Good day, and welcome to Edgewell's Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. 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 this morning for Edgewell's Fourth Quarter and Fiscal Year 2024 Earnings Call. With me this morning are Rod Little, our President and Chief Executive Officer; and Dan Sullivan, our Chief Operating and Financial Officer. Rod will kick off the call then hand it over to Dan to discuss our 2024 results and full year fiscal 2025 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 restructuring and repositioning actions, acquisitions and integrations, 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 the 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, 2023, 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. 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. However, 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.

Thank you, Chris. Good morning, everyone, and thanks for joining us on our fourth quarter and fiscal 2024 year-end earnings call. Our results in fiscal '24 further demonstrate the progress we are making in transforming our business and the effectiveness of the strategy and business model we launched 4 years ago. For fiscal '24, we achieved slight organic net sales growth, meaningfully expanded adjusted gross margins and delivered double-digit adjusted earnings per share growth at constant currency for the second consecutive year. In the face of a heightened competitive landscape and an increasingly cautious consumer, we accelerated organic growth across our international businesses, introduced category-leading innovation in the U.S, Sun Care category, and deepened our participation globally across the men's and women's grooming segments. And as inflation normalized, we saw meaningful flow-through from our productivity and pricing initiatives, both key pillars of our business model and which collectively drove gross margin accretion and strong bottom line results. We delivered healthy earnings growth and our substantial cash flow generation supported our efforts to both delever and buy back shares. In 2024, we delivered our fourth consecutive year of organic net sales growth, although the growth was less than recent years and slightly below our expectations. Importantly, our top line results were underpinned by compelling performance in 3 distinct areas of the business. First, our international markets, which grew over 7% and now make up about 40% of our total revenue. Second, our right to win portfolio in North America grew over 3% with our leading Sun Care and Grooming portfolios both growing mid-single digits. And third, the Billie brand continued to win in women's shave, gaining 260 basis points of share while beginning its journey towards becoming what we believe will be the preeminent women's lifestyle brand as it entered select…

Thanks, Rod, and good morning, everyone. As Rod mentioned, and as we've seen play out this year, our broader strategies continue to yield good results with modest top line growth driven by continued momentum across international markets, strong operational fundamentals, good cost management and disciplined capital allocation, we drove meaningful earnings per share growth for the full year. Key highlights of our fiscal '24 performance include mid-single-digit top line growth across the combination of our international business right to win portfolio in the U.S. and Billie Brand, 140 basis points of year-over-year gross margin gains, underpinned by outsized productivity savings of about 280 basis points. Adjusted operating margin expansion of 100 basis points while incrementally investing in our brands and $175 million in free cash flow generation, which enabled us to adequately fund the business, support capital allocation strategies and delever to just over 3x. In a year where top line growth was below our expectations, the inherent strength of our business model was clear, highlighted by year-over-year gross margin accretion, incremental investment in our brands, a disciplined approach to cost and capital deployment and meaningful earnings per share growth. As we exited the year, the external environment in which we're operating is mixed. The consumer remains cautious. And in the U.S., consumption across our categories slowed through the year, made worse last quarter by unfavorable weather, which dampened the final months of the sun season. Inflation, though moderating remains and is largely driven by labor and more modest increases in commodities. The currency environment continues to be volatile and is expected to be a further headwind to earnings in 2025. Operationally, we've accelerated our recovery efforts from certain supply challenges across our grooming, skin and preps businesses, which negatively impacted fourth quarter organic sales, and we've already seen improved…

[Operator Instructions] The first question we have is from Chris Carey of Wells Fargo Securities.

Can you go through your confidence levels on organic sales growth for fiscal '25? I think this has been an area of more volatility, including relative to your own expectations. Can you just talk about some of maybe the key drivers that are giving you that confidence to return to mid-single-digit growth in international that the North America business can stabilize? Maybe comment on Shape Preps and Fem Care. And if it doesn't come in, in line with your expectations, which I know, of course, it will, just maybe add to that of your confidence levels around profitability. If I just think about this year, sales came in a bit lower, but profit remained quite strong. So I'm just trying to balance the tension between top line and bottom line and get your added thoughts.

I'll start with the second part of your question, which is profit confidence here in the event that we don't see it, but that sales maybe fall short. And I would actually reiterate what you said. I think you saw it this year for us, meaning 2024, that we are pretty relentless on our productivity efforts. We are maniacal on our cost focus among G&A. And so I think there's certainly levers that we have pulled and will continue to pull to drive the profit expectation in the event that sales are challenged. Again, that's not how we built the plan, but I think we've demonstrated that capability. If I go back to your first part because I think it's a fair question. And thinking about our business and where the growth comes, I'm going to start with international. I think there's probably 3 components here that are worth calling out before I hand it to Rod. One is international, where we have a mid-single-digit growth profile on the business next year. It's 40% of our growth. I think our behavior and our abilities are very demonstrated and consistent here over years. And we have a healthy line of sight to this between the brand activation work that is ongoing, the innovation that's coming to market. There is some price built in that has already been executed. And candidly, just team performing extremely well from brand to shelf. So high confidence, high line of sight there. Within the U.S. business, I would point to a couple of things that we see as tailwinds. One is Sun. This was essentially a sluggish, flat season here in the U.S. It had a difficult start and a difficult end. But overall, consumption was basically flat. And so we're going up against an odd…

I would just add to what Dan said with a couple of things. First, very confident in the growth profile we put forward with the fiscal '25 guide. As Dan called out and we referenced in the script, we've got 70% of our business, international, Sun grooming here in the U.S. and Billie, that's about 70% of our business, all at that mid-single-digit plus growth rate. So rock solid with that. That leaves Shave and Fem primarily here in the U.S. as, okay, what do we need to do with that business. Combined, that business was down 2% last year, our right-to-play portfolio. And we've got essentially flat next year. And so we're not projecting greatness with that business, but it's a 2-point step-up if we could deliver flat, which would effectively give you the growth. I feel very confident we can do that. We've got Jess coming in as a new leader to lead us through that. I've been very close to the business over the last couple of months. I've been out with retailers. Retailers are behind us, want us to win. So we have full retailer support. And we've got stronger teams in place below Jess now in those businesses activating and building those brands and portfolios. So I think nothing is ever certain in the future. We learn that every day in life. But I think we feel really good and that we've got it in the right place at 2% growth, kind of what we've guided to for next year at the midpoint. And as Dan said, if we don't get there, we'll cover it off on the profit line.

The next question we have is from Bill Chappell of Truist Securities.

Just want to follow up on Sun Care and both from the quarter and the health of the category. For the quarter, historically, even though it includes July and August, it's been a small quarter in terms of shipments. I'm surprised to hear that it was well below plan just because usually the season is largely done. So maybe help me understand the expectations there. And then second, I think this time last year, you had the same commentary. We had a weak season due part to weather. We got some good innovation. We should get market share, so it should be a tailwind in 2024, and it wasn't. And you had fairly favorable comps and probably even more favorable comps. And last, this is the category that consumers can trade down in probably more than anything else that you sell. So help me understand the health of this category and where you stand as we move into '25.

Let me clear up a couple of things. The last quarter of Sun is actually not an unimportant quarter. It's 1/3 of the category in the U.S. Remember, one of the benefits in this post-COVID environment is consumers extending their time outside in a way that they hadn't done pre-pandemic, and that has stuck. And so I think we should just be clear upfront, 1/3 of the category happens in that period for us that ends in the September quarter. We profiled it to be up 6% consumption year-over-year. It was down 6%. And so it was a meaningful drag on us. We estimate about 2 points of our organic shortfall to expectation in Q4 came from that consumption miss and ultimately impact on our organics because what you didn't see happen was the in-season replenishment 2, replenishment 3 from retail. So that's that piece. In terms of how do you think about the categories over time, obviously, choppiness with COVID and coming out of the pandemic. But prior to '24, you actually saw 6% growth 2 straight years, '22, '23. It is a healthy category. Now you get tripped up on the quarters and good starts to the season versus not, and I'm not going to go back through last year's narrative, but we did not have a bullish view on last year's fourth quarter because we already saw the weather impact hitting us in that 4th of July period and retailers had already pulled back on orders. So the expectations of this fourth quarter were very different than a year ago. Having said that, how do we view the quarter? We are the leading portfolio of brands here in the U.S. We think the category naturally has a 2% to 4% growth profile to it. We brought meaningful innovation to the category this year in our 360 spray. And so we're very, very comfortable with how we've thought about it. For next year and not looking for greatness out of weather, but looking for a more solid year in the 2% to 3% consumption range rather than flat, which is what we saw this year. And we have not seen a flat or declining year of Sun season since 2020, which we all know what drove that. So that's our view on Sun. We're quite bullish on it. But obviously, weather plays a part, particularly in the fourth quarter that we saw. Rod, anything that you would add to that?

I'd just reinforce, we have a strong innovation pipeline. We are the leader. We do everything ourselves in-house from QA regulatory formulation, manufacturing to the end direct store delivery force, which is, I think, best-in-class. And so we have strong capabilities here. We've got the mid-tier pricing in our brands, as Dan referenced. And then back to the category more generally, Bill, the reason we're bullish on the category is we have learned people want to be active. They want to focus on longevity, health and wellness and SPF and Sun Care is one of the ways to help people do that, and we've seen that in the regimen change. And sun exposure causes aging. It's the #1 cause of skin aging and skin cancer rates in the U.S. are going up, not down. Globally, they're going up, not down. And so we think that sets up well long term for the category. And you had referenced trade down in your question. In this category, actually, the opposite is happening. We're seeing trade up. There's not significant private label exposure. We don't see people trading down to private label. In fact, people are willing to spend more in the category as it evolves. And so I think this is a little different than a traditional daily use category in that respect.

The next question we have is from Olivia Tong of Raymond James.

I wanted to ask about your visibility and the building blocks on your fiscal '25 sales outlook for 1% to 3% organic. And what gets such an acceleration going? Because you mentioned in your prepared remarks a lot about Q1 being sluggish sales and EBITDA and EPS down. Obviously, the supply chain challenges you had, high promotion in Wet Shave, the over-indexing to drug, and you've got a new Head of North America. So it seems like you've built in some flexibility in Q1, but obviously, a fair bit of expectation for the sales to grow as the year progresses. So maybe even if you could talk about new product pipeline or the cadence, that would be helpful.

And you're right on. We are going to have a sequential improvement as we go with Q1 as we've guided. I think as we had talked with Chris' question earlier from Wells, we're confident in our ability to deliver the growth profile. I won't go back through the building blocks we laid out there, but I'll come at it from a different angle. From an innovation standpoint, we're much more confident in our ability to drive growth via our innovation platform. One year ago, we eliminated our global team. We moved to a local market model with innovation, local insights, better innovation to deliver on those insights. The innovation is faster. It's better accepted and planned out with our retail partners, getting better customer buy-in and better end market results. And I'll just point you to the 2 examples we have from the back half of this year as we go into next year that give us some tailwinds. The first is the Wilkinson Sword Shave campaign in Europe. We launched that campaign in the summer. It's been very successful. We've invested behind it, and we're seeing momentum in our Wilkinson Shave brand in Europe behind that campaign, very locally oriented, very well done by the team. The second one I'll call out is the Shick First Tokyo brand. We launched a new brand in Japan aimed at capturing and engaging first-time users in the category. As you know, we're the leader in Japan. We should be operating like the leader in driving category growth. We've done that in this case by getting younger consumers more interested in the category. It's an amazing razor, all around safety. It's driven huge responsiveness around social media channels and engagement with younger consumers in Japan. And it to date is the best brand…

Olivia, the only thing I would add, just you asked the question on Q1. It's a good one. Let me just try to give you the headlines there. In any quarter, of course, there are things you're cycling. And you'd recall in 2023 fourth quarter, we made a decision to take inventory out of Japan and reset the wholesaler business model, if you will. That benefit actually played out in the first quarter of '24 because you got a level of orders that you wouldn't have gotten. We were up 80% in Japan last year Q1. We're cycling that now. That's worth about 1 point. There's a timing element, of course. Some of the drivers of growth for us, namely the Billie brand expansion in body, much of the pricing in international that comes in Q2 and beyond. So you don't get that benefit in Q1. And then to Rod's point on Fem Care, we've got work to do here. We are absolutely expecting sequential improvement, but won't see year-over-year growth until half 2 of the fiscal. So hopefully, that helps you with how we're thinking about Q1.

The next question we have is from Susan Anderson of Canaccord Genuity.

Question on the gross margin. So you did a lot of good work this year, next year, another 75 bps. Is there anything structural though, that's changed between now and before the pandemic to get to that mid-40s range? And then I think you called out 115 bps of COGS inflation for next year. Can you break out the drivers of that? And does that include any potential tariff hikes?

I would say, as we think about the margin profile, we're going to continue to control the 2 levers that we control, which is productivity and price. What you're seeing next year, 2025, is accelerated productivity gains, but less realization from price. That's just the nature of the categories and the markets in which we're in. The difficult part to predict in linking it back to your pre-COVID versus post-COVID is around inflationary pressures and FX. We are thinking about an inflationary picture for '25 that looks a lot like '24. Some of the pieces maybe are different, but we're in the 100 basis point headwind range. We're in the 2% to 3% of COGS inflation range. How we get there is low single-digit inflation on raws, mid-single-digit inflation on labor and likely deflationary on warehouse and distribution. So again, we've demonstrated our capabilities here. I think we committed to getting the business back to pre-COVID levels of gross margin at least. And certainly, based on what we've now done in '24, where the margin has clearly inflected and now how we're thinking about '25, we're confident on that path.

At this stage, there are no further questions. And I would like to turn the conference back over to Rod Little for any closing comments.

Thank you, everyone. We appreciate the continued interest and investment in the company. All the best to you for the holidays, and we'll give you an update in Feb. See you then.

That concludes today's conference. Thank you for joining us. You may now disconnect your lines.