Energizer Holdings (ENR) Up 14.5% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Energizer Holdings, Inc. ENR. Shares have added about 14.5%  in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is ENR due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Energizer Holdings reported strong second-quarter fiscal 2018 results. Maintaining the earnings beat streak, Energizer’s adjusted earnings per share (EPS) of 45 cents beat the Zacks Consensus Estimate of 42 cents. However, the figure was down 10% from the year-ago quarter.

Revenues of $374.4 million topped the consensus mark of $373.18 million and increased 4.3% on a year-over-year basis. Notably, this is the third-straight quarter of a revenue beat. The year-over-year revenue growth was boosted by increased organic net sales of 1.8% and favorable currency impact of 2.5%.

Quarterly Details

Batteries revenues (88.2% of total revenues) grew 6.6% year over year to $330.3 million, while revenues from Other segment (11.8%) fell 10.2% to $44.1 million.

In Americas, the company recorded revenues of $224.1 million, up 2.6% from last-year quarter. Revenues from International were $150.3 million, up 7% from the year-ago quarter.

Margins

Gross margin contracted 180 basis points (bps) to 45% due to less favorable overhead absorption in the current quarter, unfavorable product mix driven by changes related to portfolio optimization and increased commodity costs. Selling, general and administrative expenses, excluding acquisition and integration costs, amounted to $87.7 million, reflecting a decrease of $3.5 million from the year-ago quarter.

Other Financial Details

Energizer, which carries a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $490.3 million, long-term debt of $977.3 million and shareholders' equity of $44.7 million.

Year-to-date cash flow from operations in the quarter was $160.6 million. Free cash flow amounted to $149.3 million and adjusted free cash flow amounted to $152.8 million or 16.1% of net sales.

Further, on a year-to-date basis, the company repurchased shares worth $50 million.

Guidance

For fiscal 2018, Energizer continues to expect earnings per share in the band of $3.30-$3.40.

Organic revenues are expected to increase low-single digits.  Moreover, favorable forex movement is likely to boost sales by 1-1.5%.

However, gross margin are now expected to be flat to up 25 bps, excluding acquisition and integration costs, from the year-ago quarter from the earlier announced increase of 50 bps. Per management, the change in the outlook reflects the impact of increased commodities costs and transportation expenses.

Capex is still expected in the range of $30-$35 million.  Adjusted free cash flow is anticipated in the band of $240-$250 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.

Energizer Holdings, Inc. Price and Consensus

 

Energizer Holdings, Inc. Price and Consensus | Energizer Holdings, Inc. Quote

VGM Scores

At this time, ENR has an average Growth Score of C and a grade with the same score on the momentum front. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, ENR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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