Filing summary
Entity and period: The supplied filing is Energizer Holdings, Inc.’s unaudited Form 10-Q for the quarter ended December 31, 2011 (first quarter of fiscal 2012), not an Edgewell Personal Care Co. filing. Financial amounts below are in millions of dollars, except per-share data.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Net sales | $1,198.1 | $1,177.1 |
| Gross profit / gross margin | $564.5 / 47.1% | $555.6 / approximately 47.2% |
| Operating profit by segment | Personal Care $123.5; Household Products $148.8 | Personal Care $76.6; Household Products $163.3 |
| Earnings before income taxes | $208.4 | $162.5 |
| Net earnings | $143.8 | $110.4 |
| Diluted EPS | $2.15 GAAP; $2.05 adjusted, non-GAAP | $1.55 GAAP; $1.68 adjusted, non-GAAP |
| Cash from operations | $27.8 | $(1.0) |
| Capital expenditures | $18.0 | $18.6 |
Reported sales rose 1.8%, but organic sales fell 2.2%; reported growth included $46.2 of incremental ASR sales and a $0.7 currency benefit. Gross profit was essentially flat as favorable mix offset the full-quarter inclusion of lower-margin ASR products. Advertising and promotion expense declined to $96.4 from $128.7, largely because the prior-year quarter included Schick Hydro launch spending. The effective tax rate was 31.0%, versus 32.1%.
Operating cash flow before working-capital changes was $202.0, compared with $163.0; working-capital changes used $174.2. Cash and cash equivalents ended at $476.9, up from $471.2 at September 30, 2011. The company repurchased 1.9 million shares for approximately $135.9.
Balance sheet, debt and liquidity
- Total assets were $6,684.9 and shareholders’ equity was $2,090.4 at December 31, 2011.
- Total borrowings were $2,478.1, including $613.1 of variable-rate debt. Long-term debt, including current maturities, was $2,311.0; $546.0 was classified as current, including a $446.0 term loan due December 2012. Notes payable were $167.1.
- The company reported $438.2 available under its revolving credit facility, net of letters of credit, and $140.0 outstanding under its receivables securitization facility. It said cash, operating cash flows and credit facilities were expected to meet liquidity needs, but gave no assurance regarding refinancing the term loan.
- Debt covenant ratios were 2.8x indebtedness to EBITDA and 4.6x EBIT to interest expense. Covenant thresholds include a 4.0x maximum debt-to-EBITDA ratio and a minimum 3.0x EBIT-to-interest ratio.
Changes, outlook and risks
- Personal Care: Sales increased 11.0%, including ASR, while organic sales grew 1.4%. Segment profit rose 61.2% to $123.5, reflecting lower advertising spending and improved Wet Shave performance. Management expected advertising spending to increase significantly in the next two quarters to support Schick Hydro Silk and Schick Hydro 5 Power Select launches.
- Household Products: Sales declined 5.2% and segment profit fell 8.9% to $148.8. Management cited holiday-delivery timing, the unwind of prior hurricane-response inventory, and weakness in Western Europe and some Asian battery markets. A 6.7% U.S. price increase on alkaline and carbon-zinc products was planned for February 2012.
- Restructuring: A Swiss battery-facility sale generated an approximately $13 gain, partly offset by $3.6 of restructuring costs, resulting in $9.2 of net restructuring income for the quarter. The program had incurred about $83 of costs against an estimated $85 total; cumulative savings were about $17. Management targeted total pretax savings of $30–$35 by fiscal year-end 2012.
- Spending outlook: Fiscal 2012 capital expenditures were estimated at $90–$100. No full-year earnings or sales guidance was provided in the filing.
- Key risks: Management cited foreign-exchange movements, commodity inflation, competitive pricing and category weakness, execution and savings delivery, new-product performance, and the ability and cost of refinancing the December 2012 term loan. Venezuela had approximately $45 of net monetary assets, with currency conversion restricted and the eventual exchange rate uncertain. A potential sale of ASR’s industrial and specialty blades business was being evaluated; its net assets had a carrying value of $30–$35 and could require a write-down if classified for sale.
- Pending legal proceedings were not considered reasonably likely to be material based on information available, though outcomes were uncertain. Disclosure controls were reported effective; no material change in internal control over financial reporting was reported.
Investor verification priorities
- Confirm the intended company: this filing is for Energizer Holdings, Inc., despite the request metadata naming Edgewell Personal Care Co.
- Review the decline in organic sales and Household Products’ segment results, including the impact of pricing, shipment timing and market weakness.
- Assess the sustainability of reported earnings growth, given lower advertising expense and the one-time Swiss facility-sale gain; compare GAAP and adjusted EPS definitions.
- Monitor refinancing of the $446.0 term loan due December 2012, covenant headroom, working-capital demands and the cash impact of share repurchases.
- Track restructuring savings and costs, planned product-launch spending, the U.S. battery price increase, and any decision or impairment related to the potential ASR business sale.