Q3 2020 Edgewell Personal Care Co Earnings Call
[music].
Good morning, welcome until they actually welcome price call. All participants will be settled both should you need assistance or Nicole Please press star zero for an operator.
Today's presentation, there will be at her percolated to ask questions.
Yes. Good question, you'll make press Star Wars bleeds, no easy that is being recorded.
I would now like to during the conference over to the speakers. Please go ahead.
Good morning, everyone. This is Chris golf VP of Investor Relations. Thank you for joining us. This morning, as we discuss Edgewell <unk> third quarter 2020 earnings and the Crema acquisition with me. This morning, a rod Liddle, our president and Chief Executive Officer, and Dan Sullivan, Our Chief Financial Officer, rather will kick off the call.
And he will handed over to Dan to discuss our results and we will then transition to acumen <unk>. This call is being recorded and will be available for replay via our website www Dot Edgewell Dot Com. In addition to the comments were making on this call. We have posted several supplementary slides to our website that provides additional information on a quarterly results and the acquisition of.
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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 that are subject to various risks and uncertainties, including those described under caption risk factors in our annual report on form 10-K for the year ended September Thirtyth 2019, as maybe amended their quarterly result.
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 these forward looking statements to reflect new events or circumstances, except as required by law. During this call. We will 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 the most directly comparable comparable GAAP measures are shown in our press release issued earlier today, which is available at the Investor Relations section of our web site management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business without.
I'd like to turn the call over to route.
Thanks, Chris and Hello, everyone, I hope, everyone is doing well and staying safe and healthy as we work our way through this pandemic.
Today I'll begin my remarks by providing an update on the current environment and its impact on our results I'll, then discuss our third quarter performance and the progress we continue to make on our strategic initiatives.
Fourth finishing with the announcement, we made earlier this morning about our intent to acquire criminal.
Dan will then review our financial results in more detail provide further details on the plan criminal acquisition and share some thoughts on how we're approaching the final quarter of our fiscal year.
Since we last spoke the pandemic has spread across the globe would far reaching impact into categories in which we compete and therefore on our business as you saw in our results posted earlier this morning.
Well good night team had a considerable impact on our sales in our core category in our core categories in the quarter.
Difficult conditions, we saw in April worsened in the months it may well some moderation in June.
Within this challenging environment characterized by significant declines across all of our categories I'm encouraged by many elements of our relative performance in the U.S., we saw strong market share gains in our Sun care, and perhaps business and stabilization in branded what shape.
It has the market leader in the category, but one saw another quarter of accelerated growth and market share gains.
Internationally, we drove gains in our wet shave business in Japan, which is our second largest market as well as improving share performance in Europe.
As we described a quarter ago, we remain focused during this challenging period on three key priorities first the health and safety of our colleagues second.
During the continuity of our business operations and providing the best possible service to our customers.
And third managing the business in a disciplined and balanced manner, while ensuring we continue to invest in the long term success of the company.
We've made progress on all of these priorities.
With the health and safety of our associates being our number one priority.
Protocols, we put in place as far back is December of last year have helped ensure the ongoing safety and well being of our colleagues.
Steps taken to ensure safe operations that are manufacturing plants maintained the continuity of production and availability of a central products to consumers and as such all of our global manufacturing plants in distribution centers.
Remain open and fully operational.
We're also slowly beginning the process of bringing our teams back to offices around the world on a voluntary basis.
Well get into more detail on a specific actions we've taken to strengthen the company for both the short and long term in a moment, but first let me provide some color on the current environment I crossed our markets.
And our topline business results in the quarter.
The significant impact of covert 19 was evident in our organic net sales declined 14.7% in the quarter.
However, we estimate that excluding covert 19 impacts the business continued on a flat to slightly down topline trend.
Organic sales in the quarter, where most negatively impacted in Sun care, a store traffic holiday travel resort business and outdoor activities were significantly curtailed by covert 19.
I don't care, which represents approximately 20% of total company sales accounted for nearly half of the year over year decline.
Leading into the Sun care season, I was pleased with our preparation and execution highlighted by strong innovation robust shelf positioning across the channels solid off file placements and strong initial in stock positions.
Oh, while successfully implementing a 5% increase in price across the U.S. mass and drug channels.
So well covert night teen has now meaningfully impacted the overall category.
The 370 basis points of share gains we realized in the U.S. in the third quarter offer some validation of our strong execution and position us well as the category returns to more normal conditions overtime.
Let's say it was also impacted by Kogut 19, and the resulting stay at home trends.
That our headwinds to shaving regimens with organic net sales declined 14% in the quarter.
Rounding out the phone in skin care segment, we had strong organic sales growth in wet ones, increasing 52% over the prior year and 6% over the prior quarter, while remaining on track to add additional capacity in the coming weeks.
Feminine care saw reversal of last quarter's pantry loading as well as the impact of expected distribution losses.
From a market share perspective, we're in a more stable position than we were a year ago.
During the most recent 12 week period, we've seen market share growth in razors and blades in Asia.
Well, they stable and improving trends in Europe.
And although the U.S. branded business is still declining.
Sure losses have stabilized at our inline with the 52 week trend despite lost distribution in Sam's club and further competitive rollouts.
As mentioned, we've seen significant market share gains in the U.S.
Within both Sun care as a personal hygiene wipes categories.
As we reflect on the quarter, we're cautiously optimistic that April and May will prove to be the most severely impacted month of the fiscal year.
Given slowing rates of topline decline in June as well as quarter to date in our fiscal fourth quarter.
However, the remains a great deal of uncertainty and volatility that we're carefully monitoring and we'll need to continue to navigate.
To effectively operate in this challenging environment, we continue to manage the business in a highly disciplined and balanced way.
Making choices and focusing on key priorities that are most relevant in the near term while continuing to advance the strategic priorities that will drive our long term success.
We tightly manage discretionary spend as the quarter evolved reassess trade investment and brand support including advertising and promotional activity and prioritized investments, where we believed impact and return would be the strongest.
We delivered on our project fuel objectives generating 23 million in gross savings in the quarter as expected.
Shifting our continued focus on creating efficiencies that in turn fund their growth investments.
With respect to our growth investments, we continue to invest in E Commerce and R&D.
Adding critical capabilities across both organizations.
In the quarter ecommerce net sales were once again strong led by our growing Amazon business and Dan will speak more about this shortly.
We're operating from a position of strength in terms of liquidity with a healthy balance sheet and over $100 million in operating cash flow generation in this oh that impacted fiscal third quarter.
During quarter three we also successfully refinanced our 2021 notes with a high yield upsize off rate, reflecting continued confidence in our business.
We previously mentioned the importance of having the right talent profile and work environment for our employees.
And our commitment to creating a culture that attracts and retains diverse world class highly engaged talent.
This is an integral component of our overall focus on responsible environmental social and governance practices.
And then 2020 our commitment their performance in this area was recognized as Newsweek ranked as well as one of America's most responsible companies.
In the third quarter, we unveiled our sustainable care 2030 strategy, establishing 10 balls and comprehensive ambitions for the next decade, and reinforcing our role in creating a sustainable future.
In an increasingly uncertain world. What is certainly is that we will continue to responsibly create brands and products people love to use that our colleagues can be proud of.
Importantly, I have now finalized the reshaping of my management team.
Process. It began upon my appointment 15 months ago.
We recently announced AERCO tool as our new President of North America.
Eric and had an impressive career spanning marketing and sales and holding other key executive roles across a leading global consumer package goods and retail companies.
His extensive experience in digital expertise will be instrumental as we continue to innovate and reshape our portfolio.
We also appointed Nick Pell as our new President of International.
Nick provides tremendous global experience in a proven track record for delivering results.
And finally, we have appointed in Sofica, Jay as our chief growth in innovation Officer, and Paul Hibbert, because our chief supply chain officer.
We also announced that column Hutchison, our chief operating officer will be leaving Edgewell in November to start a new phase in his life in the UK.
Element has had a long and successful 10 year with Edgewell and Energizer before that.
Following the formation of edge well in 2015 as Vice President International.
Well Architected and implemented the international commercial organization before assuming the chief operating officer role in 2017.
I have relied on Collins experience expertise in my time as the CEO.
That's a personally thank him for all that he has given to this organization and wish him well in the next stage of his life.
And finally, we're thrilled to announce our intent to acquire chromo.
Brandon company that represent a great strategic fit as we expand our business in the fast growing U.S. men's grooming category.
As you saw in our press release in the accompanying slide deck criminal is one of the strongest and fastest growing mass these brands and personal grooming.
Operating a complete line of products across the personal grooming category.
I'm always in many of the highest growth sub categories. The men's grooming segment with no razors and blades and niche that as heavily segmented and one where we have already demonstrated our capabilities with the Jack Black and Bulldog brands.
Remote is a profitable business with a well diversified portfolio that is synonymous with quality and unpretentious luxury.
This brand will reinforce our broader insurgent playbook offering us unique portfolio options to meet a variety of consumer needs.
We'll talk more about the strategic fit an opportunity in a few moments.
In summary, though the environment remains uncertain, we continue to manage the business with strong discipline and we're pleased to be driving trend improvement in our market share position across our key categories.
Over the last 12 months, we have seen an underlying stabilization of our topline gross margin profiles the current cobot environment notwithstanding.
This has always been an important first step in reshaping our business.
I'm pleased with our progress to date.
Recognizing that work remains.
Importantly over recent months, we have been diligently working to develop and refine the go forward Standalone strategy for Edgewell.
This work is progressing well and while not finalized you were already seeing certain fundamental elements of the work manifesting itself as seen by the criminal announcement today.
It's just the execution of one pillar of our strategy and we have talked about previously, namely increasing our penetration in the attractive growing men's grooming category beyond our existing portfolio of Jack Black and Bulldog.
In conjunction with our board, we will be finalizing our strategy work in the weeks ahead, and we plan to discuss it in more detail in calendar Q4.
Before turning the call over to Dan I want to take our teams across the company for their focus and effort.
I continued to be inspired by the resiliency and creativity of our people during these challenging times.
Together, we're excited to put forward and execute over the next chapter of growth spreads well.
Now I'd like to ask Dan to take you through our fiscal third quarter results and discuss thermo in more detail.
[noise] onto Rod and good morning, everyone.
As Rob discussed within this highly uncertain environment, we continue to manage the business with discipline focused equally on near term efficiency, well, taking the right steps to position as well for sustainable growth.
As we navigate this challenging environment, we remain focused on our core priorities first execution against our commercial and operational opportunities both short and long term.
And strengthening the balance sheet.
Ensuring a strong liquidity position with an emphasis on maximizing cash and reinforced by our successful high yield refinancing and upsizing in the quarter.
Third maximizing our brand building investments by optimizing our media mix and improving in market execution to prioritize those investments with the potential to generate the highest returns.
[laughter] executing on project fuel well, we delivered another quarter of meaningful gross savings.
Well the results for the quarter reflect the unique circumstances of this cobas 19 environment, we continue to make solid progress against each of these core priorities.
Our top line performance in the quarter was largely the result of cold unrelated systemic category declines across most of our segments.
Cautiously optimistic that April and May will prove to be the most significantly impacted months over the fiscal year and the sequential improvement we saw in June and into the start of Q4 off for us some confidence that the worst of the impact in fiscal 2020 may be behind us.
Organic net sales in April decreased 15%.
By a 19% decline in May and an 11% decline in June.
July trends have further improved with net sales running down in the mid single digits year over year.
Well, we continue to see strong performance in both went ones and men's grooming the foreshadowed distribution losses in wet shave at Sam's club and in Fem care at Walmart combined with the initial reversal of last quarter's pantry loading we're clear headwinds to our Q3 sales results.
Hi profitability standpoint, our gross margins were significantly impacted by cobot 19, both in the direct onetime costs incurred as well as in the negative mix effect caused by the significant shift in category performance.
Adjusted operating income, excluding the 3.4 million dollar impact from the infant pet care divestiture decreased $36.4 million.
Perfect feel efforts continue to drive cost savings and increase operational efficiency across all areas of our business and in the quarter, we realized $23 million in associated gross savings, representing an almost 30% increase from last quarter.
Our balance sheet and free cash flow continued to be strong with nearly $118 million in cash from operations year to date or $26 million higher than the same period, a year ago, which was largely driven by improved working capital performance.
Now I'll turn to the detailed results.
Organic net sales in the quarter decreased 14.7% with similar declines in both North America and international.
Globally. These declines were largely driven by the ongoing coping 19 impact on consumer demand, particularly in our wet shave and Sun care categories.
We estimate that the cold unrelated topline impact in the quarter was approximately $85 million, which includes both the headwinds associated with Sun care wet shave and fem care and the estimated tailwinds within the skin category driven by wet ones.
Excluding these effects, we estimate that the underlying organic topline run rate for the business in the quarter was flat to slightly down.
Looking at our performance by segment.
Wet shave organic net sales decreased 14% in the quarter largely driven by significant covert 19 related category declines globally as well as the impact from the expected distribution losses in North America.
Our margin North America organic net sales decreased 16%, while international markets decreased 13%.
Yes, the razors and blades category was down just over 10% driven primarily by transitory declines in shaving incidents for men as a result of the mandated and voluntary stayed home periods as well as the stock ups that occurred last quarter.
On a 12 week period, our market share in razors and blades declined 190 basis points, reflecting recent lost distribution at Sam's club heightened competitive pressures.
It is effective channel switching away from Aston drug and into grocery.
This share decline is generally in line with our 52 week performance.
Excluding the impact of the lost distribution at Sam's Club Hydro men's grew share 40 basis points in the quarter.
And our women's systems business, we were pleased with the launch of our new hydro silk and intuition campaigns, and we gained 260 basis points of market share on Amazon, which is now the third largest customer in the category.
Across our international business category declines in key markets were similar to those in North America and as Rob mentioned earlier, we saw improved market share performance growing share in Japan, which is our second largest market as well as across other markets in Asia and maintaining share in Europe amidst continued competitive pressure.
She's perhaps followed similar patterns as the razors and blades category, and we realize 240 basis points of share gains.
Generally the disposables market remains sluggish with consumption down, 11%, reflecting lower store traffic on the negative effect of Q twos pantry loading.
Sorry, skincare organic sales decreased nearly 19% inclusive of a 30% organic net sales decline in some as global demand was significantly impacted by Copel 19 in the quarter.
Sun care category sales were down as much as 60% in April and although consumption trends improved as the quarter progressed with select weeks returning to slight growth in June customer orders were severely impacted resulting in much lower net sales growth as compared to consumption.
Yes, the overall Sun category declined about 18% in the quarter, although edgewell consumption was down only 5%.
Driving share gains of 370 basis points.
Importantly, we saw accelerated share gains with both our brands with banana boat and Hawaiian Tropic, gaining 220, and 150 basis points respectively.
Sometimes sales in international markets were impacted the most in our Latin America, and Asia Pacific regions, which are highly dependent on tourism and where significant cobas 19 lockdowns persist.
My timing increased 5% driven by Bulldog, which benefited from strong E commerce sales and new distribution.
Rounding out the segment right. One is organic net sales increased 52% on the heels of continued strong demand for products that meet consumer heightened hygiene and sanitation needs.
The total Kevin when increased 15% and we increased our market share 11 points to over 70% of the category.
I anticipate that this brand will approach $100 million in sales for fiscal 2020 or approximately 65%.
Your growth despite being on allocation.
As such we're moving swiftly to meet the increased demand in the short term and our initial wet ones capacity expansion plans are on track for August completion.
At full production. This August expansion will increase our capacity by almost a third.
More broadly for the longer term, we secured additional third party manufacturing, which will come online later in the quarter with plans for further internal capacity expansion in fiscal 2021.
And therefore, well position to capitalize on this consumer led focus on personal hygiene by securing ample near term and longer term capacity in support of our category leading brands.
Feminine care organic sales decreased 14.7% as compared to the prior year period.
The decline that sales was largely driven by reduced volumes related to last quarter's pantry loading overall category declines heightened competitive pressures and the expected distribution losses at Walmart.
In terms of consumption fanfare sales declined nearly 11% and our market share declined 130 basis points.
Our E Commerce business grew organically by 76% in the quarter fueled by 79% growth on Amazon, where we have seen 300 basis points of share gains year to date.
Gross margin rate decreased 200 basis points year over year to 46% as favorable commodity costs and the benefit of higher pricing in Sun care were more than offset by onetime covance costs unfavorable category mix, most notably from lower penetration of Sun care sales and the deleveraging effect from lower volumes.
Hey, MP expense this quarter was 13.9% of net sales as compared to 15.1% of net sales in the prior year period, including a 2.3 million dollar impact from the infant and pet care divestiture.
Advertising related costs, however were flat as a percentage of net sales versus the same period last year.
Penetration of digital media spend as we moved away from traditional TV.
Strategically focused on supporting hydro in Japan are schick five launch in China, our seasonal programs in Sun care and our new campaign in women shave in North America.
SG nine, including amortization expense was $91.3 million or 18.9% of net sales as compared to $94.8 million and 15.6% of net sales in the prior year period.
Good morning, SG nine costs associated with project fuel and other onetime cost estimate was approximately $2 million below the same period last year, driven primarily by low lower travel and other discretionary spend which more than offset incremental equity compensation and investments in key talent in North America and E Commerce.
Other expense net was $3.5 million of income during the quarter compared to $2.7 million of expense in the prior year period.
The increase in income the third quarter was largely related to favorable revaluation of balance sheet exposures driven by the recovery of local currencies in the aftermath of significant declines in the second quarter caused by the cobot 19 pandemic.
GAAP diluted net earnings per share were nine cents compared to a loss of 8051 cents in the third quarter fiscal 2019, and adjusted earnings per share were 66 cents compared to $1.11 in the prior year period.
Net cash from operating activities was 101 million for the quarter as compared to 130 million during the prior year.
On a year to date basis net cash from operating activities was $119 million, that's compared to $98 million in the prior year period, reflecting improved working capital performance, particularly in inventory management and accounts receivable collections.
Our net debt leverage ratio was about two times, reflecting the business is strong free cash flow profile, which brings me to the topic of liquidity.
As we discussed last quarter, our business model is defined by strong operating cash flow generation and efficient free cash flow conversion, which we demonstrated again this quarter, despite significant top and bottom line headwinds.
We continue to take the necessary steps to ensure that we maintain our strong financial position.
Third quarter project fuel gross savings sequential increase to $23 million as compared to 18 million last quarter.
Hi, assess capital expenses in a disciplined way balancing near term business priorities with the stated desire to maximize liquidity.
As you saw across the PML, we're addressing all aspects of our business model and investments in the near term to find the optimal balance of eliminating discretionary spend while thoughtfully reinvesting in our brands.
Our balance sheet remains strong with a $425 million untapped revolver in place over $500 million of cash on hand, and a recently executed 750 million dollar high yield notes offering.
Very well positioned to continue to weather near term challenges, while also investing in the growth profile of this business.
This is the best for grounds priority is reflected in the criminal acquisition that we're excited to announce today.
I am assuming category and in particular soft goods is a strategic focus for us.
Thats attractive growth profile, and our clear right to win in this space.
I will help us accelerate our growth and strengthen our position in the fast growing soft categories of the men's grooming segment.
Growth in this category largely coming from insurgent brands, we turn to outperform established brands in the U.S.
This acquisition complements our existing Bulldog and Jack Black brands.
Driving us with a strong insurgent portfolio of brands that operate across price tiers, while meeting various consumer needs.
The business will contribute to our grooming portfolio given criminals trailing 12 months net sales of $58 million as of June Thirtyth, which continues to strengthen on the heels of new distribution and offers a gross margin profile that is accretive to the edgewell portfolio.
I'm now has great brand heritage, a strong social media presence and attractive opportunities for category channel and geographic expansion, which will look forward to capitalizing on post close.
This all cash transaction is expected to close by the end of our fiscal Q1, 2021 and is subject to customary closing conditions.
As I look ahead to the final quarter, our fiscal year, the environment environment remains highly uncertain and therefore, not providing a financial outlook at this time.
However, as I said earlier, we saw sequential top line improvement in this business across Q3, which has continued thus far.
So Chris can you hear me.
Yeah, everybody it sounds like we've lost we've lost Dan.
I'm going to pick up where he left off and and then close out before we go to Q on a.
So where we are Dan was going as well the heightened level of uncertainty in today's environment likely suggests a wider range of potential outcomes than normal.
This trend is a reasonable prop reasonable proxy.
For the organic topline run rate for the quarter.
Additionally, while we expect to continue to see headwinds in gross margin.
Associated with cobot related costs and negative category mix.
We also anticipate tailwinds from further fuel savings favorable commodity costs and lower promotional intensity.
Importantly in the quarter.
We will also continue to invest behind our key strategic priorities to ensure that we're creating and solidifying our platform to support sustainable growth.
In summary, we are operating this business with great discipline.
Tightly managing expenses and capital strengthening liquidity as we continue to generate savings from our project fuel work in making strategic and thoughtful reinvestments in growth both organically and Inorganically.
So with that I'll go ahead and close this out.
I think as you can tell from from everything that we're talking about here.
We have been working tirelessly to reposition the edgewell business.
We've stabilized the underlying topline gross margin profiles.
And we've been improving our execution on shelves.
The headwinds associated with gold at night team significantly impacted our reported results in the quarter.
Our underlying progress has continued with.
For the starts with the commitment to discipline and execution across the organization.
Something that we've increasingly focused on over the last year in a scene not only in our continued fuel results, but also in our seamless operational performance during this covert environment.
In our efforts to strengthen our balance sheet.
Our global wet shave business is on the most solid footing that we've seen in quite some time.
The solid performance internationally, including market share gains in our second biggest market in Japan and signs of structural improvement in the U.S. in both men's and women's branded shades.
Clearly cobot 19 has completely disrupted the sun care season, including our largest market. The U.S. However, our execution was very strong with a combination of strong product placement good off file presents an effective consumer messaging.
Contributing to a sizable 370 basis point share gain in the quarter, which positions us very well heading into next year's Sun season.
Consumer focus on personal hygiene and desire to utilize known brands that they can trust continues to benefit our wet ones brand and we're quickly approaching $100 million brand with plans in place both near term and longer term to increase capacity at a level required to meet ongoing increase consumer demand.
It's clear that this fundamental shift in consumer behavior is not transitory and we're well positioned to capture further growth in 2021 and beyond.
And that then brings me to the announcement to acquire Chromo. This profitable brand is the clear market leader in soft goods across the grooming space.
As an exciting growth profile and is gross margin accretive to the edgewell portfolio.
In a strengthened beard care and to a lesser degree body wash provide a strong diversification for the edgewell portfolio.
It's often difficult to look past these highly volatile days, a cobot 19, but as we look forward to 2021, we see a business. It is operating more effectively driven by a more stable topline in gross margin profile and underpinned by a full portfolio of brands that can be seen as a catalyst for growth for global Sun care.
Hi, Tim men's grooming.
Throughout ones and finally international shape.
We're committed to the continued transformation of the business that are convinced that we're on the right path and making good progress.
And with that I'll turn the call back over to the operator for questions.
Thank you.
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Please hold we are we'd prefer one speaker rejoin the call.
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We will now proceed with the USA section.
Our first question comps feels Capitol Securities you May proceed.
Thanks, Good morning.
Engineering.
Yes, Hey, Bill good morning.
Sorry, because like killed technical difficulties this segment.
Hey.
Right I guess on wet shave and I understand that you're.
Going to unveil broader plans for that for the strategy in a few months, but I mean can you just help us understand how primo kind of fits in is is this the last piece of multiple acquisitions to kind of fortify the business do you need to do more.
Are there other more organic plans expected or just trying to understand maybe a little bit of a preview of what you're expecting for though for wet shave kind of long term strategy.
Yes, Thanks Bill.
And apologies to you and others on the line with the technical difficulties I was concerned for a moment that Dan wasn't going to be able to rejoin and I was going to have to go back to my CFO.
Chair days, which is maybe a more difficult position.
On calls like this but I think we're all fall back on and good now.
Well we're confident.
The wet shave.
In particular and broader grooming so the the skin care regimen.
And and Outsole category.
You are still a great place to play in a good place.
The business.
We are we're seeing.
I think.
Procter alluded to this as well we had not only some some stock up in quarter two that negatively impacted this quarter in wet shave, but you can see it when you when you go around or citizen calls, there's less shaving happening right now.
I think we're confident based on everything we see studies, we've done that this is a temporary situation in terms of shave incidents.
Declining doing the work from home.
More restricted environment.
We think the the category will return to normal which normal would be a flattish to maybe slightly positive.
Sales line for blades, and razors and that wet shave definition.
With continued very grow fast growth.
Across the balance of the grooming segments that are more around men's skincare beard care.
Traps.
Waster risers any per sprint dealer deodorant.
There's a lot of growth in those grooming categories as more and more men use more products in their daily regimens. So you balance that out we think the growth across.
The latter grooming inclusive in blades and razors returns to normal has growth in it and structurally from a structural profitability and economic standpoint is highly valuable and we think we've got the right capabilities to win and so this is an acquisition into that into that area earn.
Grooming and we like our portfolio that we haven't think its differentiated to hit.
All the key consumer segments.
The.
Leaky bucket, we've had in blades and razors, primarily in the men's category, which I'm not happy with.
With our performance and where that business has been.
We're addressing.
And we're addressing it with urgency around building brands that better resonate with the consumers.
Having new innovation coming thats going to be a lot more interesting.
And and ultimately building better retailer relationships and having better outcome at the shelves in terms of our placement in positioning.
So the strategy is going to be focused on doing all of those things.
And again criminals, a key piece to expose us to the fastest growing part of the growing segment.
Okay and then in the Dan if you are on the call.
Just just a follow up on Sun care and how it kind of works through the piano I'm just trying to understand did the June quarter. Let me do you have excess inventory that now sits through next year do you did you accrued for returns that will happen this quarter.
Just going to understand if there's any lingering impact further for the week Sun care season, and how that carries over into 2021.
Sure absolutely and good morning, everyone and again apologies for the technical difficulties.
Look Sun care is always a difficult category to model.
And trying to get sort of the peak consumption.
Period, right, which we know the cell and we have lags that so there is there's a theres always a difficulty in the model, obviously made harder by cold it but we feel really good about our inventory position, we feel really good about sort of the state of the product a trade we don't anticipate heightened returns right.
Score accruals, we've been monitoring this obviously quite closely over the course of the last six to eight weeks in particular and we'll continue to do so so no. We don't anticipate Q4 or looking into 2021 with heightened gross we've taken the appropriate provisions.
Yes.
I'd like it if I could add to that not only do we feel good about where we are to in this season here in terms of financial exposure and then how we're operating with retailers and retail trade.
Very simplistically what happened in Sun care. This year is we lost the first part of the season by and large spring break Didnt happen like it normally does that Easter period, which is a heavy beach.
Cases season, Didnt happen, and then by and large Memorial day.
Didnt happen like it normally did and so you saw the category very depressed.
Through that early to mid June period, as we guided to later June and then into July and now the beginning of August we've actually seen the category recover from being down in some weeks as much as 60% at the beginning of the season to even having growth in some more the recent weeks.
We've seen and so I think we're ending this season.
In a way where a lot of the inventory that was placed in is now moving and turning in fact ahead of year ago in some cases and so not only do we feel like we're ending the season in a clean way, we're quite optimistic as we look forward to next year as we figure out how to get to move around and be outside safely.
We'll return to not only more of a normal summer season, but we edge well and our brands it or that you will position of strength with our performance. This year on the share growth as we work with retailers with partner on the sets for next year.
That's great. Thank you for the color.
Okay.
Operator next question.
Next question comes from having Randy Jefferies' you May proceed.
Hey, good morning, everyone. Thanks for taking my question.
So I wanted to start off with.
The decision not to formally reinstitute guidance. This year I'd been understanding I don't want to get too hung up on one quarter, but appreciating the volatility with coated Roger talked about some recalibration and the wet shave strategy, which I think people appreciate but at the same time, given the challenging quarter and we've seen a number of HBC companies.
Reinstitute the practice of providing guide incidents doing some some confidence I think the shareholder base.
I just was hoping for some of the key areas of their ability Dan I think you're talking about mid single digit declines in June which seems representative of what you're seeing rod you talked about wet shave being on more solid footing and feeling better about where youre with retailers, maybe just the course, you're a little bit maybe talk about the biggest areas of variability and decision not not to formalize guidance here.
For the remainder of the year, none I have a follow up thanks.
Yes, Dan go ahead.
Yeah, I think it is is simply a recognition that the uncertainties that surround coated.
Far outweigh the Netherlands, and uncertainties and that's the reality, particularly as we head into the back into the summer and the Sun care season, but just to kind of reiterate our line of sight to the quarter.
We did provide some color to that in the call and I'll, just I'll sort of tick through it because I think it's helpful. You hit the first point absolutely right. Kevin We we do see a sequentially improving topline, we think that we cycled through the lowest of the low of covered related impacts in that may time period.
Sorry, the exit rate on the quarter strengthen and Thats continued in July. So so we're pleased about that mid single digit declines is a good proxy. We also are seeing a bit more stability in the margin profile of the business. There are still headwinds related to coded for sure onetime and other we anticipate slow.
Lightly less.
Impacts from category shifts in the margin profile.
And worse as we start to cycle through the Q2 pantry loading there's less of an effective in shifting of segments less volatility in margin.
We obviously of the price increase we have the fuel savings and we continue to anticipate.
Our positive tailwinds from commodity so again, I think while difficult to quantify we're seeing a more stable margin profile than we than we exited Q3, which and we're going to continue to invest in this business. We feel like we spent extremely efficiently in Q2 behind our priorities in Japan in womens insulin.
And we're going to continue to do that in Q4. So that's that's how we're thinking about the quarter sort of in high level points, but again shying away from trying to quantify because the range of outcomes is still too wide.
Okay I appreciate the color I'll pick up with the we first off line.
Well I have you guys on the on the criminal deal can you offer a little bit how that came about.
Maybe some financial information EBITDA on that business. You did mentioned it was profitable growth rate. What you think you can do with this in terms of revenue and cost synergies and where you see sort of the the biggest opportunities from a distribution perspective, both from a channel and perhaps even geographic and then I'll pass it on thanks.
Yes, Kevin I'll start and I'll turn it over to Dan for some of those specifics.
How it came about we we had the the FTC block transaction with Harry's.
Back in the winter.
And coming out of that is we've done the strategy work again, which will be prepared to talk more about here in a few months detail, it's really about getting.
The bottom up 2021 planning work done to have the solid basis in place for that.
But we were always very interested in a increasing our exposure.
Around men's grooming, so again, the non blades and razors segment, where there's significant double digit growth.
Happening across the category.
As a big part of the rationale the Harry's transaction was was not only the portfolio of the that existed there, but the ability to grow.
And drive that part is the business and we very much see this as a pure play grooming.
Execution, where that category growth is the fastest with chemo and so again, it's you're seeing US just follow through ultimately on what was a failed transaction with what we're confident we'll be a successful transaction.
Really go after that growth in a bigger way. So that's how it came about.
Dan you want to take arrest sure, yes, I mean, I'll, probably shied away from giving specifics, but I'll add certainly some color.
The topline in this business is extremely attractive, but you've got a very healthy growth rate you saw the numbers 58 million TTM sales in June it's growing by both velocity and distribution gains it's the largest each brand and its space X. razors and blades. So it's a it's a healthy book of business that has a really attractive growth.
With algorithm to it it is profitable it has a gross margin profile, that's accretive to the Edgewell portfolio, which were excited about and in terms of expansion, we see quite a bit of opportunity for this brand at the channel level reasonably well distributed and last but certainly opportunities there as well as.
Drug grocery and online where its businesses is quite small today and also geographically we're quite excited about the opportunity to bring this brand into our international portfolio.
So so there's a there's a lot to like about this acquisition and about the business model.
I appreciate the color guys. Good luck.
Thank you. Thank you.
Operator next question please.
Next question comes from Mr., Jason English of Goldman Sachs really foresee.
Thank you Hey, good morning also bodes well.
Good morning, Joe So the good morning.
The underlying market share trends are encouraging.
You are clearly expressed in the narrative about a lot of confidence that the base business. You have today is turning around stabilizing improving from here.
Meanwhile, it doesn't appear reflected in your valuation.
And.
With the amount of cash use background. So you could have purchased probably around 15% of your shares outstanding.
So it's a pretty high bar in terms of the accretion map of the value that must must come from criminal to match that quick back of the envelope math suggest you need to scale that business to north of $200 million.
Hi, Steve type return of just buying back yourself at this current valuation. So a couple of questions and I guess, the redundant a bit to work R&D asked but you didn't give a lot specificity so high that got it.
One view generally agree with that sort of conceptual math.
To do you think thats possible, you could skills that side and three what's the pathway legacy, whereas distributed today, where can you get it to award of the revenue synergies help us get confidence that this this is the best best use of the cash.
And at least as good hopefully if not better than just buying back your on started this valuation. Thanks.
Yes, good morning, Jason.
Fair question right and as we look at capital allocation, we talked about our relative priority around organic needs of the business smart disciplined acquisitions.
And then you look in to the share repurchase potentially dividends. All those things are things were looking at dinner on the tables, we look at strategy going forward I don't think we're ready to.
To declare all of those today, but thats something more formally and more specifically.
The point of view on when we when we have.
More time with with you all of the investors in Q4, as we think about Investor day in the telling the story in a more detailed way relative to to chromo im not going to get into to more specifics on the assumptions.
Other than to tell you.
I want to give away next specifically our plans.
Other than to tell you, we see significant upside.
In the brand in the business itself.
In terms of those.
Of distribution expansion.
Where it's not today, but also there is an interplay here.
With our base Edgewell brands in business and this is part of the story to regain credibility and to regain our footing with with not only in consumers, who interact with and use our brands, but also with retailers.
Frankly over the last couple of years said lost confidence that we could be so legitimate partner in wet shave and grooming and as we rebuild that we build back our position not only with better brand building capabilities better omni channel execution.
Better retailer relationships. This is one piece of the Arsenal to go do that and it's a big piece because it signals, we're serious about doubt winning and being successful.
In our primary category here and so we've done the math and I'll tell you. We're confident we can create a lot of value here and we spent a lot of time looking at that and going through the assumptions and to the comparable choices and we feel like this is the right choice today for our shareholders.
Okay.
I appreciate that that's helpful and just going back to the market share performance. The figures you gave on at least the U.S. reasonably market share I think easily as 12 weeks done 120 basis points yourself.
Look worse than what we've seen in the Nielsen data I'm guessing that the differential is your private label business.
That's probably what does appear to be losing share in the US is that right is that you brands are doing better where private labels the negative offset and if so what do you believe is driving the private label share weakness and any any thoughts or anything we should consequence, we think about the forward trajectory for that business.
Jay So we have we have private label down 6% in the quarter.
It was up 2% in the first half of the year. So is it stepped back a little bit, but it's still beat the category.
Which we had it down 10, and so private label did not perform worse than our branded business. There. There's a couple of things going on I think there's there's specifically the biggest change in the business is we lost distribution at Sam's club.
In the February March Planogram resets executed before that.
Where we lost a big chunk of systems business.
Hey, guys level, how that's flowing through the share reports and Thats the single biggest drag absent that.
We're actually growing share.
In other channels with other customers that then holds the share relatively flat.
Overall in terms of the trajectory it was on Dan I'm not as anything else you would add to that.
Yes, I think good comments, maybe maybe Jason for perspective, our total portfolio share in the quarter was flat, which which I think is a significant statement was actually up 100 basis points in unit share you saw the strong performance and so on and shape, perhaps still challenged resulting from for example.
Yeah.
But we knew the impact on the branded side of the business that was coming from the distribution losses incentives on on both men's and women's not nothing I'm trying to.
Isolate that but if you exclude the Sam's distribution loss hydro men's and hydro silk both gained 40 to 50 basis points or share strong performance a target strong performance in crude. So again, we have a lot of work to do here, but I think a more stable share results in our branded business is what we take away from quarter.
It is encouraging signs.
Thank you very much I'll pass on.
Hi, Good question. Our our next question comes from Pfizer Ali Deutsche Bank You May proceed.
Hi, good morning, everyone.
So I wanted to talk a little bit about investment spending and sort of where you are in that process.
And I'm wondering if you can give us a little better for preview.
As you talk about your strategy because it seems that so far a lot of your competitors would then household personal care have been spending significantly behind the category.
Just overall across categories.
So it seems.
Like.
Cost of Gorilla is increasing and I wonder how you're thinking about it and whether you think there is more that you can do in terms of expanding project.
Yes, so I'll take it in two parts on the investment side of the business. We obviously had to make significant steps to prioritize in the quarter given the cobot related pressures we felt in the topline we we prioritized against our strategic priorities and I think I refer to those in my comments So Japan.
And hydro Schick five launch in China the women's.
Sorry business in the U.S. and of course Sun care.
If you look at our spend overall, though our advertising dollars as a percentage of net sales were actually flat year over year, where you saw the lions share of the declines was in the promotional end of the spend if you will which is not surprising right you see less display activity less merchandising, let's consumer promotion. So we did feel like we invest.
Tested at the right level.
But but importantly invested behind the right priorities and we're going to continue to do that going forward.
As far as are there further legs for fuel.
Certainly to answer that as yes, and not so much because of the fuel program, which technically has another year left in it.
Just by the way we are running this business and the push that we have on productivity and efficiency that is in the DNA of the organization that is not about a named program and so we're going to continue to run this business with the same level of focus and effort on fuel like savings irrespective of that program.
We're confident there is continued runway there in terms of productivity gains and efficiency gains for the business.
Okay. That's helpful. But do you think for longer time do you think that you need to further increase.
And be spending just general investment spending overall.
We do and in fact, if you remember that was that was embedded in our outlook for 2020.
When we began the year, we were leaning in on a MP spend and R&D spend to the 200 plus $20 million are so year over year. That's what we had anticipated when we're on that path pre covert we've made the necessary adjustments given the pressures in the quarter, but we still maintain a leaning in stands.
When it comes to investments behind the right strategic priorities.
Yes.
Thanks.
Our anything about Brad's question on Brazil, Holy Stone.
Proceed.
Great. Thanks, good morning.
First wanted to ask you about wet shave ngs accum, the competitive environment, whether you're seeing more from remain branded competitor or is it more coming from newer disruptor brands.
And then assuming that the cobot impacts and turn into recession challenges over time.
Your expectations of your business in terms of the branded versus private label performance and then mix. Thanks.
Yeah. Thank you Olivia good morning.
On a wet shave.
The competitive environment is really high right. It remains.
A highly competitive segment that Theres no doubt.
And proctors very good at what they do we have a lot of respect for them and they're they're operating well.
The category.
As the leader.
We know the Harry's business pretty well by spending time with them.
Yes, good talented group and have brought innovation.
The new thinking to the category and you've got dollar shave there with with Unilever right back to that that.
When you put that altogether.
It's a highly competitive environment.
Despite the competition.
Where it sits if you look at the consumer and you look at the totality of the portfolio that each of us have.
We have a very interesting portfolio that has a right to win it exists with consumers in segments, where we play we've got we've got great technology and quality.
We fill us market, we grind blades in the us.
Like Theres a lot of things, we can play with as we move forward to be successful in these categories and I think we're increasingly confident we can be despite the competitive environment.
Okay. So thats, what I would say on wet shave in the competitive environment again increasingly confident given what we have line of sight too.
On the recession.
Great question, because I think this is what we're all facing and this is likely to come out of this again I think our portfolio sets up well in a recessionary environment, we're not in many cases.
The price leader, we play more in mid tier in value segments. So when we have the big private label piece of the business and if you look back to past recessions, you've seen trade down to private label.
And so I would expect that to happen again.
As you have more value offerings and better disposable options I think those those segments are also potentially not winners in this source not just about private label.
But again I think we feel good about our portfolio and our price points not just in shave by the way, but in Sun care.
Turning tropics have been airboats are both right in the mid tier pricing zone, we think thats part of why they're winning today versus some of the higher priced alternatives.
And so again from a recession proof portfolio I think we've got one this is recession proof is any other out there in the categories, where we play.
Hi, Thanks, and then just one follow up on you mentioned you or your thoughts on the cover the impact of sales by how much you think covance and related costs impacted SGN aim in particular, because the cost saves are pretty solid fuel savings, but actually in the quarter was relatively in line on both a year over year on sequential basis.
Like the sales shortfall. So just wondering if you could talk a little bit about that thank you.
Sure, Yes, I would say the cobot impact outside of sales first of all hit US most significantly in gross margin, we talked about that both the onetime costs and the.
The channel shifting our segment shifting that occurred which was negative two our margin profile in terms of SGN, a we feel really good about our ability to pull back on non discretionary spend and discretionary spend prioritize where we want to spend behind the business.
Essentially didnt higher headcount during the quarter other than key talent that we needed to bring into the organization you heard rod talk about that.
Example of Erika tool. So we made conscious choices to both pull back where we thought it was smart and thoughtful to do so but also invest in talent and capabilities. Both in our North America leadership structure and also in our E Commerce and R&D organizations and those are partial offsets to the savings that you are seeing as a result of cold.
Okay.
Thanks, Olivia operator next question please.
Next question from Niki Marty RBC capital market you May proceed.
Thanks, Good morning, everyone.
Hey, Rob ill I was hoping you can just talk a little bit about the share progress that you've made at maybe helping us understand some of the underlying dynamics dining is philosophy is that distribution.
Based on perhaps some delayed new product launches and then I guess kind of Dovetailing with added distribution losses have been pretty common over the last several quarters and I'm. Just curious like when you think the leaky bucket will will kind of get ill stop eating.
Any perspective around that would be helpful.
Yeah. Thanks, good morning.
The share position or the let's call. It the share stabilization, we're seeing is particularly in wet shave.
As has little to nothing to do with distribution gains we've had none.
In wet shave you know we've had some improved positioning here and there at a couple of retailers.
We've picked up a little incremental here in their behind.
Some innovation largely we've been donating.
Shelf.
To the competitive set now for the last three or four years and so what we're saying is better execution and performance within the space. We have so it's around velocities.
Outside of measured share.
It's around better communication programs and better innovation, particularly on our womens.
Portfolio in the Hydro line, where we're we're growing share rapidly on Amazon.
Around some of the hydro silk and intuition lines and so I think it's better execution.
It's better messaging.
And it's all around velocity.
In terms of the leaky bucket.
The real chance to impact that as you know as in here in the U.S. is in the spring plan, a gram reset timing the late winter early spring.
And as you might expect we've been hard at work on building plans that are better and more interesting.
And partnering with retailers to to stop the leaky bucket, but now they stopped leaky bucket get some additional space back that we've lost over the last couple of years and so we're we're working hard on that that's the next real opportunity.
In wet shave to stop the leaky bucket and move that forward.
Applies to fem care as well the single biggest drag in our fem care business over the last three or four years that perfectly correlates to the topline decline is lost shelf space and lost distribution and we're cycling another one of those this year at Walmart in particular, you get as we move forward. After the base that we have I think were.
Increasingly confident that we can hold distribution and built some back.
As we move forward and that's just part of the confidence I think we have that the key driver of decline in this business has been around two things engagement with the consumer we're working very hard on that to have better engagement with consumers and then having more real estate at shell, it's that simple and maybe.
And I think as we look to next year.
We'll be proven on where we land, but I think we're feeling increasingly confident across the portfolio that we can lend better outcomes.
Thank you very helpful.
Thank you question. Please.
Next question comes from Jonathan Feeney Consumer edge you May proceed.
Good morning, Thanks, very much I just wanted to clarify a comment earlier you said your portfolio share was flat is that flat X distribution losses will give up of across all of your brands and businesses in the US you are saying your share was flat.
Could you clarify that.
Yes, that's exactly what it is so if you take the U.S. portfolio in totality the categories in which we compete.
Our share was flat and that was obviously driven by robust gains in categories like Sun and shave Preps, and then obviously share losses in areas like Suncors, we've talked about.
And that ties to I believe it was rob's comment in the prepared remarks about 40 basis points of share gain for the hydro franchise, excluding distribution losses as I write also.
Same same map same figures slightly different obviously, because we excluded from that calculation the known losses at Sam's on hydro unsaid EPS absent of that we saw 40 basis points of gains, but same database and same out.
Got you okay. So.
It really seems like it's fair to say that when you lap. These distribution losses, you relatively happy or at least happy with the share progression within your businesses across the board I mean, I guess maybe.
Hi, guys. Some just ask if you're happy [laughter], but how is that compared to your plan coming into this quarter like are you pleased with that relative to your plan.
Yes, maybe the way to think about it is if you look at the distribution losses that we saw on Sams on both men's and women's branded.
You look at a heightened competitive environment that Rob talked about obviously, we're cycling through coded you look at the channel shifting that took place which was not favorable to our business moves into food for example, and out of amassing and draw you put all of that together and you look on the men side of the business.
At a share picture that's largely in line with our 52 week trend so while facing those headwinds and been known distribution losses from Sams our share position was largely in line with longer term trend. That's an encouraging sign for us as we think about the quarter as Rob said, obviously a lot of workforce.
Names, but I think an important point of context.
Yes, John Thanks, a lot of said Adam.
Yes, John Rogers build on that one point I think are we happy about where we are versus plan X coated around share yesterday.
Are we happy with with much else relative to where we are overall no. We're very dissatisfied particularly in in wet shave.
And in the US men's business on where we are very hungry to change that and not only get to a place where we're growing market share across the portfolio, but we're creating a lot of value for shareholders. We're very cognizant that today, we are not doing that but thats were working to do.
And one unrelated question if I might be these when you think about Jack Black Bullfrog and now your latest acquisition longer term I mean, how does that have broadly speaking how does the manufacturing and fulfillment.
Overlap walk is this a question of you could utilize existing capacity, which maybe utilization isn't where you wanted to be or are these just could you have to just keep these businesses completely separate forever and fried to maintain the quality niche whatever it is just the nature of the business.
Thanks, Yeah, the job I'm going to correct. One thing you said because our brand team would not be happy, it's Jack black demo and bold dog.
I will hop sort of frog.
Sorry.
Yes, just back for both right.
Pouring export X pouring rain outside so that's probably what maybe say that I'm sorry.
That's okay, we've had our own technical issues. This morning.
No today. These these brands largely as we've acquired them.
Manufacture via third party.
Outside manufacturing relationships all formula cards owned.
All the R&D product development in house owned but executed via third party manufacturing.
Typically a finished product and so as we look at that across the three brands, there's obviously opportunity.
So to leverage scale across that in fact, so in some cases the third party manufacturers are the same this as we look at that and becoming highly efficient, but not losing anything around the formulation or the efficacy of the product.
That frankly is the magic here.
Beyond the brand positioning where consumers love the brands in the experience they have.
We're not going to lose any of that and that will be very unique very distinctly different teams working on that but there will be some back inefficiency. We think we can drive.
Thank you very much.
Thank you.
Thank you operator next question please.
No more questions I would like to during the call Frank back over to the speaker for any closing remarks.
Alright. Thank you everybody appreciate your time and running a little longer today.
And thanks to the interest in Edgewell again, I think dynamic times here and I hope everyone stays safe and healthy as we move forward hopefully to better times to not too distant future. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect have a nice day. Thank you.
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