Energizer Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. All amounts are in U.S. dollars; financial figures are in millions except per-share data.
Business context
Energizer manufactures and markets batteries, portable lights, and automotive care products. Its reportable segments are Batteries & Lights and Auto Care.
Financial results and liquidity
| Metric | Quarter ended June 30, 2023 | Prior-year quarter | Nine months ended June 30, 2023 | Prior-year period |
|---|---|---|---|---|
| Net sales | $699.4 | $728.0 | $2,148.6 | $2,259.7 |
| Gross profit | $265.1 | $284.0 | $816.7 | $834.0 |
| Gross margin, reported | 37.9% | 39.0% | 38.0% | 36.9% |
| Net earnings | $31.8 | $52.4 | $120.8 | $131.4 |
| Diluted EPS | $0.44 | $0.73 | $1.67 | $1.82 |
| Adjusted diluted EPS (non-GAAP) | $0.54 | $0.77 | $1.90 | $2.26 |
| Operating cash flow | Not presented by quarter | $296.3 | $(106.2) |
- Quarterly sales fell 3.9% year over year; reported net earnings fell about 39%. For the nine-month period, sales declined 4.9% and diluted EPS declined from $1.82 to $1.67.
- Quarterly adjusted gross margin was 38.8%, down from 40.4%; nine-month adjusted gross margin was 38.6%, up from 37.6%. Management cited pricing and restructuring savings, offset by higher product costs and currency effects.
- Quarterly segment profit was $139.3, down 10.5%. Batteries & Lights segment profit declined 14.6% to $121.9; Auto Care increased 34.9% to $17.4. Nine-month segment profit was $432.1, down 2.5%, while Auto Care profit rose 55.1% to $57.4.
- Operating cash flow improved by $402.5 year over year, principally due to working-capital changes: lower inventory investment, collections, and payment timing. Capital expenditures were $35.4 year to date, versus $65.8 in the prior-year period.
- Cash was $202.4 at June 30, 2023. Long-term debt, including current maturities and finance leases, was $3,423.1; the balance-sheet carrying amount of long-term debt was $3,377.0. The company had no revolver borrowings, $7.1 of letters of credit, and $492.9 of revolver availability. It reported compliance with debt covenants.
- Total current assets were $1,568.4 and current liabilities $726.1. Shareholders’ equity was $166.9.
Material changes and management commentary
- Organic sales declined 2.7% in the quarter and 2.1% year to date. Pricing contributed about 6.5% to quarterly organic sales and about 10% year to date, but did not fully offset volume declines.
- Management attributed volume weakness to category and economic pressures, weaker sales at some non-tracked retailers, timing of holiday orders, cooler weather affecting refrigerant sales, planned exits from lower-margin business, and delayed device-maker product launches.
- Interest expense rose to $42.2 for the quarter and $127.1 year to date, reflecting higher rates partly offset by lower average debt. The company repaid $175.0 of term-loan principal and retired $25.0 of senior notes during the nine-month period; it prepaid another $20.0 of term debt after quarter-end.
- Year-to-date operating cash flow benefited substantially from working-capital movements, including approximately $230 less inventory investment versus the prior year. Investors should distinguish this cash-flow improvement from underlying earnings performance.
Outlook, risks, and unusual items
- Project Momentum was expanded in July 2023. Management expects total annual pre-tax savings of $130–$150 by fiscal 2025, including $115–$130 from restructuring and $15–$20 annually from continuous-improvement and working-capital initiatives. The company expects $45–$50 of savings in fiscal 2023. Estimated program costs are $95–$110 of cash operating costs, approximately $12 of non-cash costs, and $50–$60 of capital expenditures through fiscal 2025. The company had recognized $32.0 of savings through the third quarter.
- Fiscal 2023 capital expenditures were expected to be approximately $55–$65. The filing does not provide a specific full-year sales or earnings guidance figure.
- Management cited ongoing inflation and raw-material, transportation, currency, supply, competition, retail-demand, and execution risks. Currency had an adverse impact on earnings before tax of $3.4 in the quarter and $23.8 year to date versus the prior year.
- Environmental costs accrued were $14.0. Purchase obligations were $11.3, including $6.6 due within twelve months. The company said pending legal matters were not reasonably likely to be material, considering established accruals.
- The filing reports a subsequent agreement for the Chief Human Capital Officer’s transition and departure in 2024. Conditional payments include approximately $237,000 during the transition and approximately $1.13 million in severance after the separation date.
- Disclosure controls were assessed as effective; the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pricing, cost reductions, and Project Momentum savings can offset continued volume weakness and inflationary costs.
- Whether the significant operating-cash-flow improvement persists when working-capital benefits normalize.
- Debt-service capacity and exposure to higher interest rates, including the extent and duration of swap protection.
- Progress against Project Momentum’s savings targets, restructuring costs, and capital requirements.
- Developments in foreign-exchange exposure, retailer demand, raw-material costs, and the disclosed legal and environmental matters.