EDGEWELL PERSONAL CARE COMPANY (in millions, except per share data, unaudited) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the accompanying notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with theSEC onNovember 20, 2020 (the "2020 Annual Report"). The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs and involve risks, uncertainties, and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed within "Forward-Looking Statements" below and in Item 1A. Risk Factors and "Forward-Looking Statements" included within our 2020 Annual Report. Forward-Looking Statements This document contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf ofEdgewell Personal Care Company ("Edgewell", "we" or "our Company") or any of our businesses. Forward-looking statements generally can be identified by the use of words or phrases such as "believe," "expect," "expectation," "anticipate," "may," "could," "intend," "belief," "estimate," "plan," "target," "predict," "likely," "will," "should," "forecast," "outlook," or other similar words or phrases. These statements are not based on historical facts, but instead reflect our expectations, estimates, or projections concerning future results or events, including, without limitation, the future earnings and performance of our Company or any of our businesses. Many factors outside our control (including the ongoing COVID-19 pandemic) could affect the realization of these estimates. These statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this report are only made as of the date of this report, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. You should not place undue reliance on these statements. In addition, other risks and uncertainties not presently known to us or that we presently consider immaterial could significantly affect the forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Risks and uncertainties include those detailed from time to time in our publicly filed documents, including in Item 1A. Risk Factors of Part I of our 2020 Annual Report. Non-GAAP Financial Measures While we report financial results in accordance with GAAP, this discussion also includes non-GAAP measures. These non-GAAP measures are referred to as "adjusted" or "organic" and exclude items such as restructuring costs, acquisition and integration costs, cost of early retirement of long-term debt, the gain on the sale of the Infant and Pet Care business, and the amortization of intangibles. Reconciliations of non-GAAP measures are included within this Management's Discussion and Analysis of Financial Condition and Results of Operations. This non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of ongoing operating results. Given certain significant events, including the Project Fuel restructuring and recent acquisitions and divestitures, we view the use of non-GAAP measures that take into account the impact of these unique events as particularly valuable in understanding our underlying operational results and providing insights into future performance. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by the types of items that are excluded. This non-GAAP information is also a component in determining management's incentive compensation. Finally, we believe this information provides more transparency. The following provides additional detail on our non-GAAP measures: •We analyze our net sales and segment profit on an organic basis to better measure the comparability of results between periods. Organic net sales and organic segment profit exclude the impact of changes in foreign currency, acquisitions, and divestitures. This information is provided because these types of fluctuations can distort the underlying change in net sales and segment profit either positively or negatively. •We utilize "adjusted" non-GAAP measures including gross profit, SG&A, operating income, income taxes, net earnings, and diluted earnings per share internally to make operating decisions. The following items are excluded when analyzing non-GAAP measures: restructuring and related costs, acquisition and integration costs, cost of early retirement of long-term debt, the gain on sale of the Infant and Pet Care business, and advisory expenses in connection with the evaluation of the Feminine and Infant Care businesses. 24 -------------------------------------------------------------------------------- All comparisons are with the same period in the prior year, unless otherwise noted. Industry and Market Data Unless we indicate otherwise, we base the information concerning our industry contained or incorporated by reference herein on our general knowledge of and expectations concerning the industry. Our market position, market share, and industry market size are based on our estimates using internal data and external data from various industry analyses, our internal research and adjustments, and assumptions that we believe to be reasonable. We have not independently verified data from industry analyses and cannot guarantee its accuracy or completeness. In addition, we believe that data regarding the industry, market size and our market position and market share within such industry provide general guidance but are inherently imprecise and have not been verified by any independent source. Further, our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in Item 1A. Risk Factors in Part I of our 2020 Annual Report. These, and other factors, could cause results to differ materially from those expressed in the estimates and assumptions. You are cautioned not to place undue reliance on this data. Retail sales for purposes of market size, market position and market share information are based on retail sales inU.S. dollars. Trademarks andTrade Names We own or have rights to use trademarks and trade names that we use in conjunction with the operation of our business, which appear throughout this Quarterly Report on Form 10-Q. We may also refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners. Impact of COVID-19 OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a worldwide pandemic, which has impacted individuals, families, companies and economies around the world. Due to the uncertainty surrounding COVID-19 and its fast spreading nature, we continue to take significant measures to protect our employees and business remaining in compliance with local guidelines and requirements. The Company's top priority during this time continues to be ensuring the health and welfare of our employees. Additional measures have been put in place at all of our manufacturing locations to ensure the safety of our employees. To date, we have not experienced any material operational disruptions across our manufacturing and distribution facilities. As noted within the discussion of our consolidated results below, our earnings continued to be negatively impacted by the COVID-19 pandemic for the quarter endedMarch 31, 2021 , which was largely driven by a decrease in demand across multiple product lines. As the duration and severity of the COVID-19 pandemic continues to impact economic conditions and, therefore, consumer spending and demand, we will continue to closely monitor the impact it has on our business and customers. Additionally, the prolonged COVID-19 environment has resulted in increased supply chain challenges across product procurement and distribution. The continued duration and severity of COVID-19 may result in further disruptions related to our key suppliers going forward; however, the impact, timing and severity of potential disruptions cannot be reasonably estimated at this time. We expect to maintain adequate liquidity during these uncertain times. As noted within "Liquidity and Capital Resources" below, COVID-19 has not had a significant impact on our liquidity, cash flows or capital resources, including our ability to enter into the unsecured indenture agreement for 4.125% Senior Notes in the amount of$500 dueApril 1, 2029 (the "2029 Notes"). We will continue to assess the impact that COVID-19 has on our liquidity needs and current economic market conditions. Significant Events Acquisitions OnSeptember 2, 2020 , the Company completed the acquisition of Cremo, a premier men's grooming company in theU.S , in an all-cash transaction at a purchase price of$233.9 . As a result of the acquisition, Cremo became a wholly owned subsidiary of the Company. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements for further discussion on the Cremo acquisition. Divestiture OnDecember 17, 2019 , we completed the sale of our Infant and Pet Care business included in the All Other segment for$122.5 which included consideration for providing services for up to one year under a transition services agreement. For further information on the divestiture of the Infant and Pet Care business, refer to Note 2 of Notes to Condensed Consolidated Financial Statements. 25 -------------------------------------------------------------------------------- Executive Summary The following is a summary of key results for the second quarter and first six months of fiscal 2021 compared to the second quarter and first six months of fiscal 2020. Net earnings and earnings per share ("EPS") for the periods presented were impacted by restructuring charges, acquisition and integration costs, cost of early retirement of long-term debt, the gain on sale of the Infant and Pet Care business, and Feminine and Infant Care evaluation costs, as described in the table below. The impact of these items on reported net earnings and EPS are provided as a reconciliation of net earnings and EPS to adjusted net earnings and adjusted diluted EPS, both of which are non-GAAP measures. Second Quarter of Fiscal 2021 •Net sales in the second quarter of fiscal 2021 were$519.3 , down 0.7% compared to the prior year quarter. Organic net sales declined 5.6% compared to the prior year quarter, due to declines inSun Care and Feminine Care, both of which were impacted by decreased volumes that we believe were driven in part by COVID-19, and were partially offset by an increase in Men's Grooming and Wet Shave. Feminine Care declines were driven by lower demand compared to the prior year which was driven by increased net sales from pantry loading. •Net earnings in the second quarter of fiscal 2021 were$14.4 compared to$19.5 in the prior year quarter. On an adjusted basis, net earnings for the second quarter of fiscal 2021 decreased 23.6% to$38.5 . Adjusted earnings were down due to significantly higher advertising and promotional expense ("A&P") across Wet Shave products including Men's and Women's systems and in support of new product launches and new brand campaigns. Additionally, interest expense was higher than the prior year period as a result of the issuance of 5.5% unsecured, unsubordinated notes due 2028 in an aggregate principal amount of$750 inMay 2020 (the "2028 Notes"). The decline was partially offset by favorable foreign currency fluctuations compared to the prior year period. •Net earnings per diluted share during the second quarter of fiscal 2021 were$0.26 compared to$0.36 in the prior year quarter. On an adjusted basis, net earnings per diluted share during the second quarter of fiscal 2021 was$0.70 compared to$0.92 in the prior year quarter. Three Months Ended March 31, 2021 Gross Profit SG&A Operating Income EBIT Income taxes Net Earnings Diluted EPS GAAP - Reported $ 241.7$ 93.4 $ 62.9$ 19.5 $ 5.1 $ 14.4$ 0.26 Restructuring and related costs - 2.8 5.5 5.5 1.3 4.2 0.08 Acquisition and integration costs - 0.3 0.3 0.3 0.1 0.2 - Cost of early retirement of long-term debt - - - 26.1 6.4 19.7 0.36
Total Adjusted Non-GAAP $ 241.7
68.7 $ 51.4 $ 12.9 $ 38.5 $ 0.70
GAAP as a percent of net
sales 46.6 % 18.0 % 12.1 % GAAP effective tax rate 26.6 %
Adjusted as a percent of net
sales 46.6 % 17.4 % 13.2 % Adjusted effective tax rate 25.3 %
Three Months Ended March 31, 2020
Gross Profit SG&A Operating Income EBIT Income taxes Net Earnings Diluted EPS
GAAP - Reported $ 243.0 $ 121.5 $ 54.1 $ 28.2 $ 8.7 $ 19.5 $ 0.36
Restructuring and related
costs 0.1 5.8 12.4 12.4 2.9 9.5 0.17
Acquisition and integration
costs - 25.5 25.5 25.5 6.3 19.2 0.35
Gain on sale of Infant and
Pet Care business - - - 1.1 (1.1) 2.2 0.04
Total Adjusted Non-GAAP
92.0$ 67.2 $ 16.8 $ 50.4
GAAP as a percent of net
sales 46.5 % 23.2 % 10.3 % GAAP effective tax rate 30.6 %
Adjusted as a percent of net
sales 46.5 % 17.2 % 17.6 % Adjusted effective tax rate 25.0 %
26-------------------------------------------------------------------------------- First Six Months of Fiscal 2021 •Net sales for the first six months of fiscal 2021 decreased 0.7% to$970.4 . Organic net sales declined 3.0% compared to the prior year period, due to declines in Feminine Care inNorth America and Sun andSkin Care in International markets. The decline in Feminine Care was primarily related to lower demand compared to the prior year period which saw increased sales related to pantry loading due to COVID-19. Sun andSkin Care declines were related to lower demand forSun Care products driven by the impact of COVID-19 on the global sun category. •Net earnings for the first six months of fiscal 2021 were$32.1 compared to$41.9 in the prior year. On an adjusted basis, net earnings for the first six months of fiscal 2021 decreased 23.0% to$61.8 . Adjusted earnings were down due to higher advertising and promotional expense ("A&P") across Wet Shave products, including Men's and Women's systems, and Feminine Care products. Additionally, interest expense was higher than the prior year period. The decline was partially offset by favorable foreign currency fluctuations than the prior year period. •Net earnings per diluted share during the first six months of fiscal 2021 were$0.58 compared to$0.77 in the prior year period. On an adjusted basis, as illustrated in the following table, net earnings per diluted share during the first six months of fiscal 2021 were$1.13 compared to$1.47 in the prior year quarter.
Six Months Ended
Operating
Gross Profit SG&A Income EBIT Income taxes Net Earnings Diluted EPS
GAAP - Reported $ 435.0 $ 186.5 $ 104.5 $ 44.7 $ 12.6 $ 32.1 $ 0.58
Restructuring and related
costs 0.1 3.4 9.9 9.9 2.5 7.4 0.14
Acquisition and integration costs 1.3 2.0 3.3 3.3 0.7 2.6
0.05
Cost of early retirement of long-term debt - - - 26.1 6.4 19.7 0.36 Total Adjusted Non-GAAP$ 436.4 $ 181.1 $ 117.7 $ 84.0 $ 22.2 $ 61.8 $ 1.13 GAAP as a percent of net sales 44.8 % 19.2 % 10.8 % GAAP effective tax rate 28.4 % Adjusted as a percent of net sales 45.0 % 18.7 % 12.1 % Adjusted effective tax rate 26.5 % Six Months Ended March 31, 2020
Operating
Gross Profit SG&A Income EBIT Income taxes Net Earnings Diluted EPS
GAAP - Reported $ 436.1 $ 216.5 $ 91.2 $ 57.8 $ 15.9 $ 41.9 $ 0.77
Restructuring and related
costs 0.1 7.7 20.4 20.4 4.6 15.8 0.29
Acquisition and integration costs - 31.7 31.7 31.7 7.8 23.9
0.44
Gain on sale of Infant and Pet Care business - - - (4.1) (2.6) (1.5)
(0.03)
Feminine and Infant Care evaluation costs - 0.3 0.3 0.3 0.1 0.2 -
Total Adjusted Non-GAAP
$ 106.1 $ 25.8 $ 80.3
GAAP as a percent of net
sales 44.6 % 22.2 % 9.3 % GAAP effective tax rate 27.4 %
Adjusted as a percent of net
sales 44.6 % 18.1 % 14.7 % Adjusted effective tax rate 24.2 %
Operating Results
The following table presents changes in net sales for the second quarter and
first six months of fiscal 2021, as compared to the corresponding period in
fiscal 2020, and provides a reconciliation of organic net sales to reported
amounts.
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--------------------------------------------------------------------------------Net Sales Net Sales -Total Company Period EndedMarch 31, 2021 Q2 % Chg Six Months % Chg Net sales - prior year$ 523.0 $ 977.0 Organic (29.5) (5.6) % (29.5) (3.0) % Impact of Cremo acquisition 14.6 2.8 % 31.2 3.2 % Impact of the sale of the Infant and Pet Care business - - % (26.8) (2.7) % Impact of currency 11.2 2.1 % 18.5 1.8 % Net sales - current year$ 519.3 (0.7) %$ 970.4 (0.7) % For the second quarter of fiscal 2021, net sales were$519.3 , a 0.7% decrease compared to the prior year quarter. Organic net sales declined 5.6% reflecting the impact of pantry loading in the prior year quarter, the continued impact of COVID-19 on the Sun Care and International Wet Shave categories and a slowdown in Wet One's sales. This was partly offset by growth in the Wet Shave segment inNorth America , driven by Schick innovation, global e-commerce sales and growth in Men's Grooming. For the first six months of fiscal 2021, net sales were$970.4 , a 0.7% decrease compared to the prior year period. Organic net sales declined 3.0% compared to the prior year period. Organic net sales declines were driven by reduced volumes in Feminine Care inNorth America , lower Wet Shave volumes inEurope , and lowerSun Care net sales inLatin America andAsia . Lower volumes for Feminine Care were driven by COVID-19 demand declines and pantry loading in the prior year period. The remaining declines in Wet Shave andSun Care in international markets were driven by COVID-19 impacts. For further discussion regarding net sales, including a summary of reported versus organic changes, see "Segment Results." Gross Profit Gross profit was$241.7 during the second quarter of fiscal 2021, compared to$243.0 in the prior year quarter. Gross margin as a percent of net sales for the second quarter of fiscal 2021 was 46.6%. Adjusted gross margin percentage was 46.6%, slightly above the prior year quarter, as improved pricing and promotion, favorable mix and gross savings from Project Fuel, were mostly offset by rising commodity and supply chain costs. Gross profit was$435.0 during the first six months of fiscal 2021, compared to$436.1 in the prior year period. Gross margin as a percent of net sales for the first six months of fiscal 2021 was 44.8%, up 20-basis points compared to the prior year period. Adjusted gross margin percentage was 45.0%, up 40-basis points from the prior year period, driven by favorableSun Care price mix, favorable mix and gross savings from Project Fuel and favorable foreign currency fluctuations offset by rising commodity and supply chain costs and higher obsolescence charges. Selling, General and Administrative Expense Selling, general and administrative expense ("SG&A") was$93.4 in the second quarter of fiscal 2021, or 18.0% of net sales, compared to$121.5 in the prior year quarter, or 23.2% of net sales. Adjusted SG&A as a percent of net sales was 17.4%, an increase of 20-basis points, driven principally by operating costs associated with the Cremo business and negative foreign currency exchange, largely offset by lower discretionary spend and Project Fuel savings. SG&A was$186.5 in the first six months of fiscal 2021, or 19.2% of net sales, as compared to$216.5 in the prior year period, or 22.2% of net sales. Adjusted SG&A as a percent of net sales was 18.7%, an increase of 60-basis points, driven by the Cremo acquisition, higher employee costs, and unfavorable foreign currency fluctuations, offset by reduced spend across multiple categories including travel and meetings and broker expenses. Advertising and Sales Promotion Expense For the second quarter of fiscal 2021, Advertising and sales promotion expense ("A&P") was$68.4 , up$21.4 compared to the prior year quarter of$47.0 . A&P spending as a percent of net sales was 13.2%, up from 9.0% in the prior year period. For the first six months of fiscal 2021, A&P was$109.6 , up$21.5 compared to the prior year period. A&P as a percent of net sales was 11.3%, as compared to 9.0% in the prior year period. The increase in A&P was the result of investments and focus on critical commercial efforts supporting the Schick Hydro relaunch, Schick Stubble Eraser product launch, Skintimate campaign, Men's systems development inJapan and the inclusion of the Cremo brand investments. 28 -------------------------------------------------------------------------------- Research and Development Expense Research and development expense ("R&D") for the second quarter of fiscal 2021 was$14.3 , compared to$13.9 in the prior year quarter. As a percent of net sales, R&D was 2.8% in the second quarter of fiscal 2021 compared to 2.7% in the prior year quarter. R&D for the first six months of fiscal 2021 was$28.0 , compared to$27.7 in the prior year period. As a percent of net sales, R&D was 2.9% in the first six months of fiscal 2021, compared to 2.8% in the prior year period. R&D expense was flat compared to the prior year driven by incremental investments in resources and capabilities in support of the Company's focus on innovation and development primarily in the Sun andSkin Care segment offset by slightly reduced investment in Wet Shave. Interest Expense Associated with Debt Interest expense associated with debt for the second quarter of fiscal 2021 was$17.3 , compared to$13.9 in the prior year quarter. For the first six months of fiscal 2021, interest expense was$34.7 , compared to$28.2 in the prior year period. The increase in interest expense was the result of higher average outstanding debt and higher interest rate primarily as a result of the issuance of the 5.5%$750 Senior Notes due 2028 issued inMay 2020 . Other Expense (Income), Net Other expense, net was$0.0 in the second quarter of fiscal 2021, compared to expense of$10.9 in the prior year quarter. Other income, net was$1.0 during the first six months of fiscal 2021, compared to expense of$9.3 during the first six months of fiscal 2020. The decline in expense was largely related to unfavorable foreign currency and hedges in the prior period, partially offset by increased income in pension benefits. Income Tax Provision The effective tax rate for the first six months of fiscal 2021 was 28.4%, compared to 27.4% in the prior year period. On an adjusted basis, the effective tax rate was 26.5% and 24.2% for the first six months of fiscal 2021 and fiscal 2020, respectively. The fiscal 2021 effective tax rate and adjusted effective tax rate reflects higher unfavorable global intangible low-tax income ("GILTI") and Internal Revenue Service Code Section 162(m) permanent adjustments compared to fiscal 2020. Additionally, the fiscal 2020 effective tax rate included the unfavorable impact of the disposition of the Infant and Pet Care business. The following table presents a reconciliation of the adjusted effective tax rate, which is a non-GAAP measure: Six Months Ended March 31, 2021 Six Months Ended March 31, 2020 Adjusted Adjusted Reported Adjustments (1) (Non-GAAP) Reported Adjustments (1) (Non-GAAP) Earnings before income taxes$ 44.7 $ 39.3$ 84.0 $ 57.8 $ 48.3$ 106.1 Income tax provision 12.6 9.6 22.2 15.9 9.9 25.8 Net earnings$ 32.1 $ 29.7$ 61.8 $ 41.9 $ 38.4$ 80.3 Effective tax rate 28.4 % 27.4 %
Adjusted effective tax rate 26.5 % 24.2 %
(1)Includes adjustments for expenses management excludes when analyzing the operating performance of the Company. Refer to the GAAP to Non-GAAP reconciliation above for a detailed listing of adjustments.
Project Fuel
Project Fuel is an enterprise-wide transformational initiative that was launched
in the second quarter of fiscal 2018 to address all aspects of our business and
cost structure, simplifying and transforming our organization, structure and key
processes. Project Fuel is facilitating further re-investment in our growth
strategy while enabling us to achieve our desired future state operations.
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In addition to the expected cost savings, Project Fuel is designed to strengthen
our challenger culture and reinforce our consumer-centric organizational focus.
It is also designed to simplify the organization and streamline ways of working
in order to increase competitiveness, speed and agility, and ensure we have the
skills, capabilities and investments needed to compete in a rapidly changing
world.
We expect that Project Fuel will generate $265 to $275 in total annual gross
savings by the end of the 2021 fiscal year. The savings generated will be used
to fuel investments and brand building in strategic growth initiatives, offset
anticipated operational cost headwinds from inflation and other rising input
costs and improve our overall profitability and cash flows. Project Fuel related
savings were approximately $17 and $33 for the second quarter and six months
ended March 31, 2021 , respectively, bringing cumulative savings to $245 for the
project.
To implement the restructuring element of Project Fuel, we expect to incur
one-time pre-tax charges of approximately $160 to $165 through the end of the
2021 fiscal year. Restructuring and related charges were $5.5 and $9.9 for the
second quarter and six months ended March 31, 2021 , respectively, bringing
cumulative charges to $143.5 for the project.
Capital expenditures for Project Fuel were $5.1 for the six months ended March
31, 2021 bringing cumulative capital expenditures to $63.2 for the project.
For further information on our restructuring projects, refer to Note 3 of Notes
to Condensed Consolidated Financial Statements.
Segment Results
The following tables present changes in segment net sales and segment profit for
the second quarter and first six months of fiscal 2021, compared to the
corresponding period in fiscal 2020, and provide a reconciliation of organic
segment net sales and organic segment profit to reported amounts. For a
reconciliation of segment profit to Earnings before income taxes, refer to Note
15 of Notes to Condensed Consolidated Financial Statements.
Our operating model includes some shared business functions across the segments,
including product warehousing and distribution, transaction processing functions
and, in most cases, a combined sales force and management teams. We apply a
fully allocated cost basis in which shared business functions are allocated
between the segments.
Wet Shave
Net Sales - Wet Shave
Period Ended March 31, 2021
Q2 % Chg Six Months % Chg
Net sales - prior year $ 280.5 $ 557.5
Organic 3.1 1.1 % (1.1) (0.2) %
Impact of currency 9.1 3.2 % 15.4 2.8 %
Net sales - current year $ 292.7 4.3 % $ 571.8 2.6 %
Wet Shave net sales for the second quarter of fiscal 2021 increased 4.3%
compared to the prior year quarter, inclusive of a 3.2% increase due to currency
movements. Organic net sales increased $3.1 , or 1.1%, reflecting another quarter
of sequential improvement and further stabilization of the business. The
increase in sales was driven by global sales and market share gains in Women's
systems and innovation driven growth in Men's systems in North America . This was
largely offset by the continued impact of COVID-19 on the category, particularly
in International markets. By region, North America organic net sales increased
4.4%, while International markets decreased 1.5%.
Wet Shave net sales for the first six months of fiscal 2021 increased 2.6%,
inclusive of a 2.8% increase due to currency movements. Organic net sales
decreased $1.1 , or 0.2%. The decline in organic net sales was driven by
unfavorable price mix, partially offset by positives volumes. Geographically,
International markets declined 1.0%, partially offset by growth in North America
totaling 0.7%. Volumes were flat as growth in Women's systems was offset by
declines across all other categories. Women's systems growth included increases
in Intuition, Skintimate and Hydro Silk, while Men's systems had growth in Hydro
and Bulldog, offsetting declines in other brands.
30
--------------------------------------------------------------------------------Segment Profit - Wet Shave Period EndedMarch 31, 2021 Q2 % Chg Six Months % Chg Segment profit - prior year$ 44.5 $ 97.4 Organic (0.7) (1.6) % (2.3) (2.4) % Impact of currency 2.1 4.7 % 3.4 3.5 % Segment profit - current year$ 45.9 3.1 %$ 98.5 1.1 % Wet Shave segment profit for the second quarter of fiscal 2021 was$45.9 , up$1.4 , or 3.1%, compared to the prior year quarter, inclusive of the impact of currency movements. Organic segment profit decreased$0.7 , or 1.6%, as improved gross margin was driven by favorable coupons and favorable segment mix between Women's systems and Disposables and was offset by higher A&P for Men's systems during the quarter. Wet Shave segment profit for the first six months of fiscal 2021 was$98.5 , up$1.1 , or 1.1%, from the prior year period, inclusive of the impact of currency movements. Organic segment profit decreased$2.3 , or 2.4%, primarily due to significantly higher A&P expense in support of Men's and Women's systems. The increase in A&P expense was partially offset by higher gross margin from favorable volumes and cost mix and favorable overheads. Sun andSkin Care Sun andSkin Care segment net sales and profit are affected by the seasonality of sun care products. As a result, segment net sales and profit have historically been higher in the second and third quarters of the fiscal year.Net Sales - Sun andSkin Care Period EndedMarch 31, 2021 Q2 % Chg Six Months % Chg Net sales - prior year$ 157.5 $ 232.6 Organic (14.7) (9.3) % (4.2) (1.8) % Impact of Cremo acquisition 14.6 9.3 % 31.2 13.4 % Impact of currency 2.1 1.3 % 2.9 1.3 % Net sales - current year$ 159.5 1.3 %$ 262.5 12.9 % Sun andSkin Care net sales for the second quarter of fiscal 2021 increased 1.3% compared to the prior year quarter, inclusive of a 9.3% increase due to the Cremo acquisition and a 1.3% increase due to currency movements. Organic net sales decreased$14.7 , or 9.3%. The decline in organic net sales was primarily driving bySun Care , reflecting the impact of COVID-19 on the category, particularly through the early part of the quarter, as well as the impact of supply chain constraints. Wet Ones organic net sales decreased$2.7 in the quarter, reflecting high retailer inventory and the cycle of prior year COVID-19 driven performance. Men's Grooming increased 7.6% driven by strong e-commerce sales. Sun andSkin Care net sales for the first six months of fiscal 2021 increased 12.9% compared to the prior year period, inclusive of a 13.4% increase due to the Cremo acquisition and a 1.3% increase due to currency movements. Organic net sales decreased$4.2 , or 1.8%. Organic net sales declines were driven by a reduction inSun Care volumes of 15% globally, partially offset by favorable pricing inNorth America from trade and coupons. Wet Ones grew 35% driven by higher volumes due to the continued increase in demand dating back toMarch 2020 . Men's Grooming increased over 10% driven byJack Black and Bulldog. Segment Profit - Sun andSkin Care Period EndedMarch 31, 2021 Q2 % Chg Six Months % Chg Segment profit - prior year$ 44.3 $ 44.4 Organic (9.8) (22.1) % (6.9) (15.5) % Impact of Cremo acquisition 1.4 3.2 % 3.8 8.6 % Impact of currency 0.3 0.6 % 0.1 0.1 % Segment profit - current year$ 36.2 (18.3) %$ 41.4
(6.8) %
31
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Segment profit for the second quarter of fiscal 2021 was $36.2 , a decrease of
$8.1 , compared to the prior year quarter. Organic segment profit, excluding the
Cremo acquisition and currency movements, decreased $9.8 , driven by lower gross
margin, reflecting lower volumes in Sun Care and unfavorable costs including
higher warehousing and distribution, partially offset by favorable pricing, as
well as reduced A&P expense.
Segment profit for the first six months of fiscal 2021 was $41.4 , a decrease of
$3.0 , or 6.8%, compared to the prior year period. Organic segment profit,
excluding the Cremo acquisition and currency movements, decreased $6.9 , or
15.5%, driven primarily by lower sales volumes in Sun Care , partially offset by
higher sales in Wet Ones and Grooming products. Additionally, Sun and Skin Care
was impacted by unfavorable cost mix driven by obsolescence charges. These
declines were partially offset by lower A&P spend to combat lower demand in the
Sun Care category.
Feminine Care
Net Sales - Feminine Care
Period Ended March 31, 2021
Q2 % Chg Six Months % Chg
Net sales - prior year $ 85.0 $ 160.1
Organic (17.9) (21.1) % (24.2) (15.1) %
Impact of currency - - % 0.2 0.1 %
Net sales - current year $ 67.1 (21.1) % $ 136.1 (15.0) %
Feminine Care net sales for the second quarter of fiscal 2021 decreased $17.9 ,
or 21.1%. The decline in net sales was largely driven by overall category
declines, the effect of prior year pantry loading and the negative effect of
distribution losses, most notably at Walmart.
Feminine Care net sales for the first six months of fiscal 2021 decreased $24.0 ,
or 15.0%. Net sales declines were driven by overall category declines, the
effect of the prior year pantry loading and the negative effect of distribution
losses.
Segment Profit - Feminine Care
Period Ended March 31, 2021
Q2 %Chg Six Months %Chg
Segment profit - prior year $ 18.3 $ 31.4
Organic (12.9) (70.5) % (17.2) (54.8) %
Impact of currency 0.2 1.1 % 0.2
0.7 %
Segment profit - current year
Feminine Care segment profit for the second quarter of fiscal 2021 was$5.6 , a decrease of$12.7 , or 69.4%, compared to the prior year quarter. The decline was driven by lower gross margin, reflecting lower volumes across all products, higher costs including materials cost and warehousing and distribution charges, and higher A&P expense. Feminine Care segment profit for the first six months of fiscal 2021 was$14.4 , a decrease of$17.0 , or 54.1%, from the prior year period, primarily due to unfavorable gross margin from lower sales volumes, unfavorable cost mix due to higher materials, and warehouse and distribution costs and higher A&P expense. 32 -------------------------------------------------------------------------------- All Other The Infant and Pet Care business divestiture completed inDecember 2019 disposed of the entirety of the operations of the All Other segment. The results below represent the impact of the divestiture to segment performance:Net Sales - All Other Period EndedMarch 31, 2021 Six Months %Chg Net sales - prior year$ 26.8 Organic - - % Impact of the sale of the Infant and Pet Care business (26.8) (100.0) % Impact of currency - - % Net sales - current year $ - (100.0) % Segment Profit - All Other Period EndedMarch 31, 2021 Six Months %Chg Segment profit - prior year$ 3.1 Organic - - % Impact of the sale of the Infant and Pet Care business (3.1) (100.0) % Impact of currency - - % Segment profit - current year $ - (100.0) %
General Corporate and Other Expenses
Quarter Ended March 31, Six Months Ended March 31,
2021 2020 2021 2020
Corporate expenses $ 13.4 $ 10.9 $ 25.5 $ 24.2
Restructuring and related costs 5.5 12.4 9.9 20.4
Acquisition and integration costs 0.3 25.5 3.3 31.7
Cost of early retirement of long-term debt 26.1 - 26.1 -
Gain on sale of Infant and Pet Care business - 1.1 - (4.1)
Feminine and Infant Care evaluation costs - - - 0.3
General corporate and other expenses $ 45.3 $ 49.9 $ 64.8 $ 72.5
% of net sales 8.7 % 9.5 % 6.7 % 7.4 %
For the second quarter of fiscal 2021, general corporate expenses were $13.4 , or
2.6% of net sales, compared to $10.9 , or 2.1% of net sales, in the prior year
quarter. For the second quarter of fiscal 2021, the increase in corporate
expense was primarily due to higher compensation and headcount, partially offset
by Project Fuel savings and lower discretionary spending.
For the first six months of fiscal 2021, general corporate expenses were $25.5 ,
or 2.6% of net sales, compared to $24.2 , or 2.5% of net sales, in the prior year
period. For the six months ended March 31, 2021 , the increase in corporate
expense is primarily due to higher compensation and headcount, partially offset
by Project Fuel savings and lower discretionary spending.
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Liquidity and Capital Resources
To date, COVID-19 has not had a significant impact on our liquidity or capital
resources. However, the continued spread of COVID-19 has led to disruption and
volatility in the global capital markets, which, depending on future
developments, could impact our capital resources and liquidity in the future.
At March 31, 2021 , a portion of our cash balances were located outside the U.S.
Given our extensive international operations, a significant portion of our cash
is denominated in foreign currencies. We manage our worldwide cash requirements
by reviewing available funds among the many subsidiaries through which we
conduct business and the cost effectiveness with which those funds can be
accessed. We generally repatriate a portion of current year earnings from select
non-U.S. subsidiaries only if the economic cost of the repatriation is not
considered material.
The counterparties that hold our deposits consist of major financial
institutions. We consistently monitor positions with, and the credit ratings of,
counterparties both internally and by using outside ratings agencies.
Our total borrowings were $1,274.2 at March 31, 2021 , including $24.2 tied to
variable interest rates. Our total borrowings at September 30, 2020 were
$1,271.1 . We had outstanding international borrowings, recorded in Notes
payable, of $24.2 and $21.1 as of March 31, 2021 and September 30, 2020 ,
respectively.
On March 8, 2021 , the Company entered into a new unsecured indenture agreement
for 4.125% Senior Notes in the amount of $500 due April 1, 2029 ("2029 Notes").
The Company used the net proceeds of the 2029 Notes to satisfy and discharge the
obligations outstanding under its 4.70% Senior Notes in the amount of $500 due
2022 ("2022 Notes").
Historically, we have generated, and expect to continue to generate, positive
cash flows from operations. Our cash flows are affected by the seasonality of
our Sun Care products, typically resulting in higher net sales and increased
cash generated in the second and third quarter of each fiscal year. While we
cannot reasonably estimate the full impact COVID-19 will have on our cash flows,
we believe our cash on hand, cash flows from operations and borrowing capacity
under our U.S Revolving Credit Facility due 2025 (the "Revolving Credit
Facility") will be sufficient to satisfy our future working capital
requirements, interest payments, research and development activities, capital
expenditures, and other financing requirements for at least the next 12 months.
We will continue to monitor our cash flows, spending and liquidity needs.
Short-term financing needs consist primarily of working capital requirements and
principal and interest payments on our long-term debt. Long-term financing needs
will depend largely on potential growth opportunities, including acquisition
activity and repayment or refinancing of our long-term debt obligations. We may,
from time-to-time, seek to repurchase shares of our common stock. Such
repurchases, if any, will depend on prevailing market conditions, our liquidity
requirements, contractual restrictions and other factors. Our long-term
liquidity may be influenced by our ability to borrow additional funds,
renegotiate existing debt, and raise equity on terms that are favorable to us.
The expected minimum required contribution to our pension plans in fiscal 2021
is $6.3 ; however, discretionary contributions may also be made. During the first
six months of fiscal 2021 we contributed $2.7 to our pension plans.
As of March 31, 2021 , we were in compliance with the provisions and covenants
associated with our debt agreements.
Cash Flows
A summary of our cash flow activities is provided in the following table:
Six Months Ended March 31,
2021 2020
Net cash from (used by):
Operating activities $ (18.8) $ 17.2
Investing activities (13.6) 81.1
Financing activities (52.1) (130.5)
Effect of exchange rate changes on cash 1.9 (0.6)
Net decrease in cash and cash equivalents$ (82.6)
34
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Operating Activities
Cash flow used by operating activities was $18.8 during the first six months of
fiscal 2021, compared to cash flows from operating activities of $17.2 during
the same period in the prior year. The increase in cash used for operating cash
flows was primarily related to changes in working capital, driven by higher
working capital, primarily inventory build, and lower net income.
Investing Activities
Cash flow used by investing activities was $13.6 during the first six months of
fiscal 2021, compared to cash inflows of $81.1 during the same period in the
prior year. During the six months ended March 31, 2021 , we collected $7.5 of
proceeds from the sale of the Infant and Pet Care business, compared to $95.8 in
the prior year quarter. Capital expenditures were $22.2 during the first six
months of fiscal 2021 compared to $16.8 during the same period in the prior
year. Additionally, other investing cash inflows related to the collection of
receivables from our $150 uncommitted master accounts receivable purchase
agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. , New York Branch, as the
purchaser ("Accounts Receivable Facility") totaled $2.2 and $3.3 during the
first six months of fiscal 2021 and 2020, respectively, as a result of
collections on the deferred purchase price of accounts receivables sold.
Financing Activities
Net cash used by financing activities was $52.1 during the first six months of
fiscal 2021, compared to $130.5 during the same period in the prior year. During
the first six months of fiscal 2021, we repurchased $9.2 of our common stock
under our authorized share repurchase plan. The Company replaced its $500 2022
Senior Notes with the issuance of $500 2029 Senior Notes. Additional financing
cash outflows incurred were related to costs of early debt retirement of the
2022 Senior Notes totaling $26.5 and debt issuance costs of $5.9 . Dividend
payments totaled $8.4 in the first six months of fiscal 2021. Additionally, cash
flows associated with the Accounts Receivable Facility were inflows of $0.7
during the first six months of fiscal 2021 compared to financing outflows of
$14.4 in the prior year period. The Company had net repayments of its Revolving
Credit Facility during the six months ended March 31, 2020 totaling $117.0 .
Share Repurchases
During the first six months of fiscal 2021, we repurchased 0.3 shares of our
common stock for $9.2 . We have 9.7 shares remaining under the existing Board
authorization to repurchase our common stock. Future share repurchases, if any,
would be made in the open market, privately negotiated transactions or
otherwise, in such amounts and at such times as we deem appropriate based upon
prevailing market conditions, business needs and other factors.
Dividends
OnNovember 20, 2020 , our Board of Directors declared a cash dividend of$0.15 per share of common stock outstanding, payable onJanuary 6, 2021 to holders of record as of the close of business onDecember 10, 2020 . OnFebruary 9, 2021 , our Board of Directors declared a cash dividend of$0.15 per share of common stock outstanding, payableApril 6, 2021 to holders of record as of the close of business onMarch 5, 2021 . Dividends declared during the six months endedMarch 31, 2021 totaled$16.8 . Payments made for dividends during the six months endedMarch 31, 2021 totaled$8.4 . OnMay 6, 2021 , the Company's Board of Directors declared a cash dividend of$0.15 per share of common stock outstanding. The dividend is payableJuly 7, 2021 to holders of record as of the close of business onJune 4, 2021 . Commitments and Contingencies Contractual Obligations During the first six months of fiscal 2021, there were no net repayments on the Revolving Credit Facilities. As ofMarch 31, 2021 , future minimum repayments of debt were:$750.0 in fiscal 2028 and$500.0 in fiscal 2029. There have been no other material changes in our contractual obligations since the presentation in our 2020 Annual Report. 35
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