Energizer Holdings, Inc. Announces Fiscal 2022 First Quarter Results

ST. LOUIS, Feb. 7, 2022 /PRNewswire/ -- Energizer Holdings, Inc. (NYSE: ENR) today announced results for the first fiscal quarter ended December 31, 2021.  

"We had a strong start to the year driven by resilient demand, increased distribution, pricing actions and improved fill rates," said Mark LaVigne, Chief Executive Officer. "While the operating environment remains volatile, our improved inventory planning and supply chain durability enabled us to deliver in our most important quarter. We continue to see escalating input cost pressures in transportation, labor and materials, and remain focused on offsetting them through additional pricing and ongoing cost controls. As we look ahead, we will leverage our brands, breadth of our portfolio and the strength of our organization to position us for success in the short, medium and long-term."

Top-Line Performance

For the quarter, we had Net sales of $846.3 million compared to $848.6 million in the prior year period.

• Organic Net sales remained relatively flat due to the following offsetting items:
• Pricing executed in both the battery and auto care businesses drove approximately 2% of the organic increase; and
• New distribution across both battery and auto care, predominately in North America, contributed approximately 1% to organic growth.
• In addition to the pricing and distribution gains, we experienced better than expected volume in the quarter, however the net impact was a 3% decrease to organic sales as a result of lapping the elevated demand in the prior year.

Gross Margin

Gross margin percentage on a reported basis was 36.8% versus 39.8% in the prior year.  Excluding the current and prior year costs related to acquisition and integration, adjusted gross margin was 37.5%, down 320 basis points from the prior year, and down 20 basis points from the fourth quarter of fiscal 2021.

The Gross margin decrease was largely driven by a continuation of higher operating costs, including transportation, material and labor, consistent with ongoing inflationary trends. Partially offsetting these margin impacts was the elimination of prior year COVID-19 costs, the positive impact of executed price increases in battery and auto, synergies of approximately $6 million and favorable currency exchange rates.  

Selling, General and Administrative Expense (SG&A)

SG&A, excluding acquisition and integration costs, for the first quarter was 13.2% of Net sales, or $111.6 million, compared to 13.4%, or $113.7 million in the prior year.  While the percentage to Net sales remained roughly flat, the absolute dollar decrease was primarily driven by a reduction in compensation costs year over year, partially offset by increased travel and higher IT spending related to our digital transformation.⁽¹⁾

Advertising and Promotion Expense (A&P)

A&P was 6.1% of net sales for the first fiscal quarter, compared to 5.8% in the prior year or a $2.1 million increase due to timing of planned current year spend.

The changes in Adjusted EBITDA and Adjusted diluted net earnings per common share for the quarter reflect higher input costs which compressed the current period gross margin and slightly higher A&P partially offset by synergy realization and lower SG&A spending. Adjusted earnings per share was also impacted by the reduction of interest expense from the debt refinancing activity in fiscal 2021.

Continued Return of Capital

• Dividend payments in the quarter of approximately $20.5 million, or $0.30 per common share, and $4.0 million, or $1.875 per share of mandatory convertible preferred stock. Subsequent to the quarter, the mandatory convertible preferred stock automatically converted to approximately 4,700,000 shares of common stock.
• The Company completed the previously announced $75.0 million accelerated share repurchase (ASR) program in the first quarter of fiscal 2022. Through the program, the Company was able to repurchase approximately 1,958,000 shares at an average price of $38.30 per share during the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022.

Financial Outlook and Assumptions for Fiscal Year 2022⁽¹⁾

We are maintaining our previously communicated full year outlook ranges for Net sales of roughly flat, Adjusted earnings per share of $3.00 to $3.30 and Adjusted EBITDA of $560 million to $590 million. The current operating environment remains very volatile and we will remain focused on offsetting headwinds through additional pricing and cost reduction opportunities as we continue throughout fiscal 2022.

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 first fiscal quarter earnings and recent trends in the business. 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/1192/43817

For those unable to participate during the live webcast, a replay will be available on www.energizerholdings.com, under "Investors," "Events and Presentations," and "Past Events" tabs.

This document contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future sales, gross margins, costs, earnings, cash flows, tax rates and performance of the Company, as well as the Company's entrance into an accelerated share repurchase program. These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "should," "forecast," "outlook," or other similar words or phrases. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this document are only made as of the date of this document and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:

• Global economic and financial market conditions, including the conditions resulting from the ongoing COVID-19 pandemic, and actions taken by our customers, suppliers, other business partners and governments in markets in which we compete might materially and negatively impact us.
• Competition in our product categories might hinder our ability to execute our business strategy, achieve profitability, or maintain relationships with existing customers.
• Changes in the retail environment and consumer preferences could adversely affect our business, financial condition and results of operations.
• We must successfully manage the demand, supply, and operational challenges brought about by the COVID-19 pandemic and any other disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.
• Loss or impairment of the reputation of our Company or our leading brands or failure of our marketing plans could have an adverse effect on our business.
• Loss of any of our principal customers could significantly decrease our sales and profitability.
• Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.
• We are subject to risks related to our international operations, including currency fluctuations, which could adversely affect our results of operations.
• If we fail to protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations.
• Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
• Our business is vulnerable to the availability of raw materials, our ability to forecast customer demand and our ability to manage production capacity.
• Changes in production costs, including raw material prices, freight and labor, could erode our profit margins and negatively impact operating results, and reactions to our pricing actions.
• The manufacturing facilities, supply channels or other business operations of the Company and our suppliers may be subject to disruption from events beyond our control.
• We may be unable to generate anticipated cost savings (including from our restructuring programs), successfully implement our strategies, or efficiently manage our supply chain and manufacturing processes, and our profitability and cash flow could suffer as a result.
• Sales of certain of our products are seasonal and adverse weather conditions during our peak selling seasons for certain auto care products could have a material adverse effect.
• A failure of a key information technology system could adversely impact our ability to conduct business.
• We rely significantly on information technology and any inadequacy, interruption, theft or loss of data, malicious attack, integration failure, failure to maintain the security, confidentiality or privacy of sensitive data residing on our systems or other security failure of that technology could harm our ability to effectively operate our business and damage the reputation of our brands.
• We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
• We may experience losses or be subject to increased funding and expenses related to our pension plans.
• The estimates and assumptions on which our financial projections are based may prove to be inaccurate, which may cause our actual results to materially differ from our projections, which may adversely affect our future profitability, cash flows and stock price.
• If we pursue strategic acquisitions, divestitures or joint ventures, we might experience operating difficulties, dilution, and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate acquired businesses.
• The 2019 auto care and battery acquisitions may have liabilities that are not known to us and the acquisition agreements may not provide us with sufficient indemnification with respect to such liabilities.
• Our business involves the potential for claims of product liability, labeling claims, commercial claims and other legal claims against us, which could affect our results of operations and financial condition and result in product recalls or withdrawals.
• Our business is subject to increasing regulation in the U.S. and abroad, the uncertainty and cost of future compliance and consequence of non-compliance with which may have a material adverse effect on our business.
• Increased focus by governmental and non-governmental organizations, customers, consumers and shareholders on sustainability issues, including those related to climate change, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.
• We are subject to environmental laws and regulations that may expose us to significant liabilities and have a material adverse effect on our results of operations and financial condition.
• We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term stockholder value, and share repurchases could increase the volatility of the price of our stock and diminish our cash reserves.

In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements. The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly filed documents, including those described under the heading "Risk Factors" in our Form 10-K filed with the Securities and Exchange Commission on November 16, 2021.

ENERGIZER HOLDINGS, INC.
Reconciliation of GAAP and Non-GAAP Measures
For the Quarter Ended December 31, 2021

The Company reports its financial results in accordance with accounting principles generally accepted in the U.S. ("GAAP").  However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period. These non-GAAP financial measures exclude items that are not reflective of the Company's on-going operating performance, such as acquisition and integration costs, an acquisition earn out and the loss on extinguishment of debt.  In addition, these measures help investors to analyze year over year comparability when excluding currency fluctuations as well as other Company initiatives that are not on-going.  We believe these non-GAAP financial measures are an enhancement to assist investors in understanding our business and in performing analysis consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or superior to, the comparable GAAP measures.  In addition, these non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in methods and in the items being adjusted.

We provide the following non-GAAP measures and calculations, as well as the corresponding reconciliation to the closest GAAP measure in the following supplemental schedules:

Segment Profit.  This amount represents the operations of our two reportable segments including allocations for shared support functions. General corporate and other expenses, amortization expense, interest expense, loss on extinguishment of debt, other items, net, the charges related to acquisition and integration costs, including restructuring charges, and an acquisition earn out have all been excluded from segment profit.

Adjusted Net Earnings and Adjusted Diluted Net Earnings Per Common Share (EPS).  These measures exclude the impact of the costs related to acquisition and integration, an acquisition earn out and the loss on extinguishment of debt.

Non-GAAP Tax Rate. This is the tax rate when excluding the pre-tax impact of acquisition and integration costs, an acquisition earn out and the loss on extinguishment of debt, as well as the related tax impact for these items, calculated utilizing the statutory rate for where the impact was incurred.

Organic.  This is the non-GAAP financial measurement of the change in revenue or segment profit that excludes or otherwise adjusts for the change in Argentina operations and impact of currency from the changes in foreign currency exchange rates as defined below:

Change in Argentina Operations. The Company is presenting separately all changes in sales and segment profit from our Argentina affiliate due to the designation of the economy as highly inflationary as of July 1, 2018.

Impact of currency. The Company evaluates the operating performance of our Company on a currency neutral basis.  The impact of currency is the difference between the value of current year foreign operations at the current period ending USD exchange rate, compared to the value of the current year foreign operations at the prior period ending USD exchange rate, as well as the impact of  hedging on the currency fluctuation.

Adjusted Comparisons.  Detail for adjusted gross profit, adjusted gross margin, adjusted SG&A, adjusted SG&A as percent of sales and adjusted Other items, net are also supplemental non-GAAP measure disclosures. These measures exclude the impact of costs related to acquisition and integration and an acquisition earn out.

EBITDA and Adjusted EBITDA. EBITDA is defined as net earnings before income tax provision, interest, loss on extinguishment of debt and depreciation and amortization.  Adjusted EBITDA further excludes the impact of the costs related to acquisition and integration, acquisition earn out and share-based payments.

Energizer Holdings, Inc.
Supplemental Schedules - Segment Information and Supplemental Sales Data
For the Quarter Ended December 31, 2021
(In millions - Unaudited)

As of October 1, 2021, the Company has changed its reportable segments from two geographical segments, previously Americas and International, to two product groupings, Battery & Lights and Auto Care. This change came with the completion of the Spectrum Holdings, Inc. Battery and Auto Care Acquisition integrations in the first fiscal quarter of 2022. The Company changed its reporting structure to better reflect what the chief operating decision maker is reviewing to make organizational decisions and resource allocations. The Company has recast the information for the quarters ended December 31, 2020 to align with this presentation

Energizer's operating model includes a combination of standalone and shared business functions between the product segments, varying by country and region of the world. Shared functions include the sales and marketing functions, as well as human resources, IT and finance shared service costs. Energizer applies a fully allocated cost basis, in which shared business functions are allocated between segments. Such allocations are estimates, and do not represent the costs of such services if performed on a standalone basis. Segment sales and profitability, as well as the reconciliation to earnings before income taxes for the quarters ended December 31, 2021 and 2020, respectively, are presented below:

Supplemental segment information is presented below for depreciation and amortization:

Energizer Holdings, Inc.
Supplemental Schedules - GAAP EPS to Adjusted EPS Reconciliation
For the Quarters Ended December 31, 2021
(In millions, except per share data - Unaudited)

The following tables provide a reconciliation of Net earnings and Diluted net earnings per common share to Adjusted net earnings and Adjusted diluted net earnings per share, which are non-GAAP measures.

SOURCE Energizer Holdings, Inc.