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

All right. Good morning, folks. Let's kick off with round 2 of our conference. I'm thrilled to welcome Edgewell to the virtual stage next. A year ago, EPC showed early signs of successfully stabilizing and turning the ship. It was in the process of launching an updated company strategy when the pandemic hit. While the pandemic certainly appeared to disrupt the momentum that management worked hard to build they launched, a new strategy last November and the COVID impacts over the last year look to be more temporary than permanent. To walk us through these COVID dynamics, the status of the company's strategy and how it plans to regain momentum, we have 2 members of the leadership team. Mr. Rod little joins us on the virtual stage, who recently entered his fourth year with the company and embarked on his third year as CEO. And joining him is Mr. Dan Sullivan, who has recently entered into his third year as CFO of the company. Gentlemen, thank you both for joining us here today. And Rod, let's start with you. Let's jump right into this.

So last November, you held your first Investor Day since the spinoff of Energizer. You outlined a fairly ambitious growth agenda for the business with sustain 2% to 3% organic sales growth despite the fact that the company had been suffering pretty consistent sales declines prior to that. So can you share with us the essence of the strategy and what gives you confidence in your ability to flip from fairly consistent mid single-digit declines to consistent low single-digit growth going forward?

Thanks, Jason, and good morning, everyone. It's great to be with you today. As we laid out last November, our strategy at the core of it is really pretty simple around wanting to be focused on things that we think we're uniquely good at. So what categories do we play in and where do we participate. And then the second piece of the strategy is to get more exposure to growing categories. And so I think as most know, in our historical core category of Wet Shave, and then more recently, Fem Care, growth rates have been challenged. If you go back 3, 4 years ago, Wet Shave was down double digits in the U.S., for example. We've seen that category evolve and pre the pandemic actually stabilize. Fem Care is slightly growing. Those are categories where we think we uniquely have capital, the ability to fund the capital, IP, technology, scale to be successful in those categories. But given the growth profile coming out of COVID, we'll talk more about that as we get into this, we think there are going to be good categories for us and that we have unique things that allow us to be good in those categories. So we call those categories right to play, where we have a right to play and be successful. And then we have right to win categories where not only do we think we're uniquely good and have the ability to be successful, but there's nice growth tailwinds in the categories as well. We call those right to win. And so you get into sun, Skin Care and our grooming brands, all fit those profiles. We think we've got unique ability to add value to those businesses and they're in growth tailwinds. And so as we move forward, we want to stabilize that Wet Shave business, which I think this last quarter, you've seen us start to do that. And we really want to drive growth in those categories where we think there's a lot of growth to be had. So beyond the exposure piece of just being laser-focused on where we're going to play and how we're going to invest in the business, we have 5 strategic choices underneath that. I'm not going to go through all of them, but it's all around really getting laser-focused on the end consumer. And what does he or she want, serve it up in a really interesting way to them that's compelling. And make us easy to do business with. And then take that back through everything we do internally is how we're focused on today and going forward. And I think we're quite optimistic, Jason. We laid out the 2% to 3% growth and the 6% to 7% EPS in that range. And I think as we look at everything that we see today, we're as confident, if not more confident today than we were back in November that we can go make that happen.

And you mentioned that Wet Shave looked like it stabilized, at least the category pre COVID. And I know your Sun Care business, you had done some reformulations the year before. That was now behind you. It looked like the stage was set for a better 2020 and then COVID hit. So can you talk to us about the impacts of COVID? What were the various puts and takes across your business? And as we look forward, what are you seeing? What sort of lasting impact might there be? What was transitory? Any evidence of those transitory impacts turning now?

Sure. To your point, Jason, we had really gotten to a point just pre COVID, if you go a month or 2 before that, we had been blocked by the FTC on the Harry's acquisition as well, right? So there was a lot going on. During that period. But in the background, we had really been focused on building the capabilities across the company to be a consistent, reliable deliverer of growth and value. And we'd gotten to the point where the 2 quarters pre COVID, we'd actually stabilized the business. In fact, if you go to the previous 4, we had gone from those down mid single-digit declines, you talked about on top line, to a flattish top line. And we actually, I think were up about half -- 0.1% on the first half last year, then COVID hit. And our main categories went negative. Wet Ones was positive, obviously. About 6% of the total portfolio. We had tailwinds there. We couldn't meet the demand. We've added capacity. That's now stabilized. But take Wet Ones, all of our categories were negatively impacted by COVID-19, very different than some others in our peer space that we compete against that have different portfolio exposures. Sun Care was down. The category was down 20% last year. We lost the first half of the Sun season effectively in until mid-June until we saw the category come back and start to perform better in the back half. Shaving incidents were down. I think we've talked about that pretty broadly, not only us, but competition. In that April, May, June quarter last year, I think we were down almost double digits in shaving. It rebounded some later into the summer, into the fall, but it's been negatively impacted by COVID-19. And then in Fem Care as well, we've seen just demand be down a little bit on average. So categories have been negative. Now what's interesting, Jason, if we flip to where we are today, we think going forward, there's still going to be significant demand for Wet Ones hand hygiene protocols, every CDC organization in the world is stressing the importance of hand hygiene going forward. Coronavirus, flu season, what have you, we think there's an elevated hygiene standard, and we've seen the penetration go up significantly of people buying into the category. In our view, and what we have from our research suggests that that's going to stay elevated, maybe not to the peak levels we saw last year, but well above where we were going into the pandemic. Wet Shave is just going to come back to when people become more social, get on the move again. They'll start to go back, we think, to more normal grooming habits and then as people get back into the workplace across later summer, potentially into the fall zone, maybe not at the same rate they did. But let's say a couple of times a week and whatever hybrid people land in, people will return to more normal shaving. We saw the quarter get better again last quarter. So we're seeing the improvement there. And then in Sun Care, it really, I think, is about the unique COVID situation where people just weren't mobile. Last year, if you looked at just the mobility restrictions that we -- had on people. What people started to be outside towards the middle and end of summer, and it was a good end of the season. There was no tourism, no-to-little tourism travel happening. And so that part of the market wasn't good. But as we sit here today, Jason, you said you had a trip down to Florida, like there's some pent-up demand for people to go now and almost every picture you see where people are going, they're either outside and by water, 1 of the 2 and typically both. And so we're seeing that start to show up in Sun Care category results that have been very positive basically since the end of March, and they've carried through to the latest week of scanner data. It's positive. So we're optimistic on Sun Care, not only for this season. But also the future as we head into next year as the international tourism travel opens back up and all the long-term reasons people buy Sun Care are in place if you look at broader factors around skin cancer, sun rates and all those things. And so we're optimistic that what we've dealt with over the last 6 to 9, 12 months is transitory. And we don't see any of our categories, long term, being negatively impacted by COVID-19.

That's helpful. I want to come back to some of that category discussion. But first, let's pivot to Dan and try to pull him into the conversation. Dan, can you touch on your business model? What do you see as the core drivers of value? How do you see them evolve in the coming years? And similar to what I asked, Rod, I'd just love to hear you weigh in too on COVID and how it may impact how you do business?

Yes. Thanks, Jason. Good morning, everyone. It's great to be here. Yes. Look, we think there's a lot of positives to our business model. I'll highlight maybe the 2 that resonate the most for me. One is our gross margin profile. As you know, we operate in categories that, in and of themselves have really attractive structural gross margins. We've then augmented that with our Fuel program. We're in year 3 now. We've taken out about $300 million in gross cost savings, more than 2/3 of which sit in COGS. We've now also begun to think more strategically about revenue management, right? And how do we think about frontline price? How do we drive more promotional efficiency and effectiveness? How do we create margin accretive, new packages, new products, new innovations. So sort of taking the cost area of COGS where we have been really successful over the last 3 years and bringing revenue management in. So that's point 1, which is around gross margins. I would say point 2 is this business generates tremendous cash flow. It's a low capital-intensive business despite our manufacturing footprint. We tend to manage working capital in a very disciplined way. We have strong cash conversion. And so ultimately, it's a business that spins off $150 million to $180 million a year in free cash flow. So those are the 2 aspects of the business model that I would highlight. To your second question, kind of where do we go from here, and Rod nailed sort of how we thought about the strategy going forward. The elements of the strategy that then play into a new financial algorithm for Edgewell, which is really about 4 factors, right? One, is sustainable top line growth. We see a business model now that can deliver 2% to 3% organic growth per year. So that's element number 1. The second is around profit growth. So adjusted EBITDA growth, 4% to 6%. Third element is around EPS, adjusted EPS growth, 6 to 7%. And then the fourth element is back to free cash flow, where we continue to see $150 million to $180 million per year. And I think the really exciting thing is, look, we're in year 1 of this journey, 2021, and our fiscal year is lining up really well on all elements of that algorithm. Then the third point to your question, sort of what's it meant for COVID for us. Look, I think tremendous challenge in this COVID environment, tremendous uncertainty. We're not immune to that, like most folks. I think it's also brought heightened focus and discipline for us. And you see that in a couple of areas. One, we are focused on cash preservation and liquidity and strengthening our balance sheet. We've actually been quite opportunistic in redefining our capital structure, successfully replacing 2 high yield notes, where now we have lower cost of debt going forward and a really interesting profile in terms of maturities. So we've taken it as an opportunity: one, to strengthen our capital structure; two, yes, look, we're operating in a really inflationary environment. You wouldn't necessarily see it if you looked at our P&L. At the halfway point, we've delivered about 40 basis points of margin accretion year-over-year. But we have really seen that cost pressure ramp-up, which has then had us rely more and more on our Fuel program. And as I mentioned, the revenue management. And then the third part, like everyone else, I think we're being really opportunistic in how we think about SG&A and our cost base, how we hire folks, how we onboard folks. Discretionary spend has been completely redefined, and I think there are elements of that model. There are elements of how we run this business. There are elements of maybe what used to be our fixed cost footprint, which we rethink now as a result of COVID, which give us opportunities going forward.

You mentioned the inflationary environment you're operating in. I think almost everyone is operating in a pretty elevated inflationary environment. You look at things like steel, it's up and to the right. You look at things like resin, substantially higher. Both of those seem like they're pretty key inputs to your business. How are you navigating this? How are you confident that you're going to be able to maintain the integrity of your gross margins in the face all this pressure? And then one more sort of add-on question. Is it just a matter of time? Like do you have favorable hedges in place that are just being -- as we roll forward, is there an inflation cliff looming at some point? Certainly something a lot of investors ask us about, and I'd love to hear your view on that.

Yes. Thanks, Jason. And you're right. Look, we're operating in tremendously challenged times. I talked to our procurement team and the words they use are -- they've never seen all moving ships looking like this at this period of time. I think there's 3 or 4 underlying factors, right? You have just a natural inflationary pressures that we are seeing in some of our categories. You've seen transitory issues here, perhaps related to COVID, where supply and demand don't match up. You've seen weather disruptions in Texas and port delays in Long Beach, I mean just a bunch of factors. And then you have what you might consider once in a lifetime things happening in the Suez Canal and other disruptions of supply. So absolutely, we're not immune to that. I would say perhaps the macro material impact to us might be different than others in our space, and let me try to unpack that. I think there are 3 areas where we're feeling the pinch the most. You mentioned resin, for sure. It's only about 10% of our COGS profile, but absolutely seeing tremendous, unprecedented inflationary pressures, and that is going to continue. When we look forward now, we're seeing 5-year projections that are still up 20% and 30% from where they are today. So it's cyclical. It will move up and down as it always does. We are protected to some degree in a few ways. One, we have secured a 3 to 4 month supply already. So that's a benefit for us. And that's typical for us as you think about how we buy in the category. We're buying almost exclusively on contracts, so we're not subject to the spot rate. So we're seeing, still, savings for us against that spot rate and inflationary rate. And we are seeing supply easing a bit. Supply pressure is easing a bit, coming out of some of the disruption in Texas. Still a tough category. And for sure, the one item that I would look at today and say, that's likely going to be with us for a while and certainly calling for that into '22. Labor, second item for us, which is about 20% of our COGS, but the pressure in labor isn't being felt in all areas of labor. It's mostly in part time, nonskilled labor where quite candidly, stimulus money has really impacted supply in the labor market. So we've had to be very proactive here and take on additional wages and stare into that wage pressure to secure the right level of part-time complement. And then thirdly, in distribution costs, which is again about just under 10% of our COGS. But between fuel and this imbalance that still exists between supply and demand of assets and drivers feeling the pinch. Steel, interestingly enough, Jason, is a relatively smaller part of our COGS base. It's somewhere in the 7% range. And we've seen a bit of pressure there, but nowhere near what you're seeing in other categories. So how do we mitigate that? I think there are structural benefits in place that can help and then there are sort of half 2 benefits in place. Structurally, we're going to continue to lean on Fuel and what comes after Fuel. As we've talked, this is a program that technically ends this year but in no way it ends for us as a business. We will continue to focus on a maniacal way in taking costs out. We're going to get better at revenue management. It's a capability that we've just started to build. We took price last year in the Sun category. We've taken price this year in Wet Ones. We will take price in Fem. We'll continue to manage promotional intensity. We'll continue to drive accretive NPD. So I think those are the structural benefits we're going to rely on. And then in the back half of the year, in addition to all of that, we pick up a couple of nice tailwinds in terms of mix, how we mix out year-over-year, category growth, mainly Sun category coming back for us and leverage. We've got a business that will grow. So I think as we look forward, we're not immune to these pressures. We will continue to see it in resin, but that's where we'll stand up to Fuel and the revenue management efforts to help mitigate.

Sure. That's really helpful. Let's pivot off of margins and come back to some of the categories. I promised you, Rod, that I was going to come back to category, let's do it now. There's a common misperception we hear most investors in terms of your dependence upon U.S. men's Wet Shave. So often people say it's a U.S.-branded men's Wet Shave business. And clearly, it's a tumultuous category. And hey, it is a tumultuous category. It's been tough. But tell us, what is your concentration? I think this misperception, let's get it out there. How dependent are you on U.S.-branded men's? And what's -- and then secondly, we've seen evidence of improvement, what's driven the improvement in your performance recently in Wet Shave?

Yes. Appreciate the question, Jason, because you're right. We spend more time talking about men's Wet Shave than I think the rest of the portfolio combined typically as people think about who we are historically. But simple way to think about it is U.S.-branded men's shave is 3%, 3, of our total company portfolio. Wet Ones is 6%, right? Our Wet Ones business is 2x the size of our U.S. men's branded business. And so from a concentration standpoint around geography, U.S., category Shave, Male, Systems, right? That's a very small part of the portfolio, to your point. Just to help people think about kind of where things sit today, roughly 55% of our portfolio is shaving, Wet Shave. And over half of that, roughly 55% of that is outside the U.S. in international markets. Within that portion that is U.S., we've got a nice, what we call -- it's a Private Label business, but we call it private brands group because it's not only hitting opening price points. It's helping retailers build their brands. That's a part of the portfolio. And then our women's business is more than 2x the size of our men's business. And our women's business, to the point, Jason, around what's been working for us and how are we participating in the category, we've been growing share in the women's business the last couple of quarters. Our products are great and highly differentiated versus competition. Intuition All-In-One, as an example, there's no other form type out there like it. Hydro Silk is our best technology around a great shave. And off of that, we've launched something called the Hydro Silk Touch-Up, which has been the #1 SKU on Amazon across all of beauty over the last 6 months. And we've got a Skintimate brand. It's the #1 preps brand on the women's side. So the women's business has just historically been stronger. We've done a better job of building those brands and connecting with the end consumers. And on the men's side, I have a conversation with Eric O'Toole, our new President of North America, who is fantastic, and we joke is men's a problem for us in the U.S. or is it an opportunity? We actually view it as an opportunity, given where we are and where the brand sits today and the size that it is and the ability to go get some old lapsed consumers back, bring some new consumers in with great marketing and positioning, which we're working on for the Schick brand. We think there's distribution upside off of that to get back into the game a bit more on the men's side. So to your point, that's kind of how shave sets up. And per our strategy, you'll see Wet Shave, while it's being stable, we think around flat to plus or minus 1 from time to time, as a profile going forward with everything else growing around it and those right to win brands, we think, in the double-digit range, you're going to see that exposure to Wet Shave if we execute our strategy, as we've laid out, going down each year over the next couple of years, right? Just naturally based on how the portfolio is evolving.

That 55% that's international. Walk us through the big chunks of the international business and what the dynamics, what the performance looks like in those markets?

Yes. So very diversified international business. Second largest market is Japan for us. It's a big market for us. In that market, we're Gillette. How Gillette looks as a dominant player in every other market. We're the share leader in that market. We were first in the market. We have a great team, great capabilities in terms of how to transact and win in Japan with the wholesaler model in between the manufacturer and the retailers. Great innovation platform there as well. We launch good, regular innovation. And we've taken some of the learnings of what we've seen in the U.S. and the U.K. into Japan, and we have been the disruptor there by launching Bulldog at the value tier into what had been previously a nondisruptive market. So there's a Bulldog shave offering that we're launching in addition to the balance of the Grooming range in there. And that's just rolling out now. We're in 18,000 outlets as we speak and growing. So Japan is a core business for us. It's the -- by far, the largest international market for us outside the U.S. A nice presence in share position, better share position in Europe than we have in the U.S. in the big European markets, U.K., Germany, France, for example. And then we have a nice business in Latin America, which is largely a Disposables business in Latin America with markets like Mexico, Colombia, on point. So from a shave perspective, outside of the U.S. and to a certain extent, the U.K., the balance of the globe looks like the old traditional Wet Shave market as we -- as -- if you know, for those that are based in the U.S., as it may have looked 5, 6 years ago. And there are some reasons that the balance of the markets don't all look like what we have in the U.S., just around some natural barriers that are there and exist. Japan, for example, it's difficult and expensive to do pure-play direct-to-consumer e-commerce, right? So as you go around the markets, they're all a little different like that. But again, we like our business internationally. We like our capabilities. And we think beyond Wet Shave, there's a massive opportunity as COVID -- as we exit COVID, to continue our rollout and expansion of our Sun Care business internationally as well as also, if you start to think about brands like Wet Ones and our Grooming portfolio and thinking about where it could go over time. There's opportunity beyond Wet Shave, we think, internationally as well.

And in the U.S., you mentioned some of your success on the women's side. I think you said you're now like the #1 selling Wet Shave product on Amazon or -- for women. I think I heard that right. Correct me if I'm wrong. That's a good segue into e-com overall. Where does e-comm stand? How has the performance been? And what's been the secret to your success in terms of scaling it?

Yes. So it's Hydro Silk Touch-Up is the #1 SKU on Amazon, specifically that SKU across all of beauty. So beyond just shaving. E-com is strategic for us. It's 1 of the 5 strategic choices underneath the -- where we're going to play. We've made significant investments in e-com. We've completely changed out our platform so that the tech stack we were running previously for our own direct-to-consumer channels. We're now on Shopify, which is a globally scalable platform. It's flexible. We do some unique things around it. That's in place. So we now have the right tech stack, and that's actually -- CREMO is the next brand to potentially go on to that new tech stack. This is a new thing for us. This just happened this fiscal year during COVID. Prior to that, it was tough for us to be competitive with the tech stack we had. So we got the technology right, which is a starting point. We've got the team and people right, the people that build the content, define the pack sizes, define perfect page, measure perfect page performance, look at SEO optimization and the mix of organic and paid search. How we do all of that is just at a completely different level than where we were a year, 1.5 years ago. A sales capability with Amazon around algorithm management to be really good at managing the Amazon algorithm. We have people on the team that can do that. So we've added people with really solid, robust capabilities and -- to manage that. We've got the technology right, we've got our own direct-to-consumer channels that we were standing up. Again, the idea is not to compete versus Amazon or some of the other aggregators out there. But we've got to be really good at DTC as we transact and interact with the consumer to start to have the conversation and amplify our brands on the digital space. E-tailers. So walmart.com, target.com, kroger.com, go down the list. Their .com channels are going to be successful. And it's -- again, it's a very different skill set versus brick-and-mortar selling to help them sell and win and be successful online. Page taxonomy layouts, things like that, all the way through, again, PAT configurations and what they have. We're wanting to be a thought leader and a partner leader on that with them. One of the things we're seeing more and more is if you can win online in the .com, whether it be with an e-retailer or even on Amazon, that -- what's happening online is influencing the selections of what's being put on shelf in-store at brick-and-mortar. Our online shares are actually higher than our brick-and-mortar share. That's another interesting point. We're growing share. We have over the last year in the e-commerce channel to the question, Jason. And so we're having real end market success there, and we think it's important from an omni perspective, given the interplay of what's happening on and off-line and the influence online is having back to off line.

How important has retail media been? So directing ad dollars to the Amazons, the Walmart Connects, the Roundels, Target Roundels. Has that been a strategic focus for you? And has it become substantial in size the investment there?

Historically, it has not been -- it is becoming more important and more substantial, Jason, just as you look at how things are evolving. We are redirecting more dollars there. And there's good return on some of that investment. You got to look retailer by retailer and what's the program and how does it work. But retailers still have quite a bit of power in this equation. And so you -- to me, it's like doing business with Amazon. They're going to be a winning customer and retailers that are going to be winning customers, you've got to find the right way to partner and work with them to help drive growth not only in our brands, but in the category. We have that responsibility in all the categories we play in. And that's a nice way to do it together.

Yes. We talked about some of the other pieces of your portfolio already. You mentioned Sun Care and the improvement there and your expectations, Wet Ones. Let's come back to the Men's Grooming business, sort of these niche year brands, the high-end brands that you've acquired and assembled over recent years. Remind us what are the key brands there? How big are they as a percentage of your portfolio? And you put out some growth expectations, I think, 10% to 15% type growth, give us the context behind what gives you confidence on that?

Yes. So 3 brands, Jason, all recently acquired. First, Bulldog, about 4 years ago now. That business is up more than 4x the size it was when we bought it. Second was Jack Black. Again, a business despite it being prestige distribution, heavily reliant on brick-and-mortar a year ago in brick-and-mortar prestige retail in the U.S., primarily U.S. brand, by the way, was closing down. The brand still grew nicely. 60% of that business is now e-commerce-driven. And Jack Black, premium price points, great margins, fantastic brand. And then the third brand, most recently, we acquired, again, on strategy with wanting to participate more in growing categories where we have strength, CREMO, which we closed on last fall. And CREMO is a nice add into the portfolio, big beard range as part of it. Again, great product crafting. And as we look at those 3 brands together, whether you look category-wise, geography-wise, where there's strength within the portfolios, price points, how they transact in brick-and-mortar and online. There's actually a lot of synergy behind those 3 in terms of how we can run those businesses efficiently where it makes sense in some of the back office areas, but keep the very unique character and things that are special about each brand, different and special. They're all founder-led brands that came to us. The founders stayed. We're all super friendly with all of the founders. As we build and transact these brands. And in CREMO's perspective, we actually have the CREMO leaders, some of their top people already working on broader EPC portfolio opportunities. So we're actually super excited about the future of these brands, not only for what they can be themselves, which is around 7% of the portfolio today, Jason, so a little bigger than that Wet Ones business, growing rapidly. And whether it be distribution related, category related, geography related, there's lots of growth to be had, we think, across all 3 brands.

And all of them were acquired, which is a good segue into capital allocation. You've done acquisitions. We just discussed them. You've also bought back some stock last year. We saw early in the fiscal year, you came in acquiring some stock. I don't think you did again in the second quarter. But talk to us about your capital allocation priorities. How do we balance M&A versus cash return to shareholders? Dan, you talked about the great free cash flow profile. Clearly, you've got the free cash flow coming in. So you've got the fuel to direct it in these ways, where are you going to direct it?

Dan, do you want to take that?

Yes. I'll take it, Rod. Thanks. Yes, Jason, thanks for the question. I think Rod gave a great summary of recent acquisitions and the role that these acquisitions have played. We've been highly selective in what we've looked at. And I think we've been highly successful. Rob mentioned Jack Black doubling and Bulldog more than 4x the volume when we bought it. That's a pretty good recipe for us as we think forward the role of M&A. I think we intend to continue to be active in this space in CREMO-like transactions. Opportunities for accelerated growth, opportunities to increase our exposure in categories that have an interesting growth profile. Well, we're going to be really disciplined and put a high bar and be very selective on what meets that criteria when we think about capital being allocated to acquisitions. We tend to look for 4 or 5 different ingredients in acquisitions. One is growth opportunity, that is, first and foremost in our mind, where can we drive growth, where can we gain access into categories that offer a different growth profile. The second one that we look at is capabilities. Rod mentioned the role that founders have played in building businesses being acquired by Edgewell and staying with Edgewell. So we think about capability transfer and increasing, whether that's in brand building, whether that's in DTC or e-comm. Typically, it's an important capability play for us. The third thing would be strengthening channel presence, where can we win on the shelf and with key retailers and how do acquisitions potentially help us in that space; fourth is scale; and then fifth is how do we think about getting access to disruptors, getting access to innovators and incubators and brands that offer maybe a different profile than the existing portfolio, but all within our existing strategy. So that's how we think about M&A. If you broaden the lens back, Jason, to capital allocation, you're right, I said earlier, and thank you for saying it. Super attractive cash flow profile means optionality, first and foremost, and we think about this in a very broad way. We think about capital allocation, not necessarily in an either/or approach, but in an and approach. And so with that, though, we have to look at sort of the macro environment in which we're operating. One, certainly in the last 12 to 15 months, we've erred on the side of prudence, right? We've focused on liquidity, strengthening the balance sheet and managing the business to the lower end of our leverage profile 2x, as an example. So that's just been the environment we're operating in, and that obviously informs how we deploy capital. The second one, though, I think, and it's important, going forward, is the state of the business, right? We believe we are at an inflection point. And you mentioned it in the upfront. We've gone from mid single-digit declines in unhealthy categories to now flattish top line in categories becoming increasingly healthy. We have to prioritize our investments then with that business in mind, thinking about how we invest in brands, how we invest in key markets, developing an innovation pipeline that's consumer-centric and additive to the market, investing in capabilities. So we just think that right now is the right thing to do for the business. That's our priority, but it's, again, not single-minded in how we think about capital. We recognize the importance of delivering returns to our shareholders. We think we've done this in part by initiating what we thought was an attractive dividend this year. That we think had an interesting yield and interesting payout ratio. So again, holistic. Share buyback, certainly a part of that, more opportunistic right now as we think about how we deploy capital. We just think right now, the priority is behind growth and investing in a business that is getting healthier.

I love it. At an inflection point, business getting healthier, categories getting healthier. It's a good place to be. I don't think the market fully believes it yet based on your valuation, but hopefully, the results keep coming in and win over the investors. I think it's a great note to end it on, not to mention we're pretty much bumping up against the clock, and I've got to get you guys free for your next meetings, and I've got to get myself free for our next set of fireside chats. So Rod, Dan, thank you so much for being generous and joining us today. We really appreciate your time.

Thanks, Jason.

Thank you, Jason.

Thank you.