Q4 2021 Prestige Consumer Healthcare Inc Earnings Call

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Today's conference is scheduled to begin shortly please continue to standby I think you'd think of patients.

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Good day and thank you for standing by welcome to the Q4 2021 prestige consumer Healthcare, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Presentation.

Remember some of the information contained in the presentation today include 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 will make forward looking statements around risks and uncertainties, which we detailing of 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 where business environment uncertainty remains heightened do the COVID-19.

These items include shutdown impacts from many areas of our economy changes to consumer purchasing habits, the potential for disrupted supply chain and various other economic factors.

This means the results could change of anytime in the forecast that impact of risk considerations of the 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 10-K.

Oh not of hand, it over to our C O Robyn body from.

Thanks, So let's begin on slide five.

A year ago, we began our fiscal year with a backdrop of tremendous uncertainty stemming from the COVID-19 pandemic. This uncertainty created widespread volatility across the categories. We participate in with rapid changes in consumer preferences of needs.

Despite all of this we focused on executing a proven long term business strategy, which resulted in a very successful fiscal 21 that exceeded our guidance.

Several aspects of our business proved to be particularly beneficial during the quickly changing environment of the last year.

Ah brand building approach of growing categories and connecting with consumers paid off in the big way, especially as consumer shopping habits and needs shifted.

Having a diversified portfolio of leading brands helped us connect with consumers as they turn to their time tested and trusted brands for self care during the pandemic of <unk>.

Widely distributed brands and robust E. Commerce presence also paid off as consumers showed up on line in greater numbers.

Meanwhile, our company's agility allowed us to reposition our marketing to best connect with consumers in this environment.

The net result of these factors as we continue to win market share and difficult backdrop and generated very strong cash flow due to like consistent operating model.

Let's turn to page six to review some of the resulting physical 21 financial performance metrics [laughter].

Of side of the page share performance for our broad portfolio had an outstanding fiscal 'twenty, one, especially considering rapidly shifting consumer habits due to COVID-19.

The breadth allowed us to focus our efforts on near term brand opportunities like Monistat compound W and clear eyes, which we'll discuss on the next slide.

This helped offset certain brand pressures stemming from the pandemic, such as Summer's Eve, where our share in the on the go feminine hygiene products, such as wipes and sprays pressured our share versus the category.

This performance was underpinned by several factors, having leading number one brands is the strength, but just as important is the fact that we lead by a wide margin in many categories. In fact, many of our brands market shares are significantly larger than the next category competitor.

This allows us to concentrate our efforts on consumer insights that leverage brand heritage to enable growth with consumers and retailers to expand the overall category.

If you needed to pay dividends each brand one significant market share during fiscal 21 outpacing category of growth by 515, and seven percentage points respectively.

Now, let's turn to slide ninth.

Our fiscal twenty-one sales performance driven by the attributes I've just discussed is particularly impressive in light of challenges in a few major categories, we face during the year.

For us three key categories cough cold travel and head lice were materially disrupted by COVID-19 facing declines an incident levels and use of drapes as consume mirrors stayed home and warm asked.

This drove double digit category of declines and a 500 plus basis point headwind to our full year sales performance. Despite this we were able to grow our overall market share.

As we look ahead, we view this as a positive the performance outside of these categories reinforces that our strategy is working while the pressured areas have stabilized and have begun to lap the prior year category declines in Q1.

Now, let's turn to slide 10.

A final highlight to make that helped drive physical 21 results was ecommerce, which now represents about 11 per cent of revenue.

Our multiyear investments around e-commerce of delivering impressive results and we benefited from growing interest in this channel by consumers as.

As a leader in consumer health care E Commerce, our market share in this channel or off the higher than in brick and mortar dude or early and continuing investments.

Also by design a financial profile has remained consistent through this dramatic channel shift as we maintain of consistent profile across our distribution channels.

And fiscal 21, we continued to make investments behind online content and targeted pandemic related messaging with the goal of expanding our share with consumers.

We also invested across numerous online retailers during the year. The result was of doubling of E Commerce sales and physical 21, and we are well positioned to continue to benefit from these investments as we look forward.

With that I'll turn it over to Chris to discuss the financial results.

Thanks Man, let's turn to slide 12, and review our Fourthquarter of financial results as a reminder of the information in today's presentation include the just the the results that are reconciled to the closest GAAP measure in our earnings for the.

To offset the COVID-19 impacted category.

Channel diversity continues to help drive revenue performance as we experienced strong triple digit consumption growth in the E Commerce channel for the full year as consumers continue to shift to online purchasing.

Total company gross margin of 58% was approximately flat to last year's adjusted gross margin of 58, 3%.

This was in line with our expectations and we continue to anticipate a gross margin of about 58% for fiscal 'twenty two.

Advertising and marketing came in at 14, 9% for the fiscal year.

Following an unusual Q1 related to COVID-19.

<unk> returned to normalized levels of spend of approximately 14% to 16%.

For the upcoming year, we'd anticipate an approximate 15% rate with a higher rate of A&M spending in Q1.

G&A expenses were just over 9% of sales in fiscal 'twenty, one versus the prior year.

Largely the disciplined cost management.

For the upcoming year, we anticipate G&A expenses to approximate just over 9% of sales.

Lastly record adjusted EPS of $3 24 grew.

<unk> grew a strong nine 5% over 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 14.

In Q4, we generated $54 $2 million in free cash flow, which resulted in a full year record free cash flow of $213 $4 million.

We continue to maintain industry, leading free cash flow with fiscal 'twenty, one free cash flow conversion coming in at 130 per cent.

At March 31, we finished the year with approximately $1 $5 billion in net debt and a leverage ratio of four two times.

During the year, we reduced debt by $250 million, and opportunistically repurchased $12 million and share during the year enabled by our strong generation and cash cash position entering the year.

Our strong cash generation and stable financial profile enables our ability to access debt market sufficiently.

As a result, we were able to issue $600 million of new senior notes during the quarter, which replaced prior notes that were due in 2024.

The transaction both extended of key debt maturity to 2031 and resulted in annual interest savings of over $15 million.

As a result interest expense for fiscal 'twenty, two is expected to be approximately $60 million.

The savings will further enable our three pillar strategy and our disciplined capital allocation towards investing in our brands deleveraging M&A and other consideration with that I'll turn it back to Ron.

Yeah.

Thanks, Chris, Let's turn to slide 16 to wrap up with some closing thoughts and our outlook for fiscal 'twenty two.

Using our time tested strategy, we delivered a very strong fiscal 'twenty, one including market share wins and record financial returns despite certain category headwinds related to the pandemic.

This approach remains intact and our business is well positioned to further these gains in the upcoming year.

For the full year fiscal 'twenty, two we anticipate revenues of approximately $957 million to $962 million, including organic revenue growth of one of half to 2%.

This revenue outlook assumes our portfolio continues to generate approximately two 5% long term organic revenue growth.

Partially offset by certain categories like cough, cold, which we expect to remain flat to fiscal 'twenty one.

We anticipate EPS of $3 58 or more for fiscal 'twenty two.

Disciplined cost management and the benefits of our free cash flow are expected to drive solid double digit earnings growth for Q1, EPS is expected to be flat to the prior year as a normalized level of advertising and marketing spend is expected to offset revenue growth and interest savings.

These attributes translate into strong free cash flow as well, we anticipate free cash flow of $225 million or more.

The recently completed debt refinancing further enables our disciplined capital allocation efforts that drive shareholder value.

In summary, we remain confident that our business is well positioned with momentum heading into fiscal 'twenty two and beyond.

Moving business model continues to deliver results and we look forward to executing on our long term brand building strategy to reward our stakeholders.

With that I'll open it up for questions operator.

Thank you as the airline that asked the question you wont need the press star one on your telephone.

Joe Your question pets, the pound key.

And I have of the compile the Q&A over there.

And of our first question comes from <unk> Parikh with Oppenheimer. Your line is now open.

Good morning, this is actually Erica eiler on for the cash thanks for taking our question. So.

The first wanted to touch on organic sales growth.

If you look at your organic sales growth guidance for this year I mean, it seems the I think could prove conservative, especially with easier comparison and you know if you guys continue to gain share there.

Curious as to why E E of the potential drivers for any of that.

You know that we can see play out during the year.

Sure.

The morning, Erika So first of all I guess I'll start with your comment around easy comparisons in 'twenty to fiscal 'twenty two to 'twenty. One if you go back to slide <unk>.

<unk> in today's deck, you'll see that like 80% of our portfolio grew over 3%, which is above our long term outlook.

But certainly for the for the COVID-19 impact of part of our business.

We're expecting 22 to be flat you know theres still a lot of.

COVID-19 impact to two.

The get out of consumers' habits. These days. So if you look at our 2% we expect about 80% of the portfolio to grow around 2% and then the balance to be flat year over year.

Okay. Now that's helpful. And then Chris I think you mentioned gross margin around 38 per sat on for the year could you maybe just talk about some of the key puts and takes me shouldn't be thinking about on the gross margin line of share.

Yeah, So hi, Erika a gross margin of about 58% rate for fifth out of 22.

Yeah, no worries so.

The real largely consistent right coming in essentially flat to fiscal 'twenty. One so of course, well Theres puts and takes you know of.

A reminder, we start with the benefit on the top line of the <unk>.

First the brand portfolio of it also helps to diversify our cost components.

So you know again, we're expecting our guide to incorporate some inflationary pressure, but we think we're able to offset that largely with the combination of cost saving initiatives and some pricing activity. So we feel good going into next year that we can we can hold our gross margin pretty consistent with fiscal 'twenty one.

Oh, great. Thank you so much.

Thank you. Our next question comes from Stephanie Wissink with Jefferies. Your line is now open.

Hi team. This is Seth barbero for Steph, thanks for taking the questions.

The first one of the so wondering if you can talk about the consumption growth in fiscal Q4, and also talk about consumption trends year to date, given that share gains relative to private label appear to have of accelerated recently.

So.

Okay. So let me start I guess with with the overall consumption trends.

Again, if you step back and take a look at our performance for the for the full year, you'll see that we actually performed quite well again I think it was slide seven net debt showed the report card that we've been.

Reporting on at the end of the last few fiscal years.

To see that we had a lot of momentum even in the brands that were disrupted by COVID-19 in particular, Dramamine Nix, we're able to continue to grow our grow our share. So we continue with this long term trend of not only outgrowing the categories, but growing share compared to competitors, including private label.

Okay.

Got it Okay and then.

Talking about Destocking is this.

Are you still of the view this is more of a more of a foregone headwind and hence your ability to return to that low single digit organic growth.

And also if you can talk about the where are we in the restocking cycle.

Sure So and I think we've touched on retailer inventory changes the last couple of quarters and again, it's something at this point that we see is behind us.

And not something that we anticipate.

Meaningfully impacting us in fiscal 'twenty two.

It's still it's still tough to predict what the retailer activity patterns will be.

In fiscal 'twenty, two but again, we think that's largely behind us at this point.

And can you remind me the second part of your question there so.

Yeah, just from the the restocking I think.

You mentioned on today's release you benefited.

Hum throughout this year as retailers.

Reached doctors the shelf so it.

Is that fully done at the benefit already realized or is this you know an opportunity as well.

In fiscal 'twenty two.

Yeah that was it was really of Q1 fiscal 'twenty one.

The impact in quarters, two three and four of it really didn't see any meaningful impact of shipments into the retailers ahead of consumption.

Okay. Thank you.

Sure.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

And our next question comes from Linda Bolton Weiser of D. A Davidson your line is now open.

Hi, Good morning, So I was wondering if I know, you're you're a very a pretty high margin business, so commodity and input costs are not usually an issue that we're seeing so many inflationary cost pressures kind of them going on are you experiencing any kind of inflationary cost pressure.

As in any of your inputs are you seeing any shortages of any particular materials. So can you just talk about kind of the the cost input profile. Thanks.

Sure.

For starters, we deal with inflationary pressures every year right.

Most people get a get a wage increase every year in benefit costs go up so it's something that's in our system in terms of being able to deal with.

Certainly as we get into fiscal 'twenty, two we're anticipating.

More headwinds from inflation than past years, and it's something that we've been planning and in dealing around for for quite a while.

Of fiscal 'twenty two so.

Although we anticipate.

Additional of inflationary pressures versus past year.

I think as Chris already commented on it we've got actions in place to to mitigate it.

For fiscal 'twenty, two in terms of shortages and other supply chain impacts.

You know we've been dealing with.

The challenge supply chain environment over the last year I COVID-19 has impacted a lot of different aspects of the supply chain.

It's something that we've been able to manage through and we've got good inventory at retail and we continue to.

Feel we're in good shape as we head into fiscal 'twenty two on that.

Great and then I'm just curious on the M&A front, if you've been seeing of lot of potential deals or not in some of the companies have mentioned that there is just so much competition out there because of all of the Spacs and everything.

Is that something that you feel has been impacting your ability to maybe do a deal. Thanks.

Yeah. So the the M&A pipeline has been pretty pretty active over the last year or so and there's been lots of transactions out in the press.

We continue to be.

Pretty well positioned so that if something comes up that meets our M&A criteria.

That we think we would be continue to be pretty competitive and that the landscape hasn't changed for US you know are our scale business.

And the ability to absorb brands into the business that we have.

Has the I think well positioned against the kinds of bidders that we would face so the the environment really hasn't changed much for us Linda.

Yeah.

Okay, Great. That's all from me. Thank you.

Thank you Linda.

Thank you I'm not showing any further questions at this time I would now like to turn the call back over to CEO, Ron Lombardi for closing remarks.

Okay I'd like to thank everybody for joining us today, and we look forward to updating you on our business on the next quarterly call. Thank you and have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Yeah.

Okay.

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