Q2 2021 Prestige Consumer Healthcare Inc Earnings Call

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And now like the hand, the conference over to your host.

Director of Investor Relations feel Tripper lately, Sir Please go ahead.

Thanks, operator, and thank you to everyone, who has joined US today and they called me a random Bardee, our chairman President and CEO.

And Chris Sacca, our CFO.

And today's call will begin with some topical remarks, given the pandemic view the results of the second quarter and first half fiscal year 21 provide an outlook update and then take questions from analysts.

We have a slide presentation, which accompanies today's call can be accessed by visiting prestige consumer health care Dot com.

Clicking on the investors link and then on today's webcast and presentation.

Remember some of the information contained in the presentation today includes non-GAAP financial measures.

Reconciliations between the nearest GAAP financial measures are included in today's earnings release and slide presentation.

During today's call management wall Snake forward looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation accompanying the call.

These are important to review and contemplate as everyone on the call today is well aware business environment uncertainty remains heightened due to COVID-19.

These items include shutdown impacts for many areas of the economy.

I'm doing changes to consumer purchasing habits, the potential for disrupted supply chain heightened unemployment and many other economic factors.

This means that results could change at any time and the forecasted impact of risk considerations as a best estimate based on the information available as of today's date.

Additional information concerning risk factors and cautionary statements are available on our most recent SEC filings and most recent company 10-K.

On a handheld or Garcia Rondon Bardee Ron Thanks.

So let's start on five five.

I'm pleased to report a long term strategy in business positioning continue to deliver solid results as seen in queue to where we an experienced stall earnings growth and a stable revenue performance.

We continued to focus on the critical near term faster. So previously discussed in order to successfully navigate the pandemic environment.

For starters, a long term strategy of providing consumers with a wide range of brands. They know and trust continues to look.

In this unique time, we continue to see consumers turn to a lot of leading brands to meet their health care needs.

Meanwhile, unable business continuity efforts have been paying off we continue to work closely with a manufacturing partners to ensure consistent service levels in this type supply environment.

And Q2, we continue to find effective ways to optimize our brands during the pandemic is consumer habits have begun to stabilize.

We are benefiting from these agile investments and channels such as E commerce, and our portfolio remains well positioned for the long term.

Finally, a strong operating model and disciplines capital strategy continue to reward stakeholders.

We continued to use our industry, leading financial profile to further reduce set in the corner.

We have reduced leveraged levels to the lowest point since 2014, which continues to increase of capital allocation Optionality.

So to recap we continue to feel good about Ah positioning and the agile adjustments made during COVID-19.

She has two performance reinforces the strength of our business and we look forward to further benefits I'll know handed over to Chris to review queue to financial results.

Let's turn to slide seven and review, our first pet financial results and.

As a reminder, the information in today's presentation includes adjusted result that are reconciled to the closest gap measure in our earnings release.

Q2 revenue of $237.4 million declined 50 basis points on an organic basis versus the prior year, which excludes the effects of foreign currency.

By segment North America revenues were at 1.3% positively impacted by the women's health analgesics oral care, an ear, an eye care category, partially offset by lower coughing cold and G. I shipments at certain categories. We participate in based declines in incidents levels and usage rates related to COVID-19.

Our international business declined approximately 16% after excluding foreign currency.

This decline was primarily attributable to significantly lower sales of Hydrolyte in Australia. As a result of COVID-19 impact to lowering bulk general consumer illness in activities such as athletic.

We anticipate headwinds for the brand in the region to persist for the remainder of the fiscal year.

Adjusted EBITDA and EPS for the second quarter.

Definitely five and 15% respectively versus the prior year.

Solid EPS growth was attributable to lower G&A costs, and lower interest expense from that pay down.

Let's turn to slide eight for more detail around consolidated results and first half performance.

For the first half our revenues were down 60 basis points, excluding foreign currency.

Revenue growth continue to benefit from Strang consumption trends in the E Commerce channel as consumers continue to ship to online purchasing.

We broadly benefited from strength and many brands in our portfolio, but did experience consumption declines in certain categories. As a result of COVID-19, most notably the cough cold and motion sickness category.

Total company gross margin of 58% was flat to last year's adjusted gross margin and stable to recent quarters.

This was in line with our expectations for Q2 and also what we anticipate for the remainder of physical 21.

Of $115 $7 million grew 18% versus the prior year.

And the second quarter, we continued to focus on debt reduction and pay down $74 million in debt.

At September quarter, and we had approximately one and a half billion dollars in net debt, which equated to a leverage ratio of four three times.

We expect to continue to prioritize debt pay down as our primary use a free cash flow followed by other opportunistic capital allocation decisions.

And with that I'll turn it back to run.

Thanks, Chris [laughter], let's turn to slide 11 to provide an update on our efforts during COVID-19.

Despite the uncertainty caused by the pandemic a few key factors underpin our strong financial results in the first half and help us well positioned for the balance of the year.

We continue to remain focused on safety in business continuity.

Our team members have adapted impressively to the ball a little environment face to date.

Just extend towards third party suppliers, who we continue to work closely with in a dynamic supply chain environment.

And when you're shopping along with consumers increasing purchases of self care products. Even further consumers are seeking brands they know and trust during this recession.

We are well positioned to wind from these ships.

First we have the benefit of having many leading brands that help consumers treat health incidences at home we've.

We have reallocated marketing dollars to opportunities to help with self care like Monistat compound W. Indent Tech.

Our toolkit is wide ranging in this example, the end goal is to remind consumers how about leaving brands help them avoid the doctor's visit.

Second we benefited in a big way from consumers shifting additional purchases into E commerce.

Early investments in this channel over the last several years continues to pay off.

Finally, with 10 of our top doesn't brands holding number one market chairs, we have the fortunate position of being the trusted go to brand for consumers and many categories.

We continued to benefit from the strength, resulting in a stable business performance during the pandemic thus far.

Let's turn to slide 13 to discuss some more specific examples of how we are winning as the consumer shifts to online.

Our multiyear investments around E. Commerce are delivering impressive results. These investments have led us to achieve market shares above our brick and mortar sure in many categories.

Our using at home.

Compound W. As one example of this we are focused on expanding our leading position by using simple to understand marketing that reminds consumers have the ability to treat warts effectively at home.

These strategies have resonated with consumers, enabling and expanding our strong number one market share position.

Concept look at home usage and are using time tested brand building tactics most.

Most recently, we have a new spokesperson supermodel Hillary Rota as a clear eyes user she demonstrates the ability clear ice has of giving a consumer great resonance release at a great price.

Now, let's turn to slide 16 to discuss our outlook.

More than halfway through the year, our business positioning and execution of the strategy behind that have resulted in a stable top line performance that is driving meaningful cash flow and earnings growth.

The portfolio diversity, and our business strategy highlighted today position us to continue to maintain and grow market share across our key brands in coming quarters.

Given our recent stability, we are offering full year guidance based on the trends we are seeing today.

For the full fiscal year 21, we anticipate revenue of approximately $925 million.

This outlook reflects our assumption that the business trends instability experienced in Q2 continues into the second half along with a headwind in the second half during the peak season for cough and cold products.

Most importantly, we remain committed to our long term brand building and investment strategy to position our portfolio for long term sales growth.

We also anticipate adjusted EPS of approximately $3, an 18 cents in fiscal 21.

Our cost management efforts, along with the benefit of our capital allocation strategy and debt reduction, enabling full year earnings growth of high single digits.

Last our strong and stable free cash flow remains the company's strength free cash flow is expected to be at or above last year's level of $207 million.

As always we intend to execute a disciplined capital allocation strategy with a near term focus on debt reduction.

To drive shareholder value.

With that ill open it up for questions.

Dissipated impact in the second half of the year.

Is expected to be driven by infinite levels consumer habits have changed people are travelling less throughout the public less cute, they're spending less time in the classroom or another activity. So just like we saw in the southern hemisphere, maybe they just finished up their cough cold flu season.

Last couple of months here, we anticipate the incident levels to be down significantly.

Versus last year.

Okay, Great. That's helpful. Thanks, so much I'll I'll pass it on.

Thank you.

Thank you. Our next question comes from Michigan Aero Upstart event. Your question. Please.

Yes, good morning.

No I think the most important thing to take away that the second is if you.

Digging into the different pieces of our business what you'll find is that so our our consumption was down about 1% I believe in the second quarter if.

If you pull out the covis impacted categories, so like Dramamine for motion sickness.

Cold.

The convenience channel you'd see that the consumption level for our businesses in the second quarter was about 2%, which is consistent with the trends that we've been seeing for a while now so.

Either through M&A or stronger sort of.

The marketing focus with just touched on or I mean, he happy with your portfolio in the category six you're in it's sort of frustrating just to see you know how you know how you know covid affected some of these categories I certainly it it sort of came out you know it very.

Unexpected how how this all played out but is there anything in portfolio that you know, you're you're looking to either overemphasize or underemphasize.

Sure. So the first of those questions are we happy with my portfolio and it's a strong response, which is yeah.

And it's because of the the portfolio is heavily concentrated around number one brands that have <unk>.

Substantial leaving positions and the Cowboys that to compete in and this is even choose for the for the Covid to shop categories. We still continue to feel very good about dramamine <unk>. It's number one it's got a 50 plus per cent sure. We continue to look for ways to invest a position that brand to grow the.

[noise] category and a chair over the long term so even with the brands that are disrupted by Covid. We continue to feel to feel good with them and you know certainly we're going to over emphasize and concentrate our investments and I've come report brands Alright. So we have five brands that make up over 50% of our sales and.

And we're gonna be looking to concentrate our investments around their summers Eve.

Monistat Theorize D. C code is 10 Tec is is what it will be concentrating our efforts I'm looking for a large areas of growth long term you know I think it is an example, some relief just had solid growth here today and high mid to single digit grow.

Okay over here. So we continue to feel good about those big brands as well.

Okay. Thank you for taking the questions.

So thank you much.

Thank you. Our next question comes from stuff Westlink Jeffrey So your line is open.

I guess jump on your second and third questions were too which were around E commerce and I guess for starters, our market share we do get information on our performance and E Commerce, Commerce, and Omnichannel and I think in my prepared remarks today I commented on in many categories, we see actually.

Larger market shares on E Commerce, and omni channel than we do in brick and mortar.

And some of it is due to just the expanded offering of our brands that we have online and certainly some of it is due to the early investments we made in positioning ourselves.

To be ready when the consumers showed up in increasing numbers.

To make their purchases online so.

It's it's an important part of our growth in some area that were focusing on in terms of around managing our advertising and marketing next.

We really make the decision on.

Granular basis brand by brand in terms of what's the best mix in best return.

For the different options that we have whether it's digital at shelf.

Along with many other options that we have to connect with consumers. So we make it brand by brand, but clearly there's been an ongoing shift to digital over time as it.

Playing a bigger role in connecting with consumers.

Right that's great and then just one follow up Brian you had made a comment earlier, just reminding that but that big lap in the fourth quarter. So Im curious as you look at your back half guidance or the implied back half guidance.

North America.

That's helpful. Thanks, both of you for the commentary if I can kind of tack on one more here I was curious you guys gave that impressive I think I said it was 122% E. Com Pos growth just kind of your updated thoughts on where you think E. Com can be as a percent of revenue where it is now perhaps where it could be ended the fiscal year and then maybe a few years out.

Unless it's just too difficult to forecast.

And we continue to evaluate effective capital allocation to maximize value and with the visibility you know we discussed today, we feel comfortable re initiating the the repurchase program that we had in place prior to Covid.

Great. Thanks for on a Chris Congrats rest of your good luck with here that's a good corner [laughter].

And so.

Thank you. Our next question comes from the line of Linda Bolton Wiser Davidson Your line is open.

Yes, Hi, I was curious if you could comment on in terms of the rapid E. Commerce gross of your brands, which brands are benefiting most from a market share perspective, because of the <unk>. The rapid ecommerce ground. So are any of them able or any of the brands able to say broaden their derma.

A graphics or attract a new category of consumer or anything like that but which which brands would you call out most is benefiting from that.

[noise], so uhm Linda <unk>.

0.2 or <unk>.

<unk> branch so some of the.

Hello, Uhm packaging, another kind of commodity type products for the most part the API supply chain has been fairly good and we work with our suppliers over the long term for them to carry safety stops. If you will have a P. I had a critical component to ensure that uhm.

<unk> and that wouldn't impact on our ability to produce finished yet so.

Focus is to make sure that we don't have any meaningful Elvis pocket retail. So that we can continue to support our share in our share growth over over time and that that'll be the way that we continue to manage the supply chain of the time, but not nothing would at this point, we've been able to get through the curtains.

<unk> it in such a way that were.

Really good position at retail.

Got it okay. Thank you for that and my last question is for you mentioned that the convenience store channel is a challenge that has been challenge to hear because of Covid. So what is your exposure to the convenience store channel.

I believe a total sales are in the high single digits as a percent of total company sales, although it's concentrated in a couple of key brands B C. Goodies.

<unk>.

Clear eyes, with our pocket Tao business Dramamine.

Lootens to a lesser extent.

And again, we've seen trends improve a little bit from the trough at the end of kind of June but in a lotta ways, even though consumers are out and about more now than they were in the quarter ended June there's something up there got to their car with with gas, but they may not necessarily be heading into the actual store.

In making those impulse purchases around D C goodies or <unk> clear I've kind of thing so.

We anticipate a slow recovery.

And that space Anthony.

Got it okay. Thank you and best of luck.

Thank you Anthony.

Thank you again, ladies and gentlemen to ask a question. Please press star one on your Touchtone telephone again, that's star one on your Touchtone telephone to ask a question.

Our next question comes from the line of William writer Ah Bank of America. Your line is open.

Simple operating model and financial profile stepping slightly above five times I think would be out of the realm.

With our ability to quickly get back in within the range within a quarter or two.

Great very helpful. Thank you.

Thank you Bill.

Thank you at this time I'd like to turn the call over to <unk>, Chairman, President and CEO, Ron Lombardi for closing remarks, Sir.

Thank you operator, thanks again to everybody everyone for joining US today, we look forward to updating you on the business again in a few days in a few months have a great day. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.