Energizer Holdings, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended June 30, 2020; unaudited. Amounts are in U.S. dollars, millions, except per-share data. Energizer makes household and specialty batteries, lighting products, and automotive care products, reported in Americas and International segments.
Financial performance and position
| Metric | Quarter ended June 30, 2020 | Nine months ended June 30, 2020 | Prior-year comparison |
|---|---|---|---|
| Net sales | $658.0 | $1,981.8 | $647.2 and $1,775.5, respectively |
| Gross profit / reported gross margin | $263.2 / 40.0% | $800.1 / 40.4% | $246.3 / 38.1%; $716.0 / 40.3% |
| Net earnings from continuing operations | $29.0; diluted EPS $0.37 | $88.5; diluted EPS $1.10 | $9.2 / $0.07; $17.7 / $0.15 |
| Adjusted diluted EPS from continuing operations (non-GAAP) | $0.50 | $1.73 | $0.37; $2.07 |
| Net earnings/(loss) attributable to common shareholders | $25.8 | $(53.9) | $3.0; $(2.8) |
| Cash from operating activities | Not separately provided for the quarter | $219.0 total; $231.9 continuing operations | $7.0 total; $30.4 continuing operations |
- Quarterly sales rose 1.7%; organic sales increased 3.4%, partly offset by $11.6 of unfavorable currency impact. Nine-month sales rose 11.6%, including $210.6 from the Battery and Auto Care acquisitions; organic growth was 1.0%.
- Quarterly adjusted gross margin was 40.8%, up 80 basis points year over year. Nine-month adjusted gross margin was 41.4%, down 140 basis points. These are non-GAAP measures excluding specified acquisition and integration costs.
- Nine-month net loss reflects a $130.3 loss from discontinued operations, including the $137.2 pre-tax loss on the January 2020 Varta consumer battery business divestiture. Continuing-operations earnings improved substantially versus 2019.
- At June 30, cash and cash equivalents were $595.6, versus $258.5 at September 30, 2019. Total current assets were $1,618.1 and current liabilities $984.4.
- Debt included $3,252.5 of long-term debt, $91.3 of current maturities, and $205.4 of notes payable, including $200.0 drawn on the revolver. The revolver had $192.7 available after letters of credit. Debt covenants were reported as satisfied.
- Nine-month capital expenditures were $44.4. Continuing-operations operating cash flow improved by $201.5 year over year, with management citing higher earnings, lower acquisition-related cash costs, and favorable working-capital changes.
Material changes and management commentary
- Americas quarterly sales rose 5.8% and segment profit rose 18.4%; International sales fell 8.8% and segment profit fell 15.1%. Management attributed North American battery strength partly to pandemic-related demand, while international markets and auto care faced weakness; auto care and international sales showed recovery late in the quarter as markets reopened.
- COVID-19 increased operating costs by approximately $9 and interest costs by approximately $4 in the quarter, partly offset by roughly $4 lower SG&A. Management estimated a net $0.11 reduction in reported and adjusted quarterly EPS. It warned that effects depend on the pandemic’s duration, demand, supply-chain conditions, and reopening pace.
- Integration and restructuring expenses were $11.4 for the quarter and $47.6 year to date. The company expects approximately $45 of additional restructuring costs through calendar 2021 and targets annual savings of approximately $60–$65 by the end of 2021. The plans involve facility closures and consolidation and are expected to be completed by December 31, 2021.
- Management did not provide a specific earnings or sales forecast in the filing. It anticipated fiscal 2020 capital outflows of approximately $20–$30 for maintenance, product development, and cost reduction, plus $40–$50 for integration projects, subject to review amid market uncertainty.
- Subsequent to quarter-end, on July 1, the company issued $600.0 of 4.750% senior notes due 2028 and used proceeds and cash to tender for or redeem all remaining 5.50% notes due 2025. The transaction included an $18.3 call premium.
Risks, contingencies, and other notable items
- The company identified COVID-19 risks including demand volatility, lower discretionary auto-care sales, product availability and supply-chain disruption, additional operating costs, and potential effects on liquidity and debt-service capacity.
- Other disclosed risks include foreign-exchange and commodity-price exposure, variable-rate debt and LIBOR transition uncertainty, acquisition integration, competition, and the ability to meet debt covenants and access capital markets. The company uses hedges for certain currency, zinc, and interest-rate exposures.
- Legal proceedings arise in the ordinary course of business; management said that, after considering recorded accruals, potential liabilities were not reasonably likely to be material. Accrued environmental costs were $8.4.
- The Varta sale generated approximately $323.1 in cash proceeds, including related hedging arrangements and Spectrum contributions, net of the final working-capital settlement. Certain tax indemnification arrangements remain relevant.
- Disclosure controls were deemed effective as of June 30, 2020; management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the reported late-quarter recovery in auto care and international markets continued, and whether North American battery demand reflects sustained demand or temporary stockpiling.
- Progress toward the $60–$65 million annual restructuring savings target, remaining costs, and execution risks through 2021.
- Cash generation, revolver availability, debt maturities and servicing needs, and the effect of the July 2020 refinancing and redemption on interest expense and liquidity.
- The final financial effects of the Varta divestiture, including indemnification and purchase-price adjustments, and how discontinued operations affect comparisons.
- How much of the reported earnings improvement is recurring: adjusted EPS and adjusted margins are non-GAAP measures and should be assessed alongside GAAP results and the company’s stated adjustments.