Edgewell Personal Care Company

Good day and welcome to the Edgewell Personal Care Q2 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chris Goff. Please go ahead.

Good morning, everyone, and thank you for joining us this morning as we discuss Edgewell's second quarter 2020 earnings. With me this morning are Rod Little, our President and Chief Executive Officer, and Dan Sullivan, our Chief Financial Officer. Rod will kick off the call, and he will hand over to Dan to discuss our results, and we will then transition to Q&A. This call is being recorded and will be available for replay via our website, www.edgewell.com. 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 restructuring, 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-end of September 30, 2019, 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 a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures as 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'm leading this call today from my home here in Fairfield County, Connecticut. And Dan is similarly at his home and is prepared to jump in should I have any technical difficulties. Our executive leadership team and office staff have been working remotely for nearly two months now. And we are all doing our part to social distance and help prevent the spread of COVID-19. I will begin my remarks by providing an overview of the company's response to the COVID-19 outbreak. followed by a brief discussion of the progress we continue to make on our strategic initiatives. And I'll end with a few comments on the second quarter and current business trends, as well as the likely near and medium-term implications for our business. Then Dan will review our financial results in more detail and also provide a framework for how we are approaching the back half of the year. First and foremost, our thoughts today are with all of those impacted by this pandemic, And we are deeply grateful to our brave medical professionals, first responders, and essential workers for their tireless dedication during these extremely challenging times. At Edgewell, our focus during this time has been on three key priorities, which are first, the health and safety of our associates, second, ensuring the continuity of our business operations, and third, managing the business in a disciplined and balanced manner. First, the health and safety of our associates has been and will continue to be our number one priority. And we have swiftly implemented advanced protocols to protect them. With our people first mindset in the early days of the COVID-19 pandemic, we were quick to implement business travel bans across the company. Initially with international travel and then including domestic travel as the situation evolved. We also made the decision early to close all non-plant locations and to move to remote work for all of those who were able to do so. In most cases, well ahead of local guidelines and requirements. Leveraging our strong suite of collaboration tools and broader technology platform and our existing flexible work policies, the transition to working remotely was largely seamless with no material business disruption. Along the same lines, we swiftly took the necessary steps to ensure our manufacturing plants were safe for our associates still coming in every day. Many of the products we make are essential to our consumers, especially during these unprecedented times. And we take very seriously our obligation to ensure that our team members on the front lines are working in a safe environment. We implemented enhanced safety protocols in our facilities around the world. in line with the CDC and other governmental guidelines. We heightened cleaning and disinfecting policies, required the use of PPE, adhered to strict social distancing, and installed thermal scans upon entry and exit of all plants. In the U.S., we implemented our emergency pandemic leave policy, which guarantees pay for up to 12 weeks, allowing our associates to make informed decisions for themselves without having to use paid time off. These efforts combined with our additional safety precautions have so far restricted any spread of the virus within our facilities. Turning to our second priority, which is ensuring the continuity of our operations. We were initially faced with the challenges of COVID-19 in early January, given our manufacturing operations in China. And our successful efforts there in developing robust operational mitigation plans and necessary contingency plans served us well as the virus spread, requiring we address our operations around the globe. In all markets, our teams have maintained close contact with local governments and authorities to manage our status as an essential business and work to ensure uninterrupted operations. Additionally, the teams have enhanced product quality, regulatory, and safety assessments, proactively addressed and managed potential vendor supply risk, and developed and implemented strategic inventory reallocation plans. I'm happy to report that due to the diligent work of our operations leadership, all of our global manufacturing plants and distribution centers remain open and fully operational. At Edgewell, we are a values-driven company, and we know that our products directly impact the quality of life of many. And we recognize that we also have a responsibility to the larger communities we serve. Wet Ones, the number one brand in the hand hygiene segment, is playing an important role in improving hand hygiene and cleanliness, and we are proud to help support those most in need. with product donations to organizations such as the American Red Cross, Feed the Children, and numerous homeless shelters where the need is significant. Additionally, we are honored to show our support and appreciation for our frontline responders with product donations to various police, EMT, fire, and medical groups across the globe. Through our brands and in partnership with many in our retail Many of our retail partners, we have supplied thousands of healthcare workers with wet shave kits, as many hospitals are now requiring men to have a clean shave as part of proper mask safety protocol. And finally, we have donated moisturizer from our Hawaiian Tropics line to nursing staffs whose hands suffer from the increased sanitation routines. Moving to our third priority, we continue to manage the business in a highly disciplined and balanced way. This means making the right choices and focusing on key priorities that are most relevant in the near term during this uncertain and rapidly evolving period, while continuing to make progress on the strategic priorities that will drive our long-term success. To preserve our financial strength, we are closely managing discretionary spend, reassessing the effectiveness of some trade investment and brand support, including advertising and promotional activity, and reprioritizing all planned capital investment. Our balance sheet is healthy, and we successfully increased our liquidity with the recent refinancing of our revolver, which we announced earlier in the quarter. And Dan will elaborate on our increased focus on liquidity shortly. As we navigate these uncertain times, we are also preparing for a post-COVID-19 environment. and we remain focused on the strategic priorities we discussed last quarter, which include, first, innovating and building brands consumers love. We are continuing to build out our capabilities across our R&D and commercial organizations, and I'm excited by the significant steps we have taken to become more consumer-centric in the development of our innovation pipeline. As I indicated last quarter, Continuing to add top talent in critical roles remains top of mind for us, and we are progressing well in identifying key successors in roles across our commercial organization, including the new president of North America business and key leadership roles across our digital and e-commerce organization. More specifically, with respect to the president of North America role, We have been very pleased with the caliber of candidates, and we are in the final stages of the process. I look forward to being able to announce this appointment in the coming weeks. Second, we are building strategic partnerships with most important retailers to win at the shelf. As we've seen over the past month, strong collaboration and partnership are essential to maintaining enduring, mutually beneficial relationships with our key channel partners. As I spend more time with many of these key trade partners, I'm encouraged by their continued support to strengthen the Edgewell portfolio of brands. Third, we will continue to drive efforts to strengthen our competitiveness through project fuel, maintaining our focus on generating efficiencies that in turn enable continued investment in growth opportunities. Fourth, as I mentioned earlier, we will continue to maintain a strong balance sheet. deploying our healthy free cash flow in a balanced and disciplined manner. This financial strength gives us flexibility as we navigate a potentially challenging demand environment in the near term. Lastly, and most importantly, our people are foundational to our success. Talent profile and work environment for our employees are critically important. Little did we know a quarter ago how prescient our focus on this priority would prove to be. We will continue our commitment to creating a culture that attracts and retains world-class talent and drives engagement among our team. Before handing over to Dan, let me make a few comments on the second quarter and current business trends. Overall, the second quarter played out largely as we had expected, with broader performance strengthening year over year. Excluding estimated COVID-19 impacts, the business continued a flattish top-line trend with gross margins continuing to strengthen. Our organic top-line results were boosted by strong sales in wet ones, where we expect higher demand to continue for the foreseeable future, and by consumer stock up in feminine care, where again, we continue to see solid performance through April. As you know, we had already strategically determined the importance of these two categories to our business and we were investing behind these brands. As COVID-19 creates added consumer focus on overall personal hygiene and likely drives consumers to turn to established brands they can trust, we are well positioned for sustainable success. In wet shave, our results are largely in line with our expectations. However, within the segment, there was softness across our Asia Pacific region, as COVID-19 negatively impacted the results earlier in the quarter, which was mitigated by modest consumer stock up in the United States in the month of March. In Suncare, we began to see customers cancel some March orders, and we have seen further order delays in April. As a result, We see continued increases in demand for wet ones in our feminine care brands, but we do expect softness in wet shave and sun care in the near term. Given the lack of visibility and a wide range of outcomes for the remainder of the year, we have withdrawn our guidance. More broadly, despite the near-term challenges in sun care and to a lesser degree wet shave, we continue to believe that we are well positioned in this environment and longer term. The effects of this pandemic have been devastating to so many, and we are moving as quickly as possible to meet the changing needs of consumers that this environment has created. As I mentioned earlier, we will be among the beneficiaries of increased consumer focus on health and hygiene, and our continued investments in expanding our digital capabilities will serve us well, given what we believe will be an accelerated and lasting consumer shift to e-commerce. Environments like this require efficiency and agility, and we have made great strides in these areas in my first year in the role. Before turning the call over to Dan, I want to thank our team across the entire company. Our people are our greatest asset, and I am so proud of the resiliency and commitment of our team members, especially those in our manufacturing and distribution centers who have worked courageously and tirelessly to ensure that we remain fully operational during these challenging times. And now I'd like to ask Dan to take you through our fiscal second quarter results and discuss how we are approaching the second half of the year.