Edgewell Personal Care Q2 Earnings Call Highlights

Key Points

• Edgewell beat fiscal Q2 expectations as improving U.S. consumption, international market share gains, and better execution helped offset a narrower-than-expected sales decline. Organic net sales fell 2.4%, but management said performance in Grooming and branded Wet Shave was stronger than planned.
• Margins were pressured by inflation and tariffs, with adjusted gross margin down 310 basis points and adjusted EPS falling to $0.60 from $0.69 a year earlier. Higher costs, mix headwinds and currency more than offset productivity savings.
• The company reaffirmed its full-year outlook, including organic sales of down 1% to up 2%, adjusted EPS of $1.70 to $2.10, and adjusted free cash flow of $80 million to $110 million. Management expects a stronger second half, led by Sun Care shipments, pricing actions and productivity improvements.

Edgewell Personal Care NYSE: EPC reported fiscal second-quarter results that exceeded management’s expectations, with executives pointing to improving U.S. consumption trends, international market share gains and stronger execution across core categories following the divestiture of its Feminine Care business.

President and Chief Executive Officer Rod Little said the company delivered “a strong second quarter” with both top-line and bottom-line results ahead of internal expectations. He said the performance reflected actions to strengthen the business, including improved execution and innovation that is resonating with consumers.

“Importantly, these results reflect continued progress in our strategy execution, concentrating resources on the categories and markets where we have clear competitive advantage,” Little said.

The company’s second-quarter commentary was presented on a continuing operations basis, reflecting Wet Shave, Sun and Skin Care businesses. Chris Gough, vice president of investor relations, noted that the quarter included about one month of the Feminine Care business classified as discontinued operations following its February divestiture.

Sales Decline Narrower Than Expected

Chief Financial Officer Fran Weissman said organic net sales decreased 2.4% in the quarter, better than the company expected. Strong performance in Grooming and better-than-anticipated branded Wet Shave results were offset by expected Sun Care declines tied to shipment phasing into the first quarter and weakness in private label Wet Shave.

North America organic net sales fell 4.8%, driven by volume declines in Sun Care and Wet Shave. That was partially offset by double-digit growth in Grooming and modest growth in Skin. International organic net sales rose 1%, as Wet Shave growth was partially offset by declines in Sun Care and Grooming.

Weissman said Edgewell grew or held share in nearly 80% of its markets, up from about 70% in the first quarter.

• Wet Shave organic net sales declined less than 1%, as gains in men’s and women’s systems were more than offset by declines in disposables and preps.
• International Wet Shave grew 3.6%, largely on volume growth.
• North America Wet Shave declined 6%, reflecting continued category and channel challenges.
• Sun and Skincare organic net sales fell about 4.5%, primarily due to Sun Care shipment phasing.
• Grooming organic net sales rose about 6%, led by approximately 38% growth in Cremo.

In the U.S. razor and blades category, Weissman said consumption declined 1.3% in the quarter. Edgewell’s total value share declined 10 basis points, an improvement from first-quarter trends, while branded share rose 40 basis points, led by Billie.

In U.S. Sun Care, category consumption grew approximately 17%. Edgewell’s value share increased 180 basis points, driven by volume gains in Hawaiian Tropic and partly offset by slight declines in Banana Boat.

Margins Pressured by Inflation and Tariffs

Adjusted gross margin decreased 310 basis points, in line with management’s expectations. Weissman said productivity savings of about 220 basis points were more than offset by 420 basis points of core inflation and tariffs, 70 basis points of unfavorable mix and promotional levels net of pricing, and 40 basis points of currency headwinds.

Adjusted operating income was $49.4 million, or 9.5% of net sales, compared with $66 million, or 12.8% of net sales, in the prior-year quarter. GAAP diluted net earnings per share from continuing operations were $0.09, compared with $0.43 a year earlier. Adjusted earnings per share from continuing operations were $0.60, down from $0.69, with currency reducing adjusted EPS by $0.04.

Adjusted EBITDA was $73.8 million, including a $2.7 million unfavorable currency impact, compared with $84.7 million in the prior year.

For the first six months of fiscal 2026, net cash used by operating activities was $71.6 million, compared with $70.5 million last year, primarily due to lower earnings. During the quarter, Edgewell repurchased about $16 million of shares and returned roughly $7 million to shareholders through dividends.

Management Reaffirms Fiscal 2026 Outlook

Edgewell reaffirmed its underlying fiscal 2026 outlook. The company continues to expect organic net sales to range from down 1% to up 2%, excluding foreign exchange tailwinds. For the second half, management expects mid-single-digit international growth and low-single-digit growth in North America as commercial initiatives gain traction.

Weissman said the third quarter is expected to be Edgewell’s strongest sales quarter due to increased Sun Care shipments and seasonal timing. The company expects third-quarter net sales to rise 2% to 3%.

Adjusted EPS guidance remains $1.70 to $2.10, while adjusted EBITDA guidance remains $245 million to $265 million. Adjusted free cash flow expectations, excluding cash impacts from the Feminine Care divestiture, remain $80 million to $110 million.

Edgewell now expects reported gross margin accretion of 50 basis points, down 10 basis points due to unfavorable foreign exchange. Weissman said gross margin should expand in the second half as pricing actions, tariff mitigation and productivity initiatives reach full run rate. She said third-quarter adjusted gross margin is expected to be 44% to 45%, with the fourth quarter expected to be the strongest gross margin quarter of the year.

The company also expects its year-over-year advertising and promotion rate to increase 70 basis points for the full year. Weissman said spending was shifted from the second quarter into the third quarter to support campaign timing, and third-quarter A&P is expected to be 15% to 16% of net sales.

Strategy Focuses on Core Categories

Little said Edgewell’s strategy is centered on four priorities: international markets, innovation, productivity and U.S. transformation. He said the company is now operating with a “simpler, higher quality portfolio” following the Feminine Care divestiture, with Wet Shave representing about 60% of sales and Sun, Skincare and Grooming approaching 40% combined.

The company is increasing investment behind Schick, Billie, Hawaiian Tropic, Banana Boat and Cremo. Little highlighted new campaigns for Billie and Cremo, a Schick “Do Right By Your Skin” campaign featuring Nick Jonas, and Banana Boat’s first campaign in five years.

Edgewell is also advancing a Wet Shave manufacturing consolidation. Little said the first phase, consolidating two plants that primarily support private label into a new greenfield site, is nearly complete. The program remains on track, with savings expected to begin in fiscal 2027 and reach a full run rate in fiscal 2028, equating to roughly two points of expected companywide gross margin improvement.

Executives Address Middle East Risk and Inflation

During the question-and-answer session, analysts focused on inflation, Sun Care demand and the effects of conflict in the Middle East. Little said the company has line of sight to risks including oil, commodities and potential pressure on consumer demand, but said Edgewell built flexibility into its plan and is not reducing brand investment to offset headwinds.

Weissman said Edgewell has quantified about $3 million to $5 million of fiscal 2026 impact from the Middle East situation, mostly affecting margin, with some top-line pressure in Middle East markets. She said those factors are already included in the third-quarter outlook.

Looking beyond fiscal 2026, Weissman said more pressure could emerge in 2027 if current conditions persist, but she pointed to productivity, revenue growth management, mix management and potential pricing as mitigation tools.

Little said April was off to a good start and that Edgewell is seeing the expected step-up in sales. He also said retailer inventories appear balanced, with some cases where inventory may need to be rebuilt, particularly given strong Sun Care consumption.

“The progress we made this quarter reinforces our conviction in our plan,” Little said, adding that management remains confident in returning to sustainable growth in the second half while expanding margins and cash flow over time.

About Edgewell Personal Care NYSE: EPC

Edgewell Personal Care Inc, incorporated in 2015 and headquartered in Shelton, Connecticut, is a global consumer products company specializing in personal care, sun care, shaving and feminine care solutions. The company emerged as a spin-off from Energizer Holdings' personal care division, listing its shares on the New York Stock Exchange under the ticker “EPC.” Edgewell's portfolio comprises well-known brands that cater to everyday personal grooming and protection needs.

In the shaving segment, Edgewell markets razors and refill blades under brands such as Schick and Wilkinson Sword, targeting both men's and women's grooming categories.

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