Prestige Consumer Healthcare Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2025

Key Takeaways

  • Negative Sentiment: Q1 revenue was $249.5 million, a 6.6% year-over-year decline and short of the $258–260 million forecast due to an extended eye care production shutdown and order timing shifts.
  • Positive Sentiment: Gross margin expanded by 150 basis points to 56.2%, helping drive a 6% increase in adjusted EPS to $0.95 despite lower sales.
  • Positive Sentiment: Q1 free cash flow reached a record $78 million, the company repurchased over 400,000 shares, and maintained a 2.4× leverage ratio, with full-year FCF guidance of $245 million+.
  • Positive Sentiment: Prestige announced a cash acquisition of Pillar Five Pharma (~$100 million) to gain direct control and expand Clear Eyes manufacturing capacity, expecting new supply lines in Q3 and a meaningful recovery in H2.
  • Neutral Sentiment: Fiscal ’26 guidance was revised to $1.10–1.115 billion in sales (organic down 1.5–3%), adjusted EPS of $4.50–4.58, Q2 sales of $256–259 million with ~$0.97 EPS, and FCF of $245 million +.
AI Generated. May Contain Errors.
Earnings Conference Call
Prestige Consumer Healthcare Q1 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good day, and thank you for standing by. Welcome to the Q1 twenty twenty six Prestige Consumer Healthcare Inc. Earnings conference call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Phil Turpoli, Vice President, Investor Relations and Treasury. Please go ahead.

Phil Terpolilli
Phil Terpolilli
VP - IR & Treasury at Prestige Consumer Healthcare

Thanks, operator, and thank you to everyone who's joined today. On the call with me are Ron Lombardi, our Chairman, President and CEO and Christine Sekow, our CFO and COO. On today's call, we'll review our first quarter fiscal twenty twenty six results, discuss our full year outlook and then take questions from analysts. A slide presentation accompanies today's call can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link and then on today's webcast and presentation. Remember, some of the information contained in the presentation today includes non GAAP financial measures.

Phil Terpolilli
Phil Terpolilli
VP - IR & Treasury at Prestige Consumer Healthcare

Reconciliations to the nearest GAAP financial measures are included in our earnings release and slide presentation. On today's call, management will make forward looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on page two of the slide presentation that accompanies the call. These are important to review and contemplate. Business environment uncertainty remains heightened due to supply chain constraints, high inflation and geopolitical events, which have numerous potential impacts. This means results could change at any time and the forecasted impact of risks is a best estimate based on the information available as of today's date.

Phil Terpolilli
Phil Terpolilli
VP - IR & Treasury at Prestige Consumer Healthcare

Additional information concerning risk factors and cautionary statements are available on our most recent SEC filings and most recent company 10 Q that was released this morning. I'll now hand it over to our CEO, Ram Lombardi. Ram?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thanks, Phil. Let's begin on Slide five. Q1 sales were approximately $250,000,000 We were disappointed by the start to the year, which did not meet the $258,000,000 to $260,000,000 revenue forecast we communicated back in May. At the time, we had forecasted a year over year decline in Q1, largely based on the timing of sales orders between Q4 last year and Q1 this year, as well as modestly lower sales in eye care. Unfortunately, a planned production shutdown in eye care scheduled for early May stretched longer than anticipated resulting in a significant shortfall for clear eyes in Q1.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

We'll discuss the action steps we are taking to address this including the announcement to acquire pillar five on the next page. Elsewhere, our business performed largely in line with our expectations, including strong international segment growth and healthy long term consumption trends for many of our key U. S. Brands such as Dramamine and Fleet, as well as the continued recovery of Summer's Eve. In addition to this, we experienced gross margin expansion of 150 basis points to 56.2, thanks to ongoing cost savings efforts resulting in a gross margin similar to our forecast.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

For EPS, we delivered $0.95 which was below our expectations due to the sales miss, but still up approximately 6% versus the adjusted prior year, thanks to the gross margin expansion, marketing expense timing and lower interest expense. Free cash flow of $78,000,000 was a quarterly record and continues to enable capital deployment used to enhance shareholder value. In Q1, we repurchased over 400,000 shares and maintained our leverage ratio of approximately 2.4 times. Now let's turn to page six to discuss our eye care supply. Given the challenges faced in our eye care supply over the past year, we wanted to give a detailed update on our actions to address the issue.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Over the past year, we began accelerating our long term efforts focused on how to best position our supply chain to support Clear Eye sales growth. The first phase of this was to bring on two new suppliers to supplement our long term supply requirements and better align to our business needs. This phase has made significant progress with the first of these suppliers providing product deliveries in late Q1. The second supplier is on track to begin supply in early Q3. The second phase was to further invest in our North American based partner to expand their capacity.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Over the past year, we have made progress with them, but at the same time have been significantly impacted by shortfalls in production. As we evaluated our options to address this, we decided the best course for us was direct ownership of the facility to help secure and expand long term supply, resulting in today's announcements of the agreement to acquire Pillar five. This direct ownership will allow us to accelerate the expansion of capacity, including the startup of a new high speed line that we expect production from in Q3, as well as future capacity additions to fully support our expected growth in eye care demand. As a result of these actions, we believe we will see some improvements in supply late in Q2, but a more meaningful recovery in the '6 and into fiscal 'twenty seven. With that, I'll pass it to Chris to walk through the financials.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Thanks, Ron. Good morning, everyone. Let's turn to slide eight and review our first quarter fiscal 'twenty six financial results. As a reminder, the information in today's presentation includes certain non GAAP information that is reconciled to the closest GAAP measure in our earnings release. Q1 revenue of $249,500,000 declined 6.6% from $267,100,000 in the prior year and 6.4% excluding the effects of foreign currency.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

EBITDA was approximately flat in Q1, and diluted EPS increased approximately 6% versus the prior year as the revenue decline was offset primarily by improved gross margin, the timing of marketing spend, and lower interest expense versus the prior year. Let's turn to slide nine for detail around these consolidated results. As I just highlighted, our Q1 fiscal 'twenty six revenues decreased 6.4% organically versus the prior year. By segment, excluding FX, North America segment revenues decreased 8.4%, and International segment revenues increased 7.1% versus the prior year. As Ron noted earlier, our Q1 sales declined due to our inability to move supply constrained eye care product to customers to meet demand as well as the expected order timing of a certain e commerce customer that benefited Q4 of the prior year.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Excluding these factors, we experienced organic growth. Positively, our International segment experienced organic sales growth of 7%, thanks to broad based sales growth. We also experienced impressive double digit year over year consumption growth in the e commerce channel, continuing the long term trend of higher online purchasing. Total company gross margin of 56.2% in the first quarter was largely as anticipated and up 150 basis points versus the prior year. Looking forward, we still expect a 56.5% gross margin for the year with a Q2 gross margin of 55.5%.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

For tariffs, we now anticipate a full year potential cost of approximately $5,000,000 as of today. This is the estimated cost prior to any strategic actions, which we'd expect can fully offset the current tariff outlook. As a reminder, we have a predominantly domestic supplier base and have a diverse and only modest exposure to high tariff countries, as well as certain products that are currently exempt from tariffs under USMCA. Advertising and marketing came in at approximately $35,000,000 or 14% of sales in Q1, down versus prior year due to the timing of marketing programs. For fiscal 'twenty six, we now anticipate an A and M rate of just over 14% of sales and up in dollars versus prior year.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

G and A expenses were 11.4% of sales in Q1 due to the timing of certain expenses. For the full year, we now anticipate G and A of approximately 10% as a percent of sales. Diluted EPS of $0.95 increased versus an adjusted diluted EPS of $0.90 in the prior year as lower revenue was offset by improved gross margin, the timing of A and M and lower interest expense. For full year fiscal 'twenty six, we now expect adjusted EPS of approximately flat to 1% growth due to the latest revenue forecast. We still expect EBITDA margin in the low to mid-30s, consistent with long term trends.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Finally, looking below the line, interest expense of approximately $10,000,000 benefited from the effects of our continued debt reduction efforts. Our Q1 tax rate was approximately 23.2%, and we anticipate a normalized tax rate of approximately 24% for the remaining quarters of fiscal 'twenty six. Now let's turn to Slide 10 and discuss cash flow and capital allocation. In Q1, we generated $78,000,000 in free cash flow, driven largely by the timing of working capital along with disciplined debt reduction efforts. We continue to maintain industry leading free cash flow and are maintaining our outlook for the full year of $245,000,000 or more.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

At June 30, our net debt was approximately $900,000,000 consisting of attractive rate fixed debt, and we maintained our covenant defined leverage ratio of 2.4 times. In the quarter, we repurchased approximately 400,000 shares for $35,000,000 and we'll continue to evaluate further repurchase opportunities in the remainder of fiscal 'twenty six. Now let's discuss some details around the announced acquisition of our primary clear eye supplier, Pillar five Pharma, that Ron mentioned earlier. Based in Ontario, Canada, Pillar five is a well established pharma manufacturing site who we have partnered with since 2016. With over 200 employees, the site's core capability is multidose sterile OTC ophthalmic products.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

In terms of financial impact, we anticipate the estimated purchase price of approximately $100,000,000 to be funded from cash on hand. We expect the transaction to have a minimal impact to our P and L and to be approximately neutral to EPS on a normalized basis. As a reminder, this would exclude any onetime costs associated with the acquisition. Given the size, we'd also anticipate the acquisition to be leverage neutral. In terms of CapEx, we we anticipate modest ongoing CapEx requirements, bringing our total company CapEx outlook to 1% to 3% of sales annually versus 1% to 2% previously.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

We would expect to close in fiscal Q3 based on fulfillment of certain closing conditions. With that, I'll turn it back to Ron.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thanks, Chris. Let's turn to slide 12 to wrap up. We continue to have confidence in our diverse and leading consumer healthcare portfolio and its long term growth opportunities. Although the strong fundamentals of our business remain unchanged, we are disappointed in our start to the year. But the actions we've outlined today give us confidence for an improvement in Clear Eye supply.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

For fiscal twenty twenty six, we now anticipate revenues of $1,100,000,000 to $1,115,000,000 with organic revenue down approximately 1.5% to 3% versus last year, with this change in revenue outlook largely in the 2026. This update to guidance is primarily driven by the anticipated eye care first half supply constraints with an additional headwind related to the current retail environment. For Q2, we're expecting revenues of approximately $256,000,000 to $259,000,000 down year over year largely to clear eye supply chain timing as well as lower retail order patterns experienced in July that are not consistent to our stable consumption rates outside of eye care. Beginning in second half, as discussed earlier, we anticipate significant improvement of Clear Eye shipments into retailers to support in stock levels. For diluted EPS, we now anticipate adjusted EPS of $4.5 to $4.58 for the full year.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

And for Q2, we'd anticipate EPS of approximately $0.97 Lastly, we continue to anticipate free cash flow of $245,000,000 or more, and we have ample capital deployment optionality that has a history of maximizing value for our shareholders. With that, I'll open it up for questions. Operator?

Operator

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Rupesh Parikh with Oppenheimer and Company. Your line is now open.

Rupesh Parikh
MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.

Good morning and thanks for taking my question. So I guess just on the I guess the change in retail order patterns, the inventory destocking. Just curious if that's broad based across retailers and then how to think about the magnitude of that impact for Q2, whether you expect that to continue beyond Q2?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yes. Good morning, Rupesh. It's Chris. We talked about the impacts to the full year outlook, the first, of course, being our expectations around eye care supply. The second aspect that we talked about relates to the current retail environment.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

We're hearing what you're hearing from other CPG companies concerning the environment, and we have seen increased order volatility from retailers in July, one in particular where we've seen big swings week to week in orders that are disconnected from consistent consumption levels. So there's a degree of expectation that what we've seen thus far will significantly impact Q2, but we are expecting to return to more normalized retail order trends in the second half.

Rupesh Parikh
MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.

Okay. And no specifics on the impact of that headwind for Q2?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

If I think about the call down for year, we talked about the majority being eye care. Think of it as a sixty-forty split, really, 60 being eye care.

Rupesh Parikh
MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.

Okay. That's helpful. And then just going to Clear Eyes, just love to hear your confidence in being able to supply sorry, confidence in supply normalizing in the back half of the year. And then would you expect to recover some of these lost sales in FY 2027 and beyond?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Sure. Hey, good morning, Rupesh. So let me start maybe by stepping back a little bit on our decision and announcement on pillar five and touch on some of the topics we've talked about in the past, right? So, the sterile eye care sourcing strategy that we've been talking about and announced the Pillar five acquisition on today really has been in the development for a long time. We've been scouring the globe for years to understand sterile eye care capacity and the options available to us.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

And that led to what we started to describe about a year ago, actually over a year ago, where we talked about adding new suppliers and focusing on investing in our current suppliers to expand their capacity. So we started to see the beginnings of deliveries from one of those new suppliers at the very June. We anticipate the second will come on early in our third quarter. And then as we evaluated the two long term suppliers that we've been working with over the years, it became obvious to us that pillar five was meaningfully ahead of the other supplier in terms of being able to expand their capacity. And we've talked about the expectation that a new high speed line will come online later in Q3.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

So with those three elements, the two new suppliers working with direct oversight on pillar five once we close in the addition of this high speed line, is going to provide a significant level of stability in sterile eye care that we've forecasted will add meaningfully to the sales level in the second half of the year. So a bit more detail than maybe you asked in your question, but I just thought it'd be good to step back and pull all the pieces together, Rupesh.

Rupesh Parikh
MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.

So you feel good about getting back to normalized supply at this point for the back half of the year?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

We do, right? And again, that was our expectation that we talked about back in May. We thought it would be slower in the first half, not to this extent, but expected that the new suppliers and the additional high speed line at Pillar would be in place for the second half.

Rupesh Parikh
MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.

Okay. And then my final question. Just on Clear Eyes as well, just from a market share out of stock perspective, what's happening from that perspective?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Yeah. Over the past year up through May, we had fairly steady supply concentrated around our biggest skews. So despite the fact that we saw volatility in shipments into retail, we still had decent supply and availability at shelf. That all changed in late May as a result of the disruption at Pillar five. And we saw a significant decrease in late May and June and into July in our share.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

And we expect to see that recover as shipments get back in. As a reminder, Clear Eyes was by far the number one volume leader in redness relief, Talking about nearly 50,000,000 units a year sold at retail, and that's a big presence. So we would anticipate that we'd be able to begin to recover that share over time. We have seen some lost distribution for the SKUs that were around the big movers, so like cooling comfort and complete care and some of the other SKUs that we have. So, that'll take a bit more time, but we would expect to see the recovery over time of our leading position in redness.

Rupesh Parikh
MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.

Great. Thank you for all the color. I'll pass it along.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thank you, Rakesh.

Operator

Thank you. Our next question comes from the line of Susan Anderson with Canaccord Genuity. Your line is now open.

Susan Anderson
Susan Anderson
MD & Senior Analyst at Canaccord Genuity Group

Hi, good morning. Thanks for taking my questions. Quick question on the eye care manufacturing. I guess bringing that in house, does that change the margins at all for the segment, that segment of the business? And then also, did you say what percent now of your eye care business will be internally manufactured?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Good morning, Susan. It's Chris. So we're not expecting any meaningful movement in our gross margin or actually any of our financial metrics. As a result. We talked about expecting it to be largely neutral to the P and L.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

So no on that. We didn't disclose the percent. Obviously, the benefit of having more than one, more than two suppliers at this point allows us the flexibility to flex back and forth. That'll be determined over time, and we'll evolve it as we go.

Susan Anderson
Susan Anderson
MD & Senior Analyst at Canaccord Genuity Group

Okay, great. And then I guess just looking at the model, maybe if you could talk about the puts and takes of gross margin for the year. It looks like you're going to still maintain the gross margin guide despite the pressure from the eye care business. So I guess, what do you expect to be driving that performance the rest of the year? Thanks.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yeah. So from a gross margin perspective, it's kind of the same, steady as she goes, largely a variable cost model. Most of our channels and our brands have a similar margin, so not a lot of outliers there. We may see some shift in mix, and that's the movement you'll see, I think, as we go through the quarters. But nothing meaningful there.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

We talked today, we updated the tariff number. It used to be $15,000,000 We brought it down to about 5,000,000 And again, we would expect pricing and cost saving actions to mitigate that, but that could have some impact on the mix excuse me, on the margin. But all in all, when you put it together, it's really no change as a result of eye care. We are expecting to recoup a significant portion of the sales in the back half.

Susan Anderson
Susan Anderson
MD & Senior Analyst at Canaccord Genuity Group

Okay, great. And then I guess just looking out to the back half now in the coughcold season, I guess what are you expecting out of the season this year? I assume you're planning it to be normal, which I assume would be up over last year with kind of a weaker season.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yes. So no change to the initial guide on coughcold. We were forecasting a modest decline in the category. A little bit too early to tell at this point, so we're maintaining that at this point.

Susan Anderson
Susan Anderson
MD & Senior Analyst at Canaccord Genuity Group

Okay, great. And then one more, I guess, just if you could talk about just how you feel about inventory within your segments in the channels. Do you feel like there's any areas that are still over inventoried, which you would expect some destocking going forward? Or do you feel that within your categories, the inventory is pretty clean?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yeah. So we do review our largest customers. And we do not see any meaningful ramp up of inventory. As we talk about the current retail environment and these kind of big swings that we're seeing in order patterns, it's really disconnected from consumption. And it's not starting from a place of inflated inventory.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

So no, we are not seeing any meaningful opportunities for folks to take significant amounts of inventory out at this point.

Susan Anderson
Susan Anderson
MD & Senior Analyst at Canaccord Genuity Group

Yeah. That's interesting. I guess one last one just on the women's health business. You talked about Summer's Eve continuing to recover. I guess, you expecting that business to be positive the rest of the year?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Good morning, Susan. It's Ron here. Yeah. So we continue to feel good about the Summer's Eve momentum and trends. If you take a look at performance of the different categories during the quarter, it's tough to get a handle on them because of that shift between the fourth quarter and the first quarter.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

But even with that shift, our women's health category had growth in the quarter ended June. So it gives you a little insight into the strong trends there versus where we were a year ago when we hit bottom for the Summer's Eve brand. So yeah, we continue to feel good about it for the remainder of the year.

Susan Anderson
Susan Anderson
MD & Senior Analyst at Canaccord Genuity Group

Okay, great. Thanks so much for all the details. Good luck the rest of the year.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thank you.

Operator

Thank you so much. Our next question comes from the line of Glenn West with William Blair. Your line is now open.

Glenn West
Analyst at William Blair

Hi, guys. Glenn West on for Jon Andersen. Some of what I wanted to hit was kind of asked, but maybe piggybacking back onto the ClearEye situation. Can you elaborate kind of on the cadence of that improvement in the second half? I know there's a new supplier coming on during Q3, and then the new high speed line will be coming on in Q3 as well.

Glenn West
Analyst at William Blair

Does that mean full supply recovery isn't really going to be until Q4? Or maybe just a little more color on that back half recovery.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yes. Hi, Glenn. So yes, we are anticipating the third quarter and the fourth quarter to significantly step up from the first half. So it's not all fourth quarter loaded. It is also an increase in the third quarter.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

And Glenn, it's Ron here. And again, in terms of recovery, it's going to take more than a couple of quarters of improved output at our suppliers to catch up. We've been shipping in well behind potential demand for the brand for a good year now. So we would expect that full recovery to continue into 2027.

Glenn West
Analyst at William Blair

Okay. Thank you. And then on capital allocation, you guys said the deal would be paid for entirely in cash. I think you said $100,000,000 but still said you'll look to opportunistically maybe repurchase shares. Looking forward, I guess, how are you thinking about the capital allocation since you're using a large chunk of cash here?

Glenn West
Analyst at William Blair

Is there maybe opportunity to pursue purchasing more suppliers in the future? What are you guys thinking there?

Phil Terpolilli
Phil Terpolilli
VP - IR & Treasury at Prestige Consumer Healthcare

Yeah, Glenn, it's Phil. So the waterfall of our capital allocation priorities really hasn't changed. With the leverage ratio we've achieved over the last few years as we pay down debt and the approximate $1,000,000,000 in free cash flow we'd expect over the next four years. We think we have a lot of firepower to create value in multiple buckets. So we're continuing to pursue M and A and staying disciplined around that, looking for opportunities.

Phil Terpolilli
Phil Terpolilli
VP - IR & Treasury at Prestige Consumer Healthcare

From there, the second pillar is repurchases. You saw the 400,000 shares in Q1 to offset dilution. Beyond that, look for incremental opportunistic repurchases over time. And then still thinking about net debt reduction and cash build as sort of the fourth element to enable those other pillars. So no change to that waterfall that we've laid out in the past.

Phil Terpolilli
Phil Terpolilli
VP - IR & Treasury at Prestige Consumer Healthcare

And the acquisition of pillar five is one of many of those deployment priorities.

Glenn West
Analyst at William Blair

Appreciate the color. Thank you guys.

Operator

Thank you so much. Our next question comes from the line of Anthony Lebiedzinski with Sidoti. Your line is now open.

Anthony Lebiedzinski
Senior Equity Analyst - Specialty Retail/Consumer at Sidoti & Company, LLC

Good morning, and thank you for taking the questions. So first one here is on the Pillar five. So I know you said it's going to be earnings neutral to EPS this year. Now how should we think about fiscal 'twenty seven as you have a full year impact of that? If you could just give us some maybe directional guidance on that, that would be great.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yeah, Anthony. Hi, it's Chris. So again, we're talking about expecting it to be largely neutral to the P and L. And I think I mentioned we're thinking tens of basis points, not hundreds here. Given the investment that pillar five made in the facility and maybe the different objectives the financial sponsor might have in running a facility like this, there's also an element of cost avoidance here.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

As we would expect pillar five, as well as other options we explore to be looking for significant capital investments from us as well as significant price increases in the years to come. So obviously, it doesn't affect my current gross margin or my margin structure. But again, just a reminder, think about this acquisition differently than a brand acquisition. We did this transaction to better secure supply for one of our largest brands as well as to ensure the ability to increase capacity in a space that we believe will provide nice growth as we move forward. So that's how we're thinking about it at this point.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Yes. A couple of other comments To on it, put it in perspective, right, Clear Eyes is a high single digit of our sales. So that in and of itself isn't going to have a major impact on the total company's financial profile. You put the high margins in there and you end up with a small relative level of purchase costs in the P and L. The second is, our sole focus as we sit here today is about recovering supply at this point.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

So it doesn't mean that we won't have a sharp pencil and a focus on making this as accretive as possible and finding ways for that facility to be more effective from a cost standpoint going forward. But for now, it's all about stability of supply going forward, and then we'll get an eye on the ability to be more cost effective over time.

Anthony Lebiedzinski
Senior Equity Analyst - Specialty Retail/Consumer at Sidoti & Company, LLC

Got it. Okay. Thanks a lot. That definitely helps. And just thinking of Clear Eye, so we've had a few quarters of supply chain issues for Clear Eye.

Anthony Lebiedzinski
Senior Equity Analyst - Specialty Retail/Consumer at Sidoti & Company, LLC

Just wondering what steps are you taking to ensure that the brand remains in a strong position and top of mind for consumers as some because of not having adequate supply at retail, maybe some consumers have shifted to other brands. So how are you guys thinking about just the ability to maintain your strong position for Clear Eyes?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Yes. So first, as I think I commented earlier, our focus has been trying to maximize availability of our top SKU. So our base redness and our max redness have been primary focus for what we produce is the first thing. And then the second part of it is to maintain the right level of connections with consumers for the brand. The last thing we want to do is drive them to the shelf with an expectation that the product is available in the channel that they're happy to looking to buy at it and be disappointed when they get to the shelf. So that's the first part of it. The second part of it is, so where are we seeing the shift in our share go to? The first is the entire redness category from a unit standpoint is down. So we're number one by far from a unit basis, and we're impacting the entire category. So, we're seeing the category decline. And then second, where we do see a shift in share, it's kind of spread across a broad number of players who are in that redness category.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

So there isn't any one big winner here. It's kind of spread out. As I just mentioned, we're seeing the category shrink.

Anthony Lebiedzinski
Senior Equity Analyst - Specialty Retail/Consumer at Sidoti & Company, LLC

Got it. Okay. And then my last question here. So as far as the international segments, obviously nice performance there. How do you guys think about your ability and confidence to be able to sustain that growth internationally?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yes, Anthony. Hi, Chris. So in the quarter, had solid international consumption, just ahead of our long term forecast. It was pretty broad based growth by brand and by geography. So for the full year, we're expecting a little bit of a softer trend versus the 7% you saw in the first quarter, some of which is timing, but still in line with our longer term algorithm of five plus percent for this segment.

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

And I think we've talked in the past about opportunities as we expanded our hydrolyte rights, as we look to expand other brands geographically, and then just executing the same kind of brand building playbook in the other regions that we have done here in North America. So we feel pretty confident in our ability to keep that long term algorithm going for the years to come.

Anthony Lebiedzinski
Senior Equity Analyst - Specialty Retail/Consumer at Sidoti & Company, LLC

Got it. Well, thank you very much, and best of luck.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thanks, Anthony.

Operator

Thank you so much. And as a reminder, everyone, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press 11 again. One moment for our next question, please. Our next question comes from the line of Doug Lane with Water Tower Research. Your line is now open.

Douglas Lane
Head of Consumer Products at Water Tower Research LLC

Thanks, operator. Hi, good morning, everybody. You know, I'm relatively new to Prestige brands, but I have followed OTC pharmaceutical companies in the past, and I don't remember talking about supply constraints in this category. So what is it about eye care that has caused so much consternation as far as supply is concerned?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Good morning, Doug. Good to speak with you. So I think I touched on this a little bit earlier. We've been evaluating sterile eye care supply options for over a decade as we looked for the ability to support ClearEye's growth over the long term. And what you find is generally the bigger players have their own in house manufacturing.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

And as a result of that, there isn't a lot of available high volume sterile eye care capacity that's out there. Because the brands that are out there generally don't have that 50,000,000 unit annual volume requirements that Clear Eyes has. So it isn't out there to tap into. So when we look to add to our supply base, it begins with having to make meaningful investments in suppliers to get them to acquire and install high capacity unique fillers that match our unique Clear Ice bottles. So we're not in a Boston round.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

We've got that great iconic flattish style bottle out there. So the simple answer is there isn't the kind of capacity out there available that wouldn't require years, three, four, five from start to finish and meaningful investments. As we've gotten to the inflection point of setting ourselves up for long term success here, it became obvious that we needed to bring this in house to be in the best position long term.

Douglas Lane
Head of Consumer Products at Water Tower Research LLC

Is this going to require an accelerated capital spending for maybe next year, if not this year, to get that capacity and be comfortable that you have what you need for the next several years?

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

As I said earlier, we thought pillar five had a significant head start to our other options. So they've got HVAC infrastructure ready to go. They've got this new high speed line that we should be seeing production set up for. So they're far ahead of the other options that we had, including the amount of capital. So I think in Chris's prepared remarks today, she gave an update that we'd be expecting our capital to move from 1% to 2% of revenues to 1% to 3% over the long term.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

So that's another $10,000,000 on $1.1 So the short answer is we're not expecting any meaningful step up either in the short term or the longer term for capital, even with the ownership. And I'll compare it to our Lynchburg facility, which will be producing 2x the sales value of output versus pillar five, still only requires single digit millions of capital spending each year to support that level.

Douglas Lane
Head of Consumer Products at Water Tower Research LLC

Okay, that's helpful. Just you said in your your slides, your double digit consumption growth in e commerce, which is continues to be strong, but that doesn't sound like it was shipments from you guys. Is that where some inventories were worked off in the quarter?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

Yeah, Doug. This is Chris. So yes, that is an area where we saw a meaningful disconnect from consumption levels, have been very consistent over time.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

And some of that was expected. When we gave our outlook for the quarter ended June, we had called the 7,000,000 or $8,000,000 shift from the fourth quarter into the first quarter. So we anticipated that for the first quarter.

Douglas Lane
Head of Consumer Products at Water Tower Research LLC

Yes, I remember that. And so that inventory build, if you will, that you called out last quarter has been pretty much worked off at this point?

Christine Sacco
Christine Sacco
CFO & COO at Prestige Consumer Healthcare

It has. The guidance that we're calling for the adjustment is largely in Q2 for what we've experienced in July. And as I mentioned in the Q and A session, inventory levels were not at inflated levels. So meaningful disconnect there so far.

Douglas Lane
Head of Consumer Products at Water Tower Research LLC

Got it. Got it. That's helpful. Okay. Thank you.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thank you, Doug.

Operator

Thank you so much. This does conclude our well, I'm sorry, this does conclude our question and answer session. I would now like to turn it back to Ron Lombardi, CEO, for closing remarks.

Ron Lombardi
Ron Lombardi
Chairman, President & CEO at Prestige Consumer Healthcare

Thank you, operator. And I want to thank everybody for joining us today, and we look forward to providing an update for Q2. Have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Executives
    • Phil Terpolilli
      Phil Terpolilli
      VP - IR & Treasury
    • Ron Lombardi
      Ron Lombardi
      Chairman, President & CEO
    • Christine Sacco
      Christine Sacco
      CFO & COO
Analysts
    • Rupesh Parikh
      MD & Senior Analyst - Food, Grocery & Consumer Products at Oppenheimer & Co. Inc.
    • Susan Anderson
      MD & Senior Analyst at Canaccord Genuity Group
    • Glenn West
      Analyst at William Blair
    • Anthony Lebiedzinski
      Senior Equity Analyst - Specialty Retail/Consumer at Sidoti & Company, LLC
    • Douglas Lane
      Head of Consumer Products at Water Tower Research LLC
Powered by Quartr