Edgewell Personal Care Company (EPC) Q1 2019 Earnings Report, Transcript and Summary

Good day, and welcome to the Edgewell Personal Care First Quarter Fiscal 2019 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 of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for Edgewell’s first quarter fiscal 2019 earnings conference call. With me this morning is David Hatfield, our President, Chief Executive Officer and Chairman of the Board; and Rod Little, our Chief Financial Officer. David will kick off the call then will hand over to Rod to discuss quarterly results and the fiscal 2019 outlook, followed by Q&A. This call is being recorded and will be available for replay via our website, www.edgewell.com. During the call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, savings and 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, which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended September 30, 2018, as maybe amended in our quarterly reports on Form 10-Q. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are shown in our press release issued earlier today, which is available at the Investor Relations section of the website. Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I’d like to turn the call over to David.

Thank you, Chris and good morning, everyone. Let me briefly summarize the quarter and then I’ll have Rod take you through our financial results, Project Fuel and our view for the remainder of the fiscal year. In the quarter, organic net sales declined 3.5%, with improved performance in some key areas of the business such as international Wet Shave, helping to offset some of the ongoing challenges in North America. We had good profit in adjusted earnings per share growth in part due to the accelerated actions we’ve taken on Project Fuel and we’re maintaining our full year outlook for organic net sales and adjusted earnings per share. Operationally, we’re making good progress on our key strategic initiatives. We’re working with urgency against executing Project Fuel, driving savings in the quarter and getting much of our reorganization behind us. We’re focused on getting the fundamentals right in a very competitive North American market. Getting our value proposition and marketing programs right for Men’s and Women’s Systems and Feminine Care. Our results reflect the benefits of our focus on innovation with Hydro Sense and Intuition f.a.b contributing to growth in our international markets. We’ve made good progress on our key growth initiatives, including e-commerce and our Bulldog and Jack Black Skin Care brands where we continue to invest. And today, we’re announcing that we’ve initiated a strategic review of our Feminine Care and Infant Care businesses with intent to sharpen focus and increase resources in the support of our core Wet Shave and Sun and Skin Care businesses. We still have a lot of work ahead of us, as we execute the transformation of Edgewell, But I’m pleased with the progress we’re making and I’m confident we’re taking the actions needed to better position us to tackle the competitive pressures we face, win in the marketplace and increase value creation. I’m also confident that now’s the right time to announce my retirement and hand over the reins to Rod Little. As you know, Rod has a strong consumer goods background and a long history of driving results. Rod has led the transformation of Edgewell since arriving last March. And as I’ve worked alongside Rod during that time, I’ve witnesses his abilities and I’m certain I leave the company in a very capable hands. Rod will be helped by a strong leadership team and a group of colleagues who are committed to the success of Edgewell. I’d especially like to thank those colleagues for that commitment during my time at Edgewell and Energizer Personal Care before that. With that I’ll hand the call over to Rod.

Thank you, David, and good morning, everyone. I’ll begin with some of the key first quarter of business performance metrics and then I’ll provide an update on Project Fuel, discuss our strategic review of the Feminine and Infant Care businesses and then close with a few comments about our fiscal 2019 outlook. Reported net sales in the quarter were $457 million, a decrease of 2.4% or 3.5% on an organic basis. Organic net sales exclude the benefit from the Jack Black acquisition, the impact from the Playtex gloves business divestiture and the negative translational impact from currency. In the quarter, we returned to growth in our international markets. Increasing organic net sales by nearly 3% driven by broad based strength in Wet Shave, particularly in Europe and Asia Pacific. This growth more than offset temporary declines in our international Sun and Skin Care businesses, where we were impacted by delivery delays related to our Sun Care reformulation project. However, our overall sales performance continues to be impacted by North America, down 7.6% in the quarter, driven by declines in Wet Shave, Feminine Care and Infant, while Sun and Skin Care sales increased. We delivered good growth globally in e-commerce, Private Label as well as Bulldog and Jack Black men’s skincare. Our results also benefited from the global rollout, product innovations launched during the past year. Growth in Asia Pacific was in part driven by our new Intuition f.a.b. and Hydro 5 Sense offerings. We also had good success in the launch of Hawaiian Tropic in Australia. Gross margin on a GAAP basis was 42.3%, excluding the cost associated with the Sun Care reformulation, gross margin decreased 20 basis points to 42.4%. We are seeing the benefits of Project Fuel translate into lower operational spending, which more than offset increased commodities and warehouse and distribution costs and resulted in favorable cost mix of about 60 basis points. The impact of lower volumes across all segments resulted in a 70 basis point decline to margin, while unfavorable price mix contributed to a 40 basis point decline. A&P expense this quarter increased 80 basis points as a percent of net sales to 11.3%. The increase was largely driven by the new Hydro media campaign and Intuition f.a.b. sampling in North America as well as increased spending in support of Hawaiian Tropic’s launch in Australia. SG&A including amortization expense was 19.1% of net sales, excluding IT enablement charges for Project Fuel expenses associated with an investor settlement, costs associated with Jack Black and favorable currency translation, SG&A as a percent of organic net sales improved 250 basis points as compared to the prior year. The improvement was largely driven by savings generated by Project Fuel as well as a favorable comparison to higher one-time expenses a year ago. These savings are partially offset by increased investments in e-commerce. We also incurred $18.5 million of pre-tax restructuring expenses in the quarter in support of Project Fuel. The adjusted effective tax rate for the first quarter of fiscal 2019 was 26.6%, down from the prior year period adjusted rate of 34.1%. GAAP diluted net earnings per share was a of $0.01 per share, including an after tax $0.27 impact from Project Fuel. Adjusted earnings per share was $0.37 per share compared to $0.20 in the prior year period. Now let me turn to our segment results. Starting with our Wet Shave segment, organic net sales were down 0.6% in the quarter, an improvement over last quarter and better than recent trends. As expected, we see a bifurcation in performance between North America and the rest of the world. We have broad based improvement across our international markets, which account for roughly 55% of our total Wet Shave. As total organic net sales increased by 5.5%, led by growth in Japan, China, and across Europe. We grew both Men’s and Women’s Systems reflecting volume increases in Hydro Sense and Intuition f.a.b. and grew Private Label, driven via new distribution. In North America, however, we declined 7% largely a reflection of the competitive environment impacting volumes and price, particularly in Men’s and Women’s Systems in mass retailers. Globally, our Private Label men’s business grew organic net sales driven by new distribution in Europe that we saw a decline in North America due to new competitive distribution in the U.S. Wet Shave segment profit increased 4.7% in the quarter as lower spending with SG&A and R&D, more than offset lower gross margin and increased A&P spend. The lower gross margin was driven by unfavorable volumes in product mix, lower pricing and slightly unfavorable costs, which are driven by higher commodities, warehouse and distribution costs. In the Wet Shave category as measured by Nielsen, U.S. razors and blades category was down 1.2% in the latest 12-week data, with Men’s Systems increasing 1.7%, Women’s declining 4% and Disposables down 2.7%. When factoring in non-measured channels, we believe the U.S. men’s category was up 4%, with the overall razors and blades category up about 5% with growth coming from offline, unmeasured channels. From a market share perspective as measured by Nielsen, in our latest 12-week data, we are at a 25 share in razors and blades in the U.S., down 120 basis points versus a year ago, with about 60 basis points of the decline coming from Private Label. This share decline was primarily driven by decline in Walmart. Outside of Walmart, we grew share. On a global basis, we estimate our share was down 40 basis points. Although, our share position continues to be impacted by distribution losses, primarily in the U.S., we’ve had good success from the innovative products we launched last year, and we have exciting innovation to come to market again this year, ranging across our full portfolio of shaving products. As part of Project Fuel, we’ve made significant changes to the way we address innovation, both in marketing and research and development. These changes address consumer centricity, regional empowerment, digital enablement and speed to market. You can see these attributes in some of our key launches this quarter including, for Men, we’re expanding our Xtreme brand into Men’s Systems with the Xtreme Pivot Ball System. And on schick.com, we’re offering hydro, hydrographic handles that provide consumers with more choices beyond just color. In Disposables, we’re launching a new Xtreme 3 and Xtreme 5 Pivot Ball Disposable razor. These razors include our innovative, flexible Xtreme blades and add a new side-to-side technology that increases comfort and ease of shaving. For Women in Systems, we’ve launched Intuition f.a.b. in Asia, and in the U.S., we’re launching our new Hydro Silk 3 with a slimmer design and three curve-sensing blades for sensitive zone. In Disposables, we are consolidating innovation under our leading Skintimate brand and we are providing a regimen approach that combines great shape technology with our leading Skintimate shape prep brand. Additionally, we are capitalizing on the strong results from our Intuition f.a.b. Systems razor by launching the Intuition f.a.b. disposable razor, which marks our first entry in disposables for the Intuition brand. Moving to Sun and Skin Care, net sales increased 12.9% on a reported basis, decreased nearly 4% on an organic basis. Organic net sales adjust out the impact of the Jack Black acquisition, the Playtex gloves business divestiture and currency impacts. The sales decline in the quarter was primarily driven by key Asia Pacific and Latin America markets that were impacted by supply constraints related to the Sun Care reformulation project announced in the prior quarter. Sales in North America increased, due to favorable Sun Care pricing and volume growth in Bulldog. Globally, Bulldog sales increased 27% with growth coming from both international and North American markets. For the first time, Bulldog is introducing shower gels from men align of environmentally conscious and vegan friendly shower gels that use gentle naturally derived cleansers, natural fragrances and bottles made of 100% post consumer recycled plastic. Segment profit increased $5.6 million driven by higher gross margin, which was partially offset by higher A&P spending and supportive Bulldog and the launch of Hawaiian Tropic Sun Care in Oceania. As a reminder, due to the seasonality of Sun Care and the required inventory build, profitability in sales are not uniform by quarter and the fiscal first quarter typically represents only 12% to 13% of full year sales. Within the U.S., Sun Care category, 12-week consumption increased 3.4% and our share declined by 50 basis points. Turning to Feminine Care, net sales decreased $8 million or 9.6% as compared to the prior year, driven by volume declines in all lines except for Sport Tampons, where increased promotional support helped drive higher volumes in the quarter. Feminine Care segment profit increased $2.7 million as compared to the prior year period, driven by favorable cost mix and lower A&P and SG&A expense. Overall, the Feminine Care category was relatively flat with growth in Pads offset by declines in tampons and liners. Our market share declined approximately one point. Our declining sales and market share over the past year has been driven by distribution losses at retail. As we anniversary those losses in the back half of this fiscal year and based on our early read of the planogram setup, we’re increasingly confident that we will see significantly improve sales trend in the second half of the fiscal year. And finally in our All Other segment, which is primarily Infant Care, net sales decline 13.8%, as compared to the prior year, largely driven by lower Diaper Genie sales and the impact of the Toys R Us enterprise liquidation. As we move through the remainder of the year, we expect to improve performance driven by the launch of new Paw Patrol mealtime products and a stabilization of Diaper Genie. All Other segment profit decreased $5.9 million driven by lower product volumes and unfavorable product mix and pricing. Now I’d like to turn Project Fuel. We continue to make good progress and remain on track to deliver $115 million in incremental gross savings for the fiscal year. Importantly, those savings are being used to help offset inflationary headwinds and provide reinvestment in our key brands and growth initiatives. Let me update you on the numbers which are generally unchanged from the outlook we gave at the end of last fiscal year, we expect Project Fuel will generate $225 million to $240 million in total annual gross savings by the end of the fiscal year 2021. And we estimate one-time pre-tax charges to be approximately $130 million to $140 million with an additional capital investment of $60 million to $70 million through the end of 2021 fiscal year. Fiscal first quarter 2019 Project Fuel related restructuring charges and capital expenditures were $18.5 million and $5.3 million respectively. First quarter Project Fuel related savings were $24.8 million bringing cumulative savings to $40.2 million for the project. Given the progress, we were making on Project Fuel in current market conditions, we believe that now is the right time to explore strategic alternatives for our Feminine Care and Infant Care businesses. We believe that by continuing to sharpen our focus on our core Wet Shave and Sun and Skincare businesses, we can best position the company for growth and value creation. With that in mind, we are exploring strategic alternatives for the Feminine Care and Infant Care businesses including the potential sale of one or both businesses. As a reminder, there is no assurance that the exploration of strategic options will result in any transaction or other action by the Company. And we do not intend to comment on or provide updates regarding these matters unless it’s appropriate or required. Now turning to our full year outlook, we’re maintaining our previous full year outlook for organic net sales and adjusted earnings per share. We expect reported net sales to be down low single digits compared with the prior year, including an approximate 150 basis point unfavorable impact from currency translation and a 70 basis point combined benefit from the Jack Black acquisition and the Playtex gloves business divestiture. Our outlook reflects in assumption of continued competitive intensity in Wet Shave. The outlook for GAAP EPS is now in the range of $2.09 to $2.39 and includes Project Fuel restructuring charges, Sun Care reformulation costs, Jack Black integration costs and expenses associated with an investor settlement. The change to the GAAP EPS outlook is primarily driven by a charge related to the transition tax on foreign earnings from the tax act, within – which increased the Company’s estimate for the GAAP tax rate in fiscal 2019. Our adjusted EPS outlook remains in the range of $3.30 to $3.60, adjusted operating income margin as a percent of net sales is anticipated to be consistent with the prior year adjusted for the adoption of ASU 2017-17. Project Fuel is expected to generate approximately $115 million in incremental gross savings. Project Fuel related restructuring charges and capital expenditures are expected to be approximately $70 million to $80 million and $40 million to $50 million respectively. The effective tax rate for the fiscal year is still estimated to be in the range of 23.5% to 25.5%. In terms of phasing for the year, the Company still expects that organic net sales through the first half of the fiscal year will decline approximately 5%, and that adjusted earnings per share through the first half of the fiscal year will be approximately 40% of the full fiscal year adjusted earnings per share estimate. There are several dynamics that we expect to negatively impact our sales and gross margin outlook in the second fiscal quarter that do not impact our full year outlook. They include the impact of Sun Care reformulation project on the second quarter, the impact of a large retailer in the U.S., shifting delivery of Sun Care products from the second to the third fiscal quarter, and finally, a phasing shift in Wet Shave sales in Japan. That will result in a significant net sales declining Q2, followed by a significant net sales increase in Q3. The Japan phasing shift is an example of where we’re trying to create a more balanced quarterly profile through a commercial strategy change. In this case, one that diminishes quarterly spikes related to trade promotions. This effort began in the second half of last year, but we are still seeing the impact due to prior year comparisons. The company anticipates that fiscal 2019 free cash flow will be above 100% of GAAP net earnings. Before moving to Q&A, on behalf of the Company, I would like to thank David for his 33 years of service and dedication to Edgewell and Energizer Personal Care before that. On a more personal note, I want to thank David for bringing me to Edgewell and the help and support he’s given me since my arrival last March. This is an important time for the Company, as we continue the transformation of Edgewell that began with David. We will remain focused on executing this transformation with urgency, continuing to take decisive actions to operate more efficiently, reorienting our portfolio to focus on growth and investing in our key growth initiatives. I believe, we have significant opportunities to drive growth by continuing to build out our core brands, by working with our largest customers to deliver compelling innovation and value. Edgewell’s strongest competitive advantage will come for our team of colleagues, who are dedicated to innovating and challenging conventions to advance our business. As a team, we’re confident that we are taking the actions needed to better position us to tackle the competitive pressures we face, win in the marketplace and improve sales and profit growth going forward, ultimately, increasing shareholder value. With that, we’ll open it up for questions. Operator, over to you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jason English of Goldman Sachs. Please go ahead.

Hey. Good morning, folks. Thank you for squeezing me in. David, congratulations on the pending retirement, you’ll certainly be missed and Rod congrats on the new role. On to my questions, I’ve got two. First, I was just hoping you can walk us through the performance within Wet Shave in North America between Men’s, Women’s on both branded side and then Private Label. And then, secondly, thinking about strategic direction going forward, obviously, new news today on the review of Infant and Sun Care. Can you comment at all on the other side of your potential acquisition agenda, as you focus a little bit more on Skin Care going forward? Thank you.

Sure, Jason. Thank you for the questions. On U.S., Wet Shave performance in the quarter, Men’s Systems were down mid single digits. Women’s Systems were down double digits, little over 10%. Disposables down mid single digits, Shave preps down slightly, nearly flat, for the overall 7% decline in Wet Shave in North America, very different performance by retailer segment, as you might imagine, mass and then all the other channels. Relative to the second question on the divestiture piece, we’re not committing to a divestiture. We’re prepared to assess the alternatives. Strategically, as we said, if we get to a point where that make sense, we thought about the core business that we’ve defined as Wet Shave, Sun and Skin, that’s the core, that’s where we’re going to invest, whether it be organically and investments we make in the core business and capabilities or inorganically via acquisition. I don’t think we want to be more specific than that.

Thank you. One quick follow-up. Thank you for the clarity on what drove U.S.? The Women’s Systems down double-digit, surprising in context of the innovation you are pushing out there. Can you give us a little bit more color and context on what’s happening competitively there and what drove the declines?

Yes. The biggest driver of that was pipe fill from last year, Jason. It was the timing of when Intuition f.a.b. and some of the other launches came in last year. Our launches this year go more towards later in the year. That’s the single biggest driver and then we did have some of the pricing reset just hit a little bit, but the bulk of that is going to hit in Q2.

Got it. Thank you. Very helpful. I’ll pass it on.

Thank you, Jason. Operator, next question, please.

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

Thanks. Good morning, everyone. So just two quick ones for me, Rod, maybe you can just give us kind of a State of the Union on the CFO search. I know you said it’s pending, you initiated search. But just curious where you are on the process? Have you identified any candidates? And then the second question is, with Harry’s now taking Flamingo into the retail trade, just wanted to see where that fits within your guidance. Have you kind of incorporated any incremental spend that you might have to do to defend your position in the Women’s side? Thanks.

Good morning, Nik. I’d say, well down the path on the CFO search. We’ve got candidates we like and we’re just working to make the final decision there. And I think, we’ll move relatively quickly there. On Flamingo, in the Target, we were expecting that in terms of the competitive intelligence and I think that didn’t surprise us. It’s factored into our guidance for the balance of the year. Prior to Flamingo launching, we’ve talked about addressing price in our Women’s Systems business, which we have done. We’ve also increased trade support behind that, and taken some of the lessons learned from the first go-around of Harry’s on the Men’s side coming in. And so that’s in place. And I think we feel better overall about our Women’s business and our Women’s brand and the uniqueness of the portfolio around the Women’s side. So we think we’ve taken the right actions. However, we also expect a pretty disruptive environment in Women’s as Flamingo goes into Target.

And thank you for that clarity. And then just – as I look at your – the portfolio across Wet Shave, both Men’s and Women’s, there are lot of brands that you have. Is there any – how do you think about that? I mean, is there an opportunity to consolidate the brand franchises to kind of create a more clear message to the consumer?

Yes, I think there is, Nik. It’s a good observation on your part. We have a new Head of Global Marketing, Anne-Sophie Gaget, who’s working with our global marketing teams on the brand and portfolio construction, looking at demand sources segments where we play and really assessing the total portfolio on how we move that going forward, potentially in a more consolidated way, to your point.

Great. Thanks so much, Rod.

Yes. Thanks, Nik. Operator, next question, please.

Our next question comes from Ali Dibadj of Bernstein. Please go ahead.

Hey, guys. Want to switch to international Wet Shave, just because that’s what kind of saves you guys this quarter. Can you talk a little bit about disaggregation of Private Label versus brand and the growth and new shelf space versus kind of comp store growth? And then aligned with that, A& P spend, obviously, up here, you talked about 13% roughly for the year. Is that still how you’re thinking about it? You used to be at 15%. What do you think the A&P spend has to go up to kind of offset some of the Project Fuel cost savings?

So, Ali, good morning. In order, on international, we have 5.5% Wet Shave growth in the quarter, pretty well spread across Men’s and Women’s. It’s a little bit different if you look at it geographically. The bulk of the Private Label business gain is via new distribution, primarily in Europe, as we pick up new accounts and new distribution in Europe within the Private Label business, really helping retailers differentiate themselves with their own brand primarily. I would say, the balance of distribution beyond that, across the branded business is very stable. And so the balance of the growth that we saw comes from consumption gains in what is a stable distribution environment. It’s competitive, obviously, internationally, but it’s not anything like the U.S. market. And so I think pricing, trade support, those types of things are a little more. Let’s call it normal versus the historical past. But it’s a combination of distribution gains on Private Label and pick up both in measured and unmeasured channels by our portfolio. Then on A&P spend, we’re in transition on A&P spend. I think we want to properly support the business and grow the business as we look at investing going forward. At the same time, we’re reassessing how we market the business, looking at legacy TV versus digital concepts and approaches. And as you know, we talked about, we moved Hydro here in the U.S., to essentially a digital marketed brand. And as we make those changes and work through it, the other thing we are doing, I referenced it earlier, we’re reassessing the brand equity pyramids and the key messages, if you will, redefining the targets to be really clear on the target for each brand, the messaging for each brand and the medium by which the consumers ultimately open to hear the message and then respond positively to. As we work our way through that, we become more targeted. We’re seeing opportunities to drive the same level of engagement and consumer responsiveness with the lower overall spend and we also are wanting to make sure we have the right campaigns as we go forward on the brands and we are reworking some of those. And so we’re optimizing spend on some of the heritage legacy campaigns. So all that combined to say, I don’t think we want to commit to a certain number. I think great advertising, great marketing, we would want to spend more against that. We’re doing that in all our key growth initiatives as we talked about. But I think it’s also something we’re looking at with Project Fuel. We think there’s some very significant savings potential within Project Fuel to reduce spend and not impact top line net sales. Let’s leave it at that for now.

Okay. And then so, I’d be missing an opportunity not to congratulate both of you on career moves and my contact asked you a question about what you expect to be different going forward. And I know that you’re, obviously, going to look at the Feminine Care, Infant Care business from a strategic review perspective. But I guess, I thought you had done that about a year ago and concluded that we want to double down on Project Fuel. That’s not that long ago, right, to say, well, everything’s different now. So, I’m trying to get a sense of what’s going to be different. Is the whole company under review perhaps? Clearly, you talked about marketing a little bit differently a second ago than you would have maybe two, three quarters ago. So what’s going to be different?

I think the single biggest thing that’s going to be different is recognition and articulation of our core business being in Wet Shave, Sun, Skin. That’s our focus. That’s our core. We’re going to invest to win there. We’re going to play to win within those segments. And it’s not that Feminine, Infant Care businesses can’t be successful. They can. Actually, we’re pretty optimistic on the balance of the year, what we’re seeing set up behind a strategy change and distribution gains that we’re going to see on those businesses. But they’re not core. And I think the dilutive nature of our focus and our size. It can punish you in the core if you get the thinking to disperse. So we’ve come through a period off of separation, David building out the leadership team to be what it is today. We’re going to be laser focused on that core and we’re going to build capability on that core and we’re going to invest in the core to increase our scale within the core. I think that’s the single biggest difference. David, anything?

No. No, well said.

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

Our next question comes from Wendy Nicholson of Citi. Please go ahead.

Hi. Congratulations to both of you. Just looking at the Wet Shave business internationally, the trends are terrific. Can you remind us, number one, what the margins are, the EBIT margins are for the international business today versus the U.S. business? So, as that business grows faster, is that margin accretive or margin dilutive? And then, taking a step back and thinking about where you are, it sounds like you’re gaining off of distribution right now in Europe. But are there other markets where you feel like you are underpenetrated? Maybe outside of Europe where there’s opportunity for expansion or is that not the priority today? Just to sort of frame how big that business could get over time. Thanks.

Sure. Good morning, Wendy. On the margin question, international Wet Shave versus North America Wet Shave, slightly dilutive. And so there is a margin degradation. And you actually – as we talk about and think about gross margin this year, there’s a geographic mix herd, when we decline in North America and we grow internationally behind that slightly dilutive EBIT margin. Some of it is just the way the business builds up international, the skew mix and the things like that. But there’s a lower overall margin internationally. In terms of the growth opportunity around distribution, we’ve talked about China being a focus market. We’ve talked about All Other emerging markets globally. But today, we largely go to via distributors. Down the road we’d assess if we get to a certain size, do we take that direct as an affiliate? But there’s still a fair bit of opportunity across the portfolio to either reenter some markets that we exited at the separation with Energizer or really penetrate some markets that haven’t been priority in the past. And it’s not only on Wet Shave but within in Sun Care. And if you think about Jack Black, Bulldog brands as well, there’s a lot of opportunity across Sun, Jack Black and Bulldog to drive distribution not only geographically to more markets, but in some markets to expand the retail footprint within markets where we’re having velocity success.

Okay. Thank you very much. That’s all I had.

Thank you, Wendy. Operator, next question, please.

Our next question comes from Bill Chappell of SunTrust. Please go ahead.

Thanks. Good morning. Hey, Rod, just on the plan to divestitures, can you kind of maybe help us understand the process? I don’t know – they have different sales forces, different operations or is this a multi-month kind of carve-out? And then what does that do to the existing sales operational base in terms of do you need to find new products for them to sell? Just trying to understand the timeline of how easy it is to kind of carve the business out. And then also, maybe any ideas on potential suitors? Are there a lot that are interested in this, or is this going to be a longer process?

Yes. Good morning, Bill. At this point, we’re not prepared to say a lot about the process, as we’re just kicking off the evaluation of the alternatives we have with the businesses. What we’ve done and I think Ali referenced it earlier, we’ve done analysis with the Board. We know what these businesses are worth to us. And so that part’s done. The balance of interest, difficulty of carve-out or not, that’s work to be done. But what I will tell you, part of the rationale around the timing being right, Dave, and the team have done a lot of work to get us to this point to around optimizing the cost footprint. We had a dual site manufacturing on Sun Care Canada and down here in Dover. We’ve consolidated all of that to Dover. We’ve taken a hard look at the spending and improved the profitability in the Fem Care business. And so that combined with Fuel and what we think is a pretty good market environment right now, suggests it’s the right time to do this. But we’ll work through those details over the coming months.

But I guess, my question is....

Go ahead, Bill.

Yes. I’m sorry.

Okay. Thank you. Then operator, next question, please.

Our next question comes from Faiza Alwy of Deutsche Bank. Please go ahead.

Yes. Thanks. Good morning. So, my first question is just around the U.S. Men’s razors and blades market that you talked about was up 4%. What do you think is driving that increase?

Yes. Good morning, Faiza. Couple of things. I think the incident of shaving rate, which had been fairly negative over the last couple of years, so the number of shaves has started to flatten. Right? So that, I think, is one of the things that’s changed. And if not become positive, certainly less negative than where it’s been over the past six to eight quarters. The pricing environment remains, I think, very competitive and so that’s kind of about where it’s been. I believe the Harry’s launch into Walmart and Target, if you look at what they’re doing in driving growth within the category, within those accounts, I think that’s a driver of it. And then we’ve been seeing the market in general in the U.S. improve quarter-on-quarter now. It started before I got here. So, go back six, seven quarters, so there’s been some good sequential improvement. And so it’s just a combination of everything getting a little better, plus, I think, Harry’s driving growth in mass.

Okay. And then in that context, I guess, I’d love to just hear how you’re thinking about – you took a big price decrease, how are you – like what’s the postmortem on that price decrease?

It’s too early to tell. We just put the price increase in really at the end of the quarter just finished, quarter one, in the mass and it rolls out across the balance here in quarter two. So, too early to tell where we put the pricing and first, though, we’ve seen some improved velocity unit share performance. And so, I think we’re optimistic but too early to tell.

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

Our next question comes from Steve Strycula of UBS. Please go ahead.

Hi. Good morning and congratulations, Rod. So, I might have missed in the prepared remarks, but did you say anything about the EBITDA contribution for the Fem Care or Infant Care businesses on a trailing basis, as we kind of know where the overall EBITDA trends are for these businesses?

Good morning, Steve. Thank you. We have not. I think if you just look at what’s in our segment reported results, I think that’s what we’re prepared to disclose. Let’s leave it at that.

Okay. I’ll just assume then reasonable D&A ratio for those assets. On the Private Label piece, obviously, we’ve seen the category reassort with new brands in some fragmentation. Has this altered how the retailers are thinking about Private Label’s role within the U.S. assortment base? Are they pleased with inventory turns of Private Label given, call more new entrants? And I’ll pass it along. Thanks.

Yes. Good question. And I think the role of private label is changing from a historical value price point focus on the execution more into retailers looking for ways to differentiate themselves from their competitive set. And so as we look at the opportunity, we think it’s a real opportunity for us with a strong capability around Private Label to customize, differentiate. We’re making investments in our supply chain to be able to do that even more. On a retailer-by-retailer basis, not only helping them create potentially a unique retailer brand, but also help with the branded portfolio. We’re the only manufacturer that plays across all those segments. And so it’s evolving and we think it’s an opportunity for us moving forward.

Thanks, Steve. Operator, next question, please.

Our next question comes from Kate Grafstein of Barclays. Please go ahead.

Hi. Thanks. So, I was wondering if you could talk a little bit about the potential use of proceeds from a potential sales of Feminine and Infant Care and if your priorities are still the same. Thanks.

Good morning, Kate. Priorities remain the same. Invest in the organic business and I guess, the new twist on that, we’ve been operating, the sort of the new twist on that is within the core business. M&A is the second priority followed by combination of debt reduction, share repurchase in that order. So, no change to that, but I think a real focus on building in the core.

Okay. Great. Thank you.

Thank you, Kate. Operator, next question, please.

Our next question is from Olivia Tong of Bank of America. Please go ahead.

Great. Thanks. Just two quick ones. First, a short term-one. In terms of the puts and takes that end up with your expectation for Q2 sales to what seems like decelerate pretty dramatically from Q1, were there things that you expected to hit in Q1 that were delayed? Or anything just to help us understand why the dynamic between Q1 and Q2 that gets to your first-half expectations? And then just longer term, a lot obviously has changed within shaving over the last couple of years. So, Schick used to be about having a quality shave for a mid-tier price point. But pricing is coming down and you’ve got all these new entrants. So, I guess, can you talk a little bit about like, what does Schick stand for now? And why isn’t the brand just sort of stuck in a strange mid-tier spot in between Gillette and some of the newer players? Thanks.

Good morning, Olivia. On the – I’ll take them in order. On Q2, and I think the word you used, the deceleration. What’s implied in our guidance for the first half is Q2 gets a little worse with what we did in the first quarter. The reality is, if you strip back what’s happening, operationally, quarter-by-quarter, we have the same, actually slightly better operational performance underlying within quarter two than the quarter we just finished, quarter one. There’s a couple of things going on. And I’ll talk versus a year ago first in quarter two. We referenced it in the prepared remarks and it’s around Japan, and the historical commercial strategy of the past, which is somewhat in the base period, where shipping the wholesalers didn’t always match consumption. And the shipping would happen largely because also, I just want to take it this way, in big shipments at or near the end of quarters to receive price discounts. And so, we had a very choppy shipping profile into the wholesalers in Japan historically. Near the end of last year, we started to change that phasing. So in addition to the one-time reduction in inventory last year, we also took the initiative to work with wholesalers to flatten out the shipment profile to match closer to consumption and get the lumpiness out of the P&L. So, we now have a flatter delivery of the business in Japan this year quarter-to-quarter, but we’re lapping a base period where that doesn’t happen. The maximum negative point of a spike in shipments in the base period and us flattening out this year is in Q2. And that cost us effectively 3 points in Q2 versus year ago. We pick a back up in Q3. So, it’s just – it’s timing within the year. There’s no change in our Japan business. The Japan business is actually performing very well. So, that’s 3 points. The other point we’re talking about is the Sun Care reformulation versus a year ago. That’s going to cost us a little over a point within the quarter. And so, that’s the big picture of what’s happening, 4 points, that kind of gets you back to where we were in first quarter. In terms of what changed in our profiling, we thought that Sun Care impact was going to hit us a little more in quarter one than quarter two. As the quarter played out, it’s going to be more of a quarter two impact than quarter one. And we did have some minor tariff increases or some tariff increases that moved some minor shipments ahead from what was planned from quarter two into quarter one based on how the tariffs are being implemented. So, a couple things like that. But operationally, organically, I think we feel okay about the quarter but understand the optics. Gross margin, obviously, is going to be impacted in quarter two proportionally. Japan business is sort of an average kind of like North America margin and so we have that impact. And then we also have the pricing investments all in for Men’s and Women’s Systems and some of the trade support we put in, hitting within the quarter as well. Back to Schick and what does Schick stands for. We’re working on that right now. We started with The Man I Am campaign. Launching in the quarter just finished. We’ve addressed pricing to restore, essentially, historical price ranges versus fusion. We did not change our pricing year and a half ago when Gillette took the pricing down. And so that’s just reestablishing parity. And then a lot of what we’re focused on is the equity around the Schick brand here in the U.S. Wilkinson Sword, that we play within Europe is in a different place and then, Schick in Japan remains very, very strong. So, it’s primarily U.S. focused. We have on that front.

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

At this time, we have no further questions. I would like to turn the conference back over to Rod Little for any closing remarks.

All right. Thank you, everyone, again. Thanks to David for everything he’s done for the company for the last 33 years and best of luck to him as he moves forward. For the rest of us that will remain, thank you for the time and interest. We look forward to moving forward on our transformation in creating value. So, thank you.

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