Good day, and welcome to the Edgewell Personal Care Q4 2022 Earnings 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.

Good morning, everyone, and thank you for joining us this morning for Edgewell's fourth quarter and fiscal year 2022 earnings call. With me this morning are Rod Little, our President and Chief Executive Officer; and Dan Sullivan, our Chief Financial Officer. Rod will kick off the call then hand it over to Dan to discuss our results and full year 2023 outlook before we transition to 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 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 for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events, plans or prospects. 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, 2021, as may be amended in our quarterly reports on Form 10-Q, which is on file with the SEC. 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 is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I'd like to turn the call over to Rod.

Thanks, Chris. Good morning, everyone, and thank you for joining us on our year end earnings call. We were pleased with our results in the quarter, which came in largely in line with expectations despite heightened currency headwinds and persistent cost inflation. For the second consecutive year, we grew organic net sales 4% and we've now delivered organic growth for six consecutive quarters. Organic net sales increased in all segments of the business. And importantly, we had double-digit growth in our right-to-win businesses, which includes Sun Care, Men's Grooming and Skin Care. A right-to-play portfolio of Wet Shave and Feminine Care also grew organically for the second consecutive year at just over 1%. Growth was broad-based with North America increasing about 3% and in international markets increasing nearly 6%, and reflective of a healthy combination of volume and pricing. And with the successful launch of Billie at Walmart, The Billie brand contributed 360 basis points to our reported top-line growth in the year. Despite ongoing macro market challenges, including supply chain disruption, heightened inflation and the rapidly appreciating US dollar. We continued to make significant progress in the transformation of Edgewell, and achieved our objective of sustained top line organic growth. I would like to personally thank our teams across the globe, as this progress is a result of their dedication, continued focus on the fundamentals and good execution. Evidence of our transformation is seen in four specific ways. First, delivering meaningful consumer-centric innovation. This year, we successfully launched new products in Sun Care and Feminine Care. We re-architected the Schick brand in the United States, broadened our women's branded shave range, including the introduction of Hydro Silk Touch-Up, the number one selling women's hair removal SKU on Amazon. And we added new products in Men's Grooming, including the trimmer…

[Operator Instructions] Our first question comes from Chris Carey with Wells Fargo Securities.

Hi. Good morning. Just, Dan, can you just comment on the complexion of organic sales growth for next year. Obviously, you've already given expectations for pricing and volume. But I think you also noted in your prepared remarks that some divisions would deliver different growth than others. I'm specifically interested in your expectations for Sun after strong results recently and the potential share performance going forward. So any thoughts there would be helpful. And if I could just, as a connected, just from a pricing standpoint, it does feel like based on your gross margin outlook that you expect to achieve more realization of that pricing benefit into the gross margin line. Is that a fair assumption and what's driving that? Are you doing less promotions? Is there a little bit more pricing than prior plan? So I'd love any thoughts there as well.

Yeah. Hey, good morning, Chris. I'll take them in reverse order, and then Rod can certainly jump in for what I missed. On the margin piece and the contribution from price, you're absolutely right. We do anticipate more tailwind into margin from price in 2023 than we saw in 2022. In fact, you actually saw that in Q4 versus Q3, right? Sequentially, price, particularly in North America as we took price sort of in that late Q2 period was scaling up, hitting the shelf and then running through. So we do – we did see that back half of the year. We do expect that to continue, and that's why we flagged about 275 basis points of gains from price next year in margin, which is obviously more than what we saw this year by more than 2x. In terms of your first question on organic sales performance, let me just make -- let me hit the headlines and get the bigger picture right. We are anticipating somewhere between 4% and 5% growth through price and somewhere flat to minus 1% in terms of volume, and that obviously varies by category. And we've done quite a bit of work, obviously, on sensitivity and elasticity, and how we thought about the price, we're taking the price that's been put into the category by others, and we think we've come to a really thoughtful place around the impact that price will have. Again, with a bit of an unknown around where the consumer will be. As we think about that by across our portfolio, I think, we're certainly looking for healthy growth across all the segments. I think, we said that in the prepared remarks that we anticipate growth will come across all of our segments. As you look at it in our Right to Win versus Right to Play portfolios, probably more about 5%, 6% in Right to Win and about 3% in Right to Play. And obviously, Right to Play gets aided by the Billie expansion, which we get 10 months of organic growth, and we didn't see that in organic this year. So healthy growth across the categories, in part based on price and volume playing out differently by category and growth profiles, like I'd mentioned, about 5% and 3%, respectively, across our Right to Win, Right to Play. Rod, anything you would add to that?

Just one point I would add is, Dan mentioned the Billie growth organically that comes in for 10 months. But ex Billie, so the balance of the Shave portfolio, we also expect to have organic growth in the year ahead.

Okay. Thanks so much.

Thank you.

Thanks, Chris. Operator, next question, please.

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

Great. Thanks. Good morning everyone. First, Rod, just to zoom out a little bit. Dan alluded to a moment ago just sort of the uncertain macro. Can you just comment on broadly what you're seeing across your geographies? Any signs of consumer weakness that's evident at all and what you're seeing, whether this be by pack size, by channel, consumers extending the life of razors and grooming. And then just sort of broader macro assumptions maybe that are underpinning your outlook? And then I have a follow-up for Dan. Thanks.

Yes. Thanks, Kevin. Good morning. Let's start here domestically in the US, North America. Consumer has been resilient for the most part, I would say. We're not seeing any meaningful change in consumer behavior. For example, we're not seeing any material trade down on price points or to our private label portion of Shave portfolio. So consumer has been fairly resilient here domestically. Categories are holding up well domestically. I think we referenced the Wet Shave category grew two points in the quarter just finished. So category is holding up. When you move outside the US into the European -- and that applies to Latin America as well. I think the categories in Latin America are healthy and most fully recovered from COVID-19. Europe is lagging a little bit. I think we see continued recovery in the European markets that began in 2022. We expect to continue to see that in 2023, albeit there may be some pressure on consumers in Europe, given what's happening in the eastern part of that continent and some of the pressures around energy. And then as we get into Asia, that's the part of the world that's lagging on reopening. We are starting to see some progress in some of the Asian markets with some of the markets outside of China opening up, being more friendly for international travelers coming in to those markets. And again, I expect that to continue to be a help to our business over 2023 and 2024 and beyond. So markets relatively good, continuing to recover overall. Consumer stable, would be the summary.

Thanks Rod. And then the follow-up, Dan, just pivoting to currency because my sense is that probably the shortfall against where consensus numbers sort of were going into the quarter is probably largely tethered to currency; to a lesser extent, the tax rate. Why don't you just spend a moment, Dan, if you wouldn't mind, just on some of the transactional impacts driving that. And specifically, the call in your guidance is a 3.5% impact to sales, but something much worse to profit and EBITDA. Maybe just spend a moment on the factors driving that. And relatedly, was there any thought you could perhaps lean in a bit more whether this is around pricing, productivity to try to offset some of that. Then I'll pass it on. Thank you very much.

Yes. Thanks Kevin. I do agree with your thought. I think the difference we see in how we've thought about 2023 and some of the models that exist is largely around the size of FX, and we've put that in our outlook and in our supplemental slides to try to be really clear about how we thought about it. And that's the $0.48 headwind to EPS that we have projected. Look, I think the main driver here around transactional FX is tied to three markets; they're Japan, Australia and New Zealand. And there are three common elements in these markets. One, you've seen massive dollar appreciation against the local currency. Two, we have little to no natural cost offset in the market. And three, where we do have a cost profile, it's largely denominated in USD. So, you've got kind of the perfect storm here of appreciation with the dollar, no natural offsets and limited local currency cost transactions. And so as we've sized it up based on that, those three markets that I mentioned account for about 85% of the transactional headwinds that we're projecting. Europe, you'll see a bit as well there. We obviously have a large sales footprint. We have a meaningful cost base. We manufacture, obviously, in Germany and the Czech. And in many places, we transact largely in local currency, so you don't see as big an impact there even though you've seen movements in euro and pounds. So, again, the driver here is those three markets that I mentioned. On your second question around pricing, I think it's good to just talk about what we have done in pricing because we're actually quite bullish around the stance that we've taken across the business. I would think about pricing on three levels, right? The first…

Kevin, I would just add -- yeah, Kevin, I would just add, if you step all the way back on this currency thing, we recognize and own the fact that investors are counting on us to deliver earnings and cash flow in US dollars. We've got to do that. And so the reported numbers are the reported numbers. But I don't want people to lose sight of the fact that we have $0.48 per share of currency impact embedded into this forward-looking forecast year-over-year. And if not for the currency move, we'd be talking about a 120 basis point gross margin accretion in the year. We'd be talking about bringing a bottom line margin forward 100 basis points in increasing A&P spend. I do not want to change our posture on A&P. We like the brand-building activities we have. And I don't want to price to a point where we're uncompetitive in market. So we're going to stay after this. But I do expect foreign exchange to moderate over time. I don't know when, we can't control central bank policy. So we're very aware of it. But equally, we're investing in the business to get to the other side of that and really have our operational results show through in a way that they're just being masked with this guide due to the foreign exchange.

That’s helpful. Thank you both. Good luck.

Yeah, thank you.

Thanks Kevin. Operator, next question please.

Our next question comes from Nik Modi with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Hi, Nik.

Rod -- good morning, maybe you could just provide a little bit of clarity. I mean, obviously, the top line track record has improved. But we live in interesting and volatile times, to say the least. So how much visibility do you have, certainly, the pricing component is one area. But even from the volume side, the flat to slightly down. Can you just provide any context around the visibility you have around that? And then just piggybacking on that, a few companies that deal in more commoditized categories are starting to talk about elasticities being a little bit worse than expected. And I'm just curious, like when you and Dan were kind of going through the budget and thinking about elasticity, maybe you could provide some context around how much flex you have in some of your assumptions.

Sure. I'll start at a high level by saying we're very confident in our top line growth projections at that 3% to 5% range, or let's call it, 4% midpoint. We have very good line of sight to that. We know the pricing we've put in on that. We've made assumptions around elasticity. If you look at those two elements around pricing and volume, in fiscal 2022, we did about 2 points of growth on pricing and about 2 points of growth on volume. As we pivot to 2023 and you take that 4% midpoint on organic sales, we have most of that coming through pricing on a flat volume assumption. And so at a macro level, there's your elasticity. There's a little more pricing and a little less volume as we expect consumers to react to that. We may be wrong in some areas, we'll adjust accordingly. But between the pricing assumptions we've made, the elasticity assumptions around volume that we think are very realistic, those we feel good about. The other thing we feel good about is we're close to the category evolution. We think we've got category assumptions in a good place moving forward, and we have a very clear line of sight to distribution outcomes year-over-year, which continue to be positive.

Great. Thanks.

Thanks, Nik. Operator, next question, please.

Thank you. Our next question comes from Bill Chappell with Truist Securities. Please go ahead.

Thanks, good morning. I just want to follow-up kind of on the thought on Billie. Obviously, phenomenal test at Walmart, but didn't know where you might expect to see expanded to in 2023, if that kind of expanded distribution will match what you saw out of Walmart in terms of kind of total contribution or if it will be smaller? And any thoughts of as you're adding the space, I can't quite understand like are you getting incremental space everywhere as you move into the spring, or is it taking away from some of your other Women's Systems space? Thanks.

Yes, Bill. Good morning. So look, first of all, let's just quickly recap the Billie performance at Walmart, because it absolutely exceeded our expectations. You've heard us talk about the 17 share of the category. The number one Wet Shave system in the category, which is the Malibu starter, the number two refill SKU in the category and number one actually in the last 15 weeks, which just speaks to a customer -- or a consumer that was on a trial with the brand that has now become loyal. So we were really focused on execution at Walmart because we knew that would be the catalyst for retail expansion in year two. And that's exactly what we are seeing. I would call the retail expansion national. I'm not going to name names. There are a few Is to dot and Ts to cross, but the demand and the desire of retail has been significant, and we really like what we are seeing that our team now has done being involved in this negotiation on shelf that they weren't a year ago. I think importantly, as a result of that last point, you are also seeing better outcomes on shelf for Women's core branded business non-Billie. We are not losing shelf space. And in fact, geography-wise, we actually like some of the outcomes that we are seeing. So we expect Women's branded non-Billie to essentially hold space, and we've actually seen really good buying of some of the MPDs within our women's portfolio as well. So that's why we are certainly looking for strong performance next year in Women's and continued meaningful share gains. Let me stay on that. Rod talked about distribution outcomes, because we're really bullish on Women's Shave, as I just mentioned. We're actually quite positive on Men's branded in the US, where we expect to essentially hold, which is a really good outcome as we continue to rearchitect the brand. And in Sun Care, what I would say is, we are clearly carrying the momentum and we're being rewarded by retail for being both a great supply chain partner and obviously having really strong brands. We're gaining phasings at Walmart. We are getting better outcomes in the Islander program. We've seen really good initial sell-in of our innovation behind Banana Boat. So we're quite encouraged right now, which underpins, obviously, our outlook. We're quite encouraged with what we're seeing on shelf. Billie, a great enabler to that, but our core brands also getting some really good outcomes.

Yes. Thank you. Thanks for the color. Just a follow-up question. I didn't fully understand kind of your commentary about end of the season working capital for Sun Care and, I guess, how it affected cash flow. Because I guess I would -- I guess the question is, would you now be seeing the cash flow or higher cash flow in the first quarter of 2023 as that kind of worked through the system?

Yes. Not necessarily in the first quarter. Look, we bought heavy late in the quarter. While we anticipated we would, quite candidly, the inventory build was even more than we expected, obviously. A lot of that -- not all of that, but a lot of that was Sun season and Sun chemicals. And we essentially saw about twice the days inventory build that we had anticipated. We did it for all the right reasons. It was good global procurement and thoughtful finished good build ahead of the year, but more than we thought to be quite honest. You'll see much better working capital management across 2023. That's why you'll see a much different free cash flow outcome. I wouldn't necessarily suggest it's in Q1, because you still are subject to the seasonality of the business for us. But again, I think, points back to the structural free cash flow business remains strong.

Great. Thank you.

Thanks, Bill. Operator, next question, please.

Our next question comes from Olivia Tong with Raymond James. Please, go ahead.

Great. Thanks. I just had a question on Wet Shave. Obviously, with respect to the macros, I know like many others, you weren't really seeing any signs of trade down yet. But as you think about the potential for that to happen in fiscal 2023, what are you preparing for with respect to your private label franchise in particular? And can you talk a little bit about how you manage your portfolio, specifically for Wet Shaving to optimize, not just sales or profit as well, especially considering what could potentially be a continuation of choppiness and possibly worsening choppiness as we look towards fiscal 2023. Thank you.

Good morning, Olivia. As we've talked in the past, we have a diversified Shave portfolio across Men's, Women's, Disposables, and private label, which we call Private Brands Group. And we're geographically diversified where the majority of our Wet Shave business is actually outside of the United States. And so, with that diversification, we obviously, within that, look at each of those segments differently, as we're building our plan and strategically. And in the year ahead, I think we've talked about, we've got an emphasis and a priority on women's Shave as a total company. And so from an area of investment and our focus, the Women's Shave is a disproportionate focus. Within there, though, I think we're feeling good about all segments of the business, as Dan mentioned earlier. We expect all parts of the Shave portfolio to contribute to growth next year. We're not expecting or planning for big shifts into private label out of branded product. If it happens, we're ready for that. We've got capacity to respond to that. But again, we see all parts of the Shave portfolio contributing to growth, both in terms of the segments, and also geographically the split between North America and international.

Great. Thank you.

Operator, next question please?

There are no further questions. This concludes our question-and-answer session. I would like to turn the conference, back over to Rod Little, for any closing remarks.

I'd like to thank everybody for your continued interest in Edgewell, and we'll have an update for you in three months as we get our year started. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.