Edgewell Personal Care(EPC) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements for the period ended June 30, 2021, reflect significant increases in net sales and earnings, with total assets growing to $3.65 billion Condensed Consolidated Statements of Earnings and Comprehensive Income Q3 2021 net sales increased to $573.7 million and net earnings to $40.8 million, with similar growth for the nine-month period Consolidated Statement of Earnings Highlights (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $573.7 | $483.9 | $1,544.1 | $1,460.9 | | Gross profit | $270.3 | $222.7 | $705.3 | $658.8 | | Operating income | $71.1 | $43.5 | $175.6 | $134.7 | | Net earnings | $40.8 | $4.7 | $72.9 | $46.6 | | Diluted EPS | $0.74 | $0.09 | $1.32 | $0.86 | Condensed Consolidated Balance Sheets As of June 30, 2021, total assets grew to $3.65 billion, driven by increases in cash and inventories, while shareholders' equity also increased Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Total current assets | $1,102.0 | $983.6 | | Cash and cash equivalents | $437.5 | $364.7 | | Goodwill | $1,166.9 | $1,159.7 | | Total assets | $3,647.2 | $3,540.9 | | Total current liabilities | $547.1 | $510.5 | | Long-term debt | $1,233.6 | $1,237.9 | | Total liabilities | $2,135.6 | $2,108.0 | | Total shareholders' equity | $1,511.6 | $1,432.9 | Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow increased to $155.9 million, with investing activities shifting to a net outflow and increased financing cash usage Cash Flow Summary (in millions) | Activity | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $155.9 | $118.6 | | Net cash (used by) from investing activities | $(26.1) | $71.3 | | Net cash used by financing activities | $(59.9) | $(21.6) | | Net increase in cash and cash equivalents | $72.8 | $170.3 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, segments, acquisitions (Cremo), Project Fuel restructuring, and debt refinancing, operating in three core segments - The company operates in three segments: Wet Shave (Schick, Wilkinson Sword), Sun and Skin Care (Banana Boat, Hawaiian Tropic, Jack Black, Cremo), and Feminine Care (Playtex, Stayfree)[23] - On September 2, 2020, the Company acquired Cremo Holding Company, LLC for $234.6 million, adding $95.1 million in intangible assets and $128.0 million in goodwill to the Sun and Skin Care segment[28] - The company's "Project Fuel" restructuring initiative incurred charges of $5.2 million and $11.6 million for the three and nine months ended June 30, 2021, respectively[8][32] - In March 2021, the company issued $500 million of 4.125% Senior Notes due 2029 and used the proceeds to redeem its 4.70% Senior Notes due 2022, incurring a $26.1 million cost for early debt retirement[47] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q3 2021 with 18.6% net sales growth and 37.0% adjusted net earnings increase, driven by COVID-19 recovery Executive Summary Q3 2021 net sales rose 18.6% to $573.7 million with 12.5% organic growth, and adjusted net earnings increased 37.0% - Q3 2021 net sales increased 18.6% to $573.7 million, with organic net sales up 12.5% due to increased demand across all segments after the prior year's COVID-19 related reduction[84] - Q3 2021 adjusted net earnings increased 37.0% to $49.2 million, driven by higher sales and improved margins, partially offset by higher A&P spending[84][85] - For the first nine months of fiscal 2021, organic net sales increased 2.1%, but adjusted net earnings decreased 4.5% to $111.0 million due to higher A&P investments[86][87] Operating Results Q3 2021 organic net sales grew 12.5%, with adjusted gross margin improving 40 basis points to 47.2%, despite increased A&P spending Net Sales Reconciliation (Q3 & Nine Months 2021) | Metric (in millions) | Q3 2021 | % Change | Nine Months 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales - prior year | $483.9 | | $1,460.9 | | | Organic Growth | $60.5 | 12.5% | $31.0 | 2.1% | | Cremo acquisition | $13.7 | 2.8% | $44.9 | 3.1% | | Currency Impact | $15.6 | 3.3% | $34.1 | 2.3% | | Net sales - current year | $573.7 | 18.6% | $1,544.1 | 5.7% | - Adjusted gross margin for Q3 2021 increased by 40 basis points to 47.2%, driven by favorable pricing, product mix, and Project Fuel savings, which offset higher commodity and distribution costs[92] - A&P expense for Q3 2021 increased by $14.4 million to $81.9 million, representing 14.3% of net sales, due to investments in product launches and brand campaigns[94] Project Fuel Project Fuel generated $19 million in Q3 2021 gross savings, with cumulative savings reaching $264 million and $280 million expected by fiscal year-end - Project Fuel generated gross savings of approximately $19 million in Q3 2021, with cumulative savings reaching approximately $264 million[101] - The company now anticipates total gross savings from Project Fuel to be approximately $280 million by the end of fiscal 2021[101] - Total one-time pre-tax charges for the project are expected to be approximately $160 million, with cumulative charges reaching $151.7 million by June 30, 2021[103] Segment Results Q3 2021: Wet Shave organic sales up 5.7% (profit down), Sun/Skin Care organic sales up 29.5% (profit surged), Feminine Care organic sales up 6.1% Q3 2021 Organic Growth vs. Q3 2020 | Segment | Organic Net Sales % Change | Organic Segment Profit % Change | | :--- | :--- | :--- | | Wet Shave | +5.7% | -9.2% | | Sun and Skin Care | +29.5% | +78.3% | | Feminine Care | +6.1% | +11.7% | - Wet Shave profit declined due to higher A&P spending on Men's systems, which more than offset increased sales and favorable gross margins[105] - Sun and Skin Care growth was driven by a nearly 50% increase in Sun Care sales, reflecting a sharp recovery from COVID-19 impacted declines in the prior year[107] Liquidity and Capital Resources The company maintains a solid liquidity position with $1.27 billion in borrowings, believing current resources are sufficient for the next 12 months - The company believes its cash on hand, cash flows from operations, and borrowing capacity under its Revolving Credit Facility will be sufficient to satisfy its working capital and other financing requirements for at least the next 12 months[114] - Total borrowings stood at $1,274.8 million at June 30, 2021, and the company was in compliance with all debt covenants[114] Cash Flows Nine-month operating cash flow increased to $155.9 million, with investing activities using $26.1 million and financing activities using $59.9 million Cash Flow Summary (Nine Months Ended June 30, in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating activities | $155.9 | $118.6 | | Investing activities | $(26.1) | $71.3 | | Financing activities | $(59.9) | $(21.6) | - The increase in cash from operations was primarily related to increased net earnings[117] - Financing activities included $9.2 million for share repurchases, $26.1 million for costs of early debt retirement, and $16.7 million in dividend payments[119] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include currency, commodity, and interest rates, with derivatives used for currency exposure and minimal interest rate impact - The company is exposed to market risks from currency rates, commodity prices, and interest rates[125] - Foreign currency risk is managed through derivative instruments, and as of June 30, 2021, there were no commodity hedges in place[125] - Interest rate risk is limited to $24.8 million of variable-rate debt, with minimal sensitivity to a 1% rate change[125] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[127] - No changes occurred during the quarter that materially affected, or are likely to materially affect, the company's internal control over financial reporting[128] PART II. OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2021, the company repurchased 24,676 shares in April at $38.75 per share, with 9,750,000 shares remaining available for repurchase Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid per share | | :--- | :--- | :--- | | April 2021 | 24,676 | $38.75 | | May 2021 | — | — | | June 2021 | — | — | - The maximum number of shares that may yet be purchased under the company's plan is 9,750,000[131] Exhibits This section lists various corporate governance documents, debt agreements, and required certifications filed as exhibits with the Form 10-Q - Lists various corporate governance documents, debt agreements, and required certifications filed as exhibits[131]