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NewsSeptember 30, 2007

ST. LOUIS -- Kelvin Belle sat at a conference room table at Energizer Holdings Inc.'s headquarters, ticking off the attributes of the products in front of him -- battery-powered cell phone chargers, little black boxes for juicing up iPods, and aluminum and rubber flashlights scheduled to hit sporting goods stores in November...

Jeremiah Mcwilliams

~ The company is promoting the use of the batteries in chargers and flashlights.

ST. LOUIS -- Kelvin Belle sat at a conference room table at Energizer Holdings Inc.'s headquarters, ticking off the attributes of the products in front of him -- battery-powered cell phone chargers, little black boxes for juicing up iPods, and aluminum and rubber flashlights scheduled to hit sporting goods stores in November.

The link between the diverse gadgets is the silver-wrapped battery designed to power them: Energizer's lithium cells, a pricier and higher-performance alternative to mass-market alkaline batteries.

Lithium batteries are "extremely powerful, so you need some powerful devices to take advantage of that," said Belle, senior product manager for global marketing.

Town and Country-based Energizer is trying to transform its relatively small lithium battery business into a lucrative sideline.

The company is promoting the use of lithium batteries in chargers and flashlights, and talking up lithium's performance advantages in "high-drain" devices, including digital cameras, MP3 players and handheld games. Lithium batteries also last longer, and work in a wide temperature range.

The push in lithium batteries -- and the flashlights, chargers and lanterns that use them -- is one way Energizer is trying to supplement its core alkaline battery business. After years of basing its business on those mass-market batteries -- prone to be stashed out of sight, out of mind -- Energizer is taking stabs at selling devices that will drive demand for high-margin lithium batteries.

Extra-bright $60 flashlights for hunters and military personnel, complete with infrared beams? Got 'em. A charger for the much-hyped iPhone? In preliminary testing.

Portable power

"It's not what people might expect" from a company associated with behind-the-scenes batteries for more than a century, said Belle. "But we're really into portable power."

Energizer is trying to piggyback on the success of other companies' consumer products, such as Apple Inc.'s iPod portable music player.

Energizer is launching lithium-powered iPod chargers, about the size of a large cigarette lighter, that can let music listeners keep their iPods running up to 18 months longer after the primary battery runs down, depending on usage habits, Belle said.

"The charger may not work with an iPod battery that is completely dead and will not hold a charge," the company said.

The company is testing the iPod charger to see if it can do double duty as an iPhone charger.

Alkaline batteries such as Energizer Max are the core of the company's battery business. But the alkaline battery market is highly competitive.

In the past, Energizer's battery business weathered price wars with rival Duracell, a unit of Cincinnati-based consumer giant Procter & Gamble Co.

Boosted by price increases, alkaline battery sales grew 10 percent to $1.08 billion in the nine months that ended June 30.

But sales of lithium batteries are growing. Energizer's retail lithium sales in the U.S. grew 48 percent last year to $85 million, then jumped 46 percent in the first quarter, chief executive Ward Klein told analysts in February. The company hasn't publicly released lithium sales figures for the nine-month period.

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With its lithium-powered Energi to Go cell phone chargers introduced one year ago, Energizer is catering to people who want "to be unplugged and be able to talk (on a cell phone) at any time," Belle said. "If you're in a Starbucks or at the airport, there may not be a plug." The chargers cover 87 percent of the cell phones in the U.S.

Energizer hopes lithium batteries and other products for a mobile, techno-centric population can help it wring profits and market share out of a competitive battery industry.

Innovation around the edges of Energizer's product lines also may help it match up to high expectations on Wall Street, where Energizer's shares are hovering at $4.36 below the all-time high of $110.21 set July 24.

Niche products also could help Energizer blunt the impact of the massive advertising resources P&G can throw behind Duracell and its CopperTop alkaline batteries.

Procter & Gamble claimed about 48 percent of the alkaline battery market in the four-week period ended Aug. 11, according to Citigroup analyst Wendy Nicholson. Energizer had about 32 percent when measured by dollar sales.

But Energizer has a big lead in lithium batteries. Bill Chappell, an Atlanta-based analyst with SunTrust Robinson Humphrey, estimates that the company holds about 70 percent of the U.S. market.

The high performance of lithium batteries creates a "halo effect" for the rest of the company's products, said Chappell. That might help jolt consumers out of the habit of seeing Energizer's alkaline batteries as commodities, basically indistinguishable from Duracell's offerings.

Consumers are willing to pay substantially more for longer-lasting lithium batteries than for alkaline batteries.

A four-pack of Energizer's lithium batteries typically sells for about $10, compared with about $4 for a pack of alkaline cells, for example.

Energizer has "been able to diversify away from just the core alkaline battery," said Jason Gere, a New York analyst with A.G. Edwards & Sons Inc. "They've been competing with the big boys and they've done a great job."

Whether Energizer can maintain the blistering growth rates of its lithium batteries, rechargeable batteries and chargers will depend largely on the proliferation of the electronic devices they are designed to power.

So far, consumers seem to be cooperating. Buyers trading up to more expensive batteries, which include higher-end alkaline batteries and chargers, added $13.9 million to Energizer's North American battery sales in the quarter that ended June 30.

Energizer is "making a concerted effort" to capture sales from the "proliferation of higher-end gadgets," said Chappell. "They're doing a good job of coming out with new gadgets."

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On the Net:

http://www.energizer.com

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Information from: St. Louis Post-Dispatch, http://www.stltoday.com

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