Energizer Personal Care Feels the Heat of Competition

Energizer Holdings, Inc. posted results for the third fiscal quarter ended June 30, 2013.  Net sales fell 1% to $1.1 billion. For the nine months ended June 30, net sales fell 1% to $3.4 billion.

Organically, net sales were flat for Personal Care in the nine-month period at $1.9 billion. For the quarter, net sales decreased 3.6% to $673.5 million. Organic sales growth remains challenging for Energizer, particularly in North America.  The company estimates that most of the US categories in personal care declined in value during the latest twelve week period.
 
From a product standpoint, the net sales change on a reported and organic basis was due primarily to the following:

·      Wet Shave net sales decreased approximately 1% on a reported basis, but increased about 1% organically, due to higher sales of disposable products, including the launch of Hydro disposables, partially offset by lower sales of shave preps.  Sales of men's and women's systems increased slightly for the quarter as continued growth in Hydro branded systems was mostly offset by further declines in legacy systems,
 
·      Skin Care net sales decreased approximately 7% on both a reported and organic basis due to an unusually wet weather pattern in North America, which has unfavorably impacted sun care consumption, and
 
All other product categories decreased due to continued competitive activity and category softness, according to the company.

Energizer is now estimating that organic sales in Personal Care will be essentially flat for the full fiscal year as compared to our prior estimate of low single digit growth.  This full fiscal year estimate for Personal Care includes low-single digit organic sales growth for the final fiscal quarter, with reported net sales for the final fiscal quarter flat due to the unfavorable impact of currencies, assuming current exchange rates.
 

“We are pleased with the adjusted earnings per share growth of 33% for the third quarter,” said Ward M. Klein, chief executive officer.  “We continue to make good progress on our restructuring efforts implementing many of the initiatives earlier than planned.  As a result, we have revised our fiscal 2013 estimated gross savings from $50 to $60 million to more than $80 million.  We are also ahead of schedule with our working capital reduction initiative with a 370 basis point reduction from our fiscal 2011 base period.  However, we are disappointed with our weak top line results as we continued to see elevated levels of competitive promotional activity in our Personal Care categories and many of these categories showed value deflation in the quarter. Despite these top line challenges, our restructuring savings helped to improve operating margins and deliver strong growth in earnings per share.”
 
“As we look towards fiscal 2014, our key points of focus will include delivering our stated cost and working capital reduction objectives, restoring top line growth in Personal Care and investing in innovation and brand development activities to ensure the long-term health of the business,” continued Klein.  “We face many challenges including a difficult competitive environment and unfavorable currency headwinds.  We believe we can follow our expected double digit adjusted earnings per share growth for each of the last two fiscal years with mid-single digit growth in adjusted earnings per share in fiscal 2014.  We'll provide more insights and our initial financial outlook range for fiscal 2014 in our November communication.”
 
In other news, Energizer Holdings, Inc. revealed an agreement to acquire the Stayfree pad, Carefree liner and o.b. tampon feminine hygiene brands in the U.S., Canada and the Caribbean from McNeil PPC, Inc. and Johnson & Johnson, Inc., members of the Johnson & Johnson Family of Consumer Companies for an aggregate purchase price of $185 million in cash.   Included in the sale are all brand assets, and the Johnson & Johnson, Inc. manufacturing plant in Montreal, Canada.  Energizer estimates that the acquisition will be modestly accretive in fiscal 2014. Closing is subject to customary conditions, including regulatory approval, and is expected to occur in the fourth quarter of 2013.