With Feminine Market Acquisition, Energizer Takes Procter and Gamble Head On
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Once known for just its batteries, Energizer Holdings (NYSE: ENR) is now shaping up to be a mini personal care powerhouse. On Wednesday, the company acquired three strong feminine care brands that put the company in more direct competition with rival Procter & Gamble (NYSE: PG). Energizer’s decision to diversify should offset weakness in the battery category and power shares forward.
Powering past batteries
Energizer Holdings is the company behind the popular Energizer and Eveready battery brands. Many American consumers are unaware of the other brands under the Energizer umbrella. The company owns brands like Schick, Wilkinson Sword, Skintimate, Banana Boat, Hawaiian Tropic, Edge, Wet Ones and Playtex.
On Wednesday, Energizer Holdings announced the acquisition of Stayfree, Carefree, and o.b. from Johnson & Johnson. The acquisition includes a manufacturing plant in Canada and the three brands in the United States, Canada and Caribbean regions. Energizer is paying $185 million and expects the deal to close in the fourth quarter.
This is a very important acquisition for Energizer as far as diversification goes. While the company is dominant in batteries (#1 or #2 market share in 28 of 31 Nielsen countries), the company also holds strong market shares in other categories. Energizer is also number one in the United States in sun care, hand and face towelettes, shave prep, infant bottles and cups and disposable diapers systems. Energizer has the number two share in men’s shaving systems, women’s shaving systems, disposable shavers and tampons.
In the recently reported third quarter, Energizer Holdings saw personal care segment sales fall 3.6% to $649.5 million. Total sales in the feminine care market were $46.4 million, a drop of 8% compared to the prior year. In the last nine months, total feminine care sales at Energizer Holdings have been $129.2 million. That number should double within a year, as the new brands are integrated. Feminine care will represent a much larger portion of Energizer’s total revenue and could be a growth driver with new product innovation.
Taking on the consumer giant
Procter & Gamble has been the leader in feminine care with its strong Always and Tampax brands. Both brands are part of a health care unit that saw sales of $12.4 billion in fiscal 2012. That unit grew 3% on the year, thanks to price increases. The segment was responsible 15% of total sales for the fiscal year. Procter & Gamble is in the midst of unit reorganization and asset sales that could make feminine care more of a revenue driver.
Energizer’s largest competition in almost every segment is Procter & Gamble. The large consumer product company posted revenue of $83.7 billion in fiscal 2012. Along with the feminine care battle, Energizer competes with Procter & Gamble in batteries and men’s shaving systems. Procter & Gamble holds the number one market share position in men’s shaving systems with its acquired Gillette brand. Energizer ranks number two with Schick and also has the leading private shaving business through its acquisition of American Safety Razors in 2010. Procter & Gamble owns Duracell, which is the number one competitor to Energizer’s namesake battery brand.
Can Energizer gain market share from another consumer giant?
The new acquisition of o.b. tampons will also help Energizer compete better with Kimberly Clark (NYSE: KMB). Kimberly Clark’s Kotex brand is a billion dollar brand. The brand is part of Kimberly Clark’s personal care segment that represents 45% of the company’s fiscal 2012 sales. The company, which also owns Kleenex, Huggies, and Scott, is working on strengthening its health care and professional segments, which represent 8% and 16% of 2012 sales respectively.
Energizer’s combination of Playtex and o.b. could put pressure on Kimberly Clark as Energizer can see cost savings and marketing advantages. Energizer can now try to own the tampon market through two brands and take away market share from Kotex.
In fiscal 2012, Energizer saw its Playtex Sport brand grow 1.5 market share points to a total share over 10%. With the acquisition from Johnson & Johnson, Energizer now has strong women’s brands like Skintimate, Playtex, Stayfree, Carefree, and o.b. all under the same roof. The combination of Playtex and o.b. could power Energizer in the tampon segment as it uses its strong retail presence and size to realize cost synergies.
Strong results from acquisitions
To diversify away from battery sales reliance, Energizer went shopping for Schick razors back in 2003. Since acquiring Shick from Pfizer in 2003, sales of the brand have quadrupled from $625 million to $2.5 billion. Back in 2007, Energizer strengthened its portfolio with the acquisition of Playtex. The $1.9 billion acquisition has been a huge driver to Energizer’s sales. In 2009, Energizer furthered its razor segment with the acquisition of Edge and Skintimate from S.C. Johnson. Due to acquisitions, Energizer sales have grown at compound annual growth rates in the double digits. Back in fiscal 2002, Energizer posted earnings per share of $1.92 on sales of $1.74 billion, In fiscal 2012, Energizer earned $6.22 per share on sales of $4.57 billion.
Energizer Holdings is in the middle of a corporate restructuring that is scheduled to be completed in 2015. The restructure is expected to save the company $200 million. That plan, along with strategic acquisitions, should have Energizer shareholders bullish going forward as the company takes on larger rivals like Procter & Gamble.
Investors should recognize the success Energizer Holdings has had with acquisitions in the past. This is a strong and relatively cheap acquisition. With the feminine care brands acquired, Energizer Holdings further diversifies away from batteries. Rivals like Procter & Gamble and Kimberly Clark should be a little scared concerning their feminine care brands. With strong earnings per share and revenue growth expected, Energizer Holdings shares should be purchased for the long haul.
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Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Energizer Holdings, Kimberly-Clark, and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!