Energizer 2004 Annual Report Download - page 14

ENR 2004 Annual Report
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Statements. The Company evaluates segment profitability based on
operating profit before general corporate expenses, which include legal
expenses, costs associated with most restructuring, integration or
business realignment, amortization of intangibles and unusual items.
Financial items, such as interest income and expense, are managed on
a global basis at the corporate level.
North America Battery
2004 2003 2002
Net sales $ 1,117.6 $ 1,041.9 $ 1,021.2
Segment profit $ 298.2 $ 283.5 $ 274.8
For the year ended September 30, 2004, sales increased $75.7, or 7%,
primarily due to higher volume and favorable Canadian currency transla-
tion of $7.7. The impact of four major hurricanes in 2004 contributed
approximately $40 of sales compared to approximately $18 incremental
sales volume in 2003 related to a major hurricane and the East Coast
blackout. Apart from event-driven volume and currency impact, sales
volume grew approximately $46, or 4.5%, primarily against 2003 results
which were dampened by reductions in retail inventory levels. Adjusting
for events and retail inventory reductions last year, alkaline sales were
relatively flat in 2004, while the remainder of Energizer’s major product
lines experienced double-digit growth. Overall pricing and product mix
were slightly unfavorable for the year, as category pricing and promotional
stability continued throughout the year, but minor unfavorable mix was
experienced due to consumer demand shifting to larger pack sizes.
Segment profit increased $14.7, or 5%, with currency accounting for
$4.3 of the improvement. Incremental gross margin from higher sales of
$30.7 and currency impact was partially offset by higher SG&A, adver-
tising and promotion, and product costs.
Net sales in 2003 increased $20.7, or 2%, versus 2002 on higher
volume, much of which is attributable to previously mentioned hurricane
and blackout, partially offset by unfavorable pricing and product mix.
Small cell size alkaline volume decreased 5% for the year reflecting reduc-
tions in aggregate retail inventory, partially offset by consumption growth.
Large alkaline cell size and lighting products volume increased 10% and
26%, respectively; these products are most affected by hurricanes,
power outages and public safety concerns. Additionally, the remainder of
Energizer’s major product lines experienced double-digit growth in 2003.
Pricing in 2003 was unfavorable as a result of steep promotional dis-
counting early in the year and a midyear reduction in list prices on key
products in response to competition. Promotional intensity in the category
began to abate in the latter half of fiscal 2003, buffering the list price
reduction. Additionally, Energizer experienced an unfavorable product
mix in 2003 as the greatest sales growth was in the lowest margin
products while the most profitable products experienced declines. As a
result of these factors, gross margin for the year decreased $12.3, or
3%, in spite of the sales increase. Segment profit increased $8.7 in
2003, as the absence of a $15.0 write-off of Kmart pre-bankruptcy
accounts receivable in 2002 and lower overhead spending were partially
offset by lower gross margin.
International Battery
2004 2003 2002
Net sales $ 827.0 $ 757.6 $ 718.5
Segment profit $ 147.7 $ 122.4 $ 101.3
For the year ended September 30, 2004, net sales increased $69.4, or
9%, on favorable currency impacts of $51.6 and contributions of higher
sales volume of $28.7, partially offset by unfavorable pricing and product
mix, primarily in Europe. Segment profit increased $25.3 for the year,
including a $26.6 favorable impact from currencies. Absent currencies,
segment profit decreased $1.3 as a $6.1 gross margin contribution from
higher sales was offset by higher selling, advertising and promotion, and
general and administrative expenses.
International Battery net sales increased $39.1, or 5%, in 2003 on
favorable currency translation of $31.0 as well as favorable pricing, pri-
marily in South America, and higher alkaline sales volume, partially off-
set by lower carbon zinc volume. Retail alkaline sales volume increased
4% while carbon zinc volume decreased 5%. Segment profit increased
$21.1, or 21%, with favorable currency accounting for $17.3 of the
improvement. Absent currency impacts, segment profit increased $3.8,
or 4%, reflecting favorable pricing and product mix, primarily in South
America, and lower product cost. These favorable factors were partially
offset by a 35% increase in advertising and promotion expense for the
International Battery segment reflecting increased investments in our
brand franchises as economic conditions improved in several key regions.
Razors and Blades
2004 2003 PRO FORMA
Net sales $ 868.1 $ 745.0
Segment profit $ 85.7 $ 56.9
The Company’s acquisition of SWS was completed on March 28, 2003;
therefore, SWS is not included in the attached historical financial state-
ments prior to this date. The comparison of September 30, 2004
amounts are versus pro forma SWS results for year ended September
30, 2003. The comparison of September 30, 2003 amounts are versus
ENERGI ZER HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Continued
(Dollars in millions, except per share and percentage data)