges and related IT costs remain within estimates.
- Review the finalized acquisition purchase-price allocation and the acquired brands’ subsequent sales and contribution to segment profit.
- Monitor Household Products distribution and category trends, Latin American import restrictions, and any Venezuela currency remeasurement.
- Assess working-capital conversion, cash generation, debt maturities and covenant headroom alongside the company’s sizable international cash balances.