Edgewell Personal Care Company — Q3 FY2022 Form 10-Q
Reporting period: Fiscal third quarter and first nine months ended June 30, 2022; comparisons are with the same periods in 2021. Unless noted otherwise, amounts are in millions of dollars. Edgewell sells wet shave, sun and skin care, and feminine care products.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $623.8 | $573.7 | $1,634.8 | $1,544.1 |
| Gross profit / margin | $240.6 / 38.6% | $270.3 / 47.1% | $660.6 / 40.4% | $705.3 / 45.7% |
| Operating income | $49.9 | $71.1 | $123.4 | $175.6 |
| Net earnings | $30.5 | $40.8 | $64.9 | $72.9 |
| Diluted EPS | $0.57 | $0.74 | $1.20 | $1.32 |
- Q3 sales rose 8.7%; organic sales increased 9.0%, while Billie contributed $21.1 and currency reduced sales by $22.4. Nine-month sales rose 5.9%, including $55.3 from Billie and a $38.4 currency headwind; organic sales increased 4.8%.
- Q3 adjusted gross margin was 42.2%, down 500 basis points year over year; adjusted diluted EPS was $0.86 versus $0.89. For nine months, adjusted gross margin was 42.0% versus 45.8%, and adjusted diluted EPS was $1.77 versus $2.01. These are non-GAAP measures.
- Q3 segment sales: Wet Shave $326.3, Sun and Skin Care $216.2, and Feminine Care $81.3. Segment profit was $37.5, $46.6, and $8.8, respectively. Sun and Skin Care profit increased, while Wet Shave and Feminine Care profit declined.
- Cash from operations was $72.4 for nine months, compared with $155.9; management attributed the decline mainly to a larger working-capital build. Investing cash outflow was $337.6, including the Billie acquisition; financing cash outflow was $21.4. Cash ended at $181.6, down from $479.2 at September 30, 2021.
- At June 30, current assets were $933.7 and current liabilities $575.1. Inventories were $414.1, up from $345.7 at fiscal year-end.
- Total borrowings were $1,389.9, including $139.9 at variable rates. Long-term debt on the balance sheet was $1,356.9; notes payable were $18.9. The company had $121.0 outstanding under its revolving credit facility and $297.5 available after letters of credit. It reported compliance with debt covenants.
Material changes and notable items
- Billie was acquired on November 29, 2021, for $309.4 net of cash acquired. It contributed $67.6 of post-acquisition sales and a $4.8 pretax loss through June 30; the loss was driven primarily by acquired-intangible amortization. Purchase accounting remained preliminary.
- Inflation in materials, labor, transportation, warehousing and distribution, together with product mix and trade spending, pressured margins. Pricing and productivity savings partly offset these effects.
- A $22.5 charge for Wet Ones inventory write-offs and related contract termination costs reduced reported gross profit. A favorable legal settlement added $7.5 to income; payment was received after quarter-end.
- Other unusual nine-month items included $3.4 of estimated German VAT settlement costs and $4.1 of Sun Care reformulation-related costs. Management’s adjusted results exclude specified non-standard items; comparisons should be read alongside the GAAP figures.
- Foreign currency translation reduced comprehensive income, with a $34.4 translation loss in Q3 and a $50.3 loss for nine months. Foreign exchange hedge gains provided some offset in earnings.
Outlook, risks and liquidity
- Management expected approximately $15 of one-time fiscal 2022 charges for its operating-model redesign; $9.8 had been incurred in the first nine months.
- The filing provides no clear numerical full-year sales or EPS guidance. Management stated that cash, operating cash flows and revolving-credit capacity were expected to cover working capital, interest, R&D, capital expenditures and other financing needs for at least the next 12 months.
- Management cited ongoing inflation and supply-chain pressures, including procurement, distribution and labor costs. It also described potential further disruption from COVID-19, although no material operational disruption or significant liquidity impact had occurred to date.
- Foreign-exchange exposure may affect reported results. A 1 percentage-point increase in rates on variable-rate debt would increase annual interest expense by approximately $1.4, according to the filing.
Important facts for investors to verify
- Whether price increases and productivity measures can offset inflation and restore gross margins.
- Billie’s integration, profitability and the final purchase-price allocation, including intangible-asset valuations.
- Working-capital trends, particularly inventory growth, and the pace of operating cash-flow recovery.
- Debt, variable-rate exposure, revolving-credit availability and the effect of continued buybacks and dividends on liquidity.
- The size and persistence of Wet Ones write-offs, Sun Care reformulation costs, legal/VAT items and foreign-exchange effects.