What's the Outlook for Stocks in 2025?

Sprouts Farmers Market, Inc. SFM shares have gained 48.7% in the past three months, surpassing the industry and the broader S&P 500 index’s growth of 28.1% and 6.4%, respectively. This strong performance underscores the company’s solid business strategies and market positioning.

Small-cap stocks are stealing the spotlight as we close out 2024, riding high on a perfect storm of political and economic tailwinds. Donald Trump's re-election has sent ripples through the market, with his pro-business agenda sparking a rally that's lifting small companies to new heights.

The Russell 2000 Index (RUT), a key barometer for small-caps, broke out to a new three-year peak following Trump's victory, as investors priced in the president-elect's promises of reduced corporate taxes, favorable tariffs, and deregulation, which are expected to particularly benefit domestically focused small-caps. As we look ahead, many analysts predict these nimble players could continue to outperform, potentially leading the charge into 2025.

Adding fuel to the fire, the Federal Reserve's recent 0.25 percentage point rate cut has further boosted small-cap appeal. This marks the second reduction of 2024, bringing the federal funds rate down to 4.5%-4.75%. With inflation and borrowing costs both easing, small businesses are finding themselves in a sweet spot.

For investors looking to capitalize on this small-cap momentum, let's explore three distinct ETFs that offer a unique approach to playing this dynamic market segment.

#1. Vanguard Small-Cap Growth ETF

The Vanguard Small-Cap Growth ETF has been a standout performer in 2024, capturing the power of small-cap growth potential. Since its inception in January 2004, VBK has grown into a formidable player in the small-cap arena, now boasting an impressive $19.72 billion in assets under management (AUM).

VBK's strategy is both straightforward and sophisticated. It tracks the CRSP US Small Cap Growth Index, employing a full-replication approach to mirror the index's composition. This method ensures the fund captures the entire spectrum of small-cap growth opportunities in the U.S. market.

VBK's portfolio construction focuses on companies demonstrating robust growth characteristics, including strong earnings growth, accelerating sales, high return on assets, and promising investment metrics. This multi-faceted approach allows VBK to identify and invest in small companies with the most significant growth potential across various sectors.

The fund's performance speaks volumes about its strategy's effectiveness. Over the past 52 weeks, VBK is up 35.3%, and the shares have racked up a 20% gain so far in 2024 - outpacing the RUT on both counts.

VBK's top holdings showcase its diverse yet focused approach. Midstream energy stock Targa Resources leads at 1.27%, followed by Taser company Axon Enterprise Inc at 1.02%, footwear firm Deckers Outdoor at 0.95%, software company PTC Inc at 0.80%, and HVAC specialist Lennox International at 0.74%. These companies exemplify the growth characteristics VBK targets, contributing to its robust performance.

Despite its strong returns, VBK remains cost-effective, with a mere 0.07% management fee. It also offers a modest annualized dividend of $1.72 per share, yielding 0.59%—a bonus for a growth-oriented fund. The ETF's popularity is evident in its trading volume, which averages around 300,000 shares, ensuring ample liquidity for traders.

#2. Invesco DWA SmallCap Momentum ETF

The Invesco DWA SmallCap Momentum ETF has been on a tear, showcasing the power of momentum investing in the small-cap space. Since its inception in July 2012, DWAS has carved out a unique niche, focusing on small-cap companies exhibiting strong relative strength characteristics.

At the heart of DWAS's strategy is the Dorsey Wright SmallCap Technical Leaders Index. This isn't your run-of-the-mill index tracking. The fund employs a sophisticated, proprietary methodology developed by Dorsey, Wright & Associates, LLC to identify small-caps with potent market momentum. By allocating at least 90% of its assets to these high-flyers, DWAS aims to capture outsized returns in the dynamic small-cap sector.

This approach has paid off handsomely. DWAS has delivered a standout 33% return over the past 52 weeks, and has gained nearly 19% so far in 2024.

Diving into the portfolio, we find a diverse mix of momentum leaders. Quantum computing startup Rigel Pharmaceuticals tops the list at 2.14%, followed by defense firm Leonardo DRS Inc at 1.79%, industrial name Limbach Holdings at 1.64%, construction company Sterling Infrastructure at 1.57%, and auto parts specialist Modine Manufacturing at 1.55%. These holdings reflect the fund's knack for identifying small caps with significant growth potential across various sectors.

With $1.07 billion in assets under management, DWAS has grown into a substantial player in the small-cap ETF space. With average volumes hovering around 34,000 shares, however, it's not quite as active as VBK on a daily basis, so investors should watch entry prices carefully to control slippage.

DWAS does come with a higher management fee of 0.60%, reflecting the more active nature of its strategy. It also offers a respectable annualized dividend of $1.48 per share, yielding 1.50% - a nice bonus for a momentum-focused fund.

The recent performance of DWAS underscores the potential of its momentum-driven approach. With a 6.4% gain in the past month alone, it's clear that this ETF is capitalizing on the current market dynamics favoring small-cap stocks.

#3. ProShares Ultra Russell 2000 ETF

The ProShares Ultra Russell 2000 is not your average small-cap ETF. Launched in January 2007, this fund takes a bold approach to small-cap investing, aiming to deliver twice the daily performance of the Russell 2000 Index. It's a high-octane play that's best suited for investors with an appetite for leveraged investments, and a higher tolerance for risk.

UWM's strategy is straightforward but potent. Through a combination of swap agreements with major financial institutions and direct investments in Russell 2000 components, the fund seeks to achieve its 2x leverage. This approach has led to some solid returns when the RUT is performing well, with UWM surging 57.4% over the past 52 weeks, and rising 23.3% in 2024 alone.

However, this amplified exposure comes with heightened volatility, and it's important to note that the fund is designed to 2x RUT's returns on a daily basis, and not over longer time frames. UWM's daily trading volumes are hovering around 650,000 shares, and this liquidity is crucial for a fund designed for active trading rather than long-term holding.

With $516 million in AUM, UWM has carved out a significant niche in the leveraged ETF space. The fund's management fee of 0.95% is higher than traditional ETFs, reflecting the complexity of maintaining its leveraged position. Despite its aggressive growth focus, UWM still manages to offer a dividend yield of 0.90%, with an annualized dividend of $0.42 per share.

It's worth noting that UWM doesn't disclose individual stock holdings like traditional ETFs. Instead, its performance is tied directly to the Russell 2000 Index, providing broad exposure to the small-cap market.

UWM's approach is not for the faint of heart. Its leveraged nature means both gains and losses are amplified.

Conclusion

Small-cap stocks are having a moment, and these three ETFs—VBK, DWAS, and UWM—each offer unique ways to tap into their growth potential. Whether you're looking for steady growth with VBK, momentum-driven gains with DWAS, or amplified returns through UWM’s leveraged strategy, there's something here for every risk appetite. As the market outlook continues to shift amid changing policy expectations, these funds provide diverse approaches to capturing the opportunities small-cap stocks present in 2024 and beyond.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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NVIDIA Corporation NVDA reported third-quarter fiscal 2025 earnings of 81 cents per share, which beat the Zacks Consensus Estimate by 8%. The reported figure soared 103% year over year and 19% sequentially, driven by higher revenues.

NVDA’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12.7%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

NVDA’s fiscal third-quarter revenues beat the consensus mark by 5.6%. The top line climbed 94% year over year and 17% sequentially to $35.08 billion. The robust growth in the top line was mainly driven by record sales in the Data Center end market and higher sales across the Gaming, Professional Visualization and Automotive end markets.

Buoyed by an overwhelming fiscal third-quarter performance, NVIDIA provided strong guidance for the fiscal fourth quarter and raised the outlook for the full fiscal. Strong quarterly results, along with upbeat guidance, may further drive its share price higher. NVIDIA, a heavyweight in the semiconductor industry, has seen its stock surge 192.6% year to date, outperforming the Zacks Semiconductor – General industry’s return of 140.1%.

Segment Details of NVIDIA

NVIDIA reports revenues under two segments — Graphics and Compute & Networking.

The Graphics segment includes GeForce graphics processing units (GPUs) for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure. The segment also offers solutions for gaming platforms, Quadro GPUs for enterprise design, GRID software for cloud-based visual and virtual computing as well as automotive platforms for infotainment systems.

Graphics accounted for 11.5% of fiscal third-quarter revenues. The segment’s top line increased 16% year over year and 13% sequentially to $4.05 billion. Our estimate for the segment’s fiscal third-quarter revenues was pegged at $4.16 billion.

Compute & Networking represented 88.5% of fiscal third-quarter revenues. The segment comprises the Data Center platforms and systems for artificial intelligence, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics as well as other embedded platforms.

Compute & Networking revenues surged 112% year over year and 17% sequentially to $31.04 billion. Our estimate for the segment’s fiscal third-quarter revenues was pegged at $28.4 billion.

NVIDIA Corporation Price, Consensus and EPS Surprise

NVIDIA Corporation price-consensus-eps-surprise-chart | NVIDIA Corporation Quote

NVIDIA’s Market Platform Top-Line Details

Based on the market platform, revenues from Data Center (87.7% of revenues) jumped 112% year over year and 17% from the previous quarter to $30.77 billion. This robust rise was mainly driven by higher shipments of the Hopper GPU computing platform that is used for the training and inference of large language models, recommendation engines and generative AI applications. Our estimate for this end-market’s fiscal third-quarter revenues was pegged at $28.5 billion.

NVIDIA witnessed strong demand for its chips used in the Data Center by all customers in both compute and networking markets. During the fiscal third quarter, large cloud providers represented half of Data Center revenues while the remaining stemmed from consumer Internet and enterprise companies.

Gaming revenues increased 15% year over year and 14% sequentially to $3.28 billion, accounting for 9.3% of the total revenues. The year-over-year rise reflected increased sales of its GeForce RTX 40 series family of GPUs and game console system-on-chips. Our estimate for the Gaming end-market’s third-quarter revenues was pegged at $3.11 billion.

Professional Visualization revenues (1.4% of revenues) increased 17% year over year and 6% sequentially to $454 million. The increase was primarily driven by the ramp of RTX GPU workstations based on the Ada architecture. Our estimate for the Professional Visualization end-market’s fiscal third-quarter revenues was pegged at $475.7 million.

Automotive sales (1.2% of revenues) in the reported quarter totaled $346 million, up 37% on a year-over-year basis and 7% sequentially. The increase was mainly driven by a rise in self-driving technology using NVIDIA Orin and robust demand for new autonomous vehicles (NAVs). Moreover, NVDA also experienced a surge in demand from Volvo, which is launching its fully electric SUV using NVIDIA Orin and DriveOS. OEM and Other revenues (0.3% of revenues) were up 33% year over year and 10% sequentially to $97 million. Our estimates for the Automotive and OEM end markets’ fiscal third-quarter revenues were pegged at $340.3 million and $86.8 million, respectively.

NVDA’s Operating Details

NVIDIA’s non-GAAP gross margin remained flat year over year at 75%. However, the non-GAAP gross margin contracted 70 basis points (bps) sequentially. The sequential decline was mainly due to a shift in the product mix toward more expensive H100 systems in the Data Center.

Non-GAAP operating expenses increased 50% year over year and 9% sequentially to $3.05 billion. The increase was due to higher development costs for new products introduced across compute, infrastructure and engineering development. However, as a percentage of total revenues, non-GAAP operating expenses declined to 8.7% from 11.2% in the year-ago quarter and 9.3% in the previous quarter.

The non-GAAP operating income jumped 101% year over year and 17% sequentially to $23.27 billion, driven by higher revenues. Non-GAAP operating margin improved 250 bps to 66.3% from the year-ago quarter’s 63.8% due to higher gross margin and lower operating expenses as a percentage of revenues. Sequentially, non-GAAP operating margin contracted 10 bps due to a reduction in gross margin.

NVIDIA’s non-GAAP net income margin of 57% for the fiscal third quarter improved 170 bps year over year and 60 bps sequentially.

Balance Sheet and Cash Flow

As of Oct. 27, 2024, NVDA’s cash, cash equivalents and marketable securities were $38.4 billion, up from $34.8 billion as of July 28. As of Sept. 27, the total long-term debt was $8.46 billion, which remained unchanged sequentially.

NVIDIA generated $17.63 billion in operating cash flow, up from the year-ago quarter’s $7.3 billion and the previous quarter’s $14.5 billion. In the first three quarters of fiscal 2025, it generated an operating cash flow of $47.5 billion. NVIDIA generated a free cash flow of $16.78 billion in the fiscal third quarter and $45.2 billion in the first three quarters of fiscal 2025.

In the fiscal third quarter, the company returned $245 million to shareholders through dividend payouts and repurchased stocks worth $11 billion. In the first three quarters of fiscal 2025, the company paid out $589 million in dividends and bought back stocks worth $25.9 billion.

On Aug. 26, 2024, NVIDIA’s board of directors approved a new $50 billion share repurchase authorization, bringing the total authorization to $57.5 billion, which has no expiration time. As of Oct. 27, 2024, the company has the remaining authorization of approximately $46.5 billion.

NVDA’s Q4 Guidance

For the fourth quarter of fiscal 2025, NVIDIA anticipates revenues to be $37.5 billion (+/-2%). The Zacks Consensus Estimate for the same is pinned at $36.84 billion.

The non-GAAP gross margin is projected to be 73.5% (+/-50 bps). Non-GAAP operating expenses are estimated to be $3.4 billion.

Zacks Rank & Other Stocks to Consider

Currently, NVDA sports a Zacks Rank #1 (Strong Buy).

Blackberry BB, Amphenol APH and Celestica CLS are some other top-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector.

BB, APH and ATEYY sport a Zacks Rank #1 each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for Blackberry’s 2025 earnings has been revised upward by 3 cents to a loss of 2 cents per share over the past 60 days, indicating a 140% year-over-year decline. BB shares have plunged 34.8% year to date.

The consensus mark for Amphenol’s 2024 earnings has been revised upward by 2 cents to $1.17 per share over the past seven days, indicating a 58% year-over-year increase. The long-term expected earnings growth rate for the stock stands at 42.60%. APH shares have jumped 43% year to date.

The consensus mark for Celestica’s 2024 earnings has been revised upward by 20 cents to $3.85 per share over the past 30 days, indicating a 58.4% year-over-year increase. CLS shares have jumped 197.1% year to date.

Zacks Investment Research

Tyson Foods, Inc. TSN is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 17.51, higher than the industry average of 16.08. This premium valuation reflects the market's confidence in the company's potential to deliver strong profit growth. However, it remains to be seen if the company can report results that justify such a premium.

Shares of Tyson Foods have lagged in recent months, with a modest gain of 0.4% over the past three months, compared to the industry’s growth of 1.2% and the S&P 500’s increase of 6.4%. While a high valuation and the stock's recent underperformance suggest caution, the company's key growth strategies may appeal to investors.

Current Challenges for Tyson Foods

Tyson Foods, like many other global companies, faces ongoing macroeconomic uncertainties that could impact demand for protein products. Volatile currency movements, fluctuating commodity prices and potential slowdowns in consumer spending pose risks to both international and domestic operations.

The company has been grappling with challenges in its Beef segment, with profitability heavily impacted by compressed spreads and tight cattle supplies. For fiscal 2025, the United States Department of Agriculture (“USDA”) projects domestic protein production for beef to decline nearly 2% year over year. Tyson Foods expects a loss between $400 million and $200 million for the Beef segment in the fiscal, mirroring fiscal 2024 results.

In the fourth quarter of fiscal 2024, profitability in the Beef segment remained constrained despite a 4.6% revenue increase. While Tyson Foods has implemented operational efficiencies, such as reducing costs and improving yields, approximately 85% of the segment's performance remains dictated by uncontrollable market dynamics, including cattle availability and pricing volatility. These persistent headwinds signal continued difficulty in achieving a meaningful recovery in the Beef segment.

Tyson Foods' Pork segment also faces challenges stemming from pricing pressures and a constrained market environment. The segment saw a 3.7% decline in revenues during the fourth quarter, attributed to lower pricing on dropped credit items. While Tyson Foods has made strides in optimizing its pork network and expanding its portfolio with seasoned and marinated products, the broader market conditions and pricing constraints could negate these operational gains, potentially stalling momentum in this segment.

Despite delivering an adjusted operating income (AOI) increase of $270 million year over year in fiscal 2024, driven by improved operational execution and healthier herd dynamics, the company anticipates flat profitability for fiscal 2025, with AOI projected between $100 million and $200 million. This limited upside reflects the risk of tightening spreads and challenges in maintaining margins in a competitive protein market.

TSN’s Growth Strategy on Track

Tyson Foods’ diversified protein portfolio enables the company to navigate market cycles effectively. While beef and pork face near-term challenges, the strong performance of chicken and prepared foods underscores the resilience of the company’s multi-protein approach. The company also plans to expand its international footprint by improving capacity utilization and aligning operations with regional market needs, diversifying its growth avenues. Tyson Foods’ multi-channel, multi-protein strategy is central to its long-term resilience and growth, allowing it to capitalize on different market opportunities as they arise.

Tyson Foods' growth strategy is anchored in three key pillars: operational excellence, customer and consumer obsession and sustainability. Operational excellence is achieved through continuous improvement initiatives that enhance productivity and efficiency across all segments, supported by a robust supply-chain optimization strategy. The second pillar, customer and consumer obsession, drives Tyson Foods’ commitment to understanding and responding to evolving consumer preferences.

Tyson Foods’ focus on sustainability underscores its commitment to ethical sourcing and responsible production practices, addressing the increasing consumer demand for sustainable food options. Together, these pillars position Tyson Foods for continued growth and resilience in the competitive protein market.

Tyson Foods exhibited a significant turnaround in fiscal 2024, with adjusted operating income (AOI) of $1.8 billion, nearly doubling from fiscal 2023. In the fourth quarter of fiscal 2024, the company’s AOI soared considerably to $512 million from the $236 million reported in the year-ago period. The adjusted earnings per share (EPS) increased from 37 cents to 92 cents in the quarter, marking the strongest quarterly performance in eight quarters. Improved operational efficiency and disciplined cost management led to the upside, keeping the company well-positioned for the future.

What to Expect From TSN?

Tyson Foods’ fiscal 2025 guidance anticipates flat to slightly declining net sales, with volume growth in prepared foods and chicken likely to be offset by declines in beef and pork. Beef volumes are particularly vulnerable to supply constraints, and pork could face challenges from tighter spreads despite operational improvements. This stagnant volume growth outlook may deter investor confidence in the company’s ability to drive top-line expansion.

However, the fiscal 2025 AOI is envisioned in the $1.8-$2.2 billion band, suggesting nearly 10% growth at the midpoint, driven by strength in prepared foods and chicken. This optimistic outlook is further reinforced by operational excellence, strategic brand focus and robust free cash flow generation.

Reflecting the positive sentiment around Tyson Foods, analysts have revised their estimates upward. The Zacks Consensus Estimate for the current and next fiscal year earnings per share have increased in the past seven days. These estimates suggest year-over-year growth rates of 12.9% and 22.8%, respectively.

Investors’ Guide to TSN Stock

Tyson Foods’ strong profit growth potential, driven by its diversified protein portfolio and strategic initiatives, looks somewhat shadowed by challenges in key segments like Beef and Pork. While operational efficiencies and sustainability efforts bolster TSN’s long-term growth prospects, near-term headwinds need attention. Investors will need to weigh Tyson Foods' robust strategic framework and operational improvements against ongoing market uncertainties to determine whether its premium valuation is justified. The company currently carries a Zacks Rank #3 (Hold).

Top Three Consumer Staple Picks

Ingredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.

Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.

McCormick & Company MKC, which manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products, currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.

The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the prior-year reported levels.

Zacks Investment Research

McCormick & Company, Incorporated MKC has raised the quarterly dividend by three cents or 7.1% to 45 cents per share. The next dividend payment is scheduled for Jan. 13, 2025, for its shareholders on record as of Dec. 30, 2024.

This highlights the company's 101st year of continuous dividend payments and the 39th consecutive year of a quarterly dividend hike, demonstrating MKC’s long-term commitment to its shareholders and dedication to returning excess cash through consistent dividend increases.

McCormick has made notable strides in strengthening its financial foundation and increasing shareholder value. In the first nine months of fiscal 2024, the company returned $338.3 million to its shareholders through dividends, while net cash provided by operating activities totaled $463.2 million. The company remains focused on allocating cash toward growth investments, shareholder dividends and debt reduction while maintaining a strong investment-grade rating.

What More Should Investors Know About MKC?

McCormick has been seeing strong momentum driven by three key factors, long-term trends driving its categories, strong consumer interest in healthy and flavorful cooking and enthusiasm for flavor exploration and trusted brands. The company continues to bolster its position across major markets and core categories by focusing on growth levers such as brand marketing, product and packaging innovation, category management and proprietary technology. This innovation-led growth strategy aligns with McCormick’s long-term goal of capturing increased market share, especially in high-growth segments.

McCormick achieved positive volume growth in the third quarter of fiscal 2024, despite the challenging environment and anticipates this momentum to continue into the fourth quarter. The company experienced sequential volume improvements across both Consumer and Flavor Solutions segments, with the Consumer segment in the Americas, EMEA and Asia Pacific regions, excluding China, demonstrating solid volume growth. This growth indicates MKC's continued focus on innovation, alignment with consumer trends and expanding distribution.

Apart from this, the company has been benefiting from its cost-saving initiatives, which are aimed to fund future investments and drive operating margin expansion. The company’s Comprehensive Continuous Improvement and Global Operating Effectiveness programs are driving growth investments and operating margin expansion. For fiscal 2024, the company is focused on strengthening its volume trends and prioritizing investments to fuel profits. Management expects adjusted operating income to grow 4-6% in fiscal 2024, including minimal currency impacts.

Final Words on MKC

McCormick has been experiencing positive volume growth across both of its segments, Consumer and Flavor Solutions, implying its ongoing focus on innovation, alignment with consumer trends and expanding distribution. The company’s strong financial stability and dividend track record further highlight its resilience and potential for sustained growth.

The Zacks Rank #2 (Buy) stock has risen 15.2% in a year against the industry’s decline of 1.2%.

Shares of Energizer Holdings, Inc. ENR surged 9.1% before closing yesterday's trading session following the release of its fourth-quarter results. Net sales declined year over year and lagged the Zacks Consensus Estimate. However, earnings improved from the year-ago period and surpassed the consensus estimate.

Energizer’s strategic initiatives include Project Momentum for margin recovery, cash flow restoration and debt reduction. The company focuses on market expansion by leveraging its global platform, investing in innovation to drive growth, enhancing digital commerce capabilities and improving distribution by optimizing customer placement and pursuing new opportunities.

Energizer Holdings, Inc. Price, Consensus and EPS Surprise

Energizer Holdings, Inc. price-consensus-eps-surprise-chart | Energizer Holdings, Inc. Quote

More on ENR’s Q4 Results

Energizer’s adjusted earnings of $1.22 per share beat the Zacks Consensus Estimate of $1.17. Also, the bottom line increased 1.7% from the year-ago quarter’s reported figure.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The company reported net sales of $805.7 million, which lagged the Zacks Consensus Estimate of $809 million and also decreased 0.7% from the year-ago quarter’s reported number. Organic sales were flat year over year. The metric missed our anticipated rate of 0.3% increase for the fiscal fourth quarter.

The Battery & Lights segment experienced a volume increase, fueled by improved category trends and expanded global distribution, leading to 1.3% organic growth. Similarly, the Auto Care segment saw 0.5% organic growth, driven by distribution gains and early holiday sales, although partially offset by the timing of refrigerant sales that had boosted the third quarter.

However, these volume gains were offset by 1.8% decline in pricing, attributed to planned strategic pricing actions and promotional investments during the period.

Energizer's Q4 Sales Insights by Segments

Revenues of Energizer's Batteries & Lights segment declined 0.7% year over year to $651.6 million. The figure lagged our estimate of 0.3% decline. We note that segmental profit increased 1.5% to $179.5 million.

Meanwhile, revenues in the Auto Care segment decreased 0.6% to $154.1 million from the year-ago period. Also, we note that segmental profit increased sharply 13.6% to $20 million.

ENR’s Margin & Cost Details

In the fiscal fourth quarter, Energizer’s adjusted gross margin expanded 220 basis points to 42.2%. The improvement in adjusted gross margin during the fourth fiscal quarter was driven by Project Momentum initiatives, which generated approximately $18 million in savings, along with lower input costs, including favorable commodity and material pricing. These gains were partially offset by planned strategic pricing actions and promotional investments. We expected a gross margin expansion of 150 basis points.

Adjusted SG&A expenses increased 6.5% year over year to $123 million. This rise was due to higher labor and benefit costs, increased travel expenses, elevated depreciation expenses from digital transformation initiatives and higher legal fees. This was partially offset by approximately $7 million in savings from Project Momentum.

Adjusted SG&A costs, as a rate of net sales, was 15.3% compared with 14.2% recorded in the prior-year quarter. We expected adjusted SG&A expenses, as a percentage of net sales, to be 15.5% in the fourth quarter. Advertising and promotion expenses represented 4.6% of sales, an increase of 50 basis points, aligning with the company's enhanced investment in long-term growth initiatives.

Adjusted EBITDA was $187.3 million, up 1% year over year, whereas the adjusted EBITDA margin increased 30 basis points to 23.2%.

Energizer’s Financial Health Snapshot

As of Sept. 30, 2024, Energizer’s cash and cash equivalents were $216.9 million, with long-term debt of $3.19 billion and shareholders' equity of $135.8 million. As of the fiscal fourth quarter, ENR paid down an additional $50 million of debt. At the end of the quarter, the company’s net debt to adjusted EBITDA was 4.9x times.

The operating cash flow as of the fiscal fourth quarter was $168.9 million. The company approved a new share repurchase program for up to 7.5 million shares, replacing the previous outstanding authorization.

ENR’s Q1 & FY25 Outlook

For the first quarter, organic revenues are forecasted to grow 2% to 3% year over year. Adjusted gross margins are expected to improve 50-100 basis points with adjusted EPS predicted in the range of 60 cents to 65 cents. This representss mid-single-digit growth compared with the prior period.

For fiscal 2025, management anticipates organic revenue growth of 1% to 2%, driven by expanded distribution in both its Battery and Auto Care businesses. Energizer aims to improve its adjusted gross margin by approximately 50 basis points, bringing the number above 41% for the year.

This margin expansion will be driven by cost savings from the ongoing Project Momentum, which is expected to deliver between $40 million and $60 million in fiscal 2025, marking its final year with total cumulative savings expected to be between $180 million and $200 million.

This revenue increase, along with the final implementation phase of Project Momentum initiatives, is expected to drive growth in adjusted EBITDA, anticipated to be between $625 million and $645 million. Adjusted EPS for the year is expected to be between $3.45 and $3.65. Debt reduction remains a priority for Energizer with plans to pay down $150 million to $200 million in fiscal 2025.

Management anticipates capital expenditures to be between $80 million and $90 million, driven by investments in operations, digital enablement, plastic-free packaging and one-time Momentum costs. As a result of these incremental investments, free cash flow is expected to be between 8% and 10% of sales.

Shares of this Zacks Rank #3 (Hold) company have increased 24.1% in the past three months against the industry’s decline of 0.5%.

Some Better-Ranked Bets

Ingredion Incorporated INGR serves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current-financial year’s earnings indicates growth of 12.5% from the year-ago reported number.

Freshpet Inc. FRPT is a pet food company that manufactures and markets natural fresh foods, refrigerated meals and treats for dogs and cats in the United States and Canada. It currently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.

McCormick & Company, Inc. MKC is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry. It currently carries a Zacks Rank #2. MKC has a trailing four-quarter earnings surprise of 13.8%, on average.

The Zacks Consensus Estimate for MKC’s current fiscal-year sales and earnings indicates growth of 0.6% and 8.2%, respectively, from the prior-year reported levels.

Zacks Investment Research