Keeping it Simple With Energizer Holdings
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Being a successful investor does not need to be that difficult. A simple investment in an easy to comprehend business model is often the best way to make long-term gains in the stock market. Sure, you can occasionally hit it big on a complicated biotech speculative pick or what have you, but simplicity is one of the keys to consistent gains in the stock market. And in the universe of publicly-traded companies, it does not get much simpler or more consistent than the consumer goods companies. Companies such as Energizer Holdings (NYSE: ENR).
Not Your Father’s Battery Company
If you are unfamiliar with Energizer Holdings, I can imagine your reaction reading that opening paragraph. “Consistent long-term gains? Energizer? The company that sells 9-volt batteries? Nonsense!” Hold on for a second, because you might be surprised by the company’s performance over the last decade. That is because in the past 10-years, Energizer Holdings has managed to increase its earnings per share from $1.92 in 2002 to $6.22 in 2012, with net sales jumping from about $1.74 billion to $4.567 billion.
How did Energizer accomplish that by selling only disposable batteries? That’s easy to answer. It is because they didn’t sell only disposable batteries. In 2003, Energizer Holdings began the process of broadening its portfolio of products, transforming the company from merely a seller of batteries into a miniaturized version of the consumer goods conglomerate Procter & Gamble (NYSE: PG).
More than Just Batteries
In 2003, Energizer acquired the Schick-Wilkinson Sword razor business from Pfizer. This marked the company’s first foray into personal care products and the shaving category. Energizer's management believed the acquisition would be a good match for the company. The reasoning was that the type of retailers that purchase batteries are also typically the type of retailers that purchase shaving razors; making razors an easy product category to integrate into their business. And Energizer was 100% correct. The acquisition of Schick and Wilkinson Sword proved extremely successful for the company.
Seeing how well their first personal care acquisition had gone, in 2007 Energizer Holdings decided to acquire Playtex Products, the feminine care and baby products company. The Playtex acquisition also included Hawaiian Tropic and Banana Boat sunscreen products. The acquisition spree did not end there. In 2009, the company acquired the Edge and Skintimate shaving gel brands from S.C. Johnson and in 2010 they acquired American Safety Razor in a bankruptcy auction. Today Energizer Holdings' product selection includes batteries, lightning, shaving, sun protection, feminine care, baby care, personal wipes, and pet care products.
Batteries Running Low
Energizer Holdings’ share performance has been great year to date, with the stock climbing about 30%. As strong as that performance has been, I wonder how much better it could have been if the company wasn’t named after a product in long-term decline. Energizer Holdings’ battery segment is a cash-generator for the company, with battery brands and that pink bunny well-known throughout the world. But it is, however, a cash-generator in decline. As we all know by looking at our various battery-powered electronic devices scattered throughout our homes and workplaces, there are fewer and fewer devices being powered by a pack of Energizer AAs or Everyday C batteries. And as more and more device manufactures continue to opt for built-in rechargeable batteries, Energizer Holdings’ battery segment will be further pressured.
Energizer Holdings has been working to lessen the impact that future weakness in the battery segment will have on its balance sheet. In 2011, the company closed its alkaline product facility in Switzerland and its carbon zinc production facility in the Philippines. The company also lowered its product capacity among its remaining facilities, reducing its overall battery SKU count by 30%. This battery segment-specific restructuring effort had the benefit of saving the company about $34 million in 2012 and brought much needed simplicity to a business model in an increasingly challenging product segment.
Allied Against Procter
Not to focus too much on the negatives, though, as there is much to like about this company. As mentioned earlier, Energizer Holdings is much more than a battery company. One particular area of strength for the company is within their shaving segment. And if recent developments turn out well, that area of strength may become even stronger.
In an effort to better compete with Procter & Gamble’s world-dominating Gillette shaving brand, Energizer Holdings and the British-Dutch consumer goods giant Unilever (NYSE: UN) have teamed up. A joint marketing effort between Energizer Holdings’ Schick and Unilever’s AXE, the two companies will be co-branding some their products together under the new AXE Schick brand. Launched a few months ago, this partnership saw the first of AXE Schick products hit store shelves with 10 SKUs adorned with the new co-branding.
Energizer in particular should benefit greatly from this association, as AXE’s young male customers are very loyal to the AXE brand. While the partnership, if successful, will presumably benefit Energizer Holdings more (the massive Unilever has a greater diversity of products), the partnership is important for both companies to better compete against Procter & Gamble. Schick has already been making gains against Gillette in recent years. Together, the two companies should be able to grow their respective product segments and take share away from P&G.
Foolish Bottom Line
Energizer Holdings has a lot to offer investors, from its declining but still strong cash-generating battery segment, to its fast-growing literal razor-razor blades model and other acquired brands. The management team of this rather simple company has positioned Energizer Holdings to create value for shareholders for many years to come. Add in a decent 1.5% yield from a dividend that was initiated just 11 months ago and you have a potential long-term winner with Energizer Holdings.
The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.
Matthew Luke has no position in any stocks mentioned. The Motley Fool recommends Energizer Holdings, Procter & Gamble, and Unilever. 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!