Edgewell Personal Care Co (EPC) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2005 Playtex Products, Incorporated earnings conference call. Products, Incorporated earnings conference call. I will now turn the presentation over to your host for today’s call, Laura Kiernan, Director of Investor Relations. Please proceed.

Good morning everyone, and thank you for joining us today. With me are Neil DeFeo, our president and CEO, and Kris Kelley, our Executive Vice President and CFO. 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 .

For our discussion today, we will talk about our quarterly results, excluding certain charges and gains, as outlined in last night's press release, including, a $3 million-dollar lawsuit award in 2005, related to a false advertising claim made by Proctor and Gamble in its launch of Pearl tampons.

Restructuring and related expenses of $1.2 million in 2005 and $1.5 million in 2004. And net expenses related to the retirement of debt of $4.7 million in 2005, and $6.4 million in 2004, and a tax benefit of $4.1 million related to the repatriation of cash from a foreign subsidiary in 2005 under the new tax law. For your convenience, a reconciliation of the results as reported to results excluding charges and gains, is included in the consolidated statements of income data, attached to our press release and on our website.

Additionally, please note that our fiscal year ends on the last Saturday nearest to December 31, and as a result, a 53rd week is added every 5 or 6 years. Consequently, 2005 is a 53 week year, and our results for the first quarter of 2005 are for the 14 week period ended April 2, 2005, and our results for the first quarter of 2004 are for the 13 week period in March of 2004. We believe the impact of the additional week on results in the first quarter of 2005 was not material.

A replay of this call will be available beginning this afternoon, and will run through the end of the day on May 5th. The replay dial-in number is 888-286-8010, and the pass-code is 63237195. To access the web 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 Laura. Today I'll provide a summary of our results that were reported in our press release last night. I'll talk about the progress we've made against our strategy that we shared with you at the Analyst day on April 5. Kris will then take you through the numbers in some detail, we'll take some questions, and we'll wrap up by about 11:00 this morning.

To begin, I'd like to summarize the results. Overall, we're pleased with the quarter and our accomplishments. Excluding Woolite sales from last year, which you'll recall, we divested in November, net sales were up 1% to $187 million. Feminine care sales were down 3% in the quarter, but it's against a difficult comparison, because last year we launched Beyond, and there were substantial pipeline shipments during that period of time. Infant Care sales were up 13%, and skin care sales were down 3% percent. We'll go into the details of these in just a moment.

Adjusted EBITDA of $43 million, was 2% higher than last year's first quarter, Despite loss of Woolite profits. Debt (ph) income was down only 4%, or a penny a share on an adjusted basis to $0.21 per diluted share in 2005 due to higher interest expense.

I would like to now step back and give you a brief report on the progress against our new strategy. We presented our new strategy and long-term goals at the investors conference on April 5. Our objectives that we stated there for long term goals by 2008 were the following; We want to see average annual sales growth of 5%,reaching $800 million.

We want to increase our EBITDA margins from 18% that we achieved in 2004, to the mid 20's that were common for Playtex back in the earlier days. We want to achieve adjusted EBITDA of $200 million. We want to lower interest expense significantly as a result of debt reduction, reducing net debt leverage to below 3.5 times, and grow diluted earns per share double digits in each of the next four years.

We've talked about our strategy, but I want to just review it briefly. Our strategy was first of all, pay for performance, second of all we want to focus on our core categories, third, we want to reduce our debt, excuse me -- our cost. Fourth, we want to accelerated new product development and focus on innovation, and finally we are going to expand internationally and look at opportunistic core business acquisitions. We've begun to strengthen Playtex and have made good progress this year against the major strategic objectives.

From a personnel standpoint, the majority of our new senior management team is in place, and we've implemented our new compensation and associate development plans, which have been well received by our associates. Our associates are making a difference here at Playtex as we implement this new strategy together. We've improved our focus on our core categories, including realignment of our brands and importantly, we've begun to allocate more resources against the core categories, while significantly limiting resources against non-core businesses.

We've strengthened our marketing plans, I'll discuss that more shortly. We've begun reducing our costs, both operational costs through the previously announced business realignment plans, and interest expense, as we continue to pay down debt. We're proud that we've been able to pay down $63 million of our $100 million debt retirement target for the year already. We've accelerated our new product development plans. However, the fruits of this acceleration will only become evident later in the year.

Let's now take a look at the results of each of our core categories during the quarter in some detail. First, feminine care; Overall the quarter was solid, with sales down 3% in the quarter versus the prior year, due to lower shipments of Beyond cardboard applicator tampons, as well as a price reduction rebate on Beyond to our customers. The first quarter of last year 2004, included pipeline shipments of Beyond, making it difficult to compare. We estimate one time pipeline sales last year were in the $3 to $ 4 million range.

If you recall, we changed our advertising on Beyond at the end of 2004, updated our packaging in 2005, and lowered our price by about 17% at retail during the first quarter. It's too early to see the effects of these changes, but we are optimistic as consumers do prefer Beyond versus its major competition.

The lower Beyond sales were partially offset by higher sales of Gentle Glide plastic tampons versus the prior year, due to the launch of our new 36 count multi pack, which was launched earlier this year. Our tampon dollar market shares have remained stable at about 25% range for the past two quarters.

Moving now to Infant Care. Our net sales were up 13% versus the prior year, partially due to higher Diaper Genie sales, due to the timing of shipments on this product. Infant Care net sales were up due to strong sales of reusable and disposable bottles and pacifiers which continue to out perform the market. New product launches in bottles and pacifiers continue to generate excitement, in their respective categories, and are driving growth.

These gains were partially offset by lower cup sales in line with lower consumption at retail. Year-over-year cup sales are down for the quarter, but the rate of decline has reduced significantly. New product launches are expected to improve sales trends in the back half of this year.

Moving to Skin Care. Sales were down 3% year-over-year, primarily due to decreases in Baby Magic toiletries. While Baby Magic was essentially on plan for the quarter, the decline was result of reduced space at retail, as new competition has entered the market, and with aggressive promotions. Though the first quarter represents typically only about 10% of total U.S. sun care annual consumption, the overall poor weather caused the total U.S. category for SunCare, that's our business and competition, to decline in total about 4% percent during the period quarter.

However Banana Boat sales were flat in the quarter versus the prior year, as poor weather dampened reorders, but prior season returns were lower than anticipated. Wet Ones hand and face wipes grew during the quarter, due to gains in distribution.

We’re pleased to announce that our restructuring plans remain on track, both from an execution timing and net savings standpoint. Cash flow trends as Kris will cover in a moment remain strong, and we continue to monitor and reduce working capital. As mentioned in our press release, we are reiterating our 2005 guidance, and we are determined to hit our long term goals.

I want to remind you that our annual shareholders meeting is coming up on May 16. Shareholders will be approving a new cash compensation plan and stock option plans for the Company. These plans are part of our new strategy and will allow us to issue restricted stock and stock options contemplated by our pay-for-performance strategy. We urge shareholders to vote by May 13 for these changes. With this overview, I will now turn the meeting over to Kris Kelley who will provide details of the financials.

Thanks, Neil. Sales for the quarter were up 1% on a comparable basis, which Neil took you through by category. As Laura mentioned, the first quarter of 2005 did have an additional week versus the first quarter of '04, however two of the days were December 26 and 27, very slow days right after Christmas. In addition, the impact of the Easter holiday moving into the last week of March versus April last year, also reduced the impact on shipment days during the quarter.

From a profit standpoint, the gross profits from these incremental but less impactful shipping days, were essentially offset by a full week's worth of salary, wages, and other fixed costs, as well as an additional week of interest expense. Thus, the net impact of the additional week was not material on our results for the quarter versus last year.

Our adjusted gross margins improved approximately 140 basis points to 53.6% of net sales in the first quarter of 2005. The impact on gross margins from the operational restructurings commenced last year, more than offset initial raw material cost increases. The full impact of higher raw material costs will impact the remainder of the year, while the impact of the incremental savings from last year’s operational restructurings will decline as the year goes on. For the year we still expect to have flat gross margins when you exclude restructuring costs.

SG&A expense versus the prior year, excluding certain charges and gains, declined by $1 million in the quarter, but increased slightly as a percentage of net sales, as initial savings from the 2005 business realignment were more than offset by increased investments in advertising. Adjusted operating income was $39 million, or 21% of net sales in 2005, versus $38 million, or 20% of net sales in 2004, up 1%, despite lost Woolite profits included in 2004 period. However, these improvements in operating income were more than offset by the higher interest expense.

The 2003 operational restructuring and the 2005 business realignment plans remain on track, with combined estimated incremental savings still expected at 18 to 21 million in 2005, to be partially offset by higher raw material costs, and increased investments in advertising and new product development. Cashflow trends remain strong, with continued working capitol improvements. Average days of inventory on hand, and average days sales outstanding each declined by 10 days versus the prior year, as measured on latest 12 month basis.

Cash used by operations for the quarter of $14 million was $10 million better than last year, primarily due to better receivable management. As the impact of the termination of our old AR facility in 2004 was offset by the timing of interest payments, and higher year end bonus payments. Net debt at the end of the quarter was 682 million, comprised of outstanding bond debt of 758 million, less cash at the end of the quarter of 76 million.

Availability under the credit agreement at the end of the quarter was 95 million as reduced by 4.5 million of letters of credit. Capital expenditures in the quarter were approximately 2 million, and we still anticipate spending approximately 14 million for the year.

As Neil mentioned, we are reiterating our guidance for the full year 2005, excluding sales of Woolite in 2004, we still expect sales to be up low single digits versus the prior year. On a reported basis, sales should be flat to slightly down for the year. Operating earnings excluding the additional realignment charges of 6 to 8 million to be taken in 2005, are expected to range between 105 and 115 million.

Interest expense and net earnings will vary depending on the timing of bond repurchases, the range of operating income, and the diluted impact of options and restrictive stock. Again we expect working capital improvements to continue throughout the year. Operator, will you please begin the q-and-a?

Your first question comes from Ronald Phyllis of Banc of America Securities. Please proceed. We will go on to the next question that comes from Linda Bolton Weiser of Oppenheimer. Please proceed.

Thank you. Your gross margin performance was very good in the quarter as you discussed, and I'm just kind of wondering with even more restructuring cost savings coming through later in the year, and raw material cost comparisons actually not being a significant year-over-year in terms of increase. I'm kind of wondering why we wouldn't expect maybe some gross margin expansion even later in the year.

I guess you are correct when you are say the savings from restructuring will increase as the year goes by, but that increase is coming from the 2005 alignment program, which as you remember, 80% to 90% of that savings is in SG&A related expenses. The margin impact from restructuring is mostly coming from the restructuring program we implemented last year, which obviously will decline, the comparison year-to-year, the incremental 6 to 7 million from that restructuring we will get in 2005 will decline as quarters continue. So the first quarter of this year, we had a larger increase year-to-year in incremental savings from that program, and it will decline as the year goes on.

Going the other way contrarily, the increase in raw material prices that we have and received, will increase and flow through the profits of the company higher as the year goes on, versus the first quarter of this year, as we had lower costs in inventory from before the increases came through. Net net, the two will wash, which is why we came up with the flat estimate for the year.

Okay. And just sort of related to that. Are you actually seeing the ability to take price increases related to raw material cost increases, and how does that offset with any competitive price reductions you may need to take? How do you see net pricing kind of go as the year progresses?

I would say net pricing as the year progresses will be about flat. It's very difficult to take price increases. We've taken one or two as we felt raw materials forced us to do so, but they are hard to get agreement to from our retail partners. On the other side, we don't expect to take major pricing declines either as a result of promotion or list price declines really.

Okay. And just one final thing. Can you quantify how big the Diaper Genie shift was that affected the Infant Care sales growth?

No, it's hard to know. I'd like to do that, but it's hard to really know. Diaper Genie was up substantially during the quarter. We think some of that looking at the business was from orders that in previous year would have shipped in December and now shipped in January. But the way we managed the business is as the orders flow, we don't try to move the business in any way from quarter to quarter, so it's hard to guess. But it looks like some of the business in last year actually came in in December, and this year came in January.

So growth was strong regardless of that effect?

Diaper Genie business is very healthy, yes.

Okay, and just one final thing Neil. I know that you are very excited about the growth opportunities for Wet Ones, and sounds like you are getting the growth to come through already. Does the introduction by Kimberly Clark of Kleenex Moist Cloths, does that temper your enthusiasm at all for that business?

Well, the introduction by any competitor of course catches our attention, but I don't know enough about their introduction yet. My sense is that they’re positioned a little differently and will be in a different part of the store than we are. We'll have to wait and see. I think that's a good question for the next quarter after we get more information on what exactly they are doing.

Okay. Thank you very much.

You bet. Thanks.

Your next question comes from Kathleen Reed of Stanford Financial. Please proceed.

Good morning. Your Infant Care business was very strong. You explained part of it wasn't due to the timing of shipments for the Diaper Genie. Can you give us more information on your bottle business, what is driving that? And then also just some more color on cups, and maybe if you could just tell us what those 3 products are, how they split for the new category division, if they are like a third, a third, a third, or one makes up much more than the others.

Lots of questions. Let me see if we can answer them in parts. First part was what's driving the business in our baby bottles, and the answer to that is the quality of the products, we really feel we have terrific products. And the introduction of new items within each of those sub-categories, if you will. Our reusable disposal businesses are good, we have leading market shares in each one, and we believe we have the best products on the market.

In terms of our cups business, the trends have begun to improve. We're still down versus last year, but they have begun to improve as we have taken action in the marketplace from a marketing standpoint to address the causes, if you will, of the decline. We'll be launching new products later in the year, and these new products, when they reach the market, will help us improve the sales trends further. We believe we've reached the bottom of the decline of our cups business, but only time will tell if we're right. Kris, in terms --

In terms of the portions, we don't give out specifics, but just in general, the largest section of the Infant Care is the bottles, followed by probably Diaper Genie, and closely by the Cups and Soothing.

Okay. And then also you mentioned that at your shareholder meeting in May, you are going to be talking about or getting awarded your restricted stock. And I just wondered if you can quantify how much you see of that in the denominator. Your diluted share base was a little bit higher this year than it's been for a very long time, and I just wondered how much we should factor in our model.

We don't know actually. Kris, do you have -- Obviously, it depends on.

Obviously, the restricted stock that are in Neil's employment agreements and my employment agreements that are out there, those haven't been issued yet, and will be issued once the plan is approved in May. And we do have annual options and stock issuances to senior management of the Company every year at that time period, and the amount of those will vary depending on what is approved.

Okay. And then finally, just on your Skin Care division. I think you stated that you lost some distribution for Baby Magic. Is that a temporary thing, or do you think that's permanent?

No distribution loss or gain is ever permanent. We're developing a plan to re-launch our Baby Magic business. What's happened is the category is under pressure from the introduction of new items, there's only so much room on the shelf space. The new items come in, they look attractive, the retailer makes their decision on which products to drop, they try the new items. When those don't work and we bring in new items, we'll regain the distribution. That's how it happens.

And then finally, on your Sun Care, your Banana Boat business. How has your shipments been so far in this quarter? Are we seeing a pick-up?

The Banana Boat business is interesting. It follows the weather patterns very carefully, much like the lawn and garden business, by the way. And as the weather improves, so do the shipments. April has been a better weather month, so as you can imagine, Banana Boat looks like it's coming in just fine.

Okay. Great. Thanks very much.

You bet.

Your next question comes from Reza Vahabzadeh, of Lehman Brothers. Please proceed.

Hi. guys, I'm (indiscernible) --- from Lehman Brothers Good morning.

Good morning.

You talked about the pipeline sales of Beyond last year. Any pipeline sales of new products this year in any product segment?

Very minor compared to last year, really. The only minor, only item of possible note would be our 36 count multi-pack on Gentle Glide, but it would be very small in comparison to the Beyond introduction last year. I mean it's so small, I can't calculate it. We began shipping that product in mid quarter. We didn't ship it to all of our customers until the end of the quarter, so it would be very small in the quarter.

Got it. And as far as new products, when will new products begin to help sales? Which quarter will we see that? Will it be the third quarter or fourth quarter?

It varies by category, I just would like to say, it will be late in the fiscal year. For competitive reasons, I would rather not answer that question specifically.

Okay. And then as it relates to Diaper Genie, you mentioned the business was up 13%. How do you see consumer take-away in all channels, including non-ACNielsen channels tracking in Diaper Genie, just to get a better idea of organic growth in Diaper Genie.

Consumer take-away is solid. I don't have a consumption number to give you. I just, I don't have it here in front of me. Maybe you have it, Laura.

Yeah. Basically, the category is down about 2% in three outlets. So non-tracked, it's up. I would say it's flat to slightly up overall.

Diaper Genie is or the category?

The category.

Okay. But you are up in the category?

No, Diaper Genie is consistent with category, but down slightly.

I see.

Down about 1% versus the category.

Okay. That would lead me to believe that a lot of the 13% growth in the first quarter is timing of shipments. What am I missing?

No, you're right.

Those are just 3 outlets. Remember, the majority of Diaper Genies are not sold through 3 outlets, they are sold through Babies-R-Us and other ones, and Wal-Mart, that are not tracked.

I see.

And just to clarify a little bit on Diaper Genie. The year-over-year trends in the fourth quarter, we said Diaper Genie was down versus prior year, in our fourth quarter of 2004.

Right.

Now it's up versus prior year in the first quarter. So when we compare on a year-over-year basis, there were some fluctuations, but this is a normalized shipping pattern, it's not like we're shipping to promotions or anything like that. I would consider this sort of a normal sales pattern.

But on a combined basis, I mean should we assume Diaper Genie on a, I don't know, 6 months rolling basis, is it up mid single digits? Or is it basically flat?

No, I'd say the business is growing in the low to mid single digit range.

Okay. And the growth this quarter was, you were borrowing from the fourth quarter, you're not borrowing from the second quarter?

Correct, on Diaper Genie.

Okay, and question for Kris on the commodity costs. The reason commodity costs are going to impact your gross margin more in the rest of the year is just how the inventory flow works as opposed to the costs themselves rising? Is that accurate or not?

That's correct.

Okay. Thank you.

Your next question comes from Laurie Sherwin of Goldman Sachs. Please proceed

Hi, good morning. On Sun Care. I know you said it's too early to tell the impact of the Beyond price reduction, and I guess I'm curious when you expect to get a better sense or any very early read, or at least if you could try to quantify what type of volume share gain for that product you would be satisfied with over the coming months so we can track it as the data comes out?

Is this on Beyond?

Yes.

Obviously when we made our price adjustment, we did have a volume change in mind. I'm not going to tell you what it is, but our early read is that the business is progressing as we would have anticipated and had hoped it would. It is too early though, because when you make a price change, not all accounts go down in price on the same day, it takes quite a while to have that flush through the system, so that you are really seeing the effectiveness of that change, along with the new packaging and new advertising.

But conceivably, that's all on shelves now?

I would say our estimates are that you're going to see the pricing in over 80% of the bulk commodity volume now.

Okay, great. And I guess similar thing on the new package for Gentle Glide. Those shares are still pretty weak. When can we expect a turn?

I don't know what you mean by new package on Gentle Guide.

The 36 count multi-pack?

That's just reaching distribution. It reached raw distribution beginning in April, I think we were selling it, so it's getting on the shelves as we sit here, so that should have some effect in the coming months.

Okay so as we get Nielsen and IRI data within the next one or two months, we should be able to get a better sense on our own of what's going on?

I would think. I would say 1 to 3 or 4 months. Give it a little more time. It takes some time.

Okay, and have you seen any response from P & G in terms of their pricing on the cardboard line?

They have not done anything that we've seen with their list price on the cardboard line. They seem to be, and I say this because it's hard to know - they seem to have taken promotion responses in some cases to lower their prices temporarily. P & G is also launching a new line of fragranced tampons, in the end of June, I believe, here in June.

Do those actions change any of your plans or any of your assumptions about what your price cut may do to results?

No. Because I'm not sure what the exact actions are. We haven't seen the product yet, don't know any details of their marketing plans.

Okay. Great. And just lastly on Wet Ones distribution. Can you just tell us where that distribution was? Whether it was new outlets or new placements within current stores?

It's largely new placements in current stores, for example, in the front ends of Wal-Mart.

Okay great. Thank you.

Next question comes from George Chalhoub of Deutsche Banc. Please proceed.

Good morning George.

Good morning . Got a question on the Skin Care side, you had written down Baby Magic, so you expect the contribution from that to decline. Is it the decline commensurate to the expectations, or is it worse?

As Neil mentioned, it was essentially right on what we planned for this first quarter. So it was built in to the estimate of $105 to $115 million for the year.

Okay. So you’re kind of -- given that, you’re keeping that same expectation for the remaining 3 quarters?

At the moment, yeah.

Okay. On Feminine Care, the market share data for most of the month of April, obviously, it's not reflected in the numbers you guys reported for the first quarter. But for the four-week period under April 17, it is showing a significant pick-up in volume with Beyond, at the Beyond level. Would the, you know, say the average selling price declined that you guys instituted, and there is significant pick up in market share. Is this the expectations you would have had with the price decline that you instituted to, for the volume to pick up so soon after you instituted it? Or is this maybe like a pop and it may stabilize later?

I haven't seen the numbers you have, so I don't know. We would have expected to see our volume increase as a result of the price decline, and typically, if the price decline is reflected at retail, and it has taken a little while for this price decline to be reflected at retail, you would have seen a quickly following volume increase.

Okay. So the fact the volume has gone up so quickly is to you a logical quick result?

Yes it is, and let me amplify that for a moment so you understand why. Beyond is a product that's designed to be a better cardboard applicator tampon, but its pricing was equal to plastic applicator tampons. What we did is we reduced the price to make it competitive with cardboard so the cardboard users would try it and experience the fact that it was in fact preferred. So the price decline is part of that strategy.

Okay. On the SG&A line. Obviously, lot of the cost savings from the realignment program are going to be benefiting that line. Are there any changes that you anticipate you may want to make after what you've seen in the first quarter to your advertising and promotional campaign, potentially skewing the SG&A line, differently than you had expected maybe a quarter ago, when everything is on track from that budget?

Everything is on track so far. But obviously, we're watching our business and we'll take actions to meet competition as necessary. I would like to point out though that even during this quarter, our advertising expenditures were up double digits. So I believe in advertising. I think if you have a good product, you advertise that product, and that's what we will be doing as a company.

Okay. And my last question on the bond buy-backs. You've already bought $63 million through - I'm not sure if it's through today, but at least through the time of the press release. Do you have a target you want to buy for the year, or do you want to keep this like an open target depending on how the pricing fluctuates, or do you think that if the pricing stabilized what it is right now for the senior notes, you have a certain number you can give us right now as to what to expect to buy by the end of the year?

I guess the way to answer that George is yes, it’s obviously impacted by price, but then more importantly, availability is a big issue with these bonds. The price might be out there, but nobody is willing to sell. As the year progresses also though, you get to a point where it might make sense to defer buying the 8% bonds and holding off and calling some of the 9 and 3/8% bonds on June first of 2006. So that will play into the equation too. Net/net, we still have the $100 million target, and we will have to see how it plays out.

Great, thank you.

You bet.

Your next question comes from Bill Chappell of Sun Trust Robinson. Please proceed.

Good morning. I want to get back to -- on the Skin Care side and your commentary on returns. I was wondering if you could just quantify on Banana Boat. Like what the improvement was in returns this year versus maybe last year or previous quarter, and if it bodes anything for the next quarter, if you are seeing any change from the retailers on that standpoint, and how that could affect profitability.

I guess the majority of the returns are back this quarter, so you won't see adjustments to prior season returns in the second quarter, so, we're pretty much there in getting this year's season's returns. We are working with the retailers and working on shipments to try and reduce the returns for net (ph) that will be coming back at the end of this year and early 2006.

But Bill, the efforts to reduce returns will only payoff in the long term. So the program that we have with retailers today as we sit here in 2005, and therefore the return to 2006 is already set, more or less. The new efforts that we're taking now will likely affect returns in the longer time horizon, the season after the season.

Okay great. And then second, just on the debt side, I just want to make sure my math is right. Am I looking right now assuming you weren't to acquire any, I mean, repay any other debt, you have about a 60, 65 million annual interest expense, run rate?

That's about right.

Okay. Great. Thank you.

You bet.

Your next question comes from Reade Kem, of Banc of America Securities. Please proceed.

Good morning. Most of our questions were already asked and answered, but just one thing. You had talked about at your investor day about possible international expansion, and that was obviously only a month ago that you discussed it, but is there anything developing on that front that you can tell us about?

Nope, nothing to share at this time.

Should we look at the fact that you bought back more bonds in a months as any type of valuation, or change in, waiting towards possibly buying something or, looking to reduce debt more, or is that no change?

I would say no change.

Okay, thanks a lot.

Your next question comes from Steven Weiss of Mindflow[ph] Capital Investments Please proceed.

Thank you very much. Neil, I've noticed in the last couple of months a lot of your competitors have been recently implementing new strategic initiatives for technology to allow them to help reduce their sourcing costs with the suppliers, and open up a better line of communication with their suppliers and cooperate more efficiently to help them to reduce those costs. I'm interested if you could provide color as to what you guys are doing to improve your strategic initiatives for technology with your suppliers to reduce your sourcing costs as well to improve your bottom line.

We have a broad program to work with our suppliers to improve both our bottom line and the supply processes. We look at with our suppliers and in fact with our development people, the cost of our products on a very structured way. We have teams in place to do this. We evaluate ways to, if it's appropriate, redesign, and reformulate products to reduce the costs on a going basis. And this is part of our continuous improvement program that we have in our operations.

You know, we are in the process of always developing and qualifying new suppliers. I don't have any specifics. I will point out that one of the things that we've done recently, of course as part of this effort, was to develop a source of supply for our gloves in Asia, and this resulted in the earlier announcement to the shut down of our gloves production here in the United States.

How are you always making sure you're getting the lowest cost from your supplier? Are you score carding them? What efforts are being made to assure that?

the best way to make sure you are getting the results of the supplier is, of course, you have multiple bids when you are letting contracts, and that's what we do. Obviously, we have to qualify of the suppliers, because lowest cost is not of value if quality is not there. So it's highest quality at the best price is what we are looking for, and we competitively bid this. We have a number of suppliers that we try to qualify and then bid the various things that we outsource.

how long have you guys been doing this new initiative? Is it just recent, or when did you implement that?

This has been an ongoing effort for us. I'm new with the company, so I don't know how long they have been doing this, but we are accelerating this work, I can tell you, as part of our ongoing cost reduction programs.

Okay, thank you very much.

You bet.

Your next question comes from Justin Maurer from Lord Abbott. Please proceed.

Good morning guys.

Good morning.

Mostly just house keeping for Kris. Kris, were you saying just to Kathy's questions earlier about diluted shares. The 300,000 incremental from last year is old programs, correct?

Yes, that's the old programs that obviously as the stock prices increase, some of them become more in the money, and therefore become diluted versus last year's stock prices.

Right, but there's no guesstimate at this point as to if all the new plan is approved, what that would be additive by?

No. We'll discuss that in the second quarter after the fact.

Okay. Relative to interest expense. Stupid question, but the 17.8 in the quarter was up from the 17 at the end of last year, and yet you've been buying back bonds. Is there accelerated amortization cost?

There's an extra week, so you got an extra - I forget what that's worth, 5 or 600,000 or whatever. And you had the restructuring - we didn't have as many bonds outstanding last year until middle of February, I think it was when the restructuring happened. We had the off balance sheet receivable refinancing that had interest expense down in other expense. So you'll see about $300,000 in other expense last year that really in essence is interest expense this year, on a comparable basis.

Yes, I was comparing it to the fourth quarter, not to the last year's first quarter, but to your point, the week makes the difference.

Yes.

Free cashflow of $30 million-ish this year, does that sound in the ballpark? Given the targets for op-profit, what not?

I think that's a good conservative estimate.

Okay. And just on that score on working capital. It came down by a huge amount in the first quarter, just as a percentage of sales is down close to 500 basis points. Presumably at that level is not a sustainable number; is that right.

Can you repeat that? I'm sorry.

Just looking at working capital as a percentage of sales, came down about 500 basis points year-over-year in the first quarter.

Right.

How sustainable do you think that number is?

Sustainable in terms of dollars or sustainable in declining at that level each quarter?

Yes. The latter.

Obviously, it will decline as we continue as we've made improvements particularly in inventory, so there will be improvements continuing, but the rate of decline in inventory will probably slow down a little bit. There's still improvement. Receivables is an area where I think you'll continue to see improvement, particularly as Neil mentioned, when we get into - not this year's season, but next year's season of skin care.

Yep. Okay. And then just lastly, to be clear also on the gross margin improvement in the first quarter. Did you have a number as to how much of that was because of the extra week, because I think you said you gave some back in the SG&A line, but was that part of it, too?

The gross margin was --

Obviously, the gross margin dollars are up year to year because of impact of the extra week, although I wouldn't call it a full week's impact. But if you are talking about the percentage, no, the extra week wouldn't have an impact to the percentage.

To the percentage margin. Okay. Thanks.

Your next question comes from Connie Maneaty of Prudential. Please proceed.

Good morning.

Good morning, Connie.

Is the new Tampax tampon, the fragranced one, is that a big deal or little deal?

I don't know yet. I don't know enough about it. It's being introduced the best as we can tell as an important launch by them, but conceptually, it's not a big deal. It's a fragranced tampon, and Tampax regular has never had one.

What percentage of Playtex's tampon business Is in fragrance?

Oh, I think it's about half.

So okay, that kind of sounds like a big deal, I mean they're taking a look at part of your, that kind of looks like half your business.

Well, but this is a Tampax original, so it doesn't compete in the plastic segment, and most of our business is in the plastic segment, Connie.

Okay.

If you will, the worry would be on Beyond, but Beyond is a small portion of our business really.

But if they are going to make a big splash with advertising, won't it take the limelight off what you are trying to do, don't you think?

Oh sure. Any competition - any addition increases the competitiveness of the market, absolutely, Connie. And sure, and they are going to be spending money with the trade, and advertising, and that's expected as a year. Last year, something else happened, and next year something additionally new will happen. Our 36 count has allowed us to broaden our distribution, and in some accounts, regain distribution that we lost with the introduction of Pearl, so that's helping our business this year. And those benefits will be coming and be visible as the year progresses. So it gives and takes here. We'll just have to see on what exactly Proctor will be doing. I'm sure they will do a good job. They always do.

Okay. In the first quarter, did you quantify of, I guess, the $6 or $7 million that are coming in savings how much actually you booked in the first quarter?

No. We don't quantify the savings quarter to quarter, but as we said we're still on target for what we anticipated.

But it kind of sounds as if you had your best gross margin move in Q1 and there will be some pressure going on in the rest of the year, right?

Yes. The 6 to 7 which is the operational restructuring piece that was started last year, in general obviously, as it was completed during last year over the quarters, the 6 to 7 million will start off, - a high percentage of that 6 to 7 in the first quarter declining in the second quarter, and then minimizing in the third and fourth quarter.

Okay. As I look at the gross margin comparisons, is it fair to assume that the second quarter is going to be the one under - have the most pressure since last year your second quarter gross margin went up 170 basis points?

All things being equal, without looking at mix, it's a little difficult to say. We'll have to look at how mix impacts in the second quarter.

Were your results in line with your internal expectations or above or below?

Good question. They were not below our internal expectations.

Okay. And what kind of progress have you made on hiring a new head of R&D?

We've put a search in place, and we are getting candidates, so we are moving along the time line we anticipated to be on.

And does the lack of an R&D head affect new protect development for this year and next year?

No. We've, put in place an acting head who is actually doing a very good job, and we have, if anything, picked up our focus in this area. We have monthly meetings to review the product development program for the Company, which I attend. So no, I wouldn't say in the short term it's affected it at all.

And one final question. If you look at inventory of the trade, are there any categories where trade levels might be a little out of line?

Not that I know of.

Okay that's helpful. Thanks.

You bet, Connie. Take care.

Your next question comes from Anne Gillin of Lehman Brothers. Please proceed.

Thanks, good morning.

Good morning Ann, how are you?

I'm well Neil, how are you?

Thank you, good.

One question strategic, I hope you can just give us a little color on it. I'm just thinking about the Infant Care category, and perhaps it's the Huggies launch, but we are seeing more umbrella branding in that line of products now. You seem to have a great brand in Playtex that you could leverage across cups and bottles. Why would you relaunch Baby Magic here? Do you think that that brand can kind of survive in that segment at this stage?

Well, yes, we think it can. We think Baby Magic is a great brand name. If we analyze, and we have, the reasons for this business decline it is because we failed to bring product news that is meaningful to the marketplace under this brand name. Your point, which I think is a very good one, is we that have a terrific name in baby with Playtex, and we agree with that. And we have a whole program to take advantage of that name in the various segments of the business, and in perhaps other segments as we go forward.

But, we think Baby Magic has a right to live, and we think the name is a good name. And so we're going to try to bring some news and excitement to that business over time. Obviously the market is quite competitive. I think I'll stop there, but our strategy is to leverage the Playtex name first and foremost.

Okay, and is there enough third party capacity in this category that if you were to use the Playtex or Baby Magic name across new SKUs or new sub-categories that you could go outside for contracting purposes?

In terms of production?

Right.

Yes, I don't see any problem there.

Okay. And just one housekeeping question on the 2005 gained a week. Do any years lose a week?

No.

Next year.

So your math is --

It's just they end the closest Saturday to December 31st, so you'll have five or six years of 52 week years, and then all of a sudden, one year of 53, and back to five year, five or six years of 52.

to answer your question, there will be no 51 week years.

Okay, great, but we do have obviously this comp looking forward.

Yes.

Okay, and then just on the Sun Care business. I know that you are re-starting the returned program, but there has been one in place for probably two to three years. I wondered whether you could comment on, now that '04 season has finished, are you seeing yet any lower returns year-over-year from the prior initiatives?

Yes. The 2004 return season has been better on a percentage basis than the 2003, etc. Every year, initiatives that the company has been working on in the past, and we are continuing to work on and hopefully accelerate, have resulted in declining percentages.

Okay and if we left weather neutral Kris, would we start to see lower shipments in 2005 just because you know more about the returns each year?

I don't think 2005 as Neil mentioned is going to be that much different. It's really because it's already kind of started and sold in. It's going to be more of the 2006 season that you'll see possible changes in sell-ins to significantly reduce returns.

Okay. Presumably down?

Yes.

See, what we are trying to do is, we have to introduce new programs to our retail customers that provide a way to look at the business and to get returns down. Our customers - many of them, they don't want to be in the returns business either. So as we put these programs together, as we reduce the number of SKUs that we have, which also drives returns and complexity, this will allow us to put programs in place and will result in lower returns.

As you know, the sales are reduced as we ship them for the anticipated returns, so the net sales, you know, year to year shouldn't change much. What is actually going to impact is the cost of the returns that runs through the margin will go away.

Great. Thank you for that clarification.

Uh-huh.

Thanks.

Your next question comes from Jim Barrett of CL K and Associates. Please proceed.

Good morning.

Good morning.

Neil, question on the Tampax introduction. Do you know generally how important fragrance is in the hierarchy of needs of women who are buying tampons?

Yes, we do. About a third of the business in the category is done on the basis of deodorants or fragrance, depending on how you talk about it. This tends to skew in the market a little bit to particular age groups. I think it's an important benefit, I don't think it's the most important benefit. I think comfort and protection are the two key benefits in the category.

And that would be followed third by fragrance?

Well yes. You know, there's something else which is called a woman needs the absorption, the right product for her, so within that, after that, yes.

I see. And on an unrelated note, have you made any changes in how the Company develops new products?

We are making some changes, but nothing that I want to announce today. We've systemized certain things. We’ve gotten to better ways of reviewing the projects internally, better data and document management, internal process things that we are improving.

And is there a separate new products department or is it managed by whoever is running the existing branches?

There is a new product development function, R&D, research and development, and then within each marketing group, it varies. In some of the marketing groups, they have separate people for new products, and then we as a Company have a new products group that is separate from the rest of marketing.

Okay, so there is a new products departments off on its own, and then each of the groups, did you say, has one as well?

Some of the groups may have, yes.

Some do. And then finally, have there been any new hires in the area, people with new products marketing experience?

No, nothing special.

Thank you very much.

You bet.

Your next question comes from Jessica Tom of Goldman Sachs. Please proceed.

Good morning

Good morning.

I just had one quick question. I was wondering if you have any upcoming meetings planned with the rating agencies, particularly Moody’s, given the positive trend in your performance and debt reduction plan.

I have one meeting upcoming this month with one of the agencies, and I anticipate being contacted by the other one.

Okay, great. Thank you.

You bet.

Your next question comes from Joe Norton of Banc of America Securities. Please proceed.

Thanks, good morning.

Good morning.

Just some follow-ups on Feminine Care business. First of all, did you say that in the quarter you paid price protection on the price change?

Yes.

Okay. Could you quantify what that was?

I don't have a number to give you. It's --

Was it just on the Beyond business or would that also apply to the pack change?

No, just the Beyond business.

Just the Beyond business. So can you tell us on a volume basis how, what the Fem Care line item was?

I don't understand the question.

What was the volume growth or decline in Fem Care in the first quarter?

Total Fem Care was off 3% for the quarter.

Okay, and then just secondly on that, about what percentage of that business is just--

Excuse me, I gave you a dollar decline number, 3%.

Yes, okay.

I don't have the units decline number to give you.

Okay.

That was a dollar number.

But the volume decline would probably be less than that?

It would mirror it, broadly speaking. I just don't have the number.

All right. And then on, can you just tell us about what percentage of that business is represented in the tracked channels, through the Nielsen Center or the IRI data that we see?

It's a little over 50 percent.

50?

Tracked sales are a little over 50%. Maybe like 45, 55, – 45 is in untracked channels.

It varies by category.

And would there be anything significant going on in untracked channels that would mean that what we see in the tracked channels is not, - that we can't really extrapolate that? Do you do significantly different pricing or promotional activity or anything like that on some of those non-tracked channels?

No. I don't see anything materially different in the channels. We don't see all the data from the non-tracked channels. I don't have access, for example, to total data coming out of Wal-Mart, for example. So I can only report my business in these channels.

Yes. And then if you could just quickly kind of review in the Fem Care business again, just the advertising, kind of when the strategy changed and what the timing of that was. And as you go forward, how you measure the success of that, or make decisions to change it, or tailor it.

Our advertising decisions - we review advertising obviously on a continuing basis, and our objective is to get the most effective advertising copy on the air that we can. We believe in advertising, we believe in investing behind advertising, but the advertising obviously has to work.

What we announced was the change in our Beyond advertising, which we made at the very end of last year, it began airing actually December 27th, as I recall. And this change was made in the advertising to be much more competitive, and to specifically tell consumers what Beyond was and why it was beneficial, particularly that it was the better cardboard applicator product.

Before that, the advertising, and this is a judgment call, I don't think was as clear as it could have been. So we changed the advertising to make it more competitive and more specific. We began airing it at the end of December of 2004.

And do you have any view as to what - if that's driven any consumption changes or what's your opinion of that advertising at this point?

I think the advertising is very good advertising, in terms of consumption changes, it was driven. I think it's hard to read it, when there’s a lot of noise in the period, probably in another 2, 3 months, we will tell more of the story. Noise in the period meaning, there are other things that would be affecting the short term volume such as price changes, etcetera, promotion differences.

Okay. And then just a quick final one on the Baby Magic distribution. Is that Kimberly Clark basically that you are referring to that has gained distribution?

Correct.

Okay. Thank you.

You bet. It's getting to be about 11:00, so we'll take one more question. It's actually past 11:00. If there are any other questions.

Your final question comes from Tom Molitor of Wachovia. Please proceed.

Hi, there was a tax benefit in the quarter that related to the repatriation of cash from a foreign subsidiary, and just a quick question. Where is your cash located and would we expect to see any additional benefit from future repatriation of cash.

The cash is in our Canadian and Australian entities. This is not the full amount for the year. There will be as the seasonality of the working capital changes, there will be probably be more cash available in the latter half of the year to repatriate, but not to the extent of this initial repatriation.

And just one other question: What is your sensitivity to the Yuan, especially if the Yuan is revalued against the dollar?

We don't produce a lot in China, so we are not going to be substantially impacted by that. By change of the (indiscernible) Yuan shouldn't be reevaluated versus the dollar. We produce at least half of our products in-house, and produce another substantial portion through custom package here in the United States, and a small portion overseas. I don't know the number overseas, but it's a small portion.

Okay. Thanks.

You bet. I want to thank everybody on the call for calling in. Obviously, if you have follow-up questions, please call Laura Kiernan. To summarize, overall, we feel good about the quarter. We had a good quarter, we made progress against our strategic objectives, we also made progress in lowering our debt.

We think of 2005 as a transitional year. We expect however, to make substantial progress during the year, and we continue to believe that we will deliver double digits per share growth during the year. Again, thank you for participating in our call, and your interest in Playtex. Good morning.

This concludes your conference, you may now disconnect. Have a great day.