Energizer 2005 Annual Report Download - page 12

10 ENR 2005 Annual Report
The following discussion is a summary of the key factors manage-
ment considers necessary in reviewing Energizer Holdings, Inc.’s
(the Company) historical basis results of operations, operating seg-
ment results, and liquidity and capital resources. The Company
includes the battery business (Energizer) and the razors and blades
business (Schick-Wilkinson Sword, or SWS). This discussion should
be read in conjunction with the Consolidated Financial Statements
and related notes.
Battery Business Overview
Energizer is one of the world’s largest manufacturers and marketers
of batteries and flashlights competing in the retail battery category.
We define the retail battery category as household batteries (alka-
line, carbon zinc, lithium and rechargeable) and specialty batteries
(miniature and photo). We market a complete line of household
batteries with two primary brands, Energizer and Eveready,which
arewell known throughout the world.
Alkaline batteries are the predominant household battery chemistry in
developed parts of the world, while carbon zinc batteries continue to
play a major role in less developed countries throughout the world.
Recently, higher-power, higher-priced lithium and rechargeable batteries
have grown significantly in response to moredemanding power needs
of newer devices such as digital cameras. We use our full portfolio of
products and brands to meet consumer and retail customer needs
and maintain and enhance our position across the varied markets of
the world. Our presence outside the United States (U.S.) runs from
highly developed economic markets to emerging markets with lower
per capita income. Our portfolio of products allows us to compete in
low price markets and take advantage of trading consumers up to
higher-performing products as the macroeconomic trends improve.
Energizer operates 20 manufacturing and packaging facilities in 13
countries on four continents. Its products are marketed and sold in
more than 165 countries primarily through a direct sales force, and
also through distributors and wholesalers.
The battery category continues to be highly competitive as brands
compete for consumer acceptance and retail shelf space. Overall
battery consumption is increasing, but category value growth in the
U.S. has lagged unit sales as consumer purchases have shifted to
larger pack sizes, which sell at lower per-unit prices. Retail outlets
experiencing the strongest batterycategory growth in the U.S. are
those which feature larger package sizes. Wal-Mart Stores, Inc. and
its subsidiaries is Energizer’s largest customer. Energizer is well
positioned to meet the needs of customer and consumer demands,
leveraging category expertise, retail understanding and its portfolio of
products to give Energizer a strong presence across the retail channels.
Energizer estimates its share of the total U.S. retail battery category
was approximately 36% in 2005, 34% in 2004 and 33% in 2003.
Internationally, economic conditions and currency valuations relative
to the U.S. dollar improved in 2005 and in 2004, resulting in higher
International Battery segment results. The strengthening of the euro
and certain key currencies in the Asia Pacific region have been a
significant benefit to Energizer in 2005 and 2004. A significant portion
of Energizer’s product cost is more closely tied to the U.S. dollar
than to the local currencies in which the product is sold. As such,
currencies strengthening relative to the U.S. dollar improve margins
as product costs in local currency terms decline. Conversely, weak-
ening currencies relative to the U.S. dollar can be significantly unfa-
vorable unless mitigated through pricing actions. Changes in the
value of local currencies will continue to impact segment profitability
in the future. Most major currencies, including the euro, have declined
in value versus the U.S. dollar in late 2005 and at mid-November
2005 levels will be unfavorable to Energizer’s battery segment profit
in 2006 compared to 2005 by approximately $12 to $15.
Razors and Blades Business Overview
On March 28, 2003, the Company acquired the worldwide SWS
business from Pfizer,Inc. SWS is the second largest manufacturer and
marketer of men’s and women’s wet shave products in the world. SWS
operates four manufacturing facilities worldwide and its products
are marketed in over 110 countries. Its primary markets are the U.S.,
Canada, Japan and the larger countries of Western Europe. SWS
estimates its overall share of the wet shave category for these major
markets at approximately 21% in 2005, 22% in 2004 and 19% in 2003.
The Company views the wet shave products categoryas attractive
within the consumer products industry due to the limited number
of manufacturers, the high degree of consumer loyalty and the
ability to improve pricing through innovation. While the category is
extremely competitive for retail shelf space and product innovation,
SWS has high-quality products and believes it has the opportunity
to grow sales and margins in the future.
Beginning in 2003, SWS launched two major new products. The
Intuition women’s shaving system was launched in the U.S. in April
2003 and in other major world markets throughout 2004. QUATTRO
was launched in the U.S. and parts of Europe in September 2003,
and was rolled out to other markets later in 2004. QUATTRO for
Women was introduced in April 2005 and QUATTRO Power (U.S.)
and QUATTRO Energy (Japan) were launched in September 2005.
The QUATTRO and Intuition brands represent more than a third of
SWS global sales in 2005.
Internationally,economic conditions and currency valuations relative
to the U.S. dollar have improved in 2005 and in 2004, resulting in
favorable segment results. Most major currencies, particularly the yen,
have declined in value versus the U.S. dollar in late 2005 and at mid-
November 2005 levels will be unfavorable to the razor and blade seg-
ment profit in 2006 compared to 2005 by approximately $10 to $12.
Highlights
Net earnings for the year ended September 30, 2005 were $286.4
compared to $267.4 in 2004 and $169.9 in 2003. Basic and diluted
earnings per share in 2005 were $4.03 and $3.90, respectively,
compared to $3.32 and $3.21 in 2004 and $1.98 and $1.93 in 2003.
ENERGIZER HOLDINGS, INC.
Management’s Discussion and Analysis of Results of Operations and Financial Condition
(Dollars in millions, except per share and percentage data)