Energizer Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; the filing was signed November 17, 2020. The “2020 Q4” metadata refers to the fourth fiscal quarter, but this filing primarily reports full-year results. Financial amounts below are in U.S. dollars; millions unless noted.
Business context and reporting period
Energizer makes and sells household and specialty batteries, portable lights, and auto-care products. It reports two geographic segments: Americas and International. Fiscal 2020 included a full year of the 2019 Spectrum battery and auto-care acquisitions. The company sold the Varta consumer battery business in Europe, the Middle East and Africa on January 2, 2020; those operations are reported as discontinued operations.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $2,744.8 | $2,494.5 |
| Gross profit / gross margin | $1,081.9 / 39.4% | $1,003.8 / 40.2% |
| Earnings from continuing operations | $46.8 | $64.7 |
| Diluted EPS from continuing operations | $0.44 | $0.78 |
| Net earnings (loss) attributable to common shareholders | $(109.5) | $39.1 |
| Operating cash flow from continuing operations | $389.3 | $142.1 |
- Sales rose 10.0%; acquisitions contributed $210.6 (8.4 percentage points), organic sales added $61.4 (2.5%), and currency reduced sales by $23.3 (1.0%).
- Adjusted gross margin, excluding specified acquisition/integration costs and prior-year inventory step-up, was 40.6%, down 200 basis points. Management cited acquisition mix, foreign exchange and tariffs, pandemic-related mix and servicing costs, partly offset by synergies.
- Adjusted net earnings from continuing operations were $176.8 and adjusted diluted EPS was $2.31, versus $216.1 and $3.00 in FY2019. These are non-GAAP measures; the filing provides reconciliations.
- Net loss from discontinued operations was $140.1, including a $141.6 pre-tax loss on the Varta divestiture. Proceeds from the sale, including Spectrum’s contribution and related hedging, were $323.1 net of the final working-capital settlement.
- Operating cash flow from continuing operations increased $247.2 year over year, reflecting lower acquisition-related cash outlays than in FY2019 and favorable working-capital movements. Capital expenditures were $65.3; continuing-operations investing cash outflow was $64.0.
- At year-end, cash and cash equivalents were $459.8 and restricted cash was $790.0, for $1,249.8 combined. Restricted proceeds were earmarked for the October 2020 redemption of $750 million of notes. The $400 million revolver had no borrowings; $392.7 remained available after letters of credit.
- Gross long-term debt, including current maturities, was $4,190.6, versus $3,515.3 a year earlier. Reported long-term debt excluding current maturities and discounts was $3,306.9. The company reported compliance with debt covenants.
Material changes and unusual items
- Americas sales increased 13.6% to $1,971.2; International sales increased 1.8% to $773.6. Organic International sales declined 1.1%. Segment profit rose 9.2% in the Americas to $498.5 and fell 10.9% internationally to $155.8.
- FY2020 included a $94.9 loss on extinguishment of debt. Debt refinancing included $600 million of 4.750% notes due 2028 and $800 million of 4.375% notes due 2029; the latter proceeds funded the October 16, 2020 redemption of $750 million of 6.375% notes due 2026. Management estimated approximately $17.5 in annual interest savings from the refinancing activity.
- GAAP net loss attributable to common shareholders was $109.5, despite positive continuing-operations earnings, primarily reflecting the discontinued-operations loss and preferred dividends. The company paid $1.20 per common share in dividends during FY2020.
- Restructuring charges were $30.3 in FY2020. The company expected up to $34 million of additional costs for the 2019 program through calendar 2021 and $10–$12 million for the 2020 program through FY2021. Combined annual savings by the end of FY2022 were estimated at $67–$75 million; approximately $10 million had been realized from the 2019 program by year-end.
Outlook, commentary and risks
- The filing does not provide a clear FY2021 revenue or earnings guidance figure. Management said FY2021 capital expenditures were expected to be $35–$45 million for maintenance, product development and cost reduction, plus $30–$40 million for acquisition integration.
- Management described strong battery demand in North America and recovery in auto-care sales during the third and fourth fiscal quarters as restrictions eased. It also said elevated demand strained battery supply and reduced margins. The MD&A cites approximately $29 million of incremental pandemic-related costs and approximately $7 million of higher interest to strengthen liquidity; a separate risk disclosure cites approximately $24 million of pandemic-related costs in cost of products sold.
- Key risks include continuing COVID-19 effects on demand, supply, costs and customer behavior; intense competition and retailer concentration (Walmart represented 14.1% of FY2020 sales); raw-material, freight and currency volatility; significant leverage; integration and restructuring execution; and regulatory, environmental and product-liability exposure. Restrictions or phaseout of R-134a could affect the auto-care business.
- Management expected CEO Alan Hoskins to retire effective January 1, 2021, with President and COO Mark LaVigne appointed to succeed him.
- Environmental remediation accruals were $9.3, with approximately $2.1 expected to be spent in FY2021. The company said pending legal matters were not reasonably likely to be material, taking recorded accruals into account. The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Reconcile GAAP earnings and EPS with the company’s adjusted non-GAAP measures, including acquisition/integration charges, the debt-extinguishment loss and discontinued operations.
- Review the $141.6 Varta divestiture loss, the $323.1 net proceeds and the related indemnification and purchase-price adjustments.
- Confirm post-year-end debt actions, including redemption of the $750 million notes, payment of the $55.9 redemption premium and subsequent term-loan repayments; assess debt service and covenant headroom.
- Clarify the different pandemic-cost figures disclosed ($29 million total incremental costs in MD&A versus approximately $24 million in cost of products sold in the risk disclosure), including their scope and treatment.
- Assess whether restructuring milestones, projected $67–$75 million annual savings and the acquisition synergies are achieved, and monitor International segment performance and pandemic-related supply and demand trends.