Energizer Holdings, Inc. — Q2 FY2023 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2023. Amounts are U.S. dollars; financial figures are in millions except per-share data. Energizer manufactures and sells batteries, portable lights, and automotive care products.
Financial results
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Net sales | $684.1 | $685.4 | $1,449.2 | $1,531.7 |
| Gross profit | $253.3 | $238.4 | $551.6 | $550.0 |
| Gross margin, reported | 37.0% | 34.8% | 38.1% | 35.9% |
| Operating cash flow | Not separately presented for quarter | $210.2 | $(108.7) | |
| Net earnings | $40.0 | $19.0 | $89.0 | $79.0 |
| Diluted EPS | $0.55 | $0.27 | $1.23 | $1.09 |
| Adjusted diluted EPS | $0.64 | $0.47 | $1.36 | $1.49 |
| Interest expense | $42.0 | $38.3 | $84.9 | $75.3 |
- Sales and segments: Q2 sales were nearly flat year over year; organic sales grew 2.6%, offset by unfavorable currency and the Russia exit. Batteries & Lights sales declined 2.1% to $505.9, while Auto Care sales rose 5.5% to $178.2. Six-month sales fell 5.4%; reported declines reflected currency, lower volumes, the prior-year Russia business, and reduced lower-margin battery business.
- Profitability: Q2 reported gross margin rose 2.2 percentage points. Adjusted gross margin was 37.9%, up 3.0 points, with pricing and Project Momentum savings partly offset by product costs, inflation, and currency. Q2 segment profit increased 20.3% to $143.9; six-month segment profit rose 1.7% to $292.8, while GAAP net earnings increased to $89.0.
- Cash flow: Six-month operating cash flow improved by $318.9 year over year, mainly from working-capital movements, including higher receivable collections and reduced inventory investment versus the prior-year build. Capital expenditures were $18.7; cash dividends paid were $43.3. Cash and cash equivalents were $193.7 at March 31, down from $205.3 at September 30, 2022.
- Debt and liquidity: Long-term debt, including current maturities, was $3,462.6; balance-sheet long-term debt was $3,414.6. The company repaid $131.0 of term loans and retired $25.0 of senior notes during the half, and prepaid another $30.0 of term debt after quarter-end. No revolver borrowings were outstanding; $492.9 remained available after letters of credit. The company reported compliance with debt covenants and expects to remain compliant for the next 12 months.
Changes, outlook, and risks
- Project Momentum is a profit-recovery and restructuring program targeting $65–$80 of annual pre-tax restructuring savings, plus $15–$20 annually from continuous-improvement and working-capital initiatives. Total expected annual pre-tax savings are $80–$100, with approximately $30–$40 expected in FY2023. The plan anticipates $40–$50 of cash operating costs, $10 of non-cash costs, and $35–$45 of capital expenditures through FY2024. The company reported $17.6 of savings realized through Q2 and $15.0 of cumulative restructuring charges.
- Management expects FY2023 capital expenditures of approximately $55–$65. It stated that operating cash flow and capital-market access should provide adequate resources, while noting that future access to financing on acceptable terms is not assured. The filing provides no specific full-year sales or EPS guidance.
- Currency had an adverse impact on earnings before tax of $10.4 in Q2 and $20.4 for the six-month period versus prior year. Risks include inflation and commodity costs, foreign exchange, consumer and retailer volume trends, supply-chain disruption, competition, significant debt, and possible impairment of goodwill or indefinite-lived intangibles. The filing says risk factors were not materially changed from the FY2022 10-K.
- Other notable items: Q2 included $7.5 of Project Momentum charges and a $0.9 debt-extinguishment loss; six-month results included a $2.0 debt-extinguishment gain. The prior-year comparison included $14.0 of Russia-exit costs in Q2 and $16.5 of acquisition/integration costs for the six-month period. Legal claims are described as not reasonably likely to be material based on current information. Accrued environmental costs were $14.1; purchase obligations were $14.2, including $8.4 due within 12 months.
- The board declared a $0.30-per-share dividend for Q3 FY2023. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether Project Momentum delivers its savings targets and whether restructuring, capital, and implementation costs remain within estimates.
- Assess the durability of pricing and margin improvement against continued volume pressure, inflation, product costs, and currency effects.
- Monitor working-capital normalization and cash generation, particularly given the large year-over-year operating-cash-flow swing.
- Review debt reduction, interest expense, refinancing access, covenant headroom, and the effect of variable rates despite the interest-rate swap.
- Reconcile GAAP and adjusted earnings, including the exclusions for restructuring, Russia exit, acquisition-related items, and debt extinguishment.