Edgewell Personal Care Company (EPC) Earnings Call Transcript & Summary

All right. Good morning, everyone. Welcome to Morgan Stanley Virtual Global Consumer & Retail Conference. And with that, I'm Dara Mohsenian, Morgan Stanley's household products, beverage and food analyst. I'm very pleased to welcome Edgewell Personal Care to Morgan Stanley's Global Consumer and Retail Conference. Before we begin, disclosures are listed on Morgan Stanley's research website at www.morganstanley.com. If you have questions, you can reach out to your Morgan Stanley sales representative. And with that, we're very pleased to have Edgewell here, post their investor day, a couple of weeks ago. Where they detailed their new growth strategy and introduced a new long-term algorithm. Joining us from the company are Rod Little, Chief Executive Officer; and Dan Sullivan, Chief Financial Officer; and Chris Gough, Edgewell's Head of Investor Relations. So thanks very much for joining us today, guys. We appreciate your time, and I'll turn things over to Rod to begin with.

Yes. Thanks, Dara, and good morning, everyone. I'm going to get us started. We'll take you through an abbreviated presentation from the Investor Day. We'll move pretty quickly in case it's a repeat for some of you, and then we'll have some time at the end for Q&A. So if you have the presentation in front of you, Slide 2 and 3 are forward-looking statements. We will be making some and the fact that we're going to be using some non-GAAP financial measures to the usual warnings. We'll get right into it. If you go to Slide 5, there's 4 key takeaways that we have that I think is important for you as you think about Edgewell, who we are and where we are for today. The first is we have a strong core with great brands, and we'll talk a little bit more about that. Second, we stabilized the business and our top line performance over the past 18 months and certainly, pre-coronavirus, we were flat to slightly up on net sales after a few years of mid- single-digit sales decline. So we've stabilized the business. Third, we believe we've got a clear right to win. We've got a new strategy. We'll talk more about that today. And fourth and importantly, to me, we're positioned to deliver with the right team in place to actually go make it happen deliver on our ambition. If you flip to Slide 6, this is the brand lineup. We essentially play in men's and women's shave, grooming, Fem Care, Sun Care and Hygiene. And all of these brands in the key markets where we play. We're in the #1 or 2 position with the exception of Fem Care, where we're very close 3 to Kimberly-Clark and their brands. So a great brand lineup. It's certainly tighter than it was in the past with some of the divestiture work we've done and some of the brand work that we've done to create fewer, let's call it, more power brands in the categories where we compete. If you go to Page 7, those of you that know us well, one of the things that we have that is very robust is a global manufacturing, distribution and logistics network that I would call world-class. There's a lot of robustness to it. It's a global network that's regionally structured we've got an Americas manufacturing network that's primarily based in the United States. We've got a European network that's between Germany and Czech Republic, and then we've got an Asian network, primarily based in China with a little bit of Japan. And what that allows us to do is have a shortened supply chain to be closer to the end consumer and ultimately, give better service levels and have backup. We also have a really interesting innovation and R&D capability, and we've kept our investments very high in that area. So globally scaled operations that we think are durable and fit-for-purpose for the future. If you go to Page 8, this isn't the full leadership team, but I want to just show this because it's very intentional that we've built a leadership team, my direct report group, with the best of people that have been around for a while, know Edgewell, how we work, what we do very well and frankly, have been the people that have been responsible for much of the good things that happened in the past but needed to be elevated to have a louder voice in the organization. And so I -- as you know, I've eliminated the COO layer, that was a legacy structure. And I've taken Nick Powell and Eric O'Toole, who are regional presidents on this page directly to me as opposed to the COO layer in the middle. I've elevated Anne-Sophie Gaget to be our Chief Growth and Innovation Officer. Ane-Sophie's a marketer, brand builder, by background, she's commercially oriented as well. Most recently, she was running our Southern European business across the Iberian Peninsula, France, Italy, and Greece. And so she knows what markets need to be successful, having lived and worked in the markets. And another interesting fact about Anne-Sophie is from acquisition of both Bulldog and Jack Black, which was she was key in helping us acquire, they've reported to her. We've not put them into the infrastructure. And so she's been on point with these insurgent brands to help develop and grow those businesses over the last couple of years. So we've elevated her to be on top of the growth and innovation program. And then you know, Dan, already, you'll hear more from Dan today, but deep experience from outside the company, not only around operational finance and global experience in consumer businesses, but also a retail perspective and lots of good public company experience with Dan. And then I'll mention Eric O'Toole as well. Eric was a key hire. When we were blocked by Harry -- by the FTC on Harry's back in the winter, Andy and Jeff, we were setting up to play the leadership role in North America. And I quickly went out and found Eric to take this leadership role. And we were a bit fortuitous during coronavirus times that Eric was even available. He's super talented and someone that I think historically Edgewell would have struggled to attract. But with the new Edgewell, he was interested. Again, marketing, brand building is his core DNA. So between he and Ann-Sophie, we've really upped our game around brand building. Eric spent time at Mondelez, Danone. He ran the Danone Premium Waters business here in North America. And then most recently was one of Mark Lori's early hires at Jet.com. And then when they were acquired by Walmart, he stayed on for a couple of years, and ran Walmart's sporting goods e-com business. The combination of Jet and Walmart. So super interesting profile, modern current skill set and knows what it takes to win with the modern consumer and win in the online omni space. So super interesting, super capable team now set at every position from a leadership standpoint to take us into the future. Go to Page 9. I think we've talked about project fuel quite a bit. It was an ambitious program where we had talked about that the initial piece of that $225 million of cost reduction. You can see it's a mix of labor reduction, headcount reduction as well as footprint reduction as well across our manufacturing base. So we're delivering on all of that and feel good about that. The next piece, if you go to Slide 10, core and super important in consumer products is to have great retail relationships and great partnerships with retailers. We lost our way there a little bit, frankly, post separation, and didn't have the right penetration up against retailers. And you now see us really building that back. Eric comes with a retailer background as well. And I personally have put a lot of my energy into building back the partnerships, top-to-top with our retail partners. And ultimately, landing in a place where the outcome that really matters is what's the real estate state you have with retailers in store. And we came off a period where we were losing shelf space and quality of distribution year-on-year. We're coming up on a year of fiscal '21, where we believe that changes. In Wet Shave, we think we'll hold all of our distribution despite a big launch from Dollar Shave coming into retail brick-and-mortar. We've held our space. Others have not. We think that's a big and good outcome and outside of men shave and women's, I think we're getting more space and then certainly in Sun, where we have been successful and the share leader over the last year with our brands, we're confident we'll land more space next year and better quality. With hygiene and Wet Ones, we're getting incremental distribution pretty much everywhere where we can supply it. So again, this retail partnership thing is important, and it's a key capability we're building in the company. Not only branded but with retailer brands. So for example, if you look at the picture, Amazon in the middle and the bottom there, Solomo, that's their personal care brand globally. We're the global supplier and manufacturer of that Solomo Blade & Razor set for Amazon, is one example. If you go to Page 11, we've done some portfolio work. You've seen that most recently with the Cremo acquisition. We've acquired the 3 brands on the left, Bulldog, Cremo, Jack Black, growing at an average CAGR rate of 15% over the past couple of years. We expect that to continue. And as part of the portfolio pivot, we've divested of things like gloves, Diaper Genie, the infant care business and industrial blades, where, frankly, there was little to no technology, no competitive advantage and in categories that were largely commoditized. So we feel like, as we've traded out the portfolio, we've also upgraded the portfolio and put it more towards a growth orientation. If you go to Page 12, capabilities are everything. We -- I talked about the great team that we have, and now we're really focused on addressing. If you look at the middle 3 here, consumer-led marketing, innovation, brand building, those are areas that, frankly, we just haven't been good enough at doing here at Edgewell over the last 4, 5 years. And so we've got new teams of people. We've got different approaches and models. Helping us do that. A couple of examples of things we're doing very differently. We've got different agency partners. We have a true insights, first-led innovation platform now as opposed to technology-first, which was the historical view of innovation at Edgewell. We've in-housed some things. Social media management is now done in-house. Content creation is largely being done in-house. Product design is more and more being done in-house. All these things previously were reliant on third-party partners to do, and we typically just weren't priority. And so a whole new approach to the middle of this slide. Digital and e-commerce. We've got a full new team under Stephanie Lynn's leadership, helping us drive and deliver this. We're growing share at Amazon, as we've talked about that publicly, we're growing share at places like walmart.com, target.com, as we activate and help the retailers win in an omni world. Not only are we growing, but we're growing faster than the category average and growing share in those areas. And we're just embarking on really getting our own tiered channels that the running for brands like Schick, Skintimate and most recently now, Cremo where we feel like we've got real capability and right to be successful there. And then on the right-hand side, sustainability. It's in our ethos, we want to be part of creating a better planet and not only for ourselves today, but for future generations and our kids and grandkids. And that looks like carbon footprint and impact on the planet. It looks like crafting great products formulations that are re-friendly don't animal test. They have all the bad ingredients out, for example, in Sun Care. On the blades and razor side of things, disposal razors that are all secondary recycled plastic as opposed to virgin plastics. I think we're leading on that, we feel like, in vis-à-vis competition. And so there's an element of sustainability that we think is a big idea as how we move forward, that not only resonates with consumers. It's just the right thing to do from a corporate perspective. Our culture. The words here are strong and growing. We're really proud of the culture and where we've come. Our engagement scores over the last 2 years are up significantly. We've got the team highly motivated and in a really good place. And the work cloud you see here on Slide 13 is we asked our organization how do you a purpose-driven consumer centered? Frankly, words that you wouldn't have associated with Edgewell, our employees wouldn't have associated with Edgewell even 1 or 2 years ago. So we've made a lot of progress on that, and we're deeply committed as a leadership group to making Edgewell a great place to work. You then go to Slide 15. It's the last slide I'll cover before I hand it over to Dan. It's our strategy on a page, and it starts with the purpose statement at the top, make useful things joyful. We're a personal care company. And so by definition, our products are useful. They're part of the everyday regimen and routine for many people. People around the world. The big idea here is joyful. Have people smile when they use our products and have a great experience. Whether they use the product or when they engage with us on a DTC platform or they call it consumer health line, if they've got an issue with the product, to always have that be a joyful and great experience as they work with us here at Edgewell. And we think we're down the road already in transforming into a growing, sustainable consumer-centric personal care company that we think can deliver stable top line growth and very meaningful shareholder return. The way we're going to do that is the 5 priorities in the middle. If you look at the middle of the page, first, expand our presence in attractive categories. You've seen that already start to happen. Dan will bring that to life more with numbers in a moment. Second is build brands consumers love, just that simply said. Third, be a trusted strategic partner to retailers for the categories we play and compete in. Fourth, simplify everything. It be a company people love to work for have talked about that. We think the outcome becomes really interesting around shareholder return because what we've crafted here is 2 parts of the portfolio: one where we think we have a clear right to win in growing categories where there are tailwinds, and we have unique incrementally to those businesses, to grow in line with or faster to where we have a right to play. We've got technology, we've got capabilities, and we've got rights frankly, to not only play, but at some point, right to win, but certainly a right to play and grow and build value. So we thought about our category and our company in those 2 buckets. And again, Dan will talk about more about what fits where, but we're excited about the portfolio we have and the path forward with the new strategy. So Dan, I'll throw it over to you.

Yes. Thanks, Rod. Good morning, everyone. So picking it up on Page 16, exactly where Rod left off. I think it's important to first recognize that for Edgewell, this is a growth based strategy, and that's not where we've been, certainly over the last 2 to 3 years. This page, though, I think, highlights how we get to that conclusion because we look at our business through 2 very distinct lenses and have segmented our businesses based on what you see on the page, there is an inherent part of our portfolio, the leasing at a rate faster than the categories in which we compete, and that's going to continue, and it's going to pick up certain tailwinds in areas like Wet Ones. But that's a growth-driven objective on the left side of the page, and I'll take you through that in a minute. On the right side of the page, we're on this path towards stability. We think the categories of Wet Shave and Fem will continue to structurally improve. We think our performance will continue to get better, and we anticipate that we will perform in line with the categories on a cumulative level, a flattish, maybe slightly down algorithm, but instead of us donating space, donating share, we hold. That's the way this plan comes together. Now let me take you through the pieces of that. So if you turn to the next page, Page 17, let's start with the first piece, which is where we are convinced we have a right to win. And there's 3 categories that make up this segment of our business, and I'll hit on them very quickly. What is common amongst all of this, though, is a couple of things, really interesting categories that are growing, where we already have meaningful brands, and those brands are in leading share positions. So this is about continuing the journey, not starting the journey. For the Wet Ones business, I think you all are quite familiar with where we are right now. We are the market leader in skin hygiene. We are the most trusted brand in the space. We're about a 60% share, and we have the opportunity to double this business in the next 3 years. And I think you all might think that there is unique demand here with COVID, there is. We grew the business 60% last year despite constrained supply, but there is durable demand behind this category and if you start to think about life after COVID and consumer sentiment and focus on hygiene, we're convinced there are expanding usage occasions for this brand and this product. And you start to think about your lives now getting on an airplane, going to a movie theater, going to a ballgame, it's highly likely you're going to have a product like Wet Ones there with you to meet your hygiene needs. So we're super excited about the plans behind Wet Ones. In the Sun space, we have the global brands, we have the market leader. We are 25% share already in the U.S. We outperformed the category. We will continue to grow and hold share. And then the last piece here is around Grooming, where we started this journey with Bulldog and Jack Black. We've now added Cremo to the mix. We have an unmatched portfolio of insurgent brands, meeting different consumer needs, operating across all price tiers already growing at a double-digit algorithm. We just added the fastest-growing brand in the Nielsen space, Cremo, we're going to continue that growth. So that's the path for us on the right-to-win component of our portfolio. If you turn to Page 18, we know we have work to do also in what Rod referred to as right to play, where we do have existing strengths, whether they're technology, distribution or even just inherent brand strength. But we've lost our way over time, and the category has been disrupted and negative as well, both in Shave and in Fem. We are still holding meaningful share positions. You see that on the page. And we've got the right plans in place, consumer-centric innovation at the core, re-architecting the Hydro and Wilkinson Sword brands on the men's side of the equation, leveraging our unique private label capabilities that Rod referred to earlier, in Fem Care, not only innovation, but also getting into the better-for-you and organic space. So a lot happening in this end of our business that ultimately leads to a different outcome for us. And you heard Rod even give foreshadowing of that just in 1 year of planogram sets, where we're now looking at a situation where we hold distribution. So things trending in the right direction for us. Categories will get healthier. We will perform better, a flattish algorithm for this end of our portfolio. So if you turn to the next page, how does it all come together? And I won't go back through all of this, but you can see the pieces lining up to a business now has a low single-digit algorithm of growth. And the way we do that and how the portfolio shifts, you can certainly see on the page. If you turn to the next page then, just to get into our financial profile in a bit more detail, and now I'm on Page 21. I do think before we get into the future, it's super important to understand where are we in our journey, and we have spent the better part of 15 months, focused on an objective that you see on Page 21, which is stabilizing this business. You cannot continue to run a business with a meaningful hole in the top line. It just doesn't work. And so what you see on this page is a lot of effort from this organization to stabilize the top also stabilized the margin profile after years of margin pressure. You now see 2 fiscal years of essentially flat margin performance. And at the core of what we do and this business model is free cash flow generation, and $340 million over the last 2 fiscal years speaks to that. So that's sort of who we are and where we are in this journey. If you turn to Page 22, about fiscal '21. And we put an outlook out there for the year, that continues the journey that I just described. So we go from a stable business, top and bottom to now a business that has growth at the top, low single-digit growth. It has mid single-digit growth at the bottom. And it's underpinned by those 2 factors I talked about earlier, continued cost savings at the core of what we do and very healthy cash flow generation. So with that, that's sort of how we got here, let's turn to Page 23 and talk about our future. We thought about our financial profile, focused on 4 fundamental drivers of sustainable value creation. You see those on the page here. And I'll go through each of these, but these underpin how we thought about the financial algorithm for the business. So turning to Page 24. The first item we've talked about already, which is you got to deliver growth at the top. And I've given you a very quick view of how we think we can do that with the combination of accelerated growth, where we have a right to win and in the categories that you see and stabilization where we think we have a right to play, and you put those 2 together and you get a top line growth algorithm of 2% to 3%. That's our first driver. The second driver is around cost savings. And you start with Page 25. We've got a pretty demonstrated capability here through our fuel initiative. We're in year 3, as Rod mentioned. We are on pace to take out about $270 million of gross savings, well above our initial target when we launched the program, about 15%, 16% higher. And this has not only delivered really attractive economic returns, but it has fueled a mindset in the organization. It has put into our DNA, the notion of being rigorous on cost, and that's important because as you turn to Page 26, as we announced in our Investor Day a week ago, we've announced a new additional cost savings program of $125 million of gross savings to come immediately on the heels of Fuel and begin delivering value in '22 and then ultimately you see the ways that we're going to do it on the page here today. It's a broad effort across not only the supply chain manufacturing, distribution and so the COGS end of our business, but also our SG&A. We've got a really good line of sight to this program already. Plans have been delivered in many cases or being written as we speak. So a high degree of confidence that we can deliver this. And that's important because as you turn to Page 27, the plans and the strategies that we've developed have an investment stance to them. We have to keep investing strategically behind our brands, behind our markets, behind our capabilities, and the cost savings program, obviously provides a lever for us to be able to do that. And on Page 27, we give a pretty quick overview of the types of things that we're looking to invest in. I can tell you it will continue to be highly disciplined and highly focused. We have set very rigorous growth and investment and return objectives across our entire portfolio. And you see on this page, some of the areas where we'll look to invest, whether that's on the brand side, in innovation behind the markets or ultimately, in continuing our digital journey. So if you turn then to Page 23, the third element of how we're going to deliver value creation is through continuing this journey of strengthening our gross margins. We've gotten to the place of stability, a significant achievement after years of declines. Now we're well poised to start to deliver margin accretion. And we're going to do that based on the 3 things that you see on this page, continuing our journey on cost and cost takeout. The second piece is somewhat new for us or as a focus, it's new for us, which is really driving better revenue management. So here, you think about price and mix management. You think about promotional optimization, understanding better promotional dollars, returns on those dollars and driving better efficiency from where we invest in promotions. And then the third piece is continuing to focus on margin accretive innovation to the enterprise. And then the final driver on Page 29 is around capital allocation. And important to go back to what we talked about earlier and just remind the tremendous cash flow profile that this business provides, and you can see that on this page. And that's important because that's going to help inform a very disciplined and a very balanced approach to capital allocation, but underpined by tremendously healthy free cash flow. We've averaged about $180 million per year over the last 3 years of cash flow generation. And so that sort of is underpinning what we think is a balanced, but also a multipronged approach to capital allocation. And if you turn to Page 30, you can see that there. It's a combination strategy. I think, first and foremost, we are going to continue to invest in the growth of this business. I think it's fair to say that will largely be in organic growth. It doesn't mean we're out of the game for M&A, but it absolutely means that M&A carries a high bar for us right now in terms of use of capital. We're committed as this business is clearly at an inflection point to investing in growth, largely organic growth. Equally though, we understand the importance of returning capital to shareholders. And we have what we think is a pretty comprehensive plan to do that through a combination of initiating a dividend, which I'll say a bit about in a minute, but also recognizing share buybacks are large part of this plan going forward. Opportunistic at this point, but certainly a large part of the plan. And then lastly, we're going to continue to remain very disciplined in debt management, and we aim to run this business at about 2x to 3x levered within that range. And currently, we sit pretty much in the middle of that range. If you then turn to Page 31, just to double-click on how we're thinking about returning capital to shareholders. We're really excited. Last week, we announced the initiation of the dividend. This is a structural return of capital to our shareholders, which certainly speaks to the confidence that we have. It's also a vehicle that's in line with many of our peers. Certainly, we think it offers really interesting economics, a good payout ratio, a healthy yield at the start. I think equally important, if you look at the right side of this page, though, the cash flow profile of this business being what it is, affords us a unique position to invest in the business, to invest in CapEx, that's probably around 3% or so of net sales to have a dividend in place and then to be looking at the right side of this page with excess cash at the level of $140 million, $150 million a year. That's what gives us the optionality, that's what allows us to think about things like share repurchases in a healthy and opportunistic way. I'll turn to Page 32, to pull it all together. This is the algorithm going forward for Edgewell. We're quite confident in this algorithm, 2% to 3% in growth at the top, 4% to 6% in bottom line growth, 6% to 7% in adjusted EPS growth and then, again, speaking to the strong cash profile here, more than 100% in free cash flow conversion. So with that, I will pause there. And I guess, Dara, I'll turn it back over to you.

Great. That was a very helpful overview. Rod, maybe we could just start with a lot of change at the company over the last few years, including your leadership as CEO and bringing in a number of new leaders to the organization. Do you feel like you have the right talent set in place now to go out and pursue these plans going forward. And culturally, as the organization kind of seeded this change and you think at this point, ready to execute? Or is there more room to go on that front as you look going forward?

I think, Dara, I'm very happy where we are overall with the leadership profile in the company, not only with my direct reports, which I've talked about. I think we're better at every position from a leadership perspective than we have been historically. And it's not just my direct report group, it's down in the organization, take the top 50, 100 leaders in the company. It's just a stronger group highly capable group. And again, it's a blend of people that were strong performers, agile learning orientation that have been elevated up from within the company and a nice mix of people from outside the company coming in to augment that. Despite not having great in-market success yet, we brought the culture along in the engagement scores like I've talked about, the positivity, up double digits, both the last 2 years, overall. And so people are hungry to win. They know where we're going. They're excited about the strategy, and they actually believe we can be successful. And that's what's coming back and through. And I think coming out now and declaring the new strategy and the algorithm for the future, we're confident we can do that. And I think different from the past. I think the strategy wasn't always as clear, and I don't know that there was the same level of confidence historically in that algorithm. I wasn't here, Dan wasn't here, many on the team weren't here for that. But we're super confident that we can go do what we've laid out now.

Okay. That's helpful. And as you think about that 2% to 3% long-term algorithm, how much visibility do you think you have around that, just given it is above what you've delivered historically? Obviously, you laid out a lot of the building blocks behind that, and it's certainly helpful to break it down into the accelerate versus stabilized portfolio. But just as you think about the level of visibility around getting there, how quickly it can be done? And maybe also just a bit of sense for how important market share is within that. You have some segments like Sun Care, where you performed very well from a market share segment standpoint, other segments where it hasn't been as strong, so your confidence around market share improvement over time and thinking about that in some of the individual segments?

Yes. Well, I think the short answer is like how do we how do we get there? And how long does it take to get to the algorithm of 2% to 3% at the top? We're getting there this year, right? If you look at the guidance that we put out for the year that we're in now, we talked about a low single-digit growth in the company. And that's essentially on the algorithm as we look at it. And so if you break that apart, there's certainly a first half, second half part of the story, largely because of coronavirus. And the base period in the year looks quite different than the year we're in now. But I think we're confident that we're going to do that in the year that we're in now. The other proof point that I think makes us feel good about being able to actually deliver what we've laid out and said here is if you look at the first half of the year pre-coronavirus, we were up, I think, 1% to 2% through the first 6 months of the year before coronavirus hit. So we've definitely stabilized the business to flat to slightly up pre-coronavirus. And so I think that's the other thing as we look at it. We've stabilized the business. We have growth points that we know we already have that we can take forward. And in terms of market share performance, we've been growing share in Sun Care. I would expect that to continue. With what we have coming from an innovation pipeline, the distribution outcomes, we think we're going to get confident we'll continue to grow share in Wet Ones and the Hand Hygiene segment. We're the #1 player there, are performing well. We've got distribution opportunity. There's household penetration opportunity. There's range extension opportunities. We just are launching hand sanitizer. For example, a trusted brand with a logical extension of the range with a great formulation that actually people can trust that it works. And then on Shave and Fem, the 2 right-to-play segments where, let's call them, they've been the leaky buckets historically, I think we just feel a lot better about our capabilities in activating the brands. And Dan mentioned it, I mentioned it, we're getting better distribution outcomes. And with those better distribution outcomes in retailer partnerships, bring stability in the business. So overall, I think you'll see us perform better on average going forward on market share than what we performed over the past 1 to 2 years.

Okay. Great. And then, Dan, maybe switching to the margin side, you've obviously had a lot of success with productivity under Project Fuel. You outlined an additional $125 million in gross savings with -- at the Analyst Day. A, can you help us understand what are the key buckets in a little more or granular detail behind that? B, how much of that drops to the bottom line? And c also, just post-COVID, are there larger opportunities maybe that open up the organization longer-term as you're sort of thinking post-COVID here?

Yes, there's a lot there, Dara. I think for us, the $125 million, we've got a really good line of sight to it. Therefore, we're quite confident in it. And it's based on 3 years of success around Fuel. I think what you also see, and we've all done this work before, when you're successful at this work and your wheel starts to turn and when you can combine it with a strategy, so now there's cause and effect, right? It's quite powerful. And you're seeing that in the organization. A lot of the initiatives that underpin this $125 million gross savings came from the organization came from folks understanding what really good process looks like, what really good activity looks like. That's different than where we were 3 years ago when we began Fuel. Now where is it coming from? I would say there's probably 3 or 4 really important buckets. Further network optimization is an opportunity for us. On the procurement side of the business, we've done a great job of standing up what you would expect a buying organization looks like and doing the things a buying group does. We're now going back into design-to-value thinking, getting integrated with new product development and brand teams so that it's not just around contract renegotiation and scale and leverage negotiation, it's truly in the design. And then I think the third thing is productivity is contagious. We stood up, for example, a new SNMLP organization here. We plan differently. We forecast differently. We have integrated marketing, finance and logistics teams. When you get that level of visibility into your organization, you can drive a lot of waste out of your supply chain. So that's the program. I think what I'm most excited about, and it started with Rod before I arrived, the mindset now here is contagious. Folks understand this is what we do. We're hungry. We're scrappy. We're an organization that is relentless on this. The last part of your question, so what can you expect? I think, look, we're going to continue to invest. Our plan has an investment cadence. So these gross savings will largely be redeployed but if you look at our algorithm, where bottom line growth is outpacing top line growth, it obviously points to margin accretion, both in OP and EBITDA.

Right. Okay. And building on that, I guess, Rod, as you think about your levels of advertising longer term as a percent of sales, should that move back up significantly over time? Obviously, you started to increase again in the most recent quarter. But just wanted to understand your mindset in terms of how you establish what the right level is? What's the process for the organization and expectations from a longer-term standpoint?

So you're right, we have cut over the past couple of years as we've looked at the return we were getting from our investments and the plans and programs. And frankly, the marketing just wasn't good enough. The messaging wasn't good enough to break through and ultimately drive a purchase and then a repeat off of that. And so as we've worked to improve our capabilities in those areas around just brand building, marketing, messaging, connecting into the end consumer and driving a purchase, what we found is our plans are better, and they're resonating. And I'll give you an example from just the last quarter, and it's a COVID-impacted example. But with what's happening with all the mask-wearing, where the lips are now hidden behind the mask, the expression in the face is coming through the eyes and the eyebrows. And so we took a hydro silk dermaplaning one to silk touch up and repurposed it into a brow shaping tool and put a new marketing campaign behind it, be an Instagram influencer. One of the top influencers turn some media on behind it, and we became on all of Amazon personal care, the #2 selling item behind that campaign. There's a campaign against the base women's Hydro Silk business. This new that we put incremental spending against, and we've returned the business to growth and share growth. And so as we look at those examples, our -- we're seeing that there's just more things to invest in that are investment-grade in terms of our marketing approach and abilities. And so you're seeing us put, I think, 100 basis points back in for the year we're in now, incrementally starting to build back up, Dara, as we get better things to invest in, and we get the return and the results, we'll continue to fuel that. So I think our algorithm contemplates that we'll continue to put more into advertising and promotion, particularly as the quality of what we view goes up.

Okay. Great. Well, that was a very helpful overview, gentlemen. We're out of time at this point, but we really appreciate your time. It was an informative discussion. And with that, we will end the webcast. And everyone, please stay safe out there.

Thanks, Dara..

Thank you, Dara.

Thank you.