Shares of Energizer (ENR: Charts, News, Offers), a manufacturer of batteries, lighting products and personal care products, plunged more than 15% during Tuesday trading after announcing disappointing earnings. Its sales dropped 1.9% to $1.06 billion, and its $0.81 EPS widely missed the Street view of $0.95. The company blamed the costs of zinc and steel, critical components for its batteries, for its dented bottom line. Does this dip, which brings the forward P/E down to 10.62, represent a convincing opportunity to purchase shares of one of the world’s strongest consumer goods stocks?
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Energizer’s primary business is split into two very different divisions – Batteries and Portable Lighting, which makes up 54% of its total profits, and Personal Care, which takes up the other 46%. Its Batteries and Portable Lighting division consists of its flagship Energizer and Eveready batteries and portable lighting products. Its Personal Care division was brought about by its 2003 purchase of Schick Wilkinson Sword from Pfizer, its 2008 acquisition of Playtex, and its 2009 acquisition of the Edge and Skintimate shave preparation brands from S.C. Johnson & Son. Its personal care products include Schick, Edge and Skintimate shaving products, Hawaiian Tropic and Banana Boat skin care products, and Playtex feminine and infant care products. Energizer has distribution channels in 165 countries, with manufacturing and packaging facilities in 14 countries. By merging Playtex, which was previously based in only 15 countries, into its operations, Energizer has tapped into previously unreached markets for personal care and become a viable competitor to Procter and Gamble (PG: Charts, News, Offers) in this field.
Going forward, the greatest challenge Energizer faces is the unpredictable nature of raw materials such as zinc and steel, the key ingredients of its battery products. The company uses approximately 75 million pounds of zinc yearly, therefore a one cent rise on zinc price costs $750,000. Therefore, it’s no surprise that the increasing cost of zinc sunk the company’s profits this quarter. The company expects an increase of $20 to $30 million in commodity costs in fiscal 2011. Its battery sales also face the challenge of dipping margins, as customers begin to buy batteries in bulk at wholesale superstores such as Costco (COST: Charts, News, Offers) and Wal-Mart (WMT: Charts, News, Offers). Energizer’s wise decision to diversify into personal care products from Playtex should have softened the blow considerably, but poor international sales, especially in Venezuela, pulled down overall revenue. Energizer’s Playtex division is currently second in every category in which it competes, both domestic and abroad, with 80% revenue coming from the United States.
There are several catalysts on the horizon which may spark Energizer’s growth. Firstly, the weakening U.S. dollar will help its foreign markets, with a stronger Euro and yen in particular boosting its overseas numbers, since the company reports earnings in USD. Energizer’s diversified portfolio gives it many alternate roads to take should another financial crisis strike. It has wide bets spread all over the consumer goods market. Each brand that the company carries, from Energizer to Playtex, is well known to shoppers and further reinforced by aggressive advertising campaigns. The company is also aggressively expanding its personal care products, such as its Schick shaving products, into countries where it has an established foothold with its battery products. The company has also continuously refreshed its product line with new innovations – examples include batteries with patented titanium technology, advanced titanium blade coating for its razors, and the world’s first four-bladed razor, among many other advances. Its Schick Hydro Razor, introduced in the third quarter, was highly successful in Latin America countries. There has also been speculation that Procter and Gamble will eventually spin off its Duracell brand of batteries into a separate company, a move that may benefit Energizer as Duracell loses some of Procter and Gamble’s widespread distribution channels.
Energizer’s strongest competitors include Procter and Gamble, SANYO, Exide Technologies, Greatbatch and China BAK Battery. Of these, none are an immediate threat except for Procter and Gamble. Prior to the financial crash of 2008-2009, Energizer traded north of $100, with strong growth prospects. Today, the stock still trades in the $60s, and any signs of life in consumer spending are sure to lift the price considerably.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
yeah but energizer will always be the best and the most reliable http://www.youtube.com/watch?v=37LNzH6NrWA