Prior to 2013, price, costs and margins had been a battery industry concern for years. Duracell (Berkshire Hathaway, NYSE: BRK.A, BRK.B), the company that had led all price changes since the mid 1970s had not led any pricing action since 2007. And that price impact was mitigated by the switch to larger pack sizes at lower per cell (NASDAQ:UNIT) prices. Alkaline category pricing got even more complex when Duracell ran bonus pack and free goods offers in 2009 and 2010 to help recover share losses. An already soft category was in danger of losing its profitability until Energizer (NYSE: ENR) bit the bullet and led the price action for the category in March 2011 and again a year later in February 2012. That courageous move restored margins and profitability for the category, but came with consequences from which they have finally recovered. There have been no pricing actions in the category since February 2012. Rayovac, (Spectrum Brands, NYSE: SPB) while lower priced than the premium battery brands, has typically followed either Duracell or Energizer on a percentage basis in all pricing actions.
That need for pricing was exacerbated by the run-up in costs of two key battery commodities zinc and graphite in the 2010 to 2012 period.
Alkaline Battery Pricing
By early 2013, U.S. retail pricing stabilized and the impact of the 2012 pricing action was fully embedded at retail. Europe, which had always been a more challenging price market than the U.S., finally saw pricing gains at retail in 2013 and 2014, leveling off in late 2014.
The last 3 years has continued with stable pricing with no commodity cost pressures.
Four commodities cover 95% of the material cost of an alkaline battery. Of those, Zinc and Manganese have shown the most volatility over the last 7 years. Both of these have dropped from the unusual highs of mid-2011. All 4 of these commodities saw lows around year end 2015 along with most other commodities. We have since seen some recovery in commodity prices, but are still well off the 2011 peaks. Going forward, zinc should track with most other commodities and graphite should be softer in line with increased production capability. (See this article from a fellow Seeking Alpha Contributor.)
Alkaline Materials Cost Impact
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Further, all of the battery companies have done a good job rationalizing manufacturing plants and equipment, and their supply chains with those cost improvements now fully embedded in their cost structures.
Rational pricing from both Energizer and Duracell should keep pricing from becoming an issue for margins. The battery companies should have enough margin and cost cutting to absorb some modest hits in cost from EMD (Electrolytic Manganese Dioxide) and Zinc.
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.