Edgewell Personal Care Company — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2021, ended June 30, 2021. Comparisons are with the corresponding periods of fiscal 2020. Amounts are in millions, except per-share data.
Business context and results
Edgewell makes and markets wet shave, sun and skin care, and feminine care products. Its reportable segments are Wet Shave, Sun and Skin Care, and Feminine Care. Sun and Skin Care is seasonal, with sales and profit typically higher in the second and third fiscal quarters. The Cremo acquisition is included in Sun and Skin Care; the Infant and Pet Care business was sold in December 2019.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $573.7 | $483.9 | $1,544.1 | $1,460.9 |
| Gross profit | $270.3 | $222.7 | $705.3 | $658.8 |
| Operating income | $71.1 | $43.5 | $175.6 | $134.7 |
| Net earnings | $40.8 | $4.7 | $72.9 | $46.6 |
| Diluted EPS | $0.74 | $0.09 | $1.32 | $0.86 |
- Q3 sales increased 18.6% reported and 12.5% organically. Nine-month sales rose 5.7% reported and 2.1% organically. Organic figures exclude currency and acquisition/divestiture effects.
- Q3 gross margin was 47.1%, versus 46.0%; operating margin was 12.4%, versus 9.0%. Nine-month gross margin was 45.7%, versus 45.1%, and operating margin was 11.4%, versus 9.2%.
- Q3 adjusted net earnings were $49.2 and adjusted diluted EPS was $0.89, compared with $35.9 and $0.66. For the nine months, adjusted net earnings were $111.0 and adjusted diluted EPS was $2.01, compared with $116.2 and $2.13. These are non-GAAP measures; see the filing’s reconciliations.
- Q3 segment sales/profit: Wet Shave $304.9/$43.1; Sun and Skin Care $195.2/$45.0; Feminine Care $73.6/$13.7. Sun and Skin Care strength drove much of the quarter’s improvement. Nine-month Feminine Care sales and profit declined 8.5% and 35.3%, respectively.
Cash, debt and liquidity
- Nine-month operating cash flow was $155.9, up from $118.6. Investing used $26.1, versus a $71.3 inflow in the prior year; financing used $59.9, versus $21.6. Cash increased $72.8 to $437.5.
- At June 30, 2021, current assets were $1,102.0 and current liabilities $547.1. Inventories were $359.2, up from $314.1 at September 30, 2020.
- Total borrowings were $1,274.8, including $24.8 of variable-rate international borrowings. Long-term debt, net of issuance costs and discount, was $1,233.6. The company issued $500 of 4.125% notes due 2029 and used proceeds plus cash to redeem $500 of 4.70% notes due 2022. Remaining principal maturities disclosed are $750 in 2028 and $500 in 2029.
- Management said cash, operating cash flow and available revolving-credit borrowing capacity should meet requirements for at least the next 12 months. The company reported compliance with debt covenants at June 30, 2021.
Changes, outlook and risks
- Q3 growth reflected recovery from pandemic-related declines in the prior-year quarter, especially in Sun Care, plus Wet Shave gains. Nine-month comparisons also reflect Cremo and the absence of divested Infant and Pet Care sales.
- Higher advertising and sales promotion expense supported brand and product initiatives: $81.9 in Q3 and $191.5 for the first nine months. Management cited higher commodity, labor, distribution and supply-chain costs, partly offset by pricing, mix and Project Fuel savings.
- Project Fuel generated approximately $19 of gross savings in Q3 and approximately $264 cumulatively. Management expected approximately $280 in total gross savings by fiscal year-end 2021 and approximately $160 of cumulative one-time pre-tax restructuring charges through that point. No quantified company-wide sales or earnings forecast is provided in the supplied filing text.
- Q3 includes $8.2 of restructuring and related costs; nine-month results include $26.1 of early debt-retirement costs. These and other items affect GAAP-to-adjusted comparisons. The prior-year periods also included substantial debt-retirement and acquisition-related costs.
- COVID-19 had not materially disrupted manufacturing or liquidity to date, but management warned of continuing supplier and distribution challenges, potentially higher procurement and labor costs, and uncertain future effects. It also noted that prolonged pandemic effects could change impairment assumptions. Foreign-currency movements, seasonal Sun Care demand, and rising input costs are additional considerations.
- The board declared a quarterly dividend of $0.15 per share in August 2021. Disclosure controls were assessed as effective, with no material change in internal control reported for the quarter.
Important facts for investors to verify
- How much of reported sales growth reflects underlying demand versus pandemic comparisons, currency, and Cremo; monitor segment trends, particularly Feminine Care.
- Whether pricing and Project Fuel savings can continue to offset inflation, distribution costs, and increased advertising investment.
- Adjusted earnings and EPS reconciliations, including the treatment of restructuring, acquisition costs, and debt-retirement charges.
- Cash conversion and working-capital movements, including the inventory increase and use of the accounts-receivable facility.
- Debt maturities, borrowing availability and covenant compliance, and the evolving operational and impairment risks from COVID-19.