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Quarantine Performance Review: Energizer Batteries (NYSE:ENR)

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Via SeekingAlpha.com

Background

The battery category was weak up through February 2020, and Energizer (NYSE:ENR) was steadily declining in share. Since March, with quarantine effects, battery sales have been rising each week. But Energizer shares continue to be down, limiting the benefits from alkaline gains during this quarantine impact period.

Category Trends

For the 52 weeks ending February 22, the alkaline battery category was essentially level with year ago, at -0.1% which was actually an improvement vs. most of 2019. Without the lockdown, our forecast would have been for a level to slightly declining category for 2020. Quarantine buying affected sales, and for the 4-week period ending March 21, alkaline sales were up 29.6%, enough to bring the 52-week average to +2.6%.

US Alkaline Battery Trends, Source: Author

Source: Author

Quarantines change everything. We saw pickup vs. year ago with +10% for the period ending March 7; by the week ending March 21, the category was up 59%. The two following weeks were still strong at +28 % and +18%. For reference, we show comparisons from some other key categories and for household products, of which batteries is a part. Not surprisingly, liquid soap is the strongest. Grooming categories are weakest, with lipstick down. The pattern suggests lots of early battery pantry loading likely due to worry about shortages as stay-at-home orders were enacted. The pattern over the last two weeks may still have some pantry loading, but we are also seeing increased usage with the “stay-at-home effect,” more usage of toys and games with children home and more batteries for TV remotes. And with lots of home inventory of batteries, device usage should increase consumption of batteries, rather than dropping the device usage and moving on to other activities because there are no batteries in the pantry. For the duration of the stay-at-home orders, we would expect to see the category up about 10%. If that takes until mid-June (who knows?) and we see a plus 2% thereafter for the residual effects of increased device usage, we might see a plus 12% for the year.

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Qurantine Review Key Categories By WeekSource: Author

Brand Trends

Both major brands were comparable prior to the Energizer acquisition of Rayovac. Energizer has since lost share to both Duracell and Private Label and this continued into the latest period ending March 21 that includes the first impacts of quarantine. Duracell and Energizer were at 44.0 and 42.8 shares respectively in December 2019. But after a few periods where that gap was being closed, we see continued Energizer declines down to 37.7 vs. Duracell (owned by Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)) at 46.6. Energizer was certainly hurt by the launch of Duracell Optimum and the extensive display space garnered by Duracell, but those share declines continue. And Private Label has grown during the same period, suggesting that Energizer has been unable to capitalize on its marketing goals with the value brand Rayovac. This continues into the quarantine impact period, the four weeks ending March 21.

We see little opportunity for Energizer to recover share during the pandemic, probably at least through mid-June. After that, it will still be challenged with how to effectively position the value brand Rayovac.

US Alkaline Value Brand TrendsSource: Author

This is our weekly chart by brand using share numbers to back into weekly growth – and for the last two periods, since we do not yet have share numbers, estimating based on the March 21 shares. This shows the Energizer weakness and also the strength in Private Label. As more consumers try the Private Label and realize that performance is the same as branded, that may also affect brand preferences and weaken margins.

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Household Products By ChannelB y WeekSource: Author

Channels

The big Household Products gains are in Food (Supermarkets). In fact, by the latest week, only Food was still showing strong gains in Household Products. The battery category benefit here is that Food sales provide the best margins. We are also seeing a large increase in delivery and pickup vs. in-store shopping, up to 11% for non-edibles and 62% for edibles (From IRI), so display activity, the most effective battery promotional activity, cannot be effective.

Household Products By WeekSource: Author

Implications for Investors

While many stocks will see recovery as the lockdowns and quarantines end, we expect Energizer to lag any of the averages due to the competitive and Rayovac marketing integration issues. We will see a short-term sales lift from quarantines, but this stock is still burdened by competitive effects vs. Duracell and Private Label. Any margin benefits from the higher Food channel sales will be offset by margin impacts of higher Private Label. Also, note that this review covers retail with no online impacts. Online sales are likely up significantly and have a much higher Private Label component.

Disclosure: I am/we are long ENR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.




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