Bulletin
Investor Alert

New York Markets Open in:

May 10, 2022, 1:18 p.m. EDT

10-Q: EDGEWELL PERSONAL CARE CO

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Amounts in millions, except per share data, unaudited)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the accompanying notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on November 19, 2021 (the "2021 Annual Report"). The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs and involve risks, uncertainties, and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed within "Forward-Looking Statements" below and in Item 1A. Risk Factors and "Forward-Looking Statements" included within our 2021 Annual Report.

Forward-Looking Statements

This document contains "forward-looking statements" within the meaning of

In addition, other risks and uncertainties not presently known to us or that we presently consider immaterial could significantly affect the forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Risks and uncertainties include those detailed from time to time in our publicly filed documents, including in Item 1A. Risk Factors of Part I of our 2021 Annual Report.

Non-GAAP Financial Measures

While we report financial results in accordance with GAAP, this discussion also includes non-GAAP measures. These non-GAAP measures are referred to as "adjusted" or "organic" and exclude items such as restructuring costs, acquisition and integration costs, and other non-standard items. Reconciliations of non-GAAP measures are included within this Management's Discussion and Analysis of Financial Condition and Results of Operations.

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. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. Given certain significant events, including the acquisition of Billie, we view the use of non-GAAP measures that take into account the impact of these unique events as particularly valuable in understanding our underlying operational results and providing insights into future performance. The information can also be used to perform trend 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 also a component in determining management's incentive compensation. Finally, we believe this information provides more transparency.

The following provides additional detail on our non-GAAP measures:

We analyze net sales and segment profit on an organic basis to better measure the comparability of results between periods. Organic net sales and organic segment profit exclude the impact of changes in foreign currency and the impact of the Billie acquisition.

Additionally, we utilize "adjusted" non-GAAP measures including gross profit, SG&A, operating income, income taxes, net earnings, and diluted earnings per share internally to make operating decisions. The following items are excluded when analyzing non-GAAP measures: restructuring and related costs, acquisition and integration costs and other non-standard items.

All comparisons are with the same period in the prior year, unless otherwise noted.

Industry and Market Data

Unless we indicate otherwise, we base the information contained or incorporated by reference herein, concerning our industry on our general knowledge and expectations. Our market position, market share, and industry market size are estimates based on internal and external data from various industry analyses, our internal research and adjustments, and assumptions that we believe to be reasonable. We have not independently verified data from industry analyses and cannot guarantee its accuracy or completeness. In addition, we believe that industry, market size, market position and market share data within our industry provides general guidance but is inherently imprecise and has not been verified by any independent source. Further, our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in Item 1A. Risk Factors in Part I of our 2021 Annual Report. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions. You are cautioned not to place undue reliance on this data.

Retail sales for purposes of market size, market position and market share information are based on retail sales in U.S. dollars.

Trademarks and Trade Names

We own or have rights to use trademarks and trade names that we use in conjunction with the operation of our business, which appear throughout this Quarterly Report on Form 10-Q. We may also refer to brand names, trademarks, service marks and trade names of other companies and organizations, which are the property of their respective owners.

Impact of COVID-19 Pandemic

Throughout the novel coronavirus 2019 ("COVID-19") pandemic, we have taken and continue to take significant measures to protect our employees and businesses, while remaining in compliance with local and national guidelines.

The Company's top priority during this time continues to be ensuring the health and welfare of our employees and additional health and safety measures have been put in place at all of our manufacturing locations. To date, we have not experienced a material operational disruption across our manufacturing or distribution facilities.

The prolonged COVID-19 pandemic environment has resulted in increased supply chain challenges across labor management, product procurement and distribution. The continued duration and severity of COVID-19 pandemic may cause further disruptions related to our key suppliers, increase procurement and distribution costs and impact our ability to hire and retain employees, which may result in higher labor costs going forward. However, the impact, timing and severity of potential disruptions cannot be reasonably estimated at this time.

We expect to maintain adequate liquidity, and we will continue to assess the impact that the COVID-19 pandemic has on our liquidity needs and current economic market conditions. As noted within "Liquidity and Capital Resources" below, the COVID-19 pandemic has not had a significant impact on our liquidity, cash flows or capital resources.

Significant Events

Acquisitions

On November 29, 2021, the Company completed the acquisition of Billie, a leading U.S. based consumer brand company that offers a broad portfolio of personal care products for women, for a purchase price of $309.4, net of cash acquired. We purchased Billie utilizing a combination of cash on hand and drawing on our U.S. revolving credit facility due 2025 ("Revolving Credit Facility"). As a result, Billie became a wholly owned subsidiary of the Company. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for further discussion.

Executive Summary

The following is a summary of key results for the second quarter and first six months of fiscal 2022 compared to the prior year period. Net earnings and earnings per share ("EPS") for the periods presented were impacted by restructuring and related costs, acquisition and integration costs, and other non-standard items, as described in the table below. The impact of these items on reported net earnings and EPS are provided as a reconciliation of net earnings and EPS to adjusted net earnings and adjusted diluted EPS, both of which are non-GAAP measures.

Second Quarter of Fiscal 2022

Net sales in the second quarter of fiscal 2022 increased 5.5% to $547.7. Organic net sales increased 2.1% compared to the prior year quarter due to strong Sun Care, Grooming and Women's shave performance across both North American and International markets, partially offset by the impact of supply constraints on Feminine Care and certain Wet Shave brands and lower consumption in Wet Ones.

Net earnings in the second quarter of fiscal 2022 were $23.2 compared to $14.4 in the prior year quarter. On an adjusted basis, net earnings for the second quarter of fiscal 2022 were $27.0 compared to $38.5 in the prior year quarter. Adjusted earnings declined compared to the prior year quarter as lower margins from inflationary pressures including higher materials, labor, and warehousing and distribution costs and higher advertising and promotional expense ("A&P") were partially offset by higher net sales.

Net earnings per diluted share during the second quarter of fiscal 2022 were $0.43 compared to $0.26 in the prior year quarter. On an adjusted basis, net earnings per diluted share during the second quarter of fiscal 2022 was $0.50 compared to $0.70 in the prior year quarter.







                                                                                               Three Months Ended March 31, 2022
                                      Gross Profit           SG&A           Operating Income            EBIT(1)              Income taxes            Net Earnings             Diluted EPS
        GAAP - Reported              $        230.1       $    101.3       $          41.7          $      27.1            $         3.9          $              23.2       $       0.43
        Restructuring and related
        costs                                     -              0.2                   3.7                  3.7                      1.0                          2.7               0.05
        Acquisition and integration
        costs                                   0.5              0.6                   1.1                  1.1                      0.2                          0.9               0.02
        Sun Care reformulation costs            0.2                -                   0.2                  0.2                        -                          0.2                  -
        Total Adjusted Non-GAAP      $        230.8       $    100.5       $          46.7          $      32.1            $         5.1          $              27.0       $       0.50
        GAAP as a percent of net
        sales                              42.0   %          18.5  %                   7.6  %                             GAAP effective tax rate             14.4  %
        Adjusted as a percent of net
        sales                              42.1   %          18.3  %                   8.5  %                         Adjusted effective tax rate             16.0  %
                                                                                               Three Months Ended March 31, 2021
                                      Gross Profit          SG&A           Operating Income             EBIT(1)             Income taxes            Net Earnings             Diluted EPS
        GAAP - Reported              $     241.7          $ 93.4          $          62.9          $      19.5             $        5.1          $              14.4       $       0.26
        Restructuring and related
        costs                                  -             2.8                      5.5                  5.5                      1.3                          4.2               0.08
        Acquisition and integration
        costs                                  -             0.3                      0.3                  0.3                      0.1                          0.2                  -
        Cost of early debt
        retirement                             -               -                        -                 26.1                      6.4                         19.7               0.36
        Total Adjusted Non-GAAP      $        241.7       $    90.3       $          68.7          $      51.4             $       12.9          $              38.5       $       0.70
        GAAP as a percent of net
        sales                               46.6  %         18.0  %                  12.1  %                             GAAP effective tax rate             26.6  %
        Adjusted as a percent of net
        sales                               46.6  %         17.4  %                  13.2  %                         Adjusted effective tax rate             25.3  %
        


(1)EBIT is defined as Earnings before Income taxes.

First Six Months of Fiscal 2022

Net sales for the first six months of fiscal 2022 increased 4.2% to $1,011.0. Organic net sales increased 2.3% compared to the prior year period, due to growth in Sun Care in globally, growth in Wet Shave in International markets and growth in Grooming in North America were offset, in part, by declines in Skin Care and Feminine Care.

Net earnings for the first six months of fiscal 2022 were $34.4 compared to $32.1 in the prior year. On an adjusted basis, net earnings for the second quarter of fiscal 2022 were $50.2 compared to $61.8 in the prior year period. Adjusted earnings were down due to higher cost of goods sold from inflationary pressures, higher A&P and Selling, General and Administrative ("SG&A") expense, largely related to amortization costs associated with the Billie acquisition.

Net earnings per diluted share during the first six months of fiscal 2022 were $0.63 compared to $0.58 in the prior year period. On an adjusted basis, as illustrated in the following table, net earnings per diluted share during the first six months of fiscal 2021 were $0.92 compared to $1.13 in the prior year quarter.







                                                                                              Six Months Ended March 31, 2022
                                      Gross Profit           SG&A           Operating Income              EBIT               Income taxes          Net Earnings          Diluted EPS
        GAAP - Reported              $     420.0          $ 198.2          $          73.5          $     43.3              $        8.9          $      34.4          $       0.63
        Restructuring and related
        costs                                  -              0.2                      5.9                 5.9                       1.6                  4.3                  0.08
        Acquisition and integration
        costs                                0.8              6.3                      7.1                 7.1                       0.5                  6.6                  0.12
        Value-added tax settlement
        costs                                  -              3.4                      3.4                 3.4                       1.1                  2.3                  0.04
        Sun Care reformulation costs         3.5                -                      3.5                 3.5                       0.9                  2.6                  0.05
        Total Adjusted Non-GAAP      $     424.3          $ 188.3          $          93.4          $     63.2              $       13.0          $      50.2          $       0.92
        GAAP as a percent of net
        sales                               41.5  %          19.6  %                   7.3  %       GAAP effective tax rate                              20.5  %
        Adjusted as a percent of net
        sales                               42.0  %          18.6  %                   9.2  %       Adjusted effective tax rate                          20.5  %
                                                                                           Six Months Ended March 31, 2021
                                                                            Operating
                                      Gross Profit           SG&A             Income                EBIT               Income taxes          Net Earnings          Diluted EPS
        GAAP - Reported              $     435.0          $ 186.5          $  104.5           $     44.7              $       12.6          $      32.1          $       0.58
        Restructuring and related
        costs                                0.1              3.4               9.9                  9.9                       2.5                  7.4                  0.14
        Acquisition and integration
        costs                                1.3              2.0               3.3                  3.3                       0.7                  2.6                  0.05
        Cost of early retirement of
        long-term debt                         -                -                 -                 26.1                       6.4                 19.7                  0.36
        Total Adjusted Non-GAAP      $     436.4          $ 181.1          $  117.7           $     84.0              $       22.2          $      61.8          $       1.13
        GAAP as a percent of net
        sales                               44.8  %          19.2  %           10.8   %       GAAP effective tax rate                              28.4  %
        Adjusted as a percent of net
        sales                               45.0  %          18.7  %           12.1   %       Adjusted effective tax rate                          26.5  %
        


Operating Results

The following table presents changes in net sales for the second quarter and first six months of fiscal 2022, as compared to the corresponding period in fiscal 2021, and provides a reconciliation of organic net sales to reported amounts.







        Net Sales
        Net Sales - Total Company
        Period Ended March 31, 2022
                                               Q2         % Chg       Six Months      % Chg
        Net sales - fiscal 2021             $ 519.3                  $    970.4
        Organic                                11.1        2.1  %          22.4        2.3  %
        Impact of Billie acquisition, net      27.4        5.3  %          34.2        3.5  %
        


For the second quarter of fiscal 2022, net sales were $547.7, an increase of 5.5%, including a $27.4 or 5.3% impact from the acquisition of Billie and a $10.1 or 1.9% unfavorable impact from currency movements. Organic net sales increased 2.1%, reflecting strong Sun Care, Grooming and Women's shave performance across both North American and International markets, partially offset by the impact of supply constraints on Feminine Care and certain Wet Shave brands, and lower consumption in Wet Ones.

For the first six months of fiscal 2022, net sales were $1,011.0, an increase of 4.2%, including a $34.2 or 3.5% impact from the acquisition of Billie and a $16.0 or 1.6% unfavorable impact from currency movements. Organic net sales increased 2.3% driven by increased volumes in Sun Care and Grooming and favorable pricing for Feminine Care. The increases were offset by declines in volumes in Skin Care and Feminine Care.

For further discussion regarding net sales, including a summary of reported versus organic changes, see "Segment Results."

Gross Profit

Gross profit was $230.1 during the second quarter of fiscal 2022, compared to $241.7 in the prior year quarter. Gross margin as a percent of net sales for the second quarter of fiscal 2022 was 42.0%. Adjusted gross margin percentage was 42.1%, a decline of 450-basis points compared to the prior year quarter, as 110-basis points of favorable pricing and 200-basis points of productivity gains were more than offset by a 560-basis point impact from commodity inflation and increased transportation and air-freight costs, a 140-basis point impact related to negative mix and higher non-trade spend, and a 60-basis point impact from Billie and unfavorable foreign exchange.

Gross profit was $420.0 during the first six months of fiscal 2022, compared to $435.0 in the prior year period. Gross margin as a percent of net sales for the first six months of fiscal 2022 was 41.5%. Adjusted gross margin percentage was 42.0%, down 300-basis points from the prior year period, driven by commodity inflation, higher warehousing and distribution expenses, and unfavorable product mix, which were partially offset by favorable pricing.

Selling, General and Administrative Expense

SG&A was $101.3 in the second quarter of fiscal 2022, or 18.5% of net sales, compared to $93.4 in the prior year quarter, or 18.0% of net sales. Adjusted SG&A as a percent of net sales was 18.3%, an increase of 90-basis points, driven by higher compensation expense and the additional costs associated with Billie, including increased amortization expense.

SG&A was $198.2 in the first six months of fiscal 2022, or 19.6% of net sales, compared to $186.5 in the prior year period, or 19.2% of net sales. Adjusted SG&A as a percent of net sales was 18.6%, a decline of 10-basis points, driven by lower broker and program expenses and leverage related to higher total net sales. The decline was offset by additional costs incurred associated with Billie, including amortization expense.

Advertising and Sales Promotion Expense

For the second quarter of fiscal 2022, A&P was $69.9, up $1.5 compared to the prior year quarter of $68.4. A&P as a percent of net sales was 12.8%, as compared to 13.2% in the prior year period. The increases in A&P expense were primarily driven by increases in support of sun season execution, the Schick Masterbrand launch and continued investments behind commercial activation in Japan and the U.K.

For the first six months of fiscal 2022, A&P was $116.1, up $6.5 compared to the prior year period. A&P as a percent of net sales was 11.5%, up from 11.3% in the prior year period. The increases in A&P expense were primarily driven by increases in support of Sun Care after COVID-19 pandemic declines in the prior year and higher investment in Wet Shave.

Research and Development Expense

Research and development expense ("R&D") for the second quarter of fiscal 2022 was $13.7, compared to $14.3 in the prior year quarter. As a percent of net sales, R&D was 2.5% in the second quarter of fiscal 2022 compared to 2.8% in the prior year quarter. R&D for the first six months of fiscal 2022 was $26.5, compared to $28.0 in the prior year period. As a percent of net sales, R&D was 2.6% in the first six months of fiscal 2021, compared to 2.9% in the prior year period. R&D expense was down compared to the prior year driven primarily by timing of program spend for the first half of fiscal 2022.

Interest Expense Associated with Debt

Interest expense associated with debt for the second quarter of fiscal 2022 was $18.0, compared to $17.3 in the prior year quarter. For the first six months of fiscal 2022, interest expense was $35.3 compared to $34.7 in the prior year period. The increase in interest expense was the result of higher overall debt balance from the draw on the Revolving Credit Facility in the first quarter of fiscal 2022 primarily to finance the acquisition of Billie.

Other Income, net

Other income, net was $3.4 in the second quarter of fiscal 2022. There was no other income in the prior year quarter. Other income, net was $5.1 during the first six months of fiscal 2022, compared to $1.0 during the first six months of fiscal 2021. The increase in income was driven by favorable hedge settlements compared to the prior year.

Income Tax Provision

The effective tax rate for the three and six months ended March 31, 2022 was 14.4% and 20.5%, respectively, compared to 26.6% and 28.4% in the prior year period, respectively. On an adjusted basis, the effective tax rate was 16.0% and 20.5% for the three and six months ended March 31, 2022, respectively, and 25.3% and 26.5% for the three and six months ended March 31, 2021, respectively. 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 our prior estimates.

Operating Model Redesign

In fiscal 2022, we expect to take specific actions to strengthen our operating model, simplify our organization and improve manufacturing and supply chain efficiency and productivity. As a result of these actions, we expect to incur one-time charges of approximately $15 in fiscal 2022. We incurred $3.7 and $5.9 during the second quarter and first six months of fiscal 2022, respectively, primarily related to employee severance and benefit costs.

Segment Results

The following tables present changes in segment net sales and segment profit for the second quarter and first six months of fiscal 2022, compared to the corresponding periods in fiscal 2021, and provide a reconciliation of organic segment net sales and organic segment profit to reported amounts. For a reconciliation of segment profit to Earnings before income taxes, refer to Note 15 of Notes to Condensed Consolidated Financial Statements.

Our operating model includes some shared business functions across segments, including product warehousing and distribution, transaction processing functions and, in most cases, a combined sales force and management teams. We apply a fully allocated cost basis in which shared business functions are allocated . . .

May 10, 2022

COMTEX_406984047/2041/2022-05-10T13:18:07

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2022 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.