Business context and reporting period
The supplied filing is Energizer Holdings, Inc.’s unaudited Form 10-Q for the fiscal first quarter ended December 31, 2012—not a filing under the name Edgewell Personal Care Co. The company operated through Personal Care and Household Products segments. Comparisons below are with the quarter ended December 31, 2011, unless noted.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2012 | Prior-year quarter |
|---|---|---|
| Net sales | $1,192.5 million | $1,198.1 million |
| Gross profit / margin | $561.6 million / 47.1% | $564.5 million / 47.1% |
| Net earnings | $129.8 million | $143.8 million |
| Diluted EPS | $2.07 | $2.15 |
| Adjusted net earnings / diluted EPS (non-GAAP) | $137.7 million / $2.20 | $137.1 million / $2.05 |
| Operating cash flow | $71.6 million | $27.8 million |
| Capital expenditures | $15.4 million | $18.0 million |
Reported sales fell 0.5%; management attributed $2.9 million of the decline to unfavorable currency. Net earnings fell about 10%, while diluted EPS declined about 4%. Adjusted EPS increased, helped in part by diluted weighted-average shares falling to 62.6 million from 66.9 million. SG&A declined to $200.5 million from $214.1 million; advertising and promotion was nearly flat at $94.8 million.
Operating cash flow improved by $43.8 million year over year, mainly because working-capital cash use declined to approximately $100 million from approximately $174 million. Cash and cash equivalents were $787.1 million at quarter-end, versus $718.5 million at September 30, 2012. Current assets were $2,575.3 million and current liabilities $1,233.3 million.
Total borrowings were $2,552.9 million, including $289.2 million of variable-rate notes payable; $200 million was also outstanding under a receivables securitization facility, which the company said is excluded from debt-covenant calculations. Long-term debt was $2,138.7 million, excluding current maturities. The company reported $373.9 million available under its revolving credit facility. Debt/EBITDA was 2.6x and EBIT/interest was 5.6x; management expected continued covenant compliance despite near-term restructuring effects. The quarterly dividend was $0.40 per share.
Material changes versus the prior comparable period
- Personal Care sales decreased 1.8% to $554.3 million and segment profit fell 5.9% to $116.2 million. Wet Shave sales declined amid heightened competition, particularly in the U.S.; Schick Hydro systems grew, but declines in legacy products and disposables more than offset that growth.
- Household Products sales increased 0.7% to $638.2 million and segment profit rose 7.9% to $160.6 million. Management estimated Hurricane Sandy generated approximately $18 million of incremental sales; excluding the storm effect, sales were down about 2%, amid category declines and reduced U.S. shelf and display space at a key retailer.
- Quarterly earnings included $49.0 million of 2013 restructuring costs and a $37.4 million pension curtailment gain. The prior-year quarter included a $9.2 million net gain from the earlier Household Products restructuring, chiefly from a facility sale.
- Interest expense increased $3.6 million to $33.5 million, reflecting higher average debt and interest rates. Other financing expense was $7.9 million, primarily from foreign-exchange losses and a loss on settled zinc contracts.
Outlook, commentary, risks and unusual items
- The restructuring plan targets approximately $200 million of annualized pretax gross savings. Nearly three-quarters are expected to improve profitability, with the remainder reinvested in the business. Management expects substantial actions to be completed by the end of fiscal 2014 and full ongoing savings in fiscal 2015.
- Management estimated total one-time restructuring costs near $250 million, with 25%–30% expected to be noncash. It forecast $70–$90 million of additional restructuring costs and $25–$35 million of savings for the remainder of fiscal 2013. Planned actions include workforce reductions of approximately 1,500 (more than 10%) and facility and organizational changes.
- The company froze future service-benefit accruals under its legacy U.S. pension plan effective January 1, 2014; benefits earned to date were to be frozen. The quarter’s $37.4 million curtailment gain is nonrecurring.
- Fiscal 2013 capital expenditures were estimated at $90–$100 million, with additional IT investment expected over the following two fiscal years. No clear full-year sales or earnings guidance is provided in the supplied filing text.
- Risks highlighted include competitive pressure, category and market-share declines, execution of restructuring and savings, commodity costs, foreign-exchange movements, debt-covenant compliance, and uncertainty in Venezuela. Approximately $42 million of net monetary assets were held in Venezuela, where currency conversion is restricted and the eventual exchange rate was uncertain. Substantially all cash was held outside the U.S.; repatriation could have adverse tax consequences or be subject to regulatory requirements.
- The company said pending legal proceedings were not reasonably likely to materially affect its financial position, results or cash flows, based on information then available. Disclosure controls were assessed as effective. The filing also describes revisions to prior consolidating statements, which the company concluded were not material and did not affect consolidated earnings or total cash flow.
Important facts for investors to verify
- Confirm the intended issuer: the supplied document identifies Energizer Holdings, Inc., not Edgewell Personal Care Co.
- Track whether restructuring costs, workforce and facility actions, and the projected $200 million annualized savings occur on schedule and produce the expected cash and margin benefits.
- Assess underlying sales without the estimated Hurricane Sandy uplift, especially battery category trends, retailer shelf-space changes, and Wet Shave competition.
- Monitor cash generation, working capital, debt maturities, variable-rate exposure, the receivables securitization balance, and covenant headroom.
- Separate recurring performance from restructuring charges, the pension curtailment gain, and other financing and currency items; compare GAAP results with the company’s non-GAAP adjustments.