Edgewell Personal Care Company — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended March 31, 2021. Amounts are in millions of dollars, except per-share data. The company sells wet shave, sun and skin care, and feminine care products. Comparisons are with the prior-year periods.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $519.3 | $523.0 | $970.4 | $977.0 |
| Gross profit / margin | $241.7 / 46.6% | $243.0 / 46.5% | $435.0 / 44.8% | $436.1 / 44.6% |
| Operating income / margin | $62.9 / 12.1% | $54.1 / 10.3% | $104.5 / 10.8% | $91.2 / 9.3% |
| Net earnings | $14.4 | $19.5 | $32.1 | $41.9 |
| Diluted EPS | $0.26 | $0.36 | $0.58 | $0.77 |
| Operating cash flow | Not presented for quarter | $(18.8) | $17.2 |
- Q2 reported sales declined 0.7%; organic sales fell 5.6%. Six-month reported sales declined 0.7%; organic sales fell 3.0%. Acquisitions and currency partly offset organic weakness.
- Q2 advertising and sales promotion expense increased to $68.4 from $47.0. Management cited increased brand and product-launch investment as a driver of lower adjusted earnings.
- Q2 adjusted net earnings were $38.5, down 23.6%, and adjusted diluted EPS was $0.70 versus $0.92. Six-month adjusted net earnings were $61.8, down 23.0%, and adjusted diluted EPS was $1.13 versus $1.47. These are non-GAAP measures; adjustments include specified restructuring, acquisition and debt-retirement items.
Liquidity, cash flow and debt
- At March 31, 2021, cash and equivalents were $282.1, current assets $987.7, and current liabilities $483.8. Total borrowings were $1,274.2; reported long-term debt, net of issuance costs and discount, was $1,233.0. Cash less total borrowings was approximately $992.1 net debt.
- Six-month operating cash flow was $(18.8), compared with $17.2 inflow a year earlier. Management attributed the decline chiefly to higher working capital, including inventory build, and lower net income. Cash decreased $82.6 to $282.1.
- Investing cash flow was $(13.6), including $22.2 of capital expenditures; financing cash flow was $(52.1), including dividends, share repurchases, and debt-refinancing costs.
- In March, the company issued $500 of 4.125% notes due 2029 and used the proceeds to retire $500 of 4.70% notes due 2022. The early retirement generated a $26.1 expense. Outstanding notes also include $750 due 2028 at 5.5%; $24.2 of borrowings were variable-rate international notes payable.
- The company said it expected cash on hand, operating cash flow and available revolving-credit capacity to cover requirements for at least 12 months, and reported compliance with debt covenants. No material change in contractual obligations was reported.
Material changes and segment trends
- Wet Shave: Q2 sales rose 4.3% reported and 1.1% organically to $292.7; segment profit was $45.9 versus $44.5. Six-month organic sales were down 0.2%. North American innovation and women’s systems gains were partly offset by international weakness and higher advertising.
- Sun and Skin Care: Q2 sales rose 1.3% reported to $159.5, including Cremo acquisition contribution, but fell 9.3% organically. Segment profit declined to $36.2 from $44.3. Six-month sales increased 12.9% reported, largely due to Cremo, while organic sales declined 1.8% and profit fell to $41.4 from $44.4.
- Feminine Care: Q2 sales declined 21.1% to $67.1 and segment profit fell to $5.6 from $18.3. Six-month sales fell 15.0% and profit fell to $14.4 from $31.4. Management cited prior-year pantry loading, category declines, distribution losses—particularly at Walmart—and higher costs.
- The Infant and Pet Care business had been sold in December 2019; its prior-year six-month sales and profit make comparisons less like-for-like. Cremo, acquired in September 2020, contributed to Sun and Skin Care results.
Outlook, commentary and risks
- No specific full-year sales or earnings guidance is provided in the supplied filing text. Project Fuel is expected to generate $265–$275 of total annual gross savings by the end of FY2021; cumulative savings were $245 at March 31. Expected one-time pre-tax charges through FY2021 were approximately $160–$165; cumulative charges were $143.5.
- Management reported no material manufacturing or distribution disruption to date from COVID-19, but said the pandemic continued to affect demand and had increased procurement and distribution challenges. Future supplier disruptions and their timing or severity could not be estimated.
- Other cited pressures include rising commodity and supply-chain costs, foreign-currency movements, seasonal Sun Care demand, and the possibility that prolonged COVID-19 effects could lead to future goodwill or intangible-asset impairment charges. No interim impairment trigger was identified in the six months ended March 31.
- The company declared a $0.15-per-share dividend payable in July 2021. The board had 9.7 million shares remaining under its repurchase authorization.
Important facts for investors to verify
- Whether organic sales and segment-profit trends improve, especially in Feminine Care and Sun Care, and how much comparisons reflect prior-year pantry loading.
- Whether increased advertising and product-launch spending supports future growth and earnings, given the decline in adjusted earnings.
- Whether inventory and other working-capital requirements normalize after the six-month operating cash outflow.
- Debt-service costs and liquidity following the 2029 refinancing, including the effect of the early-retirement charge and variable-rate borrowings.
- Progress against Project Fuel savings and restructuring-charge expectations, and developments in COVID-19-related demand, supply-chain risks, and potential impairment indicators.