Energizer Holdings, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. Energizer makes batteries, portable lights and automotive care products.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $721.8 | $658.0 | $2,255.5 | $1,981.8 |
| Gross profit | $273.3 | $263.2 | $881.7 | $800.1 |
| Gross margin, reported | 37.9% | 40.0% | 39.1% | 40.4% |
| Net earnings from continuing operations | $20.8 | $29.0 | $77.7 | $88.5 |
| Diluted continuing-operations EPS | $0.24 | $0.37 | $0.95 | $1.10 |
| Adjusted diluted continuing-operations EPS (non-GAAP) | $0.74 | $0.50 | $2.69 | $1.73 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $17.5 | $231.9 |
Q3 sales rose 9.7%; nine-month sales rose 13.8%. Q3 organic sales increased 5.8% and nine-month organic sales increased 10.4%, with contributions from volume, distribution and pricing, plus acquisitions and favorable currency. Batteries generated $482.9 of Q3 sales and Auto Care $206.4. For the quarter, Americas segment profit rose 3.9% to $127.7; International rose 2.9% to $35.8. Total segment profit increased 3.7% to $163.5.
Margins remained under pressure despite higher sales. Adjusted gross margin was 39.2% in Q3, down 160 basis points year over year, and 40.2% for nine months, down 120 basis points. Management cited higher labor, tariffs and transportation costs, product mix and Auto Care’s lower margin profile; synergies and currency partly offset these pressures. Q3 adjusted SG&A was 14.8% of sales versus 16.2% a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $207.7 at June 30, 2021, versus $459.8 at September 30, 2020. The prior-year balance sheet also included $790.0 of restricted cash, which was nil at June 30, 2021.
- Nine-month operating cash flow from continuing operations was $17.5, down from $231.9. Management attributed the decline chiefly to working-capital use, including higher inventory investment, payment timing and receivables growth, partly offset by higher cash earnings.
- Net cash used in investing was $109.9, including $67.2 for acquisitions and $42.7 of capital expenditures. Net cash used in financing was $957.5, reflecting debt refinancing and repayment activity, premiums, dividends and share repurchases.
- Long-term debt, including current maturities, was $3,412.7 gross ($3,355.6 reported as long-term debt after current maturities and unamortized fees). Notes payable were $103.4, including $103.0 drawn on the revolving facility. Of the $400.0 revolver, $289.3 remained available after letters of credit.
- The company refinanced several obligations, including issuing €650 million of 3.50% notes due 2029 to refinance €650 million of 4.625% notes due 2026. Nine-month interest expense declined to $125.0 from $144.8, but debt-extinguishment losses were $103.3 versus $4.2.
- Management said it believed operating cash flow and capital-market access would provide adequate resources for operating and financing needs. The company reported compliance with debt covenants at June 30.
Material changes, outlook and risks
- GAAP earnings fell year over year, while adjusted EPS increased. The difference primarily reflects $27.6 of Q3 and $103.3 of nine-month debt-extinguishment losses, as well as acquisition/integration costs and acquisition earn-out charges. Adjusted measures are non-GAAP and should be considered alongside GAAP results.
- COVID-19-related elevated demand and replenishment contributed to sales growth, while first-quarter incremental pandemic costs reduced nine-month reported and adjusted EPS by $0.10. Management said such costs were immaterial in Q2 and Q3; demand, supply-chain disruption and consumer purchasing patterns remained uncertain.
- Restructuring expense was $31.8 for nine months. Management expected up to approximately $12 of additional 2019-program exit costs through calendar 2021 and approximately $3 of additional 2020-program costs through FY2021. It projected annual savings of $67–$75 by the end of FY2022 and said the programs were on track.
- FY2021 capital spending expectations were approximately $30–$37 for maintenance, product development and cost reduction, plus $40–$48 for integration-related capital expenditures. The filing provides no specific full-year sales or EPS guidance.
- Management intended to enter a $75.0 accelerated share repurchase program in Q4 FY2021, funded with cash and revolver borrowings, with completion anticipated before year-end 2021. This is a stated intention, not a completed repurchase.
- Key disclosed risks include inflation in labor, freight and raw materials; supply availability and demand forecasting; COVID-19 and supply-chain disruption; currency movements; customer concentration and competition; significant debt; and execution of acquisition integration and restructuring. Legal matters were described as not reasonably likely to be material based on information available; accrued environmental costs were $9.2.
Important facts for investors to verify
- Whether sales growth, including COVID-related replenishment and distribution gains, is sustainable as comparisons normalize.
- Whether inflation, product mix and operating costs continue to weigh on gross margins, and whether planned synergy and restructuring savings materialize.
- Working-capital trajectory, particularly inventory, and the company’s ability to restore operating cash flow after the nine-month decline.
- Debt, interest costs, covenant headroom and remaining revolver availability following the refinancing transactions.
- Completion, final share count and funding of the proposed $75.0 accelerated repurchase, alongside dividend and other capital-allocation needs.
- Performance and integration contributions from the FY2021 acquisitions, including contingent earn-out obligations.