Energizer Holdings, Inc. (ENR)

[Enterprising Investor]

Energizer Holdings, Inc. Announces Fiscal 2016 Third Quarter Results and Updates Financial Outlook for Fiscal 2016 to include Acquisition Impact of HandStands Holding Corporation (8/03/16)

- Reported net sales declined 3.6% while organic net sales were up 1.2% in the third fiscal quarter versus the prior year

- Diluted EPS was $0.39 in the third fiscal quarter compared to a net loss per diluted share of $0.32 in the prior year third quarter, and Adjusted Diluted EPS was $0.32 compared to $0.64 in the prior year third quarter

- Increased Full Year Outlook to include fourth quarter acquisition impact of HandStands Holding Corporation(HandStands) - Adjusted EPS of $2.20 to $2.30

ST. LOUIS, Aug. 3, 2016 /PRNewswire/ -- Energizer Holdings, Inc. (NYSE: ENR) today announced results for the third fiscal quarter, which ended June 30, 2016. For the third fiscal quarter, net earnings were $24.2 million, or $0.39 per diluted share, compared to a net loss of $19.6 million, or a loss of $0.32 per diluted share, in the prior year third quarter. Adjusted net earnings in the third quarter were $20.1 million, or $0.32 per diluted share, compared to adjusted net earnings of $40.1 million, or $0.64 per diluted share, in the prior year third quarter.

"Fiscal 2016 is shaping up to be a strong year as we build on the momentum from the first half of the year," said Alan Hoskins, Chief Executive Officer. "The battery category remains stable, and the underlying fundamentals of our business remain solid as we continue to achieve organic net sales growth in the current quarter. In addition, we closed our acquisition of HandStands on July 1. As a result, we are increasing our full year Fiscal 2016 outlook to $2.20 to $2.30 to reflect approximately $0.04 to $0.05 of accretion from the acquisition. With the strength of our existing business along with the HandStands acquisition, we are building a foundation to drive long-term shareholder value and deliver top-tier free cash flow performance."


Third Quarter Financial Highlights (Unaudited)
The following is a summary of key third fiscal quarter results. All comparisons are with the third quarter of fiscal 2015 unless otherwise stated.

Net sales were $361.0 million, a decrease of 3.6%: (a)

•Organic net sales increased 1.2% due primarily to the net impact of distribution and space gains in North America and distribution gains and pricing actions in Latin America. These items were partially offset by the anticipated reduction in retail inventory levels and continued heightened competitive activity in certain Asia Pacific Developed markets.

•The following items were offsetting amounts to the organic net sales increase:

Unfavorable currency impacts were $12.6 million, or 3.4%; and

International go-to-market changes, including the exit from certain markets and shift to distributors, resulted in a decline of $5.2 million, or 1.4%.

•Gross Margin percentage was 42.6%, down 300 basis points driven in part by an unfavorable movement in currencies. Excluding the impact from currency movements, gross margin percentage declined 150 basis points driven by increased costs in the quarter as a result of costs related to a planned productivity initiative ($5.0 million or 130 basis points) and increased costs in support of innovation launched across our portfolios partially offset by favorable commodity costs and other productivity savings. (a)

•A&P spending was 6.3% of net sales, a decrease of 310 basis points, or $12.3 million, due to higher prior year spending related to the EcoAdvanced product launch and the timing of current year advertising and promotional activities.

•SG&A spending, excluding acquisition and spin costs, was approximately $81 million on an absolute dollar basis, consistent with prior quarter levels. SG&A, excluding acquisition and spin costs, was 22.4% of net sales compared to 18.6% in the prior year. The higher percentage comparison versus the prior year quarter reflects the impact of a low prior year comparative (based on carve out financial data) and incremental investment spending and higher compensation related costs in the current year. (a)

•Spin-off and spin restructuring related charges were $2.8 million in the third fiscal quarter. (a)

•Pre-tax income was negatively impacted by the movement in foreign currencies by approximately $11 million in the third fiscal quarter and $45 million through the first nine months of the fiscal year.

•Income tax rate on a year to date basis was 23.8% due to the favorable impacts of certain return to provision adjustments related to prior year provision estimates and certain spin related adjustments of approximately $9 million. These favorable adjustments are included in the current quarter's results and were the primary driver of the $0.5 million tax benefit. Excluding the impact of all of our Non-GAAP adjustments, the effective tax rate on a year to date basis was 30.6%. (a)

•Adjusted EBITDA was $56.2 million. (a)

•Net cash from operating activities on a year to date basis was $141.9 million and Free Cash Flow on a year to date basis was $125.6 million, or 10.5% of net sales. (a)

•Dividend payments in the quarter were approximately $15.5 million, or $0.25 per share, and $46.4 million on a year to date basis, or $0.75 per share.

•Repurchased 600,000 shares of common stock on a year to date basis for $21.8 million. There were no shares repurchased during the current quarter.

(a) See Press Release attachments for additional information as well as the GAAP to Non-GAAP reconciliations.

Results for the third quarter and nine months ended June 30, 2015 are based on carve out financial data. Net sales, Gross profit, Advertising & promotion (A&P) and Research & development (R&D) spending are directly attributable to our business. However, certain Selling, general, and administrative expense (SG&A), Interest expense, Other financing items and Spin-off and Restructuring related charges were allocated from our former parent company, Edgewell, and not necessarily representative of Energizer's stand-alone results or expected future results as an independent company.

Results for the HandStands business are not included in the current quarter results as the acquisition occurred subsequent to the quarter end on July 1, 2016.

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Total net sales decreased 3.6%, or $13.3 million, driven by the unfavorable movement in foreign currencies of 3.4% and the unfavorable impact of international go-to-market changes of 1.4%, including the exits and shifts to distributors in certain markets.

Organic net sales increased 1.2% in the quarter due primarily to the net impact of distribution and space gains in North America and distribution gains and pricing actions in Latin America. These items were partially offset by the anticipated reduction in retail inventory levels and continued heightened competitive activity in certain Asia Developed markets

Total Segment Profit in the third fiscal quarter declined 9.6%, or $7.9 million. Excluding the unfavorable movement in foreign currencies of $8.7 million and the unfavorable impact from go-to-market changes of $0.9 million, organic segment profit increased 2.1%, or $1.7 million, in the current fiscal quarter. The 2.1% increase was driven by the organic net sales growth, lower A&P spending due to the prior year EcoAdvanced product launch and the timing of current year advertising and promotional activities and favorable commodity and other products costs. These increases were slightly offset by higher costs in the quarter as a result of a planned productivity initiative ($5.0 million or 130 basis points) and increased costs in support of innovation across our portfolios, as well as higher SG&A driven by a low prior year comparative (based on carve out financial data) and incremental investment spending and higher compensation related costs incurred in the current year.

Financial Outlook for Fiscal Year 2016

The company expects Adjusted EPS for the full fiscal year to be in the range of $2.20 to $2.30, which includes a contribution from the recently acquired HandStands. We expect HandStands to contribute Adjusted EPS in the range of $0.04 to $0.05 during the fourth quarter. The Company is also providing the following assumptions related to the full year financial outlook for fiscal year 2016 associated with the existing base Energizer business unless noted otherwise:

Base Energizer business (exclusive of HandStands acquisition impact):

•Net Sales are expected to be down low single digits, consistent with the prior outlook: ?Organic net sales are expected to be up low-single digits, consistent with the prior outlook;

The negative impact of foreign currency movement is expected to reduce net sales by $60 to $70 million, consistent with the prior outlook;

International go-to-market changes are expected to reduce net sales in the low single digits, consistent with the prior outlook; and

Change in Venezuela results, due to the previously announced deconsolidation, will reduce net sales by $8.5 million, or 0.5%, consistent with the prior outlook.

•Gross Margin rates are expected to decline up to 250 basis points, consistent with the prior outlook, driven in part by unfavorable currency impacts, the impact from the Venezuela deconsolidation and costs of planned productivity initiatives and increased costs in support of innovation across our portfolios.

•SG&A as a percent of net sales, excluding integration and acquisition costs, spin related costs and restructuring costs, is expected to be in the low 20's, consistent with the prior outlook.

•Pre-tax income is expected to be negatively impacted due to the movement in foreign currencies by $50 to $60 million, consistent with the prior outlook.

•Income Tax Rate, excluding our Non-GAAP adjustments, is expected to be in the range of 29 to 30 percent, consistent with the prior outlook.

•Adjusted EBITDA is expected to be in the range of $280 million to $300 million, consistent with the prior outlook.

•Free Cash Flow is expected to exceed $150 million, consistent with the prior outlook.

•Spin and restructuring costs are now expected to be in the range of $17 to $20 million in fiscal year 2016.

HandStands acquisition outlook:

•Accretive to Adjusted EPS in the range of $0.04 to $0.05 for the fourth fiscal quarter of 2016.

•Total acquisition and integration related costs associated with the HandStands acquisition are expected to be in the range of $30 million to $35 million. We expect to incur these costs over the next 12 to 15 months. We expect to incur approximately $17 million to $19 million in the fourth fiscal quarter of 2016. ?Total acquisition related costs are estimated to be in the range of $8 million to $10 million;

Total integration related costs are estimated to be in the range of $14 million to $16 million; and

Non-cash inventory step-up accounting adjustment is estimated to be in the range of $8 million to $9 million.

All comparisons above are with the fiscal year ended September 30, 2015 (which are on a carve out basis through the first three quarters), unless otherwise stated. We will provide our outlook for fiscal year 2017 in conjunction with our fourth quarter earnings release.

Webcast Information

In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. eastern time today. The call will focus on third fiscal quarter earnings and the updated financial outlook for fiscal 2016. All interested parties may access a live webcast of this conference call at www.energizerholdings.com, under "Investors" and "Events and Presentations" tabs or by using the following link:

https://www.webcaster4.com/Webcast/Page/1192/16293

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