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

Thank you. We're going to get started. We're excited to have Edgewell CEO Rod Little with us today, and excited to welcome the company's CFO, Fran Weissman, to our conference for the first time. So, great to have you here. I thought we could start by stepping back and discussing some of the more strategic work that you're doing before we get into kind of recent performance and outlook. So Rod, since you joined Edgewell in 2018, suddenly it's been a while. You've made significant changes to the company's culture, capabilities, and ways of working. Which changes do you think have been most important now looking back and getting to where you are and building a stronger business?

Yes, thanks, Lauren, and great to be with you here today. Look, one of the things that I think happens more often than not is when a company separates itself out, as we did from Energizer in 2015 and became 2 separate, independent, publicly traded companies, you don't always have everything you need to win and be successful in that moment. And when I joined, part of the journey was to create a company that could stand on its own, win and compete, and be successful against some of the best players in the world, which we go against every day. It's taken a while, but I think we're there now in terms of having what we need to compete and be successful. So I'd point out a couple of things, maybe 2 or 3 things that matter in terms of what we put in place and done. The first is people. When I arrived, the positivity engagement score was 50%. So 4 out of 10 were active or passively disengaged and not interested in what we were doing. That doesn't work. Today that is north of 80. So we're at 82% last year positive engagement. And so we've got a fired-up, motivated team who cares about what we do. We've got a new, it's not new anymore, but we put in place a new purpose, values, and behaviors structure to the company. The purpose is make useful things joyful. We have 4 values. It's in the lexicon of how we talk to each other and run the company. So it's pretty cool that we've got that embedded. And so that's a big part of the foundational work. The other thing we've done is we have upgraded the leadership teams, not only the leaders that lead each of the units, but the teams underneath with a significant talent infusion. So the first thing is this whole thing around having great people who are highly capable and can win is the first thing I'd call out. The second thing is a consumer focus. The company historically ran with global teams. It became kind of the United Nations, if you will. It sounded good, you theoretically had some scale, but you didn't really resonate locally the messaging and the way we were building the brands with any local consumers anywhere. And so by putting the consumer at the center of everything we do and then localizing how we go to market and basically eliminating the global teams has been a big enabler that would be the second thing I call out. And then the third thing is the portfolio. We've done a lot of work on the portfolio. We have a significantly better portfolio today. We divested an infant care business, Diaper Genie, Litter Genie, and all of that in 2019. We divested our FemCare business. As you know, this year we closed the deal. Fran led that deal, closed it in February, sold it at a premium valuation to the total company despite it being growth dilutive, margin dilutive, and capital intensive and not fitting. And so that was a big deal for us to monetize that and frankly sell it to Essity, who's a much better parent for that business. In the meantime, we bought 4 separate businesses, Bulldog, Cremo, Jack Black, and Billy, which are now a key part of the portfolio, all growing nicely and a real part of the growth program going forward. So people, consumer focus, and portfolio are the things I would point to.

And a lot of transformation work just went through. So kind of when do you move past what we would call transformation and into the next phase? And like what does this next phase the company really want?

Yeah. I think about this all the time, and I think in some respects a company our size is always going to be in transformation of some sort. Things are moving so fast around us. The capabilities you needed in the past to win are not the capabilities in the future. And so I've mentally set myself towards we're always going to be doing something or needing to do something. The transformation phase we're just completing is, I talked about the portfolio sale of FemCare. We're still running a TSA on that. That's about done. We've got a plant consolidation program in our shave network, going from 4 shave plants to 1 here in the Americas. We're mid-stream on that and the North American turnaround has been a big part of the transformation for us. And so that's been the focus as I look to the future and we get that all behind us. We're a more capable company that can grow and win with this work, but we still have a big gap in front of us. We've been put together via a series of acquisitions over the years, so our systems aren't harmonized. In some cases, our hierarchies don't align, and the work we do every day is too manual. And so the next phase is going to be not only a structure and process way of working simplification, but a technology enablement to automate more of how we run the company. And no better time than today to get on the AI train and in some cases accelerate that technology transformation. In the past would have taken years. There's some ways to cut the cycle and move faster. And so I would say simplification enabled by technology is the next journey of transformation we're looking at.

Great. Let's turn to more specific elements and talk a bit about top line. So, you returned to growth in the third quarter, so I'd love to talk a bit about what drove that. And maybe we'll start with North America. So it's been roughly a year since you discussed the 3 key elements of your transformation in 3Q sales and selected product territories you'd anticipated. So, what gives you confidence that the improvement in North America can be sustained, and what should investors watch to assess continued progress?

Yes, so look, we were declining in North America for the better part of the last 2 years, a little over 2 years. And not only were we declining in our organic net sales, but we were coming off a period where we had lost market share for the previous 4 or 5 years, kind of over that time period. And so as we came into this year, we put a guide out there, and I think you and some others were, I'm not saying you were skeptical, but people were skeptical, could we step up and deliver the second half inflection that we're doing right now? And what was underlying that was the North American step-up from decline into growth. And North America grew 3% in the quarter just that we just reported, the first growth quarter in that way in a couple of years. And the quarter went right now, they'll grow again. We've got line of sight to that. So we believe we now have the ability to grow consistently as we go forward and potentially accelerate that over time in North America. The leadership in that team is great now. The leader herself and the entire team underneath her are all new over the last 2 years and recruited in. In a way that when you have 59% engagement and not a place people love to work, hard to recruit. It's easier and easier to recruit. So we have a really talented team. We have some of the leading brands now in structurally attractive and healthy categories. So we play pure play sun, skin, shave grooming. That's our zone. And we have the fastest growing brands in 2 of those categories. So in men's grooming, the fastest growing brand today is Cremo. It's accelerating, 7 consecutive quarters at 20-plus percent. We're heading towards 40 in some cases. And the business was $50 million when we bought it 5 years ago. It's approaching $200 million in some cases. So there's a lot of growth in Cremo. That's a big driver for us. We have the fastest growing brand in the SunCare set in Hawaiian Tropic. There's some virality about that, and that's giving us credentials. When you have those leading brands, along with the legacy brand where no one's expecting you to have success, Schick men's systems, we have turned to growth, and we're growing behind the new campaign that we did with Nick Jonas and a lot of other things that we're doing. So we're making investments. Growth is not free. We've made big investments into increased advertising, media dollars into the business, like the content we have, and we think that's very durable. So I'm very confident that we can continue to grow. I'll just leave you with 2 other things relative to North America. One is, over the past 52 weeks, we've grown unit share in that aggregate set, 48 of the 52 weeks. Have grown share 11 of the past 11 months. This is month 12 of our fiscal year. We'll do it all 12. And coming into the year, our plan for North America was just to hold share. We thought share growth would actually be out another year. And so we have an acceleration happening versus what we thought we could do. We have line of sight to that. Retailers see that. And so our distribution outcomes have become better and better as well, which really helps when you start to get distribution tailwinds as well.

That's great. So at one point, you had talked about needing to operate like a disruptor in North America. And you certainly have brands that fit that bill, but also to leverage scale where you have it. So can you maybe give us some examples of how you've achieved that, that sort of disruptor mindset, but also then leveraging scale?

Yeah, we had a decision to make 4 or 5 years ago, and it was, were we going to lean into scale and try to leverage scale, or were we going to try to be more like the disruptor and get faster and be more consumer oriented? And we made the decision to be more like the disruptor. We're never ever going to have the scale organically that some of our peers do. We can certainly get faster and operate better. We've had the privilege of acquiring, I talked about those 4 businesses we acquired. Two I'll call out that were founder-led, that we brought the founders with us, kept them on for 3-year terms. We're still friends today. We've gone, in some cases, and done more work with the founders in supporting what came next for them. This has provided us great learning. We didn't just try to apply our Edgewell way of working, our model to what they were doing. We were really interested in learning from them and applying what they were doing to our core business. We learned 2 things, and again, I would point out Cremo and Billy as the best examples that we learned from. They moved at a pace and had an agility level that we just did not have. So we had to fundamentally rethink how we were running our business to look a lot more like theirs. And the second thing is they were maniacally focused on the consumer. 70% to 80% of their meeting conversations would be about how whatever they were doing was touching or helping the consumer, and we were maybe 10% of that. So that's been the biggest thing we've learned from them that we've applied back over. And then you take a heritage brand that we already had, Hawaiian Tropic, applying those principles to Hawaiian Tropic has just put growth into the brand that was not there in the prior decade. And the example I'll use, at this time last year, in the spring of last year, spring of '25, we were agreeing with the board that we wanted to make Hawaiian Tropic a priority and get after growing it because we thought we had the right to do it. We agreed in March, April, that we were going to do that and put incremental spending against that brand. You recall we put some incremental money in last year. We launched the campaign on Memorial Day, 2 months later. We had Alex Earl signed up, we had content that went viral, and we had the ability to supply what we had committed out to retailers. We actually grew at a rate of about 20% more in Hawaiian Tropic Classic than we thought, and we could hit the surge on supply. That's just an example of a heritage brand that we've modernized with a lot of the learning we got from the disruptors. So it's something that I feel really good about. Today, if you walked into our company, it would feel like a younger, newer company. We're only 10 years old, 11 years old. It would not feel like a 30- or 40-year-old legacy CPG company.

Company. So international markets have generally been resilient despite a challenging consumer environment and the disruption from the wet shaves consolidation. So what gives you confidence internationally that businesses can continue to deliver consistently going forward?

Yeah, well, we have a track record, Lauren, as you know. The last 4 years we've done mid-single-digit growth rate in international. It's led our performance while North America was being turned around. It will be there again next year in fiscal '27. It starts next month. We've got good line of sight to that mid-single-digit growth rate again for them. This year the only thing that held them back really was product availability. We had orders we couldn't ship in private label, primarily in Europe and Latin America. As we worked our way through the plant consolidation, it was a conscious choice to look at our customer set and serve the most strategic and most profitable. We had to cut the tail in some cases, and that disproportionately impacted them in Q3. Just finished Q4, we're in now. We already see them stepping back up. The product availability has improved.

Okay, great. Sorry, glasses. So let's stick with wet shave, but kind of go deeper from a portfolio standpoint. So wet shave is now the majority of the continuing portfolio. Recent results have shown a meaningful difference between improving branded shave and then the weaker private label business. What does, you know, quote, winning in shave mean for Edgewell? Well, over the next several years beyond just stabilizing the current business.

Yes, so wet shave is, I think, a great category. It's not the fastest growing category, but it is a growing category. At worst, it's flat to up 1% or 2%. So for us, in our model, with what we put forward and what we need to be successful, that works, actually, because we have exposure to other faster-growing categories. It's a high margin category. The gross margin structure, the incremental profitability from an extra unit sold, the contribution economics Fran knows are really, really good. And it's a tight category. Supply, manufacturing, IP, technology, know-how is still very tightly held amongst a few players. So strategically and structurally, it's a good category. The challenge is, how do you grow over time? And so I would define success in that category or winning, as you asked, as winning market share. Like we can't just grow with category growth rate. We've got to beat the category and win share. That's what we're signing up for. That's what we're challenging the teams to do. And more and more, that's what we're starting to see happen in our Shave portfolio from what was a share decline to more neutrality. As we took positive, if you go outside the U.S., 60% of our shave business is outside the U.S. We're already in share growth territory in most of those geographies. And it's a less competitive category outside the U.S. It's typically us, Gillette, and a local player outside the U.S. The U.S. market looks very, very different than the rest of the world.

Great. What would you say is your most defensible advantage in shave today? Is it blade technology? Is it consumer positioning, retail relationships, value architecture? Sort of what's, what's the most defensible competitive advantage?

Yes, it's in a way it's a combination of all of those. All of those matter.

The most important thing, I think, is technology and the ability to produce a scale. Durable blade consistently off a manufacturing line every single time. It's very, very difficult to do that in the tolerance levels you need to have and it's protected with IP and know-how. You don't go buy this manufacturing equipment anywhere. It's all homegrown, self-made. And so technology is the thing that ultimately delivers smooth, comfortable shave performance, which consumers still care about and are willing to pay a premium for, despite some of the disruption that's happened from some of the startup companies here domestically. You also need scale globally. I think that's very important. And then the third thing I would say, play in the full portfolio. To have strong customer relationships and partnerships with retailers, they want support. Suppliers and partners who can give them men's systems, women's systems, men's disposables, women's disposables, premium value. And in our case, we also offer private label and store brand. You know, we do supply roughly 25% of our shave business is supplying Walmart, Amazon's, and the like. Their store brand business, which is important to them and helps with the retailer relationship as well. Tech scale and full portfolio playing. Okay, great. Let's move to Sun and Skin. I know we already talked a little bit about Hawaiian Tropic and the momentum you've seen there over the past year. Banana Boat, sort of more of a broader restage. So what has to change in the combined Sun portfolio for it to be a more consistent value driver for the company even before with this inherent seasonal volatility that you're going to have.

Yes, the volatility is always there, and that's typically more month-to-month or quarter-to-quarter on an annualized basis. That smooths out. We actually don't see a lot of volatility annualized. We've got Hawaiian Tropic where it needs to be. We know where that's going and that's continued growth. We feel really good about that. Banana Boat has been the brand that has held us back this year. It declined this year. As we had planned it, we planned for a decline and it's coming in exactly where we thought it would be. What's going to be different for the future, what has to be different is we've gotta pull Banana Boat apart from Hawaiian Tropic. Historically, they came together via the same acquisition. They were distributed by the same sales teams, in some cases crafted by the same marketing teams, and they got too close to each other. And so we're pulling them apart. Hawaiian Tropic is an 18 to 30-year-old female. That's the target. The Banana Boat target is us. The family, it skews older and family. And all about just great protection when you're outside that you can count on will last longer. Effective in water, sweating, whatever you need, Banana Boat Sport, that is what it is and it's at a great value to your price point. The category is premiumizing right now, which is actually an opportunity for us. Volumes are up, pricing's up, it's not going the other way. So with Banana Boat, making it stand for something and be the democratized best player in that value tier for society sun protection for your family is the positioning. We have a complete brand restage and overhaul. We're launching in next year that we think will return the brand to growth. A complete package restage, bringing the heritage look and feel together in a very modernized way, new content, new campaign, and incremental investment going behind it. So we're, we're quite excited. A lot of the team that had crafted some of the things on Hawaiian Tropic have lent a hand to the team crafting Banana Boat. And so we'll have those 2 brands going forward domestically here, I think both in growth next year. And then internationally, Hawaiian Tropic's on fire everywhere we have it, growing double digits internationally. So there's a big international opportunity that I won't get into now, but that is going to be, I think, continued tailwinds for us as we go.

Okay, great. So let me jump on grooming overall. How would you say grooming overall can become a more, like a second-scale growth engine like Sun for Edgewell or, do you need more brands? We talked about the success you're having with Cremo, but just more broadly, do you need more brands in grooming?

We don't need more brands. We love the 3 we have, Cremo, Bulldog, Jack Black, all in growth territory. Bulldog, for example, has grown 6 times the size it was when we bought it, not that long ago and has real momentum. So we've got the right brand set. It's now more than 10% of the company. It is fast growing and so for us it's just how do we, how do we pump the resources it needs in to grow in a responsible way and we think again potentially accelerate from here with some of the momentum we have.

Got the brand set though. Move to some close range questions. So Fran, for you, can you give us a sense for what category growth is in your category currently? And if you've seen any changes in consumption or promotional activity in any market that's worth calling out?