Q2 2020 Earnings Call

[music].

Good day and welcome to the Edgewell personal care Q2, 2020 earnings conference call.

Participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Chris Gough. Please go ahead.

Good morning, everyone and thank you for joining us this morning, as we discussed as well second quarter 2020 earnings with me. This morning, our Rod Liddle, our president and Chief Executive Officer, and Damn Sullivan, Our Chief Financial Officer, Rob will kick off the call and he will that you had always to dampen discussing results transition skewing.

This call is being recorded it would be available for replay via our website www dot as well dotcom.

During the call we may make statements about our expectations for future plans performance. Despite include future sales earnings advertising and promotional spending product launches savings in cost related to restructuring changes to our working capital metrics currency fluctuations commodity costs category value future plans to return 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 that 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 2019, that's maybe imagine quarterly reports on form 10-Q.

These risks may cause our actual results to be terribly different from those expressed or implied forward looking statements. We do not assume any obligation to update or revise these forward looking statements to reflect two events or circumstances, except as required by law.

During this call may refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

A reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are shown in our press release issued earlier today, which is available at the Investor Relations section on our website management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business without I'd like to turn call over to route.

Thanks, Chris and good morning, everyone.

I'm, leading this call today from my home here in Fairfield County, Connecticut, and Dan is similarly, Lee at his home in his prepared a jump in should I have it any technical difficulties.

Our executive leadership team and office staff have been working remotely.

Nearly two months now if we are all doing our part to social distance that help prevent the spread of cobot 19.

I will begin my remarks by providing an overview of the company's response to the cobot 19 outbreak followed by a brief discussion of the progress we continued to make on our strategic initiatives.

And I'll end with a few comments on the second quarter and current business trends as well as the likely near and medium term applications for our business.

Yeah, Dan will review our financial results in more detail and also provide a framework for how we're approaching the back half of the year.

[laughter] first and foremost our thoughts today are with all of those impacted by this pandemic weird deeply grateful to our brave medical professionals first responders in a central workers for their tireless dedication during these extremely challenging times.

At Edgewell our focus during this time has been on three key priorities, which our first the health and safety of our associates second ensuring the continuity of our business operations and third managing the business in a disciplined and balanced manner.

First the health and safety of our associates has been and we'll continue to be our number one priority.

We have swiftly implemented advanced protocols to protect them.

With our people first mindset in the early days of the covert 19 pandemic, we were quick to implement business travel bans across the company.

Initially with international travel and then including domestic travel is a situation involved.

We also made the decision early to close all non plant locations and to move to remote work for all of those who were able to do so in most cases, well ahead of local guidelines and requirements.

Leveraging our strong suite of collaboration tools and broader technology platform and our existing flexible work policies. The transition to working remotely was largely seamless with no material business disruption.

Along the same lines, we took swift we swiftly took the necessary steps to ensure our manufacturing plants were safe for our associates still coming in every day.

Many of the products, we make are central to our consumers, especially during these unprecedented times and we take very seriously our obligation to ensure that our team members on the front lines are working in a safe environment.

We implemented enhance safety protocols in our facilities around the world inline with the CDC and other governmental guidelines, we heightened cleaning and disinfecting policies.

Required the use of PPD.

Adhere district, social distancing installed thermo scans upon entry and exit of all plants.

In the U.S., we implemented our emergency pandemic leaf policy, which guarantees pay for up to 12 weeks, allowing our associates to make informed decisions for themselves without having to use paid time off.

These efforts combined with our additional safety precautions have so far restricted any spread the virus within our facilities.

Turning to our second priority, which is ensuring the continuity of our operations.

We were initially faced with the challenges of covert 19 in early January given our manufacturing operations in China.

And our successful efforts there in developing robust operational mitigation plans and necessary contingency plans served us well.

As the virus spread.

Requiring we address our operations around the globe.

In all markets. Our teams have maintained close contact with local governments and authorities to manage our status as an a central business and work to ensure uninterrupted operations.

Additionally, the teams have enhanced product quality regulatory and safety assessments.

Actively addressed and manage potential vendor supply risk.

Developed and implemented strategic inventory reallocation plans.

I'm happy to report that due to the diligent work of our operations leadership all of our global manufacturing plants in distribution centers remain open and fully operational.

It adds well we are a values driven company and.

We know that our products directly impact the quality of life of many.

And we recognize that we also have a responsibility to the larger communities we serve.

Wet once the number one brand in the hand hygiene segment is playing an important role in improving had high teen and cleanliness and we're proud to help support those most in need.

With product donations to organizations such as the American Red Cross feed the children and numerous homeless shelters, where they need a significant.

Additionally, we are honored to show our support and appreciation for our frontline responders with product donations to various police DMT fire and medical groups across the globe.

Through our brands and in partnership with many in our retail.

Many of our retail partners, we have supplied thousands of healthcare workers with wet shave kits.

As many hospitals are now requiring men to have a clean shape as part of proper mask safety protocol.

And finally, we have donated moisturizer from our Hawaiian Tropic spine, so nursing staff.

We can suffer from the increased sanitation routines.

Moving to our third priority, we continue to manage the business in a highly disciplined and balanced way. This means making the right choices and focusing on key priorities that are most relevant in the near term during this uncertain and rapidly evolving period.

While continuing to make progress the strategic priorities that will drive our long term success.

To preserve our financial strength, we are closely managing discretionary spend.

Reassessing, the effectiveness of see trade investment and brand support, including advertising and promotional activity and Reprioritizing all planned capital investment.

Our balance sheet is healthy and we successfully increased our liquidity with the recent refinancing of our revolver.

Which we announced earlier in the quarter it Dan will elaborate on our increased focus on liquidity shortly.

As we navigate these uncertain times, we're also preparing for a post covert 19 environment and we remain focused on the strategic priorities, we discussed last quarter, which include.

First innovating and building brands consumers love.

We're continuing to build out our capabilities across our R&D and commercial organizations.

And I'm excited by this significant steps, we have taken to become more consumer centric in the development of our innovation pipeline.

As I indicated last quarter, continuing to add top talent in critical roles remains top of mind for us and we are progressing well in identifying key successors.

In roles across our commercial organization, including the new President of North America business.

A key leadership roles across our digital in ecommerce organization.

More specifically with respect to the President of North America role, we have been very pleased with the caliber of candidates and we are in the final stages of the process.

I look forward to being able to announce disappointment in the coming weeks.

Second we are building strategic partnerships with most important retailers to win at the shelf.

As we've seen over the past month strong collaboration and partnership.

Are essential to maintaining enduring mutually beneficial relationships with our key channel partners.

As I spend more time with many of these key trade partners I'm encouraged by their continued support to strengthen the edgewell portfolio of brands.

Third we will continue to drive efforts to strengthen our competitiveness through project fuel maintaining our focus on generating efficiencies that in turn enable continued investment in growth opportunities.

Fourth as I mentioned earlier, we will continue to maintain a strong balance sheet deploying our healthy free cash flow in a balanced and disciplined manner. This financial strength gives us flexibility as we navigate a potentially challenging demand environment in the near term.

Lastly, and most importantly, our people are foundational to our success talent profile and work environment for our employees are critically important.

Little did we know a quarter ago, how pressure in our focus on this priority would prove to be.

We will continue our commitment to creating a culture that attracts and retains world class talent in driving engagement among our team.

Before handing over to Dan Let me make a few comments on the second quarter in current business trends.

Overall, the second quarter played out largely as we had expected with broader performance strengthening year over year.

Excluding estimated cobot 19 impacts the business continued a flattish topline trend with gross margins continuing to strengthen.

Our organic topline results were boosted by strong sales in wet ones.

Where we expect higher demand and to continue for the foreseeable future.

And by consumer stock up in feminine care, where again, we continue to see solid performance through April as.

As you know we had already strategically determine the importance of these two categories to our business and we were investing behind these brands.

As cobot 19 creates added consumer focus on overall personal hygiene and likely drives consumers to turn to establish brands. So they can trust, we're well positioned for sustainable success.

In wet shave our results are largely in line with our expectations.

However, within this segment there were softness across our Asia Pacific region, as Cobot 19 negatively impacted the results earlier in the quarter, which was mitigated by modest consumer stock up in the United States in the month of March.

In Sun care, we began to see customers cancel some march orders and we have seen further order delays in April.

As a result.

We see continued increases in demand for wet ones and our feminine care brands, but we do expect softness in wet shave and Sun care in the near term.

Given the lack of visibility in a wide range of outcomes for the remainder of the year, we have withdrawn our guidance.

More broadly despite the near term challenges in Sun care and to a lesser degree wet shave. We continue to believe that we are well positioned in this environment and longer term.

The effects of this pandemic have been devastating to so many and we're moving as quickly as possible to meet the changing needs of consumers that this environment has created.

As I mentioned earlier, we will be among the beneficiaries of increase consumer focus on health and hygiene and our continued investments in expanding our digital capabilities will serve us well given what we believe will be an accelerated and lasting consumer shift to ecommerce.

Environments like this require efficiency and agility and we have made great strides in these areas in my first year in the role.

Before turning the call over to Dan I want to thank our team across the entire company our people our greatest asset and I'm. So proud of the resiliency and commitment of our team members, especially those in our manufacturing and distribution centers, who have worked courageously and tirelessly to ensure that we.

Remain fully operational during these challenging times.

And now I'd like to ask Dan to take you through our fiscal second quarter results and discuss how we're approaching the second half of the year.

Thank you Ron and good morning, everyone.

I hope, you're all healthy and safe as we navigate this global crisis together.

And I'd like to add my personal gratitude to our teams around the world for their dedication commitment and resiliency and ensuring that our business remains fully operational during the most challenging at times.

I'll start my remarks by spending a few minutes reviewing our quarterly results then I'll discuss the steps we've taken to ensure ample liquidity for the business given this environment of uncertainty before concluding with some thoughts on the second half of the year.

As Rob said overall the quarter played out largely as we had expected in terms of both top and bottom line performance, although the path there was fluid and challenging.

Through February we were well positioned to organically outpace our own internal revenue and profit forecast for the second quarter with evidence of stable to improving topline performance across most categories and geographies.

At that time, we anticipated another solid quarterly result, reaffirming our expectation that we would deliver on our full year guidance for fiscal 2020.

In the last month for the quarter, we saw cobot 19 related disruptions build across our international markets Muting demand. While later in the month in North America, we began to see the benefits of retailer stock building and consumer pantry loading mostly in our fem care and wet ones businesses in the quarter, our underlying topline results.

Demonstrated to further stabilization of the business that we've seen now for four consecutive quarters.

Adjusting for the demand surge related to covert 19, our underlying organic sales performance was flat.

Consistent with recent trends and our previous outlook.

Gross margin, excluding currency, the infant and pet care divestiture and the increase supply chain headwinds related to cope with 19 increased about 50 basis points.

Adjusted operating income increased $3.1 million, excluding the nearly 6 million dollar impact from the infant in pet care divestiture.

We remain disciplined in our project fuel efforts to drive cost savings and increase efficiency across all areas of the business and in the quarter, we realized over $18 million in gross savings.

And cash from operations through half one was nearly $50 million higher than over the same period, a year ago, largely driven by improved working capital performance.

So while the path forward contains clear uncertainties, especially in the near term the underlying fundamentals of our business continue to strengthen and our efforts to become a stronger more agile operator continue to gain traction.

Now I'll turn to the detailed results.

Organic net sales in the quarter increased 2.4% excluding estimated increases due to covert 19 as mentioned sales were essentially flat.

Organic net sales in North America grew 5% percent driven by strong performance in wet warms Fem care and men's grooming.

Sun care sales increased modestly while wet shave declined just over 3%.

On an underlying basis, excluding cobot 19, Tailwinds, we estimate that organic sales in North America were flat.

International organic net sales declined 2% in the quarter, largely driven by cobot 19 related headwinds across our broader Asian markets, but was up 1% on an underlying basis.

Europe, and Latin American markets, both delivered increased sales in the quarter on a reported and run rate basis.

E Commerce sales grew 63% in the quarter, reaching about 6% of total net sales with growth on the Amazon platform of 80%.

As we continue to build our capabilities and focus in this channel. We obviously also benefited from the consumers efforts to pantry load as part of our as part of Cobot 19 responses.

Looking at performance by segment.

Wet shave organic net sales declined 3.5% in the quarter driven by volume declines in men's systems and unfavorable price mix in disposables, partly offset by volume growth in women's systems and disposables.

For wet shave Cobot 19 was a slight negative to overall organic sales, although more impactful internationally with declines in Asia, partly offset by consumer stock up in North America.

Volume growth in women's was driven by our new sentiment disposables offerings as well as private label in fact private label in aggregate grew high single digits in the quarter.

From a geographic perspective, North American wet shave declined 3.4% and continued to face competitive pressure with share losses in the quarter largely a result of distribution losses at Sam's club and a decrease overall promotional level year over year.

International wet shave declined 3.6%, although was flat on an underlying basis.

Europe remained resilient and continued its recent trend of stabilized wet shave performance growing just over 1% on an underlying basis.

Our market, leading shave preps business performed well and gained over a point of market share and our disposables and private label business is broadly held share in the quarter.

Sun and skin care organic sales increased almost 9% driven by strong demand for wetlands, which was up $11 million or 80% over the prior year period and up over 30% on a run rate basis in terms of consumption went ones experienced triple digit growth across all channels drove 11.

Points of share gains in the consumer and sanitizing wipes category and now accounts for the top seven skews in the category.

Here are commercial focus on the drug channel and efforts to drive expanded distribution and strong secondary displays were further augmented by the tailwinds associated with Cobot 19.

Managed grooming increased 10% with solid growth in both Bulldog and Jack Black.

Sun care organic net sales were essentially flat or up 2% on an underlying basis as favorable pricing was offset by lower volumes and in terms of consumption, both our banana boat and Hawaiian Tropic brands held share in the quarter.

Feminine care organic sales increased nearly 14% largely driven by stock up related to corporate 19.

Excluding those increases sales were down about 1% in the quarter, which was slightly better than our expectations.

In terms of consumption Femcare was up 16% and held share in measured channels, while gaining a point of share on Amazon.

Gross margin increased 60 basis points year over year to 46.5%.

Excluding the impact of the infant and pet care divestiture currency and onetime costs associated with cobot 19 underlying gross margins increased 50 basis points, which was slightly stronger than our expectations.

In the quarter gross margin benefited from stronger pricing in some and continued project fuel savings, partly offset by unfavorable product mix.

Hey, NP expense this quarter was 9% of net sales as compared to 8.8% of net sales in the prior year period.

Excluding the impact from the infant and pet care divestiture and piece spending increased about 4% compared to the prior year period.

However, spending was well below our internal forecast in the month of March as we began to meaningfully shift spend in reaction to cope with 19.

SDMA, including amortization expense was $121.5 million or 23.2% of net sales as compared to 18% of net sales in the prior year period.

Excluding the impact of restructuring related charges Harry's transaction related costs and other nonrecurring charges SDMA as a percent of net sales decreased 10 basis points, driven by lower compensation and equity expense and project fuel savings, which were mostly offset by higher bad debt expense.

Other expense net was $10.9 million of expense during the quarter compared to $2.7 million of income in the prior year period.

The increase in expense was largely cobot 19 related as we saw a significant devaluation of local currencies in several key countries in Latin America, Asia, and Central Europe against the U.S. dollar, resulting in a reevaluation of local balance sheet exposures.

The key exposures driving loss were devaluations against the dollar from the Mexican peso check Corona Australian dollar Chilean peso and Colombian peso.

GAAP diluted net earnings per share with 36 cents compared to 89 cents in the second quarter fiscal 2019, and adjusted earnings per share were 92 cents compared to $1.13 in the prior year period constant currency organic EPS grew 12% year over year.

Net cash from operating activities was $17 million in the quarter as compared to a use of cash of 32 million during the prior year, reflecting improved working capital performance, particularly in inventory management and was partly aided by the increased demand associated with cobot 19.

The company's net debt leverage ratio is about 1.9 times, reflecting the business is strong free cash flow profile.

Which brings me to the topic of liquidity.

As you know our business model is defined by strong operating cash flow generation and extremely efficient free cash flow conversion.

As such our liquidity position is very strong.

To ensure that this remains the case in light of the business uncertainty that's in front of US we've taken a number of important steps.

We've accelerated our project fuel efforts to further enhance our focus on driving costs out of the business and reshaping our organizations productivity efficiency and agility.

In the quarter, we realized about $18 million in gross savings and this is likely a good proxy for the remaining quarters of fiscal 2020.

Additionally, we continue to assess all aspects of our business and investments in the near term and non critical spend is being eliminated or defer.

This includes anticipated pullback across discretionary spend areas of the business and a reprioritized approach to addressing open positions based on greatest business impact.

AMC investment is also being further refined with our focus being defined the appropriate balance of pausing on spend where market conditions likely impact overall effectiveness, while continuing to invest in our brands and with our trade partners were execution can be expected to be reasonably high.

We also continue to shift from more traditional brand spend some more digitally focused advertising and brand activation spend in an effort to drive greater productivity and efficiency.

We've also evaluated our capex spend for the balance of year prioritizing only those investments that are business critical and as a result, we anticipate capex will be well below the historical levels of about 3% of net sales.

As a reminder, maintenance capital expense is typically about a third of our annual Capex spend.

And finally, as we disclosed earlier in the quarter, we successfully refinanced our $425 million revolver, leveraging strong relationship banks and securing additional liquidity for the business.

With the revolver announced place and over $300 million a cash on hand, we're very well positioned to weather the potential near term challenges associated with cobot 19, while also ensuring that we take the appropriate steps and becoming a stronger competitor moving forward.

We have $600 million in debt coming due in May 2021, and $500 million in May 2022, and given our strong liquidity position as well as the emergence of a more structure and productive debt market I.

I feel good about our ability to proactively address these notes and further reinforce our liquidity position should we decide to do so.

And finally I wanted to to provide some brief perspective on the near to medium term outlook for the business.

We will continue to operate with a balanced perspective on both top and bottom line as we consider both risk and opportunity.

And as Rod stated earlier, we've also been focused on ensuring overall business continuity with the development and execution of robust contingency plans to date all of our manufacturing facilities and distribution centers are essentially fully operational.

However, the lack of visibility and continued uncertainty in terms of the magnitude and duration of the pandemic has led us to suspend our forward looking guidance.

This uncertainty spans consumer demand the potential impact on our global supply chain as well as the likely increased volatility in the currency and commodity markets and I'd like to touch on each of these briefly.

As we assess consumer demand in this cobot 19 environment, we anticipate growing headwinds in our North American Sun care business, particularly in the event of a prolonged impact this summer travel and holiday season.

Today, we have seen strong execution in the category across channels and no initial indications of any changes in retailer focus or prioritization, which is very encouraging.

As we discussed last quarter after successfully executing a price increase on both our core brands. We were pleased with the final shelf sets with key retail partners and we remain well positioned in terms of shelf presence and availability, but the initial portion of the Sun care season is highly uncertain.

In wet shave, while there is some belief that this work from home environment could potentially lead to short term changes in men's shave regimen. We see this as short term and we also know that our disposables and private brands businesses have positioned well across quality and value price tiers, which have historically been t. assets for.

Yes, and challenging economic environments.

We're also very encouraged by the growth we've seen across both our fem care and wet ones businesses, and we're well positioned to capitalize on the consumers ongoing focus on health and personal hygiene and both of these categories likely offer some offsets to the to the potentially challenging Sun care environment I described earlier.

More specifically on what once we've taken the appropriate steps to meaningfully increased manufacturing capacity, which will come online in mid summer.

We also believe our focus on enhancing our ecommerce capabilities and the consumers likely increase preference for established and dependable brands. They trust will serve us well moving forward.

We're navigating this environment with the health and safety of our team members as our number one priority and this is reflected in the actions we've taken companywide.

As a result across the supply chain, we expect to see some further cost pressure pressure, which is only partially offset by our project fuel work and other tailwinds.

Given the evolving nature of the pandemic. There was also the potential for further supply chain disruption and the shifting revenue mix dynamics that I discussed earlier may have margin implications.

So with that operator will move to questions.

To ask a question you may <unk> store, one on your Touchtone phone.

For using the speaker phone please pick up your handset we're pressing the keys to withdraw your question. Please per store than two at this time.

Pause momentarily to assembler roster.

Our first speaker is Deborah most sat in from Morgan Stanley. Please go ahead.

Hey, Good morning, guys Pro Bowl as well.

So the poorer commentary was helpful. By segment <unk> can you give us a bit more of an update on the overall corporate sales transit need April perhaps and then two specific question.

One side, obviously very strong Sumit badness you betcha.

Can you discuss capacity constraints and inability to supply that business in tricycle q. too and you mentioned the increased capacity in the summer how substantial could that be as we look your critical Q3 Ain't going forward.

And then on there's some care side, just sort of curious as you look at fiscal Q. trees, specifically you know, what's the retail sales weakness sort of totally reflected in shipments and Q2 or is there a bit of a hangover as you look specifically at Cisco Q3 <unk>. Thanks.

Huh.

Hey, there are good morning, thanks for the questions.

Let's start with with April will take these in order.

On April you know if you look primarily across.

Western Europe.

In the U.S. in Canada here and moving into Latin America.

It was the peak month was the Lockdown, if you think about People's movement in being out in retail in what you're seeing and in scanner trends in measured channels across all those markets.

April was a pretty negative month in in our bigger categories in what shape in some care, but it's only a data point I think is we exit April and and look at the start of May here, we're seeing improving trends already in fact in some cases in the last week.

In those two bigger categories, we're actually obscene growth in year over year period.

And so it's I wouldn't look at April as a a proxy for the quarter you know, it's a snapshot we're not going to comment on the the specific numbers in April.

Ah, but it was down for the reasons, Dan Outlaid in his commentary.

But again, we we see you know solid performance continuing in in April across swept ones and Femcare, Dan referenced our son care set up for the start of the season isn't very good shape.

In terms of our presence at retail or activation off shelf an islanders in in caps was really good in your over your better.

And we've talked to retailers. This is your third question getting into some care.

Were you know we're optimistic on the on the season in total it's gonna play out very differently, we talked about shipments being moved out of March.

A certain extent the same thing happened in April but.

But people are still going to be outside and we're changing our messaging away from you know a beach orientation and occasion more to every day you know fun in the Sun at home with your family in the backyard or in a park are going for a walk.

And so as as we talk to retailers, they're still very committed to the season and and looking at activating the category for a longer period of time more into the the middle and potentially into this summer and so what we'll have to wait and see on that but again I think we feel really good on our own execution on that category.

When you were second question on wet ones.

A a capacity constraints, we our capacity constrained at the moment and we have been we've been on our location since the beginning of March.

In working through those allocation routines, we've moved quickly to secure additional capacity and are making investments to bring additional capacity online.

As of the summer is Dan said and that's that's in our own manufacturing plant in Ohio, where we produce the global.

Volume's four also looking at third party supply arrangements in some cases to add to that we see huge potential for this brand. It's the number one brand with the 60 to share today, we're up 11 points.

In in some of the most recent.

Ah share readings and so this is a brand consumers need and we think will continue to need for a long time.

Okay. That's helpful and can you give us some sense of magnitude for the production increases the summer how significant it is versus your existing footprint.

Yeah. There are we can comment on that specifically.

Okay. Thanks, guys.

Thank you.

The next question comes from Nick Modi from our D.C. capital markets. Please go ahead.

Yeah. Good good morning, everyone hope, everyone, staying safe and healthy robbed him just to question I mean, obviously, you know things are a bit Baltimore right now and category growth is all over the place, but he just talk about you know you made a comment about aggravating you're seeing some improvement in the business.

Perform better than your internal plan I.

I guess I. The question a lot of people are asking for every company is how is.

He ain't going to exit.

<unk> you know <unk> are they going to being a stronger position not just on the position. So I was hoping you can just provide some context around what you're seeing in a business that would you know leads you to believe that you're going to be in a stronger position. When you come out of this and then the second question is yes, I know you're doing a lot of kind of ran we architecture work I'm just curious where are you are.

Process right now thanks.

Yeah. Thanks smack it good morning.

We're we're very confident that will exit the pandemic under stronger position, we think there's some structural changes.

Consumer behavior that are going to be lasting and durable that benefit us in the personal hygiene space, we've talked about with with not only wet ones, but our our femcare business I think we also feel like the disruption in the short run.

It does hurt son care in a short run potentially.

We get behind the.

As we move forward.

And and also within wet shape, we there's a there's a period of time here in a in a work from home environment or people being locked down where the shape incidents are just going down and that's a fact and so that that is what it is that's not something that we see as a continuing.

Something that continues at the level, we've seen in the lock it we think that goes back to normal in.

Symbolically you know we're at a at a pretty native position, there anyway with their relative facial hair and shave incidents. So moving forward, we expect that to come back to normal. So if you.

If you take the overall category profile with a web shave business, that's essentially flat globally.

Some care business category wise that's positive.

Femcare business, it's slightly positive.

And a wet one's personal hygiene business category wise that's positive.

And we take our own improvement in fundamentals and how we architect and build our brands.

And.

Make ourselves stronger through this we think with with that category slay it cleaned balance sheet, it better team and stronger fundamentals that weren't very good position to come out of this in a much stronger way.

On the brand.

On the bread Architecting piece of this.

We we spent a lot of time to look at the consumer segments. The demand segments, an overlay our brand portfolio against that primarily in what shape.

And we know we've had an opportunity to better architect our portfolio and build brands against tighter consumer targets.

That have better messaging and offer a better value bye bye segment.

We are well down the path on making that happen. It's a combination of of better targeting a brand positioning across those consumer segments.

It's better packaging, it's better product design.

All the messaging that goes with that and I think you'll you'll start to see that really show up as we come into the 21 planet I'm sets and we're talking to retailers about that now and so I would say that's that's not something that particularly is going to give us scale ones here is in the second half of this year, but it.

Certainly sets us as we move into 21 to be in a better position across not only the web shape business, but also how we think about our son care business.

Very helpful. Thank you all pass it on.

Thanks.

The next question comes from Jason English from Goldman Sachs. Please go ahead.

Hey, I'm only folks.

Thank you for take like Jason.

I think you mentioned I may I may have I mean, misfits, because I was <unk> righty frantically did you say your private label sales are up 9% or something of that magnitude in North America this quarter.

Yeah.

We said, Oh, hi single digits [noise].

Oh.

I I might have scribble by the in hopes that it was a it was a hot okay. The high single digit gross when we look at the Nielsen data, we don't really see that sort of momentum in that channels. So I guess my question is are you are you're capturing share from other private label suppliers or is this growth you're seeing in omniture channels.

[noise] are you asking specifically about private label.

Yes ma'am.

Yeah, sorry, our best estimate is on measured we in measure channels. We are best estimates that we held sharing the court.

Okay and then my last question I'm going to continue to stand private label just to be this one.

In the last economic downturn, we saw private label tapped for a lot of share I think it would work to your benefit in terms of your average share position the market.

However, as we go into this downturn in the market structure is just a little bit different <unk> with a much bigger pleasant out there to lower priced here and P.N.G. is kind of push down a little bit and sharpen some of their relative price points.

As you trust the market and you you costs of play kind of the forward do you believe that that your private label business is likely to gain share or given the market structure changes maybe doesn't see the same type of town ones. This time around.

Yeah.

Jason I think your your points a good one on the market structure be different.

For the longer term health of the category, that's probably a good thing in terms of how we compete across the different tiers. We we do expect the combination of of private label in disposables to be an area, where where we have particular strength in it.

Not only on the retailer relationships and the shelf sets as you know we have he's very high share position private label here in the U.S.

Part of that's driven by excellent retailer relationships on that front, but a big piece of it is we bring better technology than anyone else has to the segment and into a certain extent you know you you start to look at at branded competition and then we match for a beep.

Technology at a private label format. So I think our view is that that we see private label being flat at worst moving forward from a share position and and in a position to move forward and I think disposables also has a role to play here. If you look at the combination of where shares going to go if you look back.

Squirts or project that forward here, even at a different structure, we would expect that.

Thank you for the helpful I'll pass it off.

Takes Jason.

The next question comes from build Chappelle from centrist. Please go ahead.

[noise]. Thanks, good morning, that'd be all or well.

Hey, Bell good morning.

Just you know maybe a little bit what you're hearing from the the retailers as we moved into April may on on the Sun care side, I mean, I understand how you're changing your positioning but I mean have orders started back as you're seeing stayed open.

No is there going to be a a backlog of shipments that that happened this quarter or just trying to understand how you're seeing it play out over the next <unk> kind of couple of month.

Yeah. So thank you Bill there's no play book for this right. We can't look back to to an event like this and and try to predict what happens from here, but.

But if you look at what we know today the the back half of March and April the bulk of April.

Quite negative you you can see the scanner data in some cases, the the category was down 50 60 per cent, there's a category.

We saw that start to change and shift in the latest week for example, the category moved to the flats, even slightly up.

And so you know what happens moving forward I think is unknown yeah.

And certainly from week to week it can depend on what happened you know the prior year around promotional sets are weather and things like that but I think we see us we see us being through the worst part of that from a trend standpoint, and and as we do start to open backup certainly down there where you are people are getting back out.

Side, we're seeing geographically.

They more return to to normal if if you look by geography and what's happening.

Will tell you, though is getting that environment retailers are fully committed so they they bought in they may be shifting the timing when they take.

You know the inventory to before because they've frankly needed space for other products to the month of April but does that now shift so we get back to normal we have all retailers.

Fully committed to the season are execution buyer teams has been very very good and if you. If you go back over the last five to six weeks, we've actually grown share in that environment, a behind the execution and one thing I'll also remind mind you have.

As we are the only player here that has a direct a store delivery network that can take these high volume areas and keep shelf stocked M.B. agile and nimble when things do come back online and so I think from a capability standpoint, we feel good retailers are still committed it's just going to come in differently.

Across the season.

Got it and then you you were one of the rare companies to actually try to quantify the <unk> demand impact in the quarter just.

Trying to understand.

On is that largely viewed as because you were on allocation for what ones that largely in the feminine care side or is that that across different categories, 'cause and maybe with a follow up on how much of wet ones, whose commercial versus sold retail.

Yeah, I'll I'll certainly take the first part of that conversation when we looked at quantifying covert impact we looked at it by category by geography, and as you can imagine it plays out very differently through that matrix, we looked at it on a combination of sort of data in science show for week eight.

Week 12 week friends, we looked at it in terms of our own internal forecast and when we looked at it the orders and and what we saw as as marching, particularly in in North America played out. So we have a reasonably solid estimate of how it played out by category by geography, certainly <unk>.

Was a big beneficiary of it but we as we said in our <unk>, we estimated 30 per cent organic growth.

From that category and and as I said in in my par over 80 per cent in in <unk> Ah grow. So so we we looked at it by category and by geography to understand the impact.

Yeah, and and do on the second one if the spirit in which we're we're doing this bill around a covert impacts and trying to capture that we're just trying to be transparent to to break out underlying trends versus you know, what's what's either one time or what's what's a moving shift between quarters. I mean, that's one of the things down and I've talked about where we are committed to trans.

Parents see in how we do this so that's what's behind that.

On the web ones opportunity.

Today's primarily all the retail business, there's a big opportunities you might imagine in the commercial business to business space with with the leading brands that can make claims like we can make in this environment to have branded a wife product out there in some new locations in a in a commercial.

<unk> environment, certainly an opportunity we're looking at as part of our thinking as we think about capacity over time as well.

Great Thank stay safe.

Yeah. Thank you.

The next question comes from Olivia talk from Bank of America. Please go ahead.

<unk> <unk> good morning.

A little bit on this already.

Conversations are having like a retailers and how they're talking about.

Your category.

On on products same on in the shop <unk> I, just think question focus on shaping inside category.

Great to hear every challenge me, Okay. <unk>, how is what they are putting on shall changing and talked about sign and how you're focusing more on you know backyards and sort of data day.

You know as you think about what products their shopping margins around that and and how they're thinking about and cats and things like that with.

You know you know each opportunity thing.

Yeah, I get the morning living in thank you for the question. This is a good ones I mean, we're seeing the environment change at retail beyond just the Sun care specific.

Play here more broadly as retailers look in their model and to leverage digital and the online piece of this.

Online grocery pick up to their own dot com cites the the deliver a direct to home.

With the growth in that area and really moving forward at a rate the the move some retailers for 234 years in their projection on that area to manage that there's less room in the back of the store at some some points, which then limits.

Inventory and spread of inventory they can carry and so the biggest thing we're seeing.

Is is a real trend back towards power skews, so the bigger brands power skews, where where the the consumer is in wants is going to get priority over as tertiary skew potentially more at the tail and so there's we're seeing assortment tightening a little bit I would <unk>.

Spec that to continue as we work through this I don't think that's one time.

And so as we think about new products, a new products coming in and the performance new products need to bring at shell I think the bar is going to go up in terms of philosophies that need to be delivered and and then within some care that the bulk of the Sun care.

Sales for most retailers.

Is done on in cap and Inyo display so off the shelf.

Yeah, I think that's true across the board and again, what we're we're hearing is all the retailers is still very committed to those encap displays in in a health displays because they know that's where the volume moves and then the the in I'll is is there going to has a plus.

Yeah.

And then on expenses can sounds much on the incremental nation is you put in place on operating expenses to to protect profitability talked about some of the changes too.

Tiring pretty since my parents marketing teenagers, obviously, you rearrange your project fuel expectations. So just sends me think about you know the next couple of quarters and you know the actions are taking when do you actually start you know much temporary versus permanent first and then when do you think actually start potentially looking at.

You know.

<unk>.

Yeah, I'll I'll take that one Olivia. Thank you I think yeah, you have to sort of separate our our thoughts on cost into two categories. You mentioned structurally we continue to perform really well with fuel and as you know it's a three year program, we've begun to bring a lot of the initiatives that we.

Had scheduled back half of this year early next year, we brought him forward. It will still take time to realize but the point being that we have we've increased our focus and attention on on structural efforts here around <unk> manufacturing productivity labor optimization et cetera, So that that work continues <unk>.

It hasn't changed our view of fuel for the year, but we will start to work earlier and hopefully get to run rate on those savings faster.

The second piece of work, which I would call a more opportunistic which is you know really around discretionary savings around pulling back in non core critical spend around really being thoughtful in in you know F.T. eastern open headcount and the like and really prioritizing and that's part of day to day for us, but we've accelerated goes efforts.

Right of this environment I think the third piece, which you started to hit on his around just investment behind the business and behind the brands and we are not in pause mode here, where we're certainly not in thinking about you know pushing spend off if we think we can execute well if it's you know highly productive spend.

Behind key brands key initiatives Sun in the like as Rod mentioned earlier, you know, we're gonna lean in there where it makes sense, we're just going to be really thoughtful about it and so you might see areas of our portfolio, where we will lean back for reasons around execution, an impact and and you would likely see us lean in commercially in certain areas.

As as well and that's that's you know all around flexibility and adaptive nest for us.

Yeah, and and Olivia I would I would add a couple a couple of things here I mean <unk>.

<unk>, our confidence going forward in the future as a model suggests we should continue to invest despite what's happening here and so as we think about the short run sales, we'll we'll go where they go here over the next three to six months is Dan said, we're going to continue to make investments that we think are smart a good for the law.

Long term future this business over the next three to six months, regardless of where that sales line is in the short run because of the confidence we have in the future.

I will tell you.

As as as we come through a period.

Where we were blocked by the F.T.C. on the Harry's transaction and we were not sitting still in our base business Oh upgrading our leadership in North America, we talked about the new leader of that business.

That we are a couple of weeks away from announcing there's an investment there are those were making big investments across our digital capabilities, a new platform to go execute digitally on our D.T.C. platforms is underway a new structure.

The roles upgrading capability, so there's significant investment.

We are putting into the business right now they're frankly, we're accelerating in some cases, because we have an opportunity to grab talent right now the wasn't there 60 days ago, and so whether it be brand support or how we think about capabilities, we ever foot on the gas in many areas.

Hmm.

Thank you.

Yeah.

The next question comes from Kevin Garanti from Jeffrey's. Please go ahead.

Hey, good morning, guys and I hope you're doing well quick follow up Ah Rogers on the Harry comment.

Because.

Specifically with with respect to wet shape. So.

<unk> dynamics are gonna be challenging we could see that in the meals a day, though your comments on some of the priorities how disruptive the the fact that the Harry's deal fell through and naturally with with category planning and strategies equates with a broader portfolio, how disruptive was that to the.

Outlook for this year. The fact that you can you had to pivot and then it becomes more sort of a base based business approach. If you will work with chicken private label I'm, just trying to get a sense. You know we're looking at these market share trends and you know, which which continued to be quite challenging categories dynamics would be comment on on.

On on the <unk> peace and how disruptive that was that would be appreciated that I have a follow up for dad.

Sure Oh, Thank you Kevin good morning.

U.S., what shave remains the most competitive in challenging area for US globally. If you. If you look at that segment. So you put your finger right on the.

The Hot Zone, if you will in in this context.

The the base business the that we're executing right now was not in fact, it at all by the the berries transaction, India. We built a separate stand alone outlook for this year and it is Dan pointed out through to on on organic basis covert.

One time out of this.

We're on track they had a plan across every fundamental measure and so I think are based business. We did a very nice job of segmenting, our focus on getting at Harry's transaction done until we were blocked and running the base business and continuing to make improvements in that base busy.

Yes, and being on plan.

So from a disruptions standpoint.

In our base business use must see that right you see the the trends continue to to be Natalie stable, but improve in some cases.

The one area, where you don't see that improvement if you're reading in market share results in the U.S. and wept shave.

We're down at the moment, the we built that into the plan actually so where were on plan, we built with what you're seeing show up in the share reports right now.

We knew Harry's would go to more locations. They had earned the right to do that based on the results. They had at the first two retailers. They went to and so that's a very becomes a very exportable story.

What we also have is a point in time, where we knew we were at risk for some distribution changes, particularly I think Dan called it out at Sam's we are now cycling through some d. listings.

At Sam's club login, which we knew were coming in have built into the plan. So well the share reports look quite negative at the moment in U.S., what shape that was all contemplated and as we move forward.

Vis-a-vis Harry's or vis-a-vis the balance of the competition as we.

Move ended up 21 season, I think we're optimistic we can change those trends moving forward with a combination of.

Better enovation coming to market better brand messaging and targeting.

Better retailer relationships, frankly, just better execution across the board. So that if that does the first one I'll throw it back to you to the question for Dan.

Yep that they expect tried appreciate to call. It didn't the question for you on capital structure.

So you guys are targeting three to three and a half your well below that now at 1.9, but of course, there's clearly a focus on liquidity in this environment, maybe just talk a little bit about spending priorities. The bias has been in terms of free cash flow uses leaning towards them in a and.

Some extent by backwards.

Sort of but not a priority or lesser priority talked about when the the window for him in a kind of opens.

And maybe discuss prioritization of returning shops to shareholders, what what sort of that time frame looks like as best we know sitting here today and that's it for me. Thank you guys.

Sure Kevin Thanks for the thanks for the question I think I'll I'll take it in two parts capital allocation for US first and foremost as you said, we're going to continue to maintain a strong balance sheet, we're going to focus on on ample liquidity.

And we're we're going to take a very balanced and highly disciplined approach obviously in light of this environment that were in in the heightened risk that better here. So our priorities within that will be to continue to invest in the business, both organically and Inorganically and and Rod gave good color on what our folks.

This is a focus areas will be there from a leverage perspective, I said, you know three to three and a half times last quarter, probably in the near term closer to the lower end of the range just out of Prudence.

I think in a in the current environment, we will take a more conservative view of capital return to shareholders in light of all of that so that's our our thought on on broader capital allocation look on M. and <unk>, we can menu to look at a creative opportunities here.

It's an important component of our go forward strategy, our business small it aren't gross they're likely to being the bolt on space. So low beta very high comforting integration success and in this environment you know very dislocated environment of today, we think there.

We're both challenges, but also opportunities and and well capitalised businesses that have healthy balance sheets and strong liquidity our advantage and that's the space that we we see ourselves and so we're highly engaged in that were active in that and will continue to explore those opportunities that line up well strategically and economically for us.

Okay very good thank you for that good luck.

Thank you. Thank you.

There are no more questions in the queue. That's can cleanser question and answer session I'd like to turn the conference back to <unk> little for any closing remarks.

Yeah. Thank you operator, and thank you everybody for your time today, no going back to some of their their comments I think despite the environment, where we're in we're optimistic about the future and I'd like to close with a thank you to our team for the resiliency and excellence they've shown during this time period.

They say for everyone.

Yeah.

Conferences now concluded thank you for tending to his presentation.

Disconnect.

[noise].

Hmm.

[laughter].

[laughter].