Can Energizer Keep Going … and Going?

by Tom Taulli | November 9, 2012 12:49 pm

Wall Street charged shares of Energizer Holdings (NYSE:ENR[1]) by high-single-digits Friday on a strong fourth-quarter report. But with shares still slightly in the red year-to-date — and worse, practically lifeless since late 2010 — do investors have much reason to start believing in the bunny?

Energizer reported earnings that grew more than 150% from the year-ago period, to $117 million; adjusted earnings of $1.76 per share grew 60% and clubbed analyst expectations. And earlier this year, the company instead its first dividend — a 40-cent quarterly payout that translates into a current 2.1% yield.

Despite these promising headline figures, Energizer still faces major challenges.

While Energizer is best known for the bunny (OK, and the batteries it touts), the company is about much more. In the past decade, ENR has struck a variety of deals to bring in a number of shaving and brands like Wilkinson Sword, Schick, Edge, Personna/American Safety Razor and Skintimate, as well as Playtex feminine hygiene and baby products.

The acquisitions have added some much-needed diversification, but slow growth in the U.S. is taking a toll, and all the while, Energizer’s battery business continues to deteriorate.

Besides having to compete against operators like Procter & Gamble’s (NYSE:PG[2]) Duracell and Spectrum Brands, there also is a secular shift in the industry — that is, there is no need for traditional batteries for products like Apple (NASDAQ:AAPL[3]) iPhones and other smartphones, or tablets and other electronics.

Factoring out the impact from Hurricane Sandy, global Q4 volumes for the battery category fell by about 3% over the past year. On the conference call, Energizer’s CEO Ward Klein noted that there will be a similar decline in 2013.

Rolling in all of Energizer’s household products, Q4’s organic sales fell by 3.7%. The company blamed Hurricane Sandy as well as the difficulties in getting shelf space at mega-retailers like Wal-Mart (NYSE:WMT[4]). Full-year sales were off about 1.2%.

Energizer previously had said it would be undergoing a major restructuring to shore up its slumping battery division, but revealed details in Thursday’s report. The company plans to cut about 1,500 employees, or more than 10% of its work force, as well as close battery factories and packaging locations in the U.S., Malaysia and Canada. For the next year or so, Energizer expects to realize pre-tax cost savings of about $200 million.

For the most part, Energizer is focused on the cost side, which should boost margins, but it might mean further deterioration in sales as the company invests less in marketing and product development. In light of this, Energizer’s efforts are likely to be temporary boosts — with little sustainability.

Investors should avoid the stock for now, especially in light of its recent run-up.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[5], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.[6]” Follow him on Twitter at @ttaulli[7]. As of this writing, he did not hold a position in any of the aforementioned securities.

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