Here Are Factors Influencing Energizer's (ENR) Q4 Earnings

Energizer Holdings, Inc. (NYSE:ENR) is slated to report fourth-quarter fiscal 2018 results on Nov 15. In the trailing four quarters, the company has outperformed the Zacks Consensus Estimate by average of 7.2%.

How are Estimates Shaping Up?

Although the bottom line registered an increase of 25.6% in the third quarter of fiscal 2018, Energizer is likely to record year-over-year growth of 50% in the fourth quarter. This is quite evident from the Zacks Consensus Estimate for the quarter under review, which is pegged at 81 cents compared with 54 cents reported in the year-ago quarter. We note that the Zacks Consensus Estimate has remained stable in the past 30 days.

The Zacks Consensus Estimate for revenues is pegged at $456 million, down roughly 2% from the year-ago quarter. We note that Energizer Holdings’ total revenues increased 5.6% in the last reported quarter.

Let’s delve deeper and find out the factors impacting the results.

Energizer Holdings, Inc. Price and EPS Surprise

Factors to Consider

Energizer is grappling with strained margins for the past few quarters, owing to price volatility in raw materials, especially steel. Though the company anticipates the impact of these tariffs to be minimal in fiscal 2018, it estimates a negative impact of 50 basis points on gross margin in fiscal 2019, excluding any pricing actions. Overall, the current tariff situation remains highly unpredictable, and any adverse outcome may weigh on the company’s results.

Also, increased debt level along with high interest expenses is a concern. Energizer ended third-quarter fiscal 2018 with long-term debt of $976.7 million. As a result, interest expenses rose to $17.7 million in the fiscal third quarter from $13.3 million in the year-ago period. We note that the company had debt-capital ratio of 95.4% as of the fiscal third quarter. Prior to this, the company witnessed debt-capital ratio of 95.6% and 96.7% in the first and second quarters of fiscal 2018, respectively. Persistence of this trend may negatively impact profitability.

Nevertheless, the company is focused on driving productivity by execution of improvement initiatives, streamlining international organization and optimizing manufacturing footprint. In a latest move, the company is shifting production from its Chinese alkaline battery manufacturing unit to its Singapore facility. This has driven increased cost savings, owing to improved efficiency and scale at this facility. The company expects these projects to boost gross margin rate and lower SG&A expenses in the fourth quarter of fiscal 2018.

What Does the Zacks Model Say?

Our proven model does not conclusively show that Energizer is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Energizer has a Zacks Rank #4 (Sell) but an Earnings ESP of +0.25%. The combination of the company’s negative Rank and positive Earnings ESP makes surprise prediction difficult.

Stocks With Favorable Combination

Here are companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Macy’s (NYSE:M) has an Earnings ESP of +20.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation (NYSE:TGT) has an Earnings ESP of +1.41% and a Zacks Rank of #2.

Ross Stores (NASDAQ:ROST) has an Earnings ESP of +2.70% and a Zacks Rank of #2.

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