Edgewell Personal Care Company — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022. This is an annual filing; it does not provide standalone fourth-quarter results. Financial amounts below are in millions of dollars, except per-share data.
Business context
Edgewell makes and markets personal care products across Wet Shave, Sun and Skin Care, and Feminine Care, selling in more than 50 countries. Its portfolio includes Schick, Wilkinson Sword, Billie, Banana Boat, Hawaiian Tropic, Playtex, and other brands. Walmart accounted for approximately 22% of FY2022 sales. Edgewell acquired Billie on November 29, 2021, for $309.4 million net of cash acquired.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $2,171.7 | $2,087.3 |
| Gross profit / gross margin | $879.4 / 40.5% | $950.1 / 45.5% |
| Operating income / operating margin | $181.2 / 8.3% | $238.8 / 11.4% |
| Net earnings | $98.6 | $117.0 |
| Diluted EPS | $1.84 | $2.12 |
| Operating cash flow | $102.0 | $229.0 |
| Capital expenditures | $56.4 | $56.8 |
Reported sales rose 4.0%; organic sales increased 3.9%, reflecting higher volume and pricing. Adjusted diluted EPS, a non-GAAP measure, was $2.57 versus $3.02. Management attributed the earnings decline primarily to inflation-driven cost of goods sold and higher amortization following the Billie acquisition. Adjusted gross margin fell 400 basis points, as pricing benefits were largely offset by unfavorable product mix, currency, and higher commodity and transportation costs.
Operating cash flow declined by $127.0 million, mainly because of lower earnings and a $111.3 million inventory-related cash outflow as the company built inventory to support supply availability. Cash and equivalents were $188.7 million at year-end, down from $479.2 million. Cash flow less capital expenditures was approximately $45.6 million, calculated from reported figures.
Total borrowings were approximately $1,424.0 million, including $174.0 million at variable rates, versus $1,276.5 million a year earlier. Long-term debt on the balance sheet was $1,391.4 million; short-term notes payable were $19.0 million. The company reported compliance with its credit facility covenants. Current assets were $942.2 million and current liabilities were $548.0 million. Management said cash, operating cash flow, and revolving-credit availability should cover expected requirements for at least 12 months.
Material changes and segment results
- Wet Shave: Sales increased 2.2% to $1,242.5 million, including Billie’s contribution and partly offset by currency. Segment profit declined 21.3% to $174.0 million, primarily from inflation and distribution costs.
- Sun and Skin Care: Sales increased 9.1% to $638.5 million; organic sales rose 10.5%, led by Sun Care. Segment profit increased 9.9% to $108.5 million. Wet Ones sales declined as pandemic-era demand normalized, and Edgewell recorded a $22.5 million charge for certain Wet Ones inventory and contract termination costs.
- Feminine Care: Sales increased 1.6% to $290.7 million, while segment profit declined 16.1% to $31.2 million, reflecting inflation in labor, materials, and distribution.
- Foreign currency reduced FY2022 reported sales by $70.9 million, or 3.5%. The company recorded a $89.4 million foreign-currency translation loss in other comprehensive income.
Outlook, risks, and unusual items
- For FY2023, Edgewell expected capital expenditures of $55 million to $65 million and approximately $18 million of restructuring charges as it continued operating-model and supply-chain efficiency initiatives. The filing provides no quantified sales or earnings guidance.
- Management cited persistent inflation and volatility in raw-material, labor, freight, and energy costs; it warned that pricing and productivity may not fully offset further cost increases.
- Key exposures include intense competition, retailer bargaining power and Walmart concentration, execution of e-commerce strategy, foreign-exchange movements, supply-chain disruption, seasonality and weather sensitivity in Sun Care, product safety and regulatory requirements, and acquisition integration.
- Legal matters were described as ordinary-course proceedings not reasonably likely to be material based on currently available information. The company accrued $9.6 million for environmental matters and noted potential responsibility for cleanup at certain sites.
- FY2022 included a $7.5 million gain from a legal settlement, a $22.5 million Wet Ones SKU and co-manufacturer charge, $16.2 million of restructuring costs, $9.9 million of acquisition and integration costs, and $3.4 million related to estimated German VAT audit settlements. Non-GAAP adjusted results exclude selected items and should be considered alongside GAAP results.
- On November 10, 2022, the company disclosed new EU ingredient limits for Sun Care products starting in 2025; the impact was still being assessed.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Billie was excluded from the internal-control audit scope following its acquisition. Goodwill impairment testing and Billie trade-name valuation were identified as critical audit matters; no impairment was recorded in FY2022.
Important facts for investors to verify
- Whether price increases and cost-saving actions can sustain margins as input, freight, and labor costs evolve.
- Whether the lower operating cash flow and elevated inventory unwind, and how working capital affects future cash generation.
- Debt levels, interest costs, covenant headroom, and the company’s capacity to fund dividends, repurchases, and investment.
- Billie’s contribution and integration progress, including the acquisition-related amortization and expected benefits.
- Sun Care season performance, return-reserve estimates, and the eventual effect of the EU ingredient rules.
- Assumptions supporting goodwill and intangible-asset valuations, particularly for Feminine Care, Skin Care, and Billie-related assets.