Energizer 2008 Annual Report Download - page 15

ENERGIZER HOLDINGS, INC. 2008 Annual Report 13
For the year ended September 30, 2007, sales increased $229.2, or
11%, due primarily to favorable pricing and product mix of $68.5 and
higher sales volume of $111.5. In addition, currency was favorable by
$49.2 as compared to the prior year. Fiscal 2007 benefited from price
increases implemented in both 2006 and 2007 in response to signifi-
cant increases in material costs. Energizer MAX unit sales were flat
in North America, which reflected soft volume in the overall premium
alkaline battery segment of the category, partially due to virtually no
hurricane-related consumption. Volume growth reflected increased unit
shipments in lithium and rechargeable batteries primarily in the more
developed markets.
Gross profit dollars increased $82.8 in 2007 as higher sales and
favorable currency were partially offset by higher product costs, due
primarily to the increased cost of zinc. Currency contributed $41.6 of
favorability to gross profit as compared to the prior year. Product cost
in 2007 was unfavorable $83.3 compared to 2006, as material cost
increases exceeded the favorable impact of other cost reductions.
Segment profit increased $30.0, or 7% in 2007, but was essentially flat
on a constant currency basis as higher gross profit was partially offset
by higher advertising, promotion and selling expenses.
Looking forward, the battery category continues to be soft in the U.S.
and other developed markets. In addition, we estimate residual U.S.
retail inventory from hurricane-related shipments combined with the
level of early holiday shipments will dampen the Company’s sales by
an additional $30 in fiscal 2009 beyond any negative underlying retail
consumption or competitive activity. By comparison, sales in last year’s
December quarter were unusually high relative to retail consumption,
which resulted in a significant retail inventory reduction in the March
2008 quarter.
Commodities, raw materials and other inflationary input costs are
estimated to be unfavorable $35 to $40 in 2009 compared to 2008
average costs based on current market conditions. Pricing actions
already initiated together with manufacturing cost reduction programs
should offset these increases.
Finally, as mentioned previously, the U.S. dollar has recently strength-
ened against most other currencies, which will negatively impact
reported sales and profits in Household Products. At November 17,
2008 foreign currency exchange rates, we estimate the impact on
segment profit due to currency translation to be approximately $100
to $110 unfavorable for Household Products as compared to the
2008 average currency translation rate.
Personal Care
2008
2007
pro forma
Net sales $1,856.7 $1,694.1
Segment profit $ 322.5 $ 271.2
As noted in Energizer’s quarterly filings during 2008, Energizer’s acqui-
sition of Playtex was completed on October 1, 2007; therefore, Playtex
is not included in the attached historical financial statements prior to
the current fiscal year. To provide a clearer understanding of the impact
of the acquisition on results, the comparison of the 2008 results for the
Personal Care segment are versus unaudited pro forma results for the
year ended September 30, 2007 as shown in Note 3 of the Consoli-
dated Financial Statements. Hawaiian Tropic results are included in the
pro forma results in Note 3 beginning on April 18, 2007, the date at
which Playtex acquired the business. The comparative for fiscal 2007
versus fiscal 2006 remains a historical comparison of the SWS wet
shave business, which constituted the Personal Care business prior to
the addition of Playtex in 2008.
Net sales for the fiscal year were $1,856.7, an increase of $162.6,
with Hawaiian Tropic and favorable currency accounting for $54.6 and
$66.8, respectively, of the increase. As noted above, Hawaiian Tropic
is not included for the full year in the 2007 pro forma comparison.
On a constant currency basis, net sales increased 6% due primar-
ily to Wet Shave and the acquisition of Hawaiian Tropic. Wet Shave
sales increased 3% as higher volumes in disposable razors and the
Quattro family of products more than offset declines in older technol-
ogy products and unfavorable pricing and product mix due to higher
promotional spending in all categories. Skin Care net sales increased
22% due to the inclusion of Hawaiian Tropic. Excluding the impact of
Hawaiian Tropic, Skin Care net sales increased 5% driven by growth
in Banana Boat. Feminine Care net sales decreased 1% due to the
discontinuation of the Beyond cardboard applicator tampon in 2007
partially offset by growth in plastic applicator tampons. Sales of plastic
applicator tampons increased 3% for the year. Infant Care net sales
were essentially flat as higher sales of Diaper Genie and the dispos-
able Drop-In product were offset by a decline in sales of reusable infant
bottles as the company transitioned to BPA-free products.
Segment profit increased $51.3 for the fiscal year due, in part, to
$22.0 in favorable currency. The prior year includes the impact of the
write off of Beyond fixed assets of $10.4. Excluding this write off and
the impact of currencies, segment profit increased $18.9 as gross
margin on higher sales and lower A&P were offset by higher overheads
and product costs. The Company estimates that segment profit was
favorably impacted by approximately $17 of synergies related to the
Playtex acquisition.
Wet Shave sales in 2007 increased $59.0, including $26.3 of favorable
currency impacts. Initial launch sales of new products in the prior year
were approximately $26 compared to approximately $52 in the same
period in 2006. Absent currency and initial product launches, sales
increased 6%, as Quattro branded system products contributed $40
of sales growth, disposables contributed $32 and Intuition contributed
$14 partially offset by lower sales of older technology products.
Segment profit for Wet Shave increased $27.8 in 2007, on $16.4 of
contribution from higher sales, favorable currency of $3.8, and lower
SG&A and R&D expenses. Lower SG&A reflects the cost savings from
the European restructuring. R&D expense declined $3.7 due to the
inclusion of a large, discrete R&D project expense in 2006.