Energizer Holdings (ENR) reported results for the fourth quarter with earnings of 53 cents per share. Earnings were well below the Zacks Consensus Estimate of $2.01 and were down 68% year-over-year.

Total sales declined 3.9% year over year to $1.1 billion, primarily due to sales declines in Household Products and the unfavorable impact of foreign exchange. Net sales in the Household Products category fell 14.0%, as prior-year shipments due to hurricanes and early holiday shipments ahead of announced price increase did not repeat in the current year quarter.

Further, currency also impacted the top line unfavorably by $25 million. However, net sales in the Personal Care segment increased 12% primarily from the shave preparation acquisition.

Gross margin for the quarter contracted 371 basis points (bps) to 43.9% versus 47.6% in the prior-year quarter. The decline was attributable to the unfavorable impact of currency and inventory valuation charges related to obsolescence.

Interest expense declined $8.3 million for the quarter due to lower average interest costs on variable debt and lower average borrowings. Capital expenditures amounted $31.3 million for the quarter.

Moreover, the battery category has been experiencing continued declines. Therefore, the company’s Board of Directors has approved a restructuring plan designed to reduce the overhead cost structure primarily in the Household Products business and right-size manufacturing and sales operations in light of market uncertainty.

The plan includes an offer of a voluntary enhanced retirement severance package to certain eligible hourly and salaried U.S. employees; it also comprises elimination of additional positions as part of a limited involuntary reduction in force. In fiscal 2009, management reduced its spending by more than $140 million.

Going forward, the company expects to significantly increase its investment levels in both advertising & promotion (A&P) and other targeted growth initiatives. Advertising & Promotions as a percent of sales are expected to be around 12.0%, based on current estimates.

At current pricing and exchange rates, management expects favorable material costs in the range of $15 million to $20 million, and favorable currency in the range of $55 to $60 million is expected to fund a portion of the higher investment in A & P and targeted growth initiatives.

In addition, the recent restructuring is expected to reduce overhead costs by approximately $20 million annually, with approximately $14 million of savings to be realized in fiscal 2010. Interest expense is expected to be in the range of $130 million.

Overall, the company remains cautious about consumption trends in most of the categories in the near term, as retailer inventory investment remains uncertain, the speed of the economic recovery, especially consumer spending is slow and trends in the battery category remain difficult to predict given the recent economic downturn.

Zacks Investment Research
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