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spk12: Good morning and welcome to Edgewell's fourth quarter and fiscal year 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Goff, investor relations. Please go ahead.
spk06: Good morning, everyone, and thank you for joining us this morning for Edgewell's fourth quarter and 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, and he'll then hand it over to Dan to discuss our results in fiscal year 22 outlook, 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 captions risk factor in our annual report on Form 10-K for the year end of 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 is 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.
spk07: Thanks, Chris. Good morning, everyone, and thank you for joining us on our year-end earnings call. As you saw in the results we posted earlier today, we closed fiscal 2021 on a strong note with clear momentum. A year ago, amid the ongoing pandemic and with much uncertainty around the globe, we pressed forward with an aggressive set of objectives and launched our new growth strategy while providing a financial outlook that called for sustained top-line growth, margin expansion, commercial reinvestment, and earnings per share growth. Today, I'm pleased to report that we are tracking well against all of those objectives, exceeding our financial commitments for the year while executing on the strategic initiatives that are vital to driving sustainable long-term growth for our company. This performance is a testament to our team members who have executed with excellence in a challenging environment, and it also reflects meaningful investments in our brands. a strengthened innovation pipeline, and increased digital engagement and capabilities. This was evident in our fourth quarter results and contributed to organic net sales growth of more than 8%. Our top-line strength was broad-based, with growth in both our North American and international markets, as well as across all segments. With strong sales momentum and disciplined operational execution, adjusted operating profit increased 41%, and adjusted earnings per share increased 71%, providing for a strong finish to a very good year. Now let me turn to the full fiscal year. In a year in which first half sales were heavily impacted by ongoing COVID-19 restrictions in many regions around the world, and the second half was impacted by severe macro supply chain challenges, We grew organic net sales by nearly 4%. We benefited from improving consumption across all categories, and our results were underpinned by strong execution and accelerated growth in sun care, women's shave, and men's grooming. For the year, adjusted operating profit increased 8%. Adjusted EPS increased 11 percent, and adjusted EBITDA increased 7 percent. This project fueled gross savings of $68 million combined with improved revenue and overhead cost management helped mitigate significant inflationary pressures that increased as the year progressed. By all of these measures, we exceeded our initial full-year outlook. as well as the financial targets outlined in our long-term financial algorithm that were discussed during our analyst day one year ago. Before we review our segment results, I want to comment on the broader operating environment. As was evidenced in our results this quarter, we are seeing a healthier demand environment across many of our categories, particularly in the United States. and we are encouraged that we will likely see further improvement over time in regions of the world that have yet to experience a full recovery from COVID-19 peak levels. With the improving demand environment, we are committed to investing in our brands, and our teams remain focused and agile, even as the challenging operating environment persists. We also continue to see heightened cost pressures across many commodity categories, as well as higher wages and transportation costs. In 2021, gross savings from Project Fuel and enhanced revenue management efforts enabled the business to offset many of these unprecedented increases. As seen by the success of Project Fuel, we have built a strong core competency of continuous improvement and this discipline is embedded in our go forward plans. Our teams will continue to execute on productivity and efficiency efforts, and those savings will be one of the levers at our disposal in 2022 to help offset some of the expected cost headwinds. As discussed last quarter, In the spring, we took a double-digit price increase across our wet ones business. And last month, we implemented a mid-single-digit increase across our femcare business. Over the last few weeks, we have also announced to retailers in the U.S. that we will increase prices across additional areas of our portfolio. With these increases more surgical in their approach and the ultimate amount in timing specific to the category and brand. Outside of the U.S., we are also taking price actions to help offset the rising inflationary pressures being felt by all. Dan will discuss this in more detail. Now let me take you through a few of our segment highlights. Our right-to-win portfolio of sun, skin, and grooming brands was the catalyst for top-line performance in 2021, delivering 13% organic sales growth, and strong market share gains. Our sunning skincare segment was a bright spot for the quarter and the year, reinforcing our sun category leadership position here in the United States. Organic net sales increased by 25% for the quarter and 13% for the year. Suncare led the way with organic net sales increasing more than 55% for the quarter and 16% for the year. driven by strong consumption and share gains in North America. We gained share in the quarter, the year, and on an adjusted two-year basis. And despite the difficult supply chain and regulatory environment, our teams rose to the challenge, meeting the increased demand from both retail customers and end consumers in the quarter, with our Ormond Beach, Florida facility producing at a rate 90% above expected run rate levels. Organic net sales in our men's grooming business, driven by Jack Black and Cremo, increased by nearly 21% for the quarter and nearly 15% for the year. In personal hygiene, Wet One's organic net sales decreased 7% against an 85% year-over-year increase in the fourth quarter last year. While category consumption is down compared to a year ago, we regained significant share in the category, and we're benefiting from our price increase in the spring, as well as the introduction of Wet Ones Plus, a stronger in-stock position, and less secondary brand inventory on shelf. Wet Ones now makes up nine of the top 10 selling SKUs in the category. Our wet shave business delivered another quarter of growth, with organic net sales increasing nearly 4 percent, reflecting strength in both the North America and international markets, as sales rose in women's systems, disposables, and private label. Wet shave organic net sales increased 2 percent for the year. In feminine care, organic net sales increased nearly 10 percent in the quarter, reflecting increased consumption compared to a year ago, as well as an improving share trend led by share gains in Playtech Sport. Although organic net sales decreased 4.5% for the full year, we've now posted two consecutive quarters of growth and we've stabilized our share position as the solid number two player in the category. Almost exactly one year ago, we outlined a bold path forward for Edgewell. And one year into our strategy, we have delivered and beaten our ambition. The progress we've made in 2021 has now positioned us to deliver an outlook for 2022 that calls for another year of top-line growth while maintaining an investment stance for the business. Although ongoing cost headwinds are projected to negatively impact gross margins for the year, we will not veer from our investment mindset, and we still expect another year of adjusted EBITDA and EPS growth in 2022. Finally, the strength of our financial performance demonstrated operational progress, a strong balance sheet and free cash flow profile, coupled with our commitment to maintaining a balanced and disciplined approach to capital allocation to drive shareholder returns, has led to our announcement today of our intent to repurchase approximately $300 million of common stock over the next three fiscal years, reinforcing our pledge to increase our return to shareholders. And now I'd like to ask Dan to take you through our fiscal year results and also provide details on our outlook for fiscal 22. Dan? Thank you, Rod.
spk08: Good morning, everyone. As Rod discussed, we're pleased with the strong sales and profit growth for both the quarter and full year, as we continue to make good progress against our strategic initiatives outlined at our investor day a year ago. By executing on our objectives this year, despite increasing supply chain challenges and cost headwinds, we see the impact that predictable top-line growth, committed and disciplined commercial investment, and strong cost control can have on our results and on our overall business model. For the year, organic net sales increased 3.7 percent. Adjusted gross margin increased 30 basis points. A&P spend increased $25 million and 50 basis points in rate of sale. Adjusted SG&A improved 30 basis points in rate of sale. Adjusted EBITDA increased over 7 percent. Adjusted EPS increased 11 percent. And net cash from operating activities was $229 million. And through our newly initiated dividend, we returned $26 million to our shareholders. Before reviewing our detailed results, I would like to provide some additional color on our operations and the continuing inflationary environment. As our industry grapples with supply chain disruptions and unprecedented cost increases, there has been increased pressure on growth margin, as we saw in the fourth quarter. Tight labor markets remain challenging, and supply and demand imbalances and overall capacity constraints remain broad and sustained across the supply chain. Importantly, we're taking meaningful steps to offset these persistent headwinds and will rely on the inherent capabilities that this organization developed and evidenced during the successful execution of our fuel program over the last few years. To that end, all of our global manufacturing plants and distribution centers remain open, and fully operational. In the face of meaningful labor constraints, we've increased and diversified our efforts to secure the labor pool needed to support our growth objectives. We continue to see sporadic supply shortages across the business, but our teams are taking aggressive actions to mitigate the potential impact going forward, including broadened sourcing efforts, increased upfront raw material buys, staggered production scheduling and overtime utilization, and alternative transportation strategies in the U.S. and across Europe. We also aim to systemically build inventory levels through the first half of the year to ensure product availability and improve service levels to our customers. We expect these actions will likely have some impact on working capital and free cash flow in fiscal 22, and we'll continue to monitor it closely given the dynamic nature of the environment we're operating in. Now I'll turn to the detailed results for the quarter. As mentioned, organic net sales in the quarter increased 8.4%, with growth across all geographies and categories. Our right to win businesses collectively grew 25%, driven by sun care and men's grooming. This portfolio has now grown 20% organically on a two-year CAGR, with at least double-digit growth across all three core categories. Our right-to-play portfolio organically grew by about 5% in the quarter versus the same period last year, and on a two-year stack is down just under 1%. Our e-commerce business again saw strong results, increasing by 36% in the quarter on top of over 100% growth a year ago. On a two-year CAGR, total company organic net sales increased 2.3% in the quarter versus the same period last year. Looking deeper into our segments, Wet shave organic net sales increased 3.6% in the quarter, largely driven by double-digit growth in women's systems and solid growth in disposables and private brands. Our women's systems business continues to be the primary catalyst for growth, with organic net sales increasing 12%, driven by our key brands including HydroSilk, Intuition, and Skintimate, as well as Private Label. which grew 45% in the quarter, cycling 115% growth last year in Q4. Disposables organic net sales increased 8%. Men's systems organic net sales decreased 2.2% in the quarter, and in the highly competitive North American market, decreased by about 6%. For the second consecutive quarter, U.S. razors and blades category consumption increased, growing 7.2%. the category growth in the quarter was seen across men's and women's systems and disposables. And for the first time since the pandemic began, total category dollars surpassed 2019 levels. For the 12-week period, market share for the Schick franchise declined 140 basis points, driven mostly by declines in men's branded shave and disposables, while private label grew share slightly. In branded women's systems, Transitory supply chain challenges continue to negatively impact our HydroSilk and Silk Touch-Up brands on shelf and directly contributed to share loss in the quarter. We continue to take steps to improve product flow to shelf as we work through network-wide supply chain challenges and anticipate a more normalized in-stock position as we cycle through fiscal Q1. Sun and skincare organic net sales increased 24.6%. driven by strong sun care and men's grooming sales. Sun care organic sales in North America increased about 55% in the quarter, cycling 37% growth last year in Q4. In the U.S., sun care category sales increased 16% for the quarter, in part benefiting from cycling last September's low off-season travel and cooler temperatures. Hawaiian Tropic and Banana Boat both outperformed the category with 24 percent growth and collectively gained 180 basis points of market share. Our strong execution at Walmart drew 440 basis points of share gains in the quarter and complemented sequentially improved results across both drug and grocery, where we also saw heightened share gains. Banana Boat gained 130 basis points of share, making it the number one sun care brand in the U.S. during the quarter. led by kids and sport, and benefiting to some degree from competitive out-of-stocks. For the season, our SunCare portfolio reinforced its leading position in the U.S. with consumption growth of 21 percent and 20 basis points of share gains, while cycling last year's 100 basis points of market share gains, all of which serves us well for 2022 distribution outcomes, where we have already secured meaningful new distribution in-club and anticipate further gains in masks and drug. Men's grooming organic net sales increased 21% in the quarter, led by strong growth across both Jack Black and Cremo, as the category was up 1%. Wet ones organic net sales decreased 6% in the quarter as compared to an increase of over 80% in Q4 of last year, representing two-year stack growth of over 30%. category consumption declined 51% versus a year ago, lapping the fall 2020 peak of COVID-driven sales. Wet ones consumption, however, increased 17%, mostly due to a strong back-to-school season. Importantly, we are seeing continued brand consolidation on shelf as retailers cycle through high levels of alternative brand inventory. Wet ones has again regained the number one sales position and makes up nine of the ten top-selling SKUs in the category. Femcare organic net sales increased 9%, while the U.S. category increased 9% as well. This quarter, market share held steady, a marked improvement from last quarter and 52-week trends. Playtech Sport continued to gain share in the quarter, reflective of new product launches and stronger advertising support. offsetting declines in carefree and legacy brands. Now, moving down the P&L. Gross margin rate on an adjusted basis decreased 30 basis points compared to the prior year. As expected, we felt the full impact of rising commodity, wage, and transportation costs this quarter, creating a 320 basis point inflationary headwinds. This was partially offset by project fuel growth savings of about 260 basis points and the benefits from our springtime price increase on wet ones. A&P expense decreased $10.6 million this quarter and was 9.2% of net sales, which was in line with our expectations and reflects the cycling of COVID phasing of commercial activity last year. Digital spending represented over 60% of overall advertising spend in the quarter. SG&A, including amortization expense, was $107.2 million, or 19.7% of net sales. Adjusted SG&A as a percent of sales was essentially flat versus last year, as sales leverage and product fuel savings partially offset increased costs associated with the cromo business and higher incentive costs, some of which were one time in nature. Adjusted operating income was $80.1 million, compared to $56.8 million last year, as increased sales, higher gross margin, and lower A&P costs were only partially offset by higher SG&A costs. GAAP diluted net earnings per share were $0.80 compared to $0.38 in the fourth quarter of fiscal 2020, and adjusted earnings per share were $1.01 compared to $0.59 in the prior year period, primarily reflecting increased operating income and a lower effective tax rate. Adjusted EBITDA was $102.3 million, compared to $80.3 million in the prior year. Now let me turn briefly to a review of our full year results. Organic net sales for the year increased 3.7%. The increase was largely driven by improving consumption across all categories and strong growth in sun care, women's shave, and men's grooming. Organic net sales increased in North America by 5.2%, and international markets by 1.4%. And on a two-year stack basis, total portfolio organic net sales were essentially flat. Our e-commerce business continued to progress, with sales increasing 25% for the year on top of 82% growth a year ago, and now represents about 9% of total company sales. We drove increased digital engagement and activation across the business, added resources to enhance critical internal capabilities, and successfully replatformed our core DTC sites to our new Shopify platform while launching seven new or replatformed sites during the year. Adjusted gross margin rate increased 30 basis points year over year as project fuel savings and strong revenue management, including wet ones price actions, helped to mostly mitigate heightened inflationary pressures, which increased as the year progressed. We generated $68 million in gross savings from Project Fuel in fiscal 21, slightly above expectations, and this was a key catalyst for our margin accretion. A&P expense was $25 million above last year, or 50 basis points as a percentage of sales, as we incrementally invested in wet shave new product launches, sun care execution, and new campaigns across our women's branded shave portfolio. Adjusted operating profit increased $20 million and 7.7%, and operating margin for the year was 13.3%, flat with the prior year. As we navigated gross margin pressure with project fuel savings, efficient A&P deployment, and disciplined overhead cost management. Our business model is characterized by strong operating cash flow generation and efficient free cash flow conversion, which we demonstrated again this year To that end, net cash from operating activities for the full fiscal year was $229 million, down slightly from prior year. Free cash flow was $175 million, down $14 million from prior year. Higher earnings in fiscal 21 partially offset increased investments in capital expenditures and an outflow for working capital versus a working capital reduction in fiscal 2020. And we continue to strengthen our balance sheet. During the year, we further solidified our capital structure by successfully refinancing our $500 million 2022 notes while continuing to focus on liquidity given the turbulent operating environment. These efforts greatly strengthened our capital structure, which now has no long-term debt maturities until 2028 and a weighted average interest cost of 5%. We ended the year with $479 million in cash on hand, full access to an undrawn $425 million credit facility, and a net debt leverage ratio of about two times. This brings me to the topic of capital allocation. In addition to our expected quarterly dividend payout, we are also announcing that we plan to begin buying back shares on a more proactive and consistent basis. More specifically, we intend to put our healthy excess cash to work and repurchase approximately $300 million in shares over the next three fiscal years. We've always maintained a disciplined, multi-dimensional approach to capital allocation. And while we will continue to prioritize investing in the sustained growth of this business, we remain equally focused on providing strong returns to our shareholders. With our strong liquidity and credit position, and outlook for continued healthy free cash flow generation, now is the time to implement a more systemic approach to share repurchase to complement the dividend that was initiated earlier in the year. Of course, we will continue to monitor other external factors which may affect the rate and pace of our share repurchases. Turning to our outlook for fiscal 2022, as Rod mentioned earlier, we are encouraged by the improving demand environment across many of our categories but also recognize that we face a challenging marketplace with ongoing supply chain disruptions and significant cost inflation likely remaining in place well into fiscal 2022. Despite the near-term macroinflationary pressures, we will remain in an investment stance while appropriately balancing the short-term need to manage this challenging environment by increasing our reliance on accelerated productivity and cost savings programs. Against this backdrop, we feel confident in our ability to sustain top-line growth while accelerating our productivity and efficiency efforts to deliver year-over-year adjusted EPS and EBITDA growth. For the fiscal year, we anticipate low single-digit organic net sales growth with similar growth rates in half one and half two. As we look to gross margin, we anticipate between 80 and 100 basis points of year-over-year decline with accelerated declines in the first half of the year before moderating in half two as productivity programs scale and price realization increases. Our outlook contemplates approximately 350 to 400 basis points of inflationary headwinds partially mitigated by further productivity gains and the benefit of price increases and further revenue management efforts. We will remain in investment mode with respect to A&P in support of our growth outlook with AMP increasing in dollars and remaining largely flat to 2021 levels as a percent of sales. Adjusted operating profit margin is expected to be largely in line with 2021 levels on a full year basis. However, we expect significant operating margin rate contraction in the first half of the year as a result of these net inflationary headwinds. We expect that income from operations will sequentially improve as price increases take effect and productivity programs scale. Adjusted EBITDA is expected to be in the range of $365 to $385 million. Quarterly interest expense is expected to be about $17 million. Other financing income is expected to be approximately $6 to $7 million for the year, reflecting estimated hedging gains that offset FX translation impacts in gross margin as well as favorable pension income in fiscal 22. Adjusted EPS is expected to be in the range of $2.98 to $3.26. We expect to generate about two-thirds of our full-year adjusted EPS in half two of the fiscal year. With respect to our share repurchase, our outlook only includes the expected share repurchases required to offset dilution. The benefit to EPS from additional share repurchases transacted over the course of the year have not been contemplated in our outlook and will be additive to EPS. And finally, free cash flow conversion is expected to be approximately 100% of GAAP net earnings. For more information related to our fiscal 22 outlook, I would refer you to the press release that we issued earlier this morning. And with that, I'd like to turn the call back over to the operator to begin the Q&A session.
spk12: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Wendy Nicholson with Citi. Please go ahead.
spk03: Hi. Good morning. Congratulations on the great numbers. I actually have two questions, if it's okay. Just first on the share repurchase program, I know you said you're going to have a balanced approach to capital allocation, but my question is sort of with regard to the M&A outlook. You know, you've done a great job with the acquisitions that you've made. Is that still as big a priority? Can you comment on what you're seeing in terms of additional targets? Just want to make sure that we shouldn't read the share repurchase authorization as a statement that maybe additional acquisitions is less of a priority.
spk08: Yeah. Hi, Wendy. It's Dan. Good morning. Thanks for the question. Yeah, no, absolutely. Our M&A strategy is 100% unchanged. We remain really focused on a primary goal of investing in the growth of this business and M&A growth. is a super important lever there. Also, a really important piece of how we think about diversifying our portfolio over time and gaining a meaningful foothold in growing categories. So that is unchanged for us. And as we've been saying, I think our capital allocation approach, if you will, is multidimensional. And so as we think about the M&A component of that, highly focused on it, still thinking about tuck-in type acquisitions that are less complex and easily able for us to integrate. In terms of the market there, yeah, there's quite a bit of activity in the market. There's certainly a high degree of supply right now, and we're super busy looking across all categories for interesting assets. Rod, anything you would add?
spk07: Yeah, good morning, Wendy. I would just add, you know, we've been looking at this capital allocation policy for a while now. And throughout the pandemic, we felt it was important first to get the dividend in place, which we did a year ago. We've always had our eye on share repurchase. And I think just waiting for us to have the level of confidence in our business plans going forward to commit to a meaningful program, which we've now put in place. So we're laddering that in. And to Dan's point, it does not take M&A off the table. arguably it raises the bar for M&A, which I think is a good thing, actually.
spk03: Got it. Great. That sounds great. And then I actually had a totally unrelated question. I hope that's okay. You talked about some strong growth in the private label business, which is great, but I'm just wondering in this sort of operating environment, the huge headwinds we're seeing from a cost perspective, is there anything we need to think about in terms of the margins on private label that you're generating or the private label market? selling prices going up sort of in concert with the branded prices, you know, are the price gaps staying the same or anything we should think about that? Because you're one of the few guys out there who actually does a meaningful amount of private label manufacturing. Thanks.
spk08: Sure. Yeah, no, look, I think you have to really think about private label, not just through the entry price point filter, but also, you know, branded retailer programs, high growth online businesses. There's quite a rich balance there within, private brands, and we obviously are the supplier of choice. High growth business for us, and I think as interesting, high contribution margin business for us, on par with what you would see on our branded business. So, again, we're super excited, given our capabilities here, to be growing a big piece of the business. By the way, private brands is bigger than Femcare, if you just kind of think about it in size, and spits off some really interesting economics.
spk03: Terrific. Thanks for the color. Thank you.
spk06: Sure. Thank you, Wendy. Operator, next question, please.
spk12: The next question comes from Jason English with Goldman Sachs. Please go ahead.
spk05: Hey, good morning, folks. I'll echo Wendy's sentiment. Congrats on good results, a good year. A couple questions. First, just for clarity, Dan, I think you kind of hinted at this in your closing remarks, but your guidance is not predicated on share repo. Should we interpret that to mean like, hey, the repo options out there are unlikely to be deployed anytime soon?
spk08: No, absolutely not, Jason. I think the way we thought about it was just complexity of modeling, right, because we The repurchase algorithm is always going to be subject to market conditions and our ability to go out and buy. We do intend to put a 10B5 in the market somewhere in the quarter, so we are committed to the program. We just didn't want it to become a distraction, if you will, from the modeling of the core business.
spk05: Got it. That makes a lot of sense. Thank you. And I'm sorry I was distracted a bit. I missed the comments that you made on inflation headwinds for next year. So it's a two-part question here. One, can you just recap what inflation was, how much pressure it was this past year, how much you expect next year? And then with Project Fuel now behind us, how should we think about productivity programs going forward?
spk08: Yeah, so the inflationary outlook that we have for the year is, I think we said it in our prepared remarks was was in the neighborhood of 350 to 400 basis points. Think about it as around 7 percent of COGS is sort of how we're seeing the picture. And not surprisingly it's made up of the same ingredients that we've been talking about. First and foremost is commodity pressure where we're anticipating double digit year over year inflation and then to a lesser degree labor and warehouse and distribution probably in the mid single-digit range. So if you put all of that in together, you know, it would get you back to your 7% total inflation. As far as, you know, fuel becoming productivity, the way that we're thinking about it this year is we have a really good line of sight to somewhere in the neighborhood of 175 to 200 basis points of cost reduction in COGS. So we may not be calling it fuel, and we may not be talking about a formal three-year program, but as we've said consistently, this is in the DNA of Edgewell now to continue to execute on. And you'll see it in the year ranging from further automation, which obviously helps on the labor line, expansion of our global procurement business, so bigger and bolder, getting into more design to value savings, which leads to really interesting structural reductions. And then lastly, just a complete sort of intolerance for waste within our manufacturing facilities, so process excellence and relentless on overhead. That's our view of it. In addition, we have identified another, you know, 60 to 75 basis points of cost reduction in SG&A, structural cost takeout, mostly across global functional businesses.
spk05: That's great stuff. Thanks a lot. I'll pass it on.
spk06: Thanks, Jason. Thank you, Jason. Operator, next question, please.
spk12: The next question comes from Nick Modi with RBC Capital Markets. Please go ahead.
spk02: Thanks. Good morning, all. Dan, maybe you can just provide some perspective on what you're embedding in guidance in terms of consumer behavior, but also on the input cost inflation. You know, some companies are using spot rates, others are actually using forecasts. So just wanted to get your thoughts around, you know, how you guys are thinking about that.
spk08: Yeah, sure, Nick. Good morning. So our procurement team is looking mostly at 12- and 18-month forecasts across all commodity areas that we buy. Now, you know, the degree to which we buy on spot versus have more multi-year contracts, some of those contracts have, you know, fundamental indices in them that bring them back to some degree to market. So there's a lot of puts and takes, but we're, as we've always been, we're focused on a 12- to 18-month timeline. It is a highly fluid... environment, as I'm sure you all are hearing in your other calls. And for every day that something like resins gets stronger, which is where it is now, we're seeing a little bit of a slowdown in inflation. We're seeing availability increase. You know, you turn and you get a little more pressure on things like sun chemicals, which are sourced out of China. So it is highly fluid, changes quite frequently, but we're taking a more long-term view on it. Rod, do you want to comment on how we thought about the categories in consumer?
spk07: I think the demand picture, Nick, for us moving forward, we think is net positive versus 21. You have sun care business that I think has tailwinds in it for us internationally, in particular, as those markets were later to reopen or are still in the process of reopening. Tourism travel, to a certain extent, will come back online in fiscal 22. That was, you know, that was effectively a zero and 21. And so I think there's some net tailwinds in the sun care business as well. On shave, that's the big business. You know, we've grown our wet shave business three quarters in a row behind some level of recovery of the category improving. And we expect that to continue as we continue to reopen, more people get back to the office here in the U.S., but also globally we're seeing that happen as well. And so I think in those categories we're pretty optimistic. And then if you look at men's grooming, you know, we've continued to see growth there. And I think we continue to be optimistic around the demand in femcare as well coming out of the trough of 21. Great. Thanks, guys. We'll pass it on.
spk06: Thanks, Nick. Thank you, Nick. Operator, next question, please.
spk12: The next question comes from Bill Chappell with Truist Securities. Please go ahead.
spk09: Thanks. Good morning. Hey, Bill. Hey, Bill. Just a thought on pricing.
spk10: I mean, certainly positive here that you're now kind of more in the surgical pricing versus kind of broad-based pricing. but kind of wondering where you are versus competition, especially within wet shave. Are you, have you seen the leaders or the competitors go ahead of you, go further than you, you know, or is it everybody kind of moving at the same pace and same rate?
spk07: Yeah. So on wet shave bill specific to your question, I don't think we're in a leadership position here. Sure. We're, We're at a point where others have made some statements about what they intend to do. We would follow where it makes sense. In some cases, we won't. And we'll just look at it segment by segment, skew by skew, as we assess what we're going to do. We know what we're going to do, but some of it is still not clear in some of the segments yet. throw it to Dan for a little more specificity because it's very different market by market, the U.S. versus Japan, for example.
spk08: Yeah, yeah, great point. So I would say we're combining both a broad brush strategy where that makes sense and a surgical strategy where that is required. So the broad brush element, you've actually already heard about wet ones, double-digit price increase last spring, so we'll get about a half-year run rate out of that. We've talked about Femcare with a 6% to 7% increase that has now been executed through the trade, so we'll pick that up in 2022. And then I would say international wet shave, while it is absolutely being executed on a category-by-category, brand-by-brand, market-by-market basis, it's broad brush, especially where we have market-leading positions like Japan. I think where you see more surgical changes application for us is certainly around sun care, both U.S. and international, and U.S. branded shave. So that's how I would think about pricing for us in 22. No, that's helpful.
spk10: And then just on the U.S. kind of wet shave, as we look at the planogram resets for the spring, you'll be comping, obviously, I think it was Dollar Shave and Harry's expansions at mass. At the same point, this will be your first – kind of full ownership for listings of Cremo as you go into the planning area. Any kind of color do you see for the U.S. market there?
spk08: Yeah, it's early, right? We're still not closed here, so to speak. But early signs are really encouraging for us. I'll start with the headline in Club where we are super excited. We've gotten full distribution across Sam's and Costco for Banana Boat. We've gotten new distribution in Sam's for wet ones. We've got online distribution with Sam's and Costco for intuition on the women's side of the business. So Club is proving to be a really exciting channel for us. As we look at shave, you know, still a lot of work to be done. We like where we are on both men's and women's, particularly in drugs. We've gotten strong execution at Walgreens. We've gotten hotspot shelf designation at CVS on our Hydro Silk brand. You might recall that was Flamingo last year and Joy the year before. So, again, there's work to be done here. The team is doing a phenomenal job, and our early read is positive.
spk07: And, Bill, I would just build on this. just individual outcomes, which are now net positive in total, as Dan's laying out, versus the past. Not only is that being driven by great brand building work by the marketing teams, but we are working at a strategic level with our retailers in a better and different way than we were historically. And it starts with What's the pricing gap? Is there one with the consumer? Get the pricing right. What's the margin structure with the retailer? Get the retailer margin right. Just get those fundamentals in place. And once those are in place, then the brands have a chance to do their thing and compete versus whatever else is out there. And so I think it's a strategic, structured, and layered approach as we work with the big U.S. retail partners to strengthen those relationships to set the ground for the brands to do their things. And that's taken a couple of cycles to get that right. And you're now seeing the fruits of that labor come through.
spk10: Got it. Thanks for the call. I appreciate it.
spk06: Yep. Thank you, Bill. Operator, next question, please.
spk12: The next question comes from Kevin Grundy with Jefferies. Please go ahead.
spk01: Hey, good morning, guys, and congratulations on the continued progress. Question probably for both of you, actually. Just the building blocks for the low single-digit organic sales growth guidance, which if you can do it, will look great, particularly on a two-year stack basis. It'll be a number that the company has not put up in quite some time. So the question is really around visibility and the building blocks to get there. The year-over-year comp is going to be more difficult. Consumer behavior is sort of normalizing, but still in a little bit of flux. We see Colgate dealing with this in hand soap right now as an example. Pricing elasticities have been good. Is that going to hold? My humble opinion is probably not to the degree that it is, at least at the moment. And I guess, Rod, what I heard you say earlier, that the guidance is predicated on continued growth in wet shave and femcare. So the progress is good, A, but B, that is sort of unique, and we haven't seen the company there in a long time in either one of those businesses, at least on a sustainable basis. relative to the company's long-term algorithm, which is 10% to 15% growth and the right to win and flat to down and the right to play. So it seems like the guidance is predicated on improvement that you haven't seen in a while in some of the troubled businesses. So a big windup for your visibility on this and your confidence to deliver on this algorithm, which is a little bit different than how you kind of put together the longer-term algorithm. So a little bit verbose, but I appreciate your insights there. Thank you.
spk08: Yeah, thanks, Kevin. Good morning. You're right. It is a bit different. I think I'll start at a high level and I'll turn it to Rod on the specifics by category. But I think it's always going to be a factor of, you know, what each category is cycling. The COVID recovery that we've contemplated, the role of price by category. So with that as the backdrop, I would say, look, our line of sight here is low single digits. We've modeled 3%, just to be super clear on that. We think about half of that comes from price and half of that comes from volume. We think that, you know, the growth rates sort of half one and half two are reasonably consistent. And the growth rates, you know, international and North America are reasonably consistent. So then you get into the, you know, sort of category by category play. And you're right. We are looking for continued growth. growth in wet shave. We saw that certainly in Q4 and for the full year. So we will grow on top of growth. And then in FemCare, yes, we are calling for growth coming off of mid-single-digit declines. And obviously, that 6% to 7% price increase that we put through is a big driver of that. So those are Those are the headlines in terms of how we see it. Rod, any color you want to add by category?
spk07: Yeah, Kevin, I think your question's a good one. And the knowledge of our strategy is recognized in the question. And so we're not changing our strategy. And so what you'll see, I think, as the year plays out is in those right-to-win categories, we're going to have accelerated growth. That growth will still be ahead of what we see in right-to-play categories. with Wet Shave and Femme. But what's very important is it's an all of the above strategy now. Every category, every segment of the business is contributing to the growth, albeit at different rates. And in the past, we've had portions of the business that have either been sick or needed some attention and were the bigger leaky buckets. We've now addressed that with brand health. Generally, I touched on the retailer relationships earlier. And, you know, you start to then put on increasing capabilities around activating digitally better with consumers. And, you know, we grew in e-com 87% two years ago. The year just finished, 21. We grew 25% on top of that 87%. We have growth projected in that category again, that channel again. And now suddenly you're looking at that being, you know, going from what was 3% or 4% of sales a couple of years ago to 9% last year, going up from there, right? So we've got better brand building, better retail relationships, better channel mix, and frankly, a better portfolio position for growth than we had a couple of years ago. So it's all of those things coming through in the building blocks.
spk01: Very good. I appreciate the color. Thank you.
spk06: Thanks, Kevin. Thank you, Kevin. Operator, next question, please.
spk12: The next question comes from Olivia Tong with Raymond James. Please go ahead.
spk04: Thanks, and congrats on the quarter and outlook. Can we talk a little bit about sun care? Obviously, that's been on fire. Can you just help us quantify how much of that you think is a benefit from the issues at some of your peers? And can you talk about what you're doing to maintain, sustain what I assume is a fair number of new consumers when competition eventually comes back in those categories? And then I follow up. Thank you.
spk07: Yeah, Olivia, I'll start and then throw it over to Dan. So we love the sun care category. We've said that before. We love the brands we have in the category and their positioning. As we went through 21, what you saw is demand for people to be outside, outside safe, right, in a COVID environment. And there was pent-up demand certainly over this past summer season for people to do that more than ever and can be safe doing that. I think there's also, at the same time, consumer behavior and learning around long-term health and wellness, one of which is taking care of your son. The number one thing that ages skin is exposure to sun. Skin cancer incident rates are going up, not down. And so you put all that together, and structurally, it's a growth category as we look at it. And so you have that going on in the season. We're up on a two-year stack basis. Our relative performance vis-a-vis competition this past year, whether it be this year, the two-year stack period, we've grown share with our brands and out-competed the competition. Part of that is around just being available at shelf with products that are safe and meet FDA standards. And so you saw some others struggle with that. We benefit from that, obviously. Now, going forward, I think we remain bullish that the underlying trends around people wanting to be outside more, protect their skin more, sets up well for continued growth. Dan referenced some of the distribution outcomes we have. We like the distribution profile in terms of number of points, quality of distribution in the year to come, in 2022. better than we liked it in 21. And 21 was pretty good. And so it sets up well. And so while there's always going to be competition, you know, I think we're in a position where we like our position and we feel really good about the category.
spk04: Great, that's helpful. And then on share or purchase, you mentioned earlier, you know, not to read too much into the share or purchase authorization as a view on the deal environment, but how are you thinking about the timing on that share or purchase, given that, you know, you were kind of out of the market for the last two years? Do you think that is it more of a sort of equal, equal, equal over the next three years, or is it more catching up for lost time, and just how you're thinking about the timing of that?
spk08: Yeah, it's a good question. Look, I think it's difficult to say over a three-year period how will it play out, right, simply because of the unknowns. But our intent here is to put a 10B5 in the market in the quarter and begin to actively buy back shares. The other factors will ultimately impact at what pace over the time period. But we think $300 million over the three years is the right amount for us, certainly digestible with our excess cash. How that plays out, you know, between the years, difficult to say at this point, other than we intend to be super consistent here in that ambition.
spk04: Great. Thank you. Best of luck.
spk06: Thank you. Thanks, Olivia. Operator, next question, please.
spk12: The next question comes from Chris Carey with Wells Fargo Securities. Please go ahead.
spk11: Hi, good morning. Good morning. I just wanted to follow up on Kevin's question just on the algorithm for next year. So, femcare just sounds like pricing offsets potential volume declines. Sun, skin, you know, feel good about share gains, innovation, distribution, availability. So, I guess it comes back to the... the wet shave business. And I guess what I'm trying to understand is just a bit more at the subcategory level or whatever you want to call it. Clearly, the women's business has driven growth. Mobility is probably a factor there. Private label, driving growth. I mean, should we expect a similar shape of that business going into next year? Or are you concerned about some of the comps in the businesses that have been doing well? Are you factoring or – relying on, I guess, the return of the office and the men's business is international versus U.S. You can see what I'm getting at. Just, you know, overall, how would you dimensionalize the shape of that business in order to drive growth next year? Consciously, it's been a while since you did positive to your stack. So thanks for that.
spk08: Sure. Yeah. Good morning, Chris. Yeah, I think total wet shavings. we think will likely grow in line with total algorithm, right? So in that 2% to 3% range with a pretty even distribution of volume and price. As I mentioned in the earlier question, while we have been somewhat broad-brushed in our price thinking internationally on shave, given our market strength, we've been more surgical here in the U.S. So there's a lot of puts and takes here. that, you know, that factor into your question and how we thought about it. I'm not going to get into the subcategories of that. The thing that I would say, though, is, you know, obviously good line of sight here in the U.S. We've got some interesting new products coming to market. We've got a complete rebranding of the Hydro brand back to a Schick leading name here, which we're super excited about. We have some really exciting news for the trade in men's continued growth in women's. And then lastly, you know, remember international markets still had much more of, you know, sort of puts and takes around COVID recovery and shoppiness, particularly in our strongholds like Japan. So again, good line of sight to that for us and overall looking at a shave category growth that's largely in line with total company algorithm.
spk06: Thank you. Thank you, Chris. Operator, next question, please.
spk12: Currently, there are no further questions, so this would conclude our question and answer session. I would like to turn the conference back over to Rod Little for any closing remarks.
spk07: Rod Little Thank you, everybody, for your continued attention and those that own us, your support. We appreciate it. Take care.
spk12: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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