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Original Source: FD (FAIR DISCLOSURE) WIRE
. Kent Hussey, Rayovac Corp., President & COO . Randy Steward, Rayovac Corp., EVP & CFO . Dave Jones, Rayovac Corp., Chairman & CEO
ROV reported global sales of $454m in 1Q04. Gross profit margin for 1Q04 was 42.5%, an increase of 650 bp from 1Q03. ROV is increasing its pro forma FY04 guidance from $1.60-1.70 range provided on the last earnings call to $1.70-1.75. Q&A Focus: EBITDA, acquisition, Chinese markets, and battery business.
A. Key Data From Call 1. 1Q04 diluted EPS = $0.67. 2. 1Q04 pro forma diluted EPS = $0.65. 3. 1Q04 selling expense = $101.4m. 4. 1Q04 R&D expense = $4.3m. 5. 1Q04 G&A expense = $36.5m.
S1. 1Q04 Results (D.H.) 1. Highlights: 1. Diluted EPS was $0.67 for 1Q04 vs. a loss of $0.02 in 1Q03. 2. Pro forma diluted EPS from continuing operations was $0.65, at the high end of the co.'s recently revised guidance of $0.62-0.65 and $0.01 above First Call Consensus estimates. 3. 1Q04 diluted EPS performance represents a 97% over $0.33 reported in 1Q03. 1. This was a result of strong revenue growth in all three major geographic regions of the world. 4. Global sales increased to $454m in 1Q04 vs. $406.2m, a strong 11.8% increase over 1Q03. 2. North American Market: 1. ROV's North American battery and lighting product revenues
increased from $107.1m to $121.3m in 1Q04, which is a 13.3%
increase over 1Q03. 1. This significant improvement in performance is directly related to: 1. ROV's new Fifty Percent More marketing strategy initiated early this year in the US marketplace and rolled out to virtually all accounts in 1Q04. 2. Increased alkaline and rechargeable advertising during 1Q04. 2. Alkaline market share improved approx. one share point. 3. ROV's traditional North American battery and lighting business represented 27% of the co.'s global revenue during 1Q04. 3. Latin American Market:
1. Latin American market grew from $34.4m to $36.2m in 1Q04, an
increase of 5.2% over 1Q03. 2. Early signs of recovery are apparent in several Latin American economies including Mexico, Chile, Argentina, Columbia, and Guatemala. 3. Problems still persist in several countries in the region including Venezuela, Haiti, and the Dominican Republic. 1. This regional weakness offset some of the optimism that was felt in other markets. 4. ROV and VARTA brands continue to gain shares in both the important alkaline and zinc carbon markets in the region. 5. Latin America represented 8% of the co.'s global sales for the quarter. 4. European Market: 1. Europe battery and lighting revenue grew significantly from $118.7m to $135.4m in 1Q04, an increase of 14.1% over 1Q03. 1. This improvement was largely a result of favorable FX as well as a modest improvement in VARTA alkaline market share. 2. Overall economic growth throughout Europe remains fairly
stagnant as the continent is significantly burdened by budget
deficits and unemployment. 3. ROV's traditional battery and lighting business in Europe represented 30% of the global sales for 1Q04. 5. Remington: 1. Remington shaving, grooming, and personal care business grew from $146m to $161m in 1Q04, representing 10.3% growth over 1Q03. 1. This result excludes revenue from Remington global retail service centers, which will be discontinued by the end of 2Q. 2. Remington's growth resulted from several major new men and women shaving and grooming product introductions as well as improved sell-through results achieved due to significantly increased advertising spending during the period. 3. Strong market share gains occurred in both men and women
shaving and grooming products, both in North America and
several important European markets. 4. Remington's product revenue represented 35% of the co.'s global revenue during 1Q04.
5. Remington integration activities are in full swing with major
activities planned over the balance of this year. 6. Acquisition of NINGBO BAOWANG: 1. On 01/19/03, ROV announced that it signed an agreement to acquire 85% of the NINGBO BAOWANG Battery Company of Ninghai, China. 2. ROV anticipates revenue of approx. $35m in 2004 from this co. 1. This acquisition provides ROV a modern, extremely low cost manufacturing facility. 2. This facility is expected to help creating a world-class facility with significant capacity of over 1b batteries for ROV. 3. ROV's initial investment in this venture is $24m. 4. ROV anticipates that this acquisition will be slightly accretive in the first year and significantly accretive thereafter. 5. This strategic acquisition is expected to close over the next 60-90 days.
S2. Additional Comments (K.H.) 1. Gross Profit Margin: 1. Gross profit margin for 1Q04 was 42.5%, an increase of 650 bp from 1Q03, which included restructuring and related charges associated with the co.'s global VARTA integration activities. 2. Gross profit margin increased 280 bp from last year's pro forma gross profit margin of 39.7%. 3. The margins benefited from the acquisition of Remington, whose gross profit margins were higher than ROV's battery and lighting products business. 4. Within historic ROV results, the favorable impact of the co.'s restructuring programs implemented in FY03 were offset by lower gross profit margins in North America as a result of an unfavorable customer and product line mix and the nearly full rollout of alkaline 'Fifty Percent More' program. 5. Excluding the impact of the retail service …