Edgewell Personal Care Company

Good day and welcome to the Edgewell Q2 2021 earnings 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. To ask your question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I'd now like to turn the conference over to Chris Goff, VP, Investor Relations.

Please go ahead. Good morning, everyone, and thank you for joining us this morning for Edgewell's second quarter fiscal year 2021 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. 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 will 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 end report on Form 10-K for the year ended September 30, 2020, 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 would like to turn the call over to Rod.

Thanks, Chris. Good morning, everyone, and thank you for joining us on our fiscal second quarter earnings call. Overall, I'm pleased with what we've been able to accomplish through the first half of our fiscal year. despite COVID-19 continuing to negatively impact consumption in our key categories since the start of the pandemic more than one year ago. Encouragingly, we are now seeing our key categories, particularly sun care, turn more in our favor as we begin to see post-COVID-19 reopening in some of our key markets. The supply chain environment remains challenging and volatile. And as a purpose and values-driven organization, Our commitment to the safety and well-being of our teams around the world remains the top priority. While staying focused on this priority is paramount, our teams have excelled, progressing a new company strategy, enhancing our digital and brand building capabilities, executing better at the shelf, all of which has put our business on far more stable footing and positioned us well for stronger results. both in the second half of fiscal 2021 and beyond. Over the first half of the year, we have increased our investment in brand building, new product innovation, and digital activation. We've expanded gross margin rates, with project fuel helping to offset the impact of higher input costs and commodities, and our wet shave segment returned to organic sales growth in the most recent quarter. We are beginning to see some signs of recovery in certain categories and geographies as vaccination rates increase and markets slowly begin to open up. We believe we are well positioned to deliver on our financial and operational goals for the full year, including accelerated organic net sales growth in the second half of this year. Now, let me take you through a few segment highlights and discuss the progress we're making against our strategic priorities. which, as we've discussed, are designed to transform Edgewell into a growing, sustainable, consumer-centric company focused on delivering consistent top-line growth and predictable profit in cash generation. Our wet-shade business returned to growth in the quarter, with organic net sales increasing 1% and, importantly, marking another quarter of sequential improvements. Our women's systems business grew over 22% in the quarter and gained market share. In February, we launched a complete redesign of our Skintimate brand in North America, which included the national launch of a new sustainability-focused system raiser, refreshed packaging, and redesigned prep products. Skintimate is now the second largest woman's shave brand in the United States, growing in more households than any other brand according to Numerator's consumer panel. In the highly competitive men's systems business in North America, organic net sales increased 10% as we launched the new Hydro Skin Comfort rebrand, releasing a new skin-centric collection for men that speaks to the importance of shape comfort and credibility of the Schick Blade platform and underpinned by the Your Skin Has Feelings advertising campaign. This relaunch is inclusive of new packaging, product innovation, and a new marketing campaign. The lead innovation in the relaunch is the stubble eraser, our first razor on the market that shaves up to seven days' worth of stubble with less tugging and pulling. The product, whose design is derived from the unique consumer insight that men prefer to grow five- to seven-day stubble, clean shave, and begin the process again. And we believe this product is particularly relevant given the pandemic's impact on men's shaving frequency. Media support started in mid-February ahead of plantogram resets, and we continue to see velocities built, especially after activating the media campaign. In the sun and skincare segment, organic net sales decreased by 9% in the quarter, primarily driven by category-related declines in sun care. both in North America and across key international markets. In Suncare, organic net sales decreased 12%, which was an improvement over the previous quarter. However, the business was still impacted by significant category declines in the United States in January and February and continued macro headwinds in international markets. Consumption in North America began to turn positive at the end of March, as we cycled peak lockdowns from a year ago and markets began to open up. We are encouraged by the early development of the category in the United States, particularly in spring break and early holiday activity, and we remain confident in the outlook for our sun brands across the balance of the summer season. In personal hygiene, wet ones organic net sales decreased 10% against the 81% year-over-year increase in quarter two of last year. Not surprisingly, consumer habits have moderated, and the category was further impacted by high levels of retail inventory, primarily driven by new non-name brand entrants into the food and drug channel over the past several quarters. Although the category is experiencing heightened volatility as it cycles last year's pantry loading activity and manages through short-term congestion on shelf, We are confident both in the underlying category demand over the mid to longer term and the desire of both retailers and consumers to choose trusted category leading brands such as Wet Ones. Men's grooming organic net sales increased 8% in the quarter driven by strong e-commerce sales across all brands with notable strength in Jack Black. Our Cremo portfolio consumption grew 4% in the quarter gaining share as the overall grooming category declined in the face of continued COVID headwinds. I'm pleased with the progress we have made on the integration of the business, highlighted by the fact that many of the commercial leaders from the organization will play an important leadership role for Edgewell, and we've made meaningful improvements on the brand's DTC site, improving content and the overall shopping experience. We remain confident that our approach to brand building and omnichannel retail will continue to drive share gains by our brands in an attractive category. In feminine care, organic sales decreased 21%, reflecting category declines as a result of last year's pantry load, which peaked in March a year ago, and the previously discussed distribution losses, largely at Walmart, related to last year's planogram resets. which we have fully cycled as we enter the third quarter. As I stated at the beginning of the call, we're seeing the results of strong execution against our strategic initiatives and the impact of focused commercial investment in core brands and strategic markets. We are also seeing the results of the improvements we're making across areas like e-commerce, brand building, product innovation and design, and sustainability. Our digital e-commerce business continues to strengthen, providing accelerated growth and reflecting the investments and capabilities and resources we've made over the last 12 months. We've successfully re-platformed our core DTC sites to our new Shopify platform, improved copy and graphics on the sites while bringing design and development responsibilities in-house. And we have significantly improved the overall shopping experience for our customers. Similarly, we are executing better on the Amazon platform, directing increased levels of A&P dollars to digital activation and seeing solid share gain across our key categories. We remain committed to incrementally investing behind our strategies. And in the second fiscal quarter, we made a meaningful increase in brand marketing to support our new brand campaigns in men and women's wet shave, including new product introductions, focused brand building reinvestment behind our three grooming brands and continued reinvestment in our market-leading presence in wet shave in Japan. This investment stance is a critical enabler of our expected top-line growth profile and will continue into the third and fourth quarters. Lastly, it's important to remind you that sustainability is embedded at the core of our strategy. We are committed to being a positive force in the world, with careful consideration for the well-being of both society and our planet. We recently launched the new Schick Extreme 3 EcoGlide, the first and only disposable razor made from recycled plastic that's also fully recyclable. As part of the Sustainable Care 2030 strategy, our entire global portfolio of men's and women's disposable razors now has handles made with 100% post-consumer recycled plastic. We also announced the U.S. Recycling Program, designed to help consumers reduce the amount of waste they are sending to landfills. This new recycling program in the U.S. encourages consumers to package up their old razors and send the razors back to the company. And as an organization, we celebrated Earth Day with locally led efforts across our manufacturing and distribution facilities that recognized our role in doing what's right for the planet. These are just a few examples of the continued progress we're making. And importantly, they are the direct result of having better capabilities across the company. We've been through an extraordinarily difficult period over the past year, with COVID-19 negatively affecting all of our key categories, with complex and costly supply chain challenges occurring almost daily. Throughout this period, our teams have continued to work relentlessly to execute our initiatives to transform the company. And I thank each and every one of them for their valuable contributions. So in summary, we sit at the halfway mark of fiscal 21 with first half results broadly in line with our expectations. And as we look to the rest of the year, we are confident in our full year outlook and believe we are well positioned to deliver the consistent top line and profit growth discussed at our investor day. The macro COVID-19 environment is showing signs of improvement in our key markets, and our key categories are now turning in our favor, especially the all-important sun season. With that, I'd like to ask Dan to take you through our fiscal second quarter results and provide detail on our full fiscal year outlook. Dan?