News Releases

ST. LOUIS, Nov. 12, 2020 /PRNewswire/ -- Energizer Holdings, Inc. (NYSE: ENR) today announced results for the fourth fiscal quarter and full fiscal year, which ended September 30, 2020. 

"The continued elevated demand for batteries and the recovery of the auto care business resulted in our fifth consecutive year of organic growth.  Throughout the pandemic, our focus has continued to be on the health and safety of our colleagues and meeting the needs of our customers and consumers," said Alan Hoskins, Chief Executive Officer. "Doing so resulted in higher costs and ultimately lower earnings.  We believe that the value of our relationships with our customers far outweighs these short-term costs." 

"We have taken action to increase our agility and ability to serve our customers. We expect the increased costs related to COVID-19 will be substantially reduced by the end of the first quarter of fiscal 2021.  The actions we have taken include enhancing our manufacturing network, reorganization of our global product supply structure, and acceleration of our investment in enterprise analytics to drive better, and more timely, decision-making. With these steps well underway, we believe we are back on the path of delivering meaningful growth in 2021 and beyond by improving productivity and taking costs out of the business while continuing to grow the top line through both innovation and strengthening our brands."

Top-Line Performance

For the quarter and fiscal year, top-line sales growth continued to be very strong.  Net sales were $763.0 million for the fourth fiscal quarter compared to $719.0 million in the prior year period and $2,744.8 million for the fiscal year compared to $2,494.5 million for the prior fiscal year. 

Organic net sales increased 6.1% in the fourth fiscal quarter due to the following items:⁽¹⁾

• Distribution gains across all product categories contributed 3% to the organic increase;
• Increased year-over-year replenishment volume, primarily in North America battery, contributed 3% to the increase;
• Increased volume driven by the COVID-19 pandemic, which was slightly offset by increased retailer fines and penalties due to the unprecedented demand spike and necessary actions to support our customers and consumers, contributed a net impact of 0.9% to the increase; and
• Lower year-over-year U.S. hurricane volume of 0.8% partially offset the increases.

Organic net sales increased 2.5% in the fiscal year due to the following items:⁽¹⁾

• Distribution gains contributed 2.7% of the increase;
• Favorable carryover impact of the fiscal 2019 price increases, together with the net COVID-19 pandemic impact driven by North America battery, contributed 1.0% of the increase; and
• Lower replenishment volume early in the year, and the year-over-year impact of lower storm activity partially offset the increases.

Gross Margin

Gross margin percentage on a reported basis for the fourth fiscal quarter was 36.9%, versus 40.0% in the prior year quarter, and was 39.4% for fiscal 2020, versus 40.2% in the prior year. Excluding the prior year inventory step up resulting from purchase accounting and acquisition and integration costs in both years, gross margin was 38.4% for the fourth fiscal quarter, down 370 basis points from the prior year quarter, and was 40.6% for the fiscal year, down 200 basis points from prior year.⁽¹⁾

Gross margin reflects the demand impact from COVID-19 that was elevated and prolonged for much of fiscal 2020 which put significant stress on our global network.  This impact was compounded in the fourth quarter due to preparation for the upcoming holiday season.  In order to serve our customers, we took a series of actions, including higher than normal internal production, aggressively sourcing raw materials and finished goods, and increasing air freight and co-packing capacity. These efforts resulted in incremental COVID-19 costs in the fiscal fourth quarter and fiscal year.

Fiscal 2020 gross margin performance was also heavily impacted by sales mix changes, including:

• As the fiscal year unfolded, the pandemic resulted in lockdowns across the world, which drove shifts in our business from higher margin markets, which in some cases had longer and more severe lockdowns, to lower margin markets; and
• Changes in consumers' shopping behaviors as they navigated the pandemic by migrating to different channels and products.

Selling, General and Administrative expense (SG&A)

SG&A, excluding acquisition and integration costs, for the fourth fiscal quarter was 15.6% of net sales, or $118.8 million, a decrease of $4.2 million versus the prior year.  This decrease was driven by synergy realization primarily due to transition service agreement (TSA) exits.⁽¹⁾   

SG&A, excluding acquisition and integration costs, for fiscal 2020 was $444.5 million, or 16.2% of net sales, as compared to $433.4 million, or 17.4% of net sales, in the prior year.  The changes were due to incremental SG&A of approximately $26 million due to the Battery and Auto Care Acquisitions, partially offset by synergy realization and reduced spending.⁽¹⁾  

Advertising and promotion expense (A&P)

A&P was 5.3% of net sales for the fourth fiscal quarter, an increase of 150 basis points, or $12.8 million.  The increase was due to planned incremental investment in our branded product portfolio.

A&P was 5.4% of sales for fiscal 2020, an increase of 30 basis points, or $19.8 million. The increase over prior year is driven by incremental spending of $3.5 million due to the Battery and Auto Care Acquisitions, which was primarily for product and packaging innovation and promotional support for our auto care brands, in addition to planned incremental investment in our branded product portfolio.

During the quarter, the Company took advantage of favorable debt markets and refinanced its Senior Notes due 2025 and 2026, totaling $1.35 billion in principal amount, with new Senior Notes which come due in 2028 and 2029, respectively.  The new Senior Notes have significantly lower interest rates and will result in approximately $17.5 million in annual interest savings, as well as an extension of the weighted average maturity of these borrowings by roughly three years.

Our fourth quarter earnings per share and Adjusted EBITDA were lower than previously provided guidance primarily due to incremental COVID-19 costs caused by elevated demand, primarily customer fines and penalties, increased product sourcing costs, including tariffs, and higher SG&A relating to factoring costs, legal fees and compensation expenses. These increased costs resulted in a decline of approximately $16 million in Adjusted EBITDA, and coupled with the increase in tax rate, approximately $0.20 of earnings per share for the year.

The Net loss from continuing operations for the fiscal fourth quarter included the loss on the extinguishment of debt of  $90.7 million, or $1.01 per diluted share, and pre-tax acquisition and integration expense of $20.4 million, or $0.29 per diluted share. 

The Net earnings from continuing operations for the fiscal year included the loss on extinguishment of debt of $94.9 million, or $1.05, per diluted share, and pre-tax acquisition and integration costs of $68.0 million, or $0.79 per diluted share.

The change in Adjusted EBITDA and Adjusted diluted net earnings per common share - continuing operations for the quarter was driven in large part by incremental COVID-19 costs, including air freight and customer fines and penalties and increased A&P, offset by the continued realization of synergies. 

The impacts on Adjusted EBITDA and Adjusted diluted net earnings per common share - continuing operations for the fiscal year were largely the same as the fiscal quarter, with the addition of a full year of acquisition activity, as well as the impact of unfavorable currency.  A higher tax rate, due to country mix of earnings, also impacted the year-over-year change in adjusted  earnings per common share - continuing operation.

Incremental COVID-19 Costs

The table below is a summary of the incremental COVID-19 costs incurred for the fourth fiscal quarter and fiscal year in addition to the impact these costs had on our EBITDA and Earnings per share for both periods presented:

Strong Free Cash Flow and Continued Return of Capital

• We generated strong cash flows from continuing operations of $157.4 million and $389.3 million for the quarter and the year, respectively, and Adjusted Free Cash Flow from continuing operations of $161.4 million and $405.1 million for the quarter and year, respectively, driven primarily by working capital improvements and certain one-time tax items realized earlier in the year. Strong cash flows allowed for the Company to pay down over $100 million of debt subsequent to year-end.⁽¹⁾
• Dividend payments in the quarter were approximately $21 million, or $0.30 per common share and $4.1 million, or $1.875 per share of mandatory preferred convertible stock. Dividend payments for the year were $85.4 million, or $1.20 per common share and $16.2 million, or $7.50 per share of mandatory preferred convertible shares.
• Repurchased approximately 980,000 shares of common stock for $45.0 million in the first fiscal quarter. As noted above, the Board has approved a new share repurchase program for up to 7.5 million shares. This replaced the prior authorization that was outstanding.
• Net debt to credit defined EBITDA was 4.8 times at the end of fiscal 2020.

Financial Outlook and Assumptions for Fiscal Year 2021⁽¹⁾

The Company is providing the below financial outlook and assumptions for fiscal 2021. Note that all comparisons are with actual results for fiscal year ended September 30, 2020. As we continue to navigate through the impacts of the pandemic, our assumptions for fiscal 2021 do not anticipate any significant disruptions to our global manufacturing plants, distribution centers or customers. We assume the retail environment will remain competitive and the commodity costs will be benign. Should disruption occur that is prolonged, our expected results may be significantly impacted as we may not be able to supply demand in a timely manner or at all.  Looking specifically at our key metrics for fiscal 2021, we expect the following:

• Net Sales growth in the range of 2% to 4% with expected growth in batteries at the low end of the range and auto care at the high end of the range;
• Adjusted gross margin to be essentially flat with approximately $15 million of COVID-19 costs expected to be incurred in the first quarter, and an expected sequential improvement in gross margin rate as we progress through 2021;
• Adjusted earnings per share in the range of $2.95 to $3.25;
• Adjusted EBITDA range of $600 to $630 million;
• Adjusted free cash flow in the range of $325 to $350 million dollars, as working capital returns to more normalized levels and we lapped one-time tax items from the prior fiscal year;
• Capital spending, excluding integration, in the range of $35 to $45 million, and integration related capital in the range of $30 to $40 million.

Given the expected growth in fiscal 2021 is off lower-than-previously expected fiscal 2020 results and the uncertainty related to the pandemic, the the Company is withdrawing its pre-pandemic targets for 2022 of $700 million in adjusted EBITDA and $400 million in adjusted free cash flow. We have provided additional details on our long-term algorithm in the deck that was provided with the release.

Webcast Information

In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. eastern time today. The call will focus on fourth quarter and fiscal 2020 financial results and the financial outlook for fiscal 2021. All interested parties may access a live webcast of this conference call at www.energizerholdings.com, under "Investors" and "Events and Presentations" tabs or by using the following link:

https://www.webcaster4.com/Webcast/Page/1192/37929

For those unable to participate during the live webcast, a replay will be available on www.energizerholdings.com, under "Investors," "Events and Presentations," and "Past Events" tabs.

Forward-Looking Statements.
This document contains both historical and forward-looking statements. Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future sales, gross margins, costs, earnings, cash flows, tax rates and performance of the Company. These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "should," "forecast," "outlook," or other similar words or phrases. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this document are only made as of the date of this document and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:

• market and economic conditions;
• market trends in the categories in which we compete;
• uncertainty relating to the impacts of the COVID-19 outbreak, including but not limited to, its impacts on consumer demand, costs, product mix, the availability of our products, our strategic initiatives, our and our partners' global supply chains, operations and routes to market;
• our ability to integrate businesses, to realize the projected results of the acquired businesses, and to obtain expected cost savings, synergies and other anticipated benefits of the acquired businesses within the expected timeframe, or at all;
• the impact of the acquired businesses on our business operations;
• the success of new products and the ability to continually develop and market new products;
• our ability to attract, retain and improve distribution with key customers;
• our ability to continue planned advertising and other promotional spending;
• our ability to timely execute strategic initiatives, including restructurings, and international go-to-market changes in a manner that will positively impact our financial condition and results of operations and does not disrupt our business operations;
• the impact of strategic initiatives, including restructurings, on our relationships with employees, customers and vendors;
• our ability to maintain and improve market share in the categories in which we operate despite heightened competitive pressure;
• financial strength of distributors and suppliers;
• our ability to improve operations and realize cost savings;
• the impact of the United Kingdom's future trading relationships following its exit from the European Union;
• the impact of foreign currency exchange rates and currency controls, as well as offsetting hedges;
• the impact of adverse or unexpected weather conditions;
• uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark;
• the impact of raw materials and other commodity costs;
• the impact of legislative changes or regulatory determinations or changes by federal, state and local, and foreign authorities, including customs and tariff determinations, as well as the impact of potential changes to tax laws, policies and regulations;
• costs and reputational damage associated with cyber-attacks or information security breaches or other events;
• the impact of advertising and product liability claims and other litigation; and
• compliance with debt covenants and maintenance of credit ratings as well as the impact of interest and principal repayment of our existing and any future debt.

In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements. The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly filed documents, including those described under the heading "Risk Factors" in our Form 10-K filed with the Securities and Exchange Commission on November 19, 2019 as well as our Form 10-Q filed on August 5, 2020.

ENERGIZER HOLDINGS, INC.
Supplemental Schedules
Introduction to the Reconciliation of GAAP and Non-GAAP Measures
For the Quarter and Twelve Months ended September 30, 2020

The Company reports its financial results in accordance with accounting principles generally accepted in the U.S. ("GAAP"). However, management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period.  These non-GAAP financial measures exclude items that are not reflective of the Company's on-going operating performance, such as acquisition and integration costs and related items, settlement loss on pension plan terminations, loss on extinguishment of debt, the one-time impact of the CARES Act and the December 2017 Tax Cuts and Jobs Act (2017 tax reform). In addition, these measures help investors to analyze year over year comparability when excluding currency fluctuations, acquisition activity as well as other company initiatives that are not on-going. We believe these non-GAAP financial measures are an enhancement to assist investors in understanding our business and in performing analysis consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or superior to, the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items being adjusted.

We provide the following non-GAAP measures and calculations, as well as the corresponding reconciliation to the closest GAAP measure in the following supplemental schedules:

Segment profit.  This amount represents the operations of our two reportable segments including allocations for shared support functions.  General corporate and other expenses, global marketing expenses, R&D expenses, amortization expense, interest expense, loss on extinguishment of debt, other items, net, and charges related to acquisition and integration and settlement loss on pension plan terminations have all been excluded from segment profit.

Adjusted net earnings from continuing operations and Adjusted Diluted net earnings per common share - continuing operations (EPS).  These measures exclude the impact of the costs related to acquisition and integration, the loss on extinguishment of debt, the settlement loss on pension plan terminations and the one-time impact of the CARES ACT and 2017 tax reform.

Non-GAAP Tax Rate. This is the tax rate when excluding the pre-tax impact of acquisition and integration, the loss on extinguishment of debt, settlement loss on pension plan terminations, as well as the related tax impact for these items, calculated utilizing the statutory rate for where the costs were incurred, as well as the one-time impact of the CARES Act and 2017 tax reform.

Organic.  This is the non-GAAP financial measurement of the change in revenue or segment profit that excludes or otherwise adjusts for the impact of acquisitions, operations in Argentina, and the impact of currency from the changes in foreign currency exchange rates as defined below:

Impact of acquisitions. Energizer completed the Auto Care Acquisition on January 28, 2019 and the Battery Acquisition on January 2, 2019.  These adjustments include the impact the acquisitions' ongoing operations contributed to each respective income statement caption for the first year's operations directly after the acquisition date.  This does not include the impact of acquisition and integration costs associated with the acquisitions.

Change in Argentina operations. The Company is presenting separately all changes in sales and segment profit from our Argentina affiliate due to the designation of the economy as highly inflationary as of July 1, 2018.

  Impact of currency. The Company evaluates the operating performance of our Company on a currency neutral basis. The impact of currency is the difference between the value of current year foreign operations at the current period ending USD exchange rate, compared to the value of the current year foreign operations at the prior period ending USD exchange rate.

  Adjusted Comparisons.  Detail for adjusted gross profit, adjusted gross margin, adjusted SG&A, adjusted SG&A as a percent of sales, adjusted R&D, adjusted Interest expense and adjusted Other items, net are also supplemental non-GAAP measure disclosures. These measures exclude the impact of costs related to acquisition and integration.

Free Cash Flow and Adjusted Free Cash Flow. Free Cash Flow is defined as net cash provided by operating activities reduced by capital expenditures, net of the proceeds from asset sales. Adjusted Free Cash Flow is defined as Free Cash Flow excluding the cash payments for acquisition and integration expenses and integration capital expenditures. These expense cash payments are net of the statutory tax benefit associated with the payment.

EBITDA and Adjusted EBITDA. EBITDA is defined as net earnings before income tax provision, interest, Loss on extinguishment of debt and depreciation and amortization.  Adjusted EBITDA further excludes the impact of the costs related to acquisition and integration and share based payments.

Supplemental product information is presented below for revenues from external customers: