10-Q: Energizer Reports Q1 Loss Amid Tariff Headwinds, Project Momentum

Energizer Holdings, Inc. reported a net loss of $3.4 million for the first fiscal quarter of 2026, despite a 6.5% increase in net sales, primarily due to higher operating costs and tariff impacts.

Summary

• Net sales for the first fiscal quarter of 2026 increased by 6.5% to $778.9 million, up from $731.7 million in the prior year quarter.
• The company reported a net loss of $3.4 million, or $0.05 per common share, for Q1 2026, a significant decline from net earnings of $22.3 million, or $0.30 per common share, in Q1 2025.
• Adjusted diluted net earnings per common share decreased to $0.31 in Q1 2026 from $0.67 in Q1 2025.
• Organic net sales declined by 4.3%, primarily due to a 4.5% decrease in volumes from softer consumer demand in the U.S. and higher storm activity in the prior year, partially offset by pricing increases of 0.2%.
• The acquisition of Advanced Power Solutions (APS) contributed $64.6 million to net sales in Q1 2026.
• Gross margin percentage on a reported basis decreased to 32.9% from 36.8% in the prior year, with adjusted gross margin falling to 34.9% from 40.0%.
• The decline in gross margin was driven by increased input costs from production inefficiencies, higher tariff costs, unfavorable product mix, and the lower margin profile of the APS business, partially offset by $9.7 million in production tax credits.
• Project Momentum, a profit recovery program, has been extended to a fourth year (fiscal 2026) with estimated pre-tax costs of $35.0 million to $40.0 million and additional restructuring costs of $25.0 million to $30.0 million for U.S. manufacturing efficiency initiatives.
• The company incurred $30.9 million in pre-tax restructuring and related costs in Q1 2026, realizing approximately $2 million in savings and $1 million in cost avoidance from the extended program through December 31, 2025.
• Cash flow from operating activities significantly increased to $149.5 million in Q1 2026 from $77.0 million in Q1 2025, driven by working capital changes and a $34.6 million refund from production tax credits.
• The company pre-paid $90.0 million of its Term Loan in Q1 2026, resulting in a $0.9 million loss on extinguishment/modification of debt.
• Repurchased 245,000 shares of common stock for $4.5 million at an average price of $18.26 per share during the quarter, with 3.3 million shares remaining under authorization.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging quarter with significant profitability declines, despite revenue growth. While strategic initiatives like Project Momentum and tax credits offer future potential, current operational headwinds and a net loss weigh heavily on sentiment.

Positives

• Net sales increased by 6.5% to $778.9 million in Q1 2026, demonstrating overall revenue growth.
• The APS acquisition contributed $64.6 million to net sales, expanding production capacity in Europe and the customer base.
• The company recognized a $9.7 million production tax credit under the Inflation Reduction Act of 2022, with expectations of $55 million to $65 million annually in future years.
• Cash flow from operating activities significantly improved to $149.5 million, up from $77.0 million in the prior year, largely due to favorable working capital changes and the production tax credit refund.
• Successfully realized approximately $206 million in savings from Project Momentum during its first three years through fiscal year 2025.
• Reduced long-term debt by pre-paying $90.0 million of the Term Loan in Q1 2026 and remains in compliance with all debt covenants.
• Maintained a quarterly cash dividend of $0.30 per share, demonstrating commitment to shareholder returns.

Negatives

• Reported a net loss of $3.4 million in Q1 2026, a substantial decline from net earnings of $22.3 million in Q1 2025.
• Diluted net earnings per common share turned negative to $(0.05) from $0.30 in the prior year.
• Adjusted diluted net earnings per common share decreased significantly to $0.31 from $0.67.
• Organic net sales declined by 4.3% due to softer consumer demand in the U.S. and unfavorable volume comparisons.
• Gross margin percentage decreased to 32.9% (reported) and 34.9% (adjusted), impacted by increased input costs, production inefficiencies, higher tariffs, and unfavorable product mix.
• Selling, general and administrative expenses increased to $149.3 million, or 19.2% of net sales, driven by the APS business, digital transformation, and higher legal/stock compensation fees.
• Segment profit for Batteries & Lights decreased by 11.4%, and for Auto Care, it decreased by 55.6%, reflecting challenges in both core business areas.
• Incurred $30.9 million in pre-tax restructuring and related costs in Q1 2026 for the extended Project Momentum program, indicating ongoing operational adjustments and expenses.

Risks

• Global economic and financial market conditions could materially and negatively impact the company.
• Intense competition in product categories may hinder business strategy, profitability, or customer relationships.
• Changes in the retail environment and consumer preferences could adversely affect business, financial condition, and results of operations.
• Loss or impairment of brand reputation or failure of marketing plans could have an adverse effect.
• Loss of any principal customers could significantly decrease sales and profitability.
• Ability to meet growth targets depends on successful product, marketing, and operations innovation and responses to competitive innovation and changing consumer habits.
• International operations are subject to risks, including tariffs and currency fluctuations, which could adversely affect results.
• Must successfully manage demand, supply, and operational challenges from disease outbreaks.
• Failure to protect intellectual property rights could allow competitors to market similar products, affecting market share and results.
• Changes in production costs, including raw material prices and transportation costs, from tariffs, inflation, or otherwise, could erode profit margins.
• Reliance on certain significant suppliers subjects the company to risks, including possible interruptions in supply.
• Business is vulnerable to raw material availability and ability to forecast customer demand and manage production capacity.
• Manufacturing facilities, supply channels, or other business operations may be subject to disruption from events beyond control.
• Future results may be affected by operational execution, including ability to achieve cost savings from restructuring efforts.
• Goodwill and indefinite-lived intangible assets may become impaired, requiring significant impairment charges.
• Sales of certain products are seasonal, and adverse weather during peak selling seasons could have a material adverse effect.
• Use of artificial intelligence could result in reputational harm, competitive harm, and legal liability.
• Failure of a key information technology system could adversely impact ability to conduct business.
• Significant debt obligations could adversely affect the business.
• Credit ratings are important to the cost of capital.
• May experience losses or be subject to increased funding and expenses related to pension plans.
• Estimates and assumptions for financial projections may prove inaccurate, causing actual results to differ materially.
• Strategic acquisitions, divestitures, or joint ventures might lead to operating difficulties, dilution, and other consequences.
• Business involves potential for product liability claims, labeling claims, commercial claims, and other legal claims, which could affect results and lead to recalls.
• Subject to increasing government regulations in the U.S. and abroad that could impose material costs.
• Ability to benefit from Section 45X production tax credits is not guaranteed and depends on federal government implementation.
• Increased focus on sustainability issues may have an adverse effect and damage reputation.
• Subject to environmental laws and regulations that may expose to significant liabilities.

Future Outlook

Energizer anticipates continued macroeconomic pressures and geopolitical instability in fiscal 2026, including risks of higher tariffs, transportation/logistical constraints, and commodity costs, which could impact gross margins and operating results. The company expects future production tax credits under Section 45X of the IRA to be approximately $55 million to $65 million annually prior to the phase-out period. Project Momentum has been extended for a fourth year with estimated pre-tax costs of $35.0 million to $40.0 million and additional restructuring costs of $25.0 million to $30.0 million, aiming for $15.0 million to $20.0 million in savings and $15.0 million to $25.0 million in tariff mitigation/cost avoidance, with full realization by September 30, 2026. Total investing cash outflows of approximately $75 million to $85 million are anticipated in fiscal 2026 for capital expenditures, including $25 million to $35 million for Project Momentum initiatives. The company expects to remain in compliance with debt covenants throughout the next twelve months.

Management Comments

• Management views the exclusion of general corporate expenses, intangible amortization, interest expense, debt extinguishment loss, other items, restructuring, network transition, and acquisition/integration costs from segment profit as reflective of how they evaluate segment performance.
• Management believes that certain non-GAAP financial measures provide users with additional meaningful comparisons to the corresponding historical or future period, and are used for management incentive compensation.
• Management's judgment and best estimate, utilizing the most current guidance, form the basis for amounts recognized in the Consolidated (Condensed) Financial Statements regarding production tax credits, with actual results potentially differing from current estimates.
• Management believes that its liability, if any, arising from pending legal proceedings, asserted legal claims, and known potential legal claims is not reasonably likely to be material to the company's financial position, results of operations, or cash flows, taking into account established accruals.

Industry Context

StockSavvy.ai notes that Energizer's performance reflects broader industry challenges, including inflationary pressures, supply chain disruptions, and softening consumer demand, particularly in the U.S. The strategic extension of 'Project Momentum' and investments in U.S. manufacturing efficiency, alongside the utilization of IRA production tax credits, indicate a proactive approach to mitigate these headwinds and enhance long-term competitiveness. The acquisition of APS also points to a strategy of expanding production capacity and market reach in key international regions, a common theme among global consumer goods companies seeking scale and efficiency.

Comparison to Industry Standards

• NA

Legal Proceedings

• Three purported class action lawsuits were filed against the company and Wal-Mart Inc. in the Northern District of California, alleging conspiracy to inflate prices of certain Energizer battery and lighting products in violation of antitrust and consumer protection laws. The plaintiffs seek monetary damages, costs, attorneys' fees, and injunctive relief. The company believes it has substantial defenses and intends to vigorously defend against the claims, with no accruals recorded as the likelihood of loss is not probable nor estimable.

Stakeholder Impact

• Shareholders: Experienced a net loss and a significant decline in diluted EPS, but received consistent quarterly dividends of $0.30 per share and benefited from share repurchases.
• Employees: Impacted by ongoing restructuring efforts under Project Momentum, which includes organizational efficiency enhancements and network optimization.
• Customers: May experience pricing adjustments due to tariffs and innovation, while facing softer consumer demand in the U.S.
• Suppliers: Participate in a voluntary Supplier Financing Program, allowing early payment of invoices from financial institutions, with the company's obligations remaining unaffected.
• Creditors: The company pre-paid $90.0 million of its Term Loan and remains in compliance with debt covenants, indicating responsible debt management.

Next Steps

• Continue to implement the extended Project Momentum program, focusing on network and sourcing changes, European manufacturing redesign, U.S. manufacturing footprint investment, and SG&A cost reduction, with full realization of costs and savings expected by September 30, 2026.
• Monitor and evaluate the effects of the Inflation Reduction Act of 2022, particularly Section 45X production tax credits, as more guidance is issued.
• Manage ongoing macroeconomic pressures, geopolitical instability, tariffs, transportation/logistical constraints, and commodity costs in fiscal 2026.
• Fund anticipated capital expenditures of approximately $75 million to $85 million in fiscal 2026, including $25 million to $35 million for Project Momentum initiatives.
• Continue to assess incremental tariff cost exposure and implement mitigation strategies.
• The Board of Directors declared a cash dividend for the second quarter of fiscal 2026 of $0.30 per share, payable on March 11, 2026, to shareholders of record as of February 18, 2026.
• Future share repurchases will be determined based on market conditions, capital allocation objectives, and other factors, with 3.3 million shares remaining under current authorization.

Key Dates

Recommendation

The company faces significant headwinds, evidenced by the net loss and substantial decline in adjusted EPS, primarily due to increased costs, tariffs, and softer organic demand. While the increase in net sales and strong operating cash flow are positive, driven partly by the APS acquisition and production tax credits, these do not fully offset the core profitability challenges. Project Momentum's extension and planned investments indicate a long-term strategy to improve efficiency and mitigate tariffs, but these initiatives also incur substantial costs in the short term. Given the mixed results and ongoing operational adjustments, a 'hold' recommendation is appropriate, as investors should await clearer signs of sustained profitability improvement and successful execution of Project Momentum before considering a stronger position.

Keywords

Energizer Holdings, ENR, Quarterly Report, 10-Q, Batteries & Lights, Auto Care, Net Sales, Net Loss, EPS, Gross Margin, Project Momentum, Tariffs, Production Tax Credits, Debt Management, Acquisition, Advanced Power Solutions, Cash Flow, Share Repurchase, Dividends, Consumer Demand, Inflation Reduction Act, SEC Filing