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Energizer (NYSE:ENR) Beats Q1 Sales Targets


Full Report / February 06, 2024

Battery and lighting company Energizer (NYSE:ENR) reported results ahead of analysts' expectations in Q1 FY2024, with revenue down 6.3% year on year to $716.6 million. It made a non-GAAP profit of $0.59 per share, down from its profit of $0.72 per share in the same quarter last year.

Energizer (ENR) Q1 FY2024 Highlights:

  • Revenue: $716.6 million vs analyst estimates of $710.8 million (0.8% beat)
  • EPS (non-GAAP): $0.59 vs analyst estimates of $0.57 (4.1% beat)
  • EPS (non-GAAP) Guidance for Q2 2024 is $0.68 at the midpoint, below analyst estimates of $0.70
  • EPS (non-GAAP) Guidance for full year 2024 is $3.20 at the midpoint, in line with analyst estimates
  • Free Cash Flow of $152.6 million, up 96.9% from the previous quarter
  • Gross Margin (GAAP): 37.3%, down from 39% in the same quarter last year
  • Organic Revenue was down 7.4% year on year (miss)
  • Market Capitalization: $2.23 billion

Masterminds behind the viral Energizer Bunny mascot, Energizer (NYSE:ENR) is one of the world's largest manufacturers of batteries.

The company’s roots can be traced to 1896 when American inventor Conrad Hubert patented the first flashlight, which utilized a dry cell battery. Over the next century, Hubert’s company would undergo a series of mergers. The Energizer we know today was born when it spun off from its parent company, Ralston Purina, in 2000, allowing it to focus exclusively on its battery and lighting businesses.

Energizer manufactures a wide range of batteries, including alkaline, lithium, rechargeable, and specialty batteries, that power devices in homes, workplaces, and on the go, from remote controls and flashlights to portable electronics and medical devices. Its brands, including Energizer and Eveready, are some of the most recognized globally thanks to their longevity, reliability, and consistent performance.

Beyond batteries, Energizer excels in providing high-quality lighting solutions. Their product lineup encompasses LED flashlights, lanterns, headlamps, and area lighting. These solutions offer brightness, durability, and energy efficiency, catering to outdoor enthusiasts and everyday illumination needs.

Energizer's products are distributed and enjoyed by consumers across the globe. It engages with customers through various channels, including retail partnerships and e-commerce platforms, and places a strong emphasis on eco-friendly options that contribute to reducing waste and conserving resources.

Household Products

Household products companies engage in the manufacturing, distribution, and sale of goods that maintain and enhance the home environment. This includes cleaning supplies, home improvement tools, kitchenware, small appliances, and home decor items. Companies within this sector must focus on product quality, innovation, and cost efficiency to remain competitive. Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options.

Competitors in the battery and lighting industry include AmazonBasics (owned by Amazon, NASDAQGS:AMZN), Duracell (owned by Proctor & Gamble, NYSE:PG), Panasonic (TSE:6752), and Sony (NYSE:SONY).

Sales Growth

Energizer carries some recognizable brands and products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, Energizer can still achieve high growth rates because its revenue base is not yet monstrous.

As you can see below, the company's revenue was flat over the last three years. This is poor for a consumer staples business.

Energizer Total Revenue

This quarter, Energizer reported a rather uninspiring 6.3% year-on-year revenue decline to $716.6 million in revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.

Gross Margin & Pricing Power

This quarter, Energizer's gross profit margin was 37.3%, down 1.8 percentage points year on year. That means for every $1 in revenue, $0.63 went towards paying for raw materials, production of goods, and distribution expenses. Energizer Gross Margin (GAAP)

Energizer has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see above, it's averaged a healthy 38% gross margin over the last two years. Its margin has also been trending up over the last 12 months, averaging 3.2% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment where the company has better pricing power and more favorable input costs (such as raw materials).

Operating Margin

Operating margin is a key profitability metric for companies because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.

This quarter, Energizer generated an operating profit margin of 9.7%, down 3.5 percentage points year on year. Because Energizer's operating margin decreased more than its gross margin, we can infer the company was less efficient and increased spending in discretionary areas like corporate overhead and advertising.

Energizer Operating Margin (GAAP)

Zooming out, Energizer has managed its expenses well over the last two years. It's demonstrated solid profitability for a consumer staples business, producing an average operating margin of 12.8%. On top of that, its margin has remained more or less the same, highlighting the consistency of its business.

EPS

Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q1, Energizer reported EPS at $0.59, down from $0.72 in the same quarter a year ago. This print beat Wall Street's estimates by 4.1%.

Energizer EPS (Adjusted)

Between FY2021 and FY2024, Energizer's EPS grew 5.2%, translating into an unimpressive 1.7% compounded annual growth rate. This growth, however, is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 11.6% year-on-year increase in EPS.

Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Energizer's free cash flow came in at $152.6 million in Q1, in line with the same quarter last year. This result represents a 21.3% free cash flow margin.

Energizer Free Cash Flow Margin

Over the last eight quarters, Energizer has shown solid cash profitability, giving it the flexibility to reinvest or return capital to investors. The company's free cash flow margin has averaged 8.1%, above the broader consumer staples sector. Furthermore, its margin has averaged year-on-year increases of 6.5 percentage points over the last 12 months. This likely pleases the company's investors.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company's revenue growth was profitable. But was it capital-efficient? If two companies had equal growth, we’d prefer the one with lower reinvestment requirements.

Enter ROIC, a metric showing how much operating profit a company generates relative to its invested capital (debt and equity). ROIC not only gauges the ability to grow profits but also a management team's ability to allocate limited resources.

Energizer's five-year average ROIC was 10.3%, slightly better than the broader sector. Just as you’d like your investment dollars to generate returns, Energizer's invested capital has produced decent profits.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Energizer's ROIC has averaged a 2.7 percentage point increase each year. This is a good sign, and if Energizer's returns keep rising, there's a chance it could evolve into an investable business.

Key Takeaways from Energizer's Q1 Results

While organic revenue missed, it was encouraging to see Energizer narrowly top analysts' revenue expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street's estimates. While next quarter's EPS outlook was below expectations, full year EPS guidance was in line., Overall, the results were mixed but fine, with no major surprises. The stock is flat after reporting and currently trades at $31.07 per share.

Is Now The Time?

Energizer may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Energizer, we'll be cheering from the sidelines. Its revenue growth has been weak over the last three years, and analysts expect growth to deteriorate from here. And while its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cash cushion, unfortunately, its average annual EPS growth over the last three years has been mediocre.

Energizer's price-to-earnings ratio based on the next 12 months is 9.4x. While we've no doubt one can find things to like about Energizer, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

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