Energizer Holdings Inc posted weaker-than-expected quarterly profit, weighed down by heavy spending to promote its new Schick Hydro razor, and offered a bleak full-year outlook, sending its shares down 14 percent in premarket trading.
The company issued coupons and promoted its Hydro razor with in-store displays, which led to lower gross margin and higher advertising and promotion spending.
At the same time, the maker of Energizer batteries faces higher costs for zinc, steel and silver, which will add pressure as the fiscal year progresses.
For the 2011 fiscal year, Energizer said it expects earnings, excluding one-time items, of $5.10 to $5.30 a share. Analysts have been expecting $6.12, according to Thomson Reuters I/B/E/S.
Sentiment was very poor heading into earnings, but no one was prepared for this, said JP Morgan analyst John Faucher.
Faucher, who has an overweight rating on Energizer, said he expects the stock to trade in the low to mid $60's.
Shares of Energizer fell 14.4 percent to $62.25 in premarket trading.
Energizer competes against larger rival Procter & Gamble Co in razors, batteries and tampons. Last week, P&G said it was selling so many of its new Gillette Fusion ProGlide razors that it had to ramp up production. P&G also said customers were buying blades for Fusion ProGlide at a much faster rate than they were replenishing Hydro.
Energizer fired back on Tuesday, saying U.S. repeat purchases of Hydro are at the highest level Energizer has ever seen for one of its new products at this stage, and among the highest it has seen in the overall blade and razor category.
PROFIT FALLS, SALES FLAT
Energizer's net income for the fiscal first quarter ended December 31 fell to $110.4 million, or $1.55 a share, from $125.7 million, or $1.78 a share, a year earlier.
Excluding one-time items, it earned $1.68 a share, far short of the $1.92 analysts had expected.
Sales were essentially flat at $1.18 million.
Gross margin fell to 47.1 percent of net sales from 47.6 percent a year earlier, while advertising and promotion spending rose to 10.9 percent of net sales from 7.5 percent.
The company expects the household product unit, which includes batteries, to post a lower profit this year. It said its personal care segment, which includes razors, should report a modestly higher profit.
Second-quarter profit should be significantly lower than a year earlier, the third quarter will have a smaller decline, and there should be improvement in the fourth quarter, Energizer said.
Both Energizer and P&G's Duracell brand increased the number of alkaline batteries in packages sold in the United States last year without reducing the price of the package, lowering the price per battery. They are now going back to normal package sizes, raising the price per battery.
Energizer also said it would raise prices on C, D and 9-volt batteries at the end of its current second quarter.
The company expects $20 million to $25 million in higher costs for the rest of fiscal 2011, driven by higher costs for zinc, steel and silver.
Last week, P&G said it expects about $1 billion in increased commodity costs this year, about double what it expected in July.
(Reporting by Jessica Wohl in Chicago and Ben Klayman in Detroit, editing by Gerald E. McCormick and John Wallace)