Edgewell Personal Care Company

Good day and welcome to the Edgewell Personal Care Q2 2022 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 a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Goss, Vice President of Edgewell Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us this morning for Edgewell's second quarter fiscal year 2022 earnings call. 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 hand over to Dan to discuss our results in full year 22 outlook before we transition to Q&A. This call is being recorded and will be available for replay via our website, www.edgewall.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 for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events, plans, or prospects. 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 30th, 2021, as may be amended in our quarterly reports on Form 10-Q, which is on file with the SEC. 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 would like to turn the call over to Rod.

Thank you, Chris. Good morning, everyone, and thanks for joining us on our second quarter earnings call. We delivered our fourth consecutive quarter of organic net sales growth despite an increasingly challenging operating environment. In the quarter, many of our categories showed further signs of strengthening, and the demand for our products remained high, underpinned by the strong distribution outcomes on shelf that we spoke to previously. Consumption growth for our brands in the United States was over 10%. and strengthened as the quarter progressed. As our pricing actions increasingly take effect and with our improved competitiveness on shelf, our market share gains in the U.S. and key international markets accelerated, particularly in Suncare. We reported organic net sales growth of 2%, which was slightly below expectations and well below inherent demand as a result of supply chain disruptions. Organic sales growth was driven by sun care, which increased 28% and gained three points of share in the United States, as well as women's shave and men's grooming, each of which grew about 6% organically in the quarter. Additionally, Billy contributed over five points of top-line growth in the quarter, driven by the strong initial rollout at Walmart. We are very pleased with the early results for the brand at Walmart. has reached a 20% market share in women's shave and only recently reached full chain distribution. We anticipate meaningful growth opportunities, which our teams continue to explore as they finalize planning for next year. At the same time, the external environment was increasingly challenging and volatile in the quarter. We faced higher than expected inflation, particularly across transportation-related costs as geopolitical events and overall supply and demand balances moved oil prices significantly higher. We also experienced significant pandemic-related supply chain disruption, most notably in femcare and women's wet shave. These disruptions impacted our ability to meet demand in the quarter and negatively impacted organic growth. Despite these supply chain challenges and transitory headwinds to our organic growth in the quarter, Consumption trends strengthened, and we gained market share in both women's shave and the femcare categories in the U.S. Dan will take you through specifics shortly. But looking ahead, we believe that supply chain disruptions are largely behind us, as evidenced by signs of more normalized product flow and improved service levels in late March that continued into April and May. Importantly, our performance in our key categories remain strong. as we're seeing the impact of new distribution in sun care and wet shave and solid planogram outcomes across STEM care and men's grooming. We're also executing incremental price increases beyond those discussed previously to help mitigate the rising cost pressures across the supply chain. As a result, we now expect organic net sales growth to increase approximately 4% for the full fiscal year, one point above our previous expectations. Despite the macro market challenges, we are increasingly encouraged by the progress we continue to make against our strategic priorities to transform Edgewell and achieve our objective of sustained top and bottom line growth. This progress is a result of our continued focus on fundamentals and execution and is evidenced in four specific areas. First, our presence on shelf has improved significantly from years past. After successfully stabilizing our brands on shelf in fiscal 2021, and with the shelf sets and planograms now complete, we're seeing the benefit of strong distribution outcomes across many of our categories in 2022. This is particularly evident in our sun care business, where we gain facings at Walmart, in aisle, and enhance placement in the key seasonal islander programs. We also gain new national distribution for our banana boat business in the club channel. in both Sam's and Costco. And in shave and body care, the Billy brand, which recently launched at Walmart, has already become the number two brand in women's systems. Second, we've improved our ability to deliver innovation to the market, further helping us win on shelf. We have re-architected our Schick men's brand in the United States with a new brand campaign that is about the individuality and self-expression of our consumers. It is being activated almost entirely digitally and has already garnered strong recognition both online and across the trade. You've also seen new product innovation in SunCare related to new formulations, formats, and packaging with increased focus on sport, kids, and sustainability. We've also successfully launched a new razor in Cremo, enabling us to leverage the inherent equity of the brand and compete at the high end of the price tier. Just a few weeks ago, we launched an exciting new Femcare tampon, Playtex Clean Comfort, with organic cotton and 40% less plastic, building on our recent strength in Playtex Sport, which is now the number two tampon brand in the United States and has been the fastest growing tampon brand over the last 13-week period, growing 2.7 share points in the quarter. Despite the supply chain issues, Sport has grown to a 13% share of tampons, the highest market share position in five years. We continue to realize market-leading growth in Japan as the relaunch of men's hydro brand has driven share of shelf gains, and we are preparing for the relaunch of the women's hydro brand in the second half of this fiscal year. Third, we've also taken the necessary steps to reshape our organization and improve performance. we've meaningfully enhanced our digital capabilities across the business. Our e-commerce business is now over 12% of total sales, which is almost three times the penetration we had in 2019. And we are posting growth on top of strong growth a year ago. To improve the overall shopping experience, we re-platformed and significantly enhanced the experience on our DTC sites. Importantly, we've brought critical capabilities in-house, including site design, content and copy development, social and brand building. And we are also further expanding our data and analytics capabilities to better leverage our DTC model to drive better consumer engagement and sales. Earlier this year, we completed the redesign of our North American business. The new business redesign fosters better agility, empowerment, and accountability for our brands, while still leveraging our corporate scale where it's efficient and adds value. And finally, we remain committed to our efforts to drive costs out of the business and structurally simplify our operating model. In the quarter, we realized approximately 200 basis points of cost of good savings as part of our productivity program and an additional 3.3 million in gross G&A reductions. Without question, we are operating in a challenging and a dynamic environment. And in the second quarter, we experienced higher than expected operating costs and supply chain disruptions. both of which dampened our imported results. However, we remain focused on our key commercial efforts, strong brand building, consumer-centric innovation, and excellent execution on shelf and online. And as a business, we remain in investment mode, ensuring strong activation across key brands and channels. Our brands are healthier than they have been at any time in recent years. We are executing well at retail, aided by our recent acquisitions and evidenced by the best distribution outcomes we've seen since our split from Energizer in 2015. And as such, we've delivered four consecutive quarters of organic sales growth and consecutive quarters of market share growth in the United States. So while the near-term environment is volatile, we are well positioned to drive consistent and sustainable organic sales growth over the longer term. in line with the algorithm we communicated at our investor day nearly two years ago. Let me turn to our adjusted outlook for the year. Against the backdrop of strong consumer demand and incremental pricing that we have executed across the business, we are raising our organic top-line growth outlook for the year. However, due to the incremental inflation we saw in the second quarter and also expect for the back half of the year, we are lowering our outlook for adjusted EPS, and EBITDA for the full year. Given the momentum we are seeing in our categories, along with our improving market share trends, we remain committed to investing in our brands, our innovation platform, and critical capability building to drive sustained growth. We believe this is the best decision for the business and our brands for the long term. We remain focused on driving gross margin accretion over time. through a combination of productivity-driven cost reduction and strong revenue management. However, this heightened and highly transitory inflationary environment does not signal to us a reason to pull back on investment in the business, especially in light of the clear signs of progress we are seeing across categories and markets. And now I'd like to ask Dan to take you through our second quarter results and also provide details on our outlook for the full fiscal year.