Energizer Holdings, Inc. — Q1 FY2016 Form 10-Q
Reporting period: Three months ended December 31, 2015; comparison is with the quarter ended December 31, 2014. Amounts are in U.S. dollars. Energizer became an independent public company in July 2015; the prior-year comparison reflects carve-out results and allocated Edgewell costs, and may not represent standalone costs.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $506.8 million | $501.3 million |
| Gross profit | $229.8 million | $233.8 million |
| Gross margin | 45.3% | 46.6% |
| Net earnings | $65.5 million | $61.7 million |
| Diluted EPS | $1.05 | $0.99 |
| Adjusted diluted EPS (non-GAAP) | $1.16 | $1.14 |
| Cash from operations | $91.6 million | $60.1 million |
Net sales increased 1.1%; management reported organic sales growth of 9.5%, offset by $33.2 million of unfavorable currency impact, $5.6 million from international go-to-market changes, and $3.1 million from the Venezuela deconsolidation. Gross margin fell 130 basis points overall, primarily due to currency; management said margin increased 190 basis points after specified currency, Venezuela, go-to-market, and restructuring impacts. Net earnings rose despite lower gross profit, with lower SG&A and substantially lower spin costs contributing.
- Expenses and earnings: SG&A was $83.7 million versus $110.6 million, including spin costs of $6.0 million versus $22.1 million. Advertising and promotion was $30.1 million versus $34.4 million; R&D was $6.1 million versus $6.2 million. Interest expense was $12.9 million versus $12.5 million. The effective tax rate was 30.7%, up from 24.2%.
- Cash flow: Operating cash flow improved by $31.5 million, primarily reflecting lower inventory. Investing activities used $3.3 million; financing activities used $31.0 million, including $21.8 million of repurchases and $15.4 million of dividends. Cash increased $54.3 million to $556.4 million.
- Liquidity and debt: Total long-term debt, including current maturities, was $999.0 million; the company also reported $9.8 million of notes payable. Cash was $556.4 million. The $250 million revolving facility had no borrowings and $243.6 million available after letters of credit. The company said it was in compliance with debt covenants.
- Balance sheet: Current assets were $1,086.1 million and current liabilities $446.8 million. Total liabilities were $1,650.0 million, and shareholders’ deficit was $32.5 million.
Segments and material changes
| Segment | Sales | Sales change | Segment profit | Profit change |
|---|---|---|---|---|
| North America | $279.2 million | +11.1% | $90.8 million | +28.1% |
| Latin America | $34.5 million | -9.9% | $7.9 million | +68.1% |
| EMEA | $117.9 million | -6.4% | $23.0 million | -33.1% |
| Asia Pacific | $75.2 million | -12.3% | $19.5 million | -15.2% |
All segments reported organic sales growth, while currency reduced reported sales and profit in international regions. North America benefited from holiday shipments, earlier-than-expected replenishment, storm-related demand, and improved product mix. Management expects North America’s performance to moderate for the remainder of the year. Alkaline battery sales were $341.0 million versus $327.9 million; other batteries and lighting sales were $165.8 million versus $173.4 million.
Outlook, risks, and unusual items
- No full-year sales or earnings guidance is stated in the supplied filing text. Management anticipates fiscal 2016 investing cash outflows of approximately $35–$45 million, primarily capital expenditures, funded from operations.
- Approximately $3 million of additional pre-tax spin costs are expected through fiscal 2016. Remaining costs under the prior restructuring project are expected to be immaterial; the company reported project savings exceeding $218 million and said they were fully realized by June 30, 2015.
- A North American plant streamlining is expected to be completed in fiscal 2016; related overall charges are not expected to be material. The quarter included $1.1 million of accelerated depreciation related to this effort.
- Venezuelan operations were deconsolidated in March 2015 because currency controls restricted exchangeability and access to cash; results are not included after deconsolidation, and the company said it did not believe control had been regained.
- Key exposures include foreign exchange, variable-rate debt, commodity costs, market and competitive conditions, execution of restructuring and international go-to-market changes, and access to capital. A swap fixed the LIBOR component on $200 million of variable-rate debt through June 2022; a 1% rate change on the remaining variable-rate debt would change annual interest expense by approximately $2 million.
- Management considered ordinary-course legal matters not reasonably likely to be material, taking established accruals into account. Environmental accruals were $4.3 million; environmental spending was not expected to materially affect results or competitive position.
Investor verification priorities
- Assess the quality and durability of organic growth, particularly whether North America’s unusually strong shipments were pulled forward and how currency and go-to-market changes affect reported results.
- Reconcile reported and adjusted EPS, including spin and restructuring exclusions, and consider the prior-period carve-out allocations when comparing profitability.
- Track cash conversion and inventory trends, planned capital spending, dividends, and repurchases against available liquidity and debt service needs.
- Review foreign-currency and Venezuela exposure, as well as debt covenant compliance and the sensitivity of interest costs to rates.
- Confirm subsequent results against management’s stated expectation that North American performance would moderate and that remaining spin and plant-streamlining costs would be limited.