Q3 2019 Earnings Call

Good day, ladies and gentlemen, and welcome to the natural personal care.

Fiscal Threenineteen earnings.

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I would now like to turn the conference over to Christophe Vice President of Investor Relations. Please go ahead.

Thank you.

Good morning, everyone and thank you for joining us. This morning, as we discuss <unk> third quarter fiscal 2019 earnings Conference call with me. This morning is Rod Liddle, our president and Chief Executive Officer, and Dan Sullivan, Our Chief Financial Officer.

Rod will kick off the call then I will hand over to Dan to discuss quarterly results and full year outlook and we will then transition to QNX. This call is being recorded and will be available for replay via our website www dot Edgewell dotcom.

During the call we may make statements about our expectations for future plans and performance. This might include future sales earnings advertising and promotional spending product launches savings and costs related to restructurings changes to 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, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption risk factors in our annual report on Form 10-K for the year ended September Thirtyth 2018 as may be amended in our quarterly reports on Form 10-Q . 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. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are 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 Rob.

Thanks, Chris and good morning, everyone I would like to start today's call by discussing the continued progress we are making to transform our business and build a foundation for future growth and value creation.

I will then provide an update on the strategic review process for the feminine and infant care businesses.

And I'll conclude with an update on the significant progress we are making on the integration planning with the Harry's team.

The results in the quarter reflect the steps that we've been taking to fundamentally improve the commercial and operational performance of our business.

Dan will take you through the detailed financial results in a moment.

And as we communicated last quarter, we had an expectation for much improved topline performance this quarter compared to recent trends as well as an expectation for solid adjusted earnings growth.

And we delivered on both of these objectives.

Organic sales in the quarter were essentially flat.

Marking the best organic performance for the company in over two years and a meaningful improvement from recent trend.

We continue to reshape how we operate this business through project fuel.

Which has generated over $100 million in gross savings to date.

Providing important offsets to significant inflationary headwinds in serving as in our initial catalyst for reinvestment in our growth objectives.

With flat topline performance in the quarter and ongoing benefits from project fuel, we delivered strong operating profit and adjusted earnings per share of $1.11 cents.

Our GAAP earnings per share were negatively impacted by an after tax noncash impairment charge of $9.10 in the quarter.

This charge was triggered by declines in our stock price and the ensuing decrease in market capitalization and is not a reflection of business performance or a change in our forward looking view of what we expect from the business.

Overall, we are encouraged by the results this quarter and although much work remains we believe we're taking the actions required to ensure ongoing improvement in the base business, while providing the foundation for our integration with Harry's at close.

Now turning to the strategic reviews of our fem and infant care businesses.

Earlier this year, we announced a plan to evaluate strategic options for these businesses in both instances, we ran processes that were thorough involving both private equity and strategics.

The review for the infant care business remains ongoing.

As it relates to the Fem care business, we have determined that the best path forward is to retain this business.

As you know feminine care has a portfolio of well recognized brands with a good innovation pipeline, improving business trends and a history of attractive EBITDA and cash generation.

In reviewing these opportunities.

That came out of the process, we determined that there is more opportunity for value creation by retaining the business.

The process confirmed our belief in the latent value proposition for this category, while also revealing potential additional opportunities. This part of our broader portfolio approach as a result of the Harry's acquisition and our ambition to build the CPG 2.0 platform.

Having said that to be successful moving forward, we will need to manage this business with a laser like approach to brand building and trade execution.

Sensible compelling innovation and leadership model that calls for increased autonomy and capabilities to harness the proper focus and diligence required to compete in this category.

We are finalizing these plans and we'll share more in subsequent calls.

Turning briefly to Harry's.

Our integration planning efforts have gained significant momentum.

With an active steering committee in place immediately following the transaction announcement.

In 14 work streams operationalized within the first few weeks.

I am extremely pleased not only with the progress made but more importantly, the way the teams from both organizations have worked collaboratively to lay the foundation for a new stronger and more capable combined company following the close.

We continue to believe in the compelling strategic rationale for the transaction and remain confident in the sustainable value creation opportunity by bringing together these complementary businesses and capabilities to create new avenues for growth.

Lastly, I am excited by the progress we have made in defining the culture required for success going forward.

As I have maintained from the start unlocking the best of both cultures will be a critical imperative for success and the integration planning efforts to date only reinforce this point.

In terms of the approval process, we continue to work proactively with the regulatory agencies.

Not unexpectedly we received a second request for additional information from the FTC.

We are continuing to work cooperatively and constructively to provide the FTC the information it needs to complete its review.

We have said that we anticipate closing the transaction no later than the first quarter of calendar 2020.

And I remain optimistic that we will close the transaction within this timeline.

Overall, we continue to make significant process progress on the transformation of Edgewell.

We delivered on our expectations in the quarter and are maintaining our full year outlook. We are laser focused on meeting the needs of consumers and building stronger retail partnerships.

We're also making progress toward delivering more consistent topline performance going forward.

Project fuel is serving as a catalyst of change redefining how we operate this business and importantly, providing the necessary financial flexibility to reinvest to build our brands.

We gain certainty around the feminine care business and believe that business can return to being a solid financial contributor for the company going forward.

And we are gaining momentum as we work through the Harry's integration plan.

As I mentioned last quarter, we have a clear path forward and we're executing against our strategy with urgency and precision.

This is an exciting time for us as we build a new company and our new culture all position to win.

And now I would like to ask Dan to take you through our fiscal third quarter business and financial results as well as the full year outlook.

Thank you Rod and good morning, everyone as Rob mentioned the quarter played out largely as we expected.

As we executed well against our core.

Underlying performance in key categories improved.

Fuel continued to transform our operations and provide meaningful gross savings and we generated strong free cash flow, allowing us to continue to structurally de lever.

Most importantly, we saw stabilization in our topline results driven by improved underlying performance in wet shave and fem care with Tailwinds from a favorable comparison to prior year, primarily in Japan, wet shave and the shift in the Easter holiday into Threeq.

We now have the timing and transitory related issues that impacted our quarterly sales growth rates this fiscal year largely behind us.

Our focus on cost and expense continues with projects fuel execution remains strong across the business.

And delivering gross savings at expected levels.

Our strategy to reallocate some anti spending to trade promotion investment combined with our success in fuel addressing non working dollars has resulted in favorable MP spending year over year and helped to improve top line performance, but has served as a near term headwind to gross margin.

In aggregate, our more stable top line results and our focus on cost and expense control has enabled us to deliver over 18% growth in adjusted operating profit and 22% growth in adjusted earnings per share this quarter.

GAAP earnings per share in the quarter were a loss of $8.16, reflecting a one time noncash accounting charge to adjust goodwill and intangibles carrying values.

The after tax charges of non core EPS adjustment of $9.10 in the quarter and resulted from the acceleration of our non discretionary discretionary annual impairment valuation test due entirely to the triggering event, resulting from the decline in the stock price in the third quarter and the fact that our market capitalization was below stockholders.

The analysis was completed in a manner consistent with our annual impairment test using both the market and income approaches and waiting and based on our application to the reporting units.

The results of our testing indicated that the carrying amount of goodwill for the wet shave and infant care reporting units was greater than its fair value, resulting in an impairment in those business units and that the indefinite life trade names of wet ones and diaper Genie had carrying values that exceeded their fair value, resulting in these trade names being impaired as well.

As Rob pointed out in his remarks, the charge is not a reflection of a fundamental change in our forward looking view for these businesses.

Now, let's turn to our operational performance in the quarter.

Net sales in the quarter decreased 1.8% or minus 30 basis points on an organic basis and was largely in line with our expectations organic net sales, excluding the negative translational impact from currency.

International organic net sales grew 4.2% with growth in both wet shave and Sun and skin care, while net sales declined in North America by 2.7% driven by declines in wet shave.

There.

Partly offset by growth in science in which benefited from the shift into the third quarter of the Easter holiday.

Wet shave organic net sales decreased 1.7%.

Total volumes increased primarily in Asia Pacific and largely attributable to Japan, and the cycling of last year's inventory reductions.

This was partly offset by declines in North America and in the UK driven by ongoing competitive intensity and the cycling of the prior year launch of intuition, five and hydro assets.

Even after adjusting for the Tailwinds associated with the timing shifts in Japan volume performance in wet shave improved sequentially by over 200 basis points versus recent trends.

Price mix was unfavorable in the quarter, largely reflecting mix in North America, and the impact of lower pricing and higher trade spend on our men's and women's systems products.

Sun and skin care organic net sales increased 4.3% driven by growth in all geographic regions with the exception of Asia Pacific and in part a reflection of the benefit of the shift in Easter holiday.

In North America category performance continued to reflect lower consumptions largely a result of the negative impacts of the wettest early summer period in almost 30 years volumes declined and we experienced heightened share losses in the quarter as banana boat consumption was disproportionately impacted by the weather given its focus on the occasion based outdoor segments.

These volume declines were partly offset by growth in Hawaiian Tropic Bulldog and Jaguar.

Price mix was favorable due to lower returns primarily in the U.S.

Ben care organic net sales decreased 3.4% as compared to the prior year period, representing improved underlying performance with half one organic net sales down over 8%.

Increased distribution at more impactful promotional programs in mass and drug drove the results.

Volumes declined across all lines with the exception of Ob tampons and carefree liners.

Price mix was unfavorable due to the increased trade spend investment.

All other organic sales decreased 60 basis points as compared to the prior year period.

Increased sales in diaper, Genie and cups, and mealtime products related to the pocketful launch were more than offset by declines in pet care.

Briefly looking at the category dynamics in the quarter in wet shave as measured by Nielsen The U.S. razors and blades category was down nearly 1.9% in the latest 12 week data.

With men's systems down, 1.4% women, increasing 40 basis points and disposables down 3.4%.

Including both e-commerce and offline on the measure we estimate that us razorblade increased between one and 2%.

From a market share perspective, as measured by Nielsen and our latest 12 week data we are at a 25.5% share in razors and blades in the U.S.

Down a 150 basis points versus a year ago.

This share decline was again, primarily driven by a decline in mass retailers.

On a global basis, we estimate our share was down 110 basis points.

Within the U.S. Sun care category 12 week consumption declined 4.4%.

With home scan data, indicating that our losses are largely driven by loss category buyers and not brand switching further reflecting the headwinds caused by weather.

Our share declined by approximately 200 basis points, primarily in banana boat sport kids and baby, which are more weather dependent.

Hawaiian Tropic gained 20 basis points of share.

Gross margin decreased 60 basis points year over year to 48% excluding costs associated with some carry formulation and foreign exchange as well as the tailwinds associated with lower Sun care returns gross margin decreased about 150 basis points year over year, which was in line with our expectations.

The decline was driven primarily by three factors on favorable price mix due to price reduction in wet shave and higher trade promotion spend in wet shave and fem care.

Unfavorable cost mix in wet shave due to commodity pressures increased energy and maintenance spend and lower absorption rates due to lower volumes across on skin and wound care.

AMC expense this quarter was 15.1% of net sales as compared to 17% of net sales in the prior year period.

The decrease in 18 was primarily driven by lower spending in wet shave in fem care as compared to prior year as a result of a few factors, including an intentional reallocation of emptiness trade spend.

Fuel savings, which have reduced nonproductive NP costs.

Fewer new product launches as compared to the prior year and increased private label penetration.

Our total commercial spend defined as MP and trade investments has remained fairly consistent as a percentage of net sales year over year as market conditions have required that we shift to a more trade focused execution in the near term, which has pressured our gross margins.

As DNA, including amortization expense was $94.8 million or 15.6% of net sales as compared to 16.3% of net sales in the prior year period.

The operational improvement in SG M&A, despite inflationary headwinds was largely driven by strong execution and project fuel and lower equity compensation expense.

The adjusted effective tax rate for the first nine months of fiscal 2019 was 24.4% which was comparable to the prior year period.

GAAP diluted net earnings per share were a loss of $8.16 per share compared to earnings of 22 cents per share in the third quarter of fiscal 2018, reflecting the impact of the impairment charge this quarter.

Adjusted earnings per share were $1.11 per share compared to 91 cents per share in the prior year period.

Net cash from operating activities was $98.2 million for the first nine months of fiscal 2019 compared to $181.5 million in the prior year period.

The decline in operating cash flow compared to the same period in the prior year was primarily driven by our higher inventory levels in support of improved operational performance across key markets as well as the impact of both the Sun care, we formulation project and the building of inventories in Europe in preparation for Brexit.

Our free cash flow outlook for the year is unchanged and our capital allocation strategy remains committed to structurally paying down debt as evidenced by our net debt leverage ratio at 2.8 times the lowest level since separation.

Now I would like to turn to project fuel.

We continue to execute extremely well across the business and we remain on track to deliver $115 million in gross savings for the full fiscal year fiscal year.

Third quarter project fuel related gross savings were approximately $33 million, our strongest quarter to date.

In the quarter, he set savings helped to offset year over year inflationary headwinds, while providing the initial catalyst for reinvestment in our key brands and growth initiatives.

In totality, we continue to expect project fuel will generate between $225 million to $240 million in total gross savings by the end of fiscal year 2021.

And we estimate onetime pretax charges to be approximately $130 million to $140 million with an additional capital investment of $60 million to $70 million through the end of 2021 fiscal year.

Now turning to offer offer your full year outlook.

We're maintaining our previous full year outlook for organic net sales and adjusted earnings per share, though tightening the range on EPS.

Our outlook for the year contemplates two meaningful pressures on our business in the fourth quarter.

First we anticipate continued topline headwinds related to the Sun care category as lower consumption trends are expected to continue and to a lesser degree headwinds in wet shave, mostly as a result of increased competitive pressures in the UK.

Additionally, our gross margins will remain pressured in the quarter as a result of the continued shift in Ames aim piece spend into trade investments further pricing and promotional pressures in wet shave to increase and to combat increased competition and lower absorption rates as a result of lower volumes.

As such we continue to expect net sales to be down low single digits compared with the prior year with the acknowledgment that the risks of all point to the higher end of the range of expected declines.

Our reported sales expectations include an approximate 130 basis point unfavorable impact from currency translation and an 80 basis point combined benefit from the Jack Black acquisition, and Playtex gloves business divestiture.

Yes outlook for GAAP EPS is now a loss in the range of $6.97 to $6.77 and includes the impairment charge project fuel restructuring charges. Some carry formulation costs, Jack Black integration costs expenses associated with an investor settlement advisory expenses incurred in connection with the valuation of the fem care and infant care businesses, and Harry's acquisition and integration planning costs.

Our adjusted EPS outlook is now in the range of $3.40 to $3.50.

Project fuel is expected to generate approximately $150 million and incremental gross savings and project fuel related restructuring charges and capital expenditures are expected to be approximately $65 million to $70 million and 40 to 50 million respectively.

The adjusted effective tax rate for the fiscal year is estimated to be in the range of 23.5% to 25.5%.

And as mentioned our outlook for fiscal 2019 free cash flow is unchanged.

And with that I will turn the call back over to the operator and open up for questions.

Thank you very much.

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Our first question is from Steve Strycula of dubious. Please go ahead.

Hi, good morning.

Good morning.

So quick.

Strategic question.

If we think about looking forward how is the competitive landscape might pan out from large competitors, maybe investing a little bit higher and trade in wet shave.

How would you strategically respond in this atmosphere you just given the higher debt loads moving forward.

Is there would you lean in harder to the net savings from project fuel or are there other elements that you could maybe use to kind of offset this or do you expect the overall environment you just be more rational as we've seen in some other categories across HPC in the last few months. Thank you.

Yes, so thanks for the question Steve.

If you if you step all the way back from a category intensity category environment.

I think our view is that the category will continue to head down a path of being more rational.

If you look at overall category.

We have the category, particularly in the us market.

Up one to two points in total.

That's a market improvement from where we were one and two years ago.

Shaving incidents have flattened.

Pricing in general has normalized and I think what you're seeing is there is a bigger innovation focus coming back into the category.

Not only from our competitors, but also from ourselves and so thats a good thing.

From an overall category perspective.

We do expect.

Promotional trade spending.

To remain high in the near term.

We've seen that over the last couple of years, we expect that will continue.

Particularly as we move forward and execute our plans and so there's this project fuel.

So that obviously is an enabler to allow us to incrementally invest.

To be competitive both with consumer price and the trade around margin.

As well as.

Building a forward looking plan.

Both on the edge well side, but also looking at a joint business plan of what an edge well Harry's business looks like combined.

That properly supports what we think are the right trade investments to be competitive and win.

Okay I have a quick follow up.

He has been the feedback to date since you've announced the the transaction from the retail trade what's been their initial reception and how is this kind of shape. The way you are thinking about.

Pro forma business in terms of like maybe the revenue synergies. Thank you.

I won't be specific on any trade discussions, but our view is that the trade.

Is broadly supportive.

Of the combination and I think the view is the combination will be well positioned.

To bring interesting innovation and growth of the category.

And so with that as the primary thesis Thats.

I think we're encouraged by that but we've got to do it but the initial reaction has been very positive.

Thank you Steve Operator next question please.

The next question is from both Chappell of Suntrust.

Thanks, Good morning.

Good morning Bill.

Going back to the wet shave in the us.

As we looked at the scanner data it seem to get a little bit worse kind of as we moved into June and some in July and so just didnt know if you saw the competitive competitive intensity increase.

I mean, if you have a large competitor trying to take advantage of your M&A stage or if it's just kind of a normal for weekend four week out just trying to understand if anything's changed at all over the past couple of months on the competitive landscape.

Yes, Bill it's our view is it's more of the latter.

I don't we don't see a fundamental change in the competitive landscape.

Here in the U.S. and the thing to always be a little careful of was with scanner data is there's things happening outside that measured channel.

Both us and competitors, that's not always captured.

And so again when we look at the totality of what's in the scanner data and beyond.

We see it as a.

A normalized environment. It obviously, if you look at.

The mass channel that that's let's call it the most disrupted or competitive channel.

Here in the U.S. based on kind of what's been happening, but again that it's kind of as expected in normal course for US now as we look at it.

Got it and then just follow up on Fem care.

How should we look at that business going forward I mean, it had sales declines for as long as I can remember in one.

Shape or fashion, so should it be a flat growth business to be a growth business and is there a lot of room for margin improvement from here or.

We had a good good levels on margins.

At a high level Bill I think we expect improved performance going forward.

Where we're seeing trends that are encouraging in the business.

I think we're confident we can do better than we've done in the past as far as being precise around growth or flat, we'll come back and talk about that more next quarter. Once we've done the strategic work and lay the plan out for next year, we have a view of what that looks like.

I do believe there's.

The opportunity for a little more margin there as we look at the business as well.

The thing is if you look at Sam and you go back and say what has what has driven the declines historically.

The single factor that primarily drives it and correlates directly to our sales performance has been distribution declines.

Around space on shelf and number of skews that we have in the planet Graham's set.

We had historically a very legacy.

Skew range that frankly had a lot of unproductive skus in it and as those have been called out.

By retailers and is going to we work with what the plan O grams look like both today that are at shelf today via the February reset, which was more favorable to us.

Going forward, we think we've got a nice tight range.

That can win and be successful and drive velocity at shelf, so that combined with.

A very focused commercial strategy.

Better innovation, that's still an efficient and sensible.

We think theres some interesting avenues for growth going forward. So again, that's that's all part of our calculus, but beyond that.

You know as we look at the business.

We like the value, we can create with that business.

Versus what we could have transacted at by the way we could have transacted.

And been having discussion around that point.

But it wouldn't have been the right thing for the shareholder.

Thank you Bill.

Thanks, Operator next question please.

Thank you very much. Our next question is from Ali Dibadj of Bernstein. Please go ahead.

Hey, guys. So.

You know the organic sales growth.

Clearly was a little bit worse than where consensus unexpected it in and you're behind on your low single digit quote unquote decline.

For the year or at the very least or kind of worth and of that.

However, you continue to pull back on SMP in favour of trade spend.

Noting that yes, there is competition I get that but but this is also a time to develop the brand as well and not leave that behind some im trying to get a sense of.

Why beat on earnings at least versus our expectations consensus expectations.

While seeing your topline continue to frankly, not do as well as I think you and we think.

And by cutting hand piece, so just I'm trying to get a sense of that calculus.

It doesn't make sense to us right as the buys.

Thank you Ali if you.

Go back to where we started the year go back about a year ago in the fall of last year.

We we put guidance out there for 19.

Which was down low single digits on topline.

At an implied midpoint I guess 345 bps.

It was important for us it is important for us to deliver on those commitments. So we see the business.

Largely where we saw it in the fall last year, we put the guidance out I think personally that's a big step forward.

Versus where we've been and if you go back to that point in time Ali.

We have had significant foreign exchange headwinds, specifically, the pound euro Canadian and Ozzy.

Did have moved against us.

That we have offset.

And Harry has had just launched into a Walmart initially.

Flamingo enjoy did not exist.

They have launched.

Since then and so our plan contemplated some competitive activity.

Launches and I think we sit here feeling like.

We got the year right, we're going to deliver on our commitment.

We're concluding on the fem and infant divestiture analysis.

Weve acquired Harry's, we're well down the path on integration.

And so.

Overall, I think we are where we thought we'd be.

Are there a little more headwinds on top line than maybe where we thought a little bit I think we missed consensus by $1 million this quarter.

There are it's I would put it in the range of slightly softer.

But again, it's the combination of how messy this environment has been.

So I'm going to throw it to Dan for the MMP spend because it's important we spend a few minutes on this because we are not pulling back good and p. spend and sacrificing the future of our brands. Yes. Thanks, Ron So I think if you unpack the year over year reductions in NP I think the first thing you have to sort of pull out are the natural declines that we would see with lower volumes with higher private label penetrations, and then with the fuel savings, which have gone to work on our nonproductive and piece them. So all of those are either normal course of business reality and or good things coming coming out of fuel we have reallocated a portion of our year over year AMTI spend back into trade. We thought that was the right thing to do in the near term given the competitive pressures we've talked about on this call and previously we don't see that necessarily as the go forward strategy, we will aim to be a bit more.

Balanced, but we thought it was the right thing to do in the market. This year and then and then obviously.

We're cycling some NPD activity of a year ago, which had a impede behind it.

The other thing I would say is fuel is generating gross savings at the level. We had anticipated obviously, there's inflationary pressures that are offsetting that put fuel is allowing us to reinvest in a NP in certain growth brands and in certain growth markets and we saw a step up.

Year to date in E com in Jack Black and Bulldog in China, just to name a few so what we're trying to be balanced about it. We're obviously in a highly competitive situation, which requires us to think about trade spend a bit differently in the near term, but as I said I think over time, we'll look to rebalance that.

So so just to be to use your words laser focused on HCP for for a second I mean, you used to talk about a 14% to 15% if I recall correct me, if I'm wrong, but but but kind of a range that you want to get into from NPD spend perspective.

Clearly that was less than that last year, you're not on track at all for that this year.

And I get the environmental pressures and I certainly get the fact that North America wet shave was also down almost 9%.

Organically, perhaps it would seem losing some shelf space to their obviously, so I guess in the go forward how should we think about aim piece band because you all know and Rod you are involved with.

Consumer packaged goods situations, where we're getting more efficient on MP and we're putting more in trade spend was the narrative and that didn't end well.

So I would encourage you to help us think through why this is short term and why.

And what it should look like going forward.

Yes, I'll take it in the in the short term and I'll do it through the lens of Q4, and then I'll allow rod to take the broader question. If you look at how we thought about Q4, you see a bit of a difference versus our year to date trend number one we will spend in AMC dollars essentially the same level as last year Q4.

Which is obviously a departure from where we've been year to date and in rate of sales will be just under 12% in the quarter against which is about 40 or 50 basis points higher than year ago. So I think you're already starting to see a little bit of that rebalancing that I mentioned.

In Q4 itself.

Yeah, and then alley from there going forward I think.

Your points taken right. The story doesn't end well if you you shift from pure and P to trade spend as your strategy, but I think were to pick we were at a period of time here over the last 12 to 18 months, where we looked at the spend we had in the campaigns. The programs, we're putting out there. The ROI that went with them I think we had an opportunity to really address that and we've done that and frankly I think we're through that cycle now so as we go forward.

I will commit to a number on this call, but I would expect we you will see us maintaining brand investment and over time.

We will spend more not less.

On a NP to build the brands just because it's required as we go forward, we thought about it that way.

Thank you Ali operator next question please.

Next question is from on the Hudson of Wells Fargo. Please go ahead.

All right. Thank you good morning, I am actually had a couple of quick questions on hearing if I was wondering if you guys could provide any update on the businesses recent performance is good business.

On track to hit its profitability goals and is the sales trajectory still tracking in that 30% plus range.

And then I was wondering if there's been any discussions between the two of you to sign a commercial agreement.

Maybe between now and closing so you could possibly accelerate the distribution expansion of Harris products and then finally on Harry if Im just curious.

No in fact, you're feeling better about the fem care business since your decision with Harry isn't there might be an opportunity for that team to do something more with the business. Thanks.

Yes, Thank you Bonnie.

We can't comment on specifics around the Harry's business evolution.

During this period I think you can appreciate that.

But I would I would suggest.

Kind of as expected on plan. There is we're not seeing anything unique there.

In terms of where our focus is.

It is doing everything we can to close this as soon as we possibly in practically can.

We talked about being in a second request phase here, our energy is and being responsive as possible.

To that to get to a determination as quickly as possible.

I personally optimistic that we can work through that and have a good outcome on the timeline.

In terms of any agreements or interim things that might be put in place.

To do something different that's.

In their base plan I don't think we are in a position to do that I think you would potentially be distracting.

And so again, our focus is on shortening that timeline and being as aggressive as we can.

With that and then from a fem care perspective.

You know I don't anticipate.

That will have the Harry's team distracted and in the us leadership broadly.

With the Fem care business in the near term, we're going to run that separately, we've got some really interesting thoughts on how to structure that.

And do that in parallel.

But over time, when you look at capabilities that Harry's brings to our business.

Not only around how they think about design category evolution, and where growth is in the fem care category.

But also digital.

DTC platform Theres, some interesting opportunities for us to consider as we move forward.

So again I think there will be a phased.

Approach to that but it's certainly part of the calculus.

Okay that makes sense. Thank you and if I may just a quick question on disposable which.

I believe it's been pressured given what we're seeing in the U.S. tracked channels. So I know that tractors been focusing more on this as well so.

I was hoping you could talk a little bit further about the competitive environment on the low end and whether or not youre, losing shelf space, there and maybe more broadly.

Have you seen any change in consumers' willingness to trade up from disposable to six Don.

Thanks.

Yes on the disposables piece Bonnie I.

Your points taken I mean, we see that.

Happening, although we grew on disposables in the quarter.

And both in the us and outside the us.

I don't think we're seeing any material change in shelf space around disposables, but when you do have.

Systems at lower price points, specifically flamingo enjoy there is some sourcing from disposables.

Into that just more around price point, but we actually are seeing our disposables business.

Relatively healthy.

Thank you. Thank you Bonnie operator next question please.

Next question is from friends or family of what's your bank. Please go ahead.

Yes, thanks, good morning.

So I wanted to drill down a little bit more on the implied for Q guidance.

So it seems that the implication is that you will see positive organic sales growth in for Q. So I wanted to give more color on what you're expecting from the North America wet shave market and specifically our shares in those markets.

I know, we talked about you with lapping the Harry's expansion at Walmart So to the extent that you are assuming a growth.

I wanted to understand more sort of what you are expecting from.

And for Q1 beyond.

Yes, so I think our outlook for the quarter total organic sales is actually now positive is slightly negative.

The guide would imply somewhere around to minus 1%.

As Rob mentioned earlier, we certainly are seeing stabilization in the categories.

And health returning to the categories, which which were certainly excited about and certainly well positioned to participate in for Q, which is which is fully captured within within our thinking in our guide around.

Wet shave and opportunities. We also think there will be further improvement in fem.

We talked about it briefly on the call, but we've seen the types of improvements that we had expected from a minus 6% half. One Q3 was about minus three we think Q4 will continue to show that kind of improvement up to about a minus one foot for the reasons. We mentioned earlier, so fem will be an important part of our Q4 improvement similar with infant.

We've seen underlying improvement there in diaper Genie.

Which we think will continue as well as the successful Paul patrol launch so.

There will probably continue to be headwinds in sana, although the performance will improve from Q3 within the weather headwind will still be.

Somewhat of a caution which is what we've said, but if we sort of put all of that together that informs our thinking for the quarter of about a minus 1% organic topline and Pfizer on the Heraeus piece again, we can't comment going forward, but.

The business is nicely growing at the moment.

And you know our.

Implied kind of future guidance, if you will that we've put out there around the acquisition is that we expect that to continue in the foreseeable future.

Okay. Thanks, and then just a quick follow up I know you mentioned a second request from the U.S. FTC can you offer any color from if you talk to the European authorities, yet and.

How youre thinking about that.

Yes, we have Pfizer so the other.

The other bodies. It matters here is actually Germany, theres not an any you review here, but theres, a German review and we're in contact.

With Germany as at the moment and I don't expect that to be the gating item here versus the FTC. It's progressing I think according to plan.

Okay. Thank you bye bye.

Operator next question please.

Thank you next question is from Olivia Tong of Bank of America. Please go ahead.

Great. Thanks, good morning.

First I wanted to talk a little bit about the rationale behind the decision to keep feminine care, but also but still exploring alternatives to infant care.

Did you look at one first and then moving to the next one so just sort of thinking about the sequencing there.

And then specifically on feminine care, how does the pipeline look now could you said improving trends potential but.

Kind of really negative last quarter and this quarter you continue to see some volume declines.

Across all the different lines and increase in trade spend but the two year stack stack did get a lot better did get a little bit better. So just wondering if you could give a little bit more color on that thank you.

Yes, good morning Olivia.

So the process was kicked off for both at the same time run in parallel.

Separate processes, but in parallel.

And as you know processes don't all move at the same speed.

And so that that's the simple answer as to why we Havent concluded yet on infant I think we're very close by the way to concluding on on that.

We run the businesses separately theres not a lot of synergy potential between them and so they are quite.

Quite different in how we run them and so thats whats.

What's behind the different timeline here is as we come to the end.

In terms of the Fem care business and innovation and trends just in general.

You know we were down roughly 8% I believe in the first half of the year, we cut that in half to down I think 3.8.

On the quarter, we expect that to continue to improve sequentially here as we move forward. Some of that is around better planogram sets and distribution outcomes and some of it frankly is behind some innovation that's working.

And where we've brought innovation to the category.

We've seen we've seen the response and.

We've got we'll be organics.

Out there with new innovation in the line as we go forward.

Across all the segments, we have innovation planned that we think is more on trend.

And that combined with better distribution outcomes Potter provide a better path forward.

Than than where we've been so we're we're pretty confident based on the SKU range. Its in a plan a gram set today and the innovation we have that we can improve quite substantially and the trends we put up over the last couple of years and you're just starting to see the beginning of that in the stack that you talked about.

Do you expect thank you.

I'm sorry go ahead.

Yes, just a follow up do you expect an improvement in the two year stack come Q4, and then we haven't talked a lot about.

And U.S. wet shave the private label business. So just wondering if you could give us a little bit of an update on how you think that fits into the various lines of your business, whether its men women and private label. Thank you.

So yes is the short answer on we expect continued improvement in Q4 on a two year stack on private label. The business is doing well actually overall again, it's it's been pressured in the us.

Around price point and competitive offerings, but but the business is performing well.

I think we are without being specific I think we're optimistic about the business going forward and it's a it's a key strategic lever for us.

As we move forward.

In the business not only within the U.S., but outside the us and as we've talked in the past the the overall contribution margin from that business is is essentially portfolio average and so it it's a profitable piece of the business that is going to remain.

As important as it has historically has been even with.

The Harry's combination.

Thank you Olivia operator next question please.

Thank you. The next question is from Kevin Grundy of Jefferies. Please go ahead.

Hey, good morning, everyone.

And Kevin I wanted to come back to the question on on and not to beat the dead horse, but I guess ask it a little bit differently.

Do you think the company is doing enough with project fuel to maybe fund some increases in them. So we've seen advertising marketing level has come down over 300 basis points. Its at the expense of gross margin. So obviously I guess not not a desirable trend, but I guess, it's not really a zero sum game either so I mean, as you think about the opportunity to take out even greater cost potentially to fund. Some of this do you see that as an opportunity and as you look at your overhead and Dan. Maybe this is a question for you as you look at the company's overheads.

Are you comfortable with where they are relative to the peer set of companies of similar scale and then I have a follow up thanks.

I think you have to look at.

Project fuel.

Separating sort of the steps that have been taken MSG in a which is a large piece will flow through today.

We've taken out the heads we delayered the organization you've seen that impact on SGN a.

Year to date, if I normalize for all the one offs were 100 basis points better in ESG in a.

Than we were a year ago $30 million. So so I think we're making.

The right steps benchmarks would indicate we have further opportunity certainly as we think about.

The Harris acquisition in putting these two companies together I think we'll have further opportunities. So no I think we've made a great first step in as you know we've taken significant cost and complexity out of the business, but Thats project fuel is not something I think that stops I think it's a it's an ongoing piece of how we think about running this business with particular focus on us generic and Kevin I would add this is not an S&P cutting exercise and who is the term you use going forward it's not.

And I think the other the other thing that you have to take into account here when you look at benchmarks.

In where relevant competition spends when you adjust for our private label business and take that out and then do the math on the MP support for the branded business, we still spend at very healthy rates of a and P. vis-a-vis competition, we're not disadvantaged or under investing.

If you will even where we where we sit today with the current snapshot.

Got it all right that's helpful and a quick follow up is just and I apologize if I missed this.

The data points that your team put out.

Last quarter post the announcement of the heritage deal any changes to those whatsoever mid single digit topline growth high Fortys gross margin 2.7 billion in sales 475 million EBITDA et cetera.

Comfortable with all those metrics as we sit here today.

Yes, we have not updated our thinking there we remain.

Extremely comfortable with that algorithm and remember the edge well component of that algorithm, which is a.

Flat to slightly down top line is in fact, what we're seeing over the second half of the year. So we're we're extremely comfortable with that going forward and that remains our best view 2021 and beyond.

Okay. Thank you guys. Good luck. Thank you Kevin.

Thanks, Kevin Operator next question please.

So we have no further questions in the queue.

So I would like to turn the conference back to Rob for any closing remarks.

All right. Thanks, everyone. Appreciate the time today again I think we're we're optimistic we're moving things in the right direction. So we look forward to talking to you again in a couple of months.

Thank you very much.

Ladies and gentlemen that concludes this conference call. Thank you for joining today's conference you may now disconnect your lines.