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Strong Earnings Recharge Energizer (ENR)

By: , dated May 3rd, 2012

Yesterday, Energizer Holdings (ENR: Charts, News) reported a huge earnings surprise that caused shares to surge over nearly 10%. The St. Louis, Missouri-based company, best known for its batteries, flashlights and consumer products, earned $1.17 per share, or $77.9 million, on revenue of $1.04 billion. This was a 113% increase in profit and 6% rise in revenue from the prior year’s first quarter, which beat that analysts’ consensus forecast of $1.08 per share on revenue of $1.03 billion.

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Energizer attributed its strong earnings to higher prices in its household products segment as well as improved sales of personal care products. To top of the positive news, Energizer announced an upcoming quarterly dividend of 40 cents in its fourth quarter. Many analysts were bullish regarding Energizer’s new dividend. SunTrust Robinson Humphrey analyst William Chappell commented, “This will give the company a roughly 2.3 percent yield, in line with its peer average, and could attract a new class of investors to the name.” In addition, Energizer’s reputation as a defensive consumer staples name could buoy it through a turbulent summer as investors start to “sell in May and go away”.

The company is also planning to buy back up to 10 million shares in a new share buyback program. Former Clorox (CLX: Charts, News) CFO Daniel Heinrich also recently joined Energizer’s board, a sign of Energizer’s evolution from battery maker to consumer products manufacturer.

Looking forward, however, Energizer offered cautious guidance for its third quarter, warning that its results would show a decline from the previous year, due to heavier promotional spending over the next six fiscal months. Higher battery prices caused by rising commodity costs and inflation could also adversely impact earnings. While the noticeably pessimistic tone has kept some investors at bay, analysts believe that Energizer’s guidance is a bullish sign, considering that it is only the second time the company has offered any forward forecasts at all.

For the full year, Energizer maintained its earnings target of $6 to $6.20 per share, squarely in line with analysts’ estimates of $6.10.

During the second quarter, revenue at Energizer’s personal care unit grew 6.7% to $651.5 million, due to high sales of its Schick Hydro razors, higher shipment volumes of its Edge and Skintimate shaving products, and lower promotional expenses. Energizer spent $117.2 million in advertising and promotional activities during the quarter. Meanwhile, revenue at its household products segment climbed 6% to $450.3 million due to higher prices in the United States. New products and stable margins helped the company offset higher commodity costs during the quarter. Sales across the company rose by 6.4% to $1.1 billion, primarily due to 7% organic growth – a metric which excludes acquisitions, divestitures and foreign exchange rates.

Energizer CEO Ward Klein emphasized that the strength of the company’s growth was due to heavier investments in both divisions last year. “Additionally, we are realizing the planned cost savings from last year’s restructuring and value accretion from recent pricing activities in the Household Products division,” Klein said in a statement.

Fundamentally, shares are undervalued, trading at 11.4 times forward earnings with a 5-year PEG ratio of 1.03. Shares hit $118 per share back in October 2007 before dropping to $33 per share at the nadir of the financial crisis in November 2008. Shares have stayed flat for 2012, despite an 11.4% year-to-date gain in the S&P 500.

Other News About ENR
Energizer sets dividend; profit tops expectations
Energizer introduces its first dividend, which may attract income investors.
Energizer fiscal 2Q net income nearly doubles
Energizer posts a surprising surge in profits.
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Leo Sun Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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