Energizer Holdings Inc. (ENR) reported third quarter 2011 non-GAAP earnings of $1.37 per share, comprehensively beating the Zacks Consensus Estimate of $1.26 per share. Results were driven primarily by strong razor sales that partially offset the impact of higher costs for materials and weak demand for batteries.
Earnings per share (EPS) on a non-GAAP basis increased 1.5% year over year from $1.35 reported in the prior-year quarter.
Operating Performance
Gross profit increased 10.7% from the previous year quarter to $573.0 million. Gross margin declined 170 bps on a year on year basis to 46.4%. Higher commodity costs in batteries primarily dragged the decline in the gross margin. Additionally, the inclusion of American Safety Razor (ASR) products for the quarter reduced the comparative gross margin by approximately 140 bps.
Spending on advertising and promotion (A&P) was up 7.6% year over year to $156.2 million. Selling, general and administrative expenses (SG&A) were $215.2 million, up 16.3% from the year-ago quarter.
This increase was primarily led by the inclusion of approximately $14 million of expenses related to ASR, which were not incurred in the prior year, and the negative impact of currency fluctuations of roughly $9 million. Research and development expenses (R&D) rose 17.8% from the prior-year quarter to $27.8 million.
Effective tax rate for the quarter was 34.7%.
Net income (non-GAAP) increased 1.04% from the previous year quarter to $ 96.5 million.
Revenue
Revenues increased 14.6% year over year to $1.23 billion in the second quarter, ahead of the Zacks Consensus Estimate of $1.18 billion. The total revenue was positively impacted by the inclusion of ASR and also due to favorable currencies.
Household Products:Household Product revenue increased 4.4% year over year to $502.9 million, primarily due to favorable impact from currency fluctuations. Moreover, gains were realized from increased pricing of C, D and 9V sizes batteries in the US and other certain international market.
Personal Care:Personal Care revenue increased 23.1% year over year to $725.3 million. The increase was primarily attributable to the ASR inclusion and favorable currency fluctuations. Excluding the impact of ASR and Venezuela, net sales increased 5% in the quarter.
Wet shave sales (including ASR) climbed 31.0% in the quarter, driven by higher volumes from Schick Hydro men's systems, shave preparations and higher shipment of disposables.
Skin Care sales leaped 20% year over year aided by the timing of sun care shipments and lower sun care returns along with a favorable currency impact.
Guidance
For the fiscal 2011, the company lowered its EPS estimate to the range of $3.90-$4.10 from the previous guidance of $4.00-$4.20, primarily due to the payments toward debt financing.
Excluding unusual items, EPS (non-GAAP) for fiscal 2011 is expected to be between $5.10 and $5.30, in line with the Zacks Consensus Estimate of $5.29 per share.
Management continues to estimate that total restructuring costs will be in the range of $75-$85 million, for the remaining part of fiscal 2011. By the end of fiscal 2012, the company expects to generate annual savings of approximately $25-$35 million.
Energizer faces intense competition from Panasonic Corp. (PC) and Procter & Gamble Co. (PG). Energizer currently holds a Zacks #4 Rank, implying a short-term Sell rating on the stock. Besides, we are also Neutral on the stock over the long term.
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