A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have added about 5.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Energizer due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Energizer’s Q4 Earnings Miss Estimates, Sales Up Y/Y
Energizer posted fourth-quarter fiscal 2020 results, wherein the top line increased year on year and beat the Zacks Consensus Estimate, courtesy of strength in the batteries and the auto care segments. However, the bottom line lagged the consensus mark and declined year over year mainly due to higher costs associated with the COVID-19 pandemic.
Management highlighted that costs associated with the pandemic during the quarter were mainly led by the company’s efforts to meet elevated demand. Additionally, changes in sales mix and higher interest expenses were a drag. Nonetheless, the company expects pandemic-induced costs to substantially fall in 2021. Further, it is on track with prudent measures to boost agility, such as augmenting manufacturing network, restructuring supply chain and investing in enterprise analytics.
Q4 in Detail
Adjusted earnings came in at 59 cents per share, which missed the Zacks Consensus Estimate of 80 cents and also declined 36.6% from the year-ago quarter’s figure of 93 cents. The bottom line was adversely impacted by higher costs related to COVID-19, including higher product sourcing costs, tariffs, higher selling general and administrative expenses, legal fees as well as compensation expenses. Customer fines and penalties also contributed to the company’s cost burden during the quarter. Apart from this, sales mix shifts across channels, markets and products put pressure on the bottom line.
The company reported net sales of $763 million, which beat the Zacks Consensus Estimate of $753.3 million. Also, sales rose 6.1% on a year-over-year basis, buoyed by strength in batteries and auto care. However, currency woes hurt sales by 1.8% during the quarter.
Meanwhile, organic sales increased 6.1% in the quarter under review, driven by distribution gains in all product categories, higher replenishment volumes especially in North America battery as well as increased volumes owing to the pandemic.
Segments in Details
Batteries revenues increased 3.2% year over year to $579.5 million, while revenues in the Auto Care segment rose 19.5% to $142.7 million. Revenues in the Lights and Licensing segment rose 6.8% to $40.8 million.
In the Americas, the company recorded revenues of $554.9 million, up 7.8% from the year-ago quarter’s figure. Revenues in the International segment amounted to $208.1 million, up 1.8% from the year-ago quarter’s levels.
Energizer’s adjusted gross margin contracted 370 basis points (bps) to 38.4% owing to higher COVID-19 costs, unfavorable sales mix as well as adverse impact of foreign currency.
SG&A expenses, excluding acquisition and integration costs, as a percentage of sales, amounted to 15.6%, contracting 150 bps from the year-ago quarter’s level of 17.1%. The decline was driven by transition service agreement (TSA) exits and associated synergy realization. Further, advertising and promotion (A&P) expenses totaled $40.2 million, up 46.7% from the year-ago quarter’s levels owing to increased investments in the company’s branded product portfolio.
Adjusted EBITDA came in at $140.4 million, down 10.5% year over year owing to higher A&P expenses and incremental COVID-19 costs including customer fines and penalties as well as air freight.
Other Financial Details
The company ended the quarter with cash and cash equivalents of $459.8 million, long-term debt of $3,306.9 million and shareholders’ equity of $309.1 million.
Adjusted free cash flow from continuing operations was $161.4 million in the fourth quarter and $405.1 million in fiscal 2020. Strong cash flow aided the company to clear debt by more than $100 million, subsequent to year-end.
During the quarter, the company paid out dividends worth $21 million. It also paid out dividends worth $4.1 million for mandatory preferred convertible stock.
For Fiscal 2021, management expects net sales to grow in the band of 2-4%, on the back of expected growth in batteries and auto care. Adjusted gross margin are expected to be flat year on year, including COVID-19 costs of nearly $15 million that is likely to be incurred in the first quarter.
Adjusted earnings are envisioned to be $2.95-$3.25 per share. Adjusted EBITDA is projected in the range of $600-$630 million. Moreover, adjusted free cash flow is estimated within the $325-$350 million range.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
Currently, Energizer has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Energizer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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