Energizer Holdings Inc.ENR

Morningstar Rating

Stock Research and Analysis

by Lauren DeSanto

Energizer wrote the playbook on how to succeed as a consumer product firm in second place. In 2000, the firm held the number-one or -two market share position in three categories; by 2008, following the acquisition of Playtex Products, this had expanded to 13 categories. Read more

Bulls Say

Energizer is the second-largest battery maker nationally, with a 37% share of the U.S. retail market. Playtex's portfolio also includes several strong brands, including Playtex's namesake tampon brand, which holds the number-two market share, and Wet Ones, which has a 70% share in the hand and face wipes category.

Energizer and Playtex both generate strong, consistent free cash flow. In the past, Energizer has used a combination of cash and short- and long-term debt to aggressively repurchase shares. We now expect the cash to be put toward paying down debt, which we think is very achievable.

Before being purchased by Energizer, Playtex significantly strengthened its sun-care business with the Hawaiian Tropic acquisition. We expect Energizer's efforts to expand overseas will primarily focus on expanding its sun-care business. Read more

Bears Say

Retailers are running tighter inventories and cost-conscious shoppers are going longer between purchases. In the battery category increased sales from mass-market retailers and dollar stores, where private-label selections and large value packs take a greater share of the product mix, slowly erode the operating margins of branded products.

The majority of Energizer's operating profits are earned overseas, and a strengthening U.S. dollar has a negative impact.

Roughly 20% of the firms' combined sales will be through Wal-Mart WMT. We think this is a fairly high percentage, despite the broadened product mix of the two firms. Read more

Strategy

Energizer acquired Schick's razor and blade business for the distribution synergies with its consumer battery business. The acquisition has helped Energizer's gross margins, and the firm has been regularly launching new products in the razor category to take share from Gillette. Read more

Management

The decent job that Energizer does with its compensation disclosure can't make up for the company's stewardship shortcomings. Between a staggered board of directors, a shareholders' rights plan, cross-directorships, hefty change-in-control payments, and some compensation targets that seem to be arbitrarily reset, we don't think shareholder interests are front and center. Read more

Profile

Energizer Holdings is the second-largest manufacturer of batteries in the U.S., selling them under the Energizer and Eveready names. It also makes industrial batteries and rechargeables for use in items such as computers and digital cameras. Read more

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