Why Is Energizer (ENR) Down 8% Since Last Earnings Report?

A month has gone by since the last earnings report for Energizer Holdings (ENR). Shares have lost about 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 its most recent earnings report in order to get a better handle on the important drivers.

Energizer Q3 Earnings & Sales Miss on Inflation Woes

Energizer reported third-quarter fiscal 2022 results, wherein the top and bottom lines missed the Zacks Consensus Estimate. However, both metrics improved year over year.

Results gained from pricing actions, brand strength, investments in innovation, productivity, and digital transformation efforts. On the flip side, higher interest rates and rising prices affected consumer sentiment and influenced shopping habits.

Q3 Metrics

Energizer’s adjusted earnings of 77 cents per share missed the Zacks Consensus Estimate of 78 cents. However, the metric increased nearly 4% from the year-ago quarter, driven by lower taxes, somewhat offset by rising interest expenses.

ENR reported net sales of $728 million, lagging the Zacks Consensus Estimate of $744 million. However, the top line grew 0.9% year over year. Organic sales moved up 3.8% in the quarter under review.

Segments in Detail

On Oct 1, 2021, Energizer changed its segments from two geographies — Americas and International — to two reporting units, namely Battery & Lights and Auto Care. The move followed the acquisition of Spectrum Brands’ battery and auto care units in the first quarter of fiscal 2022.

Energizer’s Batteries & Lights segment’s revenues grew 3.7% year over year to $531.6 million in third-quarter fiscal 2022 but missed the consensus mark of $541.2 million. Meanwhile, revenues in the Auto Care segment decreased 6.1% to $196.4 million and lagged the consensus mark of $218.6 million.

Margins

In the fiscal third quarter, Energizer’s adjusted gross margin expanded 120 basis points (bps) to 40.4%. This was mainly driven by the favorable impacts of price increases in battery and auto care businesses, which somewhat offset higher operating costs, including transportation, material and labor, as well as ongoing inflation and unfavorable currency impacts.

Excluding costs related to the acquisition and integration, and exiting the Russia market, SG&A as a rate of sales was 16.3% compared with 14.8% recorded in the prior-year quarter. On a dollar basis, SG&A rose $12.3 million due to increased IT spending related to digital transformation as well as rising environmental costs related to a legacy facility and recycling fees.

Adjusted EBITDA was $145.5 million, up 0.8% year over year, owing to price increases in both segments and reduced A&P spending, which was partly offset by higher input costs and elevated SG&A.

Other Financial Details

As of Jun 30, 2022, Energizer’s cash and cash equivalents were $199.5 million, with long-term debt of $3,544.6 million and shareholders' equity of $499.7 million.

For the nine months ending Jun 30, 2022, the company used $106.2 million cash from continuing operations. It paid out dividends of $21.3 million or 30 cents per share.

Outlook

For fiscal 2022, management expects sales growth in the low-single digits and a gross margin of 37-38%, in sync with its initial outlook. It expects adjusted EBITDA in the lower end of the earlier mentioned $560-$590 million and adjusted earnings in the lower end of $3-$3.30.

For fiscal 2022, the unfavorable currency is expected to affect sales by $60-$65 million. Also, it is likely to incur $20 million due to the adverse impacts of the appreciating US dollar and its exit from the Russia market. The company expects inflationary pressure to persist in the fiscal fourth quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -16.88% due to these changes.

VGM Scores

At this time, Energizer has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Energizer has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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