Edgewell Personal Care Company

Good morning and welcome to the HUL conference call. All participants will be in a listen-on mode. Should you need assistance during the call, please press star zero for an operator. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one. Please note, this event is being recorded. I would now like to turn the conference over to the speakers. Please go ahead.

Good morning, everyone. This is Chris Goff, VP of Investor Relations. Thank you for joining us this morning as we discuss Edgewell's third quarter 2020 earnings and the Cremo acquisition. 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 it 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. In addition to the comments we're making on this call, we have posted several supplementary slides to our website that provide additional information on our quarterly results and the acquisition of CREMA. 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 caption risk factors in our annual report on Form 10-K for the year ended September 30th, 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 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'd like to turn the call over to Rod.

Thanks, Chris, and hello, everyone. I hope everyone is doing well and staying safe and healthy as we work our way through this pandemic. Today I'll begin my remarks by providing an update on the current environment and its impact on our results. I'll then discuss our third quarter performance and the progress we continue to make on our strategic initiatives before finishing with the announcement we made earlier this morning about our intent to acquire Cremo. Dan will then review our financial results in more detail, provide further details on the planned Cremo acquisition, and share some thoughts on how we are approaching the final quarter of our fiscal year. Since we last spoke, the pandemic has spread across the globe with far-reaching impact in the categories in which we compete, and therefore on our business, as you saw in our results posted earlier this morning. COVID-19 had a considerable impact on our sales in our core categories in the quarter. The difficult conditions we saw in April worsened in the month of May with some moderation in June. Within this challenging environment, characterized by significant declines across all of our categories, I am encouraged by many elements of our relative performance. In the U.S., we saw strong market share gains in our sun care and preps businesses and stabilization in branded wet shave. And as the market leader in the category, wet ones saw another quarter decrease of accelerated growth and market share gains. Internationally, we drove gains in our wet shave business in Japan, which is our second largest market, as well as improving share performance in Europe. As we described a quarter ago, we remain focused during this challenging period on three key priorities. First, the health and safety of our colleagues. ensuring the continuity of our business operations and providing the best possible service to our customers. And third, managing the business in a disciplined and balanced manner while ensuring we continue to invest in the long-term success of the company. We've made progress on all of these priorities. With the health and safety of our associates being our number one priority, the protocols we've put in place as far back as December of last year have helped ensure the ongoing safety and well-being of our colleagues. The steps taken to ensure safe operations at our manufacturing plants maintain the continuity of production and availability of essential products to consumers. And as such, all of our global manufacturing plants and distribution centers remain open and fully operational. We are also slowly beginning the process of bringing our teams back to offices around the world on a voluntary basis. We'll get into more detail and specific actions we've taken to strengthen the company for both the short and long term in a moment. But first, let me provide some color on the current environment across our markets and our top line business results in the quarter. The significant impact of COVID-19 was evident in our organic net sales decline of 14.7% in the quarter. However, we estimate that excluding COVID-19 impacts, the business continued on a flat to slightly down top line trend. Organic sales in the quarter were most negatively impacted in sun care as store traffic, holiday travel, resort business, and outdoor activities were significantly curtailed by COVID-19. Suncare, which represents approximately 20% of total company sales, accounted for nearly half of the year-over-year decline. Leading into this Suncare season, I was pleased with our preparation and execution, highlighted by strong innovation, robust shelf positioning across the channels, solid off-aisle placements, and strong initial in-stock positions. all while successfully implementing a 5% increase in price across the U.S. mass and drug channels. So while COVID-19 has now meaningfully impacted the overall category, the 370 basis points of share gains we realized in the U.S. in the third quarter offer some validation of our strong execution and position us well as the category returns to more normal conditions over time. Wet shave was also impacted by COVID-19 and the resulting stay-at-home trends that are headwinds to shaving regimens, with organic nut sales declining 14% in the quarter. Rounding out the sun and skin care segment, we had strong organic sales growth in wet ones, increasing 52% over the prior year and 6% over the prior quarter, while remaining on track to add additional capacity in the coming weeks. Permanent care saw a reversal of last quarter's pantry load, as well as the impact of expected distribution losses. From a market share perspective, we are in a more stable position than we were a year ago. During the most recent 12-week period, we've seen market share growth in razors and blades in Asia, fairly stable and improving trends in Europe, and although the U.S.-branded business is still declining, share losses have stabilized. and are in line with the 52-week trend despite lost distribution in Sam's Club and further competitive rollouts. And as mentioned, we've seen significant market share gains in the U.S. within both sun care and the personal hygiene wipes categories. As we reflect on the quarter, we are cautiously optimistic that April and May will prove to be the most severely impacted months of the fiscal year, given slowing rates of top line decline in June, as well as quarter to date in our fiscal fourth quarter. However, there remains a great deal of uncertainty and volatility that we are carefully monitoring and will need to continue to navigate. To effectively operate in this challenging environment, we continue to manage the business in a highly disciplined and balanced way, making choices and focusing on key priorities that are most relevant in the near term, while continuing to advance the strategic priorities that will drive our long-term success. We tightly managed discretionary spend as the quarter evolved, reassessed trade investment and brand support, including advertising and promotional activity, and prioritized investments where we believed impact and return would be the strongest. We delivered on our project fuel objectives, generating $23 million in gross savings in the quarter, as expected. reflecting our continued focus on creating efficiencies that in turn fund our growth investments. With respect to our growth investments, we continue to invest in e-commerce and R&D, adding critical capabilities across both organizations. In the quarter, e-commerce net sales were once again strong, led by our growing Amazon business, and Dan will speak more about this shortly. We are operating from a position of strength in terms of liquidity, with a healthy balance sheet and over $100 million in operating cash flow generation in this COVID impacted fiscal third quarter. During quarter three, we also successfully refinanced our 2021 notes with a high yield, upsize offering, reflecting continued confidence in our business. We previously mentioned the importance of having the right talent profile and work environment for our employees. and our commitment to creating a culture that attracts and retains diverse, world-class, highly engaged talent. This is an integral component of our overall focus on responsible environmental, social, and governance practices. And in 2020, our commitment and performance in this area was recognized, as Newsweek ranked Edgewell as one of America's most responsible companies. In the third quarter, we unveiled our Sustainable Care 2030 strategy, establishing ten bold and comprehensive ambitions for the next decade and reinforcing our role in creating a sustainable future. In an increasingly uncertain world, what is certain is that we will continue to responsibly create brands and products that people love to use and that our colleagues can be proud of. Importantly, I have now finalized the reshaping of my management team, a process that began upon my appointment 15 months ago. We recently announced Eric O'Toole as our new president of North America. Eric has had an impressive career spanning marketing and sales and holding other key executive roles across leading global consumer packaged goods and retail companies. His extensive experience and digital expertise will be instrumental as we continue to innovate and reshape our portfolio. We also appointed Nick Powell as our new President of International. Nick provides tremendous global experience and a proven track record for delivering results. And finally, we have appointed Anne-Sophie Gaget as our Chief Growth and Innovation Officer, and Paul Hibbert as our Chief Supply Chain Officer. We also announced that Colin Hutchison, our Chief Operating Officer, will be leaving Edgewell in November to start a new phase in his life in the UK. Colin has had a long and successful tenure with Edgewell and Energizer before that. Following the formation of Edgewell in 2015 as Vice President International, Colin architected and implemented the International Commercial Organization before assuming the Chief Operating Officer role in 2017. I have relied on Colin's experience and expertise in my time as the CEO, and I want to personally thank him for all that he has given to this organization and wish him well in the next stage of his life. And finally, we are thrilled to announce our intent to acquire Cremo, a brand and company that represents a great strategic fit as we expand our business in the fast-growing U.S. men's grooming category. As you saw in our press release in the accompanying slide deck, Cremo is one of the strongest and fastest growing mastige brands in personal grooming, offering a complete line of products across the personal grooming category. Cremo is in many of the highest growth subcategories of the men's grooming segment, with no razors and blades, a niche that is heavily segmented and one where we have already demonstrated our capabilities with the Jack Black and Bulldog brands. Cremo is a profitable business, with a well-diversified portfolio that is synonymous with quality and unpretentious luxury. This brand will reinforce our broader insurgent playbook, offering us unique portfolio options to meet a variety of consumer needs. Dan will talk more about the strategic fit and opportunity in a few moments. In summary, though the environment remains uncertain, we continue to manage the business with strong discipline and we are pleased to be driving trend improvement in our market share position across our key categories. Over the last 12 months, we have seen an underlying stabilization of our top line and gross margin profiles, the current COVID environment notwithstanding. This has always been an important first step in reshaping our business, and I'm pleased with our progress to date, recognizing that work remains. Importantly, over recent months, we have been diligently working to develop and refine the go-forward standalone strategy for Edgewell. This work is progressing well, and while not finalized, you are already seeing certain fundamental elements of the work manifesting itself as seen by the CRIMO announcement today, which is the execution of one pillar of our strategy that we have talked about previously, namely increasing our penetration in the attractive growing men's grooming category. beyond our existing portfolio of Jack Black and Bulldog. In conjunction with our board, we will be finalizing our strategy work in the weeks ahead, and we plan to discuss it in more detail in calendar Q4. Before turning the call over to Dan, I want to thank our teams across the company for their focus and effort. I continue to be inspired by the resiliency and creativity of our people during these challenging times. Together, we are excited to push forward and execute on the next chapter of growth for Edgewell. Now I'd like to ask Dan to take you through our fiscal third quarter results and discuss Cremo in more detail.