Q1 2024 Prestige Consumer Healthcare Inc Earnings Call
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Good day and thank you for standing by welcome to the Q1 2024 prestige Consumer Healthcare, Inc earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one one on your telephone you've been here an automated message advising her hand is raised to withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded.
Now like to hand, the conference over to your speaker today, they'll Triple L. A V P of Investor Relations and Treasury.
Please go ahead.
Thanks, operator, and thank you to everyone.
He was joined today.
Me around the body, our chairman President and CEO Christine cycle Garcia.
And today's call review, our first quarter of fiscal 2024 results discuss our full your outlook and then take questions from analysts.
A slide presentation that accompanies today's call can be accessed by visiting proceeds consumer health care Dot com clicking on the investors and then on today's webcast presentation.
Please remember some of the information contained in this presentation today include non-GAAP financial measures reconciliation.
Financial measures are included our earnings release, and our slide presentation.
And today's called manager 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 supply chain constraints high inflation numerous potential impacts which means results could change at any time.
After the impact of risk considerations of the best estimate based on the information available.
Today's date.
Additional information concerning risk factors and cautionary statements are available on our most recent SEC filings and most recent companies okay.
And now handed over to our CEO round the body.
[noise]. Thank so let's begin on five five.
We are pleased with our start to the year is two one delivered solid results. Thanks to our leading brands with continued momentum across our portfolio.
We achieved net sales of 279 million in Q1.
Slightly ahead of what we anticipated back in May.
Performance continues to benefit from my broad portfolio and long term brand building efforts.
He's attribute drove solid 1.8% organic sales growth, including continued strong performance from Germany that I'll touch on in more detail shortly.
These sales translated into solid profitability as we continue to operate with a strong EBIT margin profile generating robust earnings and free cash flow.
Also experienced sequential improvement in gross margin, thanks to our pricing actions and cost saving measures that are effective against the cost inflation.
The stable financial profile, unable to deploy capital efficiently and the first quarter. We completed our 25 million dollar a share repurchase program, while still reducing leverage to 3.2 times. Thanks to our continued emphasis on debt reduction.
Yeah, let's turn to page six to highlight the successive dramamine in more detail.
Q1, Dramamine experience solid double digit revenue growth building on a long history of success that is driven by our time-tested rebuilding efforts.
Do this by leveraging consumer insights wherever you look to me ever evolving healthcare needs and find opportunities to grow the brand.
Just like all of our key brands Dramamine subjective of using numerous brand building tactics to grow with consumers is multifaceted. These.
These tactics include.
Reading, a consistent innovation pipeline based on consumer insights.
The ability to grow the brand into adjacent categories over time.
Marketing marketing strategies that are time tested.
For example in the early days of our brand ownership, we expanded with new forms and flavors.
Hunching highly successful left drowsy.
Drowsy and great Flavoured offerings to help match consumers needs.
More recently, we developed our insight work, even further and began addressing the distinctive nausea market with new Dramamine nausea offerings grip quickly, becoming the number one brand in the category.
These expensive items were successful thanks to the underpinnings of our longterm brand building focus for Dramamine. This is included highly recognizable marketing campaigns that evening engaged with consumers.
Reminding them of the benefits of the brand to treat motion sickness and nausea incidences whenever they arrive.
Johnny was lower right this year or ditch. The drama campaign features a memorable drama llama that only dramamine consult for.
The results are clear, we've grown take away for the category and our brand achieving a 12% compounded annual growth rate since fiscal 19.
Round the time of the 2018 campaign shown here.
It's proven strategy is a playbook, we use across all of our branch to help expand our leading share and grow with retailers.
Yeah, let's turn to slide southern for an update on next.
Our next brand is another example of brand building.
Headlights treatments have gradually expanded their breath of offering with consumers over time, which has helped deepen their connection with caretakers or insight work uncovered that consumers were looking for offering not only for the treatment of life, but for products that help ensure their removal and prevention of for future.
Occurrences.
From this we set to work developing new products to meet the needs of the consumer today next offers a spectrum of headlights products that most recently includes the application next treat and prevent kit that is off to a great start.
As a dramamine is.
Nick's offerings are supported through effective marketing that's set the brand up well to capitalize on category incident levels.
His head like season is gradually returning to more normalized pre COVID-19 levels. The brand is it cheating sales well above the category in Q1 and is shown at the rate.
Has expanded its leading number one market position had headlights, well abroad pre COVID-19 share levels.
So in summary, bulk Dramamine index are timely examples of our brand building that we continue to execute across our portfolio to drive financial results.
No I'll pass it to Chris to walk through the financials.
Thanks, Ron good morning, everyone.
Turn to slide and review, our first quarter physical 24 financial results.
Remind her the information in today's presentation includes certain non-GAAP information that is reconciled to the closest gap measure and our earnings release.
Q1 revenue of $279.3 million increased 80 basis points versus the prior year and increased 180 basis points, excluding the effects of foreign currency.
As expected EBITDA in EPS, both declined slightly in Q1 from the prior year, but EBIT margin remained consistent with our long term expectation let's.
Let's turn to slide 10 for more detail around consolidated results.
Cause I just highlighted R Q1, physical twenty-four revenues increased 1.8% organically versus the prior year bye.
By segment, excluding effects North America segment revenues increased 1.8%.
National segment increased 1.6% versus the prior year.
The largest category growth drivers in Q1, where G. I N skincare, including solid performance from Dramamine, which run discussed earlier.
We also continue to experience year over year growth in the E Commerce channel continuing the longterm trend of higher online purchasing.
Total company gross margin of 55.4% in the first quarter increased sequentially, but declined 240 basis points versus last year's difficult comparison.
This gross margin was as we expected and attributable to cost increases, partially offset by pricing actions and cost savings across our portfolio, which offset the dollar amount of inflationary cost headwinds.
For the full year, we continued to anticipate gross margin flat to up slightly versus physical twenty-three with Q2 estimated to be similar to Q1.
As a percent of sales advertising and marketing came in at 13% for the first fiscal quarter.
The fiscal 24, we still anticipate and A&M rate of just over 13% of sales and up in dollars versus the prior year.
G&A expenses were 9.9% of sales in Q1 due to the timing of certain expenses, we still anticipate full year G N $8 to decline slightly versus the prior year.
Finally diluted EPS of one dollar and six cents compared to $1.90 percent in the prior year down from the impact of cost increases and higher interest rates.
For the remainder of fiscal twenty-four we anticipate a Q2 interest expense similar to Q1, followed by lower interest expense and the second half.
Finally, our coupon tax rate of 22.5% was affected by the timing of certain discrete tax items.
We anticipate a tax rate of approximately 24% for the remaining quarters of fiscal 24.
Now turn to slide 11, and discuss cash flow.
Q1, we generated $46 $6 million in free cash flow down versus the prior year due to the timing of working capital.
We continue to maintain industry, leading free cash flow and are maintaining our outlook for the full year.
Ah June 30th our net debt was approximately $1.3 billion 1 billion of which is fixed and we achieved a covenant defined leverage ratio of $3 to time.
We still anticipate being below three times leveraged by fiscal year end.
Lastly, in the quarter, we repurchased approximately 425000 shares for $25 million completing the previously authorized share repurchase program with.
With that I'll turn it back to run.
Thanks, Chris, Let's turn to fly 13 to wrap up.
Our business continues to have solid momentum and our fiscal year is off to a good start.
We are reaffirming our full year outlook, thanks to our diverse and leading consumer health care portfolio.
Perfect for 24, we continued to anticipate revenue of 1 billion $135 billion to $1 billion 140.
And <unk> organic revenue growth of approximately 1% to 2% versus physical twenty-three or organic revenue growth of 2% to 3%. After excluding the plan strategic exit of non core private label business that we discussed on May earnings call.
For Q2, we anticipate revenue of approximately $285 million down slightly from the prior year due largely to continued currency headwinds and the exit of private label.
For EPS, we continued to anticipate diluted EPS of $4.27 to $4.32 for the full year for Q2, we anticipate EPS of one dollar seven up high single digit versus the prior year due to the timing of marketing spend.
Lastly, we continued to anticipate free cash flow of $240 million or more we still expect being below 3.0 times leveraged by fiscal year and as we continue to execute our discipline capital deployment strategy.
With that I'll open it up for questions operator.
Thank you.
At this time, we will conduct a question and answer session. As a reminder to ask a question you won't need to press star one one on your telephone and wait for your name to be an app.
They're all your question. Please press star one one again.
Please stand by while we have compiled a Q&A roster.
Our first question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Hi, good morning, nice to have in the corner I was wondering if you could talk about the dynamic between units in pricing and if you expect to take more pride throughout the year and then also are you finally, starting to see costs normalize with the chance for that to flow through that Martin's later in the year.
Yeah. Good morning, Susan This is Chris So we talked about [noise].
Full year physical twenty-four guy contemplating about a point of growth from price and acquaint from volume.
For for Q1, the majority of the growth was price volume was essentially flat.
The majority of the pricing was executed last year. So the benefit of the price will gradually reduce as the year progresses.
In terms of inflation you know, it's coming in largely as an expected right. If you think about our inflation, if largely wage inflation going to be pretty consistent. So we're beginning to see some relief on certain costs sequentially such as free it does take some time for that to work through the P&L and as a reminder, you know we talk about freight being in the in the low to mid <unk>.
<unk> digits for us so probably not gonna have as big of an impact as you might hear from some other so we're expecting inflation for the year to come and largely is expected and gross margin obviously to follow.
Okay, Great and then maybe if I could ask just about hydrolyte in the international business and a quarter I guess was that leak or in the next decade or was it just really the ethics impacted can overcome and then also how should we think about that growth going forward.
Good morning, Susan Ron here, So the international business, excluding F X was up slightly largely as anticipated for for the year again, our outlook for international growth for the full.
Full year is returning back to kind of historic levels of mid single digits.
And we continue to feel that the businesses in line.
Deliver that for the year.
Okay, Great and then if I could add one last one just an inventory levels at retail I guess do you guys feel like they're kind of back to normal or are there still categories that could maybe benefit from restocking.
So for the most part Susan.
The inventory level at retailer of our products has been pretty consistent over the last handful of quarters as the supply chain caught up last year, So no meaningful area of benefit for restocking this year.
And the level of seemed to be pretty consistent again, it's something that we monitor on a weekly basis here.
Okay, great. Thanks, so much good luck the rest of you.
Thank you Susan.
One moment for our next question.
Our next question comes from <unk> Panic from Oppenheimer and Coffe. Please proceed with your question.
Good morning, Thanks for taking my question and congrats on the corner. So just just sort of women's health. If he can just update us in terms of how you think about that category for the balance of the year.
Good morning Repast.
So I think as we stayed at back in May we're anticipating that our women's health business will begin to stabilize and get back into position for long term growth.
During the quarter, we continued to see year over year decline for the women's health largely due to a continuing slowdown in the category.
Both of our brands Monistat and Summer's Eve continue to have a significant number one share of those.
Categories are providing leadership with a new product launches plan for later this year and when they hit retail will talk about the more but we continue to feel good about the positioning of those businesses for longer term growth.
Great and then the cough and cold category I know incidences influence levels are down this past quarter of yourself held up pretty well so just curious.
How was cough and cold inventory now the channel is it just any thoughts on that category for the balance of your ear as well.
Yeah, Hey, Impetuous has crashed so Q1 for cough cold was really reflective of what we thought we issued a guide back in May.
We're expecting more normalized trends this year in terms of seasonality from the retailers around cough cold and we're also expecting incidences to be down from the peak levels last year and we've seen some of that already in the southern hemisphere. So the benefit we have this year.
Alluded to is that are continuous improvements in our supply chain will serve to fill a bit of pipe at the retailer level.
But as a reminder, cough cold is not a meaningful driver of our of our business in the in the mid to high single digits as a percent of our top line.
Okay, Great and then maybe just one final question. If you look at your different channels are you seeing any channel shows or anything and then just relate to I know one there is some speculation that one of the pharmacy change could be in trouble I may have to file for bankruptcy.
Just any thoughts in terms of any risk that you see out there from inventory restocking based on your visibility.
Yeah. So I guess a few questions. There first of all in terms of channels shift and I think we've talked touched on this in past quarters, we've begun to see some.
Movement and shoppers as they look for it may be different price value propositions, the benefit for us with a broadly distributed across all checks channels product offering as we catch up with a consumer no matter, where they choose to shop, we want all of our retail partners to be successful. So we kind of just stare.
Back and see where they go and catch them, where they where they end up as the first part.
In terms of the drug retailer you're alluding to you know it's been on our radar screen for awhile. It is not a significant customer for us. So it's something that will continue to monitor but at this point, we wouldn't anticipated having any meaningful impact on our business.
Or.
Result in any kind of change in inventory at retail.
At retail for us.
Great. Thank you I'll pass it along.
Alright.
One moment for our next question.
Our next question comes from John Anderson with William Blair. Please proceed with your question.
Thanks, Good morning, everybody.
Hey, John .
I guess just start out with a question around sales.
The business was up.
About a percent a little less than a per cent in the in the first quarter.
On what looks like to be one of the easier comps for the for the year and just wondering.
It sounds like the the revenue growth met your expectations, but.
I think it also implies perhaps some acceleration.
As you move through the balance of the year.
And they'll be thinking about that the right way to kind of hit the 1% to 2%.
And guidance for the year and from what what are you planning or seen from I don't know, if it's innovation or marketing perspective or or both.
It might drive you know some some modest acceleration from here.
Yeah. Good morning, John This is Chris, though so you're right. We were up just under a point for the for the quarter remember FX contributed a point of headwind in the first quarter. So almost 2% in the first quarter on an organic basis, what gives us confidence for the most part we're not seeing anything different than what we communicated back in May we're gonna have some effects.
Headwinds in the first half it'll continue into Q2, and then we'll see a slight tailwind in the back half you know looking at physical 24 from an absolute dollar basis. The numbers are more comparable sequentially, we're expecting less fluctuation in fiscal 2004 quarter to quarter than in the prior year. So it's really the the effects.
Peace in the comp stat, when you look at the growth rates for this year.
Okay. That's helpful in that gross margin as you mentioned improved sequentially, which was good see.
Are we going to you you should we expect to see steady sequential improvement.
Going forward, but what was the sequential improvement I guess in the quarter is what I'm asking is it was it more kind of seasonal or mixed driven or is there something more permanent going on here with with pricing catching up with commodities other cost productivity flowing through that that could lead to a string of of.
Sequential gross margin improvements during coming quarters.
Yeah, Hey, John So so Q1 largely is expected you're right the upside with primarily mix in North America and.
To some extent the flow of cost savings remember in the first quarter, usually our highest gross margin of the year as we're selling through product that was purchased in the prior year. So as we look to the outer quarters I'm expecting a pretty consistent.
Consistent sequencing from off of Q1, we talked about Q2 being similar to Q1, so that'll be the impact of the new inflation for this year being offset to your point by a cost saving efforts that we put into place. So we're expecting gross margin it'd be pretty consistent throughout the rest of this year.
Okay. And then you you you talk to quite a bit about dramamine already and what you called out kind of like the G I category strength.
Skin care I think was another area like you mentioned are dermatologic strength.
Were you afraid to Nick's there I'm just trying to understand what's what's may be driving some of the strength in that in that category or platform.
Good morning, John skin benefited.
Some good performance both in next and compound W.
During the quarter.
Okay.
And then last you know the leverage ratio has come down quite a bit continues to come down even with the the share repo as you mentioned.
You know if you reach three or some three by the end of the fiscal year what.
How were your thoughts around priorities on use of excess free cash you know evolving as as the ratio comes down to what it.
Yep.
Pretty low levels are historically for for prestige.
Yeah, so going forward, John I don't see us changing our capital allocation priority, even when we get below three and even if we ended up quite a bit below three where will look to first and foremost continue to invest it in and brand building in in our business.
And then continuing to reduce debt building M&A.
Capacity and continuing to be thoughtful and disciplined.
Around future opportunities.
But.
Great. Thanks, so much.
Thank you John .
One moment for our next question.
Our next question comes from the line is Mitchell Pinero, sorry to vent and Coffe. Please proceed with your question.
Yeah, Hi, good morning.
Most of my questions were asked and answered, but I did have one on advertising and marketing.
So it would be advertising marketing was down year over year due to timing and I'm just curious where your focus is on advertising and marketing as it is there any change to your focus and channel or product mix this year versus last year.
Good morning, Mitch So our approach is really to move our advertising and marketing resources and and investments to where the opportunity is.
So every year, we put together a plan based on opportunities new product launches and what's going on and then evaluate and change as as needed. So we continue to get behind Dramamine in a big way, we've got a lot of success. There. Some some new products that are doing well same with what.
Nick So.
No real change in the approach in terms of investing where the opportunity or new products are.
And 10 channel I mean, you know.
I'm not sure is this is.
Where where is your advertising spent focus meaning we're talking with with in store circulars are we talking.
You know.
Media other media, where where is it today has it changed at all from.
Prior years.
Yeah over the last couple of years has been fairly consistent and again, it's the mixes different brand by brand, but T V digital search investments and the Dot com search in particular, alright, we had another great quarter with our dot com and Amazon Amazon business.
Grew over double double digits during the quarter, I think and we're up to 11% of 11 or 12% of total revenue for the quarter.
So again, we're pulsing the investment where where we're getting growth and where the opportunity is so no real change.
Okay. That's all I have thank you very much.
Thank you much.
As a reminder to ask a question you won't need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
One moment for our next question.
Our next question comes from Anthony <unk> <unk> company. Please.
Please proceed with your question.
Alright Uh huh.
If I can get them on for Anthony <unk> are you guys going.
Good good morning, Thank you.
My first question is have you seen any notable changes from private liberal competition.
Yeah, Hey, good morning.
So no we haven't seen any meaningful changes on private label you know.
Over the long term, we look back even a pre COVID-19 levels generally speaking the majority of our categories. We've been gaining share over private label. So we found that consumers go to the trusted brands in these categories Hell.
Held true throughout the throughout Covid and seems to be holding true today, we saw it back when the financial crisis happened. So over a long period of time, we've been able to hold her gain share over private label.
Thank you and giving you a <unk> cash flow Dear.
An appetite for additional share buybacks.
Yeah. So the share buyback program essentially preserves to offset dilution will continue obviously to look at it as we always do but as Ron mentioned right now our cash flow priorities are to invest in the brands. We have continued to pay down debt and will continue to be mindful in in the space in terms of M&A.
Mmm. Thank you for taking my questions.
Thank you.
I'm showing no further questions at this time I would now like to turn the conference back to Ron Lombardi for closing remarks.
Okay. Thank you operator, and I'd like to thank everybody for joining us This morning, and I look forward to update you on our business next quarter have a great day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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