Why the Battery Business Is Losing Its Power

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Energizer Bunny, 9/2014,  by Mike Mozart of TheToyChannel and JeepersMedia on YouTube #energizer #Bunny
Well, that was fast. Mere weeks after Procter & Gamble (PG) announced its intention to split off its familiar Duracell brand of alkaline batteries, it found a deep-pocketed buyer in Warren Buffett's Berkshire Hathaway (BRK-A) (BRK-B). Meanwhile, rival Energizer Holdings (ENR) is hiving off the unit with the product that gives the company its name, Energizer batteries.

Those portable little power plants were once ubiquitous in the American household. What's changed so much that their parent companies no longer want much to do with them?

Smart Phone, Dumb Camera

The key reason is that a great deal of technology has moved past the battery -- or at least the alkaline variety suitable for most home electronics.

These days, smartphones and tablets effectively do a lot of the work it took a host of devices to do only a few years ago. Even older models from Apple (AAPL) and Samsung (SSNLF) can take photos, record video and play a user's music collection.

The transition has been swift. Just take that onetime hot product, the digital still camera: According to the Camera & Imaging Products Association, an industry trade group, worldwide shipments of the devices amounted to 31 million in January to September of this year. That's a scary 33 percent decline from the same period of 2013.

Many home electronics gadgets are powered by alkaline batteries, hence the sales drop-off in such gadgets has led to a drop-off in battery sales. Duracell is the market leader, but there isn't much glory in leading a shrinking market. According to researcher Information Resources, as quoted by Cincinnati.com, domestic sales of the brand have dropped by around 1 percent (to $950 million) over the past year.

Batteries for Sale

For Procter & Gamble, saying goodbye to Duracell is part of a broader effort by the consumer goods giant to gut its product line. This past summer, the company announced that it would take the ax to as many as 100 of its products, or over 50 percent of the total.

At the time, perhaps in an effort not to spook its investors, the company said that the brands getting the boot would be its more obscure products, not famous names with big sales like Duracell.

But revenue and volume growth are what seem to be the priority for Procter & Gamble just now; in its most recent quarter, total net sales were stagnant on a year-over-year basis, as was total volume (i.e., the number of units the company sells). Net profit dropped a queasy 34 percent.

In light of that, it's easy to see why the company would want to part ways with the flatlining battery brand.

Energy Depletion

Energizer Holdings plans to split in two, with the company's household products and personal care divisions becoming separate publicly traded companies.

As for household products (chiefly consisting of batteries and devices powered by them), the company is in more difficult straits than Procter & Gamble. In the summer of 2013, a pair of huge retailers -- Walmart's (WMT) Sam's Club bulk discount chain and Family Dollar (FDO) -- stopped selling the company's batteries, in favor of Duracell.

That was a tough one-two blow, particularly coming a year after Walmart's eponymous flagship chain reduced its shelf space for Energizer's batteries. Although the company has admirably managed to weather both that storm and the overall decline of the battery market, the household products segment's results are comparatively lackluster.

In Energizer Holdings' most recently reported quarter, the division's net sales grew by less than 3 percent. That was in sharp contrast to top line at personal care, which advanced by nearly 11 percent.

A more worrying figure is the revenue mix. In the company's fiscal 2014, household products were responsible for 41 percent of total sales. That number eight years prior was 70 percent.

The Energizer Bunny Marches Alone

When companies rid themselves of underperforming divisions, terms like "unlocking value" are often used. This indicates that since a drag on sales/profitability has been jettisoned, the affected firm is better positioned to grow at attractive rates.

That looks like it'll be the case for both Procter & Gamble and Energizer Holdings' personal care wing, but it raises a disturbing question: Can their battery divisions make it on their own? After all, there seems to be almost no scope for growth these days. The days of the house full of alkaline-battery-powered gadgets, after all, seem to be coming to a rapid end.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Apple, Berkshire Hathaway and Procter & Gamble. The Motley Fool owns shares of Apple and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. Want to invest in one of the newest all-in-one gadgets? Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.
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