Business context and reporting period
This is Energizer Holdings, Inc.’s unaudited Form 10-Q for the quarter and nine months ended June 30, 2011 (the company’s fiscal third quarter). The filing identifies the registrant as Energizer Holdings, Inc., not Edgewell Personal Care Co.; verify that this is the intended filing.
The company reports Personal Care and Household Products segments. Results include American Safety Razor (ASR), acquired November 23, 2010, in Personal Care.
Financial performance
| Metric | Quarter ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net sales | $1,234.5 million; up 15% from $1,076.8 million | $3,446.9 million; up 8% from $3,188.6 million |
| Gross profit / margin | $573.0 million / 46.4%; margin down 170 basis points | $1,599.7 million / 46.4%; margin down 140 basis points |
| Net earnings | $65.9 million, down from $104.0 million | $215.4 million, down from $318.2 million |
| Diluted EPS | $0.94, versus $1.47 | $3.04, versus $4.51 |
| Operating cash flow | Not separately stated for the quarter | $176.4 million, versus $439.3 million |
Quarter sales growth reflected approximately $83 million from ASR and $43 million from favorable currency; organic growth was about 3%. Nine-month growth included approximately $182 million from ASR and $60 million from currency, partly offset by about $19 million of lower Venezuela sales; organic growth was about 1%. Lower gross margin reflected ASR’s value-priced products and higher commodity costs, with higher promotional spending also weighing on year-to-date margins.
Personal Care sales were $725.3 million for the quarter and $1,844.3 million year to date. Household Products sales were $509.2 million and $1,602.6 million, respectively. Quarter segment profit was $130.5 million for Personal Care and $80.0 million for Household Products; year-to-date segment profit was $330.4 million and $295.5 million, respectively. Household Products results were pressured by battery category declines, trade spending, and commodity costs.
Liquidity, debt and capital resources
At June 30, 2011, cash was $507.3 million; total borrowings were $2,403.6 million, including $538.6 million at variable rates. Long-term debt was $2,208.0 million, excluding current maturities of $106.0 million. Committed debt facilities totaled $2,853.6 million, with $434.7 million available. Operating cash flow fell year over year, including a $47 million payment of assumed ASR tax liabilities and higher working-capital outflows, particularly for advertising and promotion.
The company issued $600 million of 4.7% senior notes due 2021 and used most proceeds to repay debt, including early redemption of private-placement notes. The redemption generated a $19.9 million pretax make-whole charge. Debt covenant ratios at quarter-end were 2.95x pro forma debt-to-EBITDA and 4.38x pro forma EBIT-to-interest; stated limits include a 4.00x debt-to-EBITDA maximum and a minimum 3.00x EBIT-to-interest ratio.
Outlook, commentary and risks
- Fiscal 2011 GAAP diluted EPS guidance is $3.90–$4.10. Adjusted diluted EPS guidance is reaffirmed at $5.10–$5.30, excluding specified restructuring, ASR, and refinancing items.
- Household Products restructuring charges are estimated at $75–$85 million pretax in total; $59.6 million was recorded through June 30. Management expects $25–$35 million of annual pretax savings by fiscal 2012 year-end; approximately $4 million had been realized. An additional pension settlement charge of about $6 million was expected in Q4.
- Management expected raw-material and commodity costs to be $8–$10 million unfavorable for the remainder of fiscal 2011 versus the comparable prior-year period. Full-year capital expenditures were estimated at approximately $100 million.
- Risks include weak battery-category trends and higher input costs; currency movements and restrictions on converting Venezuelan assets; integration of ASR; and disruption in Japan. Japanese foreign-exchange hedges carried an approximately $7 million pretax loss, and reduced forecast purchases could affect hedge accounting. Management said those purchases remained probable.
- The company was evaluating potential impairment of the Wet Ones trademark, with a carrying value of approximately $200 million; the review was expected to conclude in Q4. Management said pending legal proceedings were not reasonably likely to be material, based on information then available.
Important facts for investors to verify
- Confirm the registrant and filing match the intended company: this 10-Q is for Energizer Holdings, Inc.
- Reconcile reported GAAP EPS guidance with adjusted EPS guidance and the excluded charges; assess the assumptions behind the remaining restructuring costs and expected savings.
- Track operating cash flow and working-capital trends, debt covenant headroom, and the company’s ability to meet upcoming maturities and pension contributions.
- Follow the Wet Ones impairment review, Japan hedge exposure, Venezuela currency restrictions, and ASR integration outcomes.
- Assess whether category weakness, promotional spending, currency movements, and commodity costs continue to pressure margins and segment profits.