Battery maker Energizer (ENR) announced Tuesday morning that a recent self-examination has identified $175 million-$200 million in annual cost savings. The firm anticipates 75%-80% of the cost savings will directly lead to increased profitability while the rest will go towards investment in long-term growth opportunities. It expects to take a one-time charge no greater than 1.25x the gross savings.
The company wasn’t too specific with respect to the cuts, but it did list the strategies as:
- Manufacturing facility rationalization, including support infrastructure, in the Household Products division;
- Reduction of the global workforce;
- Changes in Energizer’s go-to-market strategies, including a streamlined international organization;
- Reduction in overhead spending; and
- Procurement savings.
Energizer expects some improvements in gross margins and SG&A, as well as increased cash flow. We suspect a combination of facility consolidation and layoffs will be the major drivers behind the cost savings. We’re not surprised, since we’ve seen major cost savings initiatives from larger companies like Procter & Gamble (click ticker for report: ) and Johnson & Johnson (click ticker for report: ). With consumers still cash strapped, its major brands (Energizer, Playtex, Edge, Schick) have remained relevant but continue to struggle. We don’t think consumer staples brands have the same pricing power they had prior to the recession, so profitability will have to be driven more by cost savings and efficiencies rather than price increases (at least in the near term).
We don’t think Energizer’s shares are too expensive at 12x forward earnings, and its 2.3% annual dividend yield isn’t terrible. However, we don’t think its yield is high enough to be included in the portfolio of our Dividend Growth Newsletter.