ST. LOUIS, Feb. 8, 2018 /PRNewswire/ — Edgewell Personal Care Company (NYSE: EPC) today announced results for its first fiscal quarter, which ended December 31, 2017.
- Net sales on a reported basis were $468.3 million in the first quarter of fiscal 2018, a decrease of 3.4% when compared to the prior year quarter. Excluding the sales impact from the Bulldog acquisition, the Playtex gloves sale and the impact of currency fluctuations, organic net sales were down 5.2% for the quarter.
- GAAP Diluted Earnings Per Share (“EPS”) were $0.12 for the first quarter, including a $0.21 gain from the Playtex gloves sale, net of tax, and a $0.29 charge related to the U.S. Tax Cuts and Jobs Act. Adjusted EPS were $0.20 for the first quarter, compared to $0.66 in the prior year quarter.
- Continued efforts to optimize the product portfolio toward higher growth opportunities by completing the sale of the Playtex gloves business and announcing intent to acquire Jack Black L.L.C., a leading U.S. men’s prestige skincare company.
- Repurchased 1.9 million shares in the quarter for $115.2 million, and the Board of Directors issued a new share repurchase authorization for up to 10 million shares.
- Expanding cost savings initiatives to drive incremental savings and accelerate shift to growth opportunities.
- Updated financial outlook for fiscal 2018.
The Company reports and forecasts results on a GAAP and Non-GAAP basis, and has reconciled Non-GAAP results and outlook to the most directly comparable GAAP measures later in this release. See Non-GAAP Financial Measures for a more detailed explanation, including definitions of various Non-GAAP terms used in this release. All comparisons used in this release are with the same period in the prior fiscal year unless otherwise stated.
“Our results in the first quarter of fiscal 2018 were generally as expected, with declines in both sales and operating profit, as category and competitive pressures persisted, particularly in our Wet Shave segment,” said David Hatfield, Edgewell’s Chief Executive Officer, President and Chairman of the Board. “We also began launching significant innovation in Men’s and Women’s systems, Disposables and Sun Care, which we anticipate will help to offset the impact of category declines and the tough competitive environment over the remainder of the year. We are maintaining our full year outlook for organic net sales, driven by these innovations, and we are increasing our full year outlook for adjusted EPS, reflecting the impact of new tax rate assumptions.”
Mr. Hatfield continued, “While we’re optimistic about our product launches, our competitiveness, and the progress we’re making in delivering substantial cost savings this year, over the longer term, we need to ensure that we have the flexibility, capabilities and financial resources needed to accelerate growth and shareholder value in a rapidly changing world. To address this, we are expanding and accelerating our existing productivity and Zero-Based-Spending (“ZBS”) cost efforts to all aspects of our business and cost structure. We expect this to be a multi-year initiative that will yield meaningful benefits in fiscal 2019 and beyond.”
Fiscal 1Q 2018 Operating Results (Unaudited)
Net sales were $468.3 million in the quarter, a decrease of 3.4% when compared to the prior year quarter. Excluding a $0.9 million decrease from the combined impact of the Bulldog acquisition and Playtex gloves sale and a $9.2 million positive impact from currency, organic net sales decreased 5.2%. Overall volumes decreased in the quarter, driven primarily by Wet Shave and Feminine Care in North America. Price mix was also unfavorable in Wet Shave, driven by increased promotional spend. Sun and Skin Care organic net sales grew 2.6% in the quarter, while our Infant/Other segment was flat versus the prior year.
Gross margin decreased 420 basis points to 42.8%, driven by lower sales volumes and unfavorable product mix, higher promotional activity in Wet Shave and Sun and Skin Care, and increased product costs. Higher product costs were primarily related to reduced production volumes in both Feminine Care and Sun and Skin Care compared to the prior year, increased transition costs related to our Wet Shave footprint changes, higher commodity costs, and unfavorable transactional currency. Several of these negative margin drivers were unique to this quarter, and as such, we expect gross margin to return to more historical levels over the remainder of the year.
Advertising and sales promotion expense (“A&P”) was $49.0 million, or 10.5% of net sales, generally in line with prior year A&P of $50.6 million, or 10.4% of net sales. This quarter’s A&P spend included the reinvestment of over $4 million in savings generated by our ZBS efforts, where we have centralized creative asset development for our global brands and moved to a value-based agency remuneration model.
Selling, general and administrative expense (“SG&A”) was $97.2 million, or 20.8% of net sales, as compared to $93.8 million, or 19.3% of net sales, in the prior year quarter. SG&A as a percent of net sales increased 150 basis points, including a $1.5 million unfavorable currency impact. The $2 million operational increase in SG&A included a charge related to our ZBS savings initiative that we expect will yield future benefits, higher e-commerce investments, and executive severance charges.
Other (income) expense, net was $3.0 million of expense during the quarter as compared to income of $1.9 million in the prior year quarter, primarily reflecting a negative impact from foreign currency exchange contract gains and losses in the quarter and revaluation of nonfunctional currency balance sheet exposures. The sale of the Playtex gloves business was completed in October 2017, resulting in a pre-tax gain of $15.9 million.
Earnings before income taxes were $33.1 million during the quarter compared to $44.9 million in the prior year. Adjusted operating income decreased to $38.0 millionin the quarter from $67.6 million in the prior year period, primarily driven by lower sales and gross margin.
The effective tax rate for the first quarter of fiscal 2018 was 79.8% as compared to 25.4% in the prior year quarter, and included a net charge of $16.2 million related to the U.S. Tax Cuts and Jobs Act (“the Tax Act”). This is comprised of a $97.2 millionone-time transition tax on foreign earnings, offset by an $81 million benefit from the re-measurement of U.S. deferred tax assets and liabilities. The adjusted effective tax rate was 34.1%, as compared to the prior year adjusted rate of 26.3%. The current period rate was favorably impacted by the lower U.S. tax rate from the enactment of the Tax Act, offset by unfavorable tax adjustments, including the impact of the new share based payment guidance and changes to prior year provision estimates.
GAAP net earnings for the quarter were $6.7 million ($0.12 per share) compared to earnings of $33.5 million ($0.58 per share) in the first quarter of fiscal 2017. Adjusted net earnings in the quarter were $11.3 million ($0.20 per share), as compared to $38.4 million ($0.66 per share) in the prior year period.
Net cash used by operating activities was $21.0 million for the first quarter of fiscal 2018 compared to $51.9 million in the prior year. Due to the seasonality of the Company’s business, primarily in Sun Care, the first fiscal quarter is typically the lowest operating cash flow quarter of the year. The improvement in operating cash flow was driven by changes in working capital, primarily accounts receivable and inventory. In the first quarter of fiscal 2018, the Company completed share repurchases of approximately 1.9 million shares for $115.2 million.
Fiscal 1Q 2018 Operating Segment Results (Unaudited)
Following is a summary of first quarter results by segment.
Wet Shave (Men’s Systems, Women’s Systems, Disposables, Shave Preps)
Wet Shave net sales decreased $12.1 million, or 4.0% on a reported basis and 6.4% on an organic basis, compared to the prior year. The decline was primarily driven by lower volumes in North America Men’s systems, and overall category declines. The volume decline in North America Men’s systems largely reflects the impact of lost promotional presence in an unmeasured channel in the current quarter, compared to strong performance a year ago, when Men’s systems organic net sales grew 28%. Women’s systems were essentially flat in the quarter, but delivered 2% growth in North America. International Wet Shave organic net sales declined 2% in the quarter, driven by lower volumes in Europe and unfavorable price mix in Asia. Wet Shave segment profit decreased $17.3 million, or 24.0%, driven by lower volumes, unfavorable product mix, higher promotional spending, costs associated with manufacturing footprint changes, higher commodity costs, and unfavorable transactional currency.
Sun and Skin Care (Sun Care, Wipes, Bulldog)
Sun and Skin Care net sales increased $1.5 million, or 2.6%, both on a reported and organic basis, after excluding the impact of the Bulldog acquisition, the Playtex gloves sale and currency movements. North America organic net sales increased nearly 7%, driven by growth in Banana Boat and Bulldog men’s skincare, offset in part by higher promotional support. International organic net sales decreased 2%, primarily driven by volume declines and increased promotional support in Asia. Sun and Skin Care segment profit decreased $6.9 million, due to increased promotional support and the impact of lower production volumes compared to a year ago, when aerosol production was first in-sourced at our Ormond Beach plant.
Feminine Care (Tampons, Pads, Liners)
Feminine Care net sales decreased $6.5 million, or 7.3%, driven by volume declines in tampons and pads related to prior period distribution losses. Liners showed slight growth, driven by Carefree. Feminine Care segment profit decreased $3.3 million, due to lower sales volumes and higher production costs compared to the prior year, when production volumes were higher in advance of the final consolidation of manufacturing into one plant.
All Other (Infant Care, all other brands)
All Other net sales increased $0.4 million, or 1.2%. Excluding the impact of currency movements, organic net sales were essentially flat for the quarter. Growth in Diaper Genie and Pet Care was mostly offset by declines in infant feeding products. All Other segment profit increased $0.3 million, or 4.3%.
Full Fiscal Year 2018 Financial Outlook
For fiscal 2018, organic net sales are expected to be down approximately 1%. Reported net sales are expected to be flat to up 1%, including an approximate 200 basis-point increase from favorable foreign currency translation effects and a 50 basis-point decrease from the Playtex gloves divestiture, net of acquisitions.
The Company’s outlook for GAAP EPS for fiscal 2018 is now expected to be in the range of $3.80 to $4.00, including the charge related to the Tax Act and the gain related to the sale of the Playtex gloves business. The outlook for Adjusted EPS has increased to a range of $3.90 to $4.10, reflecting an estimated $0.10 per share benefit from the new tax rate assumptions for the full year. Adjusted operating income margin as a percent of net sales is now anticipated to be generally flat with the prior year.
Planned savings and efficiency initiatives, including the Company’s ZBS program, will be mostly reinvested into marketing spend and the Company’s strategic growth initiatives. The ZBS initiative is anticipated to drive $25 – $30 million in net savings in fiscal 2018.
The adjusted effective tax rate for the fiscal year is now estimated to be in the range of 22% to 24% (previously 24% to 26%).
The Company anticipates that fiscal 2018 free cash flow will be above 100% of GAAP net earnings.
In conjunction with this announcement, the Company will hold an investor conference call beginning at 10:00 a.m. Eastern Time today. The call will focus on fiscal 2018 first quarter earnings and the outlook for fiscal 2018. All interested parties may access a live webcast of this conference call at www.edgewell.com, under “Investors,” and “News and Events” tabs or by using the following link:
For those unable to participate during the live webcast, a replay will be available on www.edgewell.com, under “Investors,” “Financial Reports,” and “Quarterly Earnings” tabs.
Edgewell is a leading pure-play consumer products company with an attractive, diversified portfolio of established brand names such as Schick® and Wilkinson Sword® men’s and women’s shaving systems and disposable razors; Edge® and Skintimate® shave preparations; Playtex®, Stayfree®, Carefree® and o.b.® feminine care products; Banana Boat®, Hawaiian Tropic® and Bulldog® sun and skin care products; Playtex® infant feeding; Diaper Genie®; and Wet Ones® moist wipes. The Company has a broad global footprint and operates in more than 50 markets, including the U.S., Canada, Mexico, Germany, Japan, the U.K. and Australia, with approximately 6,000 employees worldwide.