Edgewell Personal Care Co (EPC) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2004 Playtex Products Inc. earnings conference call. My name is Mike and I will be your conference coordinator today. At this time, all participants are in a listen only mode and we will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions]

I would now like to turn the presentation over to your host for today's call, Miss Laura Kiernan, Director of Investor Relations. Please proceed.

Good morning, everyone, and thank you for joining us today. With me is Neil DeFeo, our CEO, Glenn Forbes our CFO and Kris Kelley our SVP Finance. I would like to remind everyone of the cautionary language about forward looking statements contained in our press release. The same language applies to any comments made by management during today's call. We encourage you to read the Company's SEC filings and last evening's press release, which discuss in full, factors that could cause actual results to differ from those made in any forward looking statements. Please note that items affecting comparability of our results such as restructuring and related expenses, etc., are outlined in our press release's financial statement footnotes.

A replay of this call will be available beginning this afternoon and will run through the end of the day on Monday, Nov. 1st. The replay dial in is 888-286-8010. And the passcode is 55387381.

To access the webcast replay of this call, please go to the investor relations portion of our website at www.Playtexproductsinc.com.

Now I will hand it over to Neil for his comments.

Good morning, everybody, and thank you for joining the call. It is a pleasure to be with you and for those of you who I have not met, I look forward to meeting you and working with you in the future. Today I will talk about my philosophy in running the business. Then I'll hand it over to Glenn who will give you a summary of our third quarter and first nine months financial results. We will take your questions after that. And then, I will have a final wrapup.

To begin, I'm excited to be here at Playtex. I think this is a great company and a great brand. In fact, we have great brands in total. And I'm happy to have the opportunity to build this Company in the coming years. Given I have only been here for a little over two weeks, I have not had time to develop the specific strategy we will develop in the near future. Additionally answering historical questions in detail will be a little tough for either Kris or I, Kris who is also joining us on this call and has only been with the Company for about two weeks also. So Glenn will handle those today.

To develop our strategy, I expect to apply many of the lessons that I have learned over the last 35 + years in building a number of businesses successfully. I would like to share those with you because they will guide our strategy. They include No. 1, focusing on the consumer. It is my belief that in a consumer products company that our job is to design products that meet consumers' needs better than other options available to them.

Secondly, we will build our business through continuous innovation. Innovation is the tonic that keeps us excited. It is the thing that gives consumers a reason to retry our products and it certainly excites our trade customers, our trade partners, to feature and buy our products.

Next, we're going to continue to focus on careful cost reduction. More on this later. We have good products, we will have better products in the future and we're going to continue to market those products. And then, finally, I will focus on the long-term development in the organization. These are the lessons that will all be part of our strategy that we will develop in the coming months.

My priorities, initially, in joining the Company are as follows. Obviously, first and foremost, to learn business. This is going to be an ongoing process. Second, my focus is going to be on accelerating the growth of our leading brands with a special focus on Feminine care. I plan to focus on improving our marketing plans, along with ensuring that new products, now in development, reach the market on time with superior marketing plans. Third, I want to continue and if possible accelerate the cost savings efforts we have begun months ago. These are now benefiting the Company and as you may recall we expect these efforts to improve our annual results by $12 to $14 million. We have made significant progress and we're on target.

And then, finally, we want to focus on reducing our debt over time. We expect to generate about $60 million in cash from the sale of Woolite. These proceeds, along with careful cash management and careful generation -- cash generation by the business, should enable us to reduce our debt over the next year by at least $100 million. With that, now, I'd like to turn the meeting over to Glenn.

Thank you, Neil. Good morning, everybody. The third quarter results continued our positive trends with sales and operating earnings up over a year ago. Our net sales were up 1 percent for the quarter and 5 percent year-to-date. Importantly, all of our core categories showed revenue increases for the cumulative period. This is clearly an indication of the solid foundation we have in our business to build upon in the future.

Operating earnings are up 4 percent in the quarter and 16 percent for the nine-month period, driven by the higher revenues, favorable impact of our restructuring efforts partially offset by additional support behind our new products and certain restructuring related costs.

Within Feminine care, our tampon dollar share remains stable with the third quarter at 25.7 which compares with the average over the past four quarters of about 25.8. On a comparative basis versus the same period a year ago, it is, however, down 1 share point and this relates to timing differences in competitive activities year-over-year.

Sales for the nine-month period are up 8 percent reflecting stability and normalized shipments to consumption for Gentle Glide as well as the beginning impacts of Beyond. For Beyond, which has now been in the market since the first part of the year, we had a dollar share of 3.1 percent for the quarter. We continue to execute our year one launch plan which includes significant trial building activities and advertising support.

On a cumulative basis, we're on our plan for the year with this business. We did, however, see some slowdown in the share progression in the third quarter as a result of continued competitive activity and some timing difference between our promotion cycle and that of competitors. We have a strong support plan that will continue into the fourth quarter and well into 2005. Obviously, this is an area where Neil and the Femcare team will valuate alternatives to further drive growth of this important Femcare franchise to both grow Gentle Glide as well as ensure the long-term success of Beyond. Infant care. Our portfolio continues to perform very well. We have a terrific stable of products here. They are all doing very well with the exception of cups, which we certainly recognize as an issue that we are working very hard to deal with both in the short- and the long-term.

Infant care sales were up 2 percent in the quarter and 3 percent for the year-to-date. Particular driving forces were success -- continued success in our infant feeding categories which have benefited from new products both in our disposable category, our premium disposable nurser, and our VentAire hard bottle expansion this year. Wet Ones continues to be a very strong performer here where we've got an all-time high share of 72 percent and it continues to chug along very nicely. It is a terrific franchise. We mentioned the cups and, obviously, this is an area where competitive activity has been significant. And we will get back to you in the near-term with options to improve that.

Suncare category. We are certainly happy to report we had a better year in 2004 than in 2003. The weather was a little bit better. Overall, our sales benefited by growing our consumption in the aggregate and we also shipped closer to consumption this year as we have been trying to improve the fundamentals in this business over time. Year-to-date in the aggregate, our market share was down slightly at a 21.4 percent. However, there are two key segments of this industry. The sun and after-sun protection as well as the sunless. We continue to gain share and grow consumption significantly in the sun protection and after-sun markets which represent about 84, 85 percent of the segment. Our share was down this year as a result of competitive activity in the sunless area.

As you know, the 2005 season is already underway. We have a very strong new product lineup that has been presented and well accepted by our trade partners. And we have very significant new products in here that will solidify our position in the sun and after-sun area. But importantly, we also have some new items that we think will help us regain share in the sunless segment. I would also remind you that we're in our second full season of the returns reduction initiative. That continues to pay benefit for us and will continue to improve in the future to improve our profitability in this key category.

Financial highlights for the quarter and the nine-month, especially our EPS were in line with our guidance at 2 cents. Gross margins continue to show improvement over year ago, both in the quarter and year-to-date period. And we remain on target to deliver approximately 100 basis point improvement year over year. Our SG&A expense was only up slightly in the aggregate mainly reflecting the support behind our new products. Our EBITDA trends and operating -- are very consistent with our operating earnings trends which we previously covered.

We continue to also make improvements in the working capital area. Our trends remain positive as we reduced DSO year-over-year by about four days to 62 days and we have also significantly reduced our inventory weeks. We have achieved the goal that we set out to reduce our inventories by approximately 9 million which, as you recall, is part of our restructuring plan. As a result of the working capital improvements, as well as the operating earnings generated by the Company, as well as the fact that the third quarter is a low point in terms of our working capital needs particularly driven by the seasonality of suncare, and we have built out a significant balance of about $84 million in the quarter. We will begin to utilize some of the working capital in the fourth quarter, as we start to rebuild inventories for next year's suncare season. We make a semiannual interest payment on some of our bonds and we also will process our suncare returns that would utilize that. We still (indiscernible) end of the year with significant excess cash which is indicative of the business's ability to generate cash. And we will use that. along with the asset proceeds from Woolite sale, to pay down debt as Neil mentioned of at least $100 million over the next year.

We have also executed recently an amendment to our credit agreement that allows us to use the Woolite sale proceeds and other excess cash to repurchase bonds over time. This gives us additional flexibility to chip away at the debt. Our total debt was $800 million and comprised entirely of a fixed-rate debt and no drawings joins on the revolver and availability of just under $70 million there. As mentioned before, our cost reduction initiative remains on target.

And we also announced the sale of Woolite which we expect to close in the very near future. The highlights of that are net cash proceeds of approximately $60 million and we are utilizing a net capital loss carryforward to shelter any gain on that. We will report an accounting gain of approximately $54 million, net of any operating earnings impact during the quarter, which will be dependent upon the timing of the closing as well as the utilization of the proceeds.

Overall, our guidance for the year remains unchanged at 31 to 34 cents for the year. Our net sales continue to -- we expect them to be up approximately 4 percent for the year and up low single digits in the fourth quarter. We made no other changes to our guidance in terms of SG&A, taxes, CapEx interest, etc.. Relative to 2005, we will defer from providing specific guidance at this point in time. In the very near future, Neil and Kris and the team will be developing a growth strategy for the Company as well as translating that into a detailed 2005 plan and they will provide guidance at the appropriate time. Operator, could you please begin the Q&A?

[Operator Instructions]Ron Phillis, Bank of America Securities.

Hi, Glenn, I was wondering if you could talk to us about what, specifically, you need to change in the credit agreement?

Specifically we changed, we basically got permission to sell the Woolite assets which was not part of the agreement and we also have gotten permission to utilize those proceeds as well as any cash -- excess cash that we have, subject to certain borrowing base of availability to repurchase bonds over time. That was essentially it.

Yes. And that would be either of the bond issues?

It would, either -- it does allow either one, yes.

Are you guys interested in one more than the other?

No, not particularly. But obviously the 8 percent has certain restrictions on what we can do with the 9 3/8. So that would probably be our first target.

The 8’s.

Yes.

Yes. And I was wondering if you could talk to us about continued efforts to sell other brands?

You know, our practice as a public company is to not make any comments on speculation of rumor and we will stick with our approach that on an ongoing basis. We will continue to evaluate those alternatives. And if they arise as they did with Woolite, we will certainly do the right thing.

Today, on the Proctor called they talked about new capacity coming on for their new product. Is there anything that we should know about that? I think they had indicated to us that that was not any signal of a future increase in competitive activity but is there anything that you could tell us about that?

Well we don't know what their plans are but what we heard so far is there are launching Pearl in Canada so they may need capacity for that. And they don't have Pearl in Europe as far as we know. So possibly they're looking there. But other than that, we don't know what plans they might have.

Right. As I recall you guys do not really have a good presence in Europe, right?

Check.

You do have a presence in Canada which mirrors the presence you have in the U.S. in terms of shelf space, right?

Yes, basically.

George Chalhoub, Deutsche Bank.

Neil, do you have a certain timeframe by which you are going to come back to us with a specific plan? Clearly it is too early now. But when should we expect to hear from you and the rest of the management team?

I would think early in the next calendar year. We are beginning a planning process right now and a group of strategic meetings and I think that will bear fruit early in 2005. Whether it's February or March or January I'd rather not say but as soon as we can, we want to put that strategy to bed. And come back to you and give you a full review of what we're planning.

On the feminine care side, as things stand right now, Glenn, do you expect to make any changes? Or should we see the same of what we saw from Playtex before which has continued brand support behind Beyond and obviously behind Gentle Glide. What are you foreseeing right now so that you can meet the guidance for example? Any changes to the add in promotion, budget, anything that will cause you to do more than you have done so far or is it as expected so far for you?

I would say that the plan is in place for the fourth quarter. And we will continue to execute against that plan. And then, obviously, long-term as with any launch you will evaluate what you learn and incorporate that to make tweaks to your strategy and your tactics over time. And that's certainly part of what Neil and Kris will be evaluating; but right now we are continuing to execute. As we have said all along, we have a strong plan for Beyond. We have continued to support Gentle Glide on a good, reasonable, historical basis. And in the short-term we will continue to execute against that and then modify that as we go forward.

On some of the movement we are seeing on the private-label side of the plastic applicators. Can you comment, Glenn, on what's your early read on this? Obviously you guys have the (indiscernible) level but still that could be causing some intense competition there. What is your early read on that competitive activity?

Our view and it has historically been and continues to be that private-label has not been a major factor in this category, given the personal nature of this product and the relative low cost on a monthly usage basic. It is getting a little bit of activity now because I think some of the retailers are moving from cardboard to plastic, which is, obviously the preferred form in the marketplace. We don't expect in the mass market to have a significant impact long-term. It's always been in the 6, 7share range and it blips up a little bit here and there, but over time we don't expect it to be a major factor.

And beyond the amendment to the first agreement that you've made do you have any expectations to use the restricted payment basket topurchase the allowable $10 million on the subs of the year? The interest coverage used to be one of the issues. Is that gone now?

No we didn't make any changes to the 8 percent. No indenture only to the credit agreement so everything relative to those restrictions remain in place.

The proceeds from Woolite is set in the very near future. Is this like we're talking, couple weeks or we're talking -- what exactly is the timeframe here?

We hope to close next week. The FTC deadline expires at the end of the day tomorrow and we would close very shortly after that.

Amy Chasen, Goldman Sachs.

Neil, I was just curious what if you could mention a couple of things about the Company that really attracted you to the position?

A couple of things attracted me to the business. First of all, it's great brands. Playtex is an incredibly well-known brand. Banana Boat is an incredibly well-known brand. These brands have an opportunity to really grow and that excites me. As you know I'm a marketing guy, and the opportunity to sink my teeth into marketing these businesses is a very attractive thing. Second of all, this is a company that has got really terrific people. And people make the difference and I believe that working with people, developing people, is one of the great rewards that you have been working in business and the philosophy is quite simple. If you have good people life is good and we do so I wanted that opportunity. And third, quite frankly, I like working and it's fun for me. I don't look at coming to work every day as drudgery. I look at it as an exciting challenge and I am convinced that this is a company that can grow and grow substantially because it competes in big categories. Feminine care category is a big category. The suncare category is a big category. The infant care category is a big category and while we have good shares, number 1 and number 2 in these categories, there's still a lot of opportunity for growth.

Would you care to comment on just, initial observations, on what you think could have been done better over the past couple of years?

No, I wouldn't actually. I want to look forward and think about what we're going to do in the future not what, if any, things we could have done better in the past, Amy. I think that's really kind of -- I don't find it productive.

Last question. You mentioned cost savings and that's actually intriguing to me. Do you think that there's a lot of low hanging fruit based on what -- I'll ask you again probably in January -- but based on what you know so far.

I wouldn't call it low hanging fruit. What I would say is this, we're just in the process of completing a major cost savings effort and that looks like it is going to save us $12 to $14 million on an annualized basis. What I intend to do is take a look now at what else we can to do substantially save money? And if you remember from my Clorox days this is something we did very successfully. I believe every year a company like this need to have a substantial cost savings effort underway and we will, in this company, do the same thing. We will look at how we work, how our processes (ph) are and where we can save money.

Reza Vahabzadeh, with Lehman Brothers.

Glenn, you touched on your marketshares and feminine care slowing a bit in the third quarter. And touched your promotional cycle and comparative activity. Can you elaborate a bit more to what extent do you think that slowing of market share was your promotional cycle falling up out of the third quarter versus actual competitive activity versus your absolute volume of spending?

It's hard -- it's obviously hard to separate those two dynamics, if you will. Again we look at the stability of the share position. I think we're 25.7 versus a 26.3 in the previous period and that's a decrease of about 2 percent which is not huge in this category. I think, basically, we continue to execute our Beyond plan which had a pretty strong promotional trial-generating activity in July. And another one in October. So kind of towards the back end of the quarter we were probably not on promotion in a lot of areas. And some of the other competitors were. And that probably drove the share down a little bit; but we found that Beyond is very responsive to promotional and trial activity. And we think that we will continue to see a little bit of ins and outs on a going forward basis but our goal, obviously, is to build it over time. We said this would be a relatively slow, long-term build to ensure success.

Any particularly comparative that you would like to highlight?

No. We obviously -- you know the players. Everybody is in it for the long-term and everybody promotes from time to time.

And then, Neil, you touched on in the press release about growing the Company through new product and increasing marketing support. I know it's early days but do you see the marketing spend level now appropriately calibrated? Or is that something that needs to be elevated to support topline growth?

It's really too early for me to make that conclusion. But I will tell you that, as a matter of principle, I believe in marketing. But I believe in marketing when you have really good products that we know the consumer accepts and buys and our products are really good. So when we look at the acceptability of our tampons for example, we know they're terrific products so with terrific products it's easy to say, "we ought to invest more in marketing". But obviously we want to make sure those marketing expenditures pay off. Historically, when I've run businesses, my approach is really quite simple. It's a take out the non value added costs from the business and take that money saved and put it back into the quality of the products, the marketing of those products, and earnings. And that's what I plan to do here.

Kathleen Reed, Stanford Financial.

First question. Back on Femcare. Femcare sales were down 1.5 percent also pretty easy comparison where they were down 13 percent in the previous year's quarter. And I was just wondering if that was below your own internal expectations?

Well, Kathleen, we obviously would have liked better numbers but as we said, we are -- it's really driven by Beyond. We are on plan, internally, with that business. And I think, generally, we are happy with where we are today and we think we can build from there.

Okay. With that said, it looks a lot from some of the market share data we were seeing that your percent of products sold on promotion was actually down year-over-year in the third quarter where some of your competitors had stepped up their promotions. And I understand you didn't drop an FSI in September you did it in October. Would we see that level increase from third quarter to the fourth quarter, since most of your plans are probably in place?

We would expect that.

So should we expect on the Femcare side to see some improving monthly sequential gains on the Femcare side in the fourth quarter?

I would really direct you to look at the quarter in the aggregate as opposed to month by month. You can see that it does fluctuate month by month based upon promotional interaction.

Kathleen, our intention is to try to build this business over the long-term. We are going to see month-to-month wins and losses versus our competition. But as we deploy our marketing plans, over the long-term, our intention is to build this business. That is what we're going to be focused on.

Do we have a new time line when you expect femcare shares to turn positive on a year-over-year basis?

I don't have a new timeline.

Just more, I think, on a gross margin question. Keeping that '04 EPS estimate the same, all your guidance levels the same, since your revenue was a little bit lighter at least than what I was expecting in your third quarter, what is the offset in the fourth quarter? It looks like your gross margin did real well despite higher raw material costs. Do we see even more benefit from your restructuring initiatives you did last year? Or what kind of benefits that we're keeping the full year number the same?

Our full year number has a range to it. I would say that, generally, our control over SG&A expenses probably a slight offset to lower revenues and that allows us to keep the guidance the same. The gross margin continues to be pretty much on target with where we targeted for the year with 100 basis points production year-over-year.

Ann Gillin-Lefever, Lehman Brothers.

Just wondering, Neil, if you could elaborate a little bit on why you've taken to isolate Femcare as a place you'll start with?

It's really kind of simple. When we look at our business and analyze the relative financial importance of the various parts of it, Femcare is the most important part. And so having that business grow and be healthy has the most potential impact on the Company in the short-term. And the alternative is obviouslyalso true.Also it's a business where there's lots of opportunity for growth so the combination of those things is what attracted me at least initially. Now I have to tell you that after only two weeks and two days. But to me in my early look at this Company, we have to focus on Femcare and be successful in that; and that will maximize the potential for this Company and that's why.

Is it an operating leverage? Or is it just you see the responsiveness of the (indiscernible) as something you can execute?

I dont' understand the question. Can you say it again?

Sure. I was just wondering if it is because there's some -- if you get a revenue driver going in the category that you get the operating leverage from Femcare fastest?

That's certainly one of the reasons. Absolutely. It's a very profitable business and if you can grow this business you are going to throw off a lot of cash that will allow you to invest in marketing, invest in other things including, of course, over time, debt reduction which will free up much more cash for us.

And a similar question that I think has been asked wondering if you could give us some parallels that you see between your beginning of your efforts at Playtex and your prior efforts at Remington since a lot of us got to see what you did at Remington, and wonder how you'll execute the similar strategy?

Well my approach is going to be quite similar. I started at Remington by first trying to learn the business and figure out the drivers of the business and what was important. And then I worked with the team there to develop the strategy which we then executed. The focus at Remington if you recall was we said "gee we're going to focus on men's shaving". We had lots of businesses. The men's shavings business was the feminine care business of Remington. And it was where we felt we had both the credentials for success and the combination of marketing talent and products for success. And I believe that is the same case in feminine care here at Playtex. So I'm going to execute the same kind of approach in focusing on the fundamentals and getting good products into the marketplace, hopefully, that differentially better meet customer needs. And then support those aggressively with marketing dollars turned up through good cost reduction.

That's helpful. Glenn, I just have one question on suncare. Baffled me this quarter. I -- given where the weather was, I would not have expected revenues to double.

Well you've got to look at this Ann, I think from a seasonal point of view and recognize that the numbers are pretty small in this relatively insignificant period. We have been continuing to move consumption closer to the shift in pattern closer to consumption and we also have had better visibility in terms of our returns earlier in the year. So we would have made adjustments in the first half of the year that would've reflected what we would have expected to happen. And the important point is that the year was up significantly. The consumption was up, the share was stable. We had a great year in the in sun, after-sun year and we have new products for next year that will build on that momentum as well as help us recover in the sunless, which was a pretty difficult year for us this year.

And on the returns initiative as we are in halfway through fourth quarter. I wondered if there was any color on whether you're feeling adequately reserved for returns?

Absolutely. As we indicated we have year after year improved our measurement, our communication, our analysis with consumption. Our touch points with all of the trade partners. And we feel that we have an excellent handle on what we would expect to happen and that's exactly what has been recorded so far.

Alexis Gold, CIBC World Markets.

Just a couple of questions. You talked a little bit about your ability to repay debt. I'm assuming you can repay the senior securities in the 112 call?

With the asset proceeds? We do have that option. Absolutely.

And you should have 20 million I believe available between '04 and '05 under the restrictive payment baskets for the senior subs, is that correct? I think the 10 million bought earlier this year outside those baskets.

That's correct.

Additionally I know you can't discuss asset sales but is it safe to assume that if there were opportunities they would be be delivering, for example, Woolite 12 times EBITDA?

They certainly would be done to reduce the debt structure and improve our ability to focus on the core categories. And, obviously, you do them as financially effectively as the market allows.

And just I know you spend a lot of time on Femcare but if I could talk about Infant Care for a second. I believe recently you were featured in the giveaway on Oprah's Biggest Baby Shower. Did you have to pay for that placement and are you looking for sort of alternative promotional opportunities? And have you seen any upside just from a marketshare perspective as a result?

I don't think we paid for Oprah, but I don't really know quite candidly.

Probably provided free Diaper Genies.

Probably provided for free. But it is an exciting business for us. We have a lot going in this business, a lot of bright spots. We're going to continue to invest in it. We don't have this -- nothing specific I want to announce today but there's a lot of things that I like about this business after 2 1/2 half weeks. We do have a problem in our cups business due to new product introductions by competition. Some price activity and we're going to be dealing with those in the coming months through a number of steps including the launch of some new products, again, I'm not announcing anything today on those.

And just with the changes in the drugstore industry recently between (indiscernible)and the sale of Eckerds and CVS (inaudible)have you seen any disruptions in your distribution?

No.

Greg Upson with RBC Dominion.

(MULTIPLE SPEAKERS) Do you guys have a stock buyback plan?

No. Our debt instruments preclude us from doing that.

Secondly here, if the 100 million's used the interest payment savings is going to be about 8 million which is about 13 cents a share. Is that correct?

No, every million dollars is a penny. So 8 million would be 8 cents.

And how much did Woolite contribute to the earnings?

We won't give you a specific but we can tell you that it -- generally the operating earnings are approximately in the mid single numbers of millions.

What would that be mid sales (MULTIPLE SPEAKERS) this bill may be the selling and the paying off the debt that might be 3 cents?

No. We said that it would be neutral. Earnings in '05 going forward.

Yes assuming a pay down of debt.

Assuming we pay down debt. Remember the proceeds from that are approximately 60 million so you would save about $4.8 million of interest on that.

Connie Manetty with Prudential Equity Group.

Neil, would you talk about the impressions you formed of Playtex as you went through your due diligence? Specifically, do you have the impression that the Company needs to shrink before it can grow? Or that earnings need to shrink before the Company grows, maybe through more investment? And also do you find that the advertising and marketing spend was appropriately spent on the right businesses?

You asked three questions. Let me see if I can answer them? Does the Company need to shrink before it grows? No. Not in my view. We obviously have just -- in the process of closing on the Woolite business, we don't really have other businesses that were actively marketing today. And I don't think we need to shrink to grow. Now that assuming that if somebody comes up with an enormous pile of cash for one of our businesses that's in the shareholders' best interest we would be forced of course to look at that but we are not actively trying to sell things today.

Secondly, from an earnings standpoint, I don't think we need to reduce earnings to grow either which would infer that we should be investing more of our brands. I think the marketing plans that I've seen to date anyway, look like they have the appropriate measures, appropriate levels of investment. And as I mentioned earlier, my approach has been in previous businesses and will be here to try to turn up marketing dollars if needed through cost savings as a way to improve without sacrificing earnings.

And then, finally, you asked the question of our advertising mix and, candidly, it is too new for me to vote on that. It looks like my preliminary reviews that we are doing what is right for our businesses and, obviously, we will continue it. I look at advertising as an investment in the future not as an expense and if it is properly done it ought to pay off dividends for us. Hope that helps.

That helps a lot. Playtex just seems like it's such a lean company that -- from the outside it's not quite clear what sort of opportunities or cost savings are left after this most recent effort. Is it processes that needs to change or --?

Yes. I think that's the best way to think about it. I'm a believer in the old total quality adage of continuous improvement. I think things can always be better. It is not about trying to get people to work harder. It's working smarter and simplifying our processes. For example if it takes 20 steps to develop a display piece and we could figure how to do it in five, that is going to save us a lot of money and it's going to improve our ability to compete in the marketplace. It is this kind of thing we're looking at and these are some of the kinds of savings that generated the savings that we've reported in the past and we're going to be looking again aggressively at how we run the business as a means to drive efficiency and lower-cost.

You also mentioned that you wanted to get new products to market faster. I think -- I don't know if you specifically said Femcare. But does that suggest that there's a pipeline of product that wasn't making it to market in the proper time frame?

It does not suggest, that. It just suggests that I recognize from my past experience that competing is all about getting the right products to the market ahead of the competition.

If I can ask one final question of Glenn. Could you just give us the levels of what the industry standards or the industry return rates are for suncare these days on an annual basis? And are they coming down as a percentage of sales?

Connie, I really can't, with any knowledge base, give you what the competitors are doing. Historically our information that we could glean from various sources which would obviously be unconfirmed was that other competitors have higher rates of return than we did, even prior to us initiating our returns initiative. We just know that from dialogue with retailers that we are at the leading edge of this and that we have made our business much more effective and much more profitable and created better relationships with our partners. So it is our belief that we were better than the competition and that we have improved that position; and we're not aware that they had done anything of a similar nature with the type of focus and energy and commitment that we applied to this program.

Jeff Kobylarz with SSB

Can you, I guess, Neil, you mentioned at the start of the call that innovation is a tonic and do you believe that the Company is not innovative enough in the past and you intend to increase that innovation and would you only do so after you cut costs and reinvest those cost cuts in innovation?

No I don't -- I did not mean to imply any criticism of our past that we've not innovated. What I meant to say was that for me, if you want to build a business, a good way to do it is to bring news to the marketplace and news in terms of more innovative better products that consumers want to buy. And that's a strategy, a choice of how to build the business. So I didn't mean to say that I felt somehow that the track record of the Company was not good. That's not what I feel.

Can you describe the competitive situation in cups? For this past quarter?

The cup situation is competitive in a couple of different ways. First, a number of people have come into the marketplace with new entries. Second, some of those entries are price driven, private labels. And they are all competing for the same shelf space where we have historically had substantial market leadership. In the short-term, that's affected our business.

Now we are launching new products and we have more products in the pipeline and we will regain that over time. So we have a substantial lead in this business. We are the guy that everybody shoots for. People will come in, their products will prove to be not as good as ours which is what I believe, and then we will get that space and those sales back and those features back and that retailer support back. In the coming months.

Can you say when you do intend to introduce those new cups?

No, I can't.

The next six months?

They will be in the marketplace when they're there. I'm sorry, I don't want to be more specific.

Understand you can't show your cards. Understand.

Ben Alexander with Alexander Capital Management.

I had a question for Neil. I know it's very early, but based on what you've seen so far do you think that international opportunities are something that you need to really look hard at or not?

I don't have any point of view on that. I've not spent anytime looking at international yet in this business. I've been totally focused my first two weeks on the U.S. business alone, so I really don't have a point of view. Obviously in my background I have substantial international experience, both Remington and my other jobs, I spent a lot of time with international but I don't have a point of view yet here.

Justin Maurer- Lord Abbott.

Margins in the past for the Company have been in the low 20s going back a few years now 15,16. Do you feel is it when you look at the differential past experiences of being able to run call it, 20 percent operating margin business, that it's mostly a function of sales leverage or maybe talk about that a little bit in terms of driving sales versus cost opportunities to get you maybe back to those levels?

I think it's both really. Obviously sales growth is the -- in the large sense the rising tide that floats all the ships. And many companies, I've run some of these businesses, fall into the trap of sales are good so you forget about cost management. And then of course one day you wake up and sales softened for various reasons and you got a problem just haven't kept your foot on the cost side. So both are important.

I believe that structurally, a company cannot afford in the long-term to have cost in its system that donated value to its products which the consumer can see in terms of the quality of those products and therefore is willing to pay for.As so our job as management is to get those costs out of the system and turn up the savings to redeploy as either better products, better marketing, or higher return to shareholders. And so I don't think it's a trade-off. I think you have to do both.

Following up on the earlier question just from a cost standpoint that from a manufacturing footprint, it seems that you guys are relatively modest at this point, just thinking of the cups business. Do you believe that's a cost issue for you guys at all? I suspect that that product is entirely outsourced today. So is it domestic sourcing versus international sourcing opportunity? And just on that score, I understand that at Remington you had done a nice job of moving a lot of that offshore. Do you see similar opportunities here or is it a little bit tougher from a category standpoint?

Too soon to tell, candidly. I don't know what the cost issues are related to our bottle production yet. Obviously each category's business is different but there are good reasons why we moved the production overseas in Remington's case; we didn't move everything over. We kept in the United States what we felt was important from a technology and development standpoint and, obviously, we'll look at what we're doing here and decide what's the best for the long-term of the business paired but I have no data yet.

And lastly on the marketing, it's good to hear that sounds like the dollars are appropriate. Do you feel like for some reason that the message hasn't quite connected with the consumer? You've talked a bit about that particularly in Femcare about needing to get that message or is it a question of the way that is marketed or how it's marketed or what are your initial impressions there?

You know, here again, it's really very, very early. I think in some cases we've done a great job and in other cases this is always the case with a business that's got as many brands as we do, there's an opportunity to do a better job and we're going to be attacking those and working with our marketing people and our agencies to do as good a job as we can. We won't get them all right but, hopefully, our batting average will continue to improve.

Amy Reuterman with (inaudible).

On the debt repurchases? Are those going to be in the open market?

That is certainly one of our options. We're going to execute it as the most effective way we can.

So nothing definitive.

Shannon Ward with AIG.

Three quick ones. What percentage of your cost of goods sold is raw material?

It's probably in the 40 to 50 percent range of our cost of goods sold.

And have you seen that change or stay stable recently?

Well like everybody, we are starting to see upward movement. We have product resins and cardboard products and we're, obviously, doing what we can to manage that as effectively as we can. And we -- you have to remember that our margins are very strong in this business and our cost is a pretty small percentage of our revenues. We also have continued focus on other cost reductions that will help offset any of the material increases that eventually stick. And we'll also be looking for selected price increases where possible. So we don't expect significant change in our margin structure going forward at this time.

Is there any useful regional hedging you can do on that?

Not really. Most of the things that we buy are pretty specific and unique materials. We are not buying a lot of commodity, pure commodity materials. They are very specific to our uses.

What sort of range swings would you say is to be expected in terms of the change in those cost? Are we talk about doubling or are we more talking about 15 percent.

You're looking at relatively modest percentage increase. I couldn't -- no -- not doubling or stuff like that. The market is not that crazy.

Secondly your CapEx budget should we still assume somewhere around $18 ish million a year?

Yes we have averaged 18 so 15 to 18 is a pretty good range. That allows us to do things we need to do to drive the innovation and support our cost production efforts.

Lastly what is your NOL balance right now?

Well for the 1000 -- you talk about capital loss?

Yes so capital (MULTIPLE SPEAKERS)

Yes we've been able to shelter the entire gain on Woolite and we would still have if there are other opportunities, we would still have another $40 million if the right opportunity came along this year.

And does that mean we should assume you're not a cash taxpayer in the near-term?

This year we are not paying a lot of taxes, that is correct.

What about next year? Obviously (MULTIPLE SPEAKERS)

Will be a little more normalized next year.

Which means what do realized what percent?

I don't want to get that granular but it's a relatively modest percentage of our tax provision.

There are no other questions in queue at this time.

I want to thank everybody for participating in the call. I would like to close by reminding you of what our priorities are going to be. Or my priorities are going to be in the next several months.

First of all to accelerate the growth of our current brands, focusing on first femcare. Secondly, want to accelerate our cost savings; want to bring the ones in process to the bottom line and going to identify new ones and there will be more about that in coming quarter announcements. Third we're going to use our cash to reduce our debt. This will provide opportunities for further investment free cash flow in the future and finally I will be working with the management team to develop a new strategy for the business which is the appropriate time we will be announcing. Executing these priorities should enable us to build the business and add to shareholder value.

As I stated previously, I am excited to be here, I'm excited to work on a business with such well-known brands. I like the people I've met and I want to thank you all for participating in the call and I look forward to meeting those of you I haven't met and, again, thanks for the call.

Ladies and gentlemen, this concludes your conference call. You may now disconnect.