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Energizer Holdings, Inc. Announces
Third Quarter Results

Battery manufacturer's stock price drops over 10% on weaker forecast

Energizer Holdings, Inc. Press Release (excerpted)

FlashlightNews.org - 7/31/2008


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Energizer 15 Minute Battery Charger

Energizer 15 Minute Battery Charger

ST. LOUIS, Mo. - Energizer Holdings, Inc., (NYSE: ENR), today announced results of its third quarter ended June 30, 2008. Net earnings for the quarter were $66.7 million, or $1.13 per diluted share, versus net earnings of $62.5 million, or $1.06 per diluted share in the third fiscal quarter of 2007.

The current quarter includes an after-tax expense of $1.9 million, or $0.03 per diluted share, related to Playtex integration costs and a $4.0 million expense for income taxes, or $0.07 per diluted share, to adjust prior year tax accruals. Last year's third quarter included a favorable adjustment of $7.8 million, or $0.13 per diluted share, related to previously unrecognized tax benefits associated with prior years' foreign losses and a reduction of prior year tax accruals, partially offset by a charge of $2.3 million, after-tax or $0.04 per diluted share, for restructuring projects in Europe.

"General economic conditions continue to impact our battery business, and it remains to be seen if category softness will impact the upcoming holiday season," said Ward Klein, Chief Executive Officer. "Within Personal Care, Wet Shave showed good growth behind the Quattro family of products, which was due in part to new product introductions earlier this year. In addition, we are pleased with Playtex's solid business performance given our significant integration efforts, which remain on schedule. Finally, we were able to make good progress on reducing our leverage ratio and expect to be under 3.5 by the end of calendar 2008, if not sooner."

As previously noted, Energizer's business and financial results are now reported in two segments: Household Products and Personal Care. For the current quarter, total net sales increased $266.7 million, or 33%, to $1,066.7 million, due primarily to the acquisition of Playtex on October 1, 2007, which added $246.0 million to net sales for the quarter. Net sales in the legacy Personal Care business increased $31.4 million while net sales in the Household Products business declined $10.7 million. Segment profit increased $49.7 million, or 40%, to $172.7 million. On a constant currency basis, sales increased $225.2 million and segment profit increased $30.8 million. General corporate and other expenses decreased $3.7 million and interest and other financing costs increased $26.4 million.

For the nine months ended June 30, 2008, net earnings were $230.2 million, or $3.90 per diluted share, compared to net earnings of $251.4 million, or $4.30 per diluted share, in the same period last year. Included in the current nine month results are an after-tax expense of $16.5 million, or $0.28 per diluted share, related to the write-up and subsequent sale of inventory purchased in the Playtex acquisition, integration and other realignment costs of $10.0 million, after-tax, or $0.17 per diluted share, and the aforementioned unfavorable income tax accrual adjustment of $4.0 million, or $0.07 per diluted share. Included in the prior year nine months were charges of $7.6 million, after tax, or $0.13 per diluted share for restructuring projects in Europe and the aforementioned favorable tax accrual adjustments totaling $7.8 million, or $0.13 per diluted share.

Total net sales for the nine months were $3,207.6 million, an increase of $717.5 million, or 29%, due primarily to the acquisition of Playtex, which added $618.3 million to net sales for the nine months. Net sales in the legacy Personal Care business increased $66.1 million while net sales in the Household Products business increased $33.1 million. Segment profit increased $100.5 million, or 20%, to $592.0 million. On a constant currency basis, sales increased $591.7 million and segment profit increased $39.7 million. General corporate and other expenses decreased $8.0 million and interest and other financing items increased $86.9 million.

For the nine months, the inclusion of Playtex's results and incremental interest expense associated with the financing of the acquisition reduced diluted earnings per share by $0.02, which includes a charge of $0.28 related to the inventory write-up and $0.14 related to the integration costs.

Household Products

Sales for the quarter declined $10.7 million inclusive of $20.7 million of favorable currency impacts. Absent currencies, the net sales decline was due primarily to lower sales volumes in North America. Sales of batteries outside the U.S. were essentially flat. In North America, lower year-over-year sales volumes were driven by a $12.9 million decline in sales of branded carbon zinc and private label products as we continue to de-emphasize the price-oriented segment of the category. Energizer Max sales volume was down 3% globally on relatively soft retail consumption. This decline was offset by continued growth in the performance battery segment, which grew 11% in the quarter as consumers continue to trade-up to higher performing lithium and rechargeable batteries. However, the growth rate in the performance battery segment has slowed in comparison to recent periods, another indication of a weakened economy. Also contributing to the sales decline was unfavorable pricing and product mix of $8.8 million due primarily to the impact of a favorable adjustment to trade promotional allowances in the prior year, which did not recur.

Gross margin for the quarter declined $6.4 million and $24.5 million excluding favorable currency impacts, reflecting the impact of lower sales and $8.9 million of higher product cost, primarily related to higher material costs. Segment profit declined $12.8 million including $12.4 million of favorable currencies. On a constant currency basis, lower segment profit of $25.2 million was primarily the result of the lower sales and higher product cost mentioned above, and higher overhead costs, partially offset by lower advertising and promotion (A&P).

For the nine months, sales increased $33.1 million, including $74.2 million of favorable currency translation. Excluding currency impacts, sales declined $41.1 million on lower volume, primarily in North America, partially offset by higher prices. Volume declines in branded carbon zinc and private label products accounted for more than the total decrease in global volume. Energizer Max volume declined 2%, but was more than offset by volume increases in performance batteries. Overall pricing and product mix was favorable $5.7 million for the nine months as higher prices, particularly in the first fiscal quarter, were partially offset by unfavorable package size mix due to growth in large pack sales, which sell at lower per unit prices.

Segment profit for the nine months declined $26.3 million in absolute dollars and $71.6 million excluding currency impacts, due to higher product costs of $48.4 million, higher A&P of $11.5 million and higher selling, general and administrative expense of $11.8 million.

Looking ahead, retail inventory levels in the U.S. were near seasonally normal levels at quarter end. However, it is unclear whether retailers will stock to normal pre-holiday season levels given the current category sluggishness. Other developed markets are experiencing similar trends. Battery raw material costs, particularly manganese ore, have risen sharply in recent months even as zinc and nickel costs have moderated. At currently prevailing prices, we estimate raw material costs to be $7 to $10 million higher for the fourth quarter versus year ago, and $35 to $40 million higher in fiscal 2009, compared to our estimated costs for fiscal 2008. A 6.5% price increase will be implemented August 15 on alkaline and specialty batteries in the U.S. along with additional price increases in other markets in an effort to maintain profitability levels. In addition, A&P expense will decrease for the September quarter versus the prior year as the timing of advertising and promotion activity in fiscal 2008 was weighted more heavily to earlier quarters as compared to the prior year.

Other Items

Corporate and other expenses decreased $3.7 million in the current quarter related primarily to lower compensation-related expenses. The current quarter included charges of $3.0 million related to the integration of Playtex versus European restructuring charges of $3.2 million included in the prior year June quarter. For the nine months, corporate and other expenses decreased $8.0 million as lower compensation related expenses were partially offset by higher integration and restructuring charges. The current nine months included $15.8 million of integration and other realignment charges versus $11.1 million of European restructuring charges in the same period last year.

Interest expense for the current quarter and nine months increased $21.7 million and $68.6 million, respectively, on higher average borrowings resulting from the Playtex acquisition. Other net financing items were unfavorable $4.7 million for the quarter primarily due to lower interest income and $18.3 million unfavorable for the nine months due primarily to exchange losses in the current period compared to exchange gains last year and lower interest income. These exchange losses were offset by currency gains in segment profit.

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