Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Edgewell Personal Care Co (EPC, Financial) reported strong financial results with a 19% year-over-year adjusted EBITDA growth and over 50% adjusted earnings per share growth, both exceeding expectations.
- The company achieved significant gross margin gains of over 300 basis points, driven by accelerated realization of productivity initiatives and strategic revenue management efforts.
- Edgewell Personal Care Co (EPC) saw a double-digit increase in its right to win portfolio, driven by market-leading Sun Care and Grooming businesses and continued growth across international markets.
- The company successfully executed the relaunch of the Wilkinson Sword brand and experienced organic growth in Japan, contributing to a strong international market performance.
- Edgewell Personal Care Co (EPC) increased operating cash flow by $54 million and invested over $111 million in support of its brands, demonstrating a strong commitment to growth and innovation.
Negative Points
- Organic net sales growth was slight and below expectations, primarily due to challenging performance in the right to play categories in North America.
- In North America, category consumption softened, leading to declines in Wet Shave and Sun Care sales.
- The company faced transitory factors such as the cycling of last year's MPD pipeline fill at Costco and retailer efforts to reduce safety stock levels across Sun Care.
- Wet Shave organic net sales were down 4.5%, with declines in men's and women's systems and preps, reflecting challenges in the drug channel and heightened promotional levels.
- Fem Care organic net sales declined by 12% for the quarter, more than expected, impacted by retailer destocking and executional delays in planogram resets.
Q & A Highlights
Q: Can you comment on the shelf resets being delayed across many companies? What specific dynamics are causing this?
A: Rod Little, President and CEO of Edgewell Personal Care Co, explained that the broader issue causing delays in shelf resets is a lack of labor at the store level, which could be a macro factor. Specifically for Edgewell, the significant impact was in the Fem Care segment, where the planogram reset expected in March-April was delayed to May. This delay was particularly impactful as it coincided with the launch of their Carefree master brand, leading to stockouts when they had already run down inventory in anticipation of the reset.
Q: How is the drug channel's performance affecting your business, and do you foresee this continuing to impact your future results?
A: Rod Little noted that Edgewell is disproportionately impacted by issues in the drug channel due to their significant presence there. Challenges include double-digit declines in foot traffic and operational issues at major drugstores. He anticipates these issues will continue to drag on performance as they cycle through, compounded by the bankruptcy of Rite Aid, which was a significant customer.
Q: What are the early indications for the Sun Care category as you move into the fiscal third quarter?
A: Rod Little reported a strong start internationally and domestically for Sun Care, with 12% organic growth in both markets. Despite early season weather challenges in the U.S., the outlook is positive with improved weather forecasts and strong retail execution, including new product introductions like Banana Boat 360.
Q: Can you discuss the dynamics affecting the Wet Shave category and its performance going into the third quarter?
A: Rod Little acknowledged challenges in the Wet Shave category, particularly in the drug channel. However, he highlighted that issues such as increased promotional intensity and consumer behavior changes, like extending product usage, are affecting category performance. Despite these challenges, international growth remains strong.
Q: What is your outlook for the North America business relative to international in the back half of the year, particularly for Wet Shave?
A: Daniel Sullivan, CFO, indicated that while North America might grow at a lower rate, international markets are expected to continue growing at a mid-single-digit rate, outpacing North America. The company profiles the total company growth at about 2.5% for the back half of the year, cycling from a lower growth rate the previous year.
Q: How are you managing A&P spending levels given the current market conditions and compared to industry peers?
A: Daniel Sullivan explained that Edgewell is focused on ROI and adjusts A&P spending based on effectiveness rather than sticking to fixed percentage targets. They are shifting some funds towards shelf and retail execution to adapt to competitive moves and market dynamics. Rod Little added that as gross margins improve, they plan to reinvest in A&P to support growth, backed by enhanced internal analytics for better spending decisions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
