Energizer Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2017. Unaudited results; dollar amounts are in millions unless stated otherwise. The quarter is not necessarily indicative of full-year results.
Financial performance
| Metric | Q3 FY2017 | Q3 FY2016 | Nine months FY2017 | Nine months FY2016 |
|---|---|---|---|---|
| Net sales | $372.0 | $361.0 | $1,290.6 | $1,201.8 |
| Gross profit | $158.0 | $153.7 | $597.5 | $525.1 |
| Net earnings | $24.9 | $24.2 | $167.4 | $106.1 |
| Diluted EPS | $0.40 | $0.39 | $2.67 | $1.70 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $145.6 | $141.9 |
- Q3 sales rose 3.0%; organic sales declined 2.6%, with the HandStands auto-care acquisition adding $25.9 and currency reducing sales by $5.5. Nine-month sales rose 7.4%, including $83.1 from the acquisition; organic sales increased 2.3% and currency reduced sales by $21.4.
- Q3 gross margin was 42.5%, down 10 basis points year over year; excluding current-year integration costs, management said it increased 10 basis points. Nine-month gross margin increased 260 basis points, or 250 basis points excluding specified prior-year restructuring and spin costs and current-year integration costs.
- Adjusted diluted EPS, a non-GAAP measure, was $0.43 for Q3 versus $0.32, up 34%; nine-month adjusted diluted EPS was $2.44 versus $1.77, up 38%. Adjustments include acquisition/integration costs, spin and restructuring items, real-estate gains and tax adjustments; these measures are not substitutes for GAAP results.
- Nine-month operating cash flow was nearly flat year over year. Higher earnings excluding a real-estate gain were offset by a $56.3 year-over-year working-capital increase, driven primarily by inventory growth of about $62.
Segments and material changes
- Americas: Q3 sales were $228.6, up 6.9%, while organic sales declined 3.6%; nine-month sales were $812.2, up 12.4%. The acquisition contributed $23.6 in Q3 and $74.2 year to date.
- EMEA: Q3 sales were $76.6, down 0.8% as currency headwinds outweighed organic growth; nine-month sales were $265.4, down 2.2%.
- Asia Pacific: Q3 sales were $66.8, down 4.4%, reflecting competitive conditions and unfavorable mix; nine-month sales were $213.0, up 2.5%.
- Total segment profit increased 6.0% in Q3 to $79.3; organic segment profit rose 1.1% after excluding acquisition and currency effects. Nine-month segment profit increased 22.0% to $347.0, with organic growth of 17.5%.
- The July 2016 HandStands acquisition contributed $25.9 of Q3 and $83.1 of nine-month revenue. Prior-year comparative periods exclude its activity. The company said integration was substantially complete.
Balance sheet, debt and liquidity
- At June 30, cash and equivalents were $404.4, versus $287.3 at September 30, 2016. Cash was substantially held outside the U.S.; repatriation from some subsidiaries could have tax or regulatory consequences.
- Long-term debt, including current maturities, was $993.0; notes payable were $108.3. The company had $100.0 drawn on its $350.0 revolver and $243.3 available after letters of credit. Debt agreements mature principally after five years, with $973.0 shown as due thereafter.
- The company reported compliance with debt covenants and expected to remain compliant. It repriced its term loan in March 2017, reducing the margin to LIBOR plus 200 basis points and eliminating the 75-basis-point LIBOR floor. The weighted-average rate on variable-rate debt, including swaps, was 3.19% for Q3.
- Nine-month investing cash flow was positive $9.7, including $27.2 of asset-sale proceeds and $17.5 of capital expenditures. Financing cash outflow was $32.7, including $52.1 of dividends and $9.3 of share purchases.
Outlook, risks and unusual items
- No full-year revenue or earnings guidance is stated in the provided filing text. Management expected fiscal 2017 capital expenditures of approximately $30–$35, funded from operations; acquisition and integration costs were expected to total $9.5–$10 for the fiscal year.
- Management said inventory would remain elevated for the balance of the year to support portfolio changes and innovation, then begin to normalize through the holiday season. Q3 organic sales were affected by portfolio-optimization investments, lapping prior-year fill volumes and promotions, and negative mix; management described the portfolio investments as intended to benefit longer-term results.
- Nine-month results included a $16.9 gain on real-estate sales, including a $15.2 gain on an Asia office-space sale. Q3 other items included a $3.3 loss on the sale of a non-core promotional sales business acquired with HandStands. The company recorded $3.8 of spin-restructuring income year to date and did not expect additional spin costs.
- Key stated risks include foreign-exchange movements, competitive pressure and market conditions, commodity costs, product and distribution performance, acquisition integration, litigation, cyber incidents, and debt-covenant or financing access. Currency weakness can pressure margins when pricing actions are unavailable. The company had no open commodity hedges at June 30.
- Pending legal matters were not considered reasonably likely to be material, after established accruals. Environmental costs accrued were $4.2; purchase obligations were approximately $128.6.
Important facts for investors to verify
- How much of reported sales and earnings growth reflects the HandStands acquisition and unusual gains versus recurring organic performance.
- Whether inventory growth normalizes as expected, and whether portfolio-optimization spending supports future sales and margins.
- The sustainability of adjusted earnings growth alongside GAAP earnings, including the effect of excluded costs and the real-estate gain.
- Cash availability and repatriation considerations, revolver usage, debt covenants, and exposure to interest rates and foreign exchange.
- The effect of competitive conditions and unfavorable mix in Asia Pacific and currency pressure in EMEA on future results.