Filing summary
Issuer discrepancy: The supplied filing is for Energizer Holdings, Inc., not EDGEWELL PERSONAL CARE Co. Verify that this is the intended filing before relying on the figures. The 10-Q covers the quarter and six months ended March 31, 2013; amounts below are in U.S. dollars, millions except per-share data.
Business context and financial results
Energizer reported two segments: Personal Care (including wet shave, skin care, feminine care and infant care) and Household Products (batteries and portable lighting).
| Metric | Quarter ended Mar. 31, 2013 | Prior-year quarter | Six months ended Mar. 31, 2013 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $1,095.9 | $1,101.8 | $2,288.4 | $2,299.9 |
| Gross profit | $530.7 | $517.2 | $1,092.3 | $1,081.7 |
| Gross margin | 48.4% | 46.9% | 47.7% | 47.0% |
| Earnings before income taxes | $113.0 | $113.0 | $301.7 | $321.4 |
| Net earnings | $84.9 | $77.9 | $214.7 | $221.7 |
| Diluted EPS | $1.35 | $1.17 | $3.42 | $3.33 |
| Operating cash flow | Not separately presented | Not separately presented | $249.7 | $226.7 |
Quarterly sales declined 0.5% as reported, including a $9.1 million unfavorable currency impact; organic sales were essentially flat. First-half sales also declined 0.5% as reported, primarily due to currency, with organic sales essentially flat. Quarterly gross margin improved 150 basis points, mainly from lower Household Products costs and early restructuring savings.
Quarterly GAAP net earnings rose to $84.9 million, while first-half GAAP net earnings fell to $214.7 million. Results included significant restructuring charges and a pension curtailment gain. Management’s non-GAAP adjusted diluted EPS was $1.80 for the quarter versus $1.22, and $4.01 for six months versus $3.27; these adjusted measures exclude specified items and are not GAAP results.
Segments and material changes
- Personal Care: Quarterly sales were $652.6 million, up 0.2% reported and up 1.3% organically. Skin Care sales rose 8%; Wet Shave declined nearly 1% organically amid competitive activity. Segment operating profit was $136.4 million, up 6.3%.
- Household Products: Quarterly sales were $443.3 million, down 1.6% reported and 1.1% organically. Management cited declining battery-category volume, partly offset by pricing. Segment operating profit increased to $100.8 million from $69.1 million, reflecting lower product costs, savings and lower promotional and overhead spending. First-half sales were essentially flat organically, but included about $18 million of incremental Hurricane Sandy-related sales.
- Quarterly SG&A decreased to $209.9 million from $232.2 million; advertising and promotion decreased to $102.5 million from $111.7 million. First-half SG&A was $410.4 million versus $446.3 million.
- Interest expense rose to $32.8 million for the quarter and $66.3 million for six months, increases of $2.6 million and $6.2 million, respectively, from the comparable periods.
Cash, debt and liquidity
- Cash and cash equivalents were $850.7 million at March 31, 2013, versus $718.5 million at September 30, 2012; substantially all cash was held outside the U.S.
- Six-month operating cash flow was $249.7 million; capital expenditures were $38.1 million. Working capital used $58.8 million of cash, compared with $95.6 million in the prior-year period.
- Total borrowings were $2,494.6 million, including $230.9 million of variable-rate notes payable. Long-term debt, including current maturities, was $2,263.7 million. The separate receivables securitization facility had $196.0 million outstanding and was excluded from debt-covenant calculations.
- The $450 million revolving facility had $15 million drawn and $10 million of letters of credit outstanding, leaving $425 million available. Debt covenant ratios were 2.5 to 1 for indebtedness to EBITDA and 5.5 to 1 for EBIT to interest; management expected continued compliance despite near-term pressure from restructuring charges.
- Management estimated fiscal 2013 capital expenditures of $80–$90 million, plus incremental IT-related investment over the following 18–24 months. The company intended to repay scheduled debt maturities over the next fiscal year while preserving committed liquidity.
Outlook, risks and unusual items
- Restructuring: The 2013 enterprise-wide plan targets workforce reductions of more than 10% (about 1,500 employees), alongside facility, portfolio, overhead and procurement changes. Costs recorded were $37.4 million in the quarter and $86.4 million in six months. Estimated total project costs remained about $250 million; management expected $60–$70 million of additional costs for the remainder of fiscal 2013. It expected fiscal 2013 savings of $50–$60 million, revised upward from $25–$35 million, and total gross savings of about $225 million, with $150 million net savings by 2015. A substantial portion of actions was expected by the end of fiscal 2014, with ongoing savings fully realized in fiscal 2015.
- Pension: The legacy U.S. pension plan’s benefits earned to date for active participants are to be frozen effective January 1, 2014, with no future service accrual. The change generated a non-cash $37.4 million pre-tax curtailment gain in the first half.
- Battery outlook: Management described a challenging, declining battery category and anticipated greater competition, possible continued shelf-space shifts, and a net market-share loss and sales decline in fiscal Q4 2013.
- Venezuela and currency: Following the February 2013 devaluation and suspension of the SITME currency market, the company recorded an approximately $6 million charge and valued net monetary assets using 6.30 bolivars per U.S. dollar. It held about $42 million of net monetary assets exposed to further exchange-rate changes and said access to dollars for imports and future exchange rates were uncertain.
- Other financing items included foreign-exchange losses and a $1.9 million loss on settled zinc contracts. The company had 72 open foreign-currency contracts with approximately $347 million notional value. It also reported legal proceedings but stated that, based on available information and established accruals, they were not reasonably likely to be material.
- The board declared a $0.40-per-share quarterly dividend, paid March 13, 2013; a further $0.40 dividend was declared after quarter-end. No material change in internal control over financial reporting was reported, and disclosure controls were assessed as effective.
Most important facts for investors to verify
- Confirm the issuer identity: the filing is Energizer Holdings, Inc., despite the request naming Edgewell Personal Care Co.
- Assess the quality of earnings by separating restructuring charges, the pension curtailment gain, Venezuela effects and other adjustments from GAAP results.
- Track restructuring execution, remaining costs, savings realization and the planned IT investment.
- Monitor battery-category volumes, competitive pricing and shelf-space changes, as well as Personal Care product performance.
- Review cash accessibility given the overseas cash concentration, debt maturities, securitization balance and covenant headroom.
- Follow Venezuela currency-conversion availability and potential additional losses on exposed monetary assets.