Q3 2022 Edgewell Personal Care Co Earnings Call
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Good morning, everyone and thank you for joining us this morning, <unk> third quarter fiscal year 2022 earnings call with me. This morning are Rod Little our President and Chief Executive Officer, and Dan Sullivan, Our Chief Financial Officer, Rod will kick off the call then hand, it over to Dan to discuss our results in full year 'twenty two outlook before we transition to Q&A.
This call is being recorded and will be available for replay via our website www dot <unk> dot com.
During the call we may make statements about our expectations for future plans performance. This might include future sales earnings advertising and promotional spending product launches savings and costs related to restructuring.
So our working capital metrics currency fluctuations commodity costs category value future plans for return of capital to shareholders and more any such statements are forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995, which reflect our current view views with respect to future.
<unk> plans and prospects.
These statements are based on assumptions and are subject to various risks and uncertainties included those described under the caption risk factors in our annual report on Form 10-K for the year ended September 30.
2021, as maybe embedded in our quarterly reports on Form 10-Q, which is on file with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward looking statements. We do not assume any obligation to update or revise any of these forward looking statements to reflect new events or circumstances.
Except as required by law.
During this call we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.
Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business with that I would like to turn the call over to Rod.
Thank you Chris Good morning, everyone and thank you for joining us.
We grew organic net sales, 9% this quarter delivering our fifth consecutive quarter of organic net sales growth.
Driven by solid consumer demand for our products importantly, our growth was broad based with North America, increasing 9% and international markets, increasing eight 4% growth was also well balanced coming from all segments of the business and fueled by strong volume growth.
The 9% growth in the quarter was above our expectations as we benefited from a strong an earlier start to the peak Sun care season in the U S and.
And from both heightened demand and improved supply and our feminine care business. Our omni channel strategy continues to deliver strong results as we saw growth in both brick and mortar as well as E Commerce channels E Commerce growth in North America was 31%.
Consumption growth for our brands in the United States was over 7%, reflecting increased volumes and price as we grew market share in aggregate.
The Sun category in the U S remains strong and our share gains accelerated in fact banana boat is now the number one sun care brand in the United States in the latest 52 week period.
Collecting all of the critical factors required to win in this category consumer focused innovation underpinned by great product formulation capabilities strong distribution, both in IL and al and a supply chain that ensures availability on shelf.
Billy contributed approximately 370 basis points to top line growth.
Driven by continued strong execution, Walmart, where the brand has maintained its nearly 19 points share of the women's shave category.
While organic growth this quarter was strong currency headwinds increased significantly in the quarter negatively impacting reported sales by $22 million in the quarter, which is nearly $9 million or 150 basis points worse than our previous expectations.
With the strength on the top line, we overcame incremental foreign exchange headwinds and delivered 86 of adjusted earnings per share and $97 1 million and adjusted EBITDA, both above our expectations.
While the external environment remains challenging and volatile we believe our results. This quarter reflect the continued execution of our strategy and the underlying structural improvement in our business.
And while we benefited from a stronger than expected start to the peak Sun season <unk>.
Consumer demand for our products across all of our key categories in the United States remains strong.
Driven by the impact of new distribution are more stable supply chain and incremental price actions.
While COVID-19 related closures continued to impact Asia and certain parts of Europe. We were encouraged to see improved category volume growth and several other key international markets, particularly in Latin America, largely driven by an increase in travel.
Dan will take you through the specifics shortly but we also saw improved performance across our supply chain with increased production output and service levels across fem care and wet shave as expected.
Inflationary pressures in aggregate were relatively unchanged to our previous expectations.
Choppiness remains uncertain commodity baskets and labor levels remained tight though manageable.
However, with the dramatic strengthening of the dollar during the quarter currency is now expected to be an increasing headwind to top and bottom line results in the fourth quarter.
Despite these ongoing macro market challenges, we continue to make a lot of progress in the transformation of edge well to.
To achieve our objective of sustained top and bottom line growth.
This progress is a result of our continued focus on fundamentals and good execution and as evidenced in four specific areas first our ability to deliver meaningful consumer centric innovation.
Second our improved presence on shelf.
Third stronger capabilities across the organization and most notably in brand building direct to consumer and digital execution.
And finally, we remain committed to our efforts to drive cost out of the business and structurally simplify our operating model.
As we discussed last quarter, our brands are healthier than they have been anytime in recent years.
We are executing well in retail led by our leading sun portfolio of brands aided by our recent acquisitions and underpinned by the best distribution outcomes, we've seen since our split from Energizer in 2015.
We believe all of this puts us in a great position to deliver on our outlook.
4% organic net sales growth for the fiscal year, which would be our second success in 4% growth year.
And builds confidence that we can deliver on our growth ambitions for the future.
And now I'd like to ask Dan to take you through our third quarter results and also provide details on our outlook for the full fiscal year.
Thank you Rod and good morning, everyone in the quarter, we delivered strong top line and earnings results in the face of persistent cost inflation and increasing FX headwinds.
As Rob discussed we saw strong underlying demand for our brands and accelerated organic sales growth.
<unk> by improved shelf presence, great retail execution and incremental pricing.
We again had category leading performance in U S Sun care, where we saw some phasing of sales into the third quarter as many retailers responded to favorable weather and stronger demand with earlier than expected replenishment ordering or.
Our wet shave performance was noteworthy with both organic growth and share gains well above recent trends.
And in Fem care, our success in getting product back on shelf timing with stronger than expected demand in tampons drove double digit organic sales growth in the quarter.
Finally improved digital execution was again, a catalyst for growth as our E Commerce business in North America grew over 30% with global E. Commerce sales now representing approximately 13% of total revenue.
<unk> consumption gains were also strong led by Fem care and seen across all core categories.
Importantly, we made meaningful progress in stabilizing our supply chain and improving on shelf availability, especially across fem care and women's shave.
Labor levels, and commodity availability improved, allowing us to accelerate production scheduling and product flow and materially improve service levels.
We also continued to effectively navigate the challenging and uncertain inflationary environment, where initial signs of easing in transportation related costs were mitigated by continued volatility across many aspects of the commodity basket, including some chemicals and pulp.
However, our productivity muscles are well developed providing material offsets to inflation related pressures in both Cogs and G&A.
Additionally, we remained opportunistic and focused in our approach to pricing realizing the incremental benefits from our most recent price execution last quarter across much of our U S shave and grooming portfolios.
In the quarter inflationary headwinds productivity savings and price offsets were in line with our expectations.
The U S. Dollar also strengthened considerably in the quarter, most notably against the yen and the euro and while we execute currency hedges to help mitigate the impact to the P&L. This created a headwind in the third quarter and we anticipate a further drag in Q4.
Now I will turn to the detailed results for the quarter.
As mentioned organic net sales increased 9%, while cycling about 13% organic growth last year, driven by both volume and price gains and inclusive of about 150 basis points of combined headwinds from negative mix and higher trade spend.
Most of the realized price increases were attributable to fem care wet shave and grooming and drove over 2% over the organic growth.
North American organic net sales increased just over 9% driven by strong performance in Sun care, Fem care and women's shave <unk>.
International organic net sales increased just over 8% driven by strong growth in wet shave and Sun care.
Looking deeper into our segments wet shave organic net sales increased 6% with growth seen across all categories, notably.
Notably our women's systems business delivered organic sales growth for the eighth consecutive quarter, increasing about 10%, while cycling 12% growth last year.
Growth was strong across both North American and international markets and was led by intuition and private label.
Women's private label grew 44% in the quarter, despite cycling, 31% growth last year.
Selective of accelerated growth with DTC partners, new distribution and modest price increases are.
Our men's systems business grew 5% in the quarter with accelerated sequential growth in both North America and international.
For the fifth consecutive quarter U S razors and blades category consumption increased growing just over 3%.
The category growth in the quarter was widespread and seen across men's and women's systems and disposables.
Billy performance at Wal Mart remains strong with the brand is still holding a nearly 19% share of the category and becoming the number two brand in the set with.
With the new shop in store display activity now fully activated we expect that momentum will continue ahead of our retail expansion in fiscal 'twenty three.
For the 13 week period, our shave market share decreased 50 basis points, while branded share increased 30 basis points, driven primarily by share gains of 260 basis points and women's branded chegg.
Sun and skin care organic net sales increased about 13% driven by strong global Sun care results and solid men's grooming performance.
Southern care organic net sales in North America increased nearly 14% despite cycling almost 50% growth last year, driven by continued strong execution on shelf and aided by a slight shift in sales to <unk> in response to strong early season consumption.
International Sun care sales increased over 19% as increased travel and leisure activity drove some demand recovery.
In the U S. The Sun care category declined nearly 1% for the quarter and our brands meaningfully outperformed the category led by Banana boat, which delivered consumption growth of 11% and gained 200 basis points of market share.
Our strong execution and prominent on shelves in all filed positioning drove a 150 basis points of share gains at Walmart and we saw sequentially improved results across both the drug and grocery channels or we also realized tightened share gains.
Over the last 52 weeks at Walmart or Sun care portfolio has grown consumption, 19% and realized 260 basis points of share gains and.
In Banana boat now stands as the number one brand in the category in the U S.
Men's grooming organic net sales increased almost 8% despite cycling 17% growth last year.
Primarily results remained strong with 18% growth fueled by a healthy combination of new products distribution gains and pricing actions.
<unk> organic sales increased about 8% in the quarter, while category consumption declined 29% as the category further resets from the Covid driven demand spikes in the prior year.
One as consumption was flat leading to share gains of almost 19 points and a share position of over 63% of the category.
As the category continues to consolidate on shelf reflective of a more normalized demand environment. We believe that the brands well earned equity and trust with consumers will continue to be a catalyst for durable growth.
However in response to the moderating near term demand and continued progressions on shelf, we are right sizing, our offering and eliminating certain noncore skus that were added at the peak of Covid driven consumer demand.
In the quarter, we recorded a pre tax charge to cost of goods sold of $22 5 million associated with the write off of inventory and AR related production contract termination charge.
Fem care organic net sales increased about 11% largely driven by heightened category demand and improved product availability on shelf star.
Strong growth in the Playtex sport and carefree brands was offset by slight declines in stay free.
Our portfolio saw a nearly 12% consumption growth and share was flat in the quarter and for the last 52 week period.
Now moving down the P&L.
Gross margin rate on an adjusted basis decreased 500 basis points compared to the prior year.
In the quarter inflationary pressures of about 600 basis points were partially mitigated by 270 basis points of price and productivity offsets.
Additionally, there were about 170 basis points of headwinds driven equally from negative channel and segment mix and higher trade spend.
In the quarter, we reallocated planned above the line media into incremental feature and display activation driving greater returns on our investment and supporting our sun season retail execution.
A&P expense was 13% of net sales with over 86% of the working dollars geared to digital execution.
A&P spend in the quarter was slightly below original expectations reflective of the shift to trade activation in the U S and the pullback in investment in certain international markets, where Covid recovery remains unsettled and therefore, our return on investment inefficient.
Adjusted SG&A decreased 40 basis points versus last year as gains from sales leverage operational efficiency programs and favorable currency translation more than offset the impact of ability expenses, including amortization and higher year over year compensation expense.
Adjusted <unk> adjusted operating income was $70 3 million compared.
Compared to $86 million last year.
Selecting the impact of inflationary pressures on gross margin.
GAAP diluted net earnings per share were <unk> 57.
Compared to 74 in the third quarter of fiscal 'twenty, one and adjusted earnings per share were <unk> 86.
Compared to 89 in the prior year period.
Adjusted EBITDA was $97 1 million.
Compared to $101 2 million in the prior year.
Net cash from operating activities for the nine months ended June 30 was $72 4 million.
Compared to $155 9 million over the same period last year.
Working capital builds to improve service levels in the current year have resulted in the increased working capital outflow versus a year ago.
We ended the quarter with $182 million in cash on hand.
Access to the $298 million Undrawn portion of our credit facility and a net debt leverage ratio of about three five times.
In the quarter, our share repurchases totaled nearly $35 million.
Bringing our year to date repurchases to just over $110 million.
In addition, we continued our quarterly dividend payout and declared another cash dividend of <unk> 15 for.
For the third quarter.
Now turning to our outlook for fiscal 'twenty two.
Despite operating in perhaps the most challenging macro environment on record we have increased confidence in our ability to deliver half two performance that is in line with our prior expectations despite incremental currency headwinds we.
We believe the supply disruptions that impacted the business in <unk> are largely behind us the inflationary environment, while still volatile did not worsen over the course of the quarter and we've successfully executed incremental pricing in the U S across wet shaving grooming as previously discussed.
For the fiscal year, we continue to anticipate approximately 4% organic net sales growth.
As mentioned earlier Q4 growth will be impacted by the unexpected song in Fem care pull forward into Q3.
Reported net sales are still anticipated to increase by mid single digits, including 340 basis points net tailwind from the <unk> business and 310 basis points headwinds from currency.
As we look to gross margin, we now anticipate approximately 390 basis points of year over year decline and increase of 40 basis points over our previous outlook.
The incremental year over year decline reflects the estimated negative effect of unfavorable FX and increased channel and category mix.
The impact of inflationary headwinds productivity savings and price realizations are expected to be largely in line with our previous outlook.
We now expect A&P spending to be about 11% of net sales for the year.
Adjusted operating profit margin is now expected to contract approximately 270 basis points year over year.
Adjusted EBITDA is now expected to be in the range of 335 million to $340 million.
Adjusted EPS is now expected to be in the range of $2 50.
<unk> 60.
And includes the benefit from shares repurchased through June 30.
And finally free cash flow conversion is still expected to be above 100% of GAAP net earnings.
For more information related to our fiscal 'twenty two outlook I would refer you to the press release that we issued earlier this morning, and with that I'd like to turn the call back over to the operator to begin the Q&A session.
Okay.
Thank you well now begin the question and answer session.
Ask a question you may have.
Alright, then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys you said anytime. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, well pause momentarily to assemble our roster.
Yeah.
The first question comes with alleviate Tong with Raymond James.
Please go ahead.
Thanks, Good morning, everybody.
A little bit more detail in terms of your expectations on price and it looks like price was a good contributor this quarter I think in the past.
Mid to high single digit range.
And it sounds like you've got some pretty decent momentum there with respect to that so just if you could.
Talk a little bit about that and your expectations not only for this year, but whether there are any incremental plans.
Come back to some of the cost headwinds.
Headwinds that you're seeing.
Yeah, Hey, good morning, Olivia it's Dan Thanks for the question Yeah. So price certainly contributing in the quarter. If you look at the 9% organic growth about two a little over two points of that came from price the rest through volume.
What we have executed so far as what we had alluded to on our last call, which was essentially <unk>.
Men's and women's branded shave have gone up in price sort of the mid to high single digits. Most of our grooming category went up in price as well high single digits. So I think we alluded to that last call that has all been priced through now on shelf. We also have communicated the price increases in.
Fem care mid to high single digits, and we have communicated price increases in Sun care here in the U S again in that mid to high single digit range.
Fem care will work through on shelf, probably in early to mid October .
In Sun care will be more more like November . So that's that's kind of what we have and again the last two fem care Sun care would be incremental as we think about 2023.
Okay. That's helpful.
Alright.
Sorry go ahead.
Talking a little bit about.
The banana boat recall and.
You mentioned that you had some pull forward in sales. So just if you could talk a little bit about that what is impacting what's your expectations are and then just generally speaking about here from here. Thank you.
Yes, let me just.
A couple of thoughts around Sun care overall first of all we're the number one player in Sun care. We now have the number one brand on past 52 weeks.
Basis here in the U S with banana boat.
During 200 basis points of share this year on multi years.
Good strong performance in the category, we like the category, we think it sets up well for the future.
As you look at how we play in the category. One thing we will always do is do the right thing by consumers and take a conservative view on anything that gets in the zone of health and safety.
And ultimately as you as you overlay all of that as the leader in the category and take your view towards health and safety from time to time Youll come up on cases, where youll recall some product in this case I don't anticipate it to have any impact on the business either in the quarter comes.
Up or in the year ahead. This is one SKU.
It's three lakh codes it represents less than 1% of the volume in the business.
And effectively there is nothing to recall because it's older products from third party manufacturer from.
<unk> III batch codes.
So we don't have we don't put benzene and our products.
We're very very serious about health and safety, we follow all FDA guidelines, we collaborate with the personal care products Council on ingredient formulations, and so I think.
It's an unfortunate headline always.
But we're doing the right thing here and it won't have a business impact.
Thank you Olivia.
Operator next question please.
Thank you.
Our next question comes with Jason English with Goldman Sachs. Please go ahead.
Hey, folks a couple of quick questions. So let's build off the last one real quick.
2% price realization in context of the magnitude that you had already put in our mens womens and grooming that seems a bit muted is it just timing. So should we expect this to build to that mid to high single digit level that youre talking to crop out across most of your portfolio or is the shift to spend out of A&P into trade going to.
To dampen it.
Hey, Good morning, Jason. It's then yes, I looked at the price went in over the course of the quarter. So I, certainly think timing and realisation play slightly different piece in Q3 than what youll see going forward.
So I think Thats, a fair comment I'm not going to I'm not going to project, what the tailwind will be inorganic obviously for next year I mean, we've got as I mentioned more price coming in.
And in Sun care, we will also cycle off pricing right and wet ones now we've sort of lapped the pricing that we took a year ago.
And we realize the level of pricing across wet shave in international markets. As we had expected that was in for most of the year. So again, we'll say more about the role of pricing for 'twenty three in our next call, but we feel very comfortable that we've been really thoughtful really responsive in categories, where we follow price lead.
And also in areas, where we're the leader in the category. We have taken the lead on price. So I think overall, we feel really good about the pricing that we've taken around the conversations we've had with retail in the environment that we're in.
Thank you, Jason and good morning.
I would just add two thoughts to that.
We do have some pricing to come in some international markets in wet shave and so the comments we've made around wet shave pricing has been primarily.
The U S and there's a couple of big markets, where we will we will make some moves up there as well to come in the future that will help and then the point you made around the A&P.
How do we think about that in Sun care, we did intentionally shift spending.
Out of A&P into trade spend around our display activity in Sun care. This year. It was a very intentional move around return on investment it's part of what's given us the 200 basis points of share gain this year.
We cycle out of that into the future again, I think youll see that be more balanced as we think about the sets for next year with Dan and Jason The only thing I would add to that is if you look at our A&P spend of this year. We spent about 13% rate of sale in Q2, we spent at about 13% of <unk>.
In Q3, so we're we're not at all here in a position where we're taking money out of the brands, we actually like the levels that we're spending at but we're also going to be really thoughtful and disciplined around what return we can get and so in the quarter you saw that not only in rob's point around reallocating into better retail execution.
But we pulled money out of international, namely, China, and Japan, where the market just remains choppy and we just didn't think we'd get the return we needed.
Yes, it makes sense and it's good to see the market share momentum.
One small question on Billy you guys have lowered the full year sales contribution from a 400 basis point growth contribution of $3 40, and implies around a 15% called out on overall sales you expect to come from that brand could you give us some color around what caused the reduction.
Yes, certainly look I think the main thing that caused this in our mind is just kind of going back to where we were in January February when we tried to estimate this business and at that time, we had owned the brand for only a few months, we havent begun the integration with the team there and.
And we hadn't yet obviously seen any demonstrated results in Walmart. So it's a nice way of saying we are obviously forecasting against a lot of uncertainty.
Now as we've worked through it I wouldn't read the reduction in impact as anything less bullish on the brands you've heard Rob's comments around success at Walmart, which we're super excited about reaching a 19 sure DTC business still performing well and at the end of the day. This is a brand that's.
Going to contribute $90 million or so to the topline in a year one start so again I would chalk it up more to.
Just trying to estimate the impact back in February with a tremendous amount of uncertainties and no real results of performance because we really like where the brand is Jason I'd just add I just wanted to add a couple of points on Billy.
The team is retained in place doing their thing because there is no weakness structurally in terms of the ability team that has built that brand as they come into edge well.
We've retained the team they're motivated they're doing great work with Walmart is super happy with the execution Walmart's gained share we've maintained the share and in fact had increasing momentum here in more recent periods. So I think we feel good about that and then all of the expansion potential that we had envisioned.
At the time of the acquisition around broader retail footprint distribution.
That will happen every retailer wants the brand and we also have the category expansion.
Away from a primarily wet shave business today into a more of a fulsome women's body brand. So all that potential is there and it's not cycles away its near term.
Understood good stuff and congrats on the market share momentum I'll pass it on.
Thank you thanks, Jason Thanks, Jason Operator next question. Please.
The next question comes with Bill Chappell with <unk> Securities. Please go ahead.
Thanks, Good morning.
Good morning.
Just circling back to to Sun care.
Okay.
Very strong results.
And market share gains, but with the category being down 1%. It probably if you took it Europe performance out would be down mid single digits is that all weather and and I guess the question is could you have done better or.
Were you kind of running at full capacity.
To kind of meet the demand in the quarter.
We're running full capacity Bill we have been I think we've talked in prior quarter calls.
About being prepared for what we anticipated would be a big season around material supply around how we run staffing levels in our manufacturing plant again, we're the only manufacturer here in the states that is primarily in house manufacturing. So we have control of that more so than some of our competitors.
And that's benefited us in this season.
As being up 15% in the quarter when the category is down one.
Part of that is weather part of it is.
Also this great execution by the team in availability and fast cycling.
Production and inventory builds to meet demand that's there and so it's great execution by the team. There was also a phenomenon we saw in the quarter again theoretically.
All competitors should see it the same.
Where the peak season came a little earlier this year.
As compared to last year, and Reorders have profiled earlier, which benefits us specifically in Q3 at the expense of Q4, it's just a different profile than we had in the prior period.
Yeah.
Got it.
And then looking at it.
Shave and I guess, particularly razors.
And of all the the price points that consumers would trade down to from from kind of.
Premium and.
Mid tier two disposable to private label.
I guess the question is on the current consumer are you seeing any benefit from from trade down do you expect there to be a benefit as we or do we need kind of a deep long recession for.
A meaningful kind of a drop in these categories.
I think it's more of the latter bill in short we have not seen any meaningful trade down.
In wet shave to this point.
As you point out we have a really nice portfolio across all of the price points with 25% of our portfolio playing in that private label space.
So if we do get into a deep recession or the consumer becomes more challenged over the coming quarters, we actually think the portfolio sets up well for that.
At a time when our base branded business is as strong as it's been in years, we had men's up five women's up 10 in the quarter.
Up six and all of wet shave right I think.
Our ability to do that a few years ago I don't think we would have thought we could have done that so we like the portfolio across all of the tiers and again I think regardless of where the consumer goes we're well positioned.
Great. Thanks for the color.
Thank you. Thanks, Operator next question please.
The next question comes with Nik Modi with RBC capital markets. Please go ahead.
Yes. Thank you good morning, everyone I actually have two questions.
Guys, maybe you can just give us some context on how you're thinking about the economy I mean, so many polarizing.
Data points out there. So just wanted to kind of understand what you're assuming as it relates to the rest of the year.
Then the second question is for you.
Ryan it's really.
Last couple of years I know you've spent a lot of time, even the management team on.
We are establishing and reconnecting with retailers.
Really the businesses.
Turning to perform so I just want to understand kind of what's different now in terms of your discussions the opportunities.
Willingness to take new products et cetera, just would love to kind of get a state of the union on today versus a couple of years ago.
Yes. Thank you I appreciate the questions.
On the state of the economy.
Your guess is as good as ours I think.
What the mindset, we have been in is control, what we can control and so be very disciplined on cost.
Be very focused on things that are going to create and build long term value.
We do generate a lot of cash flow.
We do feel like we have a structurally healthy business.
With categories that the even if the economy goes into a deep recession, or we have some contraction or difficult consumer environment in.
The fact is our portfolio is everyday use products at primarily a value or a mid tier pricing orientation.
And if the economy goes south we feel like the consumer in our categories will be there and our portfolio will match up well against that.
I do personally expect some some headwinds to increase whether that shows up in.
Reducing basket size with some trade down as we were talking to Bill's question.
I think we do expect some of that to happen it's logical.
Both here and in Europe would be the markets that I think we would see that so that would be the comments around the economy.
From a retailer perspective.
I think the simple way to think about where we were a couple of years ago with retailers.
We werent very transaction with retailers, we filled our role in the category.
And it was a very transactional conversation as opposed to today.
Where I think retailers view us as a partner.
And the U S. As people that can help them predict where the category is growing shape the category for the future of what shows up on shelf at retail to create growth and value.
Not only for ourselves, but for the retailers and all the people that participate in the category as a whole.
And it takes time to earn that credibility and trust.
We've got a better team that calls on retailers, we've got better capabilities that bring data to retailers.
The thing we do we help them arrange taxonomy on their own websites around E. Retail we have people that are really good at that we bring that to bear that's nothing about a transactional.
Price point, our margin discussion, we've gotten the margin right sure.
And so when you put all that together what ends up happening.
As you have better participation and long lead discussions and you have better line of sight to the future.
It also doesn't hurt you have brands that consumers like more I want to buy more of like Crambo like Billy like Banana boat now being the leader in the category. So our portfolio is better too and that helps.
Thank you.
Thank you.
Operator next question please.
The next question comes with Kevin Grundy with Jefferies. Please go ahead.
Hey, great good morning, everyone.
So we've covered a lot of ground cleaned up on the guidance I guess.
<unk>.
I think we've covered this implied slowdown in your organic sales growth to low digits in the fourth quarter strictly timing related sounds relatively positive on the categories. At this point plasticity brand strength is this all just shipment tuck in.
In the quarter that is leading to the deceleration in the <unk>.
Upcoming quarter.
Yes, Hey, good morning, Kevin short answer is yes, as we thought about half to write we profiled about a 5% organic.
And we thought Q3 would be a bit better than Q4, we saw that accelerate in Q3 Rod pointed it out just around timing.
Timing of Suncor shipments, which is always difficult to predict when are we going to get the replenishment orders. But then also we saw a bit of accelerated demand in fem care in tampons largely around the somewhat media constructed.
Out of stock availability issues. So so that moved into Q3, that's the short answer.
I think the other thing we have to keep in mind as we're cycling a sun care season last year that had a really strong Q4 consumption wise almost 20% consumption growth in the quarter. So that was also in our mind as we built our our forecast having said that we're quite encouraged.
<unk>, one one month into the quarter in the sense that our sales profile is largely what we thought it would be and if you look at consumption growth in those two categories Fem and Sun care. Both had strong July so encouraging for us, but again I think phasing into three out of four is the easiest way to think about it.
Got it thanks Rod quick one for you just on the Sun care business, which is historic business, which has struggled.
You guys considered exiting.
There was.
It didn't it didn't work out it yes, no strategic interest or it makes sense to keep it.
The results a little bit better.
Market share looks a little bit better maybe just comments.
Updated views there some changes that you've made.
Thanks.
Yes.
Just one one correction to the assumption in the question Kevin.
We could have sold the business we had interest in the business, we could have transacted one of the things we looked at in the process. It was a strategic alternatives assessment it wasn't.
Process to sell the business and as part of the assessment.
We look deeply at our ability to run the business differently run it better and create value and we determined we could create more value by keeping it in <unk>.
<unk> at a price frankly that people would've understood and been fine with externally it wasn't the right call for the business. So I just want to make sure that that's clear as we thought about think about history and how we get here, but you go from mid mid to high single digit declining business over time to now what we think is a business.
We can sustainably grow.
In the future by first getting the team right. We've got a great team on that business.
Its a team thats better at the individual level physician by physician.
It's a team that has focus.
As you know we took it too.
A business unit structure internally separated off the balance of the business to give it priority and focus part of the learning.
In that.
That exercise was.
The applied to the rest of the business and let our thinking to move to business unit structure across the balance of the business. So the team's right to focus and structure is right.
And the team has done an amazing job.
In in re architect in the marketing and the consumer connectivity to the brand.
To give the brands, meaning and purpose Playtex sport is the first brand in the portfolio. That's had the focus and attention. It's been the fastest growing tampon brand in this segment, it's led to consistent sustained share growth in the tampon segment without the number two player in tampon versus.
Number three historically.
And so we've got the flywheel going now with great marketing and brand building a strong team that's focused.
And I think again, we think very positively about the future of that category for us.
Hey, Rob Thanks for the clarity and congrats to you and your team on the progress there.
Thank you Kevin Kevin Thanks, Kevin Operator next question. Please.
The next and final question comes with Chris Carey with Wells Fargo Securities. Please go ahead.
Hi, good morning.
Hey, Chris thing.
So just one quick follow up Dan on the call.
Comment around July .
Thank you implied it's tracking ahead of your <unk>.
Implied organic sales guidance for the quarter.
That's just in the context of the overall tough comps and pull forward or do you think on a total quarter basis youre more comfortable with where you are setting the outlook. So I just wanted to confirm that specific comment regarding July and just related you expect your sun and skin care business a decline on an organic sales basis in Q4 as you.
Some of the pull forward.
A quick follow up.
Yes, sure because what I was getting at with the July comment was twofold internally, our organic sales in line with with our own expectation not above in line with and then I was commenting on consumption on those two categories, where we did see the sales pull forward into Q3 Q4 Q3.
From Q4 <unk>.
Sun care consumption up 5% solid result, fem care consumption of 77, 5% solid results. So it was more just context around strength of consumption and organics in line with with what we had pegged in terms of your second question on organic growth implied in Q4, it's Mick.
I would say, we would expect suncor organics to be negative again, largely based on cycling 60% growth in Q4 last year, we would expect fem care organics actually to still be positive growth in Q4.
Okay. Thank you and then.
You had alluded to some comments on pricing and productivity I think you had said that you are.
Your expectations for the contribution to gross margin haven't changed I Wonder if you could maybe dimensionalize the impact youre expecting from pricing and productivity and really what I'm trying to do here is get a sense of your underlying run rates as you head into fiscal 'twenty three as inflation essentially eases and then just given we're at the end of the call if I can.
And one more just there was some commentary or press reports each quarter that Amazon has.
Could it be shuttering some private label categories is there any way you can just frame your exposure.
Any potential risks you see there as well so thanks for all that.
Sure, Yes, so on the margin profile Im glad you picked up the point I think what we were trying to say is the structural elements of gross margin, which is all about the inflationary headwinds the productivity savings and then the price realization.
That's lining up largely as we thought it would when we when we spoke back in May inflationary headwinds are in the plus or minus 600 basis points.
And then youre getting 175% to 200 basis points of productivity savings and price realization.
Just over a 100 basis points and scaling based on the comments, we made around timing of when when price went down I think that's a really important point, though is that one quarter later in a really challenging and volatile environment. We feel really good about structural margin I think the new news that I do want to call out you Didnt mention it but I think it's relevant is that.
And that does put an added headwind on the business in the fourth quarter alone, we see that as probably about 70 basis points of margin headwind that we hadn't contemplated previously.
So hopefully that helps you with with the comments and the margin profile on Amazon, Yes look we've seen the articles obviously, we've seen the response from the Amazon team as well all I can tell you is our teams are have had really good discussions with with their counterparts at Amazon. If you look at the category itself. The category is growing double.
Digits. The Soma brand is number five in the set over the last 52 weeks and has really interesting economics for both us and them. So we don't see this as a category that they would look to.
Destock on or trimmed the portfolio given those numbers.
Thanks, so much.
Thanks, Chris Thanks, a lot Chris Operator next question. Please.
Again, if it has a question. Please press Star then one.
<unk> got no further questions. This concludes our question and answer session I would like to turn the conference back over to Raj <unk> for any closing remarks.
Please go ahead.
Yes. Thank you I guess just to close this out we're happy with the performance we had in the quarter I think theres been a lot of hard work that the team has put into making that happen.
And the structural improvement that we're seeing in the business.
Time, where we know things are choppy around us I think we're increasingly confident in the future and what we have line of sight too.
So thank you for that will work to continue to deliver consistent reliable results and we will talk in three months.
Yes.
This concludes our conquest part today.
You for attending today's presentation you may now disconnect.
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