Good morning and welcome to the Edgewell Personal Care Fourth Quarter Fiscal 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning everyone and thank you for joining us for Edgewell's fourth quarter fiscal 2018 earnings conference call. With me this morning is David Hatfield, our President, Chief Executive Officer and Chairman of the Board and Rod Little, our Chief Financial Officer. David will kick off the call, then will hand over to Rod to discuss quarterly results and the fiscal 2019 outlook, 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, savings and cost 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, 2017 as amended and supplemented in our quarterly reports for Form 10-Q for the quarters ended December 31, 2017, March 31, 2018 and June 30, 2018. 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, except as required by law. 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 at the Investor Relations section of the website. Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of the business. With that I'd like to turn the call over to David.

Thank you, Chris and good morning, everyone. Let me touch on a summary of the quarter and year, and then I'll have Rod take you through our detailed financial results, Project Fuel and our view for next year. During the fourth quarter, we made significant progress on several key initiatives that will contribute to our success as we look to fiscal '19 and beyond. We accelerated the pace of the changes we're making under Project Fuel, our enterprise-wide initiative to transform the Company's business and cost structure. We achieved savings ahead of schedule in the fiscal '18 and increased our outlook for gross savings in the fiscal 2019. We also continue to invest in our strategic growth initiatives, particularly in e-commerce. These initiatives, which include Wet Shave in the developing markets, International Sun Care, global e-commerce and our Bulldog and Jack Black skincare brands accounted for about 20% of total Company sales in the fiscal '18 and posted double-digit organic sales gains in Q4 and the fiscal year. We took steps to enhance our competitiveness in Men's Systems and the Feminine Care in North America. We continue to benefit from the compelling product innovations we launched during the past year, including Intuition f.a.b., Hydro 5 Sense, Xtreme 4 Disposables, Bulldog razors, Banana Boat Simply Protect and Stayfree All In One. The success of Intuition f.a.b. enabled our Women's Systems business to return to a growth in the quarter and for the full fiscal year. We met our adjusted EPS objective for the quarter, growing adjusted EPS 11%, driven by effective cost and expense management in a tough sales environment and we generated $265 million in operating cash for the year and repurchased just over 2 million shares during the year. However, the quarter also reflected the challenging sales and the…

Thank you, David. Good morning, everyone. I'll start with some of the key fourth quarter business performance metrics, then I'll provide an update on Project Fuel and close with our fiscal 2019 outlook. Reported net sales in the quarter were $537 million, a decrease of 4.9% or 4.7% on an organic basis. Organic net sales exclude the benefit from the Jack Black acquisition, the impact for the Playtex Gloves business divestiture and the translational benefit from currency. The decline in the quarter was largely driven by North America Wet Shave and Feminine Care, while Sun and Skin Care grew. From a geographic perspective, North America organic net sales declined nearly 8%, while International declined 0.7%. I'll discuss the segments and the drivers of sales performance in more detail in a moment. Gross margin on a GAAP basis was 43.1%, including a $25 million one-time impact from Sun Care reformulation costs. Excluding those costs, gross margin was nearly flat, decreasing by 20 basis points. Favorable cost mix helped margin by approximately 160 basis points, driven by reduced operational spending and favorable transactional currency impacts. This was partially offset by higher commodity and warehouse and distribution cost. Price mix was unfavorable by about 140 basis points, driven by lower overall pricing in Wet Shave and Feminine Car. Finally lower volumes impacted margin by about 40 basis points. Let me spend a moment on the one-time Sun Care reformulation cost that impacted our GAAP results in the quarter. As a result of discussions during the quarter with one of our suppliers about anticipated regulatory changes related to reach the European chemical control law, we made certain supply chain and procurement decisions related to an inactive ingredient used in select Sun Care products. To align with our internal ingredients selection process, we chose to…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Nik Modi with RBC Capital Markets. Please go ahead.

Thanks. Good morning, everyone. So just a couple of quick ones from me. Can you provide a little more perspective on the international business, just curious how that initiative is progressing. You talked, I think about a year and some change ago about focusing on a few countries, so I just wanted to get an update there? And then on the Project Fuel, maybe you can help us understand where some of the upside is coming from and how you might think about potential more opportunity as you kind of think of this program over the next two to three years? Thanks.

Well, thanks, Nik. I'll let Rod touch on the Fuel. On the international markets, ex-Japan -- the Japan trade inventory issue that we faced, we were up in sales for the year and I think generally competitive. We've grown developing and emerging markets pretty significantly. In the developed Shave markets, we faced some of issues that we see in the US with soft categories and very high competitive spend. But we believe successfully held share in the general there, so that's Shave. Also we made great progress on the Sun and Skin area for the quarter. We were up 11.5% and we were up over 6% for the year behind both Sun Care innovation and expansion in markets, plus rolling out Bulldog in several new markets. So we're fairly pleased with the progress that we've made internationally.

Yes, hi, good morning, Nik. Rod here. On the Fuel upside question, we -- frankly, as we looked at the environment as we are building out the '19 plan, we had to be more aggressive than we were initially looking at with the $225 million, so we bumped it up to $225 million to $240 million on the gross savings range, really driven by being a little more aggressive on headcount in a couple of areas, but across operation, supply chain and also raw impact material input cost. We've got a very robust procurement capability around substitution of products, reformulating non-meaningful changes, non-consumer noticeable and so we've looked at all those levers and found some additional upside. And if you look at what we've laid out this year with the inflation input commodities cost and covering that off, it's important, we do that as we're at record highs on commodity pricing as you know. But equally important, we tried to plough back in investment, 40% of those gross savings of investment going back in to e-commerce capability, driving e-commerce growth, Jack Black, Bulldog for reinvestment of the incremental gross margin year-over-year, going back into A&P support. And then, as David mentioned, the progress in international. We have a really nice profile in China right now that's e-com driven and we're continuing to fuel that as well. So it's required to be more aggressive. We have been and we'll continue to look for opportunities to continue that trajectory.

Great, thank you. Just if I can squeeze one more in there. I mean should we -- as we think about the next couple of years on the top line, I mean, is there a hope that you can get back to growth after this kind of 2019 reset year on the top line, is that how we should be thinking about it?

Yes, I'd say. I think, as we exit fiscal '19, we expect to be a much stronger Company and a competitor. We've been tackling Fuel with urgency and we've been investing against both the fundamentals with improving the value propositions on Men's, Women's and Fem, but we're also investing against marketing spend behind the growth initiatives. And so we see ourselves by doubling down on those existing strengths, but also increasing our agility, flexibility and our digital capabilities. We see ourselves exiting '19 as a stronger, more competitive Company.

Thank you. Nik. Operator, next question please.

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

Hey, guys. I have a couple questions. One is just on men's Wet Shave in North America, certainly saw the price mix down, but didn't see a lot of volume decline for you guys. Can you talk about what your expectations are for that going forward in North America first, and then globally, particularly again you're seeing Harry's obviously taking shelf space. I'm surprised, there wasn't a lot more volume impact on your business here and then what you anticipate again globally for that segment from a price mix perspective versus volume? And then secondly, ad spend clearly down, get that a lot of it, vast majority of it was non-working. Can you talk about the balance between trade spend and ad spend where you're at today? Obviously, we've seen a lot of companies fell flat on that in the past and want to understand your process in making sure you've got the right balance?

Okay, great. First, on your first question in Men's Wet Shave, we've been rolling out an improved value proposition primarily on Hydro where we've decreased prices by low-teen percentages. It's not an across the board program, it's a mix of, you've retail price reduction plus promotion spend and it varies and it's tailored by customer and by channel. So that's begun in the 4Q, and I guess, that's what you see from a price mix, we see that continuing on. I didn't catch the second part of that.

It was just, I was surprised that the volume wasn't down more given the shelf space shift that we see, particularly from Harry's.

I think Ali just building on David's point, we have -- we've continued to have good growth globally, if you look at the business in the private label business, which is skewed towards volume versus price and so between that phenomenon plus the pricing investments we've made David referenced that's helping the volume hold up a bit better than it otherwise would all else being equal and that's something we'll continue to look at and remain very sharp on going forward in terms of the pricing relationship.

And on your ad spend question, we are all for equity spend and increased A&P, but given competitive category dynamics, we've taken a hard look at the incrementality and the ROI of all of our spending balancing short and longer term. So bottom up, we create marketing plans and we balance the marketing spend between A&P and the trade. There are three segments where we feel like from a pricing ladder and fundamentals we had to adjust and devote more trade to them. That's US Men's like I mentioned, it's also proactively Women's Systems, we think that the competitive pressure is going to build there and we proactively looked at our pricing ladder there and then finally Feminine Care where we needed to fix some fundamentals. So those are bottom-up plans where we felt like we had to adjust brand spend versus trade.

And if I could just, that's helpful. If I could just ask a follow-up in terms of the investments and kind of your idea of ROI, and then you mentioned Fem Care, why don't you get rid of the Fem Care business? It's still something that's confounding to me. This is not the first quarter of having to reset. So just love your perspective on that and I'll get off. Thank you.

Thank you. We continue to look at our product portfolio like we always do and everything remains on the table. So we'll continue to look at it. I will say that we feel better about the Feminine Care outlook going forward. We've suffered several years here of planogram changes, distribution losses and we feel like we were down to a level where all the -- we've lost a lot of the legacy business and the marginal skews and we're down to really core and that we think that planogram is going to hold next year, and while I don't see it going to growth, it should improve sequentially.

And Ali, just a couple of other additional points on Fem Care. Fem Care business actually delivered the budget objectives for the year in total. So there was a little more choppiness than we would've liked between the quarters. I think that some of what you're seeing this quarter, but they delivered the plan. We're confident in the plan we have informed this year, and as David said, it's going to be skewed a little more towards trade investment, really working on shoring up the planogram sets and our position within them, which we're confident that we can come with a better outcome. So again going forward, we're on track with our expectations for the category. You see the improving profitability and now the goal is to bring the top line along with it.

Okay. Thank you, Ali. Operator, next question please.

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

Hi, this is actually Cody on for Jason this morning. Just wanted to stick on the ROI for advertising, real quick. Previously, you stated that your goal is for advertising expense to be in the range of 14% to 15% of sales. This year, you made significant cuts to your advertising expense. However, when we look at your share of voice compared to your share of market, we noticed the ratio has shot up higher this year, implying that your share of voice is much higher than your share of market compared to previous years. Is our analysis directionally correct and do you think you're generating the right return on your investment in media spending right now?

Yes, we don't or I haven't seen an aggregation of our share of voice. But that -- but you're algorithm is kind of how we build it bottom up and in several of our segments, share of voice is higher than the share of market, which we like. I'll say that our A&P as a percent of sales after you back out ZBS savings, our Zero-Based Spend savings, working A&P as a percent of sales has held year-on-year and that 14% about what we plan to see it for next year also.

Thank you. And if I can just ask one follow-up, your guidance for FY '19 implies to 2H '19 improves from the first half, what are the underlying assumptions that you guys have for this improvement and does it assume your Wet Shave share losses abate? Thank you.

It does, Cody. If you look at the timing of the most significant impact on us in fiscal 2018, it was the Harry's rollout and launch at Wal-Mart, which was in early summer, and so we're anniversarying that rollout where we were in full distribution, we now have less shelf space until we anniversary that in June. And so, the first couple of quarters are little more negative than what we see in the back half when we lap that. The other impact of the first half, we talked about the Sun Care reformulation as we've reformulated and we get back into fall, up and running production. There is a little bit of a negative in the first half on Sun Care as well. But it's a fair question. We've been through the details and are comfortable with the profile.

Okay, thank you, Cody. Operator, next question please.

The next question comes from Faiza Alwy with Deutsche Bank. Please go ahead.

Yes, hi, good morning. So I wanted to delve a little bit deeper on your organic growth guidance. So was hoping you could disaggregate for us a little bit in terms of category and region. So within Wet Shave sort of what are you embedding? Just a follow-up in terms of what type of share losses are you embedding and what type of category declines are you embedding and just given the surprising strength in the category and offline untracked channels, which seems to be more driven by specific programs run at Costco. What impact do you think this will have on the Wet Shave category growth going forward? And then if you could just talk a little bit more about your category expectations for Fem Care and Sun Care? Thanks.

Yes. Okay, thank you. So, from an outlook point of view, we see sale sales down low single-digit. So that's better sequentially than 2018, but obviously not where we wanted ultimately. Wet Shave, we see only modestly better than '18 and we're not really counting on any real improvement within North America. We see categories maybe getting somewhat better, but as Rob mentioned, we you see ourselves giving back some share, particularly in the first half of the year. International, we see improving modestly. Developed markets, we don't see a whole lot of change from a category or a share, but we don't plan to repeat the Japan inventory drawdown and then we see increased growth in emerging and developing markets behind our investment spending. Moving beyond Wet Shave, we see Sun and Skin improving modestly couple of points, largely behind investments against growth initiatives and then North America also benefit somewhat by comping a year ago return charges. Feminine Care, as I mentioned, we see it improving somewhat, mainly by baseline sales as we don't lose meaningful planogram space going forward. I don't see that getting to growth, but it should be positive versus year ago. Infant, we also see getting better and in fact, actually growing as we get the Toys "R" Us impact behind us and as we see -- we have line of sight for solid improved distribution mainly behind a new license in the mealtime segment. So that's kind of walk through.

Okay, great. Thank you very much.

Thank you. Operator, next question please.

The next question comes from Bonnie Herzog with Wells Fargo. Please go ahead.

Thank you. Good morning. I had a question on your FY '19 guidance. I'm wondering why you're anticipating such a large organic sales decline in the first half, especially I guess given the Hydro relaunch? I guess I'm wondering why you guys aren't expecting a bigger lift from that? And then I had a second question on your medium-term algorithm, which I think you reviewed during your annual planning process. So do you guys still have the confidence you can achieve it, especially considering that the changes in competitive environment in the Wet Shave category that you've touched on? And then also from a profitability standpoint, given the higher cost to compete in Wet Shave, do you think that high single-digit EPS growth is achievable? Thanks.

Yes. Thank you. On the first question, I think Rod really touched on it. We think that we've really strengthened the Hydro program, both with the investments against the value proposition, plus the new Man I Am campaign in the targeted digital media that we're putting behind it. So I think that we've really strengthened it, but we are going up against the Harry's rollout within Wal-Mart and we see that continuing to pressure Men's through the first half. So that's our viewpoint there. From a longer-term growth point of view, there's a lot of moving parts and all I can really say is, is that we're confident exiting '19 that we are going to be a much stronger competitor and set up to compete well. We are not really ready to forecast beyond there from a category and a competitive point of view. There's a lot of turns in the path between now and then but we're optimistic going forward.

Okay. Thank you, Bonnie. Operator, next question please.

The next question comes from Olivia Tong with Bank of America Merrill Lynch. Please go ahead.

Thank you. Wanted to talk a little bit about the Hydro relaunch? And then also, first, when does the incremental Hydro spend start to drop in, has it started already, or is it starting in Q1? And then, Gillette is obviously launching the skin guard product, which seems directly targeted towards the Hydro customers. How flexible are you in terms of your spending, should that product gain some traction against Hydro? Thank you.

Yes. The investments against Hydro began actually Q4 from a pricing point of view and the equity spend kind of begins Q1 now and it goes forward. We'll remain agile with respect to competition and will see how that plays out I guess.

Okay. Thank you, Olivia. Operator, next question please.

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

Thanks, good morning. Two questions from me if I may. First is the Wet Shave business and your private label strategy. So Wet Shave declined 5.5% organically this year at the total Company level. if I'm not mistaken, private label is about 20% of mix in the US. So one, can you split the 5.5% decline between private label and your branded portfolio and how does that shape up for '20? And then secondly, just broadly, maybe just you talk about how important your private label strategy is in terms of your value proposition now to retailers given the pressure on the Shave business? And then I have a follow-up on M&A. Thanks.

Yes. Let me begin, then Rod, he can chime in. But our private label actually grew for this fiscal year modestly in the US, but fairly significantly internationally and we're pleased with it. Going forward, I think that it'll be an impacted somewhat in the US with the Harry's rollout and the planogram losses there. But overall, International continues to grow and we see it holding in there next fiscal year. It's a key part of our portfolio. It allows us to do like tailor-made category solutions for all of our customers and our channels and we see it continuing going forward.

I mean, Rod and for Dave, I was just going to ask just pivoting to M&A, and if you could just touch on that a little bit, what's the appetite for something bigger, would that be too much disruption at this point given the undertaking with Project Fuel, if you want to talk about geographies or potential areas of interest, or is it more likely hear this is sort of a tuck-in strategy over the next two to three years, call it, with any excess free cash flow put towards buybacks? That's it from me. Thank you very much.

Thank you. We continue to look at the top of the funnel at all adjacencies. So anything in the categories in which we compete plus adjacencies through Skincare, grooming that kind of thing. So we continue to look for adjacencies, would love International to get more scale there. So we continue to look. I will say that as part of the decision-making process about whether we pull the trigger, I actually do think that integration risk is a factor that we will consider carefully with all the change going on. I wouldn't see us jumping, add another small tuck-in unless it fits well and we think that we can integrate it easily. So we continue to look hard, we'd love to add something, but we'll be disciplined about it.

Thank you, Kevin. Operator, next question please.

The next question comes from Bill Chappell with SunTrust. Please go ahead.

Thanks, good morning.

Good morning.

Hey, how are you? Just two quick questions. One, just trying to understand the US Wet Shave kind of market share as we go into spring resets next year, and obviously Harry's has had a day [ph] as it moved into target about three years ago and Wal-Mart, this year, didn't know if you expected that or Gillette or anybody else, kind of now that I would imagine you have a good idea what resets look like if we should expect sales to kind of or market share to improve sequentially as we go into the spring or if there would be more pressure? And then the second question, just maybe some color on variable comp, it sounded like you didn't have the full amount in 2018, didn't know what kind of add back that is in terms of pressure on 2019?

On the first question, we see continued pressure on us through 1Q and the 2Q. Don't know from a sequential point of view, I'd say that it should be out relatively flat versus where we're at now, but there's certainly pressure through 2Q.

And Bill, if you look at it by channel where we will continue to see the pressure is a mass specifically at Wal-Mart, as the sets roll through and Harry's gets expanded until we lapped that in the summer. If you look at food drug, the other segments, we're actually performing well, we're growing share in those channels. And so it's a bit of a mixed bag but net-net in total, we should see pressure on share over the next two quarters. Relative to variable comp, simple math, is you need to throw $9 million back to get to target into 2019. So $9 million ahead of where we landed in 2018. That's included in our roll up.

Got it. Thank you.

Thank you, Bill. Operator, next question please.

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

Good morning. Thanks very much. One more of a clarification and then a question about A&P. First clarification, David, you mentioned, I would love to know your total Company e-commerce. You mentioned the 20% number, and that sounds high to me, this is what I've heard before in your prepared remarks. So what does that 20% include that you mentioned was growing double-digit and what's total e-commerce for the Company right now be my first question? And second question would be, I think, Rod, you delineated between working A&P and non-working A&P that's being addressed by your ZBS program. Where does total A&P in your mind in 2019, with respect to your guidance, is that up as a percentage, what's the give and take there and what does that mean for the trend and what you describe it as working A&P 2019 versus 2018? Thank you very much.

On your first question, when we talked about 20% of the Company sales, we were referencing not only e-commerce, but also Wet Shave in the developing markets, international Sun and our Bulldog and the Jack Black brands. We haven't commented specifically about e-commerce and I am don't really want to divulge that right now. On the A&P question--

Yes, on the A&P Jon, and the way we're thinking about it for '19 versus '18, it's flat as a percent of sales, '19 versus '18. However, within that flat, there's fairly significant reallocation within that based on some ROI metrics that we've driven.

Can you give an example of what you're talking about, Rod, when you say working versus non-working A&P?

For the clarification, non-working A&P, think of that as the cost to create the advertising. So agency cost, actual creation cost of that, it's non-working in that it's not consumer eyeballs on and now that we're running. As part of our Zero-Based Spend initiative, we took nearly $20 million of that production cost out of the system and that's a structural go forward reduction. So, year-over-year '19 versus '18 that non-working base is now set, that's unchanged and the working A&P, the actual advertising spend that we run out there is flat year-over-year as a percent of sales. So it's very comparable year-to-year.

That's helpful. Thank you.

Thank you, Jonathan. Operator, next question please.

This actually concludes our question-and-answer session. I would like to turn the conference back over to David Hatfield for any closing remarks.

Thank you all for your time and your interest in Edgewell. Have a nice day.