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

Thank you. Good morning and welcome to Edgewell's third quarter fiscal year 2026 earnings call. All participants will be in a listen-only mode. If you do need assistance, please signal a conference specialist by pressing the star and zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you press star then one on your telephone keypad. To try a question, please press star then two. Please note this event is being recorded. I turn the conference over to Chris Goff, Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us this morning for Edgewell's third quarter fiscal year 2026 earnings call. With me this morning are Rod Little, our President and Chief Executive Officer, and Fran Weisman, our Chief Financial Officer. Rod will kick off the call and then hand it over to Fran to discuss our third quarter and full year fiscal 2026 outlook. We will then transition to Q&A. This call is being recorded and will be available via replay on our website, www.edgewell.com. During this call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, brand investment, investments in technology, advanced analytics and AI-enabled capabilities, organizational and operational structures and models, costs, mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, impacts from tariffs and other recent developments such as the conflict in the Middle East, changes to our working capital metrics, currency fluctuations, commodity costs, inflation, future plans for return of capital to shareholders, and the disposition of our feminine care business, and more. Any such statements are forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events, plans, or prospects. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption, Risk Factors, in our annual report on Form 10-K for the year ended September 30, 2025, and as may be amended in our quarterly reports on Form 10-Q filed with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances, except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for, but as superior to, measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information trends of our business and allows more meaningful period-to-period comparisons of ongoing operating results. With that, I'd like to turn the call over to Rod.

Thank you, Chris, and good morning, everyone. We delivered a solid third quarter that represented an important step forward in our fiscal 2026 progression. Organic net sales return to growth, driven by a meaningful improvement in North America, where performance exceeded our expectations. We saw strength across Suncare, Grooming, and Branded Wet Shave, reflecting improved execution across the business. Adjusted earnings per share and adjusted EBITDA were ahead of our expectations, while adjusted gross margin performance was in line with the outlook we outlined last quarter. At the beginning of the year, we anticipated that fiscal 2026 would be a back half story and that the company would return to both organic sales growth and earnings growth for the full year at the midpoint of our ranges. Despite market uncertainty and increased pressure, we have stayed the course and the destination remains unchanged. We grew sales in the third quarter. We expect stronger overall growth in Q4. with growth across international markets in North America, our outlook for the full year, adjusted earnings per share, and adjusted EBITDA is unchanged at the midpoint. Importantly, the quarter provides encouraging evidence that the investments we have made and the actions we have taken are strengthening our brands and capabilities and are beginning to translate into improved business performance. While the operating environment remains dynamic and challenging, consumption trends remained relatively stable during the quarter. America returned to growth and our priority brands continued to gain traction. Together, these results reinforce our confidence in the underlying trajectory of the business and our ability to deliver against our commitments. Before turning the call over to Fran, I'd like to take a step back and share why we believe Edgewell is becoming a stronger business. We believe Edgewell today is stronger, more focused, and better positioned than it was just a few years ago. Our confidence is not based on any single quarter. Rather, it is based on a series of actions and investments that have strengthened the business and we believe position us to deliver improved performance over time. There are four factors in particular that give us confidence in the path ahead, including our setup heading into fiscal 2027. First, we have fundamentally improved our ability to execute. Over the last several years, we have strengthened our leadership team, improved commercial capabilities, enhanced our analytics and revenue growth management tools, simplified the organization, and increased accountability throughout the business. These investments have strengthened how we plan, execute, and allocate resources across the business. Sustainable performance ultimately depends on consistent execution, and we believe the capabilities we have built are beginning to show up more clearly in our results. Second, we've become a more focused company. Following the feminine care divestiture, our portfolio is simpler and allows us to direct a greater share of investment towards our highest return growth opportunities. In particular, we have increased investment behind our global-focused brands, concentrating advertising, innovation, and commercial resources where we believe they can create the greatest long-term value. In addition to the campaigns we outlined last quarter for Schick, Billy and Cremo, this quarter saw another step up in investment, including year two of our Hawaiian Tropic campaign. We believe this focus is helping create a stronger foundation for sustainable growth, profitability and cash generation. Third, we are seeing encouraging evidence that our U.S. business is improving. The U.S. remains our largest value creation opportunity. During the quarter, North America returned to growth as commercial execution improved, distribution gains increased, and a number of our strategic initiatives gained traction. Importantly, we are seeing encouraging proof points across several of the areas where we have been concentrating investment. Hawaiian Tropic delivered strong growth during the quarter, supported by positive brand momentum, increased distribution, and continued retailer support. Grimo continued to gain traction across mass retail through expanded distribution and strong consumer demand, while Schick delivered encouraging performance across key portions of the portfolio. We also continue to see positive momentum across the Billy Shave portfolio, which delivered continued share growth despite a highly- competitive category environment. Notably, the progress we're seeing is not limited to sales results alone. Across many of our priority brands, awareness metrics are improving. Branded search activity has increased this quarter, and our recent Brand Lift studies indicate strengthening consumer engagement and brand relevance. While these indicators may not immediately translate into marketplace results, we believe they provide additional evidence that the investments we are making behind our brands are resonating with consumers. The progress we are seeing is becoming increasingly broad-based. It is not being driven by a single initiative, customer, or brand. Rather, we are seeing positive indicators across distribution, brand performance, and category execution, which gives us increasing confidence that our focused investments are beginning to be successful. to translate into improved marketplace results. While we still have work to do and recognize that performance will not improve in a straight line every quarter, we believe the results we delivered in North America this quarter reflect meaningful progress and are consistent with the trajectory we expected to see. Fourth, we are accelerating the transformation of our operating model. As we look ahead, we see meaningful opportunities to further simplify the organization, improve speed and agility, enhance decision making, and create a structurally lower cost base. These actions are intended to help offset stranded costs associated with the feminine care divestiture. positioning Edgewell to become what we believe will be a faster, more efficient, and more responsive organization. An important part of this effort is increased investment in technology, advanced analytics, and AI-enabled capabilities. We see significant opportunities to leverage these tools to improve consumer insights, accelerate innovation, enhance commercial execution, and drive productivity across the enterprise. We believe these initiatives, together with our broader transformation and productivity efforts, will help create a simpler, more agile organization that is better positioned to deliver more consistent growth, profitability, and cash flow over time, even in a dynamic external environment. We look forward to providing additional details on these initiatives and our broader fiscal 2027 priorities during our year-end earnings call in November. One important example of this transformation is our wet shave manufacturing consolidation, which is the largest operational initiative we have undertaken since becoming a standalone company in 2015. The project's objectives are straightforward. Simplify our manufacturing network, modernize our capabilities, improve service levels, and create a structurally lower cost position. As we discussed previously, the project has created some temporary disruption as we transition production across the network. While those impacts extended longer than originally anticipated and affected supply greater than expected in certain international markets during the third quarter, we continue to make meaningful progress against the implementation plan. As network performance improves, we expect to further strengthen production volumes, service levels, and performance. and overall operational effectiveness, positioning the business to deliver meaningful productivity, margin, working capital, and free cash flow benefits over time. Finally, disciplined capital allocation remains central to our strategy. We plan to continue investing behind the business where we see the highest returns, strengthening the balance sheet, reducing net debt leverage, and maintaining the flexibility necessary to create long-term shareholder value. Thinking together, these actions give us confidence that Edgewell is moving on to a better performance path. While it remains too early to provide specific guidance for fiscal 2027, the combination of four factors, one, better execution, two, a more focused portfolio, three, improving U.S. performance, and four, a major operational transformation approaching its inflection point, is why we believe we will enter fiscal 27 from a stronger position than we have been in several years. The third quarter provided further evidence that this strategy is working. We returned to organic net sales growth, North America returned to growth, and we delivered earnings ahead of expectations, reinforcing our confidence in the path ahead. With that, I'll turn it over to Fran to walk through our third quarter results and outlook in a few minutes.

in greater detail. Thank you, Rod. As Rod outlined, the third quarter marked an important step forward in our fiscal 26 progression, with organic sales returning to growth, adjusted EBITDA, and adjusted EPS ahead of our expectations. I'll now walk through the quarter in more detail, beginning with top-line performance, then the P&L, and our outlook for the balance of fiscal 26. Now let's turn to our performance in the quarter on a continuing operations basis. Organic net sales increased 1.1% in the quarter, as strong performance across grooming, sun, and skin, along with growth in branded wet shave, more than offset continued weakness in private label wet shave, driven by the supply disruptions previously discussed. North America organic sales increased 3%, driven by double-digit grooming growth, mid-single-digit growth in sun and skin, and a return to growth in branded wet shave. International organic sales declined 1.4%, reflecting the impact of the Middle East conflict, lower private label sales due to the temporary supply disruption discussed earlier, and a weaker-than-anticipated start to the sun season in Europe and LATAM. Importantly, we continue to deliver growth in several of our key international markets, and we expect overall international to return to growth in the fourth quarter as supply chain challenges improve. On a year-to-date basis, we have grown or held dollar market share in nearly 70% of our markets, specifically in the U.S. U.S., branded unit market share has held steady or increased in 39 of the past 43 weeks. Wetshave organic net sales declined 1.9% as continued supply disruption within private label more than offset growth across the branded portfolio. Encouragingly, branded Wetshave returned to growth during the quarter, reflecting improving performance across our focus brands and that our commercial initiative in the US are beginning to gain traction. In US razors and blades, category consumption increased 160 basis points in a heightened competitive and promotional environment. Our overall share remained pressured by private label availability constraints, but branded share declined 40 basis points as we cycled elevated promotional activity from a year ago and changes in our approach to couponing primarily in the drug channel. Sun and skincare organic net sales increased 5%, driven by mid-single-digit growth in sun in North America, strong global grooming performance, and continued growth in skincare. Hawaiian Tropic, Cremo, and Wet Ones all delivered encouraging results in the quarter, supported by increased distribution, innovation, and brand investment. Cremo completed its seventh consecutive quarter of approximately 20% or more growth in grooming. In the US, sun care category consumption declined approximately 2% in the quarter. Our value share declined 60 basis points. As expected, market share declines in banana boat more than offset 110 basis points share growth in Hawaiian tropic. As sun care consumption can shift meaningfully between quarters depending on weather patterns and the timing of seasonal demand, we believe a broader year-to-date market share view provides a more accurate read on the season than any single quarter. Look Looking at the category year-to-date, consumption through mid-July increased by 1.4% and overall market share was flat, generally in line with our expectations. Now turning to the P&L. Adjusted gross margin declined 30 basis points compared to prior year and broadly in line with our expectations. While margin ultimately came in as planned, the underlying drivers were somewhat different than what we anticipated entering the quarter. Inflation, particularly across certain commodities and input costs, was higher than expected. However, those pressures were largely offset by modest tariff refunds and higher productivity realized during the quarter. As compared to prior year, productivity savings of approximately 200 basis points and 40 basis points of favorable currency movements were more than offset by unfavorable mix and promotional levels, as well as inflation and net tariff impacts. AMP expenses were 14.6% of net sales, up from 13.6% last year, a spending increase to support the new campaign launches as expected. While this was slightly below the levels we outlined for the quarter, the difference was largely timing related, as our outlook for the full year is unchanged. Adjusted SG&A was 18.4% of net sales compared to 17.6% last year, primarily driven by higher incentive compensation and unfavorable currency impacts in the current year, partly offset by lower people and consulting expenses. Adjusted operating income was $53 million, or 9.3% of net sales, compared to $63.6 million, or 11.3% of net sales last year. primarily reflecting the impact of lower gross margins, higher AMP, and SG&A expenses. GAAP diluted net earnings per share from continuing operations were $0.26 compared to $0.46 in the third quarter of fiscal 25. Adjusted earnings per share from continuing operations were $0.72 and flat to prior year order. Currency favorably impacted adjusted EPS by $0.04 in the quarter. Adjusted EBITDA was $78.9 million, inclusive of a $2.1 million favorable currency impact compared to $81.2 million in the prior year. Net cash provided by operating activities was approximately $47 million for the first nine months of fiscal 26 compared to approximately $44 million last year, primarily due to changes in working capital. For the third quarter of fiscal 26, cash provided from operating activities was approximately $100. As a reminder, cash flow is presented on a consolidated basis for both continuing and discontinued operations. We continued our quarterly dividend payout, declaring a $0.15 per share dividend for the third quarter and returned approximately $7 million to shareholders via dividend. Now I'm turning to our outlook for Fiscal 26. Consistent with Rod's comments, our underlying expectations for the year and the second half are intact. As we enter the final quarter of the fiscal year, we are updating our outlook to reflect year-to-date performance and narrowing our guidance ranges. return to organic sales growth in third quarter, we expect growth to strengthen in the fourth quarter, supported by a return to normalized growth trends in international and continued growth in North America. We also continue to expect material gross margin expansion in the fourth quarter, driven primarily by significant productivity savings, the cycling of one-time costs from a year ago, and favorable foreign exchange. While we have modestly reduced our full-year gross margin rate outlook to reflect a somewhat more challenging cost environment and the impact of lower international sales in the third quarter, we continue to expect gross margin expansion for the full year. More importantly, we remain committed to our planned level of investment behind the business as our expectations for AMP are largely unchanged. expect favorable SG&A and financing items to provide some offset. Overall, our outlook remains consistent with the framework we outlined at the beginning of the year. The operating environment remains dynamic. We continue to expect stronger fourth quarter performance, gross margin expansion, and adjusted EBITDA and adjusted EPS and free cash flow that remain largely in line with prior expectations. Just as importantly, we are maintaining our planned investment levels behind our brands and strategic priorities, while continuing to improve productivity and offset external pressures. With that context, I'll walk through the core metrics of our fiscal 26 outlook. Organic net sales are expected to be in the range of flat to plus 50 basis points. Adjusted EPS is expected to be in the range of $1.80 to $2 per share. Adjusted EBITDA is expected to be in the range of $250 to $260 million. Adjusted free cash flow excluding the impact of VenCare divestiture is expected to be approximately $80 to $110 million. And we expect adjusted net debt leverage to end the year in the range of 3.3 to 3.4 times, which includes an estimated 0.3 to 0.4 negative turn impact from temporary FemCare divestiture timing and related items. Taken together, we believe the actions we've implemented position the business well to finish fiscal 26 on a strong note and enter fiscal 27 from a position of strength. For the specific guidance ranges, I would refer you to the press release issued earlier today.

With that, I'll turn the call over to the operator for Q&A. Thank you. We will now begin the question and answer session. If you ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw it, please press star then two. this time we will pause voluntarily to assemble the roster and the first question comes from Peter Graham with UBS.

Great, thank you. Good morning, everybody. Hope you're doing well. So I wanted to start just on the top line and maybe just thinking about the fourth quarter a little bit. So can you maybe just help us understand the confidence behind the implied acceleration in the fourth quarter? kind of given the weaker wet shade in international adults in 3Q.

Yes, good morning, Peter. Thank you for the question there. I mean, that's the focus for us. It's been the focus. We've said from the beginning of the year we provided the guide that this was going to be a back half inflection to growth. You see the result for Q3, and as we look to Q4, implied is an acceleration in Q4 off of Q3. I think we feel confident in that. All segments of the portfolio, from a branded perspective, are growing in Q3. We see that continuing. Q4. Q3, as you would have seen, was impacted by what is is more of a transitory impact around supply chain, primarily around private label products, into both Europe and Latin America. And as we cycle that and look to Q4, that improves. And July is a data point that we have line of sight to, and we've seen what we expected. there in July. So I think we feel good about Q4. The other thing you're doing, you're seeing our A&P spend for the year be unchanged. We've not changed or reduced that spend on a four-year basis. There is a profile shift as we looked at the execution from Q3 to Q4. Q4. So implied in the forward-looking guide is more spend in Q4 as well, which gives us confidence with the campaigns we have in place, July in the books, and that spend that we can deliver the step up. I don't know if you'd add anything, Fran.

Yes, I think you covered all the points, Rod. Maybe a finer point on Q3 performance for international. We do view this as transitory. The impact was probably about 350 to 400 basis points to international, so their run rate would have been right around 3%, which is where we expected them to be, and looking ahead to Q3. we're expecting mid single digit growth which is in line with our overall expectations especially on a back-ended sun season.

Great. And then I guess, you know, I know we're not getting guidance today and the category, you know, category growth remains volatile, but I guess as you look forward to 27, you know, do you believe you're kind of exiting 26 with a better underlying growth profile than maybe the results reported in 3G would suggest?.

I think, Pierre, we feel good And if you go back a year ago when we provided the guide for the year, there was an implied step up in the second half of the year. There was more in the range of our old algorithm that we had talked about, kind of in that low single-digit growth rate. And now we sit here in the back half of the year, and we have line of sight for the second half per capita. to that. And I think as we look at how we move forward, the brand momentum, the brand strength we have, how we're coming through the supply chain manufacturing change, that headwind here that you saw in Q3 is largely going to be behind us. We can't predict that perfectly. So I think if you look at the second half in total, we think that's a good proxy as we look out to 27 for 2020. top line growth rate. We should be growing next year. We're not ready to give guidance on that. We'll do that next quarter. But we have increasing confidence that we can do that. And I'll tell you, part of what's different today than a couple of years ago the absolute strength we have in some of our brands. Cremo is now 20 plus percent for the seventh consecutive quarter. In the quarter just finished, Cremo grew 70 plus percent at the top retailer. North America is now a top three brand in all of men's. That brand has tripled and had a towards a quadruple in a very short period of time. That provides real tailwinds to us. The other brand strength piece I would call out is Hawaiian Tropic. A year ago, that was the number six brand in sun care. Today, it's the number four brand in sun care, and it's had the largest increase in household growth. penetration in the category. So it shows you the teams that are building these brands and are doing an excellent job. And then as we go out to retailers, we talked about distribution outcomes. We had net gains in distribution this year. There's no reason we can't have at least neutral or better gains as we look to next year. So I do think there's underlying strength. And again, we feel good about branded shave. In the quarter just finished, private label shave was down 10%. Branded shave was up nearly one. And so as we sort the private label piece out, I think we feel good overall in our capabilities just being better to grow as we move forward. Thank you.

Great. Thank you so much. I'll pass it on. Thank you. Thanks, Peter. Operator, next question, please. Yes, the next question comes from Chris Carey with Wells Fargo Securities.

Hi, good morning everybody. Morning. Good morning. I wanted to ask first about gross margin. I think in fiscal Q4, you're implied to deliver your best gross margin in at least five years. I think clearly there was a restructuring, not restructuring of the business, but your portfolio is different following the divestiture of feminine care. um so if you if you look at the the last few quarters of gross margin delivery inclusive of what's implied for q4 it would be suggesting a decently higher run rate than what you're landing on the full year this year is there any reason why you know gross margins shouldn't be up next year given that you're operating a structurally higher gross margin business, or are there anomalies that you would highlight, namely into the back half of the year gross margin that won't repeat?.

Chris? Yes, no, Chris, let me just give some overall perspective, and then Fran can build on this. Look, part of the rationale in investing in Femcare is it was gross margin, profit dilutive, and it was a capital-intensive business, right? So strategically, we moved away from that, and we put our investments – in the higher margin businesses that are less capital intensive. Strategically, directionally, that's where we're going. And so we have that fact as we go into next year. thing we have as we go into next year is we start to lap what is, um, a net investment period and begin to realize some level of return on the plant manufacturing consolidation program. And so what we don't control and know is what is the inflation rate we face next year, right? That's an open input as you look at oil and the whole commodities complex. Where does that sit? So we're not going to give a guide for next year. But what I would tell you as we go into next year, I expect gross margin to be up year over year. percentage points versus fiscal 26. So we're not going to give a specific range on that, but yes, we should be up year over year with what we have line of sight to. So Fran, I don't know what you would add to that or talk to you for.

Thanks, Rod. So, Chris, I think when we look at Q4 and we talked about it at the last quarter, we always expected and have to, we would have gross margin acceleration that was concentrated in Q4. And when you double click into Q4, it's two factors. One is really related to productivity initiatives. and how they phased out in tariff mitigation, which we anticipated we'd be at run rate in Q4, and that's about a third of the uptick in gross margin. Two-thirds of it, though, is what we're cycling versus last year, which a significant portion is at-bats, and also one-time items where we had inventory adjustments and deflator changes. So when you really remove the cycling aspect of it, we're pretty much at the absolute run rate that we've seen in Q3. and what we're seeing in the full year average. So structurally, we're in a healthy place. We just have to get rid of the noise in Q4 of what we're cycling versus the year before, which we're realizing disproportionately this quarter. I think when you press on to fiscal 27, as Rob said, we would expect that we would be creating gross margin really based on the factors that we've had all along. Significant productivity savings, you know, more modest inflation, and continued focus on SRGM and mixed management with healthier brands going into fiscal 27. But we do know there's market volatilities, And at the last quarter, we talked about oil and we tried to size it at that point in time. Clearly, these prices have been continually changing. So we're not giving a guidance in terms of what we're expecting as far as oil is concerned. But based on where the spot rate is right now, it is materially less than what we're expecting. we had quantified last quarter, and definitely in a much more manageable place. Okay, thank you. One follow-up would be,.

There were headlines during the quarter about an unsolicited offer, and the board had rejected the offer as insufficient, and To the extent that you're able to comment, can you just talk about how you view the long-term opportunity at SBA? Edgewell and the value creation relative to perhaps how others may view the value of the company. Thanks so much.