Why Shares of Energizer Holdings Inc. Slumped on Thursday

By Timothy GreenFool.com

What: Shares of battery manufacturer Energizer Holdings slumped on Thursday following the company's fiscal fourth quarter earnings report. The company's results were mixed relative to analyst estimates, but both revenue and profits slumped dramatically year-over-year. The stock was down just over 9% for the day.

So what: Energizer reported quarterly revenue of $399.1 million, down 18% year-over-year but about $4 million higher than the average analyst estimate. Organic sales fell by 7.9% during the quarter, with Energizer blaming a shift in the timing of holiday deliveries, as well as temporary shelf gains in retailers during the same period last year. Foreign exchange rates also had a negative impact on the company's revenue, accounting for 6.8% of the decline.

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Non-GAAP net income came in at $38.5 million, or $0.61 per share, down from $65.2 million, or $1.05 per share, during the same period last year. GAAP earnings were $0.37 per share, with the discrepancy due to costs related to the company's spin-off from Edgewell Personal Care . Declining revenue, and to a lesser degree an increase in advertising costs, led to the steep drop in profits.

Now what: Energizer expects its troubles to continue into fiscal 2016. Revenue is expected to decline by a mid single digit percentage, with organic sales flat at best and down low single digits at worst. The negative impact from currency is expected to chop off 3% to 4% from sales.

Gross margin is expected to decline by as much as 300 basis points in 2016, while the company expects non-GAAP earnings per share to be between $1.90 and $2.10. This compares to non-GAAP EPS of $2.82 during fiscal 2015, which includes periods before Energizer was an independent company.

Given the revenue and profit declines during the fourth quarter, as well as the weak guidance for 2016, it's no wonder that shares of Energizer are selling off. Currency is certainly having a negative effect, but sales would be falling sharply even excluding that headwind. While the spin-off allowed Energizer to focus on its core battery business, Edgewell retained well-known personal care brands like Schick, Edge, and Wet Ones. With Energizer a distant second behind Duracell in the alkaline battery market, and with battery sales in decline, Edgewell seems like a better bet than Energizer in the long run.

The article Why Shares of Energizer Holdings Inc. Slumped on Thursday originally appeared on Fool.com.

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