Edgewell Personal Care Company Announces Second Quarter Fiscal 2016 Results and Updates Fiscal Year 2016 Outlook

ST. LOUIS, April 29, 2016 /PRNewswire/ -- Edgewell Personal Care Company (NYSE: EPC) today announced results for its second fiscal quarter, which ended March 31, 2016.

Executive Summary

• Organic net sales decreased 0.7% in the quarter and 0.1% year-to-date. Excluding the impact of international go-to-market changes, sales would have increased by 1% and 1.9%, respectively.
• Adjusted EBITDA was $137.7 million for the quarter and $232.1 million year-to-date.
• GAAP Diluted Earnings Per Share ("EPS") was $1.10 for the quarter and $1.49 year-to-date. Adjusted EPS was $1.17 for the quarter and $1.85 year-to-date.
• The Company has updated its fiscal 2016 outlook, projecting relatively flat organic net sales, Adjusted EPS of $3.30-$3.50 and $440-$460 million in Adjusted EBITDA.

The Company reports results on a GAAP and "Non-GAAP" basis, and has reconciled Non-GAAP results to the most directly comparable GAAP measures later in this release.  See "Non-GAAP Financial Measures" below, for a more detailed explanation, including definitions of various terms used in this release such as "Adjusted EBITDA", "Normalized EBITDA", "Organic net sales", "Organic segment profit" and "go-to-market impacts."

All comparisons used in this release are with the same period in the prior fiscal year unless otherwise stated.

"Our second quarter results were in line with our expectations, and we are pleased with the progress we're making in this important first year operating as a standalone company.  Our underlying top-line growth was up nearly 2% through the first half of our fiscal year, excluding the impact of international go-to-market changes," said David Hatfield, Edgewell's President and Chief Executive Officer.  "Delivering solid underlying net sales growth driven by Wet Shave and Sun and Skin Care, while executing on key initiatives, like our complex international go-to-market strategy, reinforces our view that Edgewell's innovation and products are resonating in the marketplace and that we're taking the necessary steps to further enhance our position for future growth and value creation."

Fiscal 2Q 2016 Operating Results (Unaudited)

Net sales were $611.2 million in the quarter, a decrease of 6.1%.  Organic net sales decreased 0.7%, including a $10.9 million, or 170 basis point, negative impact from international go-to-market changes.  Organic net sales growth in Wet Shave and Sun and Skin Care was offset in part by lower sales in Feminine Care.  North America net sales were down 0.8%, though Wet Shave and Sun and Skin care both grew.  International net sales were down 0.3%, though up 4.5% excluding the negative impact of international go-to-market changes.  Underlying international net sales grew across the Wet Shave portfolio, with particular strength in Men's systems, driven by strong Hydro® performance in Asia and Europe.

Gross margin was $311.1 million or 50.9% of net sales, representing a 40 basis point decrease over the prior year.  Excluding the negative impact of currency, gross margin was flat versus the prior year quarter, with higher volumes and productivity savings offset by unfavorable price mix in North America.

Advertising and sales promotion expense ("A&P") was $85.0 million, or 13.9% of net sales, up from prior year A&P of $78.4 million, or 12.0% of net sales.  This quarter, higher A&P investments were focused on new product innovation, primarily supporting men's Hydro® in North America.

Selling, general and administrative expense ("SG&A") was $99.7 million, or 16.3% of net sales, compared to $149.2 million, or 22.9% of net sales, in the prior year.  Included within the current quarter results were pre-tax costs of $1.7 million related to the spin-off of the Company's Household Products business in July 2015 (the "Separation").  Excluding these spin-off costs, SG&A as a percent of net sales was 16.0%, including amortization of intangible assets not allocated to the segments.  Historical SG&A results on a continuing operations basis include certain costs associated with supporting the Household Products business that were not eligible to be reported in discontinued operations.  Adjusting the prior year for these expenses, SG&A increased an estimated 40 basis points as a percent of net sales.

Other income, net was $4.6 million during the second quarter compared to $1.3 million in the prior year.  The increase is partially related to $2.6 million of interest income recorded in relation to settlements with tax authorities.  The increase also reflects the net impact of foreign currency hedging contract gains and losses.

Second quarter Adjusted EBITDA was $137.7 million versus second quarter 2015 Normalized EBITDA of $162.0 million, down $24.3 million.  The primary drivers of the decrease were $13.9 million of lower operating profit due to international go-to-market changes, higher A&P spend, a $4.9 million unfavorable impact from currency and $6.4 million due to the inclusion of Venezuela operations and the Industrial blade business in the prior year.

The effective tax rate for the first half of 2016 was 26.4% as compared to (35.0)% in the prior year.  The negative tax rate for 2015 was a result of having incurred tax expense on a net loss, driven primarily by the $79.3 million Venezuela deconsolidation charge, which had no accompanying tax benefit.  Excluding the impact of the Separation, restructuring and the Venezuela deconsolidation charge, the adjusted 2016 year-to-date effective tax rate was 28.1%, a 40 basis point increase over the prior year rate of 27.7%.

Second quarter Adjusted EPS was $1.17, compared to $1.12 in the prior year quarter.  GAAP EPS was $1.10 in the second quarter as compared to $(0.88) in the prior year quarter.

Other Items

The second quarter included $1.7 million of pre-tax spin charges compared to $32.2 million in the same period of the prior year.  In addition, the Company recorded pre-tax expense of $5.1 million in the second quarter related to its 2013 restructuring, as compared to $6.6 million in the prior year.

Average (trailing 4 quarter) working capital as a percent of sales was 16.5% at March 31, 2016, versus 17.5% as of September 30, 2015.  The 100 basis point improvement was driven by Days Payable Outstanding.  Working Capital continues to reflect a higher level of inventory in Feminine Care which is expected to return to normal levels as the Company completes the transition of manufacturing from its Montreal plant to its Dover plant.

Net cash used by operating activities was $72.6 million for the six months ended March 31, 2016.  During the second quarter, the Company made a discretionary contribution of $100.5 million to one of its international pension plans, which negatively impacted operating cash flow for the current period.  The Company expects to have positive operating cash flow for the full 2016 fiscal year.  In the first six months of fiscal 2016, the Company completed share repurchases of nearly 1 million shares for $79 million.

Fiscal 2Q 2016 Operating Segment Results (Unaudited)

Wet Shave (Men's Systems, Women's Systems, Disposables, Shave Preps)

Wet Shave organic net sales increased $1.5 million, or 0.4%.  Excluding an estimated $9 million negative impact from international go-to-market changes, underlying net sales would have grown 2.7%.  Underlying growth was primarily driven by the Hydro® launch globally as well as Hydro® distribution gains in North America.  Organic net sales for the remaining brands declined, in part due to international go-to-market changes and unfavorable price mix from promotional investments.  International underlying sales increased in Men's and Women's systems, Disposables, and Shave Preps.  Organic segment profit declined $13.2 million, or 13.2%, driven primarily by increased investments in A&P, promotional spend and Research and development expense, which more than offset higher sales volumes and better cost mix.

Sun and Skin Care (Sun Care, Wipes, Gloves)

Sun and Skin Care organic net sales increased $4.9 million, or 3.8%, driven primarily by growth in North America, with growth across both the Banana Boat® and Hawaiian Tropic® brands.  Organic segment profit improved $2.8 million or 7.5%, driven by higher sales volumes and modestly better cost mix.

Feminine Care (Tampons, Pads, Liners)

Feminine Care organic net sales decreased $9.3 million, or 9.2%.  North America net sales declined driven primarily by unfavorable comparisons to the prior year pipeline build for the new Sport® Pads and Liners offerings and lower net sales in   Stayfree®.  International sales were down primarily due to international go-to-market changes.  Organic segment profit was down $9.5 million, or 45.5%, driven by lower net sales and unfavorable cost mix due to transactional currency impacts. 

All Other (Infant Care, all other brands)

All Other organic net sales decreased $1.6 million, or 3.4%, as continued growth in Diaper Genie® was more than offset by lower sales volumes in infant cups and bottles resulting from continued competition in the category.  Organic segment profit grew $1.7 million driven by higher gross margin from favorable product costs and lower A&P spending.

Full Fiscal Year 2016 Financial Outlook

Organic net sales are expected to be flat, including the negative impact of international go-to-market changes through the end of the third quarter of fiscal 2016.  For the full year, the go-to-market changes are estimated to impact top line growth by approximately 1.5%.  As a result, underlying net sales growth, excluding these go-to-market changes, is expected to increase by low single digits.  Organic net sales excludes unfavorable currency impact on net sales, which is now expected to be in the range of $25-$35 million (previously, $50-$60 million) for the full fiscal year.  Reported net sales are now expected to decrease by 2%-4% (previously, decreased by mid-single digits).

Adjusted EBITDA is projected to be in the range of $440-$460 million, including $10-$15 million (previously, $20-$25 million) of negative currency impact for the full fiscal year.

Adjusted EPS is now projected to be in the range of $3.30-$3.50 (previously, $3.20-$3.40).

Adjusted Effective Tax Rate for the fiscal year is now expected to be in the range of 29%-31% (previously, 30%-32%).

Other Items:  The full-year estimate for spin costs is unchanged at $10-$12 million, with the majority of the costs already incurred.  The full-year estimate for restructuring related costs remains unchanged at $40-$45 million.  Incremental restructuring savings are expected to be approximately $15 million in fiscal 2016 and an additional $40-$50 million in fiscal 2017 and 2018 combined.

Webcast Information

In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. Eastern Time today.  The call will focus on fiscal 2016 second quarter earnings and the outlook for fiscal 2016.  All interested parties may access a live webcast of this conference call at www.edgewell.com, under "Investors," and "News and Events" tabs or by using the following link:

http://ir.edgewell.com/news-and-events/events

For those unable to participate during the live webcast, a replay will be available on www.edgewell.com, under "Investors," "Financial Reports," and "Quarterly Earnings" tabs.

About Edgewell

Edgewell is a leading pure-play consumer products company with an attractive, diversified portfolio of established brand names such as Schick® and Wilkinson Sword® men's and women's shaving systems and disposable razors; Edge® and Skintimate® shave preparations; Playtex®, Stayfree®, Carefree® and o.b.® feminine care products; Banana Boat® and Hawaiian Tropic® sun care products; Playtex® infant feeding, Diaper Genie® and gloves; and Wet Ones® moist wipes.  The Company has a broad global footprint and operates in more than 50 markets, including the U.S., Canada, Mexico, Germany, Japan and Australia, with approximately 6,000 employees worldwide.

Non-GAAP Financial Measures.  While the Company reports financial results in accordance with accounting principles generally accepted in the U.S. ("GAAP"), this discussion also includes Non-GAAP measures.  These Non-GAAP measures are referred to as "adjusted" and exclude expenses associated with the Venezuela deconsolidation charge, the sale of the Industrial blade business, spin costs, restructuring charges (including 2013 restructuring and spin restructuring) and adjustments to prior year tax accruals.

This Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.  The Company uses this Non-GAAP information internally to make operating decisions and believes it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results.  The information can also be used to perform analysis and to better identify operating trends that may otherwise be masked or distorted by the types of items that are excluded.  This Non-GAAP information is a component in determining management's incentive compensation.  Finally, the Company believes this information provides a higher degree of transparency.

Adjusted EBITDA is defined as earnings before income taxes, interest expense, net, depreciation and amortization and excludes items such as the Venezuela deconsolidation charge, spin costs and restructuring charges.

Historical results on a continuing operations basis include certain costs associated with supporting the Company's former Household Products business that are not eligible to be reported in discontinued operations.  These costs affect SG&A, interest expense, spin costs, restructuring and tax.  As a result, EPS and EBITDA on both a GAAP and Non-GAAP basis for this quarter and fiscal year are not comparable to the prior year, and will not be comparable as we move through each of the first three quarters of fiscal 2016.  To address this, the Company has provided Normalized EBITDA, which adjusts corporate SG&A expenses to reflect the Company's estimated full-year run rate.  Normalized EBITDA is presented to provide a basis for comparing to future performance.  A reconciliation of Fiscal 2015 Consolidated Statement of Earnings and Normalized EBITDA by quarter was provided in an 8-K filed on December 1, 2015, and can be found on the Company's website www.edgewell.com, under "Investors," and "Financial Reports," "Key Statistics" tabs or by using the following link:

http://ir.edgewell.com/financial-reports/key-statistics

The Company analyzes its net revenue and segment profit on an organic basis to better measure the comparability of results between periods.  Organic net sales and segment profit exclude the impact of changes in foreign currency, the impact of acquisitions and dispositions (including the results of the former Industrial blade business) and the period-over-period change resulting from the deconsolidation of the Company's Venezuela operations.  This information is provided because these fluctuations can distort the underlying change in net sales and segment profit either positively or negatively.  See Non-GAAP reconciliations later in this release.

To compete more effectively as an independent company, the Company has increased its use of third-party distributors and wholesalers, and has decreased or eliminated its business operations in certain countries, consistent with its international go-to-market strategy.  Within this press release the Company discusses go-to-market impacts, which reflect its best estimate on the impact of these international go-to-market changes and exits, and represent the year-over-year change in those markets.  The Company expects to realize the majority of the remaining impact from these changes in the first three quarters of fiscal year 2016.

Forward-Looking Statements.  This document contains both historical and forward-looking statements.  Forward-looking statements are not based on historical facts, but instead reflect the Company's expectations, estimates or projections concerning future results or events, including, without limitation, the future earnings and performance of Edgewell Personal Care Company or any of its businesses.  These statements generally can be identified by the use of forward-looking words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "will," "should," "forecast," "outlook," or other similar words or phrases.  These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause the Company's actual results to differ materially from those indicated by those statements.  The Company cannot assure you that any of its expectations, estimates or projections will be achieved.  The forward-looking statements included in this document are only made as of the date of this document and the Company disclaims any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances.  Numerous factors could cause the Company's actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation:

• The Company is subject to risks related to its international operations, such as global economic conditions, currency fluctuations and its changing international go-to-market strategy, that could adversely affect its results of operations;
• The Company may not achieve some or all of the expected benefits of the spin-off of its Household Products business, and this may materially adversely affect its business;
• The Company's manufacturing facilities, supply channels or other business operations may be subject to disruption from events beyond its control;
• The Company's access to capital markets and borrowing capacity could be limited;
• If the Company cannot continue to develop new products in a timely manner, and at favorable margins, it may not be able to compete effectively;
• The Company has a substantial level of indebtedness and is subject to various covenants relating to such indebtedness, which could limit its discretion to operate and grow its business;
• The Company faces risks arising from the restructuring of its operations and uncertainty with respect to its ability to achieve its estimated cost savings;
• Loss of any of the Company's principal customers and emergence of new sales channels could significantly decrease its sales and profitability;
• The Company may not be able to attract, retain and develop key personnel;
• The Company may experience losses or be subject to increased funding and expenses related to its pension plans;
• The Company may not be able to continue to identify and complete strategic acquisitions and effectively integrate acquired companies to achieve desired financial benefits;
• The Company's Wet Shave segment's men's shaving systems category has faced relatively flat to declining sales;
• The Company's business involves the potential for product liability and other claims against it, which could affect its results of operations and financial condition and result in product recalls or withdrawals;
• A failure of a key information technology system or a breach of the Company's information security could adversely impact its ability to conduct business;
• The resolution of the Company's tax contingencies may result in additional tax liabilities, which could adversely impact its cash flows and results of operations;
• If the Company fails to adequately protect its intellectual property rights, competitors may manufacture and market similar products, which could adversely affect its market share and results of operations; and
• Potential liabilities in connection with the Separation may arise under fraudulent conveyance and transfer laws and legal capital requirements.

In addition, other risks and uncertainties not presently known to the Company or that it considers immaterial could affect the accuracy of any such forward-looking statements.  The list of factors above is illustrative, but not exhaustive.  All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.  Additional risks and uncertainties include those detailed from time to time in the Company's publicly filed documents, including in Item 1A. Risk Factors of Part I of the Company's Annual Report on Form 10-K for the year ended September 30, 2015.

 

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