Edgewell Personal Care Company

Welcome to the Edgewell Personal Care Q4 2022 Earnings Call. All participants will be in 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 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, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us this morning for Edgewell's fourth quarter and 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 it over to Dan to discuss our results and full year 23 outlook before we 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 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 end 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'd like to turn the call over to Rod.

Rodney Ewing Thanks, Chris. Good morning, everyone, and thank you for joining us on our year-end earnings call. We were pleased with our results in the quarter, which came in largely in line with expectations, despite heightened currency headwinds and persistent cost inflation. For the second consecutive year, we grew organic net sales 4 percent, and we've now delivered organic growth for six consecutive quarters. Organic net sales increased in all segments of the business, and importantly, we had double-digit growth in our right to win businesses. which includes sun care, men's grooming, and skin care. A right-to-play portfolio of wet shave and feminine care also grew organically for the second consecutive year at just over 1%. Growth was broad-based, with North America increasing about 3% and international markets increasing nearly 6%, and reflective of a healthy combination of volume and pricing. And with the successful launch of Billy at Walmart, the Billy brand contributed 360 basis points to our reported top-line growth in the year. Despite ongoing macro market challenges, including supply chain disruption, heightened inflation, and the rapidly appreciating U.S. dollar, we continue to make significant progress in the transformation of Edgewell and achieve our objective of sustained top-line organic growth. I would like to personally thank our teams across the globe, as this progress is a result of their dedication, continued focus on the fundamentals, and good execution. Evidence of our transformation is seen in four specific ways. First, delivering meaningful consumer-centric innovation. This year, we successfully launched new products in sun care and feminine care. We re-architected the Schick brand in the United States broadened our women's branded shave range, including the introduction of Hydra Silk Touch-Up, the number one selling women's hair removal SKU on Amazon. And we added new products in men's grooming, including the new Cremo Razor, and launched our first new brand since the spinoff with Energizer, our new sustainable skincare brand, Field Trip. Second, we further strengthened our presence on shelf. led by our category-leading Sun portfolio of brands and aided by the successful rollout for the Billy brand at Walmart. Stronger brands, compelling innovation, and better retail execution all led to the best distribution outcomes we've seen since 2015 and helped deliver improved market share results. Third, we continue to improve our capabilities across the organizations. particularly in brand building, direct-to-consumer, and digital execution. E-commerce sales now account for approximately 13% of our top line, up six points from just two years ago, and evidence of our successful pivot to a broad, omnichannel approach to our categories. By in-housing critical capabilities related to site architecture, brand building, data and analytics, and performance marketing, We have built the required skills necessary to be successful across all e-commerce channels. And finally, we remain committed to driving costs out of the business and structurally simplifying and improving our operating model. On the heels of our three-year fuel effort, which concluded in 2021, we delivered an incremental $40 million in cost of goods savings in fiscal 22. helping to partially mitigate the broad inflationary headwinds seen across all businesses over the last 18 months. We further addressed overhead expenses in 2022, delivering approximately $15 million in gross savings while streamlining business decision-making and improving speed to market. Importantly, in the face of an increasingly challenging operating environment, We remain committed to investing in our brands, spending just under $240 million, or 11% of net sales, for the year in advertising and promotion, while improving the productivity of our spend, especially as we further shifted our focus to digital activation. Now, I would like to turn to the new fiscal year and provide some insight into our plans, and then Dan will take you through the detailed assumptions. While the external environment remains extremely challenging with continued year-over-year inflation, growing currency-related headwinds, and a likely increasingly cautious consumer, we believe that our results over the past two years demonstrate the benefits of our strategy and the underlying structural improvement in our business. This gives us confidence that we are taking the right actions to deliver sustained value creation over the long term. While we navigate this in increasingly challenging environment, our outlook for 2023 is solid with four core highlights. First, continued organic sales growth. Our outlook calls for organic growth of approximately 4%, largely driven by price execution and underpinned by Billy's retail expansion. Compelling innovation in sun and grooming, continued strong distribution outcomes that reinforce our brand's growing strength on shelf, and continued improvement in market share trends, most notably in wet shave, reflective of our leading portfolio of women's brands in the United States and strong performance in key international shave markets. Second, a return to gross margin accretion. Despite continued inflation and meaningful incremental currency headwinds, Through a combination of continued execution of our productivity initiatives across cost of goods and increased price realization across most of our portfolio, we will return to a core pillar of our business model, delivering 30 basis points of gross margin accretion for the year on a reported basis or 120 basis points of accretion on a constant currency basis. Third, We plan to continue to invest in our brands and organizational capabilities with advertising and promotion spending expected to increase in dollars and as a rate of sale with increased focus on top talent development across the organization. And lastly, we will continue to structurally address our cost base. Our plans include over $65 million in gross cost reductions across both cost of goods and overheads. as we focus on driving efficiency and simplification in how we operate the business. In addition to the gross margin accretion I just mentioned, the combination of growth-driven operating leverage and structural cost reductions also provide for another year of improved SG&A as a rate of sale. As we contemplate our plans for the year ahead and the choices we are making, we remain committed to executing our strategies and we are focusing on the operational fundamentals and health of the business for the long term. To help gauge the progress we are making on an operational basis, in addition to providing organic net sales results, we will provide a constant currency view of our results, including for adjusted earnings per share and adjusted EBITDA performance. We think that such a view is an important measure of our underlying performance. and points to the strength of our business model when we drive sustained organic sales growth. For 2023, on a constant currency basis, our outlook calls for adjusted EBITDA growth of 8% and adjusted earnings per share growth of 12%, both of which are well above our stated financial algorithm. Since our investor day in November of 2020, we have now delivered consecutive years of 4% organic growth meaningfully strengthened our portfolio with the additions of Cremo and Billy, improved our position on shelf, and stabilized or even grown market share across our key markets, all while operating in the most challenging macro environment many of us have ever seen. The underlying fundamentals of this business are far stronger today than they were two short years ago, and we are well positioned to continue our success in 2023 as our outlook reflects. And now I'd like to ask Dan to take you through our fourth quarter and full year results and to also provide additional details on our outlook for fiscal 2023. Dan?