Business context and reporting period
Edgewell Personal Care Company filed this Form 10-K for the fiscal year ended September 30, 2023. It manufactures and markets personal care products across Wet Shave, Sun and Skin Care, and Feminine Care, with operations in more than 20 countries. Figures below are in millions of U.S. dollars, except per-share data. The filing also reports unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Net sales | $2,251.6 | $2,171.7 | +3.7% |
| Gross profit / margin | $940.8 / 41.8% | $880.5 / 40.5% | +6.8% gross profit |
| Operating income / margin | $227.0 / 10.1% | $182.3 / 8.4% | +24.5% operating income |
| Net earnings | $114.7 | $99.5 | +15.3% |
| Diluted EPS | $2.21 | $1.85 | +$0.36 |
| Adjusted net earnings / diluted EPS | $134.5 / $2.59 | $138.5 / $2.58 | -2.9% / approximately flat |
| Cash from operating activities | $216.1 | $102.0 | +$114.1 |
| Capital expenditures | $49.5 | $56.4 | -$6.9 |
FY 2023 sales growth included $12.0 of net benefit from the Billie acquisition and a $26.1 adverse currency impact. Organic sales grew 4.3%, with pricing gains partly offset by slightly lower volume. Adjusted gross margin was 41.7%, down 10 basis points: pricing and productivity benefits were more than offset by inflation and unfavorable mix.
At September 30, 2023, cash was $216.4 and total borrowings were $1,391.5, comprising $1,250.0 of fixed-rate notes, $122.0 of revolver borrowings, and $19.5 of short-term notes. Available revolver capacity was $297.1. The company reported compliance with its debt covenants. Approximately 90% of debt was fixed-rate; management said cash, operating cash flow and borrowing capacity should cover requirements for at least the next 12 months. FY 2023 cash increased $27.7.
FY 2023 cash from operations increased primarily due to favorable working-capital changes and higher earnings. Investing cash outflow was $50.5, versus $355.4 in FY 2022, when the company paid $309.4 net for Billie. Financing cash outflow was $146.5 and included $75.2 of share repurchases and $31.5 of dividends.
Fourth-quarter results
For the three months ended September 30, 2023, net sales were $534.1 versus $536.9 a year earlier; gross profit was $228.6 versus $219.0; net earnings were $29.9 versus $33.7; and diluted EPS was $0.58 versus $0.64.
Material changes and segment results
- Wet Shave: Sales were $1,230.9, down 0.9% reported and essentially flat organically; segment profit declined 9.3% to $158.3. Unfavorable currency and weaker North American performance weighed on results.
- Sun and Skin Care: Sales increased 10.5% to $705.5, including 10.7% organic growth; segment profit rose 26.3% to $137.4. International growth was particularly strong.
- Feminine Care: Sales increased 8.4% to $315.2, with 8.7% organic growth; segment profit rose 57.8% to $49.7, primarily reflecting pricing, partly offset by higher marketing expense.
- Reported FY 2023 net earnings rose, but adjusted earnings declined because of unfavorable currency movements. Interest expense increased 9.9% to $78.5, reflecting higher rates and revolver balances during the year. The effective tax rate increased to 22.3% from 19.9%.
Outlook, risks and unusual items
Management did not provide specific FY 2024 sales or earnings guidance in the provided filing text. It expects FY 2024 capital expenditures of $55–$65, mainly for maintenance, productivity, product development and IT. The company expects approximately $19 of restructuring and repositioning actions in FY 2024 as it continues its operating-model redesign.
Key risks include intense competition and retailer pricing demands; Walmart concentration (19.4% of FY 2023 sales); volatile input, labor and transport costs; foreign currency exposure; seasonality and weather sensitivity in Sun Care; reliance on third-party manufacturers and global supply chains; product safety, regulatory and environmental obligations; cybersecurity; and substantial indebtedness. Environmental remediation accruals were $9.3; management said environmental costs are not expected to be material, while noting estimates may change. Management also considers pending legal proceedings not reasonably likely to be material, taking recorded accruals into account.
Notable items included $17.1 of restructuring and related costs; a $7.9 pension settlement loss from winding up the Canadian defined-benefit plan; and $6.3 of net gains from legal/VAT matters. FY 2022 included a $22.5 Wet Ones inventory and contract-termination charge, which did not recur in FY 2023; FY 2023 included a $1.7 release of a related reserve. The company revised prior-year statements for immaterial aged vendor-accrual errors: FY 2022 and FY 2021 net earnings increased by $0.9 and $0.8, respectively, with no change to previously reported cash flows. The auditor issued unqualified opinions on the financial statements and internal controls. Goodwill impairment testing identified no impairment; Skin Care goodwill valuation was a critical audit matter.
Important facts for investors to verify
- Whether organic growth, particularly in Sun and Skin Care and Feminine Care, can continue and offset Wet Shave weakness.
- Whether pricing and productivity can keep pace with inflation without materially reducing volume or market share.
- Debt repayment, refinancing and covenant headroom, including the $122.0 revolver balance and 2025 facility maturity.
- Execution and costs of the operating-model redesign, including the expected FY 2024 restructuring actions and capital spending.
- Sun Care returns, seasonality and weather exposure; the recorded returns reserve was $53.5 at year-end.
- Potential sensitivity of goodwill and brand valuations to weaker forecasts or higher discount rates, especially for Skin Care.