Business context and reporting period
This unaudited Form 10-Q is for Energizer Holdings, Inc., for the quarter and six months ended March 31, 2014 (fiscal Q2 and first half). The request identifies Edgewell Personal Care Co.; however, the filing’s registrant is Energizer Holdings, Inc. The filing reports Personal Care and Household Products segments.
Financial performance
Amounts are in millions except per-share data. Quarter and six-month comparisons are against the respective 2013 periods.
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $1,062.4 vs. $1,095.9 | $2,176.3 vs. $2,288.4 |
| Gross profit / margin | $508.3; 47.8% margin, down 60 basis points | $1,020.1; 46.9% margin, down 80 basis points |
| Earnings before taxes | $135.8 vs. $113.0 | $287.6 vs. $301.7 |
| Net earnings | $98.5 vs. $84.9 | $206.4 vs. $214.7 |
| Diluted EPS | $1.57 vs. $1.35 | $3.29 vs. $3.42 |
| Operating cash flow | Not presented for the quarter | $228.9 vs. $249.7 |
- Quarter sales declined 3.1% reported; organic sales declined 6.1% after excluding currency and acquisition effects. Six-month sales declined 4.9% reported and 7.2% organically.
- Personal Care sales were $689.0 for the quarter and $1,239.2 year to date; segment profit was $170.7 and $301.0, respectively. Household Products sales were $373.4 and $937.1; segment profit was $62.1 and $195.5.
- Cash and equivalents were $991.7 at March 31, 2014, versus $998.3 at September 30, 2013. Current assets were $2,611.1 and current liabilities $1,290.7.
- Total borrowings were $2,364.2, including $225.3 of variable-rate debt. Long-term debt, including current maturities, was $2,138.9. The company reported covenant ratios of 2.4x debt/EBITDA and 6.0x EBIT/interest; $357.8 remained available under its revolving facility.
- Six-month investing cash outflow was $217.6, including $185.3 for the feminine-care acquisition; financing cash outflow was $20.7. Capital expenditures were $36.4.
Material changes and management commentary
- Personal Care results benefited from the October 2013 acquisition of Stayfree, Carefree and o.b. brands, which contributed $59.7 of incremental quarterly sales. Household Products was pressured by lost distribution at two U.S. retailers, competitive activity, higher promotions, and weaker category demand.
- Management attributed sales pressure to unfavorable currencies, soft categories, shipment timing, and Latin American pricing controls and import restrictions. Currency reduced quarterly sales by 2.4%; the acquisition added 5.4%.
- Quarter gross margin was adversely affected by currency, acquisition inventory valuation and the acquired business’s lower margin profile. Management said restructuring savings and Personal Care pricing gains more than offset those pressures on an adjusted basis.
- Net earnings and diluted EPS improved in Q2 but declined for the six-month period. The prior-year six-month comparison included a $37.4 pre-tax pension curtailment gain; current-period results included restructuring and acquisition-related costs.
Outlook, risks and unusual items
- The expanded restructuring program is estimated to cost approximately $350 in total, with fiscal 2014 charges estimated at $100–$130. Management forecast $50–$80 of restructuring and related costs for the remainder of fiscal 2014, gross savings of $100–$125 for the full year, and total project gross savings of approximately $300. It expects actions to be completed by fiscal 2015 year-end and savings to be fully realized in fiscal 2016.
- Fiscal 2014 normal capital expenditures were estimated at $100–$120, including restructuring-related technology investment.
- On April 28, 2014, after quarter-end, the board authorized pursuit of a tax-free spin-off of Household Products and Personal Care, expected in the second half of fiscal 2015. Completion, timing and terms are uncertain and subject to approvals and other conditions; the company may abandon or change the plan.
- Venezuela is a significant currency and operating risk. The company carried approximately $71 of net monetary assets at the official rate of 6.30 bolivars per U.S. dollar and had not used SICAD auctions. Management estimated possible remeasurement charges of approximately $29 at the SICAD I rate or $62 at the SICAD II rate; further devaluation or translation at a less favorable rate could materially reduce earnings.
- Substantially all cash was held outside the U.S.; repatriation of some balances could have adverse tax consequences or be subject to regulatory requirements. Debt agreements contain financial covenants and cross-default provisions. The company reported pending legal proceedings but did not consider potential liabilities reasonably likely to be material based on information available.
- The company repurchased one million shares for $94.4 during Q2 and paid $62.1 in dividends during the six months. A subsequent $0.50-per-share dividend was declared for payment in June 2014.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Energizer Holdings, Inc., not Edgewell Personal Care Co.
- Assess whether Household Products’ sales and profit declines, including lost retailer distribution, are stabilizing.
- Track restructuring costs, execution, and whether projected savings materialize on schedule.
- Monitor Venezuela exchange-rate policy, access to currency, and potential balance-sheet and earnings effects.
- Evaluate the proposed spin-off’s approvals, costs, financing implications, and progress toward the stated timetable.
- Review debt maturities, covenant headroom, foreign-held cash accessibility, and cash generation after acquisition and shareholder returns.