Q4 2022 Prestige Consumer Healthcare Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by.
Welcome to the fifth.
Consumer Healthcare, Inc.
Fourth quarter and fiscal year 2022 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.
During this session you will need to press. The Star then the one key on your Touchtone telephone.
If you recall Apis just is there any time. Please press star then zero.
I would now like to hand, the conference over to your speaker host today built ethylene he vice president of Investor Relations and Treasurer. Please go ahead Sir.
Yeah.
Thanks, operator, and thank you to everyone joining today.
On the call with me are Ron Lombardi, our chairman, President and CEO and Christine Sacco our CFO .
Today's call will review the fiscal 2022 results.
The business attributes of prestige they continue to enable our success.
For full year 2023 outlook and then take questions from analysts.
There's a slide presentation, which 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.
Remember some of the information contained in this presentation today includes non-GAAP financial measures reconciliations to the nearest GAAP financial measures are included in our earnings release and slide presentation.
On today's call management will make forward looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation that accompanies the call.
These are important to review and contemplate business environment uncertainty remains heightened due to COVID-19, and various geopolitical factors, which have numerous potential impacts.
This means results could change at any time in the forecasted impact of risk considerations is 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 company 10-K.
I'll now hand, it over to our CEO , Ron Lombardi wrong.
Thanks, Bill, let's begin on slide five.
We are very pleased with our fiscal 'twenty two results that exceeded our expectations as we found continuous opportunities even with the backdrop of a challenging macro environment.
Revenue of 1 billion 87 for the full year grew 15% versus the prior year in Q4 was another quarter that experienced double digit sales growth.
Our base business trends were impressive across the majority of our portfolio aided by strong consumer demand and our long term brand building.
For the year, our international segment experienced robust demand for its hydro light brand, while Dramamine and clear eyes led broad based segment growth in North America.
Our revenues translated into strong profitability for the full year, we generated EPS of over $4 and free cash flow of over $250 million, both up double digits versus the prior year.
Lastly, during fiscal 'twenty two as always we were disciplined capital allocators of the strong cash flow on July one we acquired Acorn consumer health and its fair tiers brand, which we view as a great strategic use of capital with the brands now fully integrated and contributing to our portfolio.
No.
Even with this acquisition, we continue to reduce leverage.
Now, let's turn to slide six.
Our record fiscal 'twenty to performance and success executing our strategy is enabled by the long term evolution of our business first we've continually enhanced our stable of leading brands in the last several years, we've acquired well positioned brands, such as Summer's Eve and third tiers while.
Divesting non strategic and poorly positioned brands, such as our household cleaning business.
We successfully balanced.
<unk> deployment of capital with operating it gradually lower degrees of leverage in fact, we finished fiscal 'twenty two at three eight times, our lowest level of leverage since the acquisition of certain GSK brands back in 2012.
We often get asked how are you different and our ability to brand build continues to stand out by using numerous strategies to drive growth across our categories. We've enabled long term share wins in growth for our retail partners I'll lay out some examples of marketing strategies later on.
So in summary, these efforts have laid ground for consistent long term growth our success in portfolio evolution leave us with a business underpinned by strong financial attributes and an impressive portfolio of leading and well positioned brands.
This positioning has momentum and gives us conviction in our ability to execute the strategy shown on slide seven.
Yeah.
Our success. This fiscal year is just the most recent example of our proven ability to execute our three pillar value creation strategy shown on the page when.
When we meet with investors. They often note hearing a consistent message from us over time, and we pride ourselves on executing this disciplined strategy that has resulted in a resilient business that continues to deliver value.
First we use our proven marketing strategies to support our leading portfolio of brands, we will spend some time digging into examples of this later.
Second the asset light model.
Operate leverages, our leading financial profile to enable robust free cash flow and third the model is repeatable as we've grown. This is thanks to the prior two points and our ability to use cash flows effectively and efficiently through disciplined capital deployment.
The result of this execution is clear and our financial performance.
We've had a successful multi year compound annual growth rate over the last three years. This includes organic growth in excess of our long term target of 2% to 3% as well as double digit earnings growth.
The performance is despite the backdrop of resurgence of COVID-19 variance supply chain challenges and inflation.
By executing these strategic pillars, we continue to enhance our business for long term success and value creation.
So with that let's turn to the next section and discuss investing for growth in more detail.
Slide nine shows the distinct advantages of prestigious portfolio and the benefits of the evolution just discussed.
First on the left side of the page is the diversity of the portfolio and the successful development of multiple scaled category platforms, such as women's health eye care and Gi.
With a diverse portfolio of brands across many categories, we are nimble and identifying opportunities and able to mute the impact of any short term category changes like we saw at the start of COVID-19.
Second the right of the page shows many of our leading brands, which are sub segments within these platforms.
With two thirds of our sales coming from number one brands.
We are able to think about brand building from a position of leadership focused on utilizing consumer insights and as a byproduct for all categories for retailers.
Turning to slide 10, you'll see the various marketing strategies facilitated by the strong portfolio starting point.
Our numerous brand building strategies focused around driving long term category growth. Each are executed based on opportunities identified from consumer insights that are specific to each brand. The end goal of each of these actions is long term success across channels.
And growth of the categories to which we are stewards.
Let's turn to slide 11 to begin walking through each of these efforts in more detail.
It all starts with consumer insights.
On the page are examples of big thematic consumer insights than that enabled two of our leading brands hydro light and dramamine.
Even with majority shares of their categories, they've been able to further expand their sales in the categories that compete in the.
The Hydrolyte, we learned from consumers that they think about oral rehydration broadly and hydroid as a solution for more than just rehydrating following sickness.
Leverage this by providing additional consumer solutions that solve for these expanded usage occasions like exercise and investing in messaging to raise awareness.
The result is gradually expanding household penetration up nearly two points since fiscal 19.
For Dramamine, we've learned from consumers over time that they want to avoid motion sickness and nausea, but they also don't want to become drowsy, we've provided our consumer solution to this by introducing non-drowsy offerings.
This has led to its expanded share in motion sickness and successful expansion into the nausea category.
These are just two examples we're leveraging consumer insights helped drive long term growth.
Now, let's turn to slide 12.
Another factor in our brand building success being nimble, we continuously execute an agile marketing strategy that adjust for consumer needs in real time. This strategy is particularly noticeable during this fluid environment related to COVID-19, and other macro changes.
One example is summer's Eve, where we've had numerous new product launches and marketing designed to meet consumer needs as they think about hygiene.
During COVID-19. This included focusing marketing efforts around Summer's Eve active products for home workouts more recently it has included Summer's Eve Amber nights sensitive and fragrance free products that connect with consumers needs as they evolve their daily behaviors.
A second example is compound W where we focused on the message of treating warts rapidly at home during the height of COVID-19.
As consumers look for alternatives to a doctor's office visit we invested in our touch of science campaign in fiscal 'twenty, two which helped to remind consumers of the benefits of treating at home with compound W.
In summary, our company's agility around brand building is a strength that allows each of our brands to succeed in various environments.
With that let's turn to slide 13.
Another element to our marketing success is the ability to align our investments and product offerings with channels that are important to consumers.
As various channels have grown in prominence over time, we've been there with early investments driving sales growth and effective management, enabling a consistent profit profile across channels.
The most recent example is e-commerce. The channel continues to expand EBIT up a higher base. Following COVID-19, and is quickly approaching 15% of our sales.
Multiyear investments have driven solid performance, where we've invested in user experience and digital campaigns to highlight our leading brands for consumers across channels. The result is our market share often being higher than in brick and mortar.
So in summary, we remain well distributed across channels, we are investing where consumers are shopping and we are confident in the stability of our margin profile as consumers evolve their channel shopping habits over time now.
Let's turn to slide 14 to discuss innovation.
Innovation continues to be a key part of prestige brand building, we operate with a multi year pipeline of product development concepts to ensure we continue to match the needs of consumers we.
We do this in multiple ways.
Innovation can be through technology.
<unk> efficacious products that substitute a doctor's visit.
Compound W. Nitro fees as an example, with freezing technology not found in other OTC treatments.
Innovation can also be solving an unmet consumer need like goody's hangover, where its goal is to solve on the go pain relief in powder form with great taste.
Innovation can also be focused on our superior an elevated consumer experience. An example of that Tech Ultimate guard with its comfortable design, that's superior to competing nighttime dental guards.
So we have a long history of innovation and we have another great year of introductions planned for fiscal 'twenty three.
Three products Summer's Eve Spa, Dramamine, nausea, Chewables and clear eyes allergy help expand our brands.
Into adjacent categories.
For Summer's Eve the Spa line expands the brand into luxurious self care that consumers seek for dramamine, the new chewable nausea product helps consumers treat nausea, without getting drowsy and a great tasting ginger format.
Clear eyes allergy prescription strength once a day drop designed for a relief from indoor and outdoor allergies we.
We also have a number of additional launches.
I care so on the page that we're excited about for both clear eyes and fair appears.
In summary, our marketing strategies consumer insights agile marketing channel investments in innovation each play a valuable role in our success.
Turning to page 15, we can see what the result is for our brands.
Leading number one positions that allow us to be focused on category and market share growth.
As you can see on the right of page 15.
All of our largest brands hold a number one market share in many of them lead by a wide margin.
Over half of these brands have a greater than 50% sure. This is not a coincidence consumers continue to seek their trusted healthcare brands as they prioritize their health and we continue to emphasize brand building, which categories and extends our brands.
If there's one takeaway from learning about our marketing today.
The benefits of having a portfolio of leading brands. We are proud of our portfolio of successes and look forward to continuing our focus on long term brand building.
With that I'll turn it over to Chris to walk through the financial aspects of our business model in more detail.
Thanks, Ron and good morning, everyone I'll start by reviewing our fourth quarter and fiscal 'twenty two financial results and then talk about our business attributes that drive our financial profile and resulting capital allocation optionality.
Let's turn to slide 17 to begin with fourth quarter results.
Q4 fiscal 'twenty, two revenue of $266 $9 million increased 12, 3% and five 9% on organic basis versus the prior year.
By segment North America revenues were up approximately 10%.
The largest growth categories organically, we're in Gi, dermatological, and especially cough and cold, where we experienced favorable sales trends versus the prior year for both <unk> and Chloraseptic.
The International segment increased approximately 35% in Q4 after excluding the effects of foreign currency.
The segment's record performance benefited from favorable consumer trends in many of our categories previously impacted by COVID-19, and particularly strong sales for the hydro life brand.
Adjusted EBITDA increased in Q4, approximately 8% and EBIT margins remain consistent with our long term expectations in the mid <unk>.
Adjusted diluted earnings per share for the quarter was <unk> 91 up.
Up 15% versus the prior year with higher sales being the largest driver.
Let's turn to slide 18 for more detail around consolidated results for the full year.
Revenues for the full year fiscal 'twenty, two increased 15, 2% versus the prior year and 10, 1% on an organic basis.
Our broad and diverse portfolio enabled this result, along with an accelerated performance and certain COVID-19 impacted categories such as travel.
We continued our long term trend of double digit consumption growth in the E Commerce channel for the year further building upon the sharply higher online purchasing shift that occurred throughout fiscal 'twenty one.
Total company adjusted gross margin of 57, 3% for the year was consistent with our expectations down slightly from 58% in the prior year as we experienced heightened inflationary pressures as the year progressed.
Looking at fiscal 'twenty, three supply challenges and cost pressures that we and others are experiencing are likely to persist.
We have and continue to institute pricing actions across our portfolio to offset the dollar amount of these inflationary headwinds.
Although dynamic and changing frequently we currently anticipate a gross margin of over 56% for the full year fiscal 'twenty three with Q1 estimated to be just under 58% straw.
Stronger than the full year average due to the phasing of expected cost increases.
Advertising and marketing came in at 14, 5% for the full fiscal year as expected with leverage of higher dollar sales.
For fiscal 'twenty, three we would anticipate in A&M rate of just over 14% of sales.
Adjusted G&A expenses were nine 5% of sales in fiscal 'twenty two for.
For fiscal 'twenty, three we anticipate G&A dollars to approximate prior year at around 9% of sales.
Adjusted diluted earnings per share for the full year of $4 <unk>.
Grew over 25% versus the prior year.
Higher sales and lower interest expense drove this growth.
Below the line for fiscal 'twenty, three we would anticipate a similar effective tax rate of around 24% and interest expense approximately similar to the current year as debt reduction is expected to be offset by higher interest expense associated with variable rate debt.
Now, let's turn to slide 19 to discuss cash flow.
In Q4, we generated $60 million in free cash flow, which resulted in a full year record adjusted free cash flow of $253 $7 million.
We continue to be disciplined around capital allocation and I'll review, our priorities in a moment.
Heading into fiscal 'twenty three our prior actions have positioned us well to navigate the current volatile environment.
It is important to note we have roughly two thirds of our debt at attractive fixed rates with a variable remainder available for prepayment with our strong free cash flow generation.
Across our debt we've extended each tranche opportunistically in recent years and have no maturities until 2028.
And last we've reduced our leverage ratio to three eight times with current debt outstanding of $1 5 billion, we anticipate being slightly below three five times leverage at year end fiscal 'twenty three.
More broadly we anticipate operating at gradually lower levels of leverage over time as our cash flow continues to expand that said, we do have ample capacity to be flexible and pursuing strategic acquisitions like the acquisition of Acorn, while still maintaining financial flexibility within our leverage objectives now lets turn to.
20.
Here you can see many of the leading attributes that enable our financial profile and the resulting free cash flow performance I just discussed.
Our asset light model, where the vast majority of revenue is externally manufactured results in low capital expenditures of 1% to 2% of sales annually.
Our products have strong margins driven by the characteristics of the categories. We participate in their importance to consumer self care and the highly regulated nature of OTC that creates high barriers to entry.
We have meaningful tax benefits from past acquisitions that result in a cash tax rate in the high teens.
And we also remain focused on profitability as a company with continuous cost saving efforts that help us maintain our industry, leading mid <unk> EBIT margin.
The result of this model is clear we generate best in class free cash flow our record free cash flow in fiscal 'twenty two resulted in a conversion of approximately 120%.
Turning to slide 21, let's discuss our capital deployment priorities.
We continue to concentrate our efforts around the first two priorities investing in the business, we have and Delevering.
We also seek opportunistic M&A that add shareholder value.
We pursue brands that have long term growth prospects fits strategically operationally and financially attractive with ROIC in excess of our cost of capital.
We also can enhance value through share repurchases like the $50 million authorization, we announced yesterday.
We see this as an incremental way to add shareholder value by offsetting share dilution using a small portion of our annual estimated free cash flow without inhibiting our long term ability to invest in brand building de lever or pursue future M&A.
Now, let's turn to slide 22.
Looking at our long term financial performance, we've delivered solid revenue earnings and cash flow growth.
Starting off from an approximate $400 million revenue base, we've been able to generate over 9% revenue growth and mid teens earnings and free cash flow growth annually through execution of our strategy and transformation to a pure play consumer health care company.
More recently, even with the larger revenue base, we've been able to deliver approximate 4% revenue growth and strong EPS and cash flow growth.
Our proven model has enabled this growth while efficient use of our balance sheet has helped deliver value over this time period.
Now I'll turn it back to Ron.
Thanks, Chris Let's continue on slide 24.
ESG and its various components continue to be both an important and evolving topics, where we get a wide range of investor questions. We take pride in the many things we already do and a few of these are shown here.
First we are a key enabler of consumer self care treatment.
Consumers real money versus a visit to a hospital or clinic.
<unk> high standards.
We hold not only our own organization to a higher standard through our code of conduct with our suppliers as well ensuring that they are aligned with our own mission and values.
Third giving back we encourage employees to remain engaged in the communities and all of our sites have local days of giving that encourage community support throughout the year.
Fourth environmental support even with highly regulated OTC drugs, which can be more challenging than some consumer products to modify we continue to think about ways to reduce our environmental impact throughout the supply chain.
Fortunately for us being mindful of each of the ESG factors is something we take pride in as a company and we look forward to updating our stakeholders in the future.
Now, let's turn to slide 25.
As we look ahead, we recognize investors have questions around shifting consumer behaviors supply chain challenges and inflation each of which put pressure on input costs and visibility around consumer demand.
Looking across these major themes, we believe our business attributes help our ability to navigate each successfully as we have over the past two years at.
Our brands are trusted and diverse which gives us the ability to limit impact from any individual category slowdown.
We source over 80% of our products from manufacturers based in the U S and Canada, which gives us the ability to avoid the magnitude of the costly and bottleneck logistics of international supply that's impacting others. We are also dual sourced on key products in many instances further enhancing our supply chain.
In a tight supply environment.
Left our leading market shares gives us the ability to execute pricing successfully at retail helping to offset the broad inflationary trends. We currently see.
With this positioning we are confident in our ability to continue to grow even with the challenges shown here.
Let's turn to slide 26 to now discuss the financial outlook for fiscal 'twenty three.
For fiscal 'twenty, three we anticipate revenue growth of approximately 3% to 4% <unk>.
Including organic revenue growth of 2% to 3% consistent with our long term target.
Q1 revenues are anticipated to be $267 million to $270 million, which faces an unusual prior year comparison to retailer reorder timing and certain COVID-19 impacted categories.
Regarding profit outlook for fiscal 'twenty three reflects the fast changing inflation headwinds and includes the recent rise in oil related costs.
We still anticipate operating an EBIT profit dollars to grow similar to the rate of sales. Thanks to our disciplined P&L management that includes additional selling price increases and cost reduction activities.
We anticipate EPS of between $4 18 to $4 23 for fiscal 'twenty three.
Disciplined cost management and the benefits of our free cash flow are expected to help drive earnings growth, but will be partially partially offset by the expected higher interest rates for.
But Q1 EPS is expected to be between $1 three and $1 five.
Lastly, we anticipate another great year of cash generation free cash flow is anticipated to be $260 million or more and we will continue to be disciplined around its deployment as Chris outlined earlier.
With that let's turn to slide 27 to discuss our long term value creation.
Today, we've walked through our business attributes that we believe underpin long term success.
First as a pure play consumer health care business, our diverse platforms and brands provide a great starting point.
This enables us to leverage a proven brand building strategy that grows categories and as a byproduct byproduct our brands.
Third we have a superior financial profile that has generated consistent and increasing cash flow over the long term.
And finally, the model continues to be scalable, we have the right resources to continue our playbook and we're efficient at deploying capital that reinforces our existing business and its attributes.
It's a model that is driving superior value creation that we have confidence in.
So, let's turn to slide 28, and wrap up with what these drivers mean financially.
We believe our portfolio supports long term organic growth of 2% to 3% on the top line and are anticipating that again in fiscal 'twenty three.
We expect our industry, leading cash flow to continue which enables us to pay down debt reduce our cash interest expense and will help drive profit as well.
Adding this onto organic revenue growth, we expect to generate long term EPS growth of 6% to 8%.
This is the baseline but of course, there is the upside incremental optionality as we identify capital deployment opportunities that enhance this algorithm and we've certainly demonstrated this over the last 10 years.
With that we'll open it up for questions operator.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time.
The Star then one key on your part.
Charles.
Please standby, while we compile the Q&A roster.
And our first question coming from the lineup.
Sorry with Oppenheimer. Your line is open.
Good morning, Thanks for taking my questions and congrats on another strong quarter. So I guess, just starting out with the organic sales growth guidance I may have missed this but did you guys give a specific number for Q1 and then as you look at the full year.
Is there any way to just think about the potential drivers do you see on the upside and then at the same time, if you see any potential risk in achieving that 2% to 3% number.
Hey, Rick.
Good morning. This is Chris I'll start out and the specific guide for Q1 sales was $2 67 to $2 70, you can think of Acorn at about $15 million for the for the first quarter.
Okay, Great and then just as we look at the full year organic sales growth guidance with 2% to 3%.
Where do you see I guess upside potential and at the same time, where do you see risk to that Scott delivery.
Yes. This is Chris so from an upside perspective.
Really depending on retailer order patterns, what theyre ordering could be stronger cough cold than maybe we were anticipating but as a reminder, that's just under 10% of our sales.
From a risk perspective, I would probably say around supply chain potentially right. The mix of what retailers are ordering and the magnitude of their order patterns in this environment and whether or not our supply chain can keep up with that mix specifically.
Good morning, Luke Percheron here just to add a couple of things to that first in terms of the first quarter just as a reminder to everybody on the call. Here today is we've got an odd comp in the first quarter last year. The first quarter certainly saw a concentration of the COVID-19 recovery as people waste from their homes out there.
Restaurants, and traveling so that was.
Created an odd odd comp in the first quarter of last year. If you take our outlook for the first quarter of 'twenty, three and compare it to the first quarter of fiscal 'twenty right before Covid started to impact things, our business is up over $20 million quarter to quarter or 10%. So.
As we head into fiscal 'twenty three we continue to feel good about the momentum of the business.
The success, we've had in navigating the challenging environment, including the supply chain headwinds in inflation. So.
Lots of unknowns as we head into the year, but we think the business is well positioned as we head into it.
Okay, Great and then maybe just on the pricing front.
Can you maybe talk about the magnitude of price increase that you are taking or maybe if you don't want to talk on your business just the level of price increases you're seeing in the category.
Is there anything else you can share just in terms of elasticity is at this point, if there's anything that that has differ versus your expectations.
Yes, maybe I'll start we expect pricing to add about two thirds.
R. R contribute two thirds of our growth for next year in volume. The other third was worth about a point to this quarter in Q4 and the full year fiscal.
'twenty two as well.
In terms of.
Last is fees and what's.
Whats going on in the market.
So far we haven't seen.
<unk> any.
Inflationary impact to impact consumers' preferences, when they are looking for their health care products like we've seen historically.
It doesn't tend to be a place where people look to save money when you've taken care of your families health.
Okay, great. Thank you I'll pass it along.
Thank you.
And our next question coming from the line of Stephanie Wissink with Jefferies. Your line is open.
Everyone and just a follow up to <unk> line of questioning Im wondering if you can give us an update on trade inventory and if theres anything we need to be mindful of as youre kind of digesting through some of the lingering effects of the Covid the belt.
Yes, so in total I would say.
Everybody involved in the supply chain with more inventory.
Our suppliers would like more inventory, we'd like more inventory and I think in general the retailers, where would like more again consumer shopping trends and demand.
Have been tough to predict so in general I think there could be a help.
Back to <unk> questions of one of the things that could be positive next year that could be it.
Okay. That's helpful. And then my second question is on innovation and I don't know if you want to use one of the examples from your deck.
Some are indeed, Bob I'm curious if you think about driving innovation on the back side of the pandemic logic, but you're finding consumers are more exploratory in our discovery rates that your brands have permission to go into maybe some bigger adjacent categories that youre thinking of self care wellness for a brand like Summer's Eve, maybe just talk a little bit.
And about how youre thinking about innovation leading into bigger Tam.
Yes.
Two trends one is a continuation of the long term which is consumed.
Consumers start with looking for their trusted brands when they're thinking about taking care of themselves. So we talked about dramamine expansion into nausea.
It's got to Dramamine has a long heritage of treating motion sickness and consumers think about motion sickness as if it was nausea.
So as we expand into those Adjacencies and another example, with clear eyes with allergies today.
That trusted brand heritage really gives us a leg up as we expand into adjacencies.
Adjacencies.
And then the second more recent and evolving trend is from the beginning of Covid.
<unk> have a heightened and expanding.
Ways of thinking about health and hygiene.
And how they think about taking care of themselves. So that's a newer trend, but again it steps off of <unk>.
<unk> brands in their view around new products and innovation into the marketplace. So.
We'll kind of continue to invest in those areas to continue to connect with consumers.
Alright very helpful. Thank you Ron.
Thank you Scott.
And our next question coming from the line of Jon Andersen with William Blair. Your line is open.
Hey, good morning, everybody. Thanks for the questions.
Good morning, John .
I guess.
One on the.
Guidance as well the organic growth rate guidance for 2023.
Yeah.
Could you provide any more detail around.
Maybe which categories and brands.
You see.
Contributing the most to the.
2% to 3% organic growth rate.
And.
Chris you might have addressed this but how much on average throughout the year.
You expect.
<unk> two <unk>.
Tribute to that growth.
So let me, let me start with addressing kind of which which brands really have.
Momentum as we head into 'twenty, three and really it's it's the brands that we saw in 'twenty two.
Clear eyes, and there were tears both had.
Good fiscal 'twenty twos clear eyes in particular, and I talked about allergies and some other.
New products that are being launched in fiscal 'twenty three for both clear eyed and third tiers.
Our Gi.
<unk> platform continues to do well with.
Dramamine.
With Dramamine and Gaviscon up in Canada, and our skin.
Group as well with compound W and boudreaux Butt paste.
Have done well and then for Summer's Eve, which did have some supply chain challenges. So when the K gets reported you'll see that that cat.
Category was flat.
For the year, largely due to some supply chain challenges.
Challenges during the year, but the launch of Spa and the other products.
That I mentioned in our call.
First the continued long term success, we had in our international business in particular with care in Australia and hydro late so.
More of the same themes are expected for 'twenty, three which as you know.
The vast majority of our portfolio is doing well winning with consumers and we feel really good as we head into 'twenty three.
And then John just a follow up on your pricing question, we talked about pricing contributing about two thirds to the growth for fiscal 'twenty three so at the midpoint just over $15 $16 million for next year.
Okay great.
And.
I guess, Ron since you mentioned that hydro light.
I've been noticed.
Particularly this quarter, but just in general.
Over the past few years, the international business since its been such a strong grower strong contributor and you have.
I think line extended hydrolyte to meet a bunch of new need states as you kind of.
As described on the.
The slide in the deck.
Where are you do you think with with respect to.
Expanding that brand to <unk>.
These additional need states distribution wise I mean are.
Do you see a lot more running room left for that brand because I think thats been carrying most of the weight internationally or are you.
The later stages of the.
The major developments there.
Now, we're just getting getting going tapping into the long term potential for hydro.
It just celebrated I think its 20th anniversary.
And its roots and.
And it's beginning started in hydration.
After vomiting and diarrhea.
And it's slowly expanded as consumers have thought about hydration beyond just recovery from illness and thinking about it as part of their everyday health regimen. So.
Our household penetration I think is still under 10% we had on the slide today. So lots of opportunity. There are couple of years ago, We began our expansion into <unk>.
Into the adjacent region outside of Australia with the acquisition of the rights they are COVID-19.
Got us off to a little bit of a slower start there, but we're getting going on that so lots of lots of running room there.
Great.
And then this question was kind of asked I guess I wanted to.
Make it a little bit more pointed.
With price increases going in and kind of reflecting the inflationary environment.
Any any signs at all of any trade down to private label in any of your categories or is that just not us.
Not an issue that youre seeing or are concerned about at this point.
Yes over the long term again, we haven't seen a lot of.
Consumers trade down in this space, whether it's inflationary driven or economic environment driven right. Those are two of many factors that could have consumers give pause to the price value proposition across all of their shopping decisions.
So that's the first part of it right again, it's not an area where consumers are willing to try something new to save a little bit of money. That's the first part of it and the second part I'll go back to us.
We're a brand building and marketing company and every day, we come to work to make sure that our products offer a different proposition and better proposition to the consumer.
That's what we're here to do so and we've talked about the importance of new product and innovation today and that plays a role.
Today, and tomorrow to make sure that we offer better differentiated more efficacious products.
Further connect with consumers and drive that point home.
And.
Sorry, I've I've actually got a couple more if I can take the time.
E Commerce.
I think Chris said, you had another year of double digit growth three commerce, but have you seen the growth rate moderate.
Maybe consumers go back and shop stores.
To what extent has it moderated and Nat gas.
Longer term as you kind of plan for that part of your business.
Yes.
How high do you see that going in terms of a percentage.
The company's sales because it seems like you're well positioned there, but trying to get a sense for what's happening here and now in terms of some of the shifting Chan.
Channel dynamics, given we're exiting COVID-19, hopefully and what your longer term expectations are for that channel.
So let me start with a couple of comments on that.
I'll, let Chris wrap it up.
<unk>.
First of all our.
<unk> percent growth may have come down each year, but only because the number has gone to nearly 15% of our total sales from a starting point of less than 5%. So it's just the growth off a big number situation.
Situation here, but we continue to do very well in E. Commerce consumers are continuing to show that the convenience and the broad offering available on any e-commerce site that they go to.
It's something that we're looking to do.
Our strategy around consumer channel choice is pretty simple and I talked about it in today's prepared remarks is.
Be there, where the customer chooses to shop and have our financial profile for us. It's a concern that's consistent across all of those channels. So there is no.
Negative impact to us based on where consumers choose to buy and you go back 20 years ago, we were in.
Club and dollar and math as those channels grew meaningfully over over the long term.
And we're on online waiting for them as well so.
It's something we're going to continue to invest behind because consumers are choosing to go there.
We'll be we'll be wherever the consumers switch two.
In the future so Chris some of the other questions go ahead, yes, I think Brian sum that up nicely I guess, the only thing I would add is that our share in online continues to outpace our brick and mortar share. So.
We're still despite having multi years of double digit growth. It continues today.
Okay.
And then just the last one I guess.
Structural question.
So much change going on among the strategics like in pharma Unilever's failed bid for Gsk's consumer healthcare business other.
Large pharma looking at divesting or recently, having divested.
What do you think this means for the prospects of M&A and the kind of M&A that you'd be interested in or available to participate in as we look forward. Thanks.
Yes, So first of all let me comment on the first part of your question, which is there is.
There's a lot of activity and attention.
As many of these big farmers look to spin out their consumer arms and other big CPG companies get excited to try to make investments.
In this area.
It's really a reminder, that there is a lot of interest and there is a lot of attention around the attributes that we've been talking about for 10 plus years here, whether it's the stability and ability to grow long term.
Well positioned financial profiles of these segments of business and.
In this environment quite frankly businesses that can be positioned to do well and our long term challenging environment as we've proven over the last.
Handful of years here right at a three year CAGR right. So before COVID-19 through fiscal 'twenty two is.
Solid top line growth of about 5% in double digit.
And cash flow growth so.
<unk>.
People are finally, taking notice to all of the things that we've been making a lot of noise about for the last few years and I think is going to draw further attention to the value creation opportunity that we have here and highlight our strong performance.
Second part of your question in terms of how it relates to M&A activity is for decades now.
Big pharma and CPG players have been managing their portfolios and focusing on.
You're focusing on regions and it's ultimately created opportunities for us and we have bought many brands either directly from <unk>.
Big pharma are CPG companies or from PE firms that got them from them just one turn before so we think over the long term, it's going to continue to provide opportunities for us to make smart and disciplined M&A.
Okay really helpful. Thanks, so much.
Thank you John .
And our next question coming from the line of Linda Bolton Weiser with D. A Davidson your line is open.
Hi.
I was wondering.
Yeah, and thank you for the presentation. It was really good.
Cash flow has really gotten until your free cash flow has gotten to a really high level and I'm just curious if.
Because you are a growing company and even though you have an asset light model without source manufacturing.
There still are areas for our required investment in like <unk> for example, distribution et cetera. So do you foresee in the next couple of years any.
Popped in your R&D Spike up in your capital spending to bulk up some of these areas and related to that I think you just have the one distribution center in St. Louis is there any idea that you might need to add more distribution centers here as you grow bigger.
So Linda this is Chris maybe I'll start by just saying, we talk about our capex range of 1% to 2% of sales in <unk>.
Some years will be a little higher snowmobile or lower but there are no areas that we are lacking investment we're making it investments every year continuous lease so there's no big.
Big project that we have.
Your line of sight to right now that we're looking at that would be outside of that range of the 1% to 2%. So I guess I would start with that and in terms of when is it time to move from one distribution center to another.
We did it move recently in the last few years right before Covid as you remember to a different provider in a different location for our D C and of course.
In relation to that we did a study about whether or not made sense for us.
Will really drive that obviously as we continue to grow but.
Really just customer service right. If we were able to service customers more efficiently or better. We would have we would have opened a second DC back when we did that analysis. So we're not quite there yet.
But again, if we were to step into a new DC facility because of capacity over the next few years I think it would still be within that 1% to 2% of sales Capex number that we talk about now.
The other thing Linzess.
Investing and planning to make sure that our business model and our platform is scalable. So we've been making investments all along the way starting way back when we put in.
In place on a global basis for all of our businesses and as Chris just mentioned when we move to the new distributions.
Distribution Center, we made sure that it would be able to expand in the future and grow with us. So we don't have any built up capital needs that may pop up in any year or two to disrupt our free cash flow. So we continue to feel good about the model the three factors that Chris outlined.
In her prepared remarks today about the drivers high EBITDA margins and consistent EBIT margins, the cash tax benefit and low capital spending. So we think that is repeatable.
Great. Thank you and then.
I was just wondering about the COVID-19 impacted categories that then began to grow faster as they recovered would you say that those categories are fully recovered at this point or are they not quite back to their pre COVID-19 sizes in terms of the sales levels of both of those categories.
Yes, so we.
We had basically for I guess areas that were impacted by Covid.
Dramamine.
Hydrolyte.
Cold and mix.
Dramamine and hydro light.
On a fully recovered and they began to continue to grow at the high levels that they have been for a long term so as we exited fiscal 'twenty two.
Those franchises were recovered and back on to winning it like they have over the long term the cough cold and Nyx.
Next the headlights business, even though they have strong growth in 'twenty two versus 21.
There is still not fully recovered to the pre COVID-19 level.
And as we head into 'twenty three we anticipate.
Some additional moderate levels of recovery, but we're not expecting any any huge rebound and those in particular cough cold is going to be very tough to continue to predict.
Going forward, it's a small portion of our portfolio like 8% or less of total sales. So.
We will be mindful of it and try to maximize whatever opportunity shows up but.
We'll keep an eye on that so I think that addresses your question.
Yes. Thank you.
And then finally.
You've talked a little bit about private label on the call. Today can you just remind us like what percent of your revenue does have private label competition roughly.
Yes, the vast majority of of our brands and products have private label as a.
As a competitor and.
The percent share.
Ranges vary widely depending on on the category very low amounts.
And I care for example in powdered analgesics is almost nonexistent.
Two very high shares like in Monistat, where it's just us and private label for the most part.
But again I think the important comment on private label or really any competitive.
Our competitor is that we continue to be well positioned and continue to be successful growing our share and growing the categories.
Because of the way we view our long term stewardship of the categories we compete in.
Okay.
Can I just slip in one more question.
I'm just I'm, just curious to understand a little bit better about how your brands are managed.
Because you have built up over acquisition over the years are they trying to run a siloed businesses or do you have a lot of sharing of best practices like across the different brands and our other brand managers pretty much sitting in tarrytown, managing the brand kind.
From that location.
Yes, so we kind of start at the high level at.
At the category level, where we have a director that is thoughtful about a particular category and then below that would be the brands within that category.
And.
Our brand managers for North America are here in Tarrytown.
Collaborating and working together to share learnings across categories and across brands.
Here.
One of the things that is I think very unique about.
The culture here at prestige is the collaboration that takes place.
And we've been able to continue it even in a remote environment, where everybody has been.
<unk> been working from home over the last couple of years. So we take advantage of thinking about categories and individual brands, but also getting together as groups to share consumer insights across them.
Okay, great. Thank you very much thank.
Thank you Linda.
And our next question coming from the line of Antonella Wyszynski with Sidoti Your line is open.
Thank you and good morning.
Hi, Thanks for taking the questions. So.
Just.
In terms of the new product pipeline and innovation you guys spoke about that more than usual just just wanted to get a better sense as far as the number of new products that are coming on board in fiscal 'twenty three is that consistent with your past or are you accelerating.
New product pipeline for this year.
So for 'twenty three it's fairly consistent with what we've seen in prior years.
And again, it's really all about having a consistent three year pipeline.
So that you've got something ready in development for every every year.
Feel good about so 23 in a lot of ways, it's consistent with with.
Past years and today in the prepared remarks, we highlighted it.
As an important element of our long term brand building and marketing approach.
And its important connection with consumer insights.
<unk>.
Got it thanks for that and then also in your prepared remarks, you talked about how over the years, you've added brands and you've divested brands. So now as you look at your current brand portfolio are there any particular brands.
You would look to maybe divest if the right opportunity came along or are you happy with the current brand portfolio.
Yes, so first of all we feel good about the makeup of our portfolio and the tie in that it that it has with our long term organic growth outlook of 2% to 3% rate. That's that's the important connection there is making sure we feel good about that.
In terms of further divestiture.
We've got a tail that's less than 10% in.
If we get inbound calls with valuations that would make sense right. It ultimately comes down to a financial evaluation of the value of the cash flow flows of holding those things versus what somebody is willing to pay.
What we would do with with the proceeds if we did sell something you know just prior to the fleet acquisition, which was our largest at the time we sold.
A small group of Ot.
Non core OTC brands.
As a way to help offset some of the big check that we wrote for the fleet business.
So it all depends on valuation, but as we sit here today, we continue to feel good about the makeup of our portfolio.
Got it Okay and then so.
Terms of evaluation on given the.
The recent volatility that we've had in the market have you seen any sort of drop off in valuations or how would you characterize that.
Yes, so I would say M&A valuations for the things that we would be interested in and we'll be competitive for have been fairly consistent for a long time, even with.
Compared to some of the big numbers here.
For some of the consumer businesses that are coming out of big pharma. So the most recent example is the Acorn consumer brands, which we paid about 10 times, Chris Yes.
For <unk>.
Back in July so even in an environment, where you keep hearing these huge multiples.
Most recent example is consistent with what we've been paying in the past.
Got you, Okay, and then lastly, as far as the EPS guidance for the full year does that assume any share repurchases or no.
It does not.
Okay got it alright, thanks for clarifying that alright, well, thank you and best of luck.
Thank you Anthony.
And as a reminder, ladies and gentlemen to ask a question. Please press star one.
Im showing no further questions at this time I would now like to turn the call back over to Mr. Lombardi for any closing remarks.
Thank you operator, and thanks to everyone for joining us on the call today, and we look forward to updating you on our business as the year progresses, thanks, everyone and have a great day.
Okay.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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