Q4 2019 Earnings Call
Turning the conference over to Chris Golf.
Vice President of Investor Relations. Please go ahead Sir.
Thanks, Ben and good morning, everyone and thank you for joining us. This morning, as we discuss I'd was fourth quarter in full fiscal year 2019 earnings with me. This morning, as Rod Liddle, our President and Chief Executive Officer, and Dan Sullivan, Our Chief Financial Officer, Rod will kick off the call them I'll hand over to Dan to discuss quarterly and full year results and our 2020 outlook.
And we'll then transition to Q1 c. This call is being recorded and will be available for replay via our website www dot Edgewell dotcom.
During the call we may make statements about our expectations for future plans and performance. This might include future sales earnings advertising and promotional spending product launches savings and costs related to restructuring changes to our working capital metrics currency fluctuations commodity costs category value future plans for return of capital to shareholders and more.
Any such statements are forward looking statements, which reflect our current views with respect to future events.
These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption risk factors in our annual report on Form 10-K for the year ended September Thirtyth 2018 as may be amended in our quarterly reports on Form 10-Q . These risks may cause our actual results to be materially different from those expressed or implied by our forward looking statements.
We do not assume any obligation to update or revise any of these forward looking statements to reflect new events or circumstances, except as required by law. During this call we refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are.
Shown in our press release issued earlier today, which is available at the Investor Relations section of our website.
Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business.
With that I would like to turn the call over to Rod.
Thanks, Chris and good morning, everyone, one year ago, our leadership team committed to delivering on a set of business and financial objectives for 2019 that we believe we are achievable and reflective of the increasingly difficult competitive climate and evolving marketplace, particularly in North America.
Wet shave.
We knew that 2018 will play an important foundational roll into further stabilization of our business and that meeting these objectives would require strong execution project fuel.
Our transformational initiative to strengthen our company reduce our cost structure and simplify the way we work.
We required investment in our brands that are most compelling growth opportunities in across key retail channels and it would require a transformation of our portfolio with an eye toward refining our brands at offerings and enhancing our commercial capabilities across the entire company.
Today I am pleased to say that we have made meaningful progress on all of these objectives.
Financially, we delivered net sales and adjusted earnings per share that were inline with our expectations, while again delivering healthy cash flow generation to structurally deleverage our balance sheet.
Importantly, and as expected we made significant headway over the second half of the year with nearly every geography and segment demonstrating improved top line trends in the second half the year as compared to the first half.
I am pleased with the underlying improving topline trends and I believe the stabilization of our business that we have seen over the last two quarters provides a necessary foundation for 2025.
Dan will discuss this in more detail shortly.
Project fuel delivered above target at $122 million in gross savings serving as the catalyst change redefining how we operate the business and importantly, providing the necessary financial flexibility to reinvest and build on our brands and capabilities with projects.
Fuel, we have fundamentally improve the commercial and operational performance of our business.
So a large portion of the project fuel savings were used to offset inflation increase input costs and the impact of lower volumes, we were still able to invest in our highest potential initiatives.
The impact of our investment in price and trade is beginning to show with improving volume trends.
While much work remains trade investment in Fem care helped bring stabilization as the shelf and led to improved topline trends in the second half of the year. Despite a slight step back in Q4.
AMC investment in Bulldog and Jack Black helped deliver accelerated growth in served as a reminder of the opportunities that these brands offer for our broader portfolio.
More specifically Bulldog sales have tripled since the acquisition in 2016, Jack Black has experienced double digit sales growth driven by enhance to retail presence and fantastic performance in E Commerce.
Which is increased nearly 60% in the 18 months since the acquisition.
Jack Black is not our only area our success in E. Commerce, we continue to invest in building capabilities and infrastructure in E Commerce and for the year. We grew overall sales to this channel by approximately 30% with strong performance from our businesses on Amazon in the Us and T mall in.
China.
In the us consumption are to Amazon increased over 25%.
Outpacing category growth in both shade and Sun and skin.
In China E Commerce sales increased significantly driven by intuition and hydro both outpacing the category average.
As part of the portfolio transformation, we ran a thorough strategic review process for the feminine care and infant care businesses.
Ultimately, we determined that retaining the feminine care business was in the best interest of the company at our shareholders, whereas for the instant and pet care business, We recently announced our intent to sell the business to our long term partner Angel care for $122.5 million.
We believe this is the best path forward for both businesses and presents the best opportunity for value creation for Edgewell shareholders. We will provide additional detail about the infant transaction upon its closing.
Of course, the cornerstone of our portfolio transformation. This year is depending combination with areas.
Both companies remain proactive and timely and providing the respective us in German authorities with desired information and dialogue with the authorities remains frequent and constructive.
We continue to main maintain a high degree of confidence in a successful outcome and expect the transaction to close no later than the first quarter of calendar 2020.
Because we don't yet have clearance to close I cannot go into the specifics of the heritage business on this call as we are still two independent and competing companies. However, I can share the significant progress, we're making on integration planning and cultural transformation.
Over the past several months I've spent a significant amount of time working through integration planning with Andy and Jeff and along with both of our leadership teams and I'm extremely confident in what these two companies can do together.
The strategic rationale for the Harry's transaction continues to be as compelling now is when we announced the combination in may.
This transaction is the linchpin, an accelerator of our transformation.
Bringing together, our highly complementary assets and capabilities that position us to win with consumers.
The combination brings together a disruptive omnichannel consumer focused go to market approach with a portfolio of market, leading well established brands emerge as best in class direct to consumer capabilities with a strong portfolio technology, and IP global scale and commercial infrastructure.
And ultimately creates a highly capable dynamic and experienced leadership team to drive the transformation and create significant value.
We've made great progress in the integration planning for the two companies collectively our teams have spend thousands of hours working to create a thoughtful and exciting plan for the combined business.
In addition to addressing day, one readiness and ensuring a seamless activation business governance post close we focused our efforts on the preparation of brand led commercial plans and integrated portfolio thinking across key channels and geographies.
Once the transaction closes we will be ready to hit the ground running as a new agile and focus personal care company on day, one with a focus on strong execution.
As I've said previously establishing a culture that unlocks the very best of both organizations.
Perhaps the greatest enabler of success for this transaction.
A major focus of the integration with Harry's has been developing a combined forward thinking culture that leverages the best from each organization, a new third way.
Leaders from both companies are spearheading this effort to develop a new purpose statement vision.
Well use and behaviors to create an environment of high engagement, where everyone brings the best talent and creativity every day to fulfill our ambition of building a modern CPG 2.0 company is built to win.
These efforts will deliver a highly desirable daily work environment robust talent acquisition retention as well as ensuring and empower decision, making model that provides agility and speed to market I.
Im excited about the way both teams have come together and supported this work and look forward to sharing more details in the future.
Before handing over to Dan Let me comment on the 2020 outlook for the base as well business.
Our team continues to demonstrate an unrelenting dedication to transformation in a challenging industry in competitive environment.
We have worked hard to simplify and streamline the business, providing the resources to invest in innovation and growth.
We have an exciting growth opportunity as we near the close of our combination with Aries.
And with our recent infant and pet care divestiture, we have taken decisive actions to reshape our company and focus on our core personal care brands, all of which positions us well as we move into the next phase of the company's evolution.
A phase where we will be focused on growth and reinvestment in the business to ensure a sustainable value creation.
This reinvestment is reflected in our outlook for 2020 with meaningful increases in NP and capable capability building as we better moderate the balance between trade and brand investments.
Our outlook also reflects stable top line and gross margin performance further savings from project fuel and healthy free cash flow generation.
This of course is only part of the story as we are not in a position to provide guidance for the combined business today, given we are not yet closed.
However, it's important to note that the base Edgewell outlook for fiscal 2020, the Dan will discuss in a moment is in line with the valuation model and assumptions developed back in the spring.
In support of the combination with areas.
We've made significant progress over the past year, setting our business up for growth and value creation.
We have a clear plan for the future and also the right leadership in place to deliver on the plan.
This is an exciting time for us as we build a new company and a new culture, one that is well positioned to wear.
And now I'd like to ask Dan to take you through our fiscal fourth quarter and full year business and financial results and the outlook for fiscal 2020.
Thanks, Rob Good morning, everyone overall, the fourth quarter played out largely as we expected, reflecting our continued focus on executing against our core commercial and operational fundamentals.
As a result, we saw further stabilization in our topline performance and accelerated gross savings from project fuel, which were reinvested behind growth in key brands and markets.
We also generated $74 million of free cash flow up almost 23% versus the same quarter of last year, which allowed us to continue to de lever.
So let me start with a discussion of our operational performance in the quarter and then move the highlights for the full year and our outlook for fiscal 2020.
Net sales in the quarter decreased 1.7% or minus 90 basis points on an organic basis inline with our expectations as higher volumes in grooming and Sun and skin care were more than offset by unfavorable price mix in wet shave.
International organic net sales grew 4.8% in the quarter, driven by wet shave and Sun and skin care and aided in part by the favorable timing impact of higher trade inventories ahead of the plan DHC increase in Japan in October .
Importantly, all three of our international geographic areas saw organic net sales growth.
Organic sales in North America decreased 5.1% as growth in Sun and skin care and infant and other was more than offset by declines in the wet shave and femcare segments.
Looking at organic sales by segment wet shave continue to stabilize decreasing 1.7% consistent with our results a quarter ago and inline with our expectations and includes the favorable favorability, resulting from the higher sales in Japan ahead of the VIP anchors.
Organic sales in North America, which were down 9% continued to weigh on overall performance driven by unfavorable price mix, partly offset by favorable volume and product mix.
The growth in volume came from several of our key initiatives, including our new intimate disposables launch Bulldog razor sales and ecommerce business.
Organic sales in international markets increased 4.2% and growth came from our regions.
Sun and skin care organic sales increased 7% driven by volume growth in men's grooming and international somewhere.
North American organic sales increased 4.5% driven by continued strong Bulldog and Jack Black performance.
Sun care sales in North America declined despite over 4% consumption growth, primarily as a result of lower banana boat sales and higher coupons compared to the prior year period.
International organic sales increased 10.6% driven by growth in both men's grooming and Sun care.
Fem care organic sales decreased 5.6% as compared to the prior year period, despite stabilizing consumption trends as we experienced some level of destocking and cycled aggressive promotions in grocery a year ago.
Pads and liners continued to show improving trends and grew in the quarter. However, tampon sales declined compared to the prior year period, driven by gentle glide and sport.
I will be tampons continued to grow driven by innovation launch this year.
All other organic sales increased 2% driven by cups, and mealtime products related to the Paltrow launch.
Briefly looking at the category dynamics in the quarter in wet shave as measured by Nielsen the U.S razors and blades category decreased about 3% in the latest 12 week data with men's systems declining, 1.6% women's declining, 2.7% and disposables declining 4.6%.
Including both E Commerce and off line on measured we estimate that use razors and blades increase nearly 1% consistent with the 52 week estimate.
From a market share perspective, as measured by Nielsen and our latest 12 week data, we are at a 25.3% share and razors and blades in the us down 40 basis points versus a year ago, and a sequential improvement over previous quarters.
On a global basis, we estimate our share was down 30 basis points.
Within the U.S Sun care category 12 week consumption increased 8.5% our share declined by approximately 110 basis points, primarily reflecting losses in banana boat sport Hawaiian Tropic share was flat.
Gross margin increased 70 basis points year over year to 43.6%.
Excluding cost associated with Sun care re formulation and project fuel gross margin decreased about 380 basis points year over year, despite meaningful gross fuel savings that were reinvested in the business.
The decline was driven primarily by continued unfavorable price and cost mix.
NP expense this quarter was 11.3% of net sales as compared to 11.8% in the prior year period.
The decrease in campaign was primarily driven by lower spending and wet shave due to a reduction in hydro and intuition fab spend.
Spending in Sun and skin care and men's grooming increased in the quarter.
SDMA, including amortization expense was $91.8 million or 17.4% of net sales as compared to 17% of net sales in the prior year.
Excluding the impact of restructuring related charges, Harry's integration costs and other charges SG and as a percent of net sales improved 90 basis points from 16.8% last year to 15.9% this quarter despite lower sales.
Operational improvement next Gen. Eight was primarily driven by strong execution of project fuel, partly offset by inflation.
There was no material impact on SGN, a year over year associated with incentive costs.
GAAP diluted net earnings per share were 75 cents compared to 36 cents per share in the fourth quarter of fiscal 2018, and adjusted earnings per share were 86 cents compared to $1.11 in the prior year period.
Now for a few highlights on the full fiscal year.
Net sales decreased 4.2% or minus 3.4% on an organic basis, North America organic sales decreased 5.9%, primarily driven by declines in wet shave and fem care.
Total international organic sales increased 40 basis points with growth in wet shave and sun and skin care.
Looking at our full year performance, it's important to note the improving organic sales trends in the second half of the fiscal year as we had anticipated.
First half organic net sales declined 6.5%, while second half sales declined only 60 basis points.
This reflected underlying improvement in each segment as well as in each of our geographic regions.
Overall, we are seeing healthier wet shave and Sun care category trends and our better executing our commercial plans, both with consumers and at the shelf in an increasingly competitive marketplace.
International organic sales increased over 4% in each of the past two quarters posting growth for the full fiscal year in aggregate as well as in wet shave and Sun and skin.
Our global men's grooming business continued to see strong results led by Bulldog and Jack Black.
And finally global ecommerce sales increased 30% with growth and share gains on Amazon.
These results reinforce our belief that we are investing in the right fundamental drivers of growth for the business and we will accelerate these investments in 2020.
Gross margin, excluding the Sun care Reformulations and project fuel charges was 45.3% a decline of 210 basis points compared to the prior year as the meaningful savings realized and project fuel were largely reinvested in growth objectives for both key brands end markets.
This combined with inflationary headwinds higher commodity costs, a negative mix drove the year over year declines.
NP expense was 11.7% of net sales down versus the prior year spending of 13.1%.
As I discussed last quarter, there were a combination of factors leading to the lower level of spend this fiscal year, including a concentrated effort to drive out nonproductive spending through project fuel lower display costs driven by lower volumes.
An intentional short term shift in spend to trade promotions as well as favorable comparisons to a year ago with the launch of hydro sense and intuition fab.
We believe we've been responsible in both reducing and reallocating spend to ensure that near term investments our best deployed again brand building consumer efforts and retail trade competitive requirements.
We increased investments in select strategic objectives, like Jack Black Bulldog, and our ecommerce business all of which saw strong growth.
SG nine expense was 372 million or 17.5% of net sales, including 17.7 million of intangibles amortization.
On a normalized basis SG nay was 16.5% of net sales compared to 17.6% in the prior year period. This 110 basis point improvement. Despite lower net sales was driven by project fuel savings, partially offset by inflation.
Adjusted operating income was 14.6% of sales and improvement of 50 basis points versus the prior year period.
Adjusted net earnings were $188.8 million, a decrease of 1.5% compared to the prior year.
The adjusted effective tax rate for fiscal 2019 was 23.8% an increase of 80 basis points compared to the prior year.
GAAP diluted earnings per share were a loss of $6.52 in 2019, including the impact of a $549 million noncash impairment charge taken in third quarter.
This compares to earnings of $1.90 in the prior year.
Adjusted earnings per share were $3.48 for fiscal 2019, including 15 cents per share or headwinds associated with unfavorable currency translation and a higher tax rate as well as 12 cents per share tailwinds related to lower interest expense and other favorable items.
This compared to $3.52 per share in the prior year period.
Net cash from operating activities was $190.6 million for fiscal 2019, as compared to 259.4 million during the prior year.
The decline in operating cash flow was primarily driven by working capital changes, most notably increased inventory days needed to improve service levels and to support the Sun care reformulation efforts.
The company's current net debt leverage ratio is at 2.8 times.
Now I'd like to turn to project fuel.
Our teams continue to execute the core drivers of this program extremely well across the business delivering $122 million, an incremental gross savings for the full fiscal year.
These savings helped to offset meaningful year over year inflationary headwinds across our operations and the impact of lower volumes more importantly, they also provided the catalyst for reinvestment in our key brands and growth initiatives and we saw some of the benefits of these investments in the accelerated growth of men's grooming and.
Our ecommerce business.
In totality, we continue to expect project fuel will generate $225 million to $240 million in total annual gross savings by the end of fiscal 2021 and.
And we estimate onetime pretax charges to be approximately $130 million to $140 million through the end of 2021 fiscal year.
Now I'd like to turn to our outlook for fiscal 2020.
What we are sharing with you today is an outlook for the Edgewell business only.
This outlook includes the infant care business and it does not include any elements of the Harry's combination.
Adjustments to this outlook will be provided at a future date post close of these transactions.
Turning to the Standalone Edgewell outlook as Rod mentioned earlier the outlook for the business is largely in line with the assumptions business plans and ultimately the valuation models developed for the combination business case earlier this year as part of our diligence efforts at a high level our outlook can be defined by three pillars first copper.
Line trend improvement.
Following the improved second half of 29 team, we anticipate flat to slightly down organic sales results with continued improving trends across all segments and most markets.
The second element is gross margin stabilization.
Supported in part by further fuel savings selective price actions and moderated trade spends.
And finally, Choiceful brand reinvestment as this outlook contemplates meaningful reinvestment in key growth initiatives and overall increased and piece spent.
We also continue to see gross project fuel savings so at a lower at lower absolute levels than fiscal 2019.
As a result of the increased investment in the business, we anticipate lower adjusted EPS and adjusted EBITDA compared to fiscal 2019.
Now to the specific guidance for 2020.
We estimate organic net sales growth to be in the range of flat to down 1%.
We estimate currency to negatively impact total reported sales by 100 basis points.
The outlook for GAAP EPS is in the range of $2.45 to $2.65 and includes project fuel restructuring I'd seen evolent charges and other onetime charges.
Our adjusted EPS outlook is in the range of $3.10 to $3 in 30 cents.
Adjusted EBITDA is estimated to be in the range of $370 million to $380 million.
Project fuel is expected to generate about 70 million in incremental gross savings.
Despite anticipated easing in many commodity categories, we still expect that approximately 70% of the fuel gross savings will be used to offset continued wage inflation meaningful taro headwinds and other rising input costs with the remainder largely invested back in the business.
Project fuel related restructuring charges are expected to be approximately $36 million.
The adjusted effective tax rate for the fiscal year is estimated to be in the range of 22.5% 24.5%.
And our outlook for fiscal 2020 free cash flow is expected to be in excess of 125% of GAAP earnings.
With Capex estimated to be between three and 3.5% of net sales.
And with that I'll turn it back over to the operator and open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset for pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then till at this time, we will pause momentarily to assemble our roster.
Our first question comes from Ali Dibadj with Bernstein. Please go ahead.
Hey, guys. Thanks.
I guess I'm a few questions one is from a category perspective.
In North America men's grooming or men's wet shave have you have you seen any ability from a cadre volume.
Perspective, or competitive perspective, and men's and then separately in women's at this point.
Yes. Good morning, Thanks for the question.
The killer, where I think if you do you look at today versus where we are we're a year ago.
Stabilized across men's and women's.
At this point a year ago, there were still.
Harry is rolling out in the Walmart.
You had some ingo enjoy just coming into the equation at this point not yet in brick and mortar.
But knowing it was coming in February earlier this year.
So that level of disruption that was playing out a year ago has now played out and I think as we look at the categories in the us in general I would say.
We view them as having stabilized.
The market, we have is roughly flat to up 1% and so pricing has stabilized and shave incidents have stabilized I would say still slightly negative.
But in better shape than where we were a year ago.
So if thats. The case can you just talked during a little bit more detail, maybe quantifications would be helpful. Too in terms of the big ramp up in investments next year I understand that that's going to be a lot of advertising from your commentary earlier, but it does that have the risk of these stabilizing.
Two things again.
Very delicate balance as you know with your competitor is even the fact that you're buying one of them.
Yes, I think the from a competitive landscape.
The category continues to be extremely competitive right with Gillette has been clear market leader.
With lots of financial flexibility in their model.
Basic.
Coming with the hybrid.
And and having some level of success and some accounts and then.
Not at not a brick and mortar retail, but dollar shave yield lever of out there from a competitive standpoint. So does the landscapes very competitive right from a starting point I think as we look towards our own business and the combination with Harry's.
We're going to be focused on brand building and equity building.
We're not interested in in looking at price and trade and trying to escalate that will lead lead a new round of of what it has been value destruction over the last couple of years and so.
Our we're not going to be price disadvantaged, we're not going to have barriers around trade margin to the trade wanting to partner and work with us. So we'll address those as they come up but the bulk of our reinvestment is going to be into brand equity building activity that will not only start to show benefit.
2020, but really in 21 and beyond.
Okay and just last question on Fem care, you 10, I think last quarter that you do expect improvement.
We're not really seeing it are you still sticking by our guns that that we should see improvement in the next quarter or too.
Yes, we are Hollywood without Fortune is just as the way Q4 sets up there is some some inventory stocking.
Promotion balance versus the prior period that makes it look like a step back. However, if you look at share trends and consumption trends. They continue to improve behind what is going to stabilize distribution.
Like for like outcome versus the prior period. So were we remain confident that will improve the trends in that business. Thank guys. Thank you Alex.
Thanks, Operator next question please.
Our next question comes from Kevin Grundy with Jefferies. Please go ahead.
Hey, good morning, guys.
Kevin with this.
Just to stick with the line of questioning so it looks like the spending is largely going to be a employee related which had been sort of coming down understanding that business mix played a part in the but you will be about Q4 was up north of 14% of sales.
So the question is is this sort of a permanent step up here as you're looking at it.
Or is this something you think is going to have to continue to move higher over time.
When do you feel like you have good visibility on the return that you're going to get trends improved a bit in the back half the year, albeit maybe some of this was sort of comp driven how good do you think your visibility is on some of these improving trends that have a quick follow up though.
Yes on the on the increase in any NP year over year.
We've talked about in the past that you were going to look to a period, where we would spend more not less in equity building up against the brands in the business as we work through project fuel as we assess the return we were getting on our plans.
In in 2018, and 2019, frankly, we didnt see the returns as being there which is why you saw BNP cuts as we have.
Better talent that our plans and programs better exposure to categories and channels that have growth in them, you're seeing that investment come back in and I would tell you as we look at it 2020 is just a first step.
Moving forward any meaningful move up from where we are in 20 would be dependent on the return that we see and get is we would look towards 21 and beyond I will remind though you and Kevin you notice, but others looking at the business.
The percentage up against the branded businesses actually a point or so higher when you factor out that we don't spend a NP against our private label private brands business.
Yep understood. So that was the point I was alluding to the quick follow up and they'll pass it on.
The long term targets loans quarter.
You guys.
Basically supported this was the 2.7 billion sales in the 475 million EBITDA.
All in including Harry So understanding but did not include incident.
Divestiture, so if we adjust EBITDA number by call. It like circa 15 million are you still supporting number to them and then I'll pass it on books.
Yes, we're not changing our outlook.
Kevin we're not we're not updating on that today, we stand by the outlook, but there will be in as an adjustment that needs to be made once we close and Pat for that PNM would come out whether its 15 or not we got to do that work, but yes, yes, and maybe just to remind everyone of the the building blocks that were behind that outlook because.
There's three foundational pillars to call out one obviously is the Edgewell standalone business, which as we've said profiles with stable topline performance solid EBITDA and cash flow generation.
As you've heard US say today for 2020 this outlook that we provided lines up very well with the models developed during the diligence second element of course as the heritage business.
And while we're not going to comment on that business today. What we have said is wallets historically not been profitable. We do anticipate continued strong top line performance here and therefore significant leverage over costs, providing the catalyst for for meaningful EBITDA growth and then of course, the third parties is on synergies and although the deal was never defined through through the lens of cost centers.
Jeez, we continue to expect strong synergy capture beginning in the first fully full year post close 2021. So yes, there will be an adjustment for infant coming out, but we remain really excited about the opportunity behind those three pillars that really support the for 75 in 2021.
Thank you Kevin Thank you guys.
Operator next question please.
Our next question comes from Bill Chappell with Suntrust. Please go ahead.
Thanks, Good morning.
Hey, Bill Good morning, Rob just I think we're all.
Trying to understand how the MP works going into kind of calendar 2020, with Harry's pending and when I say that it meaning it seems tough to have an advertising marketing budget, assuming the deal Doesnt close near term until I'm, just trying to figure out.
Part of the businesses since it's not going to close now maybe for the next few months assumed that through the spring resets and it's early summer there really run separately from a customer facing side or can you give the deal closes soon or is some of this advertising marketing budgets switch and how does this affect resets.
Do you have any say in kind of how the spring resets look with both brands or just kind of help us understand as we go. These next four or five months with the transition still in place.
Yes, good question.
Well. Thanks. It starts by were separate independent companies today is that our competitors right. So we've set this business plant up and what you see today.
As a standalone legacy edge while company.
And as part of that because we will be coming together and that will happen relatively quickly here.
What youre seeing today laid out is only part of the story. We felt it was important to give transparency and visibility to where the legacy business is so that people understand that.
It's certainly not reflective.
Of what the plan would look like if we were going to be stand alone with mill eye towards the areas combination now that said.
We feel good about the plan thats been built this year and the incremental GMP support is not all specifically up against what shape.
When when we get closed we'll we'll look at putting that together with what Harry tests planned and we'll have a combined planned that maximizes the returns across the combined business, but if you look at our plan what we're doing in this plan.
We have some really.
Good growth profiles in our business that we want to keep going Jack Black Bulldog, China E. Com, all all double digit growers the us in Japan actually have some interesting return profiles, where we want to put incremental investment.
In to North America, and Asia more generally our Sun care business. We're excited about as we come through what has been a tough year with the re formulation and the allocation to start.
A late in the west some season.
We like the innovation, we have planned for next year.
And we were putting investment backend behind some thats, our highest ROI return actually historically as we put increase investment against some we see a nice return and then we have international.
Doing well with project International will continue to do on next year. So across all of those elements, where you think about where the AMC investment is going the real overlap. If you will with where our business inherited is quite small, but we'll we'll look at that in a combined way once we can do that will work.
But if.
But we're happy that we're putting the investment back and we think is necessary and right for the business.
Got it and just a quick follow up the international wet shave growth up 4% is that a number I guess.
Can you tell us how much of that was the the pull forward from Japan, and then kind of are you expecting that kind of low to mid single digit growth in 2020 for what shape International.
Yes, so the so the impact of Japan on the quarter totaled about 50 basis points, obviously, if you're talking about international penetration is going to be higher than that I think look we've seen we've always projected growth into the international business. We're excited that we saw growth two straight quarters.
And across all of our areas.
So we'll continue to look for that business to grow and as Roger said, we're going to continue to reinvest behind it in 2020 beyond two to ensure that growth.
Got it. Thanks. Thanks. Thank you Bill operator next question. Please.
Our next question comes from Olivia Tong with Bank of America. Please go ahead.
Great. Thanks, Good morning, right Dan Chris.
Just starting gross margin and if you can give a little bit more detail and what sort of drove the decline this quarter and we'll get to turn around what's your expectation fiscal 20, and obviously, we've talked a lot about your EBITDA expectations, but as you think about.
Contribution.
Gross margin would love to hear a little bit more on that thanks.
Sure. So in in the quarter look we felt we had a pretty good line of sight to margin.
Back in our three to call I think we identified 300 to 325 bips as of year over year pressure.
Played out slightly higher than that largely due to a bit more promotional intensity.
And a bit of negative mix, but overall, we certainly weren't surprised by the performance in the quarter. We had we had called for that I think looking at the year overall.
The main driver you've got meaningful fuel savings that unfortunately, we're largely absorbed by really ramp in inflationary pressures across all areas of the business.
And then we made the choice to invest heavily in trade and promotion in price, including reallocating funds out of out of a MP into additional trade. So that if I had to summarize that was worth about 100 basis points of the 200 basis point year over year decline and then you.
I have some some other items as well slightly higher obsolescence costs and negative mix why we're comfortable.
With an outlook in 2020 that calls for stabilization is really a couple of things. So one we expect some level of accretion.
From fuel on margin rates, even though we still expect significant inflationary costs and some tariff pressures. We do expect that fuel will will provide some level of rate accretion.
We're also taking selective price actions across certain markets in categories, which we think will be helpful to our margin profile and then lastly, as we've said we're going to moderate the level of trade spend.
Versus what we saw in 2019, so when you put all those together Thats why were comfortable calling for a more stabilized margin picture in 2020.
Thank you Libya operator next question please.
Our next question comes from Jason English with Goldman Sachs. Please go ahead.
Hey, good morning folks.
I appreciate you saw in.
Two questions for me first on cost inflation.
You can you give us a little more context around where this is coming from because it certainly stance and sort of Stark contrast, what we're seeing industry wide and you look at steel prices in the us they've come in substantially.
Are.
They've come in kind of the right direction packaging costs seem to be coming in so its little hard for us to for kind of where this pressure is going to be so substantial for you.
Yes, absolutely. So I think it's important to to backup and just think about our total book of business on the commodity side of the equation, which are actually things, you're calling out to about 20% of our total cost structure and in many of these categories. You're absolutely right. We are seeing not only easing of inflation.
Actually seeing deflationary trends around resin around textiles around packaging around board. So completely agree with the assessment there having said that we continue to anticipate meaningful cost headwinds.
A few other areas Sun care chemical costs continue to increase tariff headwinds are meaningful for us in 2020, if you think about not just the sun care chemicals that we purchase out of China, but the steel costs associated with.
With our shave prep business and then on the sort of the core business, we still anticipate headwinds.
Mostly around wage pressure and a bit on transportation. So I guess long story short certainly some easing in commodities, but unfortunately, other headwinds, namely in Sun care chemicals, and tariffs keep us in a highly pressurized cost position.
That's helpful. Thank you.
Want to come back to Mr. Grandees question and the bridge to for 75.
Obviously, some some adjustments.
Before we comfortably adjustments for fem care, but it implies rig $100 million EBITDA growth next year off of the guidance you have here and I think the base you setting for this year's little bit lower despite a pull forward to savings. So now we've got less savings to look forward to and fiscal 2001 with a lower base it feels like the path.
That for 75 is becoming a bit more stretched.
And a little harder to achieve can you help US you help us contextualize the building blocks.
How do we get there why should we believe is that still if a feasible number.
Adjacent.
Good morning.
We're not going to get into that updating the details were not prepared to do that in total of how we get to the for 75.
We'll do that lots were closed.
We can actually see the harry's numbers and get into the detail.
And outpaced the work we did back in the spring.
We put the guidance out.
But.
If you look at the components and what we said this in our commentary.
The input to 2020 of the Edgewell business into that combined business plan is largely where we thought it would be right. So we know that piece of the input and we know we assumed for 21 of the Edgewell business and I think from our perspective, we don't see a change their right to that.
That actually is a piece to us that certain that then leaves.
Synergies and it leads to Harry is business performance and the leverage we can bring on those sales.
As they grow and roll out their business and so it's it's those three pieces that come together that when we look at keep us confident in the 475 and what May look like a change to you doesn't necessarily appear the same way internally.
Okay. That's helpful. I appreciate it upgrading on.
Thanks, Jay Thank you. Thanks, Jason Operator next question please.
Our next question comes from five Ali with Deutsche Bank. Please go ahead.
Hi, good morning.
As you talk about Sun and skin care I guess your first question is how sustainable do you think those results are and when or what is the profitability outlook for that business because despite the strong sales growth there doesn't seem to be much a for profit contribution that so we're just love more color. Thank you.
Yes, Thanks wise.
I think for Sun and skin, we keep a lot of.
To come in those categories. So what we've done specifically on skin.
Up to this point.
Primarily with Jack Black.
As Bulldog.
It is something that is as we look forward as the growth trajectories and profile, we see a lot of continued.
Upsize the double digit growth rates is what we've historically done.
We have that planned out into the foreseeable future headlines site to that.
One of the important points behind your question and that makes us a little more bullish on that part of the portfolio is it's a rapidly growing segment.
Typically the men skin care area and so as we define our business around grooming wet shave skin combined theres really nice growth in that part of the business and we think we have brands with the REIT portfolios in innovation pipeline to take advantage of that Slutzkin.
We feel good about that and then there's there's obviously a leg of that story that continues.
Once we get close with Eric you think about their exposure to that as well on the some side I think we continue to feel good about the category overall, it's it's growing.
And the issues. We had this year one was in our control with some care we formulation that we did at the beginning of this season.
To get that behind this as opposed to being a bid season cutover is really around supply assurance, but what that did to US is it put us on allocation of supply early in the season.
Which impacted our results this past year and then that combined with through June July you had the wettest 52 month period on record in the United States.
Which.
Got us off to a slow start and then with our brands being more around beach orientation outside orientation with fewer beach incidents that obviously disproportionately impacted our shares moving forward.
We can't control the weather, but that will normalize itself over time, we've made incremental investments in R&D around formulation capability and we feel really good about our front end formulation capability significantly improved capability versus where we were two years ago.
And we like the innovation path won and I think we're also looking more holistically at the category and thinking about what our portfolio looks like of not only around beach access, but every day sun.
If you look at brands that are winning such as neutrogena who's been growing share nicely, it's that everyday positioning.
This is quite important so as we look going forward. The combination of all that I think we feel really good about the category and our ability to participate in it.
Thank you Pfizer.
Operator next question please.
Our next question comes from Steve Strycula with Yes. Please go ahead.
Hi, good morning.
So turning.
Question on the domestic wet shave business wanted to go through that and just kind of understand.
How we ended the fourth quarter down, 9% and then ultimately.
What within your organic sales framework for 2020, how should that business shake out based off what you think of internal innovation.
Shelf resets and then more importantly, how should we think about the trade.
Spend environment moderating pricing going higher when the opposite prove true in the last quarter.
Thank you.
Yes, Thanks, Steve I want to go back to the size of the second part of Pfizer's question around margin profile of southern skin.
We made nice margins on those businesses. They are below our wet shave played razor margins and so there is.
Negative mix, if you will there and thats part of what we've been working through a margin perspective, but they are very profitable and within their segments I would say at or above category average profitability.
So Steve back to your question around the domestic wet shave business I.
I think we're coming off of a period.
That has has been volatile and dynamic around what's happening in the base.
Being quite different than what's happening in the current periods just around like for like distribution, particularly with the Harry's rollout across the full Walmart display of then you look at.
Joy and Flamingo coming online as well.
We have had the impacts from that we we've adjusted price.
To be competitive.
With the end consumer and we put incremental trade margin into remove barriers of our trade partners wanting to work with us and partner with us So that that's all in and largely done there. So there's some incremental investment we're making next year, but it's very minor and very tactical certainly compared to.
Where we've been.
And so as we look going forward in the business.
I see a much more stable environment.
We'll have some moves from quarter to quarter, but I think we're more like for like with distribution at this point, we're more stable with pricing.
We were also lapping the intuition FHLB launch on the women side. It was launched in 18 that we were lapping a 19 with no equivalent launch essentially so as we bring our innovation pipeline forward in the future. We're looking at how we sequence that throughout the year to have.
More stability more predictability and obviously better innovation plans in general it come forward.
That help us with our volume gains and so.
I Wouldnt.
Wouldn't spend too much time looking backwards in the category to try to predict the future, but I think in total we have wet shave improving.
Year over year versus what we did a 1920 will be better and that also holds true for the domestic us business.
Thank you Steve.
Operator next question please.
Our next question comes from Keith Grass Danna with Barclays. Please go ahead.
Thanks, Dan I think you had mentioned taking flat pricing across the markets next year.
During if you can maybe give more details there in terms of which segments are geography, and then just separately with offer wondering if you could share your expectation at fair market share performance over on the three segments for next year. Thank you.
I'm sorry, Kate can we didnt catch the first part of your question the line flight hour.
Pricing.
Sorry, Yes, I was just asking about at which segments are geography, if you're planning to take some select pricing next year.
Yes, so we were planning some pricing behind Sun.
I think.
As Dan laid out where youd chemical and input cost.
Increases in those business have been substantial significant actually over the last couple of years now, particularly as the bar goes up on the ingredients that go into the Sun care products in the FDA monograph, it's becoming more expensive.
To compete in that category and a formula products and so we see some pricing behind some.
That we have planned in and that's largely it.
Its status quo everywhere else.
From a category in geographic standpoint.
And so that's the price increase the second part of the equation around market shares.
We've seen generally improving trends in market share over the second half of the year.
In 19, and we essentially expect that to continue.
As we go into 2000, so I wouldn't I would call. It generally is stable set of assumptions of year over year market share change.
Thank you Kate Operator next question please.
That concludes our question and answer session I'd like to turn the conference back over to Chief Executive Officer Officer, Rod Liddle for any closing remarks.
Thank you everybody for joining today, we appreciate your time.
An interest in as well.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[noise] [noise].