Energizer Holdings Inc. (ENR) reported fourth quarter 2011 non-GAAP earnings of $1.21 per share, up 35.8% from the previous-year quarter. However, the reported earnings per share (EPS) failed to beat the Zacks Consensus Estimate of $1.25.
Operating Performance
Gross profit increased 10.5% from the prior-year quarter to $546.0 million. Gross margin declined 100 basis points (bps) on a year-over-year basis to 45.6%. Gross margin took a hit of approximately 180 bps dragged by the inclusion of American Safety Razor (ASR) products for the quarter, which was partially offset by favorable foreign exchange.
Spending on advertising and promotion (A&P) was down 7.8% year over year to $138.8 million. Selling, general and administrative expenses (SG&A) were $217.7 million, up 4.1% from the year-ago quarter.
The year-on-year increase was primarily led by the inclusion of approximately expenses of $13 million related to ASR, which were not incurred in the prior year. Research and development expenses (R&D) was up 7.7% from the prior-year quarter to $30.8 million.
Net income (non-GAAP) increased 32.2% from the year-ago quarter to $75.6 million. Net margin for the quarter was 6.3% versus 5.4% in the previous-year quarter.
Revenues
Revenues increased 13.1% year over year to $1.20 billion in the fourth quarter, sliver ahead of the Zacks Consensus Estimate of $1.19 billion. The total revenue was positively impacted by the inclusion of ASR and favorable currencies.
Household Products: Household Product, which comprised 49.5% of total revenue, increased 4.8% year over year to $593.4 million, primarily due to favorable impact from currency fluctuations. On an organic basis, net sales remained flat on year-over-year basis.
Personal Care: Personal Care, which comprised 50.5% of total revenue, increased 22.7% year over year to $605.4 million. The increase was primarily attributable to the ASR inclusion and favorable currency fluctuations. Organic sales growth for the quarter was 1.2%. Wet shave sales (including ASR) climbed 21.0% in the quarter. Organic sales for the segment grew 1% due to higher shipments of disposables, which was offset by anticipated lower sales of legacy men's products.
Guidance
For the fiscal 2012, management expects its EPS estimate to be in the range of $6.00-$6.30. During fiscal 2012, the company expects costs to increase due to increase in commodity prices and inflation. In anticipation of this cost escalation, the company has resorted to the recent price hikes on alkaline and carbon zinc batteries in the U.S.
Management expects growth in the Personal Care segment to be primarily driven by mid-single digit organic sales growth in fiscal 2012. Moreover, management expects profits in Household Products segment to be stable in fiscal 2012, driven by favorable impacts of new pricing and incremental restructuring savings that would likely offset the continued challenges in the battery category, higher costs for commodities and other inflationary pressures.
We have a Neutral rating on Energizer over the long term (6-12 months). However, we believe higher commodity costs coupled with intense competition from companies such as Panasonic Corp. (PC) and Procter & Gamble Co. (PG) will hurt profitability in the near term. Energizer currently holds a Zacks #4 Rank, implying a short-term Sell rating on the stock.
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