With a Great Long-Term Strategy, Energizer Holdings Is a Buy Today

Energizer Holdings (NYSE: ENR  ) goes well beyond its namesake batteries. The company owns a variety of household names, from Banana Boat sunscreens to Schick razors. Energizer is a company that fundamentals-focused investors could easily love -- it sells perennial products that hold tremendous brand power across the board. The market hasn't been too fond as of late because of weaker demand and a ballooning restructuring effort, but these look to be short-term illnesses for an otherwise strong, long-running business.

Low power
Energizer Holdings failed to juice the Street last week, when it reported lower-than-expected sales and profits. The company hauled in sales that were 8.3% lower than the year-ago quarter, excluding recent acquisitions. EPS felt a similar, if sharper, pain, dropping 17.4% to $1.71. On an adjusted basis, the damage wasn't as bad at $2.10 per share, down 4.5%.

Energizer has a few things pressing on its back currently. For one thing, the company recently bought further into the feminine-care industry with purchase of Johnson & Johnson's product line -- a modest $185 million in cash. It wasn't a huge purchase, but after factoring in the costs of integrating the lines with its existing ones, margins and one-time expenses put some pressure on the company. The acquisition, along with a highly promotional environment in the personal-care industry (and, thus, lower top line sales), and Energizer Holdings didn't have a great quarter.

Also weighing on the company is an expanding corporate restructuring. Management is trying to smooth out the business over the long run and allow for greater ability to make acquisitions when the opportunity arises. At the moment, the company has forecasted for $225 million to $300 million in total project cost savings. Investors can expect to see these savings through 2016.

Growing the portfolio
Similar to brand holdings companies like Fortune Brands Home & Security and Spectrum Brands, Energizer's longevity stems from its ability to add on new, diverse product lines to its core brands. The company does not target super-growing, trendy names as much as aisle-shopping mainstays. While this equates to less exciting earnings on a quarter-to-quarter basis, the business is set up to grow comfortably for years and years.

In recent periods, margins have seen pressure (even though they were up 250 basis points this quarter, on an adjusted basis) as retailers move more and more toward promotion-heavy sales strategies. This means that the brand names have to market themselves heavily against the competition while also facing pricing pressure. Furthermore, as consumers continue the slow recovery from a crippling economic crisis, brands that may have commanded higher prices (such as Banana Boat or Playtex) have to compete more with their generic, cheaper counterparts.

Management cited continued pressure in the near term (at least the first half of this year, according to the release), but the macroeconomic environment is undoubtedly improving -- albeit at a snail's pace. So, while the market may not love Energizer at the moment, it does have long-term tailwinds and the ability to exploit a return to economic normalcy. At just over 12 times earnings and with a 2.1% dividend, the company is attractively valued and ripe for the picking. Those interested in long-term oriented, easy-to-understand businesses should take a closer look.

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