Energizer (NYSE:ENR) reported earnings for its first quarter Monday, and the stock electrified (sorry about the pun) investors by rising more than 10%. What made the traders so excited? Let's have a look.
Net sales for the quarter ended Dec. 31, 2005, came in at $882.4 million compared with $875.9 million in the year-ago period, gaining 0.74%. Earnings before income taxes were $174.7 million vs. $177.1 million, a decrease of 1.4%. Net income for the first quarter was $120.5 million ($1.77 per diluted share) vs. $120.4 million ($1.60 per diluted share) last year.
Am I missing something? Were these results worth a 10% pop?
Looking a bit deeper, some internal statistics caused investors to revise their opinion on Energizer's prospects. While domestic retail sales for the battery industry overall rose 4.4% for the quarter, Energizer managed to achieve a 9.5% increase in its battery sales in that period. The company was able to increase its market share by 1.8 points. Plus, even though sales of razor blades declined 2% on a constant currency basis, the earnings before interest and taxes for this segment rose 20% to $46.6 million. When you take that performance and the beaten expectations into account, you understand the traders' excitement.
Fair enough. But in my opinion, I just don't see a reason to give Energizer such a boost. There was no real momentum in the top line, and the bottom line pretty much benefited from a reduction in outstanding shares. A reduced float is a good thing, certainly, but on a dollar basis, earnings went nowhere.
Checking on the company's operational cash flow, we see that the last three years haven't been terribly exciting. Energizer took in $442 million in operational cash for the year ended Sept. 30, 2003. Flash forward two years and that number goes down to $317 million. The company right now has a PEG ratio of 1.32. It is expected to grow 9% per year over the next five years, which is below the expected growth rate of the broader marketplace. And it doesn't pay a dividend. Contrast that with competitor Procter & Gamble (NYSE:PG), which does pay a dividend and merged with Gillette last year.
Quite frankly, if you want to play the battery/razor business, I'd rather do it with P&G. I concede that Energizer has a nice five-year chart, and that investors may want to perform more due diligence and see if there is a compelling reason to commit money for the long term. At this time, however, I'm just not interested, and I'm not swayed by the price action on Monday.
Power up with some related Takes:
- Energizer Partially Recharged
- Gillette's Closer Shave
- Panasonic Ready to 'Ride
- We also have the Energizer community board.
Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.
