The Energizer Opportunity Revisited

Summary

• Share gains from increased focus at Energizer.
• Share losses at Duracell.
• The gap between Energizer and Duracell has closed from 17.2 share points in January to 12.8 share points in August.
• Some Duracell exclusive accounts are vulnerable to Energizer inroads.

The Energizer Opportunity Revisited

Background

Energizer (NYSE: NYSE:ENR) was spun off as an independent battery company on July 1, 2015, a little over a year ago, which had been first announced 15 months earlier back in April 2014. Since those announcements, we have been looking for the benefits that increased focus as a stand-alone battery company could bring to their competitive position. Those expectations were complicated when P&G (NYSE: PG) announced the spin-off of Duracell in October 2014 which could have made a Duracell a stand-alone battery company with the same benefit of focus. That changed when P&G agreed to sell Duracell to Berkshire Hathaway (NYSE: BRK.A, BRK.B) in November 2014. After some delays that deal closed at the end of February 2016.

Energizer is clearly operating as an independent company, although the Handstands acquisition was of concern. With Duracell buried inside Berkshire Hathaway, it is difficult to see how independent they will be, but early indications are that they will have a fair degree of autonomy. However, they are still distracted by the needs for re-structuring the company to function independently both for all the backroom functions and the need for an independent sales force.

The Energizer - Duracell Share Interactions

The interesting story is the tradeoff between Energizer and Duracell in shares since the beginning of the year. Within Nielsen outlets the shift in the gap between Energizer and Duracell has moved almost 4½ share points in Energizer's favor, from 17.2 for the 4 weeks ending 1/23/16, to 12.8 for the latest 4 weeks ending 8/13/16. We might have expected to see this sort of movement begin by late last year with that focus from Energizer as an independent company (and the 15 months prior to get ready for it). However, it is gratifying to see the impacts - and a testament to the longer planning lead times at manufacturers and retailers than I expected.

Within Nielsen outlets, this is coming from facings improvements at Walmart (NYSE: WMT) with none of the fanfare of the original losses; my store checks now put Energizer at 38%, with Duracell and Rayovac (Spectrum, NYSE: SPB) at 27% and 35% respectively. The Nielsen data suggest similar progress at other Nielsen tracked outlets. And, Energizer recently reported the same kind of share improvement in non-Nielsen outlets such as Home Depot (NYSE: HD) where I saw Energizer with 65% of the main and the lighting racks combined - and a 7 to 1 lead vs. Duracell in cardboard free standing displays.

The Energizer Battery Opportunity Going Forward

Looking at the major battery retailers, there are none with Energizer exclusivity that could put them at risk to a challenge from Duracell, while there are several Duracell exclusives that could be vulnerable to Energizer inroads including Sam's Club, Costco (NASDAQ: COST), CVS (NYSE: CVS), K-Mart (Sears, NASDAQ: SHLD), Rite Aid (NYSE: RAD) and Toys R Us. These are probably all set for the rest of the 2016 calendar year and the 2016 Christmas buying season, but several could be opportunities as we look at 2017.

As we move into the Back to School and then Christmas seasons we will be looking at the in store merchandising activity from the battery companies where organization and focus with their key retailers can have an impact on shares

Conclusion

Energizer increasingly looks like they are capitalizing on the focus for share growth. We have not seen enough from Duracell to really understand the underlying strategy or focus.

Analyst’s 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.