Q3 2021 Prestige Consumer Healthcare Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2021 prestige Consumer Healthcare, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask the question. During the session you will need to press star one on your telephone please be advised the today.
The conference is being recorded.
Part of any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker of today.
The simple Lilly head of Investor Relations. Please go ahead Sir.
Thanks, operator, and thank you to everyone who has joined today on the call with me of Ron Lombardi, Our chairman President and CEO, Chris Sacco our CFO.
On today's call will cut from the results of our third quarter and fiscal year to date provide an outlook update and then take questions from analysts give.
The slide presentation that accompanies today's call can be accessed by visiting prestige consumer healthcare dot com clicking on the investors link and then on today's webcast and presentation.
Please remember some of the information contained in the presentation today includes non-GAAP financial measures.
Reconciliations to the nearest GAAP financial measures are included in today's earnings release and <unk>.
The presentation.
Yeah.
During today's call management will make forward looking statements around risks and uncertainties, which are detailed in the complete safe Harbor disclosure on page two of the slide presentation accompanying the call.
These are important to review and contemplate it.
Every one of the call today is aware of business environment uncertainty remains heightened due to COVID-19.
These items include shutdown impacts from many areas of the economy changes the consumer purchasing habits potential for of disrupted supply chain and various other economic factors.
This means that results could change at any time in the forecasted impact of risks of considerations of the best estimate based on information available as of today's day.
Additional information concerning risk factors and cautionary statements are available on our most recent SEC filings and the most recent company 10-K.
I'll now hand, it over to our CEO Ron Lombardi Ron.
Yeah.
Thanks, Jill good morning, everyone and let's start on slide five.
Our proven business model continues to set us up for long term success and the strong earnings performance and stable top line year to date results is continued evidence of this as we have raised our full year revenue.
The earnings targets.
The business debt strategy, we have in place is a highly adaptable, one which positions us to create value during the pandemic.
Our strategy of offering consumers a wide range of easily accessible brands. They know and trust continues to work the.
Ongoing objective is to grow categories, while connecting with consumers over the long term will share. One example of this long term strategy compound W.
The next slide.
Yeah.
Despite the long term nature of these investments. We are also quick to target near term opportunities. This important nuance allows us to adjust our brand building strategy in real time, finding additional ways to deliver brands growth for example, as discussed the last two quarters, we've focused on prioritization.
<unk> on where consumers are shopping.
The result of this is that we are winning big in E Commerce, where we've seen triple digit growth in men's.
Of our brands actually have a higher share in the channel compared to brick and mortar.
Meanwhile, our nimble business continuity efforts continued to do well during COVID-19, we continue to work strategically with our manufacturing partners to ensure consistent service levels in this dynamic of supply environment.
Finally, a consistent operating model and disciplined capital strategy continue to reward shareholders.
We anticipate solid earnings and free cash flow growth for the full fiscal year, which continues to increase our capital allocation optionality.
So to recap of business positioning remains solid and our strategy is delivering consistent results as we close out of our fiscal year.
Now, let's turn to slide six to discuss compound W.
Even during this unique time, we have not lost sight of the importance of long term brand building utilizing our brand building tool kit and taking time to understand the consumer insights. The goal is to drive long term growth for our leading brands.
Shown on the page we have compound W. Which is a great example of the subjective it's a brand with a long history with consumers and we've invested steadily behind it through a wide range of tools over time.
One tool used is innovation.
All of our brands operate with a multiyear pipeline of product development concepts to ensure we continue to match the needs of consumers compound W. Nitro of freeze is of Great. Recent example, with its extreme freezing technology that is not found in other OTC treatments.
We are also connecting with consumers as they think about treatment with content that helps explain their work treatment options. For example, during the pandemic, we've reminded consumers of the ability to treat works effectively at home and the solutions compound W offers.
The result of our investment behind compound W. Is clear we are the trusted source for retailers for insights into the work category and how to drive long term category growth.
Has enabled our brands to continue to gain shelf space and share.
Our results have been solid over the last five years compound W has grown at a double digit compound annual rate vastly outpacing category growth and solidifying its number one market position with consumers and the preferred brand for work treatment.
With that I'll now hand, it over to Chris to review our financial results.
Thanks, Ron and good morning, everyone.
Let's turn to slide eight and review our third quarter financial results.
As a reminder of the information in today's presentation includes adjusted results that are reconciled to the closest GAAP measure in our earnings release.
Q3 revenue of $238.8 million declined one 6% on an organic basis versus the prior year, which excludes the effects of foreign currency.
By segment, North American revenues were down 2%.
Several segment categories grew with the largest increases in women's health and oral care.
As expected. However, these gains were offset by lower cough and cold as well as motion sickness and headlights as these categories faced declines in incidence levels and usage rates related to changes in consumer behavior due to COVID-19.
Our international segment increased approximately 2% after excluding the effects of foreign currency.
The increase was primarily attributable to higher sales of hydro late in Australia, and certain shelter at home restrictions were lifted related to COVID-19.
As a reminder, due to hit the distributor model the timing of international segment orders can be difficult to predict as Ken the uncertainty around pandemic related restrictions.
Adjusted EBITDA declined approximately 6% in the quarter versus the prior year, primarily driven by the timing of a N understand.
EBIT margin remained consistent with our long term expectations in the mid thirties.
EPS for the quarter was 81 cents per share flat to the prior year as the result of lower interest expense from debt pay down offsetting the lower revenue and a N M timing.
Now, let's turn to slide nine for more detail around consolidated results for the first nine months.
For the first nine months revenues were down 90 basis points.
Our diverse portfolio has enabled the stable revenue performance with strength in many brands in our portfolio, helping to offset COVID-19 impacted category.
Our broad channel diversity continues to help drive the revenue performance as we experienced strong triple digit consumption growth in the E Commerce channel year to date as consumers continue to shift to online purchasing.
Total company gross margin of 58, 2% in the first nine months with largely flat to last year's adjusted gross margin of 57, 9% and has been stable across quarters.
This was in line with our expectations and we continue to anticipate a gross margin of about 58 per cent for the remainder of the year.
Advertising and marketing came in at 15, 9% of revenue in Q3, and 14, 8% for the first nine months.
We still expect A&M for the full year could you be just under 15% as a percentage of sales as we continue at a normalized rate of spend in the fourth quarter.
G&A expenses were flat in Q3 and down for the first nine months of fiscal 'twenty, one versus the prior year largely to disciplined cost management.
For the full year, we anticipate G&A expenses to approximate 9% of sales and remain below prior year in absolute dollars.
Lastly, we realized strong 15% EPS growth for the first nine months of fiscal 'twenty, one versus the prior year.
Lower operating costs lower interest expense and lower share count were all factors to the growth.
Now, let's turn to slide 10.
In the quarter, we generated 43, and a half million dollars in free cash flow, which as expected was lower than last year due to both timing of working capital and Capex investments.
For the first nine months of fiscal 'twenty, one free cash flow of $159 $2 million grew over 3% versus the prior year.
We continue to anticipate full year 'twenty, one free cash flow at or above prior year levels.
At the end of Q3, we had approximately one $5 billion of net debt, which equated to a leverage ratio of four point to time.
During the quarter, we repurchased approximately $9 million in shares Opportunistically, leaving the remainder of our cash generation on the balance sheet in anticipation of a potential bond refinancing event in Q4 to opportunistically capitalize on the attractive rate environment.
The cash accumulation was temporary to the quarter. There has been no change to our strategy of prioritizing debt paydown as our primary use of free cash flow.
With that I'll turn it back to Ron.
Thanks, Chris, Let's turn to slide 12 to update our guidance and offer some initial thoughts on the upcoming year.
With less than two months to go in our fiscal year, we are confident with our business performance and objectives and are increasing our outlook for both sales and EPS.
For the full year fiscal 'twenty, one we now anticipate revenues of approximately $935 million.
For Q4, we anticipate consistent trends to what we have realized over the past few quarters. However, the period will face of unique comparison to the prior year as we experienced a significant lift in March of 2020 as consumers stocked up on items as a result of COVID-19.
We now anticipate adjusted EPS of approximately $3.22 of fiscal 'twenty one.
Disciplined cost management and the benefit of our capital allocation strategy and debt reduction continue to drive our solid earnings growth.
These attributes translate into free cash flow as well and we continue to anticipate free cash flow of $207 million or more which is at or above the prior year's level. We continued to prioritize prioritize debt reduction while balancing other disciplined capital allocation efforts to drive.
The shareholder values.
Looking ahead, we continue to have confidence that our business is well positioned heading into fiscal 'twenty two.
We will begin to lap the effects of COVID-19 that began in the spring of last year.
All of our long term brand building strategy continues to set us up for long term success.
We continue to target, 2% to 3% long term organic sales growth.
Which translate into mid to high single digit earnings growth driven by our stable and solid financial profile and disciplined capital allocation strategy.
It's a proven strategy and we remain confident in its ability to drive value for stakeholders.
With that I'll open it up for questions operator.
As a reminder to ask a question you'll need the press star one on your telephone to withdraw your question first of all Keith.
Please stand by all of the compile the Q&A roster.
Our first question comes from Jon Andersen with William Blair. You May proceed any of your question.
Good morning, everybody.
Good morning, John.
I guess, maybe I'll start with the last comment that you made run of the long term sales growth target.
Of two to three per cent.
It's been awhile since you consistently.
Kind of achieved to the 2% to 3% organic sales growth.
I'll talk a little bit about if you will about.
Your efforts to get to kind of 2% to 3% organic sales growth.
What gives you confidence that over the long term you can kind of get back there on the line of sustainable basis, and how long it might be you know when you're in your opinion, given kind of the the debt dynamics of the marketplace Covid some.
Some of the changes to your customer base et cetera.
To get back to that kind of out of long term target.
Sure. Thanks for the question John So first of all of you know, we always start thinking about.
The opportunities for our business around consumption growth in the.
If you look back over the last few years, our organic consumption growth has been in the two to three per cent range now we've had some disconnects between that as certain retailers adjusted inventory and address their business needs.
And then this year with the scrub the disruption of Covid, if you exclude the COVID-19 impacted categories.
Again, our consumption levels continued to be in that 2% to 3%.
Range. So really that's why we feel good about the the long term ability to grow the business to the 3%.
Okay.
Okay and.
Of the two of the thickness of <unk>.
Sighted in the.
In there one is some of the inventory efforts that retailers have made.
The two two of them.
Reduce quite quite inventories.
Where do we stand with respect to that what are you seeing right now what do you expect to see over the next 12 months and then the.
The second part of the question.
Would be of the the Covid impacted categories is this just a matter to get those back is it a matter of just kind of lapping the.
The difficult.
March comps or.
Those are additional.
Oh.
Work that needs to be done there to get those back to our kind of of growth.
The trajectory.
Sure. So two questions there first of all the retailer inventory levels.
We talked about this at the <unk>.
Last quarterly earnings call.
We largely feel that this is kind of in the rearview mirror at this point John.
It's not something that we're hearing our customers talk a lot about or focus on at this point. So we don't really see that as a headwind.
The forward.
And then in terms of the Covid impacted categories.
No.
The the brands that we have like Dramamine Nix and some of the cough cold.
Mrs.
They had a.
Impact that began call. It April of last last year, and we've been out of steady level in terms of the impact on our business. So we haven't really seen it.
Get worse, so the first part of it is debt.
Once we start lapping that base level, and then as consumers begin to return to normal levels of activity and Covid restrictions lift we would expect to see a recovery in those business those businesses.
Over time the.
Brands, there continues to be well positioned we've held or grown share actually during this disruptive period. So as you pointed out it really is just getting back to a point, where we're lapping the the disruptive period.
That's helpful.
On.
On the E commerce portion of your business, which.
You mentioned has been extremely strong.
You commented that.
You saw triple digit growth there in the quarter.
Where are you where does that put you know in terms of E Commerce is Porsche.
The portion of your overall sales.
And.
You know again, if you could I know you've talked about this before but just.
Help us understand again the.
Why you're so well positioned on line it sounds like Youre your brands in aggregate may have higher share of online.
Then offline.
I think you said also that the per.
Profitability.
Is comparable online and offline. So you really kind of agnostic from that standpoint, but how big is E. Commerce now as a percentage of your business do you expect it to stay there.
Even post Covid and and and how are your brands represented.
Sure. So first of all of our ability to be successful during this really dramatic change.
In channels.
It goes back to our simple strategy that we've been executing against for a long time, which is.
We want our products available wherever consumers choose to buy them and you can go back 20 years ago when.
Or more of that when there was dramatic growth in mass and dramatic growth in the dollar channel.
As examples right our business has grown as those channels have grown.
And then dean.
In a position to actively manage the margins such that there isn't any.
Penalty to having a consumer shopping shift so that strategy has been in place of long time, and we simply applied it to the opportunity around E commerce and the likelihood that consumers will kind of move there in increasing numbers.
We executed that strategy. We were ahead of the curve and we were well positioned so that when the E commerce business from us more than doubled in one single quarter. We were ready of product was available of content was available online.
At the right.
Cost structure, so that our margins one would hope so.
It really is just about execution of having a plan to support wherever consumers choose to shop.
I think you also had a question in there is what's the current percent I think all in if you.
Total of all of the E commerce sales across all of the customers I think we're approaching 12 per cent or so now.
And will it stay there.
I don't know, what we'll see over time, where the consumers continue to.
Keep shopping there or whether they go back to their old habits of going into stores in either case, it really doesn't matter to us as our products of widely widely available.
Great one last one and I'll get back in the queue.
Chris You mentioned.
Essential for bond refinancing in the fourth quarter can you just talk a little bit of about the.
Details of that I'm, not sure, which the bond the maturity date, the kind of the rate you're paying now what the opportunity might be.
For the bond refi.
Sure sure. So excuse me hi, John we are anticipating.
The anticipating refinancing the 2024 notes.
They're currently at $600 million with a six and three eighths.
And we're going to look to continue to take advantage of the favorable market conditions, you know similar to the refinancing we did around this time last year on the now 2028 senior notes. So obviously too early to discuss specifics, we haven't even launched the deal yet but.
We will certainly share any finalization of the potential outcome in may if not sooner just to just as a reminder, we're anticipating closing around March 1st so any impact of Q4, it would really be limited to one month from this from this action.
Great. Thanks, so much good luck.
Thank you. Our next question comes from the Greek with Oppenheimer. You May proceed with your question.
Good morning. This is actually Erica eiler on for Pam. Thanks for taking our questions I guess part of it is in front of the types of international So it was encouraging to see that improvement in the international category.
This quarter and you know I I can appreciate that that business can be lumpy of you've talked about the maybe can you talk about your latest outlook and thoughts.
Rounding the international segment, and maybe just a little bit more of what you started to see during the quarter.
With hydro line, maybe out there to drive that improvement.
Sure one of my Erika it take the.
So what did we see in the quarter ended December and then Chris can comment.
What's in our outlook for for the remainder of the year.
We continue to be in an environment debt.
Can change quickly and it is somewhat difficult to predict what we saw in Australia was.
A a sequential improvement in demand and consumption.
It was largely the driver behind the the outperformance of ahead of our expectations.
During the quarter, Australia lifted.
Some of their COVID-19 restrictions and that combined with the beginning of summer there really propelled and increase in sequential consumption levels for the business. So that was really the big driver.
And what we really can't predict the happened during the quarter for us.
So with that let me, let Chris comment on the what's in our Q4 outlook.
Sure. So regarding our Q4 guide versus the prior year as Ron noted earlier, obviously, we have some significant impact on comps related to the the March orders around Covid. So if we think sequentially in terms of absolute dollars, we think the U S to be pretty stable and its trends from Q3.
But were actually expecting international to be down.
For the reasons Ron noted that helped us in Q3 are kind of swinging the other way in Q4 in terms of timing of distributor order patterns and we have seen some of the states in Australia returned to shelter at home restrictions.
Difficult to predict but right now, where we would anticipate international to be down somewhat sequentially in Q4.
Okay. That's helpful and then.
I'm actually from come at the point, but I can work towards you know next year your fiscal 'twenty, two given you're going to lap easy Covid comparisons and you are seeing stable consumption of your category.
This juncture I mean.
Could could we expect to see a return to positive sales growth in FY 'twenty. Two I mean, just any puts and takes you might be able to provide us as we think about the top line for next year.
Yes.
The.
Commented on in the prepared remarks today.
As we get into our fiscal 'twenty two of that starts April 1st.
We enter into an environment, where we have easier comps right. That's the.
The weighted described it unlike calendar reporting companies, we don't have the quarter ended March peak, that's kind of be in the comps next year. So so that's going to be helpful. In terms of year over year growth.
But beyond that it's real.
Really tough to predict to what level, we might expect growth for next year range. It really goes all back to winter, we kind of see consumers start to return to normal activities when is the impact of Covid.
In certain restrictions kind of start getting keys and at this point.
Really hard to predict when that May happen. So we'll give an updated outlook on what to expect for fiscal 'twenty two of our may call, but the.
Everything being equal we feel good about.
The state of our business of consumption trends.
Excluding the Covid and it impacted.
Categories has been strong this year, we continue to grow share.
As I commented earlier, we were very well positioned to be successful in E commerce.
And our financial profile continues to deliver solid earnings of free cash flow. So with all of that we continue to feel good about our positioning for next year.
Okay, great. Thank you so much.
Okay.
Thank you. Our next question comes from Stephanie Wissink with Jefferies. You May proceed with your question.
Hi, This is set by the end of course the Watson.
Thanks for taking my question.
I was wondering in your presentation.
Growing market, she and a key part of it.
During the pandemic environment could you give us a bit more kind of which brands of which categories are performing.
Relative to your peers.
Yeah.
Sure.
We're seeing particularly strong growth in compound W, which I called out today.
We continue to have success growing share and launching in the differentiated in of the innovation that is helping us to grow share there.
Monistat is having a particularly good year this year.
As.
Many women look to treat at home and avoid a doctor's office visit is one example, 10 tech is kind of in the in the same kind of boat where consumers have maybe not gone to see the dentist. So they're looking to take care of.
Their teeth.
Their oral health and they are reaching for a day.
Gentex products as a couple of examples.
Thanks.
As it relates to M&A.
The change in your views from the landscape over the past few months.
And.
Specifically, if we look in the next 12 to 24 months are there any specific category the categories that youre looking at strengthening.
Strengthening of the portfolio.
What are the let Chris Chris comment on that.
Sure so.
Similar environment to what we've consistently seen in our space right highly fragmented opportunities and they continue to be available and we'll continue to apply our disciplined screening if you will for for M&A opportunities. So no real changes to what we're seeing in the marketplace around that.
From a category perspective.
I would say nothing that we're lacking that.
Where we feel like we'd need to get into another category of expand within the category. We really look at it from a brand perspective within the category of the brands positioning as you see with many of our core brands, where we're looking to grow category. So no change to our strategy around M&A or our screening process and I would say the market has continued to remain.
Fairly stable for the kinds of things that we look at.
Thank you.
Thank you. Our next question comes from Mitch for now with the third of that and the company. You May proceed with your question.
Yeah, Hey.
Good morning.
Most of my questions have been.
I have been answered.
Just where there any.
Were there any you talked about the compound W monistat being positive.
You know in terms of share performance, what what would have lost share over the last 12 months anything in particular.
I think if you look across our portfolio.
The cough cold brands.
Again, its a unique situation and environment.
It would be the one area that I would identify niche but beyond that the <unk>.
Debt, we focus on the five power core and the dozen or so core brands have generally held up very well and in aggregate our share has actually increased.
Year to date versus where we were a year ago.
Okay.
Hum.
When were looking.
At the bank.
The financing.
I was just curious you know.
You guys generate you know.
Attractive EBITDA margins EBIT margins attractive, obviously free cash flow.
Generation and you know you look at the 24 notes.
And there are you know at six and three eights I mean, that's.
I mean, yeah.
It's quite high in EBIT EBIT. The the notes that you know the 2019 notes at five and change.
To me I would think that these rates should be half of where they should where you know what you are paying is there is there you know is it just a function of having you know four times leverage.
And.
Is that is that simply that or I would think that your your your your interest expense should come down meaningfully.
Just given what given your fundamentals can you talk about that a little bit.
Mitch will you be available to help with the refinancing pitch now.
Yeah, I guess I would say.
We don't think our leverage profile has ever.
Strained us from the our ability to get it.
It's disciplined and the advantage pricing in the marketplace and I think you'd see that when we compare our leverage levels with some some peer companies and some other companies I think we have consistently.
<unk> consistently been able to get attractive rates and so I don't think it's impeding our ability to go out and execute.
Successfully so that said.
I think he may be a little aggressive on going all the way to half of the current interest rate, but but yes. We would expect in this refinancing and current with current market rates to see a significant improvement in our interest expenses of results on the six and three 820 24 notes.
Oh.
Okay. Thank you.
Is there any is it is it a function just curious what would be the.
You know in terms of as banks look at share.
Your business I mean, what what's what's the.
The one thing debt that you know.
You know I guess the.
They're looking at that's keeping the rate may be higher than what I think it is.
It can't be the leverage so what would it be is it just to some extent, it's the leverage but not the current leverage weighted to the anticipation of future M&A and our ability to flex the leverage I would say.
Okay got it that's all I had thank you.
Thanks Mitch.
Thank you. Our next question comes from Linda Bolton Weiser with D. A Davidson you May proceed with your question.
Hi, you know I didn't catch him I don't have the slides right in front of me, but did you say what your consumption growth or decline was in the quarter and according to IRI data it looked like your consumption.
Got a little bit worse sequentially through the months of the quarter October and November was a little worse and then December was a little worse and then actually the numbers ended January 10th where little worse is that the same pattern that you see in the numbers and why would there be some worsening of performance in terms of consumption through the months. Thanks.
So so first of all Linda and I think I say this every every quarterly call those Io I R. I reports of Nielsen whatever the generic reports you're getting.
I've always been.
Fairly disconnected from what actually goes on with our business.
And it's never been more true than the current environment.
Where the biggest growth.
For our business has come from unchecked untracked channels for.
For E Commerce and then.
Certainly the the international business so net.
That's the first comment and the second is in terms of the general consumption of our consumption continues to be.
Steady.
Across the business, which is why we've been talking about our business.
Sequential basis quarter to quarter and talking about a run rate because we're in an environment where comps to the prior year. Our funky is the best way to describe it right and there are about to get even more disconnected as we enter the period ended March which was.
Really impacted by Covid activity last year, where we saw a significant.
Spike in the activity and then for the quarter ended June youre going to see it.
Pretty big dip in trough. So we continue to encourage people to think about our business on the sequential run rate basis.
Given the abnormal.
The normal realities will see in the comps from the prior year.
So what was your consumption in the quarter.
So.
Let me Chris.
Chris the answer that one for you.
Sure. So our consumption was down in the low single digits and I think Ron might have noted.
Prepared remarks, when you were at the Q&A when you adjust for the Covid impacted brands in.
In line with our long term target as Ron said and has been consistently.
Sequentially over the past couple of quarters and actually a couple of years.
Okay. Thank you very much.
Okay. Thank you Linda.
Thank you. Our next question comes from Joe I'll Debello with Raymond James You May proceed with your question.
Thanks, Hey, guys good morning.
Apologize I jumped on late so I may have.
Some of this but.
In response to your response to the Windows last question I was curious it sounds like if you look at Covid the impact from Covid on consumption was about three points of call. It again.
Last quarter.
Is that.
Does that GAAP narrow in the June quarter, or do you see some improvement in the March quarter.
So.
For the quarter ended June we would expect.
The impact to be largely gone from the Covid impacted.
This is Joe Okay.
Because that was more of less than full effect for that quarter last year.
For the quarter ended March clearly the comps are going to be meaningfully impacted because of the spike in the business last year right right, Okay, and I guess somewhat related to that could we see the.
Where you know your COVID-19 impacted categories and channels start to improve but consumer focus on things like health and hygiene remain fairly elevated so could you get the best of both worlds to some degree in fiscal 'twenty two.
Sure that's very likely Joe one I think consumers' focus on health.
Health and hygiene is kind of continue for a while right.
Yeah.
Net.
Pretty significant event that we've been living through.
I'd imagine thats kind of continues so we make it the.
Positive impact of both of that continued focus and certainly the the comp against the reduced level last year.
Got it and just one last one from me have you experienced any.
The major supply chain issues I know in the past you've noted some tightness in packaging of commodities.
Has it become more acute or let the.
The increase in stock outs.
So it's really been pretty pretty steady for us during this timeframe.
Joe we haven't seen really any meaningful change in.
And the supply environment for us it's challenging.
But we continue to work with our partners for steady supply and we continue to be in a good position.
At shelf at retail.
Okay perfect. Thank you guys.
Sure. Thank you Josh.
Thank you. Our next question comes from Anthony, leaving just keep with Sidoti and co. You May proceed with your question.
Yes, good morning, and thanks for taking the questions. So I'm just wondering longer term how are you.
Should we think about the A&M spending.
Looking at your look for.
Earnings growth of mid to high single digits.
Are you already factoring in the benefit of of debt refinancing.
The debt refinancing by the fed actually.
Lead to better earnings.
Earnings per share over term.
Sure Chris wants to take this.
Sure. So we have not factored in the debt refi should cause.
Of this year's results as I noted in response to Johns question.
We would anticipate the refi closing at the beginning of March so the impact of this fiscal year and this quarter would be limited to one month. So it's.
It's just the heads up on that front and I.
I apologize can you repeat the first part of your question. Please.
Yeah. The first of all of the question was about and M of.
How should we think about that longer term, obviously there were.
You've made some adjustments to that the.
When COVID-19 hit the longer term how of how should we think about that and.
That'd be great. Thanks sure sure. So yeah as you pointed out.
We showed this quarter as well as the timing of the A&M spending can fluctuate from quarter to quarter based on individual initiatives that we that we rollout. So I think what you've seen historically and can continue to expect is eight of them spend in the range of 14% to 16% of <unk>.
And that's something we've delivered pretty consistently.
Got it alright. Thanks.
Yeah.
Thank you Anthony.
Thank you and as a reminder to ask a question you'll need the press star one on your telephone. Our next question comes from Jon Andersen with William Blair. You May proceed with your question.
I'm back.
[laughter] Hum.
Just wanted to ask a couple of more transportation costs, we've been hearing about obviously increases in spot rates what.
That was an issue of couple of years relative to her three years ago. I guess for you just give us an update there on how you're positioned today versus the prior.
The prior years, and how youre thinking about that.
Yes.
First of all John our move.
Warehouse move and change in.
Third party provider there continues to have us.
Better position than where we weren't.
To manage through this is the first part of it the <unk>.
The part of it is you know.
The freight costs as a percent of per.
Percentage of revenue for us is fairly small vs.
Versus other other companies other CPG companies, who may be shipping heavier product or different profile product. So.
Although its something that debt, we're actively managing where and I think of little bit of of different position than many other companies in terms of being able to manage through this.
Okay.
And then.
You know it seems like.
You know the.
Sure.
When you come up with a.
Kind of a novel.
Technology or approach or or or.
Add a certain degree.
Degree of functionality to one of your product your brands product line like with compound W and the the rapid freeze.
You know that really sets the stage for kind of a multi year.
Hum.
It helps drive the category helps drive brands share.
So I'm just curious.
As you sit here today.
How do you.
How would you kind of characterize the.
The innovation pipeline.
Overall and.
For 2020.
Fiscal 2022 that is in the.
I mean are there some.
I mean, what did you say at the <unk>.
Other than the average average or typical or.
Kind of your year of innovation and.
Also when when did the majority of the resets happened in your in your business or the kind of spaced out through the year or do they most of them are half of them at one point of the year that would be helpful.
Sure. So first of all I think I commented on this in the prepared remarks today is that we look to have a three year.
New product and innovation pipeline develop for all of our of our big brands.
So our new product innovation launches tend to be pretty steady from year to year.
So there isn't necessarily peaks and valleys some are more successful.
Than others or address the bigger market opportunities in the other but in terms of kind of the number of of new products and innovations that we launch each year, it's fairly steady.
And then in terms of reset timing it tends to happen.
Tween spring and into summer.
The majority of of our cabin categories Jon.
Okay.
The you've.
You've talked about I think you were asked about M&A earlier, I'm just kind of curious.
I know there's been a lot of portfolio optimization work done over the last 567 years.
Do you still have a part of your portfolio that you would consider divesting and under what kind of conditions would you would you consider doing that.
Yeah.
So.
Now the tails function of the portfolio.
Is to generate earnings and cash flow that we can.
Invest behind our power core on core brands. So that's the whole debt that it has in the portfolio.
And really it comes down to math, we hear from people who are interested in tail brands all the time.
And we evaluate the.
The benefits and the inherent value of those brands versus what somebody might be willing.
To pay for them. So it comes down to that of valuation.
Okay.
Great. Thank you thanks a lot.
Sure. Thank you John.
Thank you and I'm not showing any further questions at this time I would now like the turn the call back over to Ron Lombardi for any further remarks.
Thanks, operator, I'd like to thank everybody for joining us this morning, and I look forward to updating you again in may tap of Great day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Yeah.
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