Edgewell Personal Care Company

Good morning, everyone, and welcome to the Edgewell Q4 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Chris Goff, Vice President of Investor Relations. Sir, please go ahead.

Good morning, everyone, and thank you for joining us this morning as we discuss Edgewell's fourth quarter and fiscal year 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 then 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. 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 restructurings, 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 ended September 30, 2020. 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. The 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 would like to turn the call over to Rod.

Thanks, Chris, and good day to all joining us. I hope everyone is well as we work our way through the ongoing COVID-19 pandemic. I will keep my comments relatively brief today as we'll be updating you on our overall strategy at next week's Investor Day session. I will provide a summary of our improved top line and overall financial performance in the quarter, including a discussion of the current environment and its impact on our results. I will then discuss the progress we made this year against our key strategic initiatives and how we are advancing towards sustainable top and bottom line growth. You'll hear a lot more about these initiatives next week. I'll wrap up with a summary of our outlook for growth in fiscal 2021. And then, as always, Dan will take you through the specific details around both our Q4 performance and 2021 outlook. Amid the challenges presented by a global pandemic in this extraordinary year, I could not be prouder of the entire Edgewell team across the world and all that they accomplished this fiscal year. I want to personally thank our employees whose commitment and determination allowed us to maintain continuity of global operations in an unprecedented pandemic-impacted environment. Second, through disciplined commercial investment and sharp management of expenses and working capital, we successfully navigated this difficult period. We responsibly invested in our brands, And now we exit the year in a strong financial position with ample liquidity. Third, our entire organization coalesced around our key strategic initiatives to improve underlying top line trends and bring stability to our results. And while there remains plenty of work to do, we made notable progress in fiscal 20. Fourth, we have made good progress in increasing internal capabilities with a focus on impactful innovation, improved brand marketing, and integrated digital capabilities. And finally, we over-delivered on our fuel program, demonstrating a core capability that not only served us well in 2020, but will continue to be a source of strength moving forward. Dan will say more about this shortly. We are pleased to close out an unprecedented fiscal year with a quarter that demonstrated a return to more stable underlying top-line performance and solid gross margin gains, despite continued global category headwinds in our core wet shave and sun care segments. Our improved performance in the quarter was driven by strength in some of our key focus areas, including wet ones, North America sun care, men's grooming, and women's wet shave. It also reflected good execution against our strategic initiatives, particularly in e-commerce. Our strategic focus continues to be on strengthening our brands in both men's and women's wet shave, extending our market strengths in sun care and men's grooming, and leveraging the unique opportunities afforded to our category-leading wet ones brand. While we are encouraged by this progress, work clearly remains. Our FinCare results were disappointing in the quarter, although in part the result of the previously discussed distribution losses at Walmart related to the April planogram resets. We know the path back to a flat top line in this category will take time and require better brand activation and execution at retail. Overall, quarter four was a good indicator of the progress we are making across our full business. and it positions us well in fiscal 2021 and beyond. In the U.S. in particular, I'm pleased with the results in the quarter. In sun care, our flat consumption results amidst a declining category drove further share gains. In skin care, our Wet Ones brand again outpaced the category, with consumption increases well ahead of significant category growth, leading to continued share gains. And in wet shave, our Schick brand held share in the quarter, despite the previously communicated distribution losses at SAMS, with particular strength in women's, where we returned to growth following the new campaigns launched at the end of the second quarter. And while there is opportunity for improvement across our portfolio, we are encouraged by the clear signs of meaningful progress being made in the U.S. market. A key point of focus for us entering 2020 was to continue the underlying stabilization of our top line, gross margin, and cash flow profiles, the current COVID environment notwithstanding. This has always been an important first step in reshaping our business. I am pleased that on an underlying basis, we largely achieved this goal in fiscal 2020, despite the meaningful disruption across most of the categories in which we compete as a result of COVID-19. With underlying organic sales and gross margin rates essentially flat year over year, and having generated $190 million in free cash flow, we enter 2021 well-positioned to execute against our new strategy, despite what will surely be continued headwinds related to COVID-19. Our global operations and supply chain have proven to be a critically important strength of the business. This is one of the foundational elements of our company. And in this current pandemic impacted environment, it has never been more important to the success of Edgewell. Our teams have taken necessary steps to ensure safe operations at all of our manufacturing plants. They've maintained the continuity of production and availability of essential products to consumers and all of our global manufacturing plants and distribution centers remained open and fully operational. In the midst of the most challenging of times, this team also demonstrated great agility as they quickly brought on incremental capacity to our wet ones business, adding an additional production line while increasing third-party manufacturing supply to better meet market demand. Having a more stable business underpinned by strong manufacturing, technology, and IP, is a great foundation for the business. And there are many other steps we took this year to improve the fundamentals of our company. We reshaped our leadership team and also continued to build critical capabilities across the organization, with specific focus in our digital, brand marketing, and R&D teams. We over-delivered on the aggressive cost reduction targets for Project Fuel, and now expect gross savings through fiscal 2021 to be in the range of $265 to $275 million. With these demonstrated capabilities core to how we will run the business going forward, disciplined cost management while generating fuel for growth will continue to be an important element of our business model. Next, we invested behind our strategies. Although much of our gross savings went to offset higher input costs and the effect of lower volumes over the past few years, we have been able to fund important strategic areas of our business, including our sun care and grooming businesses, the new women's wet shave campaigns in the U.S., and reinforcing our market-leading positions in wet shave in Japan. As I said, we've also invested in enhanced capabilities that will be fundamental to our go-forward strategy, including e-commerce and digital, brand marketing and R&D. We increased our focus on strengthening our key retail relationships and partnerships. I have personally made it a priority to improve and expand our retail partnerships. Listening to the needs of our retail partners and using these insights to improve execution and serve as important considerations as we co-develop unique offerings for the consumer. Ultimately, the impact of these efforts will play out in the SPLING planogram resets, and I'm encouraged by the direction of the discussion so far. We made important portfolio-shaping M&A decisions, divesting the non-core infant and pet care business last December and increasing our presence within the fast-growing men's grooming category. is demonstrated by the closing of the Cremo acquisition in the fourth quarter. We now bring to market three leading brands in Jack Black, Cremo, and Bulldog that make up over 25% of the emerging brand subset of the U.S. men's grooming category, excluding razors and blades, allowing us to compete effectively across all price tiers. We are extremely well positioned to capitalize on the attractive growth profile that insurgent brands offer in the category. And lastly, we have designed and activated a new culture. Redefining Edgewell has always been about more than our brands and business model. I've discussed the importance of having the right talent and work environment for our employees and our commitment to creating a culture that attracts and retains. diverse, world-class, highly engaged talent. We are a company that is hungry to win, holds itself accountable, and is committed to responsible environmental, social, and governance practices. In the third quarter, we unveiled our Sustainable Care 2030 strategy, establishing 10 bold and comprehensive ambitions for the next decade and reinforcing our role in creating a sustainable future. In summary, these actions I've described are fundamental to our go-forward plan, and they are already paying dividends as we made solid progress against each one in fiscal 2020, and we will build on this progress again in fiscal 21. As we look to fiscal 21, we are pleased to be able to reinstate a financial outlook despite obvious unknowns. It is difficult for us to fully contemplate the impact and duration of the current COVID-19 environment. And as such, our forward looking outlook contains a higher than normal degree of uncertainty. However, despite these unknowns, we felt that it was important for us to be as transparent as possible as we set our expectations for fiscal 21. What we do know is that we will continue to manage the business with strong discipline and agility. and be ready to pivot as conditions necessitate and as the year progresses. Our team continues to demonstrate an unrelenting commitment to transformation and improvement in a challenging environment. And we have to find a clear go-forward strategy for Edgewell, certain elements of which you have already seen in practice. Following the underlying stabilization of our business in 2020, fiscal 21 is an important year for us. and we expect organic sales growth in the low single-digit growth range, leveraging our compelling offerings in men's grooming and sun care and capitalizing on durable demand with wet ones. Importantly, the foundational improvements seen in 2020, we will continue to take an investment stance with respect to our priority brands and markets, ensuring strong discipline and agility as the markets in which we compete evolve. The project fuel will again be a core driver of value creation with expected gross savings of $60 million next year. With a business poise for top line growth coupled with a strengthening gross margin profile, we also anticipate operating profit growth in another year of healthy free cash flow generation. Before turning the call over to Dan, I want to again recognize the extraordinary efforts of our teams across the company, extend my gratitude to each and every team member. Their hard work and dedication enabled our progress in fiscal 2020. As we head into fiscal 21, we are confident in our positioning and excited to execute on the next chapter of growth for Edgewell. And now I'd like to ask Dan to take you through our fiscal fourth quarter and full year results and to share more detail on our outlook for fiscal 21.