Edgewell Personal Care Company — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended March 31, 2022. Edgewell sells products across Wet Shave, Sun and Skin Care, and Feminine Care. The quarter includes Billie results following its acquisition on November 29, 2021.
Key financial results
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $547.7m | $519.3m | $1,011.0m | $970.4m |
| Gross profit | $230.1m | $241.7m | $420.0m | $435.0m |
| Operating income | $41.7m | $62.9m | $73.5m | $104.5m |
| Net earnings | $23.2m | $14.4m | $34.4m | $32.1m |
| Diluted EPS | $0.43 | $0.26 | $0.63 | $0.58 |
| Operating cash flow | — | $(39.9)m | $(18.8)m |
- Q2 sales rose 5.5%; organic sales increased 2.1%. For the first six months, sales rose 4.2% and organic sales increased 2.3%. Acquisition contribution and unfavorable currency also affected reported sales.
- Q2 gross margin was 42.0%, versus 46.6% a year earlier; adjusted gross margin was 42.1%, down 450 basis points. Commodity inflation and higher freight, transportation, and warehousing costs outweighed pricing and productivity benefits.
- Adjusted Q2 net earnings were $27.0m and adjusted diluted EPS was $0.50, compared with $38.5m and $0.70, respectively, in the prior-year quarter. Six-month adjusted net earnings were $50.2m and adjusted diluted EPS was $0.92, versus $61.8m and $1.13.
- Cash and cash equivalents were $188.1m at March 31, down from $479.2m at September 30, 2021. Six-month investing cash outflow was $325.7m, including $309.4m for Billie; capital expenditures were $25.0m.
- Total borrowings were $1,454.8m, including $204.8m at variable rates. Long-term debt carrying value was $1,414.3m; $179.0m was outstanding on the revolving facility, with $239.7m available after letters of credit. The company reported compliance with debt covenants.
Material changes and business drivers
- Wet Shave Q2 sales rose 4.2%, largely reflecting Billie; organic sales declined 2.1% and segment profit fell 39.9% to $27.6m, pressured by inflation and freight costs.
- Sun and Skin Care Q2 sales rose 14.9% to $183.3m and segment profit rose to $42.3m. Sun Care grew strongly; Wet Ones sales declined as pandemic-related elevated demand normalized.
- Feminine Care Q2 sales fell 11.5% to $59.4m and segment profit fell 66.1% to $1.9m, reflecting manufacturing labor and ingredient supply constraints and higher transportation costs.
- Billie added $40.9m of post-acquisition sales through March 31 and reported a $4.4m pretax loss, driven primarily by acquired intangible amortization. Purchase-price allocation remains preliminary.
- Cash used in operations increased year over year, with working-capital changes a major use of cash. The company also repurchased $75.4m of shares in the six-month period.
Outlook, risks, and unusual items
- No specific sales or earnings forecast is provided in the supplied filing text. Management expects approximately $15m of one-time FY2022 charges for an operating-model redesign; $5.9m had been incurred in the first six months.
- Management expects cash on hand, operating cash flows, and revolving-credit capacity to meet requirements for at least the next 12 months, while noting uncertainty around pandemic-related and broader market developments.
- Management cited ongoing supply-chain, labor, procurement, and distribution challenges, with potential for higher costs and disruption. Inflation, foreign-exchange movements, and variable-rate debt are additional exposures; a 1% rate increase would raise annual interest expense by approximately $2.0m.
- Other notable items included $3.4m of estimated German VAT settlement costs and $3.5m of Sun Care reformulation costs in the six-month period, related to recall and destruction of certain products. The prior-year comparison included a $26.1m pretax early-debt-retirement cost.
- The company stated it had not experienced material manufacturing or distribution disruption from COVID-19 to date, but could not reasonably estimate the timing or severity of further impacts.
Important facts for investors to verify
- Whether inflation, freight costs, and supply constraints continue to pressure margins and Feminine Care and Wet Shave availability.
- Billie integration, acquisition economics, final purchase-price allocation, and expected benefits relative to added amortization and financing costs.
- Working-capital and seasonal cash-flow trends, liquidity headroom, and the impact of further borrowing or share repurchases.
- Progress and final costs of the operating-model redesign, German VAT matter, and Sun Care product recall/reformulation.
- Adjusted results against GAAP results, noting that adjusted measures exclude specified costs and are not substitutes for GAAP measures.