Welcome to the Edgewell Personal Care Third Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Chris Gough, Vice President Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us for Edgewell's third quarter FY '16 earnings conference call. As a reminder, for comparative purposes FY '15 third quarter results include both the Personal Care and the household products businesses with the results of the household products business presented as discontinued operations. Historical results on a continuing operations basis include certain costs associated with supporting the operations of the household business as these costs were not reported in discontinued operations. As a result, EPS this quarter is not comparable to the prior year as the prior year's results include SG&A expense, interest expense, spin cost, restructuring cost and tax associated with supporting the household business. Additionally, EPS was not comparable in either the first or second quarter of FY '16. To partially address this, we have provided normalized third quarter FY '16 EBITDA reflecting pro forma adjustments to SG&A. You will find these normalizations in the non-GAAP reconciliations at the back of our press release issued earlier today and on our website. With me this morning are David Hatfield, our President and Chief Executive Officer and Chairman of the Board and Sandy Sheldon, our Chief Financial Officer. David will kick off the call and then hand the call over to Sandy for earnings and outlook discussion followed by Q&A. This call is being recorded and will be available for replay via our website www.Edgewell.com. During the call we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending product launches, the impact of go-to-market changes on sales, savings and costs related to restructurings, changes to our working capital metrics, currency fluctuations, commodity costs, category value, future plans for return of capital to shareholders and more. Any such statements are forward-looking statements which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties including those described under the caption, risk factors, in our annual report on form 10-K for the year ended September 30, 2015, as amended and supplemented in our quarterly reports on form 10-Q for the quarters ended December 31, 2015 and March 31, 2016. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances. During this call we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are shown in our press release issued earlier today which is available in the Investor Relations section of our website. Management believes these non-GAAP measures provide investors valuable information on the underlying trends of our business. With that I would like to turn the call over to David.

Thank you, Chris and good morning, everyone. Before Sandy takes you through the results, I'll briefly comment on a few highlights of Edgewell's performance. We were pleased that through our fiscal year-to-date both our top line sales and operating profit are generally in line with the expectations that we set for ourselves at the beginning of the year. Also, we're reaffirming our full-year outlook for sales. This past quarter marked our one-year anniversary as a standalone Company and we're now at the point where we begin to put many of the transition actions and the impacts behind us. Most notably, we have now completed four full quarters of our go-to-market changes. The total year-to-date impact has been 1.8 points of top line growth in line with our original estimates. I'm pleased at how the distributor model is working in the vast majority of markets where we made changes and we can now set our sights on really growing in those markets. Fiscal year-to-date, our total net sales are down 6%. They are down about a point on an organic basis but are up about a point in underlying basis after go-to-market impacts. This performance is tracking very close to our planning assumptions and over that period we've seen growth in many of our key businesses. Total Wet Shave is flat on an organic basis but grew an estimated 2.5% on an underlying basis. With that, we're up in Men's Systems reflecting the global rollout of our next-generation Hydro product improvement. We also launched in this quarter our fifth Mach3 private label product in partnership with our U.S. customers. We've also grown Women Systems and Shave Preps in this fiscal year behind innovation and category management. The Sun and Skin segment is up both on an organic basis and an underlying…

Thank you, David and good morning, everyone. I would like to turn to our performance in the third quarter and year-to-date. Our results for sales and operating profit in the quarter and through the first quarters of the fiscal year were generally in line with our expectations coming into the year and in line with our previous outlook. As David mentioned earlier, we're pleased with the progress we're making in -- particularly in light of the magnitude and scope of organizational change that we've undertaken this year. We continue to monitor the currency and macroeconomic environment closely as changing dynamics there can and have impacted our projected results. Now moving into details, our net sales were $645 million, a decrease of 4.1% or 2% on an organic basis which excludes the impact of ten basis points from currency and 180 basis points from the Venezuela deconsolidation and industrial sale which were included in prior-year comparatives. In addition, we estimate that about $10 million of the net sales decline was due to the go-to-market changes including exits and transitions to distributors. North American net sales were down 2.2% or 1.8% on an organic basis as growth in Sun and Skin Care was offset primarily by declines in Feminine Care. International net sales were down 2.7% and down about 3% on an organic basis, though up 1.4% excluding the estimated $10 million negative impact of go-to-market changes. Reported net sales through the first three quarters were down 5.9% and down about one point on an organic basis, but up about one point excluding the impact of go-to-market changes. This was in line with our plan coming into the year and puts us on track for our previous full-year outlook a flat organic sales. Gross margin was 48.2%, up ten basis points over…

Thank you, Sandy. To close our upfront comments, we'd like to thank our colleagues worldwide for their accomplishments over the last 12 months, our first year. In addition to building Edgewell and managing through significant organizational changes, you have also competed very effectively in your markets. Thank you for your efforts and we look forward to closing out FY '16 at or above plan and working toward an even better second year. With that, we'll open it up for questions. Operator?

[Operator Instructions]. The first question comes from Olivia Tong of Bank of America Merrill Lynch. Please go ahead.

My first question is just about the spending behind the Wet Shave business. You talked about more efficient spend trade spend in Q4. Do you think of that as freeing up funds for reinvestment to restore some of the growth in the top line or is that slowing down to EPS? And then, it's interesting -- I wanted to ask you about your view on the change in ownership on Dollar Shave Club, do they become a bigger competitor to you because they're housed within a larger organization? How do you think about the competitive dynamics in that category? So that my first question and then I will follow up.

On the first question, I think it is a planned -- the spend that we're putting against Wet Shave's consistent with our annual plan and it correlates directly to planned top line and operating profit delivery. On the DSC question, Unilever had several reasons why they said that they bought DSC and I really can't speculate how they will operate DSC. What I can say is that we have competed well over the years in the shaving, before and after the entry of Dollar Shave Club and we will continue doing so going forward.

The next question comes from Dara Mohsenian of Morgan Stanley. Please go ahead.

I wanted to stick to the competitive environment both in Wet Shave but also more broadly across your portfolio. Your largest competitor has obviously significantly increased marketing and sampling spend in the last couple of quarters, sounds like it will continue going forward. Obviously, the Unilever dynamic with Dollar Shave Club. Do you think you will need to boost spending behind your business going forward? I mean, are you planning to on the Wet Shave side? I know you don't want to speculate on Unilever but I guess are you planning to preemptively spend? And as you think about the rest of the portfolio, if you could just review the pricing promotion level of ad spend environment you are seeing in terms of the industry? That would be helpful. Thanks.

We're seeing P&G ramping up their spend. And we knew they would behind the launch of their new products and after our successful launch of Next-Generation Hydro. We knew that they would try to win Q3. Still, we're surprised that their promotional level in men's systems in the U.S. hit 40%, the most ever since we have kept records. So I really don't want to speculate about going forward, but I will just say that our philosophy is, we don't like to promote for a share. We prefer to build baseline share through innovation, equity and category management and that's the plan. But the flip side is also true that we won't lose share over the medium term due to being out-promoted or having value equations that are off. So we're going into a planning season now. And we will factor that in accordingly.

Okay, can you talk about the competitive environment on the rest of the portfolio also, beyond Wet Shave?

Yes. Sun, I think, is pretty similar to past years and I think that we're competing well with it in the U.S. Fem is also pretty -- at a pretty normalized levels for the most part, I'd say. And then Infant is a more fragmented marketplace but I don't think there's anything overly noteworthy there, also.

The next question comes from Jason English of Goldman Sachs. Please go ahead.

Gross margins, I know you came into the year expecting sort of flattish performance. Is it fair to say that, that's probably off the table given the progression through the first three quarters?

No, we would still say our gross margin is going to be roughly in line with the full-year prior year. We've had some volatility between quarters but we still have a pretty solid outlook of relatively flat for the year.

Okay. So pretty solid bounce back expectation in the fourth quarter. Is it fair to say that, that really is going to be driven by Wet Shave and the trade dynamics you talked about? And a related question to Wet Shave, I know you've talked a lot about how this private label mix factor is nothing to be concerned about with margins overall, but the margin degradation here is a little bit concerning. Should we be bracing for continued margin pressure in Wet Shave on the private label mix?

So we did see, this quarter in particular, we did see some unfavorable volume mix in Wet Shave and part of that really relates to the year-over-year dynamics. Last year we had pretty Wet Shave -- brand of Wet Shave growth and this quarter we were more flat there but we had higher private label sales due to the launched that David mentioned previously. So we're seeing some unfavorable volume mix this quarter. But we do expect to see margins bounce back next quarter in Wet Shave related to better price mix and then for the full-year we think we will be roughly around the same level. And the other thing that continues to impact us, particularly in Wet Shave on gross margin, is some of the FX transaction cost. That has a pretty big impact on Wet Shave and also Fem Care.

And one more question and I will pass it on. Back to the Shave Club commentary, Unilever is obviously making a bet on this and they are talking about the ability to expand it internationally. P&G has had success playing catch-up rapidly with their own shave club. How do you see shave clubs, assuming that there is some durability to them, how do you see them playing out for you in your future? Is there opportunity for you to participate and, if so, would it more likely be on a standalone basis or is there opportunity to partner with established online retailers?

We think eCommerce generally is a large opportunity for us in the coming years. Whether it be the omni channel customers, where we support them or the pure play like Amazon or Ali Baba, we see significant growth through those channels, also. And then finally, your question about direct-to-consumer. We actually sell to many shave clubs around the world, actually. And when you look at them generally, they are not profitable while we actually enjoy pretty good margins through them. We have concerns about the profitability of existing direct-to-consumer models but we're committed to serving consumers wherever they choose to shop. So we're developing a direct-to-consumer proposition that is scalable, that is differentiated, that it builds brand equity and that complements our channel strategy. So, we're developing that. If and when we can meet those hurdles, we will consider entering DTC.

The next question comes from Bill Chapell of SunTrust. Please go ahead.

First question to make sure I understand, in terms of the EBITDA guidance change for this year to kind of the lower end, what is the main driver behind that? I'm pretty sure FX wasn't a change in terms of your guidance from last quarter so just want to make sure I understood what was the major driver?

Yes, the major drivers are the losses on our currency hedge contracts in our other expense income line. That's the major driver.

And other income is in EBITDA? The way it looks?

Yes, it is.

And then the second, just the thought process behind continued share repurchase, is there any changes you look going forward in terms of M&A versus possibly a dividend? It strikes me as you seem to continue to step up share repurchase and put more of your cash towards that. Is there a thought that maybe a dividend makes more sense for the long term or that there is not a whole lot in terms of M&A candidates out there?

Yes, I would say that our direction remains -- that uses of the cash remain, first of all to put in the business either to fuel growth or else to drive productivity. The second priority remains M&A and we're actively scanning the horizon for that. The third remains share buyback. We review dividend policy with the board regularly but right now the priorities remain the business and then M&A and then share repurchase.

The next question comes from Ali Dibadj of Bernstein. Please go ahead.

Can you expand a little bit on the on-track channel growth? That's explaining the discrepancy between Nielsen and your reported numbers in Wet Shave? Is it online or is it club? Is it private label or is it branded? And then you had mentioned private label mix shift on gross margins, but how much of the lower gross margins were impacted by this kind of untracked mix shift in Wet Shave, because both club and online tend to be lower margin.

We see Nielsen tracked -- markets are down 4% in the U.S. They count for about 80% of the total market. The other 20% grew rapidly enough that we estimate that the total market is down one1%, so that's the math behind that.

So you already gave that in your prepared remarks. I'm trying to figure out whether it is online or club or if it's branded or private label? And what the impact was of the untracked channels on the gross margins? And then I have a follow-up.

The growth was across club, dollar store and the shave clubs. They were all up. And I believe that's all branded or the vast majority would be branded.

Yes. And I would say the mix issues are not necessarily channel dependent. It's predominantly this quarter the mix of private label versus branded within our normal customers.

Okay. And then on the very creatively named ZBS that you guys are just implementing. Can you talk a little bit more about -- more specifically on the targeted areas of spend, quote-unquote, that you describe? And I'm trying to get a better sense of whether, I'm trying to find the language you use, reinforcing -- reinforce organic growth and market objectives. Means that's what you need to reach your current targets or is it to get beyond the current targets? So in some sense, is it incremental or is it because it seems like you are going to have to spend a little more back? Thank you.

So first of all, we're actually targeting a broad range of cost categories. We're actually ruling out headcount. Organizationally, we have made many changes over the last several years. And this is not directed at new organization moves and because we have a long-standing program against product cost, also -- it isn't generally focused there. So it is kind of everything else but that. And then we're entering planning season now and I think we'd finalize both the program and what we think we can net from it. And then also just look at the bottom up plans around the world. So I'm not sure that I can answer you yet but that is something we can talk about more come November.

The next question comes from Nik Modi of RBC Capital Markets. Please go ahead.

Sandy, maybe you can answer this one. When you think about the trade spending program, can you just help us understand the pathway in terms of the rollout? And maybe even help us understand how much trade spend you guys have so we can think about potential implications on that. And then any case studies on what you've learned to so far from implementing the system here in the U.S.

Okay, I will start and maybe David will jump in on some comments as well. So where we're with the rollout is, we have been using the new tool in our U.S. commercial teams to work on our 2017 plan. And obviously as we go into 2017, we will start to be able to track better a lot of the actual programs versus our expectations and start to really zone in on optimal programs and really understand even better than we do today, some of the ROIs of these programs. I think what we're probably using it some extent when we think about fourth quarter and trying to zone in on far more efficient promotions in the fourth quarter versus prior-year and really that would run the gamut of all of our segments. I think we've been using it effectively in Wet Shave and in Sun Care and Fem Care. So I think it's pretty much against a broad range of segments and we're starting to see some good results.

I think that covered it pretty well.

The next question comes from Bill Schmitz of Deutsche Bank. Please go ahead.

Can you guys just talk about the platform lifecycle and if that changes in shaving because I think Hydro is six years old now and typically they have been like seven-year launch cycles? Is that still the way to think about things? Do you view Hydro as maybe a different platform where you can kind of live with it for a little bit longer and continue to innovate behind it?

We really wouldn't want to comment about future roadmaps. Sorry.

Okay. But industrywide, I think you said stuff previously, though, that maybe the industry has changed a little bit and you might support the existing platforms longer. Did I miss hear that?

Well, broadly, I think rising up broadly, I think that you have seen that the lift that MACH3 gave versus Sensor was higher than Fusion to Mach 3 and I think we have a similar tack and I think that, that lends itself maybe to longer cycles. But that's just a general comment.

Okay and then to Sandy. Are the bulk of the hedging losses done now? Or should we continue to model losses going forward? That's a difficult number for us to try to figure out.

In the fourth quarter we will have some losses as well, but they will be not as severe as what we saw this quarter.

Okay and then do they go away after that?

Obviously it depends on where rates fall, but based on the current spot rate I would say we would have some fall into 2017, as well.

The next question comes from Kevin Grundy of Jefferies. Please go ahead.

First, quick housekeeping question, Sandy. Just the sustainable long term tax rate as we look out to 2017 and 2018? And then, David, I wanted to come back to the M&A question but I hope ask it a bit differently given some of the evolving dynamics. So the top line remains pressured and we all appreciate the difficult competitive environment and the ramp spending there that we're seeing from your largest competitor. I wouldn't expect you to comment on this, but -- the Unilever's move with Dollar Shave Club, they seem to have chosen their path in the category there. They were widely viewed as the most likely potential suitor of Edgewell and now that scenario is seemingly off the table. I'm just curious, as you sort of pull these pieces together, the top line remains under pressure. You have the dynamic with Unilever, again which I wouldn't expect you to comment on. Is there any change in philosophy at all with respect to M&A or maybe there is a case to be made that the Company should be looking at higher growth assets. Has that changed at all? If so, what potential categories or geographies are of greatest interest to you? Thank you.

First on the tax rate, I would say that we would have a core tax rate somewhere in the 27% to 29% rate going forward. But as you know, it is all dependent on mix of U.S. and foreign earnings. But right now that is what we're considering our core rate.

And then your M&A question, I think that it remains a very high priority for us. I think international would be very good. But generally, we're looking at close in adjacencies, whether it be Skin Care, Men's Grooming, Sun Care. Those kind of categories are our number one priorities and we continue to work on those.

The next question comes from Stephen Powers of UBS. Please go ahead.

So I know it's early days, but regarding the Zero Based Spending initiative, can you talk more about what led you to the program, how much -- I know you've framed this but how much work you've been doing on this program to this point? And whether you have any outside help, whether Accenture or anybody else?

Yes, so I would say we're in the middle of the first phase which is really focused predominantly on visibility. So that's what the team has been working the hardest on. And in addition, in parallel we're been setting up all the category teams. David mentioned matrix accountability, we thought that was critical in the early days to set that up and ensure that the people that will be managing and watching and making policy decisions were involved from the beginning, particularly in this visibility phase. So once we get through this phase which is scheduled to be complete let's say sometime in September, we would move into the next phase which is really where you get into looking at benchmarks and targets and looking at decisions and policies on where we will land within those benchmarks. And yes, we have been using Accenture.

And then just on to a little bit of a modeling question. I may have my numbers wrong, but I think just back into some of the Q4 dynamics. I guess you are pointing towards maybe even a steeper sequential decline in SG&A dollars than I had anticipated and/or maybe some downward movement in A&P. I just wanted to see if you could update us on that? And if there is a sharp sequential decline, in SG&A dollars, Q4 versus Q3, can you just talk about what drives that? And is that an ongoing pattern in your business we should take into account going forward? Thanks.

Yes. So on SG&A, again our current view on SG&A is that we will be at the high-end of the 15% and 16% before amortization. So if you build amortization in, we'll be in the 16.5% level. And yes, we will have -- most of that incorporates what we talked about in terms of our higher IT spend and some incremental strategic projects. And then on A&P, we're guiding to the midpoint of 14% to 15% which is very consistent with our year-to-date trends, as well.

The next question comes from Jonathan Feeney of Consumer Edge Research. Please go ahead.

A few of your competitors have talked about eCommerce and I know a little bit less developed in your portfolio, a little bit more narrow and geographically not so important, but if we think about -- could you talk a little bit about that channel for you? Your market share in it? And as you think about your portfolio does that advantage or disadvantage you if that continues to develop in the U.S. maybe where it has in other markets? Thank you.

I think that it would be fair to say that we under-index somewhat in the eCommerce channel but we see it as a great opportunity for us, not only in the U.S., but internationally and in China. And when you think of our portfolio, I think that we, having both the high-end, the premium and with Hydro, but also middle-tier products and also private brands, it allows us a lot of flexibility to cater to it. So we actually see it as a large opportunity.

But I guess maybe why do you under-index now if you see it as an opportunity? And that just a historical evolution of the business or maybe some investment that is needed? And I guess what steps should we look for you to take to maybe grow that?

I think maybe we were a little late really focusing on it. But over the last couple of years, we have been really going after it and we have been growing rapidly there and that we think that we will continue and it will remain a key focal point for us.

There no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to David Hatfield for closing remarks.

Thank you all very much for your time and your interest and have a nice day.