ENERGIZER HOLDINGS, INC. quarterly report, Q1 FY2021

Full document

Energizer Holdings, Inc. — Q1 FY2021 10-Q

Reporting period: Three months ended December 31, 2020; compared with the quarter ended December 31, 2019. Amounts are in U.S. dollars unless noted. The unaudited filing covers Energizer’s batteries, lights and automotive-care businesses.

Financial performance

  • Sales: $848.6 million, up 15.2% from $736.8 million. Organic sales increased 12.7%; FY2021 acquisitions added $9.6 million and currency added $6.1 million. Growth also reflected distribution gains, elevated replenishment and order timing.
  • Profit and EPS: Continuing-operations net earnings were $67.1 million versus $45.8 million. Diluted continuing-operations EPS was $0.91 versus $0.60; adjusted diluted EPS, a non-GAAP measure, was $1.17 versus $0.85.
  • Margins: Reported gross margin was 39.8%, down from 40.9%. Excluding acquisition and integration costs, adjusted gross margin was 40.7% versus 41.8%. Reported segment profit rose 18.9% to $215.7 million.
  • Cash flow: Operating cash flow from continuing operations was $76.3 million, down from $133.5 million. Investing cash use was $74.8 million, including $66.4 million for acquisitions; financing cash use was $955.2 million, largely reflecting debt repayments and refinancing costs.
  • Liquidity and debt: Cash and cash equivalents were $305.6 million at quarter-end; the prior September 30 balance included $790.0 million of restricted cash. Long-term debt was $3,345.0 million, net of current maturities and unamortized fees. The $400 million revolving facility had no borrowings, with $392.3 million available after letters of credit. The company reported compliance with debt covenants.
  • Other: Quarterly common and preferred dividends paid were $22.7 million and $4.0 million, respectively. The company repurchased 500,000 shares for $21.3 million.

Material changes and developments

  • Sales increased across both reporting segments. Americas sales grew 14.0% and International sales grew 17.9%; segment profit rose 20.7% and 14.6%, respectively. International profit growth included a $6.7 million favorable currency impact.
  • Two acquisitions closed in the quarter: an Indonesian battery manufacturing facility and a cleaning-formulations business. Together they contributed $9.6 million of revenue and $1.3 million of segment profit. The company also increased the estimated purchase price for the CAE acquisition to $9.9 million due to expected earnout payments.
  • The company refinanced debt, including issuing $550 million of term loans in December and redeeming $750 million of 6.375% notes. It recorded a $5.7 million debt-extinguishment loss and paid a $55.9 million redemption premium. In January 2021, it borrowed an additional $650 million to redeem $600 million of 7.750% notes.

Outlook, commentary and risks

  • Management attributed demand strength in part to COVID-19-related replenishment and category growth, but said the pandemic’s full operational and financial effects remained uncertain. Incremental COVID-related costs reduced gross margin by $11.7 million; lower travel expense partly offset these costs, for a stated net impact of $9.5 million, or about $0.10 per share.
  • Management expects refinancing to produce approximately $25 million in annual run-rate interest savings, with about $19 million expected during the remainder of FY2021. It expected an approximately $75 million debt-extinguishment loss in Q2 FY2021 related to the January refinancing.
  • Two restructuring programs are underway. Management expects total annual savings of approximately $67–$75 million by the end of FY2022; remaining expected costs were up to approximately $27 million for the 2019 program and $4–$7 million for the 2020 program. The company reported about $14 million of cumulative savings from the 2019 program to date.
  • FY2021 capital expenditure estimates were $35–$40 million for maintenance, product development and cost reduction, plus $30–$40 million for integration-related capital expenditures. Management said these amounts could change with market conditions, COVID-19 impacts and other capital needs.
  • Key disclosed risks include COVID-19-related demand and supply disruption, competition, customer concentration, raw-material and transportation costs, foreign-exchange exposure, debt obligations and covenant compliance, supply-chain execution, acquisitions and integration, cyber and IT risks, and legal, regulatory and environmental matters. Management said pending legal proceedings were not reasonably likely to be material, considering recorded accruals; accrued environmental costs were $9.2 million.

Important facts for investors to verify

  • Whether sales growth and elevated replenishment persist after pandemic-related demand and quarter-end order timing effects.
  • Whether gross-margin pressures from COVID-related costs, product mix, tariffs, commodities and transportation moderate, and whether stated synergy savings are realized.
  • The final effect of the January 2021 refinancing, including the expected Q2 extinguishment loss and projected interest savings.
  • Progress, costs and timing of the restructuring programs and integration of the recent acquisitions.
  • Cash generation, working-capital needs, debt levels and access to available revolver capacity; the quarter’s operating cash flow was lower year over year, partly due to working-capital movements.