Edgewell Personal Care(EPC)2024-11-09 14:54Financial Data and Key Metrics - The company achieved slight organic net sales growth in fiscal 2024, with adjusted gross margins expanding meaningfully and double-digit adjusted earnings per share growth at constant currency for the second consecutive year [7] - Organic net sales for fiscal 2024 increased by 0.2%, with international markets growing over 7% and now representing about 40% of total revenue [8][30] - Adjusted gross margin rate increased by 140 basis points year-on-year, driven by productivity savings of 280 basis points and favorable price and strategic revenue management of 115 basis points [31] - Adjusted operating profit increased by $21.3 million, or approximately 9%, with adjusted operating margin for the year at 11.9%, up about 100 basis points [32] - Free cash flow generation for the year was $175 million, enabling the company to fund the business, support capital allocation strategies, and delever to just over 3x [18] Business Line Performance - The international business grew over 7%, with Greater China and distributor markets experiencing double-digit growth and Oceania seeing high single-digit growth [21] - The right-to-win portfolio in North America grew over 3%, with Sun Care and Grooming portfolios both growing mid-single digits [9] - The Billie brand gained 260 basis points of share in women's shave and began expanding into select women's grooming categories with Walmart [9] - Wet Shave organic net sales in North America declined 5.5%, impacted by sluggish category and channel dynamics, particularly in the highly promotional drug channel [22] - Fem Care organic net sales were down about 9%, with performance well below expectations, particularly in tampons and liners [25] Market Performance - International markets organic net sales increased just over 7%, equally driven by both volume and price gains [30] - North America organic net sales decreased by about 4%, with gains in pricing offset by volume declines [31] - Sun Care category consumption in the U.S. declined about 6% in the quarter due to unfavorable weather, impacting final seasonal replenishment orders from retailers [24] - Wet Ones organic net sales declined about 22%, with share at approximately 73%, impacted by production challenges following a fire at the production facility [24] Company Strategy and Industry Competition - The company is focused on strengthening its right-to-play in shave and fem care categories in the U.S., with a renewed focus on leadership and innovation [11][12] - The company is accelerating consumer-centric innovation, with a robust near-term pipeline including the expansion of Wilkinson Sword in Europe and the launch of Schick First in Japan [13] - The company is committed to driving 200 to 300 basis points per year in productivity savings and returning to pre-COVID gross margin levels of 45-plus percent [15] - The company is focused on becoming a world-class supply chain organization and improving service levels to become a preferred partner for customers [15] Management Commentary on Operating Environment and Future Outlook - The consumer remains cautious, with consumption across categories slowing in the U.S. due to unfavorable weather and heightened promotional activity [19] - Inflation, though moderating, remains a challenge, driven by labor costs and modest increases in commodities, with currency volatility expected to be a headwind in 2025 [19] - The company anticipates low single-digit organic top-line growth for fiscal 2025, with further gross margin and profit expansion, supported by strong momentum in international markets and the right-to-win portfolio in the U.S. [17][33] - Adjusted EPS for fiscal 2025 is expected to be in the range of $3.15 to $3.35, representing a year-over-year increase of about 7% at the midpoint of the range or 13% growth in constant currency [35] Other Important Information - The company paid down $88 million on its revolver during the fiscal year, prioritizing deleveraging as part of its disciplined capital allocation strategy [28] - Share repurchases totaled $18.3 million in the quarter, with $25.7 million returned to shareholders during the quarter through dividends and buybacks [29] - The company expects free cash flow for fiscal 2025 to be approximately $185 million, with about two-thirds of adjusted EPS expected to be generated in the second half of the fiscal year [36] Q&A Session Summary Question: Confidence in organic sales growth for fiscal 2025 - The company expressed high confidence in mid-single-digit growth in international markets, driven by brand activation, innovation, and strong team performance [42][46] - In the U.S., tailwinds are expected from a healthier Sun Care season, innovation in grooming, and the expansion of the Billie brand [43][44] - The company is confident in stabilizing the North America business, with a focus on improving trends in Shave and Fem Care, supported by new leadership and retailer backing [47][48] Question: Sun Care category health and expectations - The Sun Care category is expected to return to a 2% to 4% growth profile, with the company's innovation and leadership in the category providing confidence for fiscal 2025 [56][57] - The company highlighted the importance of the fourth quarter for Sun Care, which represents one-third of the category in the U.S., and expects a more solid year in terms of consumption [53][56] Question: Fiscal 2025 sales outlook and drivers - The company expects sequential improvement throughout fiscal 2025, with growth driven by innovation, particularly in the Wilkinson Sword and Schick First brands, and a step-up in Fem Care performance [63][68] - The company is confident in its ability to deliver growth through its local innovation model, which has already shown success in Europe and Japan [64][67] Question: Gross margin outlook and COGS inflation - The company expects to achieve 75 basis points of year-over-year gross margin accretion in fiscal 2025, driven by accelerated productivity gains and price management [75] - COGS inflation is expected to be around 115 basis points, with low single-digit inflation on raw materials, mid-single-digit inflation on labor, and deflationary pressures in warehouse and distribution [76] Closing Remarks - The company expressed appreciation for investor interest and confidence in its ability to deliver consistent growth and value creation in the coming years [79]