A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Energizer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Energizer reported impressive first-quarter fiscal 2025 results, wherein both net sales and earnings surpassed the Zacks Consensus Estimate. Also, both top and bottom lines increased year over year.
The company’s fiscal first quarter was impacted by the successful execution of its strategies. Also, strategic investments in innovation, distribution and digital commerce remain a priority to sustain long-term growth. This strong performance reinforces confidence in achieving financial targets for the year and delivering consistent shareholder value. The company raised its organic net sales outlook for fiscal 2025.
Energizer’s adjusted earnings of 67 cents per share beat the Zacks Consensus Estimate of 64 cents. Also, the bottom line increased 13.6% from the year-ago quarter’s reported figure.
The company reported net sales of $731.7 million, which surpassed the Zacks Consensus Estimate of $728 million and increased 2.1% from the year-ago quarter’s reported number. Organic net sales increased 3.8% year over year.
New and expanded distribution led to a volume increase of approximately 3.8% in the Battery & Lights segment. Hurricanes contributed approximately $10 million in incremental volume during the quarter, accounting for roughly 1.4% in organic growth. Additionally, volume growth in the Auto Care segment, driven by distribution gains, international market expansion and the growth of the digital economy, resulted in a 0.5% increase in organic growth. However, this was partially offset by an earlier shift in holiday orders.
The increased volumes were partially offset by planned strategic pricing and promotional investments, which had a negative impact of 1.9%.
Net sales of Energizer's Batteries & Lights segment increased 2.4% year over year to $632.4 million. We note that segmental profit decreased 9.9% to $119.3 million.
Meanwhile, net sales in the Auto Care segment increased 0.5% to $99.3 million from the year-ago period. Segmental profit increased sharply 197.1% to $20.5 million.
In the fiscal first quarter, Energizer’s adjusted gross margin expanded 50 basis points to 40%. This improvement in adjusted gross margin was primarily driven by Project Momentum, which generated approximately $16 million in savings during the quarter, along with a slight year-over-year increase in product cost inputs. However, this benefit was partially offset by the planned strategic pricing and promotional investments mentioned earlier, as well as unfavorable currency impacts.
Adjusted SG&A expenses increased 11.9% year over year to $119.2 million. This rise was due to higher depreciation expenses related to digital transformation initiatives and increased legal fees. This increase was partially offset by approximately $3 million in savings from Project Momentum, along with lower factoring and environmental expenses.
Adjusted SG&A costs, as a rate of net sales, was 16.3% compared with 16.4% recorded in the prior-year quarter. Advertising and promotion expenses represented 7.3% of sales, an increase of 70 basis points year over year. This increase was primarily caused by higher investments in brand and business support to strengthen performance during the key holiday season.
Adjusted EBITDA was $140.7 million, up 5.9% year over year, whereas the adjusted EBITDA margin increased 70 basis points to 19.2%.
As of Dec. 31, 2024, Energizer’s cash and cash equivalents were $195.9 million, with long-term debt of $3.12 billion and shareholders' equity of $140.6 million. As of the fiscal first quarter, ENR paid down an additional $25 million of debt. At the end of the quarter, the company’s net debt to adjusted EBITDA was 4.7x times.
The operating cash flow as of the fiscal first quarter was $77 million and free cash flow was $42.4 million.
In the fiscal second quarter, the company expects organic growth between 2% and 3%, primarily driven by distribution gains, new product launches and international expansion within the Auto Care segment. Reported net sales are predicted in the range of flat to a 1% increase, as the strong U.S. dollar continues to pose a challenge.
Adjusted gross margin is forecasted to remain steady year over year at 40.5%, with savings from Project Momentum offset by pricing and promotional strategies, along with foreign currency headwinds. Adjusted earnings per share are expected to be between 60 cents and 70 cents compared with 72 cents in the prior year. This decline was primarily due to increased investments in digital transformation and growth initiatives.
For fiscal 2025, reported net sales are expected to increase 1% to 2%, while the outlook for organic net sales has been raised in the range of 2-3% from the prior growth estimation of 1% to 2%. Energizer aims to improve its adjusted gross margin by approximately 50 basis points, bringing the number above 41% for the fiscal year.
This margin expansion will be driven by cost savings from the ongoing Project Momentum, which is expected to deliver $60 million in total savings for fiscal 2025 and around $200 million for the entire program.
This revenue increase, along with the final implementation phase of Project Momentum initiatives, is expected to drive growth in adjusted EBITDA, anticipated to be between $625 million and $645 million. Adjusted EPS for the year is expected to be between $3.45 and $3.65. Debt reduction remains a priority for Energizer with plans to pay down $150 million to $200 million in fiscal 2025, with a net leverage ratio of around 4.5x times.
Management anticipates capital expenditures to be between $80 million and $90 million, caused by investments in IT, operations and plastic-free packaging initiatives. As a result of these incremental investments, free cash flow is expected to be between 8% and 10% of sales.
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -17.34% due to these changes.
At this time, Energizer has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Energizer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Energizer is part of the Zacks Consumer Products - Staples industry. Over the past month, Procter & Gamble (PG), a stock from the same industry, has gained 3.3%. The company reported its results for the quarter ended December 2024 more than a month ago.
P&G reported revenues of $21.88 billion in the last reported quarter, representing a year-over-year change of +2.1%. EPS of $1.88 for the same period compares with $1.84 a year ago.
P&G is expected to post earnings of $1.57 per share for the current quarter, representing a year-over-year change of +3.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.6%.
P&G has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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