Edgewell Personal Care Company — Q2 FY2024 Form 10-Q
Reporting period: Three and six months ended March 31, 2024. Amounts are in millions, except per-share data. Edgewell sells products across Wet Shave, Sun and Skin Care, and Feminine Care.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $599.4 | $598.4 | $1,088.3 | $1,067.5 |
| Gross profit | $258.1 | $242.3 | $455.8 | $431.9 |
| Operating income | $70.1 | $56.8 | $96.2 | $88.7 |
| Net earnings | $36.0 | $19.4 | $40.8 | $31.8 |
| Diluted EPS | $0.72 | $0.37 | $0.81 | $0.61 |
- Q2 sales were up 0.2%; organic sales increased 0.1%. Six-month sales grew 1.9%, including 1.4% organic growth and a 0.5% favorable currency impact.
- Q2 gross margin rose to 43.1% from 40.5%; operating margin increased to 11.7% from 9.5%. Six-month gross margin was 41.9% versus 40.5%, and operating margin was 8.8% versus 8.3%.
- Management’s adjusted, non-GAAP Q2 diluted EPS was $0.88 versus $0.56; six-month adjusted diluted EPS was $1.11 versus $0.88. Adjusted measures exclude items management views as unusual or non-recurring.
- Cash from operations was $56.1 for the first six months, versus $1.9 a year earlier; capital expenditures were $18.0, implying approximately $38.1 of operating cash flow less capital expenditures. Cash declined $20.2 to $196.2.
- Total borrowings were $1,384.6, versus $1,391.5 at September 30, 2023; long-term debt carrying value was $1,350.8. Cash less total borrowings implies net debt of approximately $1,188.4. The company reported $308.7 of available revolving capacity and compliance with debt covenants.
- Current assets were $994.8 and current liabilities $541.9. Inventory was $496.4. The company says cash, operating cash flow, and revolver capacity should cover requirements for at least the next 12 months.
Material changes and segment trends
- Q2 performance reflected higher gross margin and improved Sun and Skin Care and Wet Shave segment profit, offset by declines in North America Wet Shave and Feminine Care. International sales rose 5.8% in Q2; North America sales fell 2.8%.
- Wet Shave: Q2 sales fell 5.0% to $293.1; North America organic sales declined 14.0%, amid weaker category and channel conditions, promotions, and comparison with a prior product launch. Segment profit rose 14.1% to $40.4.
- Sun and Skin Care: Q2 sales increased 12.4% to $235.8 and segment profit increased 36.0% to $54.4, driven by Sun Care and Grooming growth. Six-month segment profit was nearly flat at $53.1, with inflation-related costs weighing on results.
- Feminine Care: Q2 sales declined 12.0% to $70.5 and segment profit fell 28.7% to $8.7, mainly due to lower Tampon and Pad sales.
- Gross-margin improvement reflected productivity savings and pricing, which more than offset inflation, unfavorable mix, and other costs. SG&A as a share of sales increased to 17.9% in Q2 from 17.6%, partly due to higher people costs.
Outlook, risks, and unusual items
- No specific full-year sales or earnings guidance is stated in the provided filing text. Management expects approximately $19 of fiscal 2024 restructuring and repositioning charges; $10.0 had been incurred in the first six months.
- A December 2023 fire at the Wet Ones plant caused a partial shutdown of one manufacturing process. Related incremental costs were $3.8 in Q2 and $5.3 for the first six months; the filing does not quantify the full future financial impact.
- Other Q2 items excluded from adjusted results included $3.2 of restructuring charges, $0.7 of acquisition and integration costs, $0.4 of Sun Care reformulation costs, $1.4 related to a legal matter, and $1.1 of other project costs. The prior-year comparison included a $7.2 Canada pension settlement loss.
- Currency exposure may affect reported earnings; the company uses foreign-exchange hedges. A 1% rise in applicable interest rates would increase annual interest expense by approximately $1.4, based on variable-rate debt of $135.4.
- Legal proceedings arise in the ordinary course of business. Management says pending matters are not reasonably likely to be material, considering recorded accruals; the amount of potential liability cannot be determined with certainty.
- The company revised prior-period figures for an immaterial $8.5 aged goods-received-not-invoiced accrual error originating in 2014–2018. It states that total operating, investing, and financing cash flows previously reported for the six months ended March 31, 2023 were unchanged.
- After quarter-end, on April 2, 2024, the company replaced its $425.0 revolving commitments with equal commitments, generally extending maturity subject to conditions. On May 8, it declared a $0.15 per-share quarterly dividend.
Important facts for investors to verify
- Whether North American Wet Shave and Feminine Care sales stabilize, and whether international growth continues.
- Whether productivity and pricing can sustain margin improvement against inflation, mix pressure, and higher SG&A.
- The Wet Ones plant’s recovery timeline, any further fire-related costs, and the effect on product availability.
- Progress and remaining cost of the restructuring plan, and the basis for any future guidance.
- Debt maturities, revolver terms and availability, working-capital requirements, and cash generation through seasonal periods.
- The scope and potential outcome of the legal matter and other contingencies, and the impact of currency and interest-rate movements.