Edgewell Personal Care Company (EPC) Q2 2019 Earnings Report, Transcript and Summary

Good day and welcome to the Edgewell Personal Care's Second Quarter Fiscal 2019 and announcement of the combination between Edgewell and Harry's Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead sir.

Thank you. Good morning, everyone, and thank you for joining us this morning as we discuss Edgewell's second quarter fiscal 2019 earnings call, as well as the transformational transaction we announced earlier this morning to combine Edgewell with Harry's. With me this morning is Rod Little, our President and Chief Executive Officer, Dan Sullivan, our Chief Financial Officer and the two co-founders of Harry's, Andy Katz-Mayfield and Jeff Raider. Rod will kick off the call, then will hand over to Dan to briefly discuss quarterly results and full-year outlook and we'll will then transition to the full team to take you through the details of this morning's announcement. 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. 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, included those described under the caption Risk Factors in our Annual Report on Form 10-K for the year ended September 30th, 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. 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. With that, I'd like to turn the call over to Rod.

Thanks, Chris, and good morning, everyone, I'm thrilled this morning to be joined by Andy Katz-Mayfield and Jeff Raider, the co-founders of Harry's, as well as our new Chief Financial Officer, Dan Sullivan. I'd also like to say hello to the Edgewell and Harry's colleagues, many of which I know are listening in this morning and in particular, welcome to the Harry's team. Our intent this morning will be to spend most of our time discussing the commercial rationale and the transaction details of the announcement we made to combine Edgewell with Harry's. A presentation is posted on our website and we'll get to that in a bit. We collectively believe this combination brings together highly complementary capabilities and assets that allow us to create a uniquely positioned next-generation consumer products platform, with an expansive runway for accelerated top-line growth and enhanced value creation. Before handing the call over to Dan, I wanted to briefly share my thoughts on the state of our business and some of my early insights, having been in the role for about two months now. Over this time, I've traveled to many of our markets, met with our talented and dedicated colleague base and spent significant time with the trade, really focused on deepening Edgewell's engagement with consumers and our key retail partners. Over this time, I've learned a few things and some key themes have emerged. First, I remain excited about the latent health and strength of our brands and the right to win with these brands, when seamlessly activated with consumers. Our strategy to refine our business model and focus on our core grooming, sun and skin categories, a strategy made only stronger by today's announcement is the right path forward. Additionally, I'm more convinced than ever that we have strong assets at our disposal, world-class IP and product technology, global scale and infrastructure and a portfolio of trusted and well-established brands. And as Dan will share in a few minutes, Project Fuel is serving as a catalyst for change, redefining how we operate this business, and importantly, providing the necessary financial flexibility to reinvest to build our brands and capabilities. We have begun the pivot to be laser-focused on the consumer in everything we do. And I am confident that this renewed consumer focus will lead to growth and improved results and ultimately stronger retail partnerships. And all of this today, leads to the announcement that Edgewell and Harry's will be coming together to form the next generation consumer products platform, providing a unique combination of brands, assets, capabilities and aligned interests in support of a simple objective, to provide a portfolio of brands that are better positioned to meet the needs of the modern consumers. Dan, Andy, Jeff and I will have more to say on this shortly. So, as you can see we're not sitting still, we have a clear path forward, and we're executing against our strategy with urgency and precision. So with that, I'd like to turn it over to Dan to take you through our fiscal second quarter results and an update on our full-year outlook.

Thank you, Rod, and good morning, everyone. Earlier today, we posted a detailed earnings press release, so in the interest of time, I'll focus my remarks on the business and financial highlights in the quarter, as well as our outlook for the full fiscal year. Overall, the quarter played out largely as expected across various categories and markets. As we telegraphed last quarter, we faced meaningful timing and transitory headwinds in Q2, impacting top-line and to a lesser degree gross margin results. We were able to mitigate these issues with the strong cost management focus, largely a result of continued scale up of our Fuel initiative, as well as the tailwind from the shift in our A&P spend. While our top-line results were slightly below expectation, primarily due to sun care, these actions helped us to deliver $1.13 in adjusted earnings per share in the quarter, slightly above our expectations and reinforcing our clear objective to continue to sustainably improve the profit profile of this business. Now, let's turn to some specifics in the quarter. Net sales decreased 10%, or 8.9% on an organic basis. Organic net sales exclude the benefit from the Jack Black acquisition and the negative translational impact from currency. As mentioned, the combination of timing and transitory headwinds contributed to about 600 basis points of the declines, putting our underlying organic sales results at minus 3% for the quarter. These timing and one-time issues most notably included the change in shipment patterns in Japan year-over-year and the impact on the sun care season as a result of the Easter shift into the third fiscal quarter this year, both of which will provide tailwinds for the business in 3Q. Additionally, the quarter was negatively impacted by the cycling of meaningful new product development a year ago and the ongoing headwinds as a result of our sun care reformulation efforts. We bring these items up believing it's important to understand the underlying organic sales trend in the quarter, which as mentioned, we believe was down approximately 3%, particularly as we transition to an improved sales trajectory in half two of this year. The underlying organic net sales decline was largely related to North America in wet shave, as a result of ongoing competitive intensity and pricing actions and in fem care due to the impacts of prior period shelf losses. We saw a solid rebound in infant care with new distribution from our mealtime products Paw Patrol launch, as well as a rebound in Diaper Genie sales. Briefly looking at the category dynamics in the quarter, in wet shave, as measured by Nielsen, the US razors and blades category was down nearly 5% in the latest 12-week data, with men's systems down 1.5%, women's declining 4% and disposables down 8%. 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 US, down 180 basis points from a year ago. This share decline was, again, primarily driven by a decline in Walmart. On a global basis, we estimate our share was down 70 basis points. Within the US sun care category, 12-week consumption increased 2.8% and our share declined by approximately 100 basis points, reflecting the negative impact of our reformulation efforts and reduced early season promotional activity. Gross margin decreased 360 basis points to 45.9% as compared to the prior-year period, with roughly one-third of the year-over-year declines directly attributable to the transitory and timing issues previously discussed, and therefore, not structural in nature. The lower margin rate was driven by the impact of unfavorable product mix, mostly in Asia-Pacific and North America, further price and promotional headwinds in North America wet shave and fem care, and increased commodity and distribution costs. A&P expense this quarter was 8.8% of net sales as compared to 12% of net sales in the prior-year period. The only [ph] impact of lower volumes and year-over-year timing effects, the decrease in A&P expense was primarily a result of four factors, including fewer new product launches as compared to the prior year, fewer promotional slots this quarter, a mix shift to trade spend in certain segments, and a continued focus on eliminating non-productive spend through our Fuel program. SG&A, including amortization expense, was $98.1 million, or 17.9% of net sales, as compared to a $104.3 million, or 17.2% of net sales in the prior year period. Excluding one-time items, SG&A decreased $8.5 million and increased 30 basis points in rate of sale. The operational improvement in SG&A was largely driven by strong cost management, led by our Fuel program, which more than offset inflationary increases and higher e-commerce expenses. The adjusted effective tax rate for the first half of fiscal 2019 was 24.9%, which was comparable to the prior year period. GAAP diluted net earnings per share were $0.89 as compared to $1.20 in the prior year period, and adjusted earnings per share were $1.13 compared to $1.31 in the prior year period. Now, I'd like to turn to Project Fuel. We continue to make strong progress and remain on track to deliver $115 million in gross savings for the full fiscal year. Second quarter Project Fuel related gross savings were approximately $29 million, bringing cumulative gross savings to $70 million for the project to-date. We continue to scale up our efforts, driving productivity gains across manufacturing and more broadly, SG&A, while also realizing increased trade spend productivity and reduced non-working dollars. In the quarter, these savings helped to partially offset inflationary headwinds and provide reinvestment funding around our key brand and growth initiatives. We continue to expect that Project Fuel will generate $225 million to $240 million in total annual gross savings by the end of fiscal 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. Now, turning to our full-year outlook. We are maintaining our previous full year guidance for organic net sales and adjusted earnings per share. We continue to expect reported net sales to be down low-single digits compared with the prior year, with the acknowledgment that the year-to-date top-line results likely point to the higher end of the range of expected declines. Our reported sales expectations include an approximate 150 basis point unfavorable impact from currency translation and an 80 basis point combined benefit from the Jack Black acquisition and Playtex close divestiture. As you model the fiscal second half of the year, please note that many of the timing and transitory issues in the second quarter that were just discussed, including the impacts related to Japan wet shave and North America sun care will turn to tailwinds in the second half of the year. Our outlook also reflects improved organic performance in fem care and infant care compared to the first half, driven by improvements at shelf and the continued run rate gains in North America wet shave, despite expected ongoing competitive intensity and pricing impacts through the second half. The outlook for GAAP EPS is now in the range of $2.16 to $2.46, and includes Project Fuel restructuring charges, sun care reformulation costs, Jack Black integration costs, expenses associated with an investor settlement and advisory costs incurred in connection with the evaluation of the fem care and infant care businesses. The change to the GAAP EPS outlook is primarily driven by lower estimated Project Fuel costs. Our adjusted EPS outlook remains in the range of $3.30 to $3.60. Project Fuel is expected to generate approximately $115 million in incremental gross savings and Project Fuel related restructuring charges and capital expenditures are expected to be approximately $65 million to $70 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%. And we estimate that fiscal 2019 free cash flow will be above 100% of GAAP net earnings. And with that, I'd like to hand the call back over to Rod.

Thanks, Dan. So, we're now going to flip over to the investor presentation that again is posted out on our site and walk you through the rationale for the combination. But before we get into that, it's important to note that we have been down the path of a major transformation here at Edgewell for the past year: Project Fuel, as we call it, cost takeout, simplification, investments in capability and more local and regionally tailoring of our innovation program. We have a new leadership team in place with the top 10 leaders either new to the Company or new to position over the last 12 to 18 months. And we have a renewed strategic focus and priority to build on our core portfolio across grooming, skin and sun and to build scale in that core. This combination that we're going to talk about in a moment is the centerpiece of the strategy that accelerates our transformation timeline, and importantly, with this combination, we're playing to win, and we're confident we'll be successful. So we'll now move into the presentation. If you start on slide four, we'll get into it. So, we're excited to come together to create what we think can be the next generation CPG platform. And in order to connect with consumers, we believe we need to have the following in place: exceptional products and technology; best-in-class R&D a modern approach to brand building; omni-channel capabilities; scale and infrastructure; and access to top talent. And with these combination of capabilities, we will create a consumer-centric, integrated DTC and omni-channel platform that will have a high growth profile and deliver consistent and sustainable shareholder returns. So, the headline transaction value is at $1.37 billion, with 79% delivered in cash, the balance in equity. Importantly, Andy and Jeff and their investors are rolling a significant portion of their equity into Edgewell, with their combined pro forma ownership with the investors at approximately 11%. And Andy and Jeff will be joining my executive leadership team and be taking on leadership for our combined Company business in the United States. So, as you know, growth in CPG has slowed over the past years, lack of innovation, confusion at shelf and the lack of brand resonance are all contributing to this issue. And additionally, legacy personal care brands have struggled to connect with consumers over direct sales channels, with personal care well behind many other categories in terms of e-commerce penetration at approximately 10%. Consumer needs, habits, ways of shopping have changed dramatically over the last decade. In our view, brands need to be consumer-centric, connect with consumers and satisfy their changing needs and habits, and also provide a great experience wherever and whenever the consumer is ready to engage. And we believe we have a strong formula of exceptional products, brands that authentically connect and a best-in-class omni-channel capability that leads to growth. And the execution of this formula is why brands like Harry's, Flamingo, Banana Boat, Bulldog and Jack Black are all winning today. So, if you flip to slide nine or go to slide nine, I'm calling this out because I think this is the single most important slide in the deck, as it lays out the industrial logic of this combination. And my personal view and I think Andy and Jeff share this is, it's a near-perfect match of complementary assets and capabilities that position us to win with consumers across channels and across geographies. So, when I first met Andy and Jeff, and we sat down and talked about what a combination could look like, we laid out what's on slide nine, essentially in the first 10 minutes of the conversation with a, wow, this can be a super powerful combination and the industrial logic that we call it at the time was really strong. We had a lot to learn about each other, our values, how we work, we had a lot to learn about the combination. And as we went through diligence and we learnt more, we became more and more excited about the combination and the opportunity that it represents. So in simple terms, Edgewell brings a portfolio of strong and well-established brands, best-in-class technology and IP portfolio, global scale and infrastructure. Harry's brings modern brand building, design, best-in-class DTC capabilities, driven by a strong technology platform, robust performance marketing and analytics and a disruptive omni-channel approach. And finally, with everything, the timing has to be right, and in this case, the timing is right for this combination. A year ago, we would not have been in a position to do this. We at Edgewell have been driving a major transformation agenda as I mentioned earlier. And with the new leadership, the new focus strategy and this combination, we're confident that we'll accelerate and be successful. So, I've mentioned our new leadership team. We have a new dynamic leadership team in place across the Company that brings together meaningful public company experience, deep CPG experience and now new and refreshed perspectives coming into the fold. I'm new to the CEO position as you know, being here at two months in this position. Dan joined us last month as the new CFO. As you recall with Dan's background, significant public company experience across both consumer and retail and Colin, our COO will continue his work, but post close, we'll shift his focus to the international business inclusive of Canada. And this is an important move, because Colin's helped architect our international business over the past 15 years and build our international team and our results have been very good in international under his leadership. And now we bring Andy and Jeff into the leadership team with a laser focus to grow and win in the US. And they will lead the combined Company business in the United States. And I've gotten to know Andy and Jeff relatively well over a short period of time here. And what they've built and done in our industry is no accident, we all have been watching this happen for a while now. And they bring great leadership, expertise, creativity and a relentless passion to win, and on top of that, they make it fun. So beyond Andy and Jeff, I'm also excited to meet and work with all of the talented people on their team. Much of the capability goes deep into the Harry's bench. And so as we bring that together, again, we're excited about the whole combination. So this is a unique combination, it enhances our financial profile and our combined Company growth profile and margin structure compare very favorably versus the CPG average, with a mid-single digit growth on the top-line and high 40s gross margin expected over the next few years. So now I'm going to pass it on to Andy to talk a little more about the Harry's story and the capabilities.

Thanks, Rod. I'm personally really excited to be here this morning and to be joining you and the rest of the team and I know the entire Harry's team is really excited as well. I wanted to start by giving everyone a little bit of background on Harry's and I'm on slide 13 now. Jeff and I founded Harry's after I had a frustrating experience purchasing razors at a drug store. And as a result, we set out to build a different kind of consumer brand and experience. We've grown the business significantly since its founding and we've evolved from a direct-to-consumer shaving company into a global omni-channel men's care brand. We've emerged as the clear number two brand in the channels and geographies in which we play. And I think we've had significant ability to extend our success across other categories. That's success has fundamentally been driven by a relentless focus on the consumer. We built brands that are focused on consumers needs and that address real pain points. Our direct-to-consumer platform enables us to get to know and better understand our consumer, which drives key learnings into actionable insights and these direct relationships in turn generate tremendous loyalty and advocacy. And that's reflected in a high degree of customer satisfaction. On the next page, I wanted to take a moment to unpack our omni-channel approach, because I think it is really key to our success as a business and a key point of differentiation. As mentioned, our direct-to-consumer platform drives deep relationships and data and it allows us to reach millions of consumers, in turn this data enables the personalization of DTC experiences for our consumers, and moreover, our direct-to-consumer business creates real positive externalities for our retail business and these two channels are deeply interconnected. We take learnings from our direct-to-consumer business and use those insights and learnings and drive them into our in-store marketing, packaging, all of our branding and design in the retail environment. And moreover, our direct response to marketing boosts awareness in store and so when paired with our disruptive marketing techniques enables just differentiated and better experiences in the retail environment, so we see direct-to-consumer and retail a truly interconnected ecosystem. We've been able to leverage the Harry's playbook and the success we've had in the US and replicate this success across new markets, product categories and brands over time. About two years ago, we launched our UK business and that has seen a bunch of success to-date. We're are on a steeper trajectory there than we were in the US. We recently launched at Boots and have seen similar traction to what we saw at retailers in the US. We've extended our brand outside of shaving and razors and blades into several new categories, most notably bar soap and body wash, where we had a lot of success and achieved significant share in a short period of time. And perhaps most excitingly, we recently launched our women's brand Flamingo, and we're really excited there about the progress to-date after a really strong start and already a leading brand in the environments in which we play. As Rod mentioned, we've gotten to know each other over the past few months and I think for Jeff and I, what's most exciting about this is that, we really share a common vision. I think, we look at the consumer product landscape the same way, we share sort of a deep belief that we have to put the consumer first and we're really excited about the opportunity that this unlocks for us to have more [ph] impact over time. And with that, I'm going to pass it back to Rod.

So, moving to slide 19, we're going to talk a little bit about the new combined Company. So, on slide 19, you see the combined business plays in attractive categories with a very compelling brand portfolio. And we have leadership positions in many category market combinations. I think we've also shown that separately and now together we've got a real ability to innovate and disrupt and now in a more scaled way and we believe we're well positioned to inflect the category trends to bring growth back into the shave category, while also driving positive trends in sun and skin. Harry's has certainly demonstrated their ability through innovation and brand building to bring growth to retailers in categories that were declining prior to their arrival. So, we have a deep robust technology portfolio. I talked about that earlier, we have more than 2,900 patents, with another 450 plus pending. We have global reach and scale, with on-the-ground operations in more than 20 markets. And annually, an interesting fact is we produce more than 10 billion blades. So, all of this sets us up well for a robust innovation capability and a global infrastructure moving forward to drive growth for the combined business. And finally, probably the single biggest opportunity we have with this combination is the ability to materially expand the distribution footprint for Harry's and Flamingo over time across our existing infrastructure and with our go-to-market capabilities. And as you can see, there is massive white space opportunity for Harry's and Flamingo and we have a proven capability here at Edgewell around new brand expansion as evidenced by Bulldog, where we've tripled the business since acquisition. So with that I'm going to pass it over to Jeff for slide 22.

Thanks, Rod. As Andy mentioned, we're both really excited about the combination, about working with you and the Edgewell team and the opportunities that this unlocks. While there are lots of opportunities to grow our combined Company, US wet shave is core to our go-forward plan. First, we think shave is an attractive category, has attractive margin profile around complex products, and it's a great category to build equity with guys and personal care. While the shave market has definitely had its challenges, we have proven that we can innovate and take share. We've done this by collaborating with retailers to rethink how brand should appear on their shelf. And in doing so, we've driven share growth and have also grown the category at our retail partners. We're super excited about getting access to Edgewell's technology portfolio, team and products and see a vast set of opportunities to innovate in shave and personal care broadly over the coming years. Moving to page 22, while building Harry's and Flamingo, we've also developed a playbook to develop new products and brands or generally. It all starts with the customer. We start by getting to know the customer, deeply understanding them, what they want and how we can generate positive utility for them. We meet them on DTC, deepen our relationship, we leverage our omni-channel approach to extend into retail in ways that satisfy their needs, we expand our brands internationally, again in a thoughtful manner, and over time we focus on developing new products to meet their needs on top of our existing brands, leveraging those equities in new categories. Overall, we aim to drive growth using our customer-centric approach globally and omni channel. On page 24, as we look at the personal care landscape, we see lots of addressable white space. Within existing categories, we plan to first build on the strong brand equity of Harry's, Flamingo, Bulldog, Jack Black, Banana Boat and the other brands in our portfolio. These brands have proven that they can extend into adjacencies and we think there is exciting opportunity to continue to grow them based on the equity they have today. We're also really excited to build new brands, focus on better meeting the needs of customers in large and attractive segments across the personal care landscape. On page 25, in summary, as we think about this combination, there are lots of opportunities to work together and drive growth. We'll have an exceptional product portfolio, attractive platform brands, global and omni-channel reach and the ability to innovate and address new categories and build new brands. And we're really excited for the opportunity to do this with you and the Edgewell team. So, now we'll pass this to Dan.

Thanks, Jeff. We've talked a lot so far about the clear strategic rationale for this combination, I think, Rod and Andy and Jeff have laid out an incredibly compelling case, so I'm going to pivot and talk about the strong value proposition for our shareholders. So turning to page 27, as Rod mentioned, the purchase price is $1.37 billion, with 79% in cash consideration and 21% in equity. In support of this, we've secured attractively priced fully committed bank financing with the combination of a revolver, term loan A, and term loan B facilities. So, in addition to securing the necessary financing for the transaction, we've better laddered our maturity profile, lining up well with expected free cash flow generation. At close, we anticipate a total debt leverage ratio of just over 5 times or about 5 times on a net basis. The cash flow generation of this business allows for deleveraging of approximately 1 turn per year, and this is driven fairly evenly between organic pay down of debt and EBITDA growth. We are targeting total debt leverage of just under 3.5 times by year two post-close. And it's important to point out, these figures do not contemplate potential divestiture proceeds, which would accelerate this deleveraging profile. Turning to page 28, as we think about the financial profile for this business, we anticipate a very compelling algorithm, with attractive mid single-digit top-line growth, which we believe will outpace the broader industry and will be well above our historical trends. Additionally, the business will demonstrate strong sustainable profitability, also, the gross margin and EBITDA levels, as we focus on disciplined growth, leveraging Edgewell's scale and maintaining a focus on productivity and efficiency in how we operate this business. And this profit growth will fuel strong free cash flow generation, allowing us to structurally deleverage the balance sheet, while also deploying capital in support of our growth objectives. Turning to page 29, the synergy outlook for this transaction is compelling, with a strong combination of revenue and cost synergies. Now, having said that, the strategic rationale for the combination is largely based on sustainable and profitable top-line growth. And the revenue synergies form an important component of this growth profile. Rod and Andy and Jeff have provided the key commercial insights and opportunities that underpin our revenue synergy outlook. We'll look to leverage Harry's consumer-centric and brand building expertise, omni-channel expertise, while also deploying Edgewell's technology, global scale and infrastructure. And as we move beyond market expansion opportunities, we will also explore brand and category expansion, which Jeff talked about. So, we have a strong line of sight to run rate revenue synergies equal to $20 million EBITDA and are highly confident in our ability to achieve them. There are also compelling cost synergies associated with this transaction, initially focused on operations and across manufacturing, distribution and sourcing, this amounts to $20 million annually on a run rate basis. And we're going to be extremely thoughtful in how we approach cost synergies, especially focusing on the proper cultural pillars and important foundational efforts as we bring these two companies together. And it's important to note that these cost savings are in addition to the existing Fuel program. As we turn to page 30, we've talked about the financial profile for the business and attractive synergy opportunities, and now, I wanted to focus a bit more specifically on 2021, which we anticipate will represent the first full year post close. We anticipate full year net sales of about $2.7 billion, supporting $475 million of EBITDA, or 17.5% of net sales on a rate basis. And finally, we expect run rate synergies benefiting EBITDA by $40 million in 2023. And so, in closure, turning to page 31, we spent the last 20 minutes or so discussing a compelling transformational opportunity. At the core there are six fundamental enablers as you see on the slide that are critical to unlocking the value in this combination. We are convinced this is a unique opportunity and committed to its success, and ultimately, we will deliver accelerated top-line growth and sustainable value creation for our shareholders. And with that, I'd like to turn the call back over to the operator for the Q&A session.

[Operator Instructions] Our first question today comes from Wendy Nicholson with Citigroup. Please go ahead.

Hi. Just a first quick question. Can you tell us what Harry's EBITDA was last year just as a housekeeping item? And then, bigger picture, I guess as you think about putting these two brands either side by side on shelf or side by side on the direct -- on the same DTC website, how are you thinking about positioning them pricing wise, brand image-wise, is one a better shave, is one a more premium price, like, how do you make sure that these brands complement each other and don't cannibalize each other to the same extent they have been historically? Thanks.

Thanks, Wendy. Good morning. So on the EBITDA question, we're not going to disclose that at this point. We can't. On the brand positioning, I'll start at the high level. I'll flip it over to Jeff, because this is going to be some of the work he focuses on from day one. But we view the Harry's brand as a very complementary addition to the portfolio and Flamingo on the women's side. If you think about our men's and women's systems products, which is where Harry's plays today, whether it be a consumer segment or target or within the pricing ladder, there is room to play here and put this together very well. And I think some of the work, Jeff and team are going to focus on is how do you architect the portfolio in the way that meets the totality of the consumer needs across all segments and price tiers, Jeff?

Yes. Wendy, I think, we have learned a lot about the different consumer segments and what they want in this category. And with Harry's as one brand and Flamingo in women's, we are focused on a very specific consumer segment. Beyond the brands that we are focused on, we think there are other segments that are not being fully addressed in the category and we're excited about the opportunity to do that. And we think that pricing can play a role, but that the equity of the brands against those segments is also a very important driver to play that role. We have a perspective on how we think we can move this forward and we're excited to share more as that comes to life. I think the other thing to mention just on DTC is, our vision would be that harrys.com remains the DTC platform for the Harry's brand and then we could think about building sites for the Edgewell portfolio on top of the Harry's technology stack, but they would be stand-alone sites focused on the equities of their brands and those consumers.

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

And our next question comes from Bonnie Herzog with Wells Fargo. Please go ahead.

All right. Thank you. Good morning and congrats. I have a quick housekeeping question. Can I ask you guys if Harry's is profitable right now? And then, my question is on your long-term sales growth targets for the combined portfolio, I'd be curious to hear what implies for the underlying growth trajectory of the existing Edgewell portfolio? For instance, does this assume that Edgewell trends stabilize or possibly decelerate further as Harry's potentially cannibalizes? And I guess I'm assuming there must be some consideration for this and possibly the -- the reality that it possibly accelerates, so just how are you guys thinking about that in your targets?

Yes. So, good morning, Bonnie. Thank you. Generally, in '19 Harry's is going to be breakeven EBITDA. They've talked about that in the past of approaching that breakeven position, leave it at that for that one. In terms of how we combine and come together, the close timing at this point is not known. We're targeting Q1 of calendar 2020. So we have to do our thing as competitors to that point, but we definitely see over time, the ability to improve the brand performance and business trajectory of the Edgewell portfolio with Jeff and Andy's leadership and some of the capabilities that they bring to the combination, that will apply to our Edgewell business. And Jeff talked a little bit about that already in the brand positioning work, how we're thinking about the DCC exploitation. And that's part of the synergy. For example, that's both ways. We see synergies being driven on both portfolios by the combination coming together. I won't get into how much of that and frankly, that's work to be done to determine how that comes together and the timeline of when that comes together.

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

And our next question comes from Ali Dibadj with Bernstein. Please go ahead.

Hi, guys. I guess, I have a two-part question. One is, how would you defend the more cynical view here, and I apologize for saying this, but the cynical view that the acquisition smacks a little bit of desperation, your core business continues to be under really severe pressure, doesn't seem to be relenting, down double-digits in razors for example, this quarter. So, now you make this pretty expensive, large acquisition and it smells a little odd to some of the folks we've been emailing with this morning. So, how do you defend that? And you can certainly understand what the perspective from the outside would be. And then the second thing is, how would you defend the logic of the leadership, the new leadership structure, in particular combining the entities together in North America? We've seen this type of thing before and we've never seen it work when actually the new brand is integrated into the Company. So, appreciate your defense of those two skeptical points of view. Thank you.

Yes. Thank you for the question, Ali. I totally get it. Look, this is not something that we came to overnight or in the last quarter. We've been looking at this for a while, we've been talking about it for a while and when you look at what Harry's has done, we've looked at that from afar for a long time. And as we've made our strategy change and choices to be really focused on the core portfolio, one of the things we looked at is, can we win and be successful in that core portfolio and our conclusion was, yes. We have the right IP, technology, scale, capabilities. We have the right to win in our core categories and we think we can win even bigger and have a faster transformation here with Project Fuel via this transaction. And so this isn't something we've just arrived to. And as Dan mentioned in his remarks, let's don't look at the quarter just finished and say, that's where we are and that's how we're moving forward. It's not. We've got an implied step up of significantly improved performance in the back half, that's not a year from now, that's happening right now over the next three to six months. Right. So, our base is greatly improved. And as we've been transforming ourselves at Edgewell, we feel like now is the right time to do this. And when you look at the avenues for growth, when you look at the avenues to drive profitability for both businesses in the combination, it makes complete sense around the logic. Now, to your second question around, can we do this, can it be successful? Look, I've seen many things come together and not work well. I've been part of both sides of this in my historical career, but a couple of points I'll take you through that I believe are unique and different here. One is we start with a shared set of common values. Okay. So when we say, can we make this work culturally, we look at it and say, yes, we can, that we can make it happen. The second piece of this is, we are not the big entrenched CPG player like some others in the category that we compete against. We're a $2 billion mid-cap Company and we are open for change and we are down a transformation path, where this is a key part of our transformation plan. And to be a little more specific from a leadership point of view, Colin has been double headed as our COO globally, running operations in the global business in addition to our North America business. And so, as Andy and Jeff plugged in to lead our US business, it's a big boost immediately in leadership capability and focus. And so, again, we will play this out and you all can judge for doing it well or not, but we're confident we're going to get it right. Anything you guys would add from your perspective?

Yes. This is. Andy. I mean I think for us what Rod mentioned is exactly right, that this is not a situation where we get lost inside of some larger company. And what was really compelling about the combination was our ability to take on bigger roles and have more impact and have the platform of the entire US business to execute against our vision and the shared company's vision. And so, I think it is a unique combination in that sense, and a bit different from some of the precedent situations.

Yes. And Ali, I'd also point you back to two recent acquisitions we've made of founder-led businesses that have gone very well. Bulldog worked very well with the founders, they brought a lot of new insights and thinking that shaped our transformation plan. We brought them assets and capabilities that they didn't have on their own and we tripled that business since acquisition and there is a good positive relationship with the founders. Very similar things happening with Jack Black, which we acquired a little over a year ago. So we've also learned as a Company through those two experiences on how we think to do this as well.

Thank you, Ali. Operator, next question please.

And our next question comes from Nik Modi with RBC. Please go ahead.

Yes. Thanks for the question. Good morning, everyone, and congrats on this announcement. I guess, I wanted to ask about the fem care divestiture. Given the IP portfolio and given Harry's has the Lola brand equity, I'm just curious of does it makes sense to now keep that business and leverage the technologies into kind of the Harry's portfolio? Any thoughts around that would be helpful. And if that's not part of the strategy or thinking how should we think about timing of the divestiture itself?

Jeff you want to take the Lola piece, and Dan you can talk about the divestiture.

Hi, Nik. We don't own Lola. We have a good relationship with their founders, but we're not -- they are not part of Harry's. Just so you know.

Yes. And in terms of the transaction, I think first of all, our strategic direction is clear, and I think we've communicated that, hence the process has begun. We're very pleased with what we have seen so far in the process and where we are. We're not going to comment on what that might look like or when, but the process is moving as expected. And again, I think it will form an important input of cash flow for us to continue to deleverage, as I mentioned earlier. So we haven't rethought that or changed our thinking on that and we're quite pleased with where we are today.

Thank you, Nik. Operator, next question please.

And our next question comes from Bill Chappell with SunTrust. Please go ahead.

Hi. Thanks. Good morning and congratulations. Just a couple of intertwined questions. One, in terms of the timing and looking at antitrust and with in mind of kind of the Energizer-Spectrum battery deal, like, what are your thoughts on getting European approval? Because that seems where it's probably stickier than the US. And then also Rod with it not closing until first quarter, almost know 10 months from now, how does that change or how that's reflected in the current EPC guidance? And when I say that, I know you have had a lot of plans in place for the wet shave business to look more like Harry's, to be more digital, to be better marketing, to be that and it seems like you're lifting out that expertise through the management team which makes a ton of sense, but not lifting it out until early next calendar year. So what happens in the interim?

Yes. So, good morning, Bill. Thank you. We're confident we'll get through antitrust and that's why we're here, we've done that analysis. And we've put that Q1 2020 marker out there as when. I won't comment on a specific geography. I mean we're confident we'll get there and get that done. In the interim, we don't change or stop anything we're doing on our transformation program. We like a lot of the things that are happening in our business, particularly around e-commerce and digital, and we like how we're pivoting the brands and some of the work we're doing with more focused local tailoring to meet the consumer need versus designing more to the global average that then doesn't hit on any local consumer needs. So all that work continues. We, obviously, have an eye toward what the future could look like. And as we go through the planning phase of what that might look like over the next couple of months, there are some things that we think maybe potentially don't make sense or would be throwaway versus what a combination would like, we will obviously look at that, but I expect, we will run our plan and hopefully, get this closed as soon as possible and be off and running.

Thank you, Bill. Operator, next question please.

And our next question comes from Olivia Tong with Bank of America. Please go ahead.

Great .Thank you. I know you have talked about this a little bit, but what do you think you can do Harry's that they couldn't do on there on? Because they already have some like some pretty nice distribution in traditional brick and mortar. They obviously have no challenge there. And then, Andy and Jeff I think it's great that you are joining the Company, but what is -- a similar question, what do you think you can do for Edgewell, because as you mentioned in your earlier remarks, several years ago you thought the landscape was backing only major-owned companies. So, I imagine you've talked to other companies, [indiscernible] finally on EPC, what made them the right choice? And then, just lastly, are you contractually obligated to stay for a certain period of time? Thank you.

Yes. Good morning, Olivia. Thank you. So, what do we bring or what do we do for the Harry's business? I think, they were on a very good trajectory right, every avenue of growth they've gone down, they've been successful. So where we help and what we can bring to their business, frankly, is infrastructure around global manufacturing, global design, around R&D capability and technology transfer. And if you think about distribution within the US, there's two retailers and a private label retailer, the balance is unpenetrated. And I think, Jeff and Andy are going to look at what's the right strategy from a portfolio and channel standpoint, where do we play that. But we've got the infrastructure in place. And equally, internationally, as you look at the investment that would have had to be made on their side around manufacturing, global supply chain networks, global commercial and sales and go-to-market teams, that would have been a significant investment that is already in place. So, I'll pause there and flip it over to Jeff to talk about their view of this.

Yes. I mean, I think to reiterate what Andy said, we're really excited about the potential to take over our family of brands in the US and think about how those brands can drive growth in the category and work together in a complementary way. If you think about Harry's, one of the opportunities that we have that we're super excited about in the context of this combination is to upgrade our products and our technology and have a broader platforms with which we can innovate and launch new and exciting products that people want and are excited about. And then, Rod mentioned, international is another thing that we are excited about. We are in the UK. And having a massive sort of global footprint with Edgewell, massively accelerates our ability to go access new markets, which we are also super excited for. If you think about what motivates me and Andy, we are really excited about having a lot of impact on a lot of people and our customers. And I think this opportunity for Harry's as a Company and for us personally, affords us that. We believe in the deeply. As Rod mentioned, we're rolling a lot of our equity into this new combination and we think it provides us a really interesting platform to go effect a lot of change in this category, both by having amazing products, that we can introduce to people and the portfolio of brands, where we can really optimize the equity of those brands in a way that we think will be distinctive in the market.

Thank you, Olivia. Operator, next question please.

And our next question comes from Faiza Alwy with Deutsche Bank. Please go ahead.

Yes. Hi. Good morning. So, I just wanted to follow up on the revenue targets of around the mid-single digits going forward, and maybe if you could unpack that a little bit, because it seems fairly aggressive to me. So, I would love to hear what you're assuming, for the shaving category, for example, how much of that growth do you think is going to be driven by the international business, just Harry's expanding internationally? And then is there -- are you assuming growth from other categories? So just a little bit more detail around that would be helpful. And then, I don't know if you answered Olivia's question around Andy and Jeff, if you are contractually obligated to stay with the Company post close that would be really helpful? Thank you.

Yes. Thank you for the question. As we constructed our thoughts on 2021 and the $2.7 billion of revenue, we're looking at this much more in the context of the transformational aspect of this and the new business going forward. We're not going to unpack that to the degree of Harry's and EPC, let alone categories or markets. Certainly, we will provide more information at the right moment in support of that. I think the bigger piece that we see at the top-line is, just the compelling opportunities that you've heard today, both for what Jeff and Andy will do for the EPC business, but also what we will do in support of the Harry's brand and the infrastructure and the technology that Rod spoke of. So, again I think commercially we're looking at this business across the full portfolio. We're not thinking about it as an EPC and/or Harry's, and we're quite confident with our expectations on the top-line, which of course, will be underpinned by attractive revenue synergies as well.

Andy?

This is. Andy. I mean, I can definitely speak for Jeff as well. We're both really excited about our new roles and jobs and getting to work with the Edgewell team. We are rolling a significant amount of equity into the deal. And so, we are also putting our money where our mouth is, so to speak, and really convicted by the combined Company vision. And yes, we are definitely in this together to grow this over an extended period of time.

Thank you, Faiza. Operator, next question please.

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

Thanks. Good morning everyone and congratulations on the deal. So, Rod, two questions for you, one related to integration risk, the other ones advertising market more broadly. So first, can you maybe expand a bit on, there's a lot of change going on in the organization, this deal is obviously quite large, the ongoing Project Fuel program which involves culling of the employee base, there is a process ongoing to divest two of your struggling businesses. So, there's a lot going on. And this is within the context of, there's been a number of deals in the CPG space, which have not gone well. Maybe you can expand a little bit on how well you believe the Organization is prepared to handle all this change concurrently? That'd be the first question. The second one just advertising and marketing broadly now, so you're integrating what's been a very strong brand with Harry's. Does this drive you to take a rethink here and maybe leaning a little bit more heavily behind the Harry's brand to drive growth as far as possible? And how do you balance that within the context of pulling back potentially on the base business and how that may perpetuate some of the issues that you've had there? So thank you for both of those.

Yes. Thank you, Kevin. Great questions. On the overall integration risk change management point, we do have a lot going on. Project Fuel is in execution, we're into year two of that. I think that's in execution mode. Everybody knows what we need to do and frankly, that execution has gone very well to this point. So we're confident on the Project Fuel piece. Around the potential divestitures, we've got a team lined up against that and we've got dedication against that effort and activities. And I personally and a lot of other people on my team have a lot of experience with divestiture, carve outs and acquisition around integration. So as we now layer this on top of all the other change we're managing, one of the things that we're really focused on is getting ourselves organized commercially to drive revenue growth. That is the priority focus and that's where we'll be focused initially. And we have intentionally said that, yes, there are cost synergies here, they are actually quite meaningful, but that's not going to be the priority on day one. We're going to intentionally phase that out to year two and three to get focused on being organized commercially around revenue. And a lot of those resources that are doing that work are not involved in the other projects. So, I also think we have a nice division of labor here in how we are going after. But the points is, right. There's a lot going on. And with that comes execution risk. We understand that and we'll watch it very closely. I'm actually going to flip it to Jeff to talk about advertising and marketing, because we have been down our own journey as part of Fuel in resetting, how we connect with consumer with our brands, the messages. And Anne-Sophie Gaget our global innovation and strategy leader has been working on that and has connected with Jeff through this process on how we're going to evolve that and so I'll let Jeff answer the end of that one.

Yes. And other thing -- just the point that you made around sort of start-ups and how they've integrated with other CPG companies, I think Rod talked about the fact that, Edgewell isn't your traditional large CPG company and Harry's also is a new traditional start-up. And when we were less than a year old, we only had 30 people on our team, we acquired a factory in Germany that had over 400 people and went through what you might think of as a pretty crazy integration at the time and we did that successfully. Germany is a bright spot in our Company and I think that speaks to the resilience of our team and our ability to work through complicated situations and come out the other side in a way that I think has been incredibly successful for our business. And that was based on a set of shared values. We think we have a great set of shared values at the Edgewell team. And so, we've been through this before, and understand some of the implications of it and we're really excited about the potential. As it relates to marketing, I think probably two points. First, I'd say is, as we put together our operating plan, we want to make sure we can continue to support the Harry's brand. We see a lot of potential for the brand in the US, in international markets, in our core categories, in new categories, and so we've been thoughtful about how much we need to spend to continue to support the brand. The second point I'd make is that, I think that one of the benefits of having strong DTC capabilities is that we're able to be impactful with the marketing spend that we do have. We do that because we're able to test lots of different messages in the world, get data really quickly, drive people to our direct-to-consumer experience, engage them, have a deeper connections with them and we know that impacts our direct-to-consumer business, we generate revenue there. As Andy mentioned in the presentation, it also has positive externalities on our retail business. And I think that's an interesting capability that we hope we can build on with the Edgewell team, as we think about new brands, being able to drive a bunch of messages in the world, get really interesting perspectives on those messages, have strong DTC experiences where we can engage people. We think that's a exciting opportunity that we can leverage across the whole portfolio. And so, hopefully that makes our overall marketing spend just more impactful moving forward.

Thank you, Kevin. Operator, next question please.

And this will actually conclude our question and answer session. I would like to turn the conference back over to Rod Little for any closing remarks.

Yes. So thank you everybody. Again, you can tell, we're excited about this. There is an interesting path forward here to create a lot of value, and we're confident we can go get it. So, thanks for your time. We look forward to talking to you all soon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect and have a great day.