Business context and reporting period
This is Energizer Holdings, Inc.’s unaudited Form 10-Q for the quarter and six months ended March 31, 2012 (fiscal Q2 and first half). The request identifies Edgewell Personal Care, but the filing registrant is Energizer Holdings, Inc.; investors should confirm the intended company.
Energizer reported two segments: Personal Care (including wet shave, skin care, feminine care and infant care) and Household Products (batteries and lighting). The period comparison is with the quarter and six months ended March 31, 2011.
Financial performance and liquidity
| Metric | Fiscal Q2 2012 | Six months 2012 | Comparable 2011 |
|---|---|---|---|
| Net sales | $1,101.8 million | $2,299.9 million | $1,035.3 million; $2,212.4 million |
| Gross profit / margin | $517.2 million / 46.9% | $1,081.7 million / 47.0% | $471.1 million / 45.5%; $1,026.7 million / 46.4% |
| Net earnings | $77.9 million | $221.7 million | $39.1 million; $149.5 million |
| Diluted EPS | $1.17 | $3.33 | $0.55; $2.11 |
| Operating cash flow | Not stated separately | $226.7 million | $105.9 million |
Fiscal Q2 sales rose 6.4% reported and 6.8% organically; first-half sales rose 3.9% reported and 2.0% organically. Adjusted diluted EPS, a company-defined non-GAAP measure, was $1.22 for Q2 and $3.27 for the first half, versus $1.04 and $2.72, respectively.
First-half capital expenditures were $51.5 million, versus $41.6 million. Cash and equivalents were $561.8 million at March 31, 2012, compared with $471.2 million at September 30, 2011. Current assets were $2,393.6 million and current liabilities $1,444.2 million. Total borrowings were $2,398.7 million; $544.5 million of long-term debt was classified as current, including a $444.5 million term loan due December 2012. The company had $438.2 million available under its revolving facility. First-half share purchases were $135.9 million; no open-market repurchases occurred in Q2.
Debt covenant ratios at March 31 were 2.7x indebtedness to EBITDA and 4.9x EBIT to interest expense. Management reported compliance with the stated covenant thresholds. Most cash was held outside the United States.
Material changes versus prior comparable periods
- Net earnings and diluted EPS increased substantially year over year, while gross margin improved 1.4 percentage points in Q2 and 0.6 points for the first half.
- Prior-year results included Household Products restructuring charges of $36.7 million for Q2 and $38.6 million for the first half. In 2012, restructuring was a $1.5 million Q2 expense and a $7.7 million first-half gain, principally reflecting the sale of the former Swiss battery facility, partly offset by additional costs.
- Personal Care sales increased 6.7% in Q2 and 8.6% for the first half, with organic growth of 6.9% and 4.4%. Wet Shave drove growth; Infant Care sales declined 11% in Q2 and 8% year to date.
- Household Products sales rose 6.0% in Q2 but fell 0.9% for the first half. Q2 benefited from U.S. pricing, retailer inventory purchases ahead of price increases, and comparison with elevated prior-year trade spending. First-half organic sales declined 0.4%.
- First-half operating cash flow increased $120.8 million, reflecting higher earnings and improved working-capital cash use, including the absence of approximately $47 million of prior-year payments of assumed ASR acquisition tax liabilities.
Outlook, commentary, risks and unusual items
- Management estimated fiscal 2012 capital expenditures of approximately $100 million. It expected higher advertising and promotion spending in Q3 to support recent Schick Hydro launches and expected some battery retail inventory destocking in the following quarter after retailer purchases ahead of price increases.
- The Household Products restructuring was substantially complete: approximately $84 million of costs had been recorded against an estimated $85 million total. Project savings were approximately $23 million to date; management expected total savings to reach the high end of a $30–$35 million range.
- Management expected to refinance the $444.5 million term loan before its December 2012 maturity but gave no assurance about timing, terms or cost. It stated that cash, operating cash flow and credit facilities should meet liquidity needs before maturity, subject to uncertainty.
- On April 30, 2012, after quarter-end, the board announced an intention to initiate a dividend program; subject to future board declaration, a $0.40-per-share quarterly dividend was anticipated in fiscal Q4, implying $1.60 annually. The board also authorized repurchases of up to 10 million shares.
- Currency weakness against the U.S. dollar can pressure margins, while pricing actions may be constrained by competition. Battery unit volumes in measured markets were down approximately 2% in the latest 12-week period. Commodity inflation, interest rates, product-launch performance and general economic conditions are additional risks.
- Venezuela was treated as highly inflationary, with restrictions on converting local monetary assets; the company disclosed approximately $39 million of net monetary assets there and said the eventual conversion rate was uncertain. The filing reported no current impairment indicators for goodwill or indefinite-lived intangibles, but noted that Playtex and Wet Ones trademark fair values had been relatively close to carrying values in the prior-year test.
- Pending legal matters were described as not reasonably likely to be material based on information available, after considering established accruals. Management said disclosure controls were effective as of March 31, 2012, and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm whether the intended issuer is Energizer Holdings, Inc., rather than Edgewell Personal Care.
- Track refinancing progress, final terms and repayment of the December 2012 term loan, along with covenant headroom.
- Assess whether the strong Q2 Household Products sales reflected sustainable demand or retailer purchases ahead of price increases, and monitor subsequent destocking.
- Compare actual restructuring savings and completion costs with management’s $30–$35 million savings range and approximately $85 million cost estimate.
- Verify the board’s eventual dividend declarations and any repurchases under the new authorization; both were subject to future decisions.
- Monitor foreign exchange, commodity costs, Venezuela exposure and the scheduled annual impairment testing of significant intangible assets.