Energizer Holdings, Inc. — Q2 Fiscal 2021 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2021. Amounts are in millions of dollars except per-share data. The company manufactures and markets batteries, portable lights, and automotive care products.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $685.1 | $587.0 | $1,533.7 | $1,323.8 |
| Gross profit | $270.5 | $235.6 | $608.4 | $536.9 |
| Gross margin, reported | 39.5% | 40.1% | 39.7% | 40.6% |
| Net earnings from continuing operations | $(10.2) | $13.7 | $56.9 | $59.5 |
| Diluted EPS from continuing operations | $(0.21) | $0.14 | $0.71 | $0.74 |
| Adjusted diluted EPS from continuing operations (non-GAAP) | $0.77 | $0.37 | $1.95 | $1.22 |
| Operating cash flow | Not separately stated | Not separately stated | $12.4 | $99.2 |
Q2 sales rose 16.7%; organic sales increased 12.7%, with contributions from distribution gains and higher replenishment volumes. Six-month sales grew 15.9%, including 12.7% organic growth. Batteries generated Q2 sales of $512.8, Auto Care $138.9, and Lights, Licensing and Other $33.4.
Q2 reported gross margin declined 0.6 percentage points year over year; adjusted gross margin was 40.5%, down 1.1 points. Management cited unfavorable mix, tariffs, transportation and product input costs. Synergies partly offset these pressures. Six-month adjusted gross margin was 40.6%, also down 1.1 points.
Q2 segment profit was $132.3 in the Americas, up 30.0%, and $39.6 in International, down 2.0%. Six-month segment profit was $288.2 in the Americas, up 24.8%, and $99.4 in International, up 7.3%.
Cash, debt and liquidity
- Cash and cash equivalents were $261.0 at March 31, 2021, versus $459.8 at September 30, 2020. Restricted cash was $790.0 at September 30 and nil at March 31.
- Six-month operating cash flow was $12.4, compared with $99.2 a year earlier. Management attributed the decline primarily to working-capital changes, including higher inventory and receivables, payment timing, and a prior-year VAT refund receipt.
- Continuing-operations investing cash outflow was $86.2, including $67.1 for acquisitions; capital expenditures were $19.2. Financing cash outflow was $919.3, reflecting debt repayments and redemption premiums as well as dividends and share repurchases.
- Long-term debt, including current maturities, totaled $3,408.2; notes payable were $92.3. The company had $87.0 drawn on its revolving facility and $305.3 of availability after letters of credit. It reported compliance with debt covenants.
Material changes, outlook and risks
- Q2 GAAP results included a $70.0 loss on extinguishment of debt. For the six months, the loss was $75.7. The company refinanced debt, including redeeming $600.0 of 7.750% notes, and reported lower interest expense year over year. The debt loss materially distinguishes GAAP from adjusted earnings.
- Six-month results reflect the Varta consumer battery business as discontinued operations in the prior-year period, including a $131.1 net loss. This makes reported total net earnings comparisons less informative than continuing-operations comparisons.
- COVID-19 supported elevated demand and replenishment, while incremental costs reduced six-month gross margin by $11.7; lower travel spending partly offset those costs. The duration and business effects of the pandemic remain uncertain.
- Two fiscal 2021 acquisitions contributed $10.7 of Q2 sales and $1.8 of segment profit; six-month contributions were $20.3 and $3.1. These were the Indonesia battery facility and a cleaning-formulations company.
- Restructuring expense was $21.8 for the six months. Management expected up to $21 of additional 2019-program exit costs through calendar 2021 and about $6 of additional 2020-program costs through fiscal year-end. It projected annual savings of $67–$75 by the end of fiscal 2022 and said the programs were on track.
- Fiscal 2021 capital expenditure expectations were approximately $40–$45 for maintenance, product development and cost reduction, plus $40–$50 for integration-related capital expenditures. No specific full-year revenue or EPS guidance is provided in the filing text.
- Principal stated risks include COVID-related demand and supply disruption, competition and customer concentration, input-cost inflation, foreign-exchange exposure, supply-chain execution, substantial debt, cyber and IT risks, product and environmental claims, and integration of acquisitions. The company said there were no material changes to the risk factors in its 2020 Form 10-K. Pending legal matters were not considered reasonably likely to be material based on information available; environmental accruals were $9.0.
Important facts for investors to verify
- Whether elevated pandemic-related demand and replenishment persist, and whether the Q2 timing effects unwind.
- Whether pricing, mix, input costs and operating efficiencies support gross-margin recovery, and whether restructuring savings meet the $67–$75 annual target.
- Cash conversion and working-capital needs, particularly inventory, against the comparatively low six-month operating cash flow.
- Debt service capacity, variable-rate exposure, refinancing effects and continued covenant compliance.
- The bridge between GAAP and adjusted earnings, including recurring acquisition/integration and restructuring costs and the debt-extinguishment charge.
- Acquisition performance and integration, and the assumptions underlying stated capital expenditure plans and outlook.