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Energizer Holdings, Inc. Announces Second Quarter Results

Energizer Holdings, Inc. Press Release (excerpted)

FlashlightNews.org - 4/25/2007

Company says solid sales growth in battery business offset higher material costs

Energizer Rechargeable Batteries and Charger

Energizer Rechargeable Batteries and Charger

ST. LOUIS, Mo. - Energizer Holdings, Inc., (NYSE: ENR), today announced results of its second quarter ended March 31, 2007. Net earnings for the quarter were $66.6 million, or $1.14 per diluted share, versus net earnings of $50.0 million, or $0.78 per diluted share in the second fiscal quarter of 2006. Included in the current quarter is a charge of $3.0 million, after-tax, or $0.05 per share, for restructuring projects in Europe.

"Our results for the quarter were exceptional as both of our businesses continued their momentum at the top and bottom lines," said Ward M. Klein, Chief Executive Officer. "The battery business posted solid volume growth around the world and pricing has largely offset unprecedented material cost increases. In the shaving business we continue to innovate with the introduction of Quattro Disposable. Shaving also grew sales and held share globally while substantially improving profit, all despite significant competitive activity. While we have more difficult comparisons and higher advertising and promotion in the third quarter, we feel comfortable with the underlying fundamentals for the second half of the year."

Sales for the quarter were $730.9 million, an increase of $101.4 million, as all three segments improved. Segment profit increased 24% to $142.4 million for the quarter primarily due to improvements in the North America Battery and Razors and Blades segments. On a constant currency basis, sales and segment profit increased 13% and 19%, respectively. General corporate and other expenses were basically flat, and interest and other financing items increased $2.5 million.

For the six months ended March 31, 2007, net earnings were $188.9 million, or $3.23 per diluted share, compared to net earnings of $170.5 million, or $2.57 per diluted share, in the same period last year. Included in the current and prior year six month results are charges of $5.3 million, after-tax, or $0.09 per diluted share, and $3.1 million, after-tax, or $0.05 per diluted share, respectively, for restructuring projects in Europe.

Sales for the six months were $1,690.1 million, an increase of $178.2 million in absolute dollars and $143.2 million on a constant currency basis, as all three segments improved. Including favorable currency impacts of $15.5 million, segment profit increased $33.4 million to $368.5 million, on improvements in the Razors and Blades and North America Battery segments. For the six months, general corporate and other expenses were basically flat while interest and other financing items increased $6.0 million.

North America Battery

Net sales for the second quarter of $266.5 million increased $47.6 million, or 22%, due to higher volume contributing $34.5 million and favorable pricing and product mix adding $13.4 million. Energizer Max units increased 22% for the quarter, significantly higher than the 7% estimated retail consumption. The remainder of the unit increase reflects an abnormally low post holiday retail inventory destocking this year compared to an abnormally high level of destocking in the same quarter last year. Lithium batteries grew in excess of 30% while rechargeables and chargers experienced a 15% growth rate. Favorable pricing and product mix reflected general price increases implemented in January 2007, as well as a favorable comparison to an unusually poor sales mix in the prior year March quarter.

Gross profit for the quarter increased $18.0 million as the contribution of higher sales was partially offset by higher product costs. Overall product cost rate for the quarter was unfavorable $10.9 million, including higher material cost of $12.2 million, partially offset by other cost savings. Segment profit increased $16.0 million as higher gross profit was partially offset by higher selling, general and administrative expenses.

The United States (U.S.) retail battery category is defined as household batteries (alkaline, carbon zinc, lithium and rechargeable) and specialty batteries. The U.S. retail battery category increased by 7% in dollars for the 12 weeks ending March 24, 2007, versus the same period last year, reflecting the price increase and consumers trading up to premium and performance brands. Retail consumption of Energizer's products increased 13% in dollars for the same period, resulting in approximately a 39% share of the battery category for the twelve weeks ending March 24, 2007. We believe our products in the retail pipeline are generally at appropriate levels as of the end of March.

For the six months, sales increased $68.3 million, or 11%, primarily due to higher sales volumes and favorable pricing and product mix. For the current six months, Energizer Max unit sales increased 1% while retail consumption increased approximately 3%, as high second quarter volumes offset nearly all of the volume lost to high retail inventory contraction in the first quarter of fiscal 2007.

Gross profit increased $22.8 million for the six months as higher sales were partially offset by higher product costs, primarily due to the increased cost of zinc. Product cost in the current period was unfavorable $19.6 million compared to the same period last year as material cost increases of $24.1 million were partially offset by other reductions. Segment profit increased $12.2 million, or 7%, as higher gross profit was partially offset by higher advertising, promotion, selling, general and administrative expenses.

International Battery

Net sales for the quarter were $230.0 million, an increase of $33.1 million, or 17%. Absent $10.0 million of favorable currency impacts, sales increased 12% due to higher volumes of $16.6 million and favorable pricing and product mix of $6.5 million.

Gross profit increased $5.5 million, including $8.0 million of favorable currency impacts. Absent currencies, gross profit declined $2.5 million, as the contribution of higher sales was more than offset by higher product costs. Overall product cost rate was unfavorable $16.5 million, primarily on higher material cost of $14.0 million. Segment profit for the quarter declined $2.4 million in absolute dollars and $7.9 million excluding currency impacts, on the gross profit changes and higher marketing, selling, advertising and promotion expenses.

For the six months, net sales increased $69.8 million, or 15%, with favorable currency accounting for $21.1 million of the increase. On a constant currency basis, sales increased 10%, primarily on higher volumes in all areas and higher prices in Asia and Latin America, partially offset by unfavorable product mix in Europe.

Gross profit increased $11.4 million in absolute dollars, but declined $5.5 million on a constant currency basis, as the impact from higher volume and pricing was more than offset by $29.0 million of unfavorable product cost, which included $26.3 million of raw material costs. Segment profit decreased $1.3 million in absolute dollars and $13.3 million excluding currency impacts due to higher selling, general, administrative expenses in addition to the gross profit impact.

Outlook

Looking forward, battery material costs continue above historical levels. Based on current sales and cost forecasts, product costs are expected to be unfavorable $40 to $45 million for the last half of fiscal 2007, compared to the same period last year. Implemented price increases in most markets will offset the majority of the higher cost. Planned advertising and promotional expense in the last half of the fiscal year is not dramatically above the same period last year but skewed to the third quarter in both businesses and will likely result in year-over-year earnings decline in the third quarter.


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