Business context and reporting period
The supplied filing is Energizer Holdings, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013, not a filing identified as Edgewell Personal Care. Fiscal Q3 and year-to-date results cover the three and nine months ended June 30, respectively. Energizer reported Personal Care and Household Products segments.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $1,111.5 million | $1,124.1 million | $3,399.9 million | $3,424.0 million |
| Gross profit | $510.4 million | $528.8 million | $1,602.7 million | $1,610.5 million |
| Net earnings | $87.2 million | $70.2 million | $301.9 million | $291.9 million |
| Diluted EPS | $1.38 | $1.06 | $4.80 | $4.40 |
- Q3 reported sales declined 1.1%; organic sales were essentially flat. Year-to-date reported sales declined 0.7%, also essentially flat organically.
- Q3 gross margin was 45.9%, down 110 basis points year over year. Year-to-date gross margin was 47.1%, up 10 basis points. Currency and $4.7 million of restructuring-related obsolete inventory charges affected the quarter.
- Operating cash flow was $469.8 million for the nine months, versus $346.8 million a year earlier. Capital expenditures were $59.3 million. Cash increased to $948.8 million from $718.5 million at September 30, 2012.
- At June 30, total borrowings were $2,419.2 million; an additional $182.0 million was outstanding under the receivables securitization program. Cash was largely held outside the U.S. The revolving facility had $360 million available, after $80 million of borrowings and $10 million of letters of credit.
- Debt covenant ratios were 2.4-to-1 for indebtedness to EBITDA and 5.7-to-1 for EBIT to interest. The company expected to remain in compliance despite anticipated near-term pressure from restructuring charges.
Material changes versus prior comparable periods
- Q3 net earnings rose to $87.2 million from $70.2 million; diluted EPS increased to $1.38 from $1.06. Nine-month earnings and EPS also increased, although reported sales declined slightly.
- Household Products Q3 sales increased 2.5% reported (3.7% organic) and segment profit rose 44.0% to $100.1 million. Personal Care sales fell 3.6% reported and segment profit increased 1.7% to $111.3 million.
- Lower SG&A and advertising and promotion spending helped earnings. Q3 SG&A was $201.8 million versus $233.8 million; advertising and promotion was $121.0 million versus $141.8 million. Management cited spending controls, restructuring benefits, and timing of promotional spending.
- Nine-month operating cash flow improved primarily due to working-capital changes, including better receivables and inventory days and the timing of restructuring-related cash payments.
Outlook, commentary, risks and unusual items
- The 2013 restructuring plan targets a workforce reduction of more than 10% (about 1,500 employees), operational and portfolio streamlining, and lower overhead. Project costs were estimated at about $250 million; management expected more than $80 million of gross savings in fiscal 2013 and approximately $225 million of total project gross savings, fully realized by fiscal 2015. Remaining fiscal 2013 restructuring costs were estimated at $35–$45 million.
- Normal fiscal 2013 capital expenditures were estimated at $80–$90 million, with additional IT investment expected over the following 18–24 months.
- In July, Energizer decided to discontinue certain post-retirement medical and life benefits effective December 31, 2013, and expected a $70–$80 million curtailment gain in fiscal Q4.
- On July 31, the company announced a proposed $185 million acquisition of the Stayfree, Carefree and o.b. brands and a Montreal plant, subject to customary conditions including regulatory approval; closing was expected before year-end 2013. Financing was expected from revolving-credit borrowings and foreign cash.
- Venezuela’s currency devaluation and suspension of the SITME market resulted in a roughly $6 million year-to-date charge. The company reported approximately $51 million of net monetary assets exposed to further currency movements and warned that restrictions and unfavorable local conditions could affect operations.
- Other risks highlighted include foreign-exchange exposure, competitive and category weakness, raw-material costs, execution of restructuring and acquisitions, and debt covenant compliance. Management said pending legal matters were not reasonably likely to be material, considering recorded accruals.
- The company disclosed a correction to pension-curtailment accounting that affected prior interim comprehensive-income, balance-sheet classifications and certain disclosures. It concluded the correction was not material to those interim statements and said it did not affect earnings, EPS or cash flows.
Important facts for investors to verify
- Confirm the issuer: this filing is for Energizer Holdings, Inc., although the request metadata names Edgewell Personal Care.
- Track organic sales, segment margins and the sustainability of Household Products profit growth amid category softness and currency headwinds.
- Compare actual restructuring charges, cash costs and realized savings with management’s estimates, including the fiscal 2015 savings target.
- Assess liquidity and debt after the proposed acquisition, while considering overseas cash access, securitization borrowings and covenant headroom.
- Verify the timing and realized accounting impact of the expected post-retirement curtailment gain, and monitor the disclosed pension-accounting correction.
- Monitor Venezuela currency access and exposure, as well as the acquisition’s approval, financing and integration.