Energizer Holdings, Inc., (NYSE: ENR), today announced results of its second quarter ended March 31, 2010. Net earnings for the quarter were $88.5 million, or $1.25 per diluted share, versus net earnings of $77.0 million, or $1.30 per diluted share in the second fiscal quarter of 2009. Second quarter earnings per share were negatively impacted by $0.24 per diluted share as compared to the prior year quarter resulting from higher average shares outstanding due to the May 2009 equity issuance. In addition the current quarter includes the following:
- a gain of $2.8 million after-tax, or $0.03 per diluted share, due primarily to an adjustment of the devaluation charge for our Venezuela affiliate; and
- charges related to other business realignment and integration activities of $1.1 million after-tax, or $0.01 per diluted share.
Last year's second quarter included:
- a favorable adjustment of $14.5 million, after-tax, or $0.25 per diluted share, resulting from a change in the policy by which the Energizer colleagues earn and vest in the company's paid time off (PTO) benefit; and
- charges related to integration and other business realignment costs of $4.2 million, after-tax, or $0.07 per diluted share.
"We are pleased with our broad based positive sales and earnings performance this quarter despite the challenging conditions in the battery category," said Ward Klein, Chief Executive Officer. "The integration of the Edge and Skintimate acquisition has gone well, and the company is well positioned to heavily invest in the successful launch of its revolutionary Schick Hydro product innovation as planned."
For the following discussion regarding operating results, including the discussion of segment results for both the quarter and six month periods, all references to the impact of currencies are exclusive of Venezuela. The impact of the Venezuela devaluation and related activities is disclosed separately, when it is believed to be a relevant factor to understanding the operating results.
Net sales for the quarter ended March 31, 2010 increased $54.7 million, or 6%, due primarily to the favorable impact of currencies of approximately $41 million and the inclusion of Edge and Skintimate shave preparations, which added $32 million to net sales for the quarter. These increases were partially offset by lower net sales for Venezuela of approximately $13 million due to the negative impact of the devaluation partially offset by favorable pricing actions in the local market. For the quarter ended March 31, 2010, gross margin as a percent of net sales was 47.8%, which was favorably impacted by 170 basis points due to currencies. This compares to 47.0% for the same quarter in the prior year. The prior year PTO adjustment added approximately 130 basis points to the gross margin in the same quarter of fiscal 2009. Advertising and Promotion (A&P) as a percent of net sales was 8.2% for the quarter as compared to 9.1% in the prior year quarter. See the "Outlook" section for further discussion regarding forecasted A&P spending in the second half of fiscal 2010.
For the six months ended March 31, 2010, net earnings were $214.2 million, or $3.04 per diluted share, compared to net earnings of $188.0 million, or $3.18 per diluted share, in the same period last year. Diluted earnings per share for the current six months were negatively impacted by $0.58 per diluted share as compared to the prior year six month period resulting from higher average shares outstanding due to the May 2009 equity issuance.
In addition, the current six month period included the following:
- a net charge of $22.7 million, after-tax, or $0.32 per diluted share, due primarily to the devaluation in Venezuela; and
- charges related to other business realignment and integration activities of $5.6 million after-tax, or $0.08 per diluted share.
The six months ended March 31, 2009 included:
- a favorable PTO adjustment of $14.5 million, after-tax, or $0.25 per diluted share; and
- charges related to integration and business realignment activities of $7.2 million after-tax, or $0.11 per diluted share.
For the six months ended March 31, 2010, net sales increased $188.9 million, or 10%, due, in part, to currencies, which positively impacted the year-over-year comparison by approximately $86 million, and the inclusion of Edge and Skintimate shave preparations, which added $66 million to net sales. For the six months ended March 31, 2010, gross margin as a percent of net sales was 47.7%, which was favorably impacted by 100 basis points due to currencies. This is compared to 48.2% for the same period in the prior year. The prior year PTO adjustment added 60 basis points to the gross margin in the same period last year. A&P as a percent of net sales was 7.8% for the six months in 2010 as compared to 9.2% in the prior year period.
Household Products
For the quarter, net sales were $441.8 million, up $24.7 million, or 6% versus the same quarter last year, including the favorable impact of currencies of approximately $22 million. The impact of favorable currencies was partially offset by lower net sales of approximately $7 million in Venezuela due to the recent devaluation, net of local pricing actions. Excluding the impact of currencies and Venezuela, net sales increased approximately $10 million, or 2%, due primarily to higher sales in certain international markets. While the premium alkaline category has shown unit growth versus the prior year quarter, the dollar value of this category remains flat to slightly negative in this comparison due to the negative pricing impact of pack upsizing in the U.S. Overall pricing and product mix was unfavorable by approximately $2 million due primarily to lower pricing in the U.S., partially offset by price increases in other areas of the world.
Segment profit increased $17.0 million, including approximately $14 million of favorable currencies and the positive impact of raw material pricing versus the year ago quarter due, in part, to our commodity hedging activities. These increases were partially offset by a negative impact of approximately $4 million due to the Venezuela devaluation.
For the six months ended March 31, 2010, net sales increased $80.7 million or 8%, including approximately $48 million of favorable currencies. Excluding the favorable impact of currencies, net sales were up 3% due to higher net sales in certain international markets and a more normalized shipping timing for the holidays, coupled with a soft prior year comparative in the first quarter of fiscal 2010.
Segment profit for the six months increased $40.6 million or 19%. Excluding the impact of favorable currencies of approximately $21 million, segment profit increased approximately $20 million due to favorable raw material pricing, the margin impact of the higher sales noted above, and the timing of A&P spending versus a year ago.
While we continually engage in ongoing reviews of all of our categories, in an effort to provide greater clarity regarding the ongoing dynamics in the battery category, we have recently completed a more in-depth analysis. While short term measurements of category performance may fluctuate, this analysis indicated that an increasing number of devices are using built-in rechargeable battery systems, particularly in developed markets. We believe this continues to create a negative impact on the demand for primary batteries. This trend, coupled with aggressive competitive activity in the U.S. and other markets, could put additional pressure on segment results going forward.
Personal Care
Net sales for the quarter were $493.3 million, up $30.0 million, or 6% versus the same quarter last year. This increase includes approximately $19 million of favorable currencies and $32 million of Edge and Skintimate shave preparation net sales. These increases were partially offset by lower net sales from Venezuela of $6 million due primarily to currency devaluation partially offset by local market pricing actions. Excluding these discrete impacts, net sales declined 3%. Wet Shave net sales declined 8% on lower volumes across all segments due to the launch of Quattro for Women Trimmer last year, and lower promotional activity behind men's systems and disposables. Skin Care sales increased 2% due to higher shipments of Hawaiian Tropic. This was offset partially by lower shipments of Wet Ones due to high levels of retail inventory as consumption related to H1N1 declined. Infant Care sales increased 4% due to continued growth in Diaper Genie and cups, partially offset by lower sales of bottles. Finally, Feminine Care sales increased 2% due to higher shipments of Sport tampons partially offset by lower sales of Gentle Glide.
Segment profit for the quarter was $115.5 million, up $14.6 million or 14% versus the same quarter in the prior year. Favorable currencies and the inclusion of Edge and Skintimate brands positively impacted profit by approximately $10 million each.
For the six months ended March 31, 2010, net sales increased $108.2 million or 13%. This increase includes approximately $38 million of favorable currencies and $66 million from Edge and Skintimate shave preparations. Excluding both of these impacts, net sales were essentially flat. Wet Shave sales decreased 1% on lower sales of disposables and men's systems. Skin Care sales increased 5% on higher sales of Hawaiian Tropic. Infant Care sales increased 4% on continued growth in Diaper Genie and cups, partially offset by lower sales of bottles. Feminine Care sales decreased 5% as lower sales of Gentle Glide were partially offset by continued strong growth of Sport.
Segment profit for the six months increased $43.4 million or 23%. Excluding the impact of favorable currencies of approximately $19 million, segment profit increased approximately $23 million due to the inclusion of Edge and Skintimate shave preparations, as profits for these products for fiscal 2010 are concentrated in the first half due to the timing of A&P activities.
Other Items
Corporate and other expenses increased $3.9 million for the quarter and $12.7 million for the current six months due primarily to higher expense in fiscal 2010 as the prior year three and six month periods included a reduction in expense due to a decline in the underlying values of certain deferred compensation liabilities as a result of the economic downturn. In addition, the current six month period includes higher stock award amortization.
Interest expense decreased $3.4 million for the quarter and $10.4 million for the six month period due primarily to lower average outstanding debt. Other net financing items were favorable $7.2 million for the quarter due to lower foreign exchange losses in the current quarter. For the six month period, other net financing items were unfavorable by $7.5 million due to the Venezuela devaluation charge noted previously, partially offset by lower foreign exchange losses in other areas.
For the six months, the effective tax rate was 34.5%, up compared to the prior six months due primarily to the non-deductible nature of a large portion of the Venezuela devaluation charge. Excluding the impact of the Venezuela devaluation charge, the effective tax rate for the six months of fiscal 2010 was 32.5% versus 31.8% in the prior year six month period.
For the quarter, capital expenditures were $25.3 million, and depreciation expense was $31.4 million. For the current six months, capital expenditures were $48.5 million and depreciation expense was $61.4 million.
Energizer's Debt to Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) Ratio for the last four quarters, as defined by the company's credit agreements, was 2.99 to 1.00. The ratio includes the negative impact of the Venezuela devaluation charge as a reduction to EBITDA. At March 31, 2010, the company's debt level was $2.4 billion, with $2.2 billion, or 92%, at fixed rates averaging 5.19%. In addition, the company's reported cash at March 31, 2010 was $396.2 million.
Outlook
Previously, we expressed our intention to increase our investment in advertising and promotion and certain innovation and growth initiatives in fiscal 2010. This remains our objective. While advertising and promotion was lower on a dollar and a percentage of net sales basis in the first half of fiscal 2010, we continue to track to an estimated advertising and promotion spend in the range of 11% to 12% of net sales for the full year of fiscal 2010, due in part, to support the April 6 launch of Schick Hydro in North America, the new men's shaving system, and increased spending behind Edge and Skintimate shave preparations.
Excluding Venezuela, and based on current foreign exchange rates, we estimate currencies will favorably impact operating profit by approximately $15 to $20 million, net of the impact of hedging activities, through the balance of the fiscal year versus the same period in the prior year.
Finally, commodity and raw material prices have increased in recent months. However, our hedging activities and supply contract terms should delay the negative impact on product cost through the remainder of fiscal 2010. We expect raw material and commodity costs to be $8 to $10 million favorable over the balance of the year as compared to the same period last year.
While Energizer Holdings, Inc. reports financial results in accordance with accounting principles generally accepted in the U.S. ("GAAP"), this press release includes non-GAAP measures. These non-GAAP measures, such as comparison changes excluding the impact of currencies, the acquisition of Edge and Skintimate shave preparation brands, and the Venezuelan devaluation charge, are not in accordance with, nor are they a substitute for, GAAP measures. The Company believes these non-GAAP measures provide a more meaningful comparison to the corresponding reported period and assist investors in performing analysis consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or superior to, the comparable GAAP measures.
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