(Reuters) - Energizer Holdings Inc (ENR.N) said it plans to separate into two publicly traded companies, one for batteries and other household products and the other for personal care brands such as Schick razors and Stayfree female hygiene products.
Shares of the company, known for its Energizer and Eveready batteries, jumped more than 17 percent in morning trading.
Energizer said it expects the separation to help the businesses intensify focus on commercial priorities and better allocate resources.
“We’re surprised by the decision to split the company, but think it makes sense,” BMO Capital Markets analyst Connie Maneaty said. “The personal care segment may realize a higher valuation if it is not bound to the battery business.”
The households products business’s contribution to Energizer’s revenue declined from 70 percent in 2006 to 45 percent last year.
Battery sales have declined amid increasing competition and growing demand for rechargeable batteries used in mobile devices.
Household product sales fell 15.8 percent to $373.4 million, mainly due to the loss of two U.S. retail customers and higher promotional spending, in the second quarter ended March 31.
Larger rival Procter & Gamble Co (PG.N), home to Duracell batteries and Gillette razors, is also trying to streamline its businesses. The company said earlier this month that it would sell its pet food business to Mars Inc for $2.9 billion.
The loss of two big U.S. retail customers, whom Energizer didn’t name, will hurt sales by 6 percent each in the first three quarters of 2014, the company said.
Energizer shut manufacturing facilities, cut input expense and fired staff under a cost-saving program last year.
The company said on Wednesday the cost-cutting will continue through the separation process.
Energizer expects the personal care business, which also makes Wilkinson Sword shavers and Banana Boat sunscreen, to be a consumer product company aimed at growing through scale and innovation.
The business reported revenue of about $2.6 billion in the year to March 31 and current Chief Executive Ward Klein is slated to be the executive chairman of the business.
The sum-of-the-parts multiple of Energizer’s businesses is about 9.5 times — 15 percent higher than its current enterprise value multiple of 8.3 times forward EBITDA, Bernstein research analyst Ali Dibadj said.
“This split may provide further operational benefits and increases the chance of mergers and acquisitions,” he added.
The planned tax-free spin-off is expected to be completed in the second half of the year ending September 2015.
The company expects the household products business, which brought in $1.9 billion in revenue in the year ended March 31, to generate strong margins and cash flows.
Alan Hoskins, the chief executive of Energizer Household Products, will continue to lead the business post-split.
Energizer also reported that its second-quarter net income rose 16 percent to $98.5 million, or $1.57 per share. Excluding items, it earned $1.88 per share.
Sales fell 3.1 percent to $1.06 billion. Personal care sales rose 5.6 percent to $689 million, benefiting from its acquisition of the feminine care business from Johnson & Johnson (JNJ.N) in July.
Analysts on average had expected earnings of $1.71 per share on revenue of $1.08 billion, according to Thomson Reuters
Energizer shares were up 16 percent at $113.37 on the New York Stock Exchange on Wednesday.
The stock has risen 2.2 percent in the year to Tuesday's close, lagging the wider S&P 500 Index .SPX which has risen 17.87 percent in the same period.
Editing by Joyjeet Das