Edgewell Personal Care Co ((EPC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Edgewell Personal Care Co’s recent earnings call painted a picture of a challenging quarter, marked by significant hurdles such as weak Sun Care performance and adverse weather conditions. Despite these difficulties, the company showcased strong international growth, effective productivity savings, and successful brand campaigns. However, the decline in North American revenue, currency and tariff headwinds, and a drop in adjusted gross margin were notable negative factors impacting financial performance.
International Market Growth
International markets were a bright spot for Edgewell, delivering 2% organic growth. Over the past four years, the company has consistently achieved mid- to high single-digit organic growth in these markets. Notably, Greater China experienced double-digit growth, while Europe and Oceania saw mid-single-digit gains, underscoring the company’s strong international presence.
Productivity Savings and Supply Chain Execution
Edgewell achieved 270 basis points of productivity savings during the quarter, thanks to global sourcing, labor automation, and network efficiency efforts. The company maintained strong service performance, with global unit fill rates and OTIF measures exceeding target levels, highlighting its operational efficiency.
Brand Campaign Success
Targeted brand campaigns for Cremo, Hawaiian Tropic, and Schick Hydro Silk were successful, leading to improved market share and consumer response. Hawaiian Tropic, in particular, saw a 150 basis point share gain and an 18% increase in dollar sales, demonstrating the effectiveness of Edgewell’s marketing strategies.
Fem Care Market Share Improvement
The Fem Care category showed positive trends, with a 70 basis point improvement in market share from the 52-week trend. This improvement reflects the company’s efforts to strengthen its position in this segment.
Operational and Commercial Performance
Operationally, productivity savings played a crucial role in supporting gross margin performance, contributing 270 basis points of tailwinds during the quarter. This highlights the importance of efficiency measures in Edgewell’s strategy.
Weak Sun Care Performance
The Sun Care business faced significant challenges, underperforming by approximately $25 million due to adverse weather conditions during the Memorial Day to 4th of July period in North America and Latin America. This underperformance was a major factor in the company’s financial results.
North America Revenue Decline
In North America, organic sales declined by about 8%, driven by volume declines and increased promotional levels in Sun Care, Wet Shave, and Fem Care. This decline was a significant drag on overall performance.
Currency and Tariff Headwinds
Currency headwinds had a $0.12 unfavorable impact on adjusted EPS, and tariffs are expected to have an annualized impact of approximately $40 million to $50 million. These external pressures continue to challenge Edgewell’s financial performance.
Adjusted Gross Margin Decline
The adjusted gross margin rate decreased by 150 basis points, primarily due to lower Sun Care sales impacting mix and trade promotion. This decline in margin is a concern for the company’s profitability.
Free Cash Flow Reduction
Edgewell’s free cash flow for the year is now expected to be approximately $80 million, down from previous estimates due to lower earnings and changes in working capital. This reduction reflects the financial challenges the company faces.
Forward-Looking Guidance
Edgewell’s forward-looking guidance indicates several shifts in its business strategy and financial outlook. The company projects a 1.3% decline in organic net sales for the fiscal year, with a favorable currency impact of 10 basis points. Adjusted gross margin rate is expected to increase by 30 basis points on a constant currency basis, although reported gross margin is anticipated to decline by 60 basis points due to currency headwinds. Full-year operating profit margin is expected to decrease by about 150 basis points, with adjusted earnings per share projected to be around $2.65, inclusive of currency headwinds. Despite current challenges, Edgewell remains focused on international growth, targeting mid-single-digit organic growth, and is increasing investments in advertising and promotional activities for key brands.
In conclusion, Edgewell Personal Care Co’s earnings call highlighted a quarter fraught with challenges, particularly in North America, but also showcased areas of strength such as international growth and successful brand campaigns. The company’s forward-looking guidance reflects a cautious yet strategic approach to navigating current headwinds while focusing on long-term growth objectives.