EDGEWELL PERSONAL CARE Co: Form 10-Q for the period ended Dec 31, 2024

(Amounts in millions, except per share data, unaudited)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the accompanying notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on November 14, 2024, as amended on November 21, 2024 (the “2024 Annual Report”). The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs and involve risks, uncertainties, and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed within “Forward-Looking Statements” below and in Item 1A. Risk Factors and “Forward-Looking Statements” included within our 2024 Annual Report.

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of Edgewell Personal Care Company or any of our businesses (the “Company”). Forward-looking statements may appear throughout this report, including, without limitation, the following sections: Management’s Discussion and Analysis, Risk Factors, and the Notes to the Condensed Consolidated Financial Statements. Forward-looking statements generally can be identified by the use of words or phrases such as “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “estimate,” “plan,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook,” “strategy,” or other similar words or phrases. These statements are not based on historical facts, but instead reflect our expectations, estimates or projections concerning future results or events, including, without limitation, the future earnings and performance of the Company or any of our businesses. Many factors outside our control could affect the realization of these estimates. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this report are only made as of the date of this report, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. You should not place undue reliance on these statements.

In addition, other risks and uncertainties not presently known to us or that we presently consider immaterial could significantly affect the forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Risks and uncertainties include those detailed from time to time in our publicly filed documents, including in Item 1A. Risk Factors of Part I of our 2024 Annual Report.

Non-GAAP Financial Measures

While we report financial results in accordance with GAAP, this discussion also includes non-GAAP measures. These non-GAAP measures are referred to as “adjusted” or “organic” and exclude items which are considered by the Company as unusual or non-recurring, and which may have a disproportionate positive or negative impact on the Company’s financial results in any particular period. Reconciliations of non-GAAP measures are included within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. Given certain significant events, we view the use of non-GAAP measures that take into account the impact of these unique events as particularly valuable in understanding our underlying operational results and providing insights into future performance. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by the types of items that are excluded. This non-GAAP information is also a component in determining management’s incentive compensation. Finally, we believe this information provides more transparency.

The following provides additional detail on our non-GAAP measures for the periods presented:

• We analyze net sales and segment profit on an organic basis to better measure the comparability of results between periods. Organic net sales and organic segment profit exclude the impact of changes in foreign currency translation.
• Segment profit will be impacted by fluctuations in translation and transactional foreign currency. The impact of currency was applied to segments using management’s best estimate.
• Additionally, we utilize “adjusted” non-GAAP measures, including adjusted gross margin, adjusted selling general and administrative (“SG&A”), adjusted operating income, adjusted effective tax rate, adjusted net earnings, and adjusted diluted net earnings per share internally to make operating decisions.

All comparisons are with the same period in the prior year, unless otherwise noted.

Industry and Market Data

Unless we indicate otherwise, we base the information contained or incorporated by reference herein, concerning our industry on our general knowledge and expectations. Our market position, market share, and industry market size are estimates based on internal and external data from various industry analyses, our internal research and adjustments, and assumptions that we believe to be reasonable. We have not independently verified data from industry analyses and cannot guarantee its accuracy or completeness. In addition, we believe that industry, market size, market position and market share data within our industry provides general guidance but is inherently imprecise and has not been verified by any independent source. Further, our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in Item 1A. Risk Factors in Part I of our 2024 Annual Report. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions. You are cautioned not to place undue reliance on this data.

Retail sales for purposes of market size, market position and market share information are based on retail sales in U.S. dollars.

Trademarks and Trade Names

We own or have rights to use trademarks and trade names that we use in conjunction with the operation of our business, which appear throughout this Quarterly Report on Form 10-Q. We may also refer to brand names, trademarks, service marks and trade names of other companies and organizations, which are the property of their respective owners.

Executive Summary

The following is a summary of key results for the first quarter of fiscal 2025, as compared to the corresponding period in fiscal 2024. In addition to net sales, net (loss) earnings and (loss) earnings per share (“EPS”) for the periods presented were also impacted by certain costs or income, as described in the table below. The impact of these items on reported net (loss) earnings and EPS are provided as a reconciliation of net (loss) earnings and EPS to adjusted net earnings and adjusted diluted EPS, both of which are non-GAAP measures.

First Quarter of Fiscal 2025

• Net sales in the first quarter of fiscal 2025 decreased $10.5, or 2.1%, to $478.4, as compared to the prior year quarter. Organic net sales decreased $6.5, or 1.3%. Growth in international markets was 2.0%, driven by both price and volume gains, and seen across Wet Shave and Sun & Skin Care. Organic sales declined in North America by 3.9%, due to declines in Wet Shave and Feminine Care. Globally, by segment, growth in Sun and Skin Care, led by double-digit increases in Wet One’s and Grooming, was offset by declines in Feminine Care and Wet Shave. In aggregate, organic net sales decreased as a result of slightly lower volumes and lower price, due to increased promotional levels.
• Net (loss) earnings in the first quarter of fiscal 2025 were $(2.1) compared to $4.8 in the prior year quarter. On an adjusted basis, net earnings for the first quarter of fiscal 2025 were $3.3 compared to $12.0 in the prior year quarter. Adjusted net earnings decreased primarily due to lower net sales and a slight decline in gross margin.
• Diluted net (loss) earnings per share during the first quarter of fiscal 2025 were $(0.04) compared to $0.09 in the prior year quarter. On an adjusted basis, diluted net earnings per share during the first quarter of fiscal 2025 were $0.07 compared to $0.24 in the prior year quarter.

(1) EBIT is defined as (Loss) earnings before Income taxes.

Operating Results

The following table presents changes in net sales for the first quarter of fiscal 2025, as compared to the corresponding periods in fiscal 2024, and provides a reconciliation of organic net sales to reported amounts.

Net Sales

For the first quarter of fiscal 2025, net sales were $478.4, a decrease of $10.5, or 2.1%, including a $4.0, or 0.8%, unfavorable impact from currency movements. Organic net sales decreased $6.5, or 1.3%. Growth in international markets was 2.0%, driven by both price and volume gains, and seen across Wet Shave and Sun & Skin Care. Organic sales declined in North America by 3.9%, due to declines in Wet Shave and Feminine Care. Globally, by segment, growth in Sun and Skin Care, led by double-digit increases in Wet One’s and Grooming, was offset by declines in Feminine Care and Wet Shave. In aggregate, organic net sales decreased as a result of slightly lower volumes and lower price, due to increased promotional levels.

For further discussion regarding net sales, including a summary of reported versus organic changes, see “Segment Results.”

Gross Profit

Gross profit was $191.6 during the first quarter of fiscal 2025, compared to $197.7 in the prior year quarter, a decrease of $6.1, or 3.1%. Gross margin as a percent of net sales for the first quarter of fiscal 2025 decreased 30-basis points, to 40.1%, inclusive of approximately 140-basis points of negative foreign currency. Adjusted gross margin as a percent of net sales decreased 60-basis points, to 40.1% in the quarter, as productivity savings of approximately 340-basis points were more than offset by increased promotional levels (net of pricing) of approximately 40-basis points, core inflation and lower volume absorption of approximately 200-basis points and unfavorable mix and other of approximately 20-basis points.

Selling, General and Administrative Expense

SG&A was $102.9, or 21.5%, of net sales in the first quarter of fiscal 2025 compared to $103.3, or 21.1%, of net sales in the prior year quarter. Adjusted SG&A was 21.2% of net sales, an increase of 20-basis points, primarily driven by higher people and consulting expenses and the impact of lower net sales, partially offset by lower incentive compensation expense, lower bad debt expense and favorable currency impacts.

Advertising and Sales Promotion Expense

Advertising and sales promotion expense (“A&P”) for the first quarter of fiscal 2025 was $50.3, an increase of $2.1, or 4.4%, compared to $48.2 in the prior year quarter. A&P was 10.5% of net sales, compared to 9.9% in the prior year quarter.

Research and Development Expense

Research and development (“R&D”) expense for the first quarter of fiscal 2025 was $13.9, an increase of $0.6, or 4.5%, compared to $13.3 in the prior year quarter. As a percentage of net sales, R&D expense was 2.9% in the first quarter of fiscal 2025, compared to 2.7% in the prior year quarter.

Restructuring Charges

In fiscal 2025, the Company is taking specific actions to strengthen its operating model, simplify the organization and improve manufacturing and supply chain efficiency through restructuring and repositioning actions, including certain operational and organizational steps designed to streamline the Company’s operations and supply chain by consolidating its current Mexico operations in Obregon and Mexico City into a single facility in Aguascalientes, Mexico. As a result of these actions, we expect to incur pre-tax charges of approximately $29 in fiscal 2025. We incurred $4.2 and $6.8 during the first quarter of fiscal 2025 and 2024, respectively.

Interest Expense Associated with Debt

Interest expense associated with debt for the first quarter of fiscal 2025 was $18.8, a decrease of $1.0, or 5.1%, compared to $19.8 in the prior year quarter. The decrease in interest expense was the result of a lower overall debt balance on the Company’s Revolving Credit Facility.

Other expense, net

Other expense, net, was $3.2 in the first quarter of fiscal 2025, including a gain on investment of $0.9, compared to $0.3 in the prior year quarter. The first quarter of 2025. Currency hedge and remeasurements losses were $2.0 million, compared to gains of $1.3 million in the prior year quarter.

Income Tax Provision

The effective tax rate for the first quarter of fiscal 2025, was (21.7)%, compared to 20.1% in the prior year period. The fiscal 2025 effective tax rate reflects the impact of net unfavorable discrete items on a pretax (loss) and the unfavorable mix of earnings in higher tax rate jurisdictions. On an adjusted basis, the effective tax rate was 43.6% for the first quarter ended December 31, 2024, and 22.8% in the prior year quarter.

Segment Results

The following tables present changes in segment net sales and segment profit for the first quarter of fiscal 2025, compared to the corresponding period in fiscal 2024, and provide a reconciliation of organic segment net sales and organic segment profit to reported amounts. For a reconciliation of segment profit to (Loss) earnings before income taxes, refer to Note 15 of Notes to Condensed Consolidated Financial Statements.

Our operating model includes some shared business functions across segments, including product warehousing and distribution, transaction processing functions and, in most cases, a combined sales force and management teams. We apply a fully allocated cost basis in which shared business functions are allocated between segments.

Wet Shave

Wet Shave net sales for the first quarter of fiscal 2025 were $294.5, a decrease of $7.2, or 2.4%, as compared to the prior year quarter, including a $3.2, or 1.1%, unfavorable impact from currency. Organic net sales decreased $4.0, or 1.3%, as 2.9% growth in international markets, driven by both higher volumes and price, was more than offset by volume declines in Shave Preps and Women’s Systems in North America. Organic net sales declined 6.6% in North America.

Wet Shave segment profit for the first quarter of fiscal 2025 was $46.6, a decrease of $7.1, or 13.2%, and inclusive of a $6.9, or 12.8%, unfavorable impact from currency. Organic segment profit decreased $0.2, or 0.4%, as higher gross margins were primarily offset by higher marketing and SG&A expenses.

Sun and Skin Care

Sun and Skin Care net sales for the first quarter of fiscal 2025 increased $5.2, or 4.5%. Organic net sales increased $5.9, or 5.1%, driven by strong performance in Grooming, led by Cremo and Billie, as well as Wet One’s, partly offset by declines in North America Sun Care.

Sun and Skin Care segment loss for the first quarter of fiscal 2025 was $3.4, a decrease of $2.1, or 161.5%, with minimal currency impact, driven by lower gross margin and higher SG&A expenses.

Feminine Care

Feminine Care net sales for the first quarter of fiscal 2025 were $63.3, a decrease of $8.5, or 11.8%. Organic net sales decreased $8.4, or 11.7%, largely driven by a decline in Pads and to a lesser extent, Tampons, partly offset by growth in Liners.

Feminine Care segment profit for the first quarter of fiscal 2025 was $3.2, a decrease of $4.1, or 56.1%. Organic segment profit decreased $3.9, or 53.4%, primarily driven by lower sales and gross profit and was partially offset by lower SG&A expenses.

General Corporate and Other Expenses

For the first quarter of fiscal 2025 and 2024, corporate expenses were $11.6, or 2.4%, of net sales, compared to $16.2, or 3.3% in the prior year quarter.

For the first quarter of fiscal 2025, corporate expenses decreased related to lower incentive compensation, partially offset by higher bad debt expense, consulting costs and higher people costs.

During the first quarter of fiscal 2025, we recorded a gain of $0.9 for an equity method investment.

Through the three months ended December 31, 2023, the Company incurred $1.5 in costs related to incremental material charges, labor and absorption as a result of the fire that occurred at our Wet Ones manufacturing plant in Sidney, Ohio on December 1, 2023.

Liquidity and Capital Resources

As of December 31, 2024, a significant portion of our cash balances was located outside the U.S. Given our extensive international operations, a significant portion of our cash is denominated in foreign currencies. Refer to Note 14 of Notes to Condensed Consolidated Financial Statements for a discussion of the primary currencies to which the Company is exposed. We manage our worldwide cash requirements by reviewing available funds among the many subsidiaries through which we conduct business and the cost effectiveness with which those funds can be accessed. We generally repatriate a portion of current year earnings from select non-U.S. subsidiaries only if the economic cost of the repatriation is not considered material.

Our cash is deposited with multiple counterparties which consist of major financial institutions. We consistently monitor positions with, and credit ratings of, counterparties both internally and by using outside ratings agencies.

Our total borrowings as of December 31, 2024 and September 30, 2024 were as follows:

Our Revolver utilization is summarized below.

Historically, we have generated, and expect to continue to generate, favorable cash flows from operations. Our cash flows are affected by the seasonality of our Sun Care businesses, typically resulting in higher net sales and increased cash generated in the second and third quarters of each fiscal year. We believe our cash on hand, cash flows from operations and borrowing capacity under the U.S. Revolving Credit Facility will be sufficient to satisfy our future working capital requirements, interest payments, R&D activities, capital expenditures, and other financing requirements for at least the next 12 months. We will continue to monitor our cash flows, spending and liquidity needs.

Short-term financing needs primarily consist of working capital requirements and interest payments on our long-term debt. Long-term financing needs will depend largely on potential growth opportunities, including acquisition activity and repayment or refinancing of our long-term debt obligations. Our long-term liquidity may be influenced by our ability to borrow additional funds, renegotiate existing debt, and raise equity under terms that are favorable to us. We may, from time-to-time, seek to repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

As of December 31, 2024, we were in compliance with the provisions and covenants associated with our debt agreements.

Cash Flows

A summary of our cash flow activities is provided in the following table:

Operating Activities

Cash flow used for operating activities was $115.6 during the first three months of fiscal 2025, compared to $72.9 during the prior year period. The increase in cash used for operating activities was largely driven by changes in net working capital and lower earnings.

Investing Activities

Net cash used for investing activities was $15.7 during the first three months of fiscal 2025, compared to $6.0 during the prior year period. The increase in cash used was primarily due to an increase in capital expenditures which were $16.8 during the first three months of fiscal 2025, compared to $6.5 in the prior year period.

Financing Activities

Net cash provided by financing activities was $109.9 during the first three months of fiscal 2025, compared to $69.8 in the prior year period. During the first three months of fiscal 2025, we had net borrowings of $165.0 under the Revolving Credit Facility, compared to $91.0 in the prior year period. Dividend payments totaled $7.9 in the first three months of fiscal 2025, compared to $7.6 in the prior year period. We had share repurchases of $30.3 in the first three months of fiscal 2025, compared to $15.0 in the prior year period.

Share Repurchases

During the first three months of fiscal 2025, we repurchased 0.8 shares of our common stock for $30.3. We have 2.2 shares remaining under the 2018 Share Repurchase Plan as of December 31, 2024. Future share repurchases, if any, would be made in the open market, privately negotiated transactions or otherwise, in such amounts and at such times as the Company deems appropriate based upon prevailing market conditions, business needs and other factors. For more information, see Note 12 of the Notes To Condensed Consolidated Financial Statements.

Dividends

Dividend activity for the three months ended December 31, 2024 was as follows:

On February 6, 2025, the Board declared a quarterly cash dividend of $0.15 per common share for the first fiscal quarter of 2025. The dividend will be payable on April 9, 2025 to shareholders of record as the close of business on March 5, 2025.

Dividends declared during the three months ended December 31, 2024 totaled $7.1. Payments made for dividends during the three months ended December 31, 2024 totaled $7.9.

Commitments and Contingencies

Contractual Obligations

As of December 31, 2024, we had outstanding borrowings of $199.0 under the Revolving Credit Facility. As of December 31, 2024, future minimum repayments of debt were: $750.0 in fiscal 2028 and $500.0 in fiscal 2029.

There have been no other material changes in our contractual obligations since the presentation in our 2024 Annual Report.

Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 1 of the Notes to Condensed Consolidated Financial Statements.

Critical Accounting Estimates

Our critical accounting estimates are fully described in our 2024 Annual Report. The preparation of these financial statements requires us to make estimates and assumptions. These estimates and assumptions can be subjective and complex, and consequently, actual results could differ from those estimates. There have been no significant changes to our critical accounting estimates since September 30, 2024.

(Amounts in millions)

The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes in currency rates, commodity prices, and interest rates. At times, we enter into contractual arrangements (derivatives) to reduce these exposures. For further information on our foreign currency derivative instruments, refer to Note 14 of Notes to our Condensed Consolidated Financial Statements. As of December 31, 2024, there were no open derivative or hedging instruments for future purchases of raw materials or commodities. Our exposure to interest rate risk relates primarily to our variable-rate debt instruments, which currently bear interest based on Secured Overnight Financing Rate (SOFR) plus margin. As of December 31, 2024, our outstanding variable-rate debt included $226.1 related to the Revolving Credit Facility and international, variable-rate notes payable. Assuming a one-percent increase in the applicable interest rates, annual interest expense on these variable-rate debt instruments would increase approximately $2.3.

There have been no material changes in our assessment of market risk sensitivity since our presentation of Quantitative and Qualitative Disclosures About Market Risk in our 2024 Annual Report.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act, is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2024. Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are likely to materially affect, our internal control over financial reporting.