Edgewell Personal Care Co (EPC)

[Enterprising Investor]

Edgewell Personal Care Announces Third Quarter Fiscal 2022 Results (8/04/22)

Net Sales Increase of 8.7%, with 9.0% Organic Growth

Reiterates Organic Net Sales Outlook, Narrows Range for Adjusted EPS and EBITDA for Fiscal 2022

SHELTON, Conn., Aug. 4, 2022 /PRNewswire/ -- Edgewell Personal Care Company (NYSE: EPC) today announced results for its third fiscal quarter 2022 ended June 30, 2022.

Executive Summary

- Net sales were $623.8 million, an increase of 8.7% compared to the prior year period.

- Organic net sales increased 9.0% compared to the prior year period. (Organic basis excludes the impact of the Billie acquisition and the negative translational impact from currency.)

- GAAP Diluted Earnings Per Share ("EPS") were $0.57 for the third fiscal quarter compared to $0.74 in the prior year period.

- Adjusted EPS were $0.86 for the third quarter, compared to $0.89 in the prior year period.

- Ended the third fiscal quarter with $182 million in cash on hand, access to an additional $298 million revolving credit facility and a net debt leverage ratio of 3.5x.

- Repurchased $35 million of its common stock and paid $8 million of dividends in the third fiscal quarter in support of its capital allocation strategy.

- Board of Directors declared a cash dividend of $0.15 per common share on July 29, 2022 for the third fiscal quarter.

- Maintains organic net sales outlook, reflecting continued good demand and incremental pricing, and narrows the range for adjusted EPS and EBITDA.

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.

"Our fiscal third-quarter results reflect the continued execution of our strategy with strong organic net sales growth and solid earnings, both of which exceeded our expectations despite the volatile macro environment," said Rod Little, Edgewell's President and Chief Executive Officer. "Growth in the quarter was driven by strong volume growth and price, and was broad-based, with increases across both our North America and International markets, as well as in all segments, with accelerated growth in Sun Care and Feminine Care. Importantly, we delivered another quarter of market share gains in the U.S., further evidence that our brand building efforts are being well received by consumers. Looking ahead, we are firmly on track to deliver a second consecutive year of mid-single-digit organic net sales growth."

Fiscal 3Q 2022 Operating Results (Unaudited)

Net sales were $623.8 million in the quarter, an increase of 8.7% including a net impact of $21.1 million or 3.7% from the acquisition of Billie and a $22.4 million or 4.0% negative impact from currency. Organic net sales increased 9.0%, reflecting increased volumes and higher pricing in the quarter. North America organic net sales increased 9.3% while International markets increased 8.4%.

Gross profit was $240.6 million, as compared to $270.3 million in the prior year period. Gross margin as a percent of net sales for the third quarter of fiscal 2022 was 38.6% as compared to 47.1%. Adjusted gross margin was 42.2% compared to 47.2%, decreasing 500-basis points compared to the prior year quarter, as a 440-basis point net impact from higher commodity and transportation related costs net of productivity savings, and a 190-basis point combined impact from negative mix, higher trade spend and unfavorable currency, was only partly offset by the benefit from pricing.

The Company recorded a pre-tax charge to cost of goods sold of $22.5 million for the write off of inventory of certain Wet Ones SKUs and a related production contract termination charge which has been excluded from Adjusted gross margin.

Advertising and sales promotion expense ("A&P") decreased $1.0 million to $80.9 million, or 13.0% of net sales, as compared to $81.9 million, or 14.3% of net sales in the prior year quarter, as increased spending in support of Billie, Feminine Care and sun season execution was offset by lower spending in International markets due to COVID, and a shift in spend in North America to trade related spend.

Selling, general and administrative expense ("SG&A") was $92.7 million, or 14.9% of net sales, as compared to $97.5 million, or 17.0% of net sales in the prior year quarter. Adjusted SG&A decreased 40-basis points as a percent of net sales, as improved sales leverage, benefits from operational efficiency programs, and favorable currency translation more than offset the impact of the Billie acquisition, including amortization, and higher compensation expense.

The Company recorded pre-tax restructuring and other non-recurring expenses of $3.9 million in the quarter, consisting largely of severance and outplacement, as well as $0.9 million in acquisition and integration costs related to the Billie acquisition. The Company also recorded a $7.5 million gain related favorable legal settlement which has been excluded from adjusted SG&A.

Operating income was $49.9 million compared to $71.1 million in the prior year quarter. Adjusted operating income was $70.3 million, or 11.3% of net sales compared to $80.6 million in the prior year quarter.

Interest expense associated with debt for the third quarter of fiscal 2022 was $18.0 million, compared to $16.4 million in the prior year quarter. The increase in interest expense was the result of higher overall debt balance from draws on the Revolving Credit Facility in fiscal 2022 primarily to finance the acquisition of Billie.

Other (income) expense, net was income of $4.4 million in the third quarter of fiscal 2022, compared to an expense of $0.8 million in the prior year quarter. The increase in income was driven by favorable foreign currency hedge settlements compared to the prior year period, which helped to offset other negative operational impacts from currency.

The effective tax rate for the first nine months of fiscal 2022 was 18.5% compared to 26.1% in the prior year period. The adjusted effective tax rate for the first nine months of fiscal 2022 was 20.0%, down from the prior year nine-month adjusted effective tax rate of 24.8%. The fiscal 2022 effective and adjusted tax rates reflect a favorable mix of earnings in low tax jurisdictions combined with a favorable impact of a change in prior estimates.

GAAP net earnings for the quarter were $30.5 million or $0.57 per share compared to $40.8 million or $0.74 per share in the third quarter of fiscal 2021. Adjusted net earnings in the quarter were $45.8 million or $0.86 per share, compared to $49.2 million or $0.89 per share in the prior year period, and adjusted EBITDA was $97.1 million compared to $101.2 million in the prior year period.

Net cash from operating activities was $72.4 million for the nine months ending June 30, 2022 compared to $155.9 million in the prior year period, driven by a larger net working capital build.

Capital Allocation

On July 29, 2022, the Board of Directors declared a quarterly cash dividend of $0.15 per common share for the third fiscal quarter. The dividend will be payable on October 5, 2022 to shareholders of record as of the close of business on September 2, 2022. During the third quarter of fiscal 2022, the Company paid dividends totaling $8.0 million to stockholders.

During the third quarter of fiscal 2022, the Company completed share repurchases of approximately 1.0 million shares at a total cost of $34.7 million. For the first nine months of fiscal 2022, the Company completed share repurchases of approximately 2.9 million shares at a total cost of $110.1 million. As of June 30, 2022 The Company has 6.9 million shares of common stock available for repurchase in the future under the Board's 2018 authorization.

Fiscal 3Q 2022 Operating Segment Results (Unaudited)

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

Net sales increased $21.4 million, or 7.0%. Organic net sales increased $19.1 million or 6.3%, driven by increases in Men's and Women's Systems, Disposables, and Shave Preps. Organic net sales in North America increased 5.2%, reflecting higher volumes and price, while International organic net sales increased 7.1%, primarily driven by higher volumes. Wet Shave segment profit decreased $5.6 million, or 13.0%. Organic segment profit, excluding the negative impact from currency translation and the acquisition of Billie was essentially flat, reflecting lower gross profit, offset by lower spending.

Sun and Skin Care (Sun Care, Wet Ones, Bulldog, Jack Black and Cremo)

Net sales increased $21.0 million, or 10.8%. Organic net sales increased $24.6 million, or 12.6%, largely driven by Sun Care growth of about 15%, reflecting distribution and market share gains in North America, stronger than expected early season consumption and the continued recovery in International travel. Additionally, Grooming organic net sales increased 7.5%, driven by 14% growth in International, while Wet Ones organic net sales returned to growth, increasing 7.4%. Segment profit increased $1.6 million, or 3.6%. Organic segment profit increased $2.2 million, or 4.9%, driven largely by higher sales.

Feminine Care (Tampons, Pads, and Liners)

Net sales increased $7.7 million, or 10.5%, reflecting higher category consumption and pricing, and the impact of improved product availability and shelf replenishment. Segment profit decreased $4.9 million or 35.8%. Organic segment profit decreased $4.8 million or 35.1%, largely driven by lower gross profit, reflecting higher commodity and transportation related costs, as well as increased A&P support.

Full Fiscal Year 2022 Financial Outlook

The Company is updating its previously provided outlook assumptions for fiscal 2022 to reflect the impact of third fiscal quarter results and projected impacts of the strengthening of the U.S. dollar against most major currencies.

- Reported net sales expected to increase approximately 4%

Includes an estimated 340-basis point increase from the acquisition of Billie, net of Edgewell sales to Billie

Updated to include an estimated 310-basis point negative impact from currency translation (previously 200-basis point negative impact)

- Organic sales expected to increase approximately 4%

- GAAP EPS expected to be in the range of $1.83 to $1.93 (previously $1.93 to $2.21)

Includes: Restructuring charges, SKU rationalization charges, acquisition and
integration costs, Sun Care reformulation costs, value added tax settlement
costs, and income from a legal settlement

- Adjusted EPS expected to be in the range of $2.50 to $2.60 (previously $2.38 to $2.66)
Range is updated to reflect year-to-date performance, estimated negative effect
of unfavorable foreign currency, and the incremental benefit of share
repurchases not included in the previous outlook. Fiscal year adjusted gross
margin is now expected to decline 390-basis points (previously 350-basis point
decline) in equal part due to negative currency impacts and the impact of
negative channel and category mix.

The EPS outlook reflects the impact of total fiscal year-to-date share repurchases through June 30, 2022
Adjusted EBITDA expected to be in the range of $335 to $340 million (previously $330 to $345)

- Adjusted effective tax rate expected to be in the range of 21% to 22%

- Total depreciation and amortization expense expected to be $91 million (previously $91.5 million)

- Expected capital expenditures expected to be approximately 2.7% to 3.0% of net sales

Free cash flow expected to be above 100% of GAAP net earnings

*In Fiscal 2022, the Company is taking specific actions to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency and productivity. As a result of these actions, the Company expects to incur one-time charges of approximately $15 million, inclusive of $9.8 million incurred in the first nine months of fiscal 2022.

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. This release includes references to the Company's website and references to additional information and materials found on its website. The Company's website and such information and materials are not incorporated by reference in, and are not part of, this release.

About Edgewell

Edgewell is a leading pure-play consumer products company with an attractive, diversified portfolio of established brand names such as Schick®, Wilkinson Sword® and Billie® 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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