Energizer Holdings, Inc. — Fiscal 2022 First Quarter 10-Q
Reporting period: Three months ended December 31, 2021; unaudited. Amounts are in millions of U.S. dollars unless otherwise indicated. Energizer manufactures and markets batteries, portable lights and auto care products.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $846.3 | $848.6 |
| Gross profit / reported gross margin | $311.6 / 36.8% | $337.9 / 39.8% |
| Net earnings | $60.0 | $67.1 |
| Net earnings attributable to common shareholders | $56.0 | $63.1 |
| Diluted EPS | $0.83 | $0.91 |
| Operating cash flow | $(54.6) | $76.3 |
- Sales were down 0.3%. Batteries & Lights sales declined 0.5% to $740.2; Auto Care sales rose 1.3% to $106.1.
- Reported gross margin fell 3.0 percentage points. Adjusted gross margin, a non-GAAP measure, was 37.5%, down 3.2 points from 40.7%.
- Segment profit declined 15.4% to $168.2. Batteries & Lights segment profit fell 6.7% to $168.4; Auto Care reported a segment loss of $0.2 versus profit of $18.3.
- Adjusted diluted EPS was $1.03 versus $1.17, a 12% decline. This non-GAAP measure excludes acquisition and integration costs, the acquisition earn-out and, in the prior period, debt-extinguishment loss.
- Interest expense decreased to $37.0 from $47.3, primarily reflecting prior-year refinancing. The prior-year quarter included a $5.7 debt-extinguishment loss.
- Cash used in investing was $24.0, including $24.4 of capital expenditures. Financing provided $61.4, including a $94.2 net increase in short-term borrowings and $24.5 of common and preferred dividends paid.
Liquidity and debt
- At December 31, cash and cash equivalents were $221.2, down from $238.9 at September 30, 2021. Current assets were $1,550.3 and current liabilities were $1,015.5.
- Long-term debt was $3,318.3, with $12.0 of current maturities; notes payable were $183.4. The company had $182.5 drawn on its $500.0 revolving facility and $309.5 of remaining availability after letters of credit.
- The company reported compliance with debt covenants and expected to remain compliant for the next 12 months. It stated that operating cash and access to capital markets should provide adequate resources, while noting that future financing access depends on market and company conditions.
Changes, outlook and key risks
- Management attributed margin and profit pressure mainly to higher raw material, transportation and labor costs, tariffs, and supply-chain constraints. Price increases, synergies, and the absence of certain prior-year COVID-related costs partly offset the pressures.
- Working-capital movements drove the $54.6 operating cash outflow, including increased safety-stock inventory and payment timing. Management expected positive operating cash flow for full-year FY2022, while inventory was expected to remain elevated and other working-capital balances to normalize.
- Management projected FY2022 capital expenditures of approximately $55–$65, plus $10–$20 of remaining acquisition-integration capital spending. It said both restructuring programs were substantially complete, expected no further material charges, and remained on track for $55–$60 of total cost savings by fiscal year-end.
- Management expected Auto Care segment operating profit to recover over the rest of the fiscal year as pricing benefits and seasonal volumes build. The filing provides no clear full-year revenue or EPS guidance.
- COVID-related supply disruption, elevated commodity and freight costs, labor availability, currency movements, customer and consumer demand, competition and the company’s significant debt were identified as risks. Legal proceedings were described as ordinary-course matters not reasonably likely to be material based on current information. Environmental costs accrued were $9.5.
- Both restructuring programs were described as substantially complete. Q1 restructuring expense was $5.3; acquisition and integration costs were $16.5, and a $1.1 acquisition earn-out charge was recorded.
- After quarter-end, the mandatory convertible preferred stock converted into approximately 4.7 million common shares. The company also declared a $0.30-per-share common dividend payable in March 2022.
Important facts for investors to verify
- Whether pricing and cost actions can restore gross margin amid ongoing input, freight and labor inflation.
- Whether the expected improvement in Auto Care profitability materializes during the seasonal peak and whether segment profit recovers from the Q1 loss.
- Whether inventory and other working-capital balances normalize sufficiently to support management’s full-year positive operating-cash-flow expectation.
- Debt levels, revolving-facility usage, covenant compliance and interest-rate exposure; variable-rate debt was $1,373.5, with $700.0 covered by an interest-rate swap.
- The effect of the post-quarter preferred-stock conversion on diluted share count and per-share results.
- Progress toward the stated $55–$60 cost-savings target and the projected capital-spending ranges.