Edgewell Personal Care(EPC) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements, including statements of earnings and comprehensive income, balance sheets, cash flows, and changes in shareholders' equity, along with detailed notes explaining accounting policies, business combinations, restructuring, and other financial details for the periods ended June 30, 2022 and 2021 Condensed Consolidated Statements of Earnings and Comprehensive Income Condensed Consolidated Statements of Earnings and Comprehensive Income (in millions, except per share data): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $623.8 | $573.7 | $1,634.8 | $1,544.1 | | Gross profit | $240.6 | $270.3 | $660.6 | $705.3 | | Operating income | $49.9 | $71.1 | $123.4 | $175.6 | | Net earnings | $30.5 | $40.8 | $64.9 | $72.9 | | Diluted net earnings per share | $0.57 | $0.74 | $1.20 | $1.32 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in millions): | Metric | June 30, 2022 | September 30, 2021 | | :-------------------------- | :------------ | :----------------- | | Total assets | $3,721.3 | $3,674.6 | | Total liabilities | $2,243.2 | $2,090.3 | | Total shareholders' equity | $1,478.1 | $1,584.3 | | Cash and cash equivalents | $181.6 | $479.2 | | Goodwill | $1,332.3 | $1,162.8 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in millions): | Metric | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | | Net cash from operating activities | $72.4 | $155.9 | | Net cash used by investing activities | $(337.6) | $(26.1) | | Net cash used by financing activities | $(21.4) | $(59.9) | | Net (decrease) increase in cash and cash equivalents | $(297.6) | $72.8 | - Net cash used by investing activities significantly increased in 2022, primarily due to the $309.4 million acquisition of Billie, net of cash acquired[16] Condensed Consolidated Statements of Changes in Shareholders' Equity Key Changes in Shareholders' Equity (in millions): | Metric | June 30, 2022 | September 30, 2021 | | :-------------------------- | :------------ | :----------------- | | Total Shareholders' Equity | $1,478.1 | $1,584.3 | | Common shares in treasury at cost | $(846.5) | $(776.3) | | Accumulated other comprehensive loss | $(181.9) | $(136.9) | - During the nine months ended June 30, 2022, the company repurchased $110.1 million of shares and declared $24.7 million in dividends to common shareholders[18][116][118] Notes to Condensed Consolidated Financial Statements Note 1 - Background and Basis of Presentation This note outlines Edgewell's business segments (Wet Shave, Sun and Skin Care, Feminine Care), confirms the financial statements' adherence to U.S. GAAP, and highlights the acquisition of Billie, Inc. and the adoption of ASU 2019-12 with no material impact - Edgewell operates in three segments: Wet Shave, Sun and Skin Care, and Feminine Care[23] - The acquisition of Billie, Inc., a consumer brand company for women's personal care products, was completed on November 29, 2021[24] - The Company adopted Accounting Standards Update 2019-12 as of October 1, 2021, with no material effect on its financial position, results of operations, or cash flows[25] Note 2 - Business Combinations The Company completed the acquisition of Billie, Inc. on November 29, 2021, for $309.4 million cash, net of cash acquired. The preliminary purchase price allocation includes $181.2 million in goodwill and $136.0 million in intangible assets, primarily allocated to the Wet Shave segment. Billie contributed $67.6 million in net sales and a $4.8 million loss before income taxes for the post-acquisition period - Acquisition of Billie, Inc. was completed on November 29, 2021, for cash consideration of $309.4 million, net of cash acquired[28] Preliminary Purchase Price Allocation for Billie Acquisition (in millions): | Asset/Liability | Amount | | :----------------------------------------- | :----- | | Goodwill | $181.2 | | Intangible assets | $136.0 | | Current assets | $17.0 | | Other assets, including property, plant and equipment, net | $3.2 | | Current liabilities | $(6.9) | | Deferred tax liabilities | $(21.1)| | Total | $309.4 | - Billie contributed $67.6 million in Net sales and a $4.8 million Loss before income taxes for the post-acquisition period ending June 30, 2022[28] Note 3 - Restructuring Charges The Company is undertaking an 'Operating Model Redesign' in fiscal 2022, expecting approximately $15 million in one-time restructuring charges. For the nine months ended June 30, 2022, $9.8 million in charges were incurred, primarily for severance and consulting. The 'Project Fuel' initiative was completed on September 30, 2021 - The Company expects to incur approximately $15 million in one-time restructuring charges in fiscal 2022 for its 'Operating Model Redesign'[31] Restructuring Charges (in millions): | Category | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2022 | | :------------------------------------------------------ | :------------------------------- | :------------------------------ | | Severance and related benefit costs | $1.0 | $4.0 | | Asset write-off and accelerated depreciation | $0.3 | $0.4 | | Consulting, project implementation and management, and other exit costs | $2.6 | $5.4 | | Total restructuring | $3.9 | $9.8 | - Project Fuel, an enterprise-wide transformational initiative, was completed on September 30, 2021[32] Note 4 - Income Taxes The effective tax rate for the three and nine months ended June 30, 2022, was 16.1% and 18.5% respectively, a decrease from the prior year, primarily due to a favorable mix of earnings in low tax jurisdictions and changes in prior estimates Effective Tax Rates: | Period | June 30, 2022 | June 30, 2021 | | :-------------------------- | :------------ | :------------ | | Three Months Ended | 16.1% | 24.2% | | Nine Months Ended | 18.5% | 26.1% | - The lower effective tax rates in 2022 are primarily due to a favorable mix of earnings in low tax jurisdictions and the favorable impact of a change in the Company's prior estimates[35] Note 5 - Earnings per Share This note reconciles the weighted-average shares used for basic and diluted earnings per share calculations, noting the exclusion of anti-dilutive securities Weighted-Average Shares Outstanding (in millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic weighted-average shares outstanding | 52.5 | 54.4 | 53.5 | 54.4 | | Diluted weighted-average shares outstanding | 53.1 | 55.4 | 54.1 | 55.1 | - The calculation of diluted weighted-average shares outstanding excludes certain share options and RSE/PRSE awards that were anti-dilutive[36] Note 6 - Goodwill and Intangible Assets Goodwill increased to $1,332.3 million as of June 30, 2022, primarily due to the Billie acquisition, which added $181.2 million. Amortizable intangible assets also increased, with estimated amortization expense for future years provided Goodwill by Segment (in millions): | Segment | Net Balance at October 1, 2021 | Billie Acquisition | Cumulative Translation Adjustment | Net Balance at June 30, 2022 | | :---------------- | :----------------------------- | :----------------- | :-------------------------------- | :--------------------------- | | Wet Shave | $598.5 | $181.2 | $(9.3) | $770.4 | | Sun and Skin Care | $355.6 | — | $(1.8) | $353.8 | | Feminine Care | $208.7 | — | $(0.6) | $208.1 | | Total | $1,162.8 | $181.2 | $(11.7) | $1,332.3 | Intangible Assets (Net, in millions): | Class | June 30, 2022 | September 30, 2021 | | :-------------------------- | :------------ | :----------------- | | Indefinite lived (Trade names and brands) | $592.3 | $600.8 | | Amortizable (Total) | $418.4 | $305.6 | - Amortization expense was $21.8 million for the nine months ended June 30, 2022, up from $16.6 million in the prior year period[38] Note 7 - Supplemental Balance Sheet Information This note provides detailed breakdowns of inventories, other current assets, property, plant and equipment (net), other current liabilities, and other liabilities as of June 30, 2022, and September 30, 2021 Inventories (in millions): | Category | June 30, 2022 | September 30, 2021 | | :----------------------- | :------------ | :----------------- | | Raw materials and supplies | $68.3 | $61.3 | | Work in process | $93.9 | $83.4 | | Finished products | $251.9 | $201.0 | | Total inventories | $414.1 | $345.7 | Other Current Liabilities (in millions): | Category | June 30, 2022 | September 30, 2021 | | :------------------------------------------------------ | :------------ | :----------------- | | Accrued advertising, sales promotion and allowances | $47.9 | $33.8 | | Accrued trade allowances | $32.4 | $34.0 | | Accrued salaries, vacations and incentive compensation | $46.7 | $66.4 | | Total other current liabilities | $317.0 | $300.8 | Property, Plant and Equipment, net (in millions): | Category | June 30, 2022 | September 30, 2021 | | :-------------------------------- | :------------ | :----------------- | | Total gross property, plant and equipment | $1,315.1 | $1,313.7 | | Accumulated depreciation and amortization | $(967.3) | $(951.1) | | Total property, plant and equipment, net | $347.8 | $362.6 | Note 8 - Leases The Company accounts for all recorded leases as operating leases, recognizing lease expense on a straight-line basis. Right-of-use assets and total lease liabilities decreased slightly from September 2021 to June 2022, with a weighted-average remaining lease term of 10 years Lease Information (in millions): | Metric | June 30, 2022 | September 30, 2021 | | :-------------------------- | :------------ | :----------------- | | Right of use assets | $51.0 | $57.7 | | Total lease liabilities | $51.3 | $57.9 | | Weighted-average remaining lease term (years) | 10 | 10 | | Weighted-average incremental borrowing rate | 6.5% | 6.3% | - Lease expense for the nine months ended June 30, 2022, was $10.5 million, compared to $11.0 million in the prior year[43] Note 9 - Accounts Receivable Facility The Company's uncommitted master accounts receivable purchase agreement was amended on February 7, 2022, increasing the maximum receivables sold amount to $180.0 million from $150.0 million and changing the pricing index. Trade receivables sold for the nine months ended June 30, 2022, were $791.2 million, resulting in a loss on sale of $1.1 million - The maximum receivables sold amount under the Accounts Receivable Facility was increased to $180.0 million from $150.0 million on February 7, 2022[45] Accounts Receivables Sold (in millions): | Period | 2022 | 2021 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $354.0 | $293.9 | | Nine Months Ended June 30 | $791.2 | $634.2 | | Trade receivables sold outstanding as of June 30 | $156.0 | $91.1 | - The loss on sale of trade receivables was $1.1 million for the nine months ended June 30, 2022, compared to $0.6 million in the prior year period[45] Note 10 - Debt Total long-term debt increased to $1,356.9 million as of June 30, 2022, from $1,234.2 million at September 30, 2021, primarily due to outstanding borrowings under the U.S. revolving credit facility Long-Term Debt (in millions): | Category | June 30, 2022 | September 30, 2021 | | :--------------------------------------- | :------------ | :----------------- | | Senior notes, fixed interest rate of 5.500%, due 2028 | $750.0 | $750.0 | | Senior notes, fixed interest rate of 4.125%, due 2029 | $500.0 | $500.0 | | U.S. revolving credit facility | $121.0 | — | | Total long-term debt | $1,356.9 | $1,234.2 | - The U.S. revolving credit facility matures in 2025[46] Note 11 - Retirement Plans This note details the net periodic pension and postretirement (income) costs for the Company's defined benefit plans, showing a net periodic income of $(0.6) million for the nine months ended June 30, 2022, compared to a cost of $0.8 million in the prior year Net Periodic Pension and Postretirement (Income) Costs (in millions): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Service cost | $0.9 | $1.1 | $2.9 | $3.3 | | Interest cost | $2.6 | $2.5 | $7.8 | $7.4 | | Expected return on plan assets | $(5.3) | $(5.6) | $(15.9) | $(16.8) | | Recognized net actuarial loss | $1.5 | $2.3 | $4.6 | $6.9 | | Net periodic (income) cost | $(0.3) | $0.3 | $(0.6) | $0.8 | Note 12 - Shareholders' Equity The Company repurchased 2.9 million shares of common stock for $110.1 million during the nine months ended June 30, 2022, with 6.9 million shares remaining under authorization. Quarterly cash dividends of $0.15 per common share were declared for the first two fiscal quarters of 2022, totaling $24.7 million in payments - The Company repurchased 2.9 million shares of its common stock for $110.1 million during the nine months ended June 30, 2022[49] - As of June 30, 2022, 6.9 million shares of common stock remain available for repurchase under the Board's authorization[49] - Quarterly cash dividends of $0.15 per common share were declared for the first and second fiscal quarters of 2022, with total payments of $24.7 million for the nine months ended June 30, 2022[50] Note 13 - Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss (AOCI) increased to $(181.9) million as of June 30, 2022, from $(136.9) million at October 1, 2021, primarily driven by foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (AOCI) (in millions): | Component | Balance at October 1, 2021 | OCI before Reclassifications (9 months) | Reclassifications to Earnings (9 months) | Balance at June 30, 2022 | | :-------------------------------- | :------------------------- | :-------------------------------------- | :--------------------------------------- | :----------------------- | | Foreign Currency Translation Adjustments | $(41.8) | $(50.3) | — | $(92.1) | | Pension and Post-retirement Activity | $(97.3) | $(2.6) | $3.4 | $(96.5) | | Hedging Activity | $2.2 | $8.7 | $(4.2) | $6.7 | | Total | $(136.9) | $(44.2) | $(0.8) | $(181.9) | Note 14 - Financial Instruments and Risk Management The Company uses derivative instruments, including cash flow hedges and non-designated hedges, to manage exposure to foreign currency risk, primarily for the euro, Japanese yen, British pound, Canadian dollar, and Australian dollar. Unrealized pre-tax gains on cash flow hedges were $9.8 million as of June 30, 2022 - The Company utilizes contractual arrangements (derivatives) to reduce its exposure to foreign currency risk, with primary exposures to the euro, Japanese yen, British pound, Canadian dollar, and Australian dollar[54][55] Fair Values of Derivative Instruments (in millions): | Category | June 30, 2022 | September 30, 2021 | | :--------------------------------------- | :------------ | :----------------- | | Derivatives designated as cash flow hedging relationships (Foreign currency contracts) | $9.8 | $3.3 | | Derivatives not designated as cash flow hedging relationships (Foreign currency contracts) | $2.0 | $0.5 | - The fair market value of fixed rate long-term debt was $1,024.1 million at June 30, 2022, compared to its carrying value of $1,250.0 million[60] Note 15 - Segment Data This note provides detailed financial performance by segment (Wet Shave, Sun and Skin Care, Feminine Care) and geographic area. Total net sales increased by 8.7% in Q3 and 5.9% for the nine months ended June 30, 2022, driven by the Billie acquisition and organic growth, though segment profits varied due to inflationary pressures Total Net Sales (in millions): | Period | 2022 | 2021 | | :----- | :--- | :--- | | Q3 | $623.8 | $573.7 | | 9 Months | $1,634.8 | $1,544.1 | Segment Net Sales (in millions, Nine Months Ended June 30): | Segment | 2022 | 2021 | | :---------------- | :--- | :--- | | Wet Shave | $917.4 | $876.7 | | Sun and Skin Care | $504.3 | $457.7 | | Feminine Care | $213.1 | $209.7 | Segment Profit (in millions, Nine Months Ended June 30): | Segment | 2022 | 2021 | | :---------------- | :--- | :--- | | Wet Shave | $116.6 | $141.6 | | Sun and Skin Care | $92.6 | $86.4 | | Feminine Care | $19.1 | $28.1 | Note 16 - Commitments and Contingencies The Company recorded a $7.5 million gain from a legal settlement related to intellectual property claims and a $22.5 million charge for SKU rationalization, specifically for the write-off of certain Wet Ones SKUs inventory and related contract termination charges - The Company settled certain legal matters, primarily related to intellectual property claims, resulting in a $7.5 million gain included in SG&A[65] - A charge of $22.5 million was recorded for the write-off of inventory for certain Wet Ones SKUs and related contract termination charges[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the Company's financial condition and operating results, including an executive summary, detailed analysis of net sales, gross profit, expenses, and segment performance, as well as discussions on liquidity, capital resources, and critical accounting policies. It highlights the impact of the Billie acquisition, inflationary pressures, and strategic initiatives Forward-Looking Statements - This document contains forward-looking statements reflecting expectations, estimates, or projections concerning future results or events, including the integration of the Billie acquisition and expected benefits[69] - These statements are not guarantees of performance and are subject to known and unknown risks, uncertainties, and assumptions[69] Non-GAAP Financial Measures - The Company uses non-GAAP measures (e.g., 'adjusted' or 'organic') to supplement GAAP results, excluding items like restructuring costs, acquisition and integration costs, and other non-standard items[70] - Organic net sales and segment profit exclude the impact of changes in foreign currency and the Billie acquisition to provide more meaningful period-to-period comparisons[70] Industry and Market Data - Information concerning the industry, market position, market share, and industry market size are estimates based on internal and external data, subject to inherent imprecision and change[73] Trademarks and Trade Names - The Company owns or has rights to use trademarks and trade names in conjunction with its business operations[74] Impact of the COVID-19 Pandemic - The Company has implemented significant health and safety measures to protect employees and has not experienced a material operational disruption[75] - The prolonged COVID-19 pandemic has resulted in increased supply chain challenges across labor management, product procurement, and distribution[75] - To date, the COVID-19 pandemic has not had a significant impact on the Company's liquidity, cash flows, or capital resources[75] Significant Events - Acquisitions - The acquisition of Billie, a leading U.S. based consumer brand company for women's personal care products, was completed on November 29, 2021, for $309.4 million, net of cash acquired[76] Executive Summary - Net sales in Q3 fiscal 2022 increased 8.7% to $623.8 million, with organic net sales up 9.0% due to growth across all segments[80] - Net earnings in Q3 fiscal 2022 were $30.5 million (down from $40.8 million YoY), and adjusted net earnings were $45.8 million (down from $49.2 million YoY), primarily due to lower gross margins from inflationary pressures[80] - For the first nine months of fiscal 2022, net sales increased 5.9% to $1,634.8 million, with organic net sales up 4.8%. Adjusted net earnings were $96.0 million (down from $111.0 million YoY) due to higher cost of goods sold, increased A&P, and higher SG&A[83][85] Operating Results Net Sales Net sales for the third quarter of fiscal 2022 increased 8.7% to $623.8 million, with organic net sales up 9.0%. For the first nine months, net sales increased 5.9% to $1,634.8 million, with organic net sales up 4.8%. Growth was driven by the Billie acquisition and increased volumes/pricing, partially offset by unfavorable currency impacts Net Sales Changes (in millions): | Component | Q3 FY22 Impact | Q3 FY22 % Chg | 9 Months FY22 Impact | 9 Months FY22 % Chg | | :------------------------ | :------------- | :------------ | :------------------- | :------------------ | | Organic | $51.4 | 9.0% | $73.8 | 4.8% | | Impact of Billie acquisition, net | $21.1 | 3.7% | $55.3 | 3.6% | | Impact of currency | $(22.4) | (4.0)% | $(38.4) | (2.5)% | | Total Net Sales Change| $50.1 | 8.7% | $90.7 | 5.9% | Gross Profit Gross profit declined in Q3 and the first nine months of fiscal 2022. Adjusted gross margin percentage decreased by 500 basis points in Q3 and 380 basis points for the nine months, primarily due to higher commodity and transportation costs, negative mix, and higher trade spend, partially offset by pricing benefits. A $22.5 million charge for Wet Ones SKU rationalization also impacted gross profit - Gross profit was $240.6 million in Q3 fiscal 2022, down from $270.3 million in the prior year quarter[92] - Adjusted gross margin percentage declined by 500 basis points in Q3 fiscal 2022 (to 42.2%) and 380 basis points for the first nine months (to 42.0%) compared to the prior year periods[92] - The decline in gross margin was primarily due to a 440-basis point net impact from higher commodity and transportation-related costs, negative mix, higher trade spend, and unfavorable currency, partially offset by pricing benefits[92] Selling, General and Administrative Expense SG&A as a percentage of net sales decreased in both Q3 and the first nine months of fiscal 2022, benefiting from increased net sales and operational efficiency programs. This was partially offset by the impact of the Billie acquisition (including amortization) and higher overall compensation expense. A $7.5 million gain from a legal settlement was included in SG&A - SG&A was $92.7 million in Q3 fiscal 2022, or 14.9% of net sales, down from 17.0% in the prior year quarter[93] - Adjusted SG&A as a percent of net sales declined by 40 basis points in Q3 (to 15.9%) and 20 basis points for the first nine months (to 17.6%)[93] - The decline was driven by leverage from increased net sales and operational efficiency programs, partially offset by Billie acquisition costs and higher compensation[93] Advertising and Sales Promotion Expense A&P expense slightly decreased in Q3 but increased for the first nine months of fiscal 2022. As a percentage of net sales, it decreased in both periods, reflecting lower international spend and currency impact, partially offset by increased support for Billie, Feminine Care, and Sun Care - A&P expense was $80.9 million in Q3 fiscal 2022, down $1.0 million from the prior year quarter[94] - A&P as a percent of net sales was 13.0% in Q3 fiscal 2022 (down from 14.3%) and 12.1% for the first nine months (down from 12.4%)[94] - Increased spending in support of Billie, Feminine Care, and sun season execution was more than offset by lower spend in International markets and currency translation impact[94] Research and Development Expense R&D expense decreased in both Q3 and the first nine months of fiscal 2022, primarily due to lower program spending - R&D expense for Q3 fiscal 2022 was $13.6 million, down from $14.6 million in the prior year quarter[96] - For the first nine months of fiscal 2022, R&D was $40.1 million, down from $42.6 million in the prior year period, driven primarily by lower program spend[96] Interest Expense Associated with Debt Interest expense increased in Q3 and the first nine months of fiscal 2022 due to a higher overall debt balance, primarily from financing the Billie acquisition - Interest expense associated with debt for Q3 fiscal 2022 was $18.0 million, up from $16.4 million in the prior year quarter[97] - For the first nine months of fiscal 2022, interest expense was $53.3 million, up from $51.1 million in the prior year period, due to a higher overall debt balance from financing the Billie acquisition[97] Other (Income) Expense, net Other (income) expense, net, shifted from an expense to income in Q3 and significantly increased income for the first nine months of fiscal 2022, driven by favorable foreign currency hedge settlements - Other (income) expense, net, was income of $4.4 million in Q3 fiscal 2022, compared to an expense of $0.8 million in the prior year quarter[98] - For the first nine months of fiscal 2022, it was income of $9.5 million, compared to income of $0.2 million in the prior year period, driven by favorable foreign currency hedge settlements[98] Income Tax Provision The effective tax rates for Q3 and the first nine months of fiscal 2022 were lower than the prior year, reflecting a favorable mix of earnings in low tax jurisdictions and changes in prior estimates Effective Tax Rates: | Period | June 30, 2022 | June 30, 2021 | | :-------------------------- | :------------ | :------------ | | Three Months Ended | 16.1% | 24.2% | | Nine Months Ended | 18.5% | 26.1% | - The fiscal 2022 effective tax rate and adjusted effective tax rate reflect a favorable mix of earnings in low tax jurisdictions and a favorable impact of a change in prior estimates[99] Operating Model Redesign The Company expects to incur approximately $15 million in one-time restructuring charges in fiscal 2022 for its operating model redesign, with $9.8 million incurred in the first nine months, primarily related to employee severance and benefit costs - The Company expects to incur approximately $15 million in one-time restructuring charges in fiscal 2022 to strengthen its operating model, simplify the organization, and improve efficiency[100] - Restructuring charges of $3.9 million and $9.8 million were incurred during Q3 and the first nine months of fiscal 2022, respectively, primarily for employee severance and benefit costs[100] Segment Results Wet Shave Wet Shave net sales increased 7.0% in Q3 and 4.6% for the nine months ended June 30, 2022, driven by the Billie acquisition and organic growth in Men's and Women's Systems, Disposables, and Shave Preps. However, segment profit declined by 13.0% in Q3 and 17.7% for the nine months, primarily due to inflationary pressures Wet Shave Net Sales (in millions): | Period | 2022 | 2021 | Organic % Chg | Billie Acquisition % Chg | Currency % Chg | Total % Chg | | :----- | :--- | :--- | :------------ | :----------------------- | :------------- | :---------- | | Q3 | $326.3 | $304.9 | 6.3% | 6.9% | (6.2)% | 7.0% | | 9 Months | $917.4 | $876.7 | 2.2% | 6.3% | (3.9)% | 4.6% | Wet Shave Segment Profit (in millions): | Period | 2022 | 2021 | Organic % Chg | Billie Acquisition % Chg | Currency % Chg | Total % Chg | | :----- | :--- | :--- | :------------ | :----------------------- | :------------- | :---------- | | Q3 | $37.5 | $43.1 | 0.5% | (2.3)% | (11.2)% | (13.0)% | | 9 Months | $116.6 | $141.6 | (5.3)% | (6.1)% | (6.3)% | (17.7)% | - Organic segment profit for Wet Shave decreased primarily due to inflationary pressures, including higher commodity costs and warehousing and distribution costs, partially offset by favorable pricing and lower A&P expense[104] Sun and Skin Care Sun and Skin Care net sales increased 10.8% in Q3 and 10.2% for the nine months ended June 30, 2022, driven by strong organic growth in Sun Care (15% in Q3, 23% globally for 9 months) and Men's Grooming. Wet Ones organic sales returned to growth in Q3 but declined 23% for the nine months as demand normalized. Segment profit increased due to higher sales volumes Sun and Skin Care Net Sales (in millions): | Period | 2022 | 2021 | Organic % Chg | Currency % Chg | Total % Chg | | :----- | :--- | :--- | :------------ | :------------- | :---------- | | Q3 | $216.2 | $195.2 | 12.6% | (1.8)% | 10.8% | | 9 Months | $504.3 | $457.7 | 11.2% | (1.0)% | 10.2% | - Sun Care organic growth was approximately 15% in Q3 and 23% globally for the nine months, reflecting distribution gains and category recovery[105] - Wet Ones organic net sales returned to growth in Q3 (up 7.4%) but declined 23% for the nine months as demand fell to pre-COVID-19 pandemic levels[105] Feminine Care Feminine Care net sales increased 10.5% in Q3 and 1.6% for the nine months ended June 30, 2022, reflecting higher category consumption and improved product availability. However, segment profit significantly declined by 35.8% in Q3 and 32.0% for the nine months, primarily due to inflationary cost pressures and higher A&P spend Feminine Care Net Sales (in millions): | Period | 2022 | 2021 | Organic % Chg | Total % Chg | | :----- | :--- | :--- | :------------ | :---------- | | Q3 | $81.3 | $73.6 | 10.5% | 10.5% | | 9 Months | $213.1 | $209.7 | 1.6% | 1.6% | Feminine Care Segment Profit (in millions): | Period | 2022 | 2021 | Organic % Chg | Total % Chg | | :----- | :--- | :--- | :------------ | :---------- | | Q3 | $8.8 | $13.7 | (35.1)% | (35.8)% |\ | 9 Months | $19.1 | $28.1 | (32.0)% | (32.0)% | Corporate Expenses Corporate expenses decreased in Q3 fiscal 2022 due to lower discretionary spending but increased for the first nine months due to higher salary and benefit costs Corporate Expenses (in millions): | Period | 2022 | 2021 | | :-------------------------- | :--- | :--- | | Quarter Ended June 30 | $14.8 | $15.7 | | Nine Months Ended June 30 | $42.8 | $41.2 | - The decline in Q3 corporate expense was primarily due to lower discretionary spending, while the nine-month increase was due to higher salary and benefit costs[109] Liquidity and Capital Resources Total borrowings increased to $1,389.9 million at June 30, 2022. The Company had $297.5 million available under its Revolving Credit Facility and increased its Accounts Receivable Facility to $180.0 million. Management expects adequate liquidity for the next 12 months from cash on hand, operating cash flows, and borrowing capacity, despite ongoing COVID-19 related market volatility - Total borrowings were $1,389.9 million at June 30, 2022, up from $1,276.5 million at September 30, 2021[111] - As of June 30, 2022, $297.5 million was available under the Revolving Credit Facility, and the maximum receivables sold amount under the Accounts Receivable Facility was increased to $180.0 million[111] - The Company expects its cash on hand, cash flows from operations, and borrowing capacity to be sufficient to satisfy liquidity needs for at least the next 12 months, despite COVID-19 related market volatility[111] Cash Flows Operating Activities Cash flow from operating activities decreased to $72.4 million during the first nine months of fiscal 2022, down from $155.9 million in the prior year period, primarily due to a larger net working capital build - Cash flow from operating activities was $72.4 million during the first nine months of fiscal 2022, a decrease from $155.9 million in the prior year period[114] - The decrease in cash flows from operating activities was driven by a larger net working capital build[114] Investing Activities Cash flow used by investing activities increased substantially to $337.6 million during the first nine months of fiscal 2022, compared to $26.1 million used in the prior year, mainly due to the $309.4 million acquisition of Billie - Cash flow used by investing activities was $337.6 million during the first nine months of fiscal 2022, compared to $26.1 million used in the prior year period[115] - The significant increase in cash used was primarily due to the acquisition of Billie for $309.4 million, net of cash acquired[115] Financing Activities Net cash used by financing activities decreased to $21.4 million during the first nine months of fiscal 2022, compared to $59.9 million in the prior year. Key activities included net borrowings of $121.0 million under the Revolving Credit Facility for the Billie acquisition, $110.1 million in share repurchases, and $24.7 million in dividend payments - Net cash used by financing activities was $21.4 million during the first nine months of fiscal 2022, compared to $59.9 million in the prior year period[116] - The Company had net borrowings of $121.0 million under its Revolving Credit Facility, primarily to fund the Billie acquisition[116] - Share repurchases totaled $110.1 million, and dividend payments totaled $24.7 million during the first nine months of fiscal 2022[116] Share Repurchases During the first nine months of fiscal 2022, the Company repurchased 2.9 million shares of its common stock for $110.1 million, with 6.9 million shares remaining under the repurchase plan - The Company repurchased 2.9 million shares of common stock for $110.1 million during the first nine months of fiscal 2022[117] - As of June 30, 2022, 6.9 million shares remain available for repurchase under the Board's authorization[117] Dividends The Board declared quarterly cash dividends of $0.15 per common share for the first three fiscal quarters of 2022, with total dividend payments of $24.7 million for the nine months ended June 30, 2022 - The Board declared a quarterly cash dividend of $0.15 per common share for the first, second, and third fiscal quarters of 2022[118] - Dividend payments totaled $24.7 million during the nine months ended June 30, 2022[118] Commitments and Contingencies - Contractual Obligations The Company's future minimum debt repayments include $121.0 million in fiscal 2025, $750.0 million in fiscal 2028, and $500.0 million in fiscal 2029. There have been no other material changes to contractual obligations since the 2021 Annual Report Future Minimum Debt Repayments (in millions): | Fiscal Year | Amount | | :---------- | :----- | | 2025 | $121.0 | | 2028 | $750.0 | | 2029 | $500.0 | - There have been no other material changes in contractual obligations since the presentation in the 2021 Annual Report[120] Critical Accounting Policies The Company refers to its 2021 Annual Report on Form 10-K for a full description of its critical accounting policies and estimates, noting that there have been no significant changes since September 30, 2021 - Critical accounting policies and estimates are fully described in the Company's Annual Report on Form 10-K for the year ended September 30, 2021[121] - There have been no significant changes to critical accounting policies and estimates since September 30, 2021[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is exposed to market risks from currency rates, commodity prices, and interest rates, which it mitigates using derivative instruments. As of June 30, 2022, variable-rate debt totaled $139.9 million, and a one-percent increase in applicable interest rates would increase annual interest expense by approximately $1.4 million - The Company's market risk exposure relates to potential losses from adverse changes in currency rates, commodity prices, and interest rates[123] - The Company uses contractual arrangements (derivatives) to reduce these exposures, particularly for foreign currency[123] - As of June 30, 2022, outstanding variable-rate debt was $139.9 million, and a one-percent increase in interest rates would increase annual interest expense by approximately $1.4 million[123] Item 4. Controls and Procedures. This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended June 30, 2022 Evaluation of Disclosure Controls and Procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[125] Changes in Internal Control over Financial Reporting - There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are likely to materially affect, internal control over financial reporting[126] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section details the Company's common stock repurchases during the third quarter of fiscal 2022, totaling 992,452 shares at an average price of $35.60 per share, with 6,867,613 shares remaining available under publicly announced plans Common Stock Repurchases (Q3 Fiscal 2022): | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | | :----------------- | :------------------------------- | :------------------------------- | | April 1 to 30, 2022| 145,706 | 36.99 | | May 1 to 31, 2022 | 487,405 | 35.69 | | June 1 to 30, 2022 | 359,341 | 35.07 | - As of June 30, 2022, 6,867,613 shares may yet be purchased under the publicly announced plans or programs[129] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, indentures, and certifications from the Chief Executive Officer and Chief Financial Officer - Exhibits include Amended and Restated Articles of Incorporation, Bylaws, Credit Agreement, Indentures, and certifications from the CEO and CFO[129] SIGNATURE - The report was signed by Daniel J. Sullivan, Chief Financial Officer of Edgewell Personal Care Company, on August 4, 2022[133]