The Hurricane Harvey Battery Analysis

|
Includes: BRK.A, BRK.B, ENR, SPB
by: Robert Altabet

Summary

The alkaline battery market saw incremental sales from Hurricane Harvey; Next period will show similar category incrementals from Hurricane Irma.

Energizer, Duracell and Rayovac all benefited from these incremental sales.

These disasters remind us that disposable batteries will always have a role in people’s lives that cannot be replaced by rechargeables.

The critical need for retail presence in such disasters cannot be replaced by on-line sales.

Background

Household batteries are on an emergency preparedness item for all disasters, used in flashlights and lanterns for emergency lighting. The first warnings of major storms bring consumers out for purchase of batteries, portable lighting and portable radios. The incremental category sales are typically in the millions of dollars range. While meteorologist hurricane forecasting has improved, predictions of landfall are much less reliable. We have also had a run with few landfalls in the last 10 years and not more than one landfall in a year since 2005. Energizer (ENR), Duracell (owned by Berkshire Hathaway - BRK.A, BRK.B) and Rayovac (owned by Spectrum Brand Holdings - SPB) all do extensive planning each year to assure sufficient battery inventory in place at retail to deal with such emergencies.

2017 Hurricanes

This year brings 2 hurricanes on the Atlantic coast, Harvey and Irma. With no sales data for Puerto Rico or the Virgin Islands, we will not be able to evaluate that impact. We constructed a baseline for expected sales in the absence of an external event, using a +1.7% trend vs. year ago. That gives us +$41 million for retail category impact within Nielsen covered channels, translating to about 56 million retail dollars across all outlets and about $25 million in manufacturers dollars. This represents a 1.7% bump for the category on an annualized basis.

We can see the extraordinary growth here vs. year ago at +25.3% for dollars and +18.5% for units. Along the way, note that the pass through of the pricing action is holding. The next period will show us a clean picture of the Hurricane Irma impact which we expect to be in the same range based on the Nielsen mid-cycle data for the 4 weeks ending 9/23, but which includes both Harvey and Irma, at +31% in dollars. Pantry load impacts on the following periods can be a concern, but going into the Christmas season, consumers will likely find more than enough use for extra batteries in stock.

We should also note the strong Energizer flashlight sales for the period at +58%, worth about $1 million in Nielsen retail dollars. We also saw +16% for Energizer lithium worth about $2 million in Nielsen retail dollars, but not nearly as strong as the alkaline % changes.

Brand Shares

Brand shares were stable, so the incremental by brand is about what would have been expected. In hurricane situations, shares tend to move with inventory availability as shelves get wiped out, so this indicates more than adequate inventory for all brands going into Hurricane Harvey.

Image result for duracell hurricane truck Related image

Implications for Investors

Emergencies like these are a reminder that disposable batteries like alkaline and Energizer’s lithium primary will always have a critical role in people’s lives that cannot be replaced by rechargeables. These situations also highlight the critical need for availability in brick-and-mortar retail stores when the need arises and it is too late to shop online.

While such disasters are inherently unpredictable on any individual basis, we know that hurricane landfalls will occur every few years. The last 10 years saw 6 hurricanes that made landfall with implications for incremental battery sales, but there were 7 hurricanes making landfall in only the previous 5 years. Expecting at least one hurricane to make landfall about every other year should be baked into long term and capacity forecasting for batteries. Nevertheless, these 2 storms will make next year’s comparisons vs. year ago difficult.

Spectrum’s Rayovac battery business and Berkshire’s Duracell battery business are part of much larger companies, so such impacts are not material to those totals for investment purposes, but, as the only stand-alone battery company, Energizer is a meaningful beneficiary of this windfall and its expected recurrence every few years.

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.

Additional disclosure: this is a re-submission per editor's request