Edgewell Personal Care Co (EPC)

[Enterprising Investor]

Edgewell Personal Care Announces Fourth Quarter and Fiscal 2021 Results; Provides 2022 Outlook (11/11/21)

Net Sales Increased 11.1%, or 8.4% Organic in Fourth Quarter and 7.1%, or 3.7% Organic in Fiscal 2021

Operating Income Increased 53% for the Fourth Quarter and 36% for the Fiscal Year

Completes Project Fuel with Total Cumulative Gross Savings of ~$280 million

Initiates Fiscal 2022 Outlook for growth in Organic Net Sales, Adjusted EPS and Adjusted EBITDA

Announces intent to repurchase approximately $300 million in common shares over the next three fiscal years

SHELTON, Conn., Nov. 11, 2021 /PRNewswire/ -- Edgewell Personal Care Company (NYSE: EPC) today announced results for its fourth fiscal quarter 2021 and fiscal year ended September 30, 2021 and provided its financial outlook for fiscal 2022.

Executive Summary

- Net sales were $543.2 million in the fourth quarter of fiscal 2021, an increase of 11.1% compared to the prior year quarter, and $2,087.3 million for the full year, an increase of 7.1% compared to the prior year.

- Organic net sales increased 8.4% for the quarter and 3.7% for the full year. (Organic basis excludes the impact from the sale of the Infant and Pet Care business, the acquisition of Cremo Holding Company, LLC, and the translational impact from currency.)

- GAAP Diluted Earnings Per Share ("EPS") were $0.80 for the fourth quarter and $2.12 for fiscal year 2021.

- Adjusted EPS were $1.01 for the fourth quarter and $3.02 for the full year.

- The Company ended the fiscal fourth quarter with $479.2 million of cash on hand, access to an undrawn $425.0 million credit facility and a net debt leverage ratio of 2.1 times.

The Company reports and forecasts results on a GAAP and Non-GAAP basis and has reconciled Non-GAAP results and outlook to the most directly comparable GAAP measures later in this release. See Non-GAAP Financial Measures for a more detailed explanation, including definitions of various Non-GAAP terms used in this release. All comparisons used in this release are with the same period in the prior fiscal year unless otherwise stated.

"We had a strong finish to our fiscal year with a fourth quarter organic sales increase of over 8% and an operating income increase of over 50%. Our top-line strength was broad based, with growth in both our North America and International markets, as well as across all segments, said Rod Little, Edgewell's President and Chief Executive Officer.

"A year ago, we launched our new growth strategy and our full year performance is clear evidence of the progress we have made. This is a testament to our team members who have executed with excellence in a challenging environment, as we made meaningful investments in our brands and products, launched innovation and increased digital engagement. This resulted in organic net sales growth of nearly 4% for the fiscal year, gross margin accretion and meaningful increases in adjusted EBITDA and EPS." Mr. Little continued.

"Looking to fiscal 2022, we are encouraged by the improving demand environment, but also face a challenging marketplace, with on-going supply chain disruptions and significant cost inflation. Against this backdrop, we feel confident in our ability to sustain top-line growth with continued progress on the key strategic priorities that support our long-term strategy. We will continue to invest in our brands and capabilities while accelerating our productivity and efficiency efforts to drive adjusted EPS and EBITDA growth. The fundamental strength of our performance, our confidence in the ongoing free cash flow profile of our business, and our commitment to a disciplined and balanced approach to capital allocation, collectively supports our ambition to repurchase $300 million of common stock over the next three fiscal years."

Fiscal 4Q 2021 Operating Results (Unaudited)

Net sales were $543.2 million in the quarter, an increase of 11.1%. Excluding an $11.1 million positive impact from the Cremo acquisition and a $2.2 million positive impact from currency movements, organic net sales increased 8.4% . North America organic net sales increased 11.0% driven by strong growth in Sun Care and Grooming, Women's Systems, Disposables and Feminine Care. International organic net sales increased 5.6%, driven by growth in Sun Care and Women's Systems.

Gross profit was $244.8 million, as compared to $222.1 million in the prior year period. Gross margin as a percent of net sales was 45.1%, a decrease of 30 basis points as compared to the prior year period. Adjusted gross margin percentage decreased 30 basis points compared to the prior year period, as the benefit of gross savings from Project Fuel, product mix and pricing were more than offset by higher commodity and supply chain costs, as well as the previously communicated impact from Japan returns, ahead of the Hydro brand relaunch.

Advertising and sales promotion expense ("A&P") was $50.0 million, or 9.2% of net sales, as compared to $60.6 million, or 12.4% of net sales in the prior year period. The decreased spending in the quarter was in line with expectations and reflects the timing of new product launches and marketing campaign executions. Digital spending represented over 60% of overall advertising spend in the quarter.

Selling, general and administrative expense ("SG&A") was $107.2 million, or 19.7% of net sales, as compared to $101.0 million, or 20.7% of net sales in the prior year period. Adjusted SG&A, which excludes restructuring charges and acquisition and integration costs, was essentially flat with the prior year period as a percent of net sales, with the benefit of sales leverage in the current quarter and gross Project Fuel savings partly offset by the impact of Cremo overhead costs and higher incentive costs, some of which were one-time in nature.

The Company recorded pre-tax restructuring and other non-recurring expenses of $16.9 million in the quarter in support of Project Fuel and business development and integration efforts, consisting largely of severance and outplacement, IT enablement and consulting costs.

Operating income was $63.2 million compared to $41.3 million in the prior year, an increase of 53%. Adjusted operating income was $80.1 million in the quarter, compared to $56.8 million in the prior year period, with adjusted operating profit margin increasing 310 basis points as a percentage of net sales.

GAAP net earnings for the quarter were $44.1 million or $0.80 per share compared to $21.0 million or $0.38 per share in the fourth quarter of fiscal 2020. Adjusted net earnings in the quarter were $55.7 million or $1.01 per share, as compared to $32.6 million or $0.59 per share in the prior year period. The increase in adjusted net earnings was driven by higher adjusted operating income and a lower effective tax rate. Adjusted EBITDA was $102.3 million compared to $80.3 million in the prior year period.

Project Fuel

Project Fuel was an enterprise-wide transformational initiative that was launched in the second fiscal quarter of 2018 and completed at the end of fiscal 2021. The project addressed all aspects of Edgewell's business and cost structure, simplifying and transforming the organization, structure and key business processes.

Fiscal fourth quarter 2021 Project Fuel related gross savings were approximately $15 million, bringing final cumulative gross savings for the project to approximately $280 million. The savings generated have been used to fuel investments and brand building in strategic growth initiatives, mitigate operational cost headwinds from inflation and other rising input costs and improve the overall profitability and cash flow of the Company.

To implement the restructuring element of Project Fuel, the Company incurred one-time pre-tax charges of approximately $164 million through the end of the 2021 fiscal year.

Fiscal 4Q 2021 Operating Segment Results (Unaudited)

The following is a summary of fourth quarter results by segment:

Wet Shave (Men's Systems, Women's Systems, Disposables and Shave Preps)

Wet Shave net sales increased $12.4 million, or 3.8%. Organic net sales increased $11.8 million or 3.6%, driven by on-going growth in Women's shave, both branded and private label, and higher consumption across the full category. By region, North America organic net sales increased 3% while International markets increased 4.2%. Wet Shave segment profit increased $15.2 million, or 23.7%, driven by higher sales and gross profit, as well as lower A&P spending.

Sun and Skin Care (Sun Care, Wipes, Bulldog, Cremo and Jack Black)

Sun and Skin Care net sales increased $35.1 million, or 37.9%. Organic net sales increased $22.8 million, or 24.6%. The increase in organic net sales was primarily driven by Sun Care growth of 56%, reflecting increased consumption and market share gains in the U.S., and Men's Grooming, which increased 20.8%, including strong September sales from Cremo and accelerated growth from Jack Black. Wet Ones organic net sales decreased 6.2% in the quarter. Sun and Skin Care segment profit increased $11.1 million, driven by increased volumes and higher gross margin, partly offset by higher A&P spending.

Feminine Care (Tampons, Pads and Liners)

Feminine Care net sales increased $6.9 million, or 9.9%. Organic net sales increased $6.5 million, or 9.4%, driven by increased consumption and market share growth in Tampons. Feminine Care segment profit increased $0.2 million, or 2.2%.

Fiscal 2021 Operating Results (Unaudited)

Net sales were $2,087.3 million in fiscal 2021, an increase of 7.1%. Excluding the impact of the Cremo acquisition, the divestiture of the Infant and Pet Care business and currency movements, organic net sales increased 3.7%. The increase in organic net sales was largely driven by improving consumption across all categories and strong growth in Sun Care, Women's Shave and Men's Grooming. By region, organic net sales increased in North America by 5.2% and in International markets by 1.4%.

Gross Margin was $950.1 million compared to $880.9 in the prior year. Gross profit as a percent of net sales was 45.5%. Adjusted gross margin as a percent of net sales increased by 30 basis points, driven by gross savings from Project Fuel and favorable price and promotion, partially offset by rising commodity and supply chain costs and higher obsolescence charges.

A&P was $241.5 million or 11.6% of net sales, up $25.3 million from the prior year. A&P as a percent of net sales was 11.1% for the prior year. The increase in A&P was primarily driven by increased investments to support critical commercial efforts, including; the Schick Hydro relaunch, Stubble Eraser innovation, and Skintimate and Sun Care in-season support.

SG&A was $391.2 million, or 18.7% of net sales, including $22.0 million of intangibles amortization. Adjusted SG&A as a percent of net sales was 18.0%, a decrease of 30-basis points compared to the prior year, as stronger cost control and the benefit of sales leverage more than offset investments made in increased talent and capabilities and unfavorable foreign currency fluctuations.

Operating income was $238.8 million compared to $176.0 million in the prior year, an increase of 36%. Adjusted operating income was $278.4 million, compared to $258.5 million in the prior year period, with adjusted operating profit margin flat with the prior year.

The effective tax rate for fiscal 2021 was 19.8% as compared to 22.6% in the prior year. The adjusted effective tax rate for fiscal 2021 was 21.2%, down from the prior year period adjusted tax rate of 22.5%. The fiscal 2021 effective tax rate reflects a more favorable mix of foreign earnings while fiscal 2020 includes the unfavorable impact of the sale of Infant and Pet Care business.

GAAP Net earnings in fiscal 2021 were $117.0 million or $2.12 per share, compared to $67.6 million or $1.24 per share in fiscal 2020. Adjusted net earnings were $166.7 million or $3.02 per share, compared to $148.8 or $2.73 per share in fiscal 2020.

Net cash from operating activities was $229.0 million for fiscal 2021, as compared to $232.6 million for the prior year. The slight decrease in fiscal 2021 was primarily a result of net cash outflow from working capital in the current period compared to an inflow from working capital changes in the prior year period, partially offset by improved earnings compared to the prior year period.

Capital Allocation

On November 4, 2021, the Board of Directors declared a quarterly cash dividend of $0.15 per common share for the fourth fiscal quarter. The dividend is payable January 6, 2022 to stockholders of record as of the close of business on December 3, 2021.

During fiscal 2021, the Company completed repurchases of 250,000 shares for a cost of $9.2 million. The Company has 9.75 million shares of common stock available for repurchase in the future under the Board's 2018 authorization.

As a part of the Company's capital allocation strategy the Company plans to implement a more consistent approach to share repurchases and intends to repurchase approximately $300 million in EPC common shares over the next three fiscal years. Additionally, the Company intends to enter into a Rule 10b5-1 trading plan to facilitate the repurchase of its common shares in accordance with this share repurchase program.

Full Fiscal Year 2022 Financial Outlook

The Company is providing the following outlook assumptions for fiscal 2022:

Reported net sales to increase low-single digits
Includes: 110 basis-point negative impact from currency translation
Organic sales to increase low-single digits
GAAP EPS in the range of $2.73 to $3.01
Includes: Restructuring charges* of $17 million and Sun Care Monograph costs of approximately $2 million
Adjusted EPS in the range of $2.98 to $3.26
The EPS outlook includes an assumption that share repurchases will offset dilution only.
Adjusted EBITDA in the range of $365 to $385 million
Adjusted effective tax rate to be in the range of 22% to 23%
Capital expenditures approximately 3.0% of net sales
Free cash flow expected to be approximately 100% of GAAP net earnings
* In Fiscal 2022, the Company will take specific actions to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency. As a result of these actions, we expect to incur one-time charges of approximately $17 million.

Webcast Information

In conjunction with this announcement, the Company will hold an investor conference call beginning at 8:00 a.m. Eastern Time today. All interested parties may access a live webcast of this conference call at www.edgewell.com, under the "Investors," and "News and Events" tabs or by using the following link: http://ir.edgewell.com/news-and-events/events

For those unable to participate during the live webcast, a replay will be available on www.edgewell.com, under the "Investors," "Financial Reports," and "Quarterly Earnings" tabs.

About Edgewell

Edgewell is a leading pure-play consumer products company with an attractive, diversified portfolio of established brand names such as Schick® and Wilkinson Sword® men's and women's shaving systems and disposable razors; Edge® and Skintimate® shave preparations; Playtex®, Stayfree®, Carefree® and o.b.® feminine care products; Banana Boat®, Hawaiian Tropic®, Bulldog®, Jack Black®, and CREMO® sun and skin care products; and Wet Ones® products. The Company has a broad global footprint and operates in more than 50 markets, including the U.S., Canada, Mexico, Germany, Japan, the U.K. and Australia, with approximately 6,900 employees worldwide.

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