Edgewell Personal Care Company — Q3 Fiscal 2023 Form 10-Q
Reporting period: Three and nine months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in millions, except per-share data. Edgewell operates in Wet Shave, Sun and Skin Care, and Feminine Care.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $650.0 | $623.8 | $1,717.5 | $1,634.8 |
| Operating income | $85.6 | $49.9 | $173.1 | $123.4 |
| Net earnings | $52.5 | $30.5 | $83.4 | $64.9 |
| Diluted EPS | $1.01 | $0.57 | $1.61 | $1.20 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $168.3 | $72.4 |
- Q3 sales grew 4.2% reported and 4.5% organically; management attributed organic growth primarily to pricing while volumes declined slightly. Nine-month sales rose 5.1% reported and 6.4% organically. Nine-month reported sales included $12.0 from the Billie acquisition and were reduced by $33.7 from currency.
- Q3 gross margin was 43.0%, up from 38.6%; the comparison benefited from the absence of a $22.5 prior-year Wet Ones SKU write-off and contract termination charge. Adjusted gross margin was 43.0% versus 42.2%. Nine-month gross margin was 41.4% versus 40.4%, while adjusted margin declined to 41.4% from 42.0%.
- Q3 adjusted net earnings were $50.8, or $0.98 per diluted share, versus $45.8, or $0.86. Nine-month adjusted net earnings were $95.8 versus $96.0; adjusted diluted EPS was $1.85 versus $1.77. These are non-GAAP measures; the company’s reconciliations exclude specified items.
- Nine-month cash from operations increased to $168.3, which management attributed to improved working capital and higher earnings. Capital expenditures were $31.1. Cash and cash equivalents were $207.4 at June 30, 2023, compared with $188.7 at September 30, 2022.
- Total borrowings were $1,352.7, including $102.7 at variable rates; long-term debt carrying value was $1,323.1. The company had $85.0 drawn on its revolving facility and $334.1 available after letters of credit. Current assets were $988.6 and current liabilities $579.8. Management said cash, operating cash flow and revolver capacity should cover requirements for at least the next 12 months; the company reported compliance with debt covenants.
Segment trends and changes
- Sun and Skin Care: Q3 sales increased 13.3% to $244.9 and segment profit rose 31.1% to $61.1, reflecting growth in Sun Care, Men’s Grooming and Wet Ones. Nine-month sales rose 12.5% and profit 23.2%.
- Wet Shave: Q3 sales decreased 0.7% to $324.1 and segment profit fell 14.4% to $32.1, including a $6.6 unfavorable currency impact. Nine-month sales declined 1.0% and profit 12.0%, also pressured by currency.
- Feminine Care: Q3 sales were approximately flat at $81.0, while segment profit increased 58.0% to $13.9. Nine-month sales grew 13.5% and profit 97.3%, aided by pricing, volume and improved product availability.
- Q3 operating income improvement also reflects the prior-year SKU rationalization charge. For the nine months, higher reported earnings included unusual items, while adjusted net earnings were nearly unchanged. Interest expense rose 12.2% for the nine months to $59.8, attributed to higher interest rates and revolving-facility borrowings. The effective tax rate increased to 25.9% from 18.5% for the nine months, primarily due to an unfavorable mix of earnings in higher-tax jurisdictions.
Outlook, risks and unusual items
- Management expects approximately $18 of restructuring and related charges in fiscal 2023, for operating-model simplification and manufacturing and supply-chain efficiency; $9.1 had been incurred in the first nine months.
- No specific revenue or earnings guidance is provided in the supplied filing text. Management cites the seasonal nature of Sun Care, with higher sales and cash generation typically in the second and third fiscal quarters.
- Key exposures include foreign exchange, inflation and commodity costs, interest rates, and execution of restructuring and integration activities. A 1% increase in applicable rates would increase annual interest expense on variable-rate debt by approximately $1.0. The company reported no open commodity-hedging instruments at June 30.
- Q3 results included $7.1 of gains from favorable legal outcomes: a $4.9 intellectual-property settlement and a $2.2 release of a VAT-related reserve. The nine-month period also included a $7.2 loss on settlement of the Canadian defined-benefit plan. Pending legal matters remain subject to uncertainty; management said current matters are not reasonably likely to be material, taking accruals into account.
- Accounts receivable sold under the company’s facilities totaled $916.3 in the first nine months; $164.6 of sold receivables remained outstanding at June 30. The filing reports these as sales without recourse for obligor creditworthiness.
Key facts for investors to verify
- How much reported earnings growth reflects recurring operations versus prior-year charges, current-period legal gains and the pension settlement loss.
- Whether pricing-led sales growth can persist if volumes remain weak, and whether productivity and pricing can offset inflation and unfavorable mix.
- The continuing effect of currency on Wet Shave profitability and consolidated results.
- Working-capital quality, including the increase in inventories to $502.5 from $449.3 at September 30, 2022, and reliance on receivables-sale facilities.
- Debt repayment and refinancing needs, variable-rate exposure, and continued compliance with facility covenants.