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Energizer Keeps Going And Going
On May 11, Energizer Holdings (NYSE:ENR) diversified its roster of brands by purchasing SC Johnson's Edge and Skintimate shaving cream brands for $275 million. The move brings its Schick/Wilkinson Sword business together with two of the best brands in the personal care industry, creating a formidable team. It seems Energizer keeps going and going away from its dependence on batteries, and the business is stronger as a result.
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On its Own for Some Time
OnApril 1, 2000 , pet food maker Ralston Purina spun off its Eveready battery business into its own publicly traded company known as Energizer Holdings. Less than a year later, Swiss food conglomerate Nestle bought Ralston Purina for $10.3 billion. At the time of the spin off, batteries accounted for 100% of the company's sales, as there were no other product lines. Nine short years later, it's a diversified company with household products (batteries) responsible for $2.47 billion in sales in 2008 and $489.1 million in profit and personal care products generating $1.86 billion in sales and $322.5 million in profit. That's a 57%/43% split in terms of revenue and a 60%/40% division for profits with margins of 20% and 17% respectively.
This diversification didn't happen overnight. First it acquired Schick-Wilkinson Sword from Pfizer (NYSE:PFE) in 2003, and then Playtex in October, 2007. The two acquisitions, which cost $2.8 billion, most certainly changed the future direction of the company for the better. (See our related article, Evaluating Grocery Store Stocks.)
Earnings Up and Revenues Down
Its second quarter report, at the end of April, was a bit of a mixed bag. Top line revenues were off by 7%, to $880.4 million, most of the drop caused by a strong U.S.
The battery business was off by 12%, or $57.1 million in revenue, while the personal care segment dropped 3%, or $13.5 million. However, on a constant currency basis, personal care sales actually increased by 3%.
CEO Ward Klein stressed that it continues to maintain market share, despite the softness in consumer spending. The company can expect to continue generating strong profits, regardless of flat-to-negative sales. Others aren't so sure. On April 20, UBS analyst Nik Modi lowered his rating on Energizer to "sell" from "neutral," stressing it's going to have a tougher time selling to large retailers like Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD). Further, the analyst believes Procter & Gamble (NYSE:PG) is going to cut into its business. Couple this with a battery business that's hurting and some believe that the stock has run out of room to run. (For more, see Using Consumer Spending As A Market Indicator.)
Issuing Stock
Energizer is in the process of selling 9.5 million shares of its stock to the public. At today's prices, we're talking about gross proceeds of $475 million. A little more than half will go to paying for the Edge and Skintimate deal while the rest is for general purposes including debt reduction. Should the common share financing fail to be completed, it would issue 310 million in non-voting preferred shares to SC Johnson instead. I'm sure management would rather this didn't come to fruition. Either way, it's a win-win deal for both companies.
The Bottom Line
Energizer's products are all solid brands, in their respective markets. It generates good margins and, in just nine years, has more than doubled sales while diversifying its product offering to retailers. P&G, its biggest competitor, has a market cap that is 80% of its enterprise value. This compares to 50% for Energizer. While analysts might not agree, this number should be at least 65%, which would give Energizer a stock price of approximately $65, 30% higher than its current value. All indications are that it will keep rising. (For more, read our related article A Guide To Consumer Staples.)
IN PICTURES: Retire A Millionaire In 10 Steps
On its Own for Some Time
On
This diversification didn't happen overnight. First it acquired Schick-Wilkinson Sword from Pfizer (NYSE:PFE) in 2003, and then Playtex in October, 2007. The two acquisitions, which cost $2.8 billion, most certainly changed the future direction of the company for the better. (See our related article, Evaluating Grocery Store Stocks.)
Earnings Up and Revenues Down
The battery business was off by 12%, or $57.1 million in revenue, while the personal care segment dropped 3%, or $13.5 million. However, on a constant currency basis, personal care sales actually increased by 3%.
CEO Ward Klein stressed that it continues to maintain market share, despite the softness in consumer spending. The company can expect to continue generating strong profits, regardless of flat-to-negative sales. Others aren't so sure. On April 20, UBS analyst Nik Modi lowered his rating on Energizer to "sell" from "neutral," stressing it's going to have a tougher time selling to large retailers like Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD). Further, the analyst believes Procter & Gamble (NYSE:PG) is going to cut into its business. Couple this with a battery business that's hurting and some believe that the stock has run out of room to run. (For more, see Using Consumer Spending As A Market Indicator.)
Issuing Stock
Energizer is in the process of selling 9.5 million shares of its stock to the public. At today's prices, we're talking about gross proceeds of $475 million. A little more than half will go to paying for the Edge and Skintimate deal while the rest is for general purposes including debt reduction. Should the common share financing fail to be completed, it would issue 310 million in non-voting preferred shares to SC Johnson instead. I'm sure management would rather this didn't come to fruition. Either way, it's a win-win deal for both companies.
The Bottom Line
Energizer's products are all solid brands, in their respective markets. It generates good margins and, in just nine years, has more than doubled sales while diversifying its product offering to retailers. P&G, its biggest competitor, has a market cap that is 80% of its enterprise value. This compares to 50% for Energizer. While analysts might not agree, this number should be at least 65%, which would give Energizer a stock price of approximately $65, 30% higher than its current value. All indications are that it will keep rising. (For more, read our related article A Guide To Consumer Staples.)
by
Will Ashworth
Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.
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