Edgewell Personal Care Co (EPC) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the third quarter 2005 Playtex Products Incorporated earnings conference call. My name is Dana, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes.

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

Good morning, everyone. And thank you for joining us today. With me are Neil DeFeo, President and CEO; and Kris Kelley, Executive Vice President and CFO. I would like to remind everyone of the cautionary language about forward-looking statements contained in our press release, singly which applies to any comments made by management during today's call. We encourage to you read the Company's SEC filings and last evening's press release, which discuss in full factors which 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 our press release. For your convenience, a reconciliation of the results as reported, which is in accordance with GAAP, and results excluding charges and gains, which is a non-GAAP measure, is included in the consolidated statements of income data attached to our press release and on our website.

A replay of this call will be available beginning this afternoon and will run through the end of the day on Wednesday, the 2nd of November. The replay dial in is (888)286-8010 and the passcode is 89125140. To access the web replay of this call, please go to our Investor Relations portion of our website at PlaytexProductsInc.com. Now I will turn the call over to Neil.

Good morning, everybody. Thank you for participating in the call. Today I will provide a summary of the quarter and the year-to-date results and walk you through our guidance looking forward for the balance of the year. I will talk about progress we made against our strategy and operating goals. Kris will give you more detail on the numbers, then we will take Q&A. And then we'll wrap up, hopefully about twelve-thirty.

Overall, I am pleased with our results for the quarter and year-to-date periods and I believe that it indicates -- these results indicate that our strategy is working. Overall sales were up nicely and operating profits improved in all of our core categories. We had strong performance in Fem Care, which while in part, was tied to the timing of promotions, also reflects basic improvements in that business and increased take-away at retail. Lie talk more about this in a moment.

Net sales, excluding Woolite, which was divested last November, were up 5% in the quarter and 1.4% year-to-date. Sales in the quarter benefited from solid growth in tampons, Sun Care, Wet Ones and infant feeding. This growth was partially offset by lower sales of baby toiletries, Diaper Genie and our noncore brands.

Sales of our tampons grew 8%, with both General Glide and Beyond above a year ago, due to higher sales of our base General Glide business, as well as the timing of promotions versus prior year. We also began airing new advertising in September which we are optimistic about and believe is helping our business. Data on Gentle Glide indicates that the base business is growing as we are beginning to see shares in consumption above year-ago. Net sales of Beyond also improved in the quarter versus a year ago, in spite of the price decrease taken this year. Unit sales were up very well. I am pleased that consumers appear to be responding to improvements in our marketing on both of these tampon brands.

Moving to Infant Feeding, sales were up 3% in the quarter driven by growth in virtually all feeding sub-segments including bottles, cups, pacifiers and breast-feeding. Encouragingly, cup sales, which grew nicely in the quarter, reversing early declining trends. Recall that on earlier calls like this, we had indicated that we expected our cups business to improved later in the year as we introduced new products. This is exactly what we saw in the third quarter. On a year-to-date basis, Infant Feeding sales are up 2% with cups sales rapidly catching up and near even with year-ago. All other feeding product are well ahead of last year for the nine months. The new 3-D lenticular cup design began shipping in the third quarter and the Disney cups are performing well, as expected, now that Disney is running promotions.

Off-setting growth in infant feeding, Diaper Genie sales were down in the quarter versus prior year, as we face continued competitive pressures. I am confident we will maintain our strong leadership position in the diaper disposal business as we make changes in our marketing plan to meet the competitive environment.

Skin care sales were up 8% in the third quarter versus last year. Sales of Banana Boat Sun Care products were good, as weather contributed to strong sell-through. Shares remain strong above 21% year-to-date and about even with year-ago and the category continues to track well, up 9% versus last year.

Wet Ones continues to grow, as a result of broadened distribution and strong category growth. Sales are up double-digits both in the quarter, they are up 17%, and year-to-date, 12%. In spite of new competition in this category, sales continue to grow versus prior year, with total category growth remaining strong at 12% year-to-date. We continue to view this category as an important opportunity for the Company.

Our operating income and net income outpaced year-ago with higher sales and gross margins, adding to significant interest savings as a result of our deleveraging program. Our net income, excluding charges and gains, was $4.5 million, or $0.07 per share. Net income excluding charges and gains, was up more than 200% in the third quarter and up 23% year-to-date versus last year. Kris will take you through the numbers in just a moment in more detail.

Looking forward -- I would like to now update our guidance. With three quarters behind us, we feel comfortable tightening our operating income range and are pleased that we now anticipate coming in at the middle to the high-end of the range we announced going into this year. We expect 2005 reported net sales to be down about 2% to 3% versus the prior year, but excluding Woolite, sales are expected to be up in the low single digits for the full year versus last year.

We have exceeded our goal to purchase at least $100 million in bonds this year, having repurchased 120 million of our 8% bonds year-to-date. Which would generate cash interest savings of approximately $10 million annually going forward. We will continue to use our excess cash to judiciously pay down debt and/or reinvest in the company's forward businesses.

I would like to move -- now take a look at how we are executing against our strategy. I believe this quarter's financial performance, that I've just discussed, shows that our strategy is working and that our associates are doing a great job of executing the strategy. You recall our strategy has five parts: focus on people, core category focus, cost reduction, new product acceleration, and lastly, international expansion.

In terms of people and performance focus we've hired a new SVP -- Senior Vice President of Research and Development, Tom Schultz, who we are very happy to have on board. His hire completes the senior management team. We've also established an Executive Committee, which is made up of the top nine executives of the Company, who's objective it is to review and set strategy for the Company, coordinate business plans, address associate's concerns, shape Company culture and oversee the general management of the business. We have also rolled out our new performance review system and added three new members to our Board of Directors in the last nine months.

In terms of category focus, we have clearly focused our resources on Feminine, Infant and Skin Care with positive results. We have continued to improve our marketing strategies and execution of these plans and strategies. In particular, Fem Care, Wet Ones and our cups business have all responded very positively to these changes.

In addition to new advertising, packaging and in the case of Beyond, pricing, we have begun to implement bi and trilingual packaging enabling to us better reach the estimated 20% of our target audience that are Spanish-speaking. We have also increased our core category advertising support by over 20% in 2005 versus 2004.

We have focused our research and development dollars on core categories as well. Which will lead to accelerated new product development and higher sales growth. Over time, we expect our percentage of sales from new products to increase and be consistently above the 17% of net sales we had in 2004 from new products. New products are defined as products launched within the past two years. Already in 2005, we've seen new products as a percent of sales increase from 17% to more than 20% of sales in 2005 year-to-date.

So let's talk about new products. In Infant Care this year we launched a 3 D insulator or lenticular cup in the third quarter, along with two lines of Disney character cups that are off to a great start. We are also launching the Coolster Tumbler, a unique spoutless spill-proof cup for toddlers. This idea is good for the toddler who want to look like a older kid but still has a tendency to spill. Also, we'll be relaunching our very successful First Sipster line with new soft spouts for easier transitions between bottle and cup. These will be on store shelves in early January.

We are also introducing what we call the new Talking Sipster. The Talking Sipster is a completely new concept which makes the cup not only a toy but also a learning tool for children. When the cup is turned on, and it does have an off switch, you touch the sun, for example, on the ABC cup, and the cup says, [toy cup speaking] 'A is for Airplane.' I don't know if you could hear that, but A is for airplane, B is for boats and C is for cups -- for car. So we have a lot of new products coming in our infant line in 2006.

In Skin Care, we have a full new line-up for the 2006 Banana Boat season, which begins shipping in the fourth quarter. First we are launching our Ultra Mist line of sunscreens. These are aerosol sprays with an innovative delivery system with continuous spray technology. The line includes kids, sports, ultra sun block, dark tanning lotion and summer sunless tanner.

For children, we are launching a Banana Boat Baby Tear Free line. These are innovative new sunscreens with unique tear-free benefits. These have been very well-received by our retail partners. We are also launching a sunless lotion with very -- with low levels of self tanner for daily glow benefits for those who want them.

For Wet Ones, we are launching a line of gel waterless hand sanitizer products, a completely new category for Playtex ,and it's shipping in January.

As mentioned to you last quarter, we are completely restaging our Baby Magic toiletries lines with new formulas, new packaging and a refreshed, more upscale look and feel for today's mother who wants to feel like she really is doing something special by using Baby Magic for her baby. Our retailers have responded very favorably to this launch, which will reach stores in Q1 for next year. And we are excited about it helping us compete more effectively in this business segment.

So we are very excited about our new product line-up for next year. In total, we expect to launch or restage about 30 products in 2006, nearly double what we've done in 2005. For competitive reasons, I can't go into details about some of the products that will come in later in the year but we will share them with you at the appropriate time.

We have continued to reduce our costs in a number of ways. And that's of course the third element of our strategy -- or fourth element of our strategy. Our restructuring and realignment plans, which are on track, are helping us off-set raw material increases. Debt reduction and corresponding interest expense reduction -- we have already exceeded our $100 million debt reduction target.

We've reduced returns and updated terms for Banana Boat, which we expect will lower processing fees, scrap, inventory and receivable financing costs. We have bought back Banana Boat distributorships we didn't own, which will reduce complexity and allow us to keep all the profits in key geographies.

We are reducing our SKUs using, essentially, the 80/20 rule. Which are beginning to reduce complexity as we execute the strategy across all of our businesses. And general cost-cutting measures, including reductions in the use of working capital, are providing benefits for the Company.

Finally we continue to look for ways to enhance and invest in our core businesses and expand internationally. While it's the last of our top five priorities, it is still clearly a part of our strategy, which will take time to execute. For this overview, I would now like to turn the call over to Kris Kelley who will provide you additional financial details.

Thanks, Neil. Since Neil already covered sales, I will start with gross margins for the third quarter. Adjusted gross margins improved by 210 basis points to 53.9% of net sales. Higher sales in our more profitable core categories contributed favorably to mix, enabling us to earn a higher than anticipated gross margin.

While we are incurring significantly higher raw material costs as expected, we were able to offset the higher costs with our restructuring and realignment programs and other cost savings initiatives. We are pleased at the restructuring and realignment at the factories -- have produced excellent results with higher throughput at a lower overall cost and without compromising quality. Our associates at all our manufacturing locations have done a great job.

Our gross margin guidance has been updated to reflect positive trends to date. We now expect gross margins for the full year 2005 to be above year-ago despite an estimated negative impact of 200 basis points from increased raw material prices.

SG&A expenses versus the prior year, excluding certain charges and gains, was essentially flat in the quarter, but still down by approximately $8 million year-to-date.

During the third quarter, continued cost savings from the realignment program have been off-set by higher advertising and performance bonus expenses, as well as non-cash equity compensation charges related to our new equity plans. As expected, we significantly increased our investment in advertising and promotional spending in the third quarter. And expect to increase spending even more in the fourth quarter. Spending will be focused on core brands, of course, in line with our strategy.

In the press release, we stated that non-cash equity related compensation expenses for the quarter were $1.5 million, and $2.2 million year-to-date. For the full year 2005, we now expect we will be in the $6 million range. This amount will fluctuate depending upon the average stock price in the fourth quarter 2005, and our achievement against our PVM goals.

Excluding charges and gains, operating income was $22.3 million or 15.2% of net sales versus $20.9 million or 14.1% of net sales in the third quarter. Year-to-date, excluding charges and gains, operating income was $92.2 million, or 18.1% of net sales versus$ 87.7 million or 16.7% of net sales in the prior period.

EBITDA, excluding charges of gains, was $26.9 million in the quarter, or $127.1 million on an LTM basis. Our net debt to adjusted EBITDA leverage ratio is now below five times at the end of the quarter, at 4.8 times.

Interest expense continues to decline, reflecting our bond repurchases in the open market. As Neil mentioned, we have met our goal to buy back at least 100 million bonds with 101 million through the third quarter, and an additional 20 million purchased in October. Ongoing annual interest savings of approximately $10 million will result from these repurchases to date.

Total liquidity at the end of the quarter was $138 million comprised of cash of $84 million and availability under the ABL revolver of $54 million. Again, we had zero drawings under the revolver. Cash flow trends remain strong with continued working capital improvement projects still in the works.

As measured on a latest twelve-month basis, average days sales outstanding declined by an additional two days to 61 days in the quarter. While average days of inventory on hand remained at 76 days.

Capital Expenditures to date were only about $6 .5 million. This is due to the timing of capital projects. We now anticipate spending approximately $10 million for the full year, with spending on certain projects now extending into the first quarter of 2006.

We are very pleased that the 2004, 2005 realignment plan remains on track with savings estimated at $12 to $14 million in 2005, being achieved as planned. And costs for 2005 now estimated at $6 to $7 million, the lower ends of our target. We still expect to achieve an incremental $10 million in savings next year as part of this realignment plan for total annualized savings of $22 to $24 million.

As I mentioned before, manufacturing savings this year are coming in higher than expected, as our associates have continued to refine and improve the new cell-based manufacturing we implemented in the third quarter of last year. Operator, will you please begin the Q&A?

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Kathleen Reed of Stanford. Please proceed.

Good morning, everybody. First question on your debt reduction -- I think that's impressive that you've already exceeded your target. I wondered if had you a new target that you could give us, for either the full year '05 or an '06 target on debt reduction?

Looking -- again we continue to look at debt reduction looking at our excess cash, what's the best use of it should be. Again, it depends on the pricing in the market, whether we we do additional purchases this year. And again, as we've mentioned in previous calls, we do have to look at our nine and three-eighths bonds, which are callable in June of next year. And we will be able to buy those using a basket allowed under our 8% bonds as soon as we hit a two-to-one interest coverage ratio which we anticipate hitting by year-end. So taking all those factors into consideration, as well as looking at maybe we should be investing in our core categories, I guess we are not going to come out with any estimates on future bonds purchases at this time. But we will update you on a quarterly basis.

The extra $20 million that you bought, was that through the 1st week of October? Or was that through -- ?

The month of October.

For the month of October.

To date.

To date. Okay. Second of all, did you -- also again with your gross margin, I think that's impressive, you were able to get some positive gross margin expansion. One thing you didn't comment on was any positive pricing. I know we took a reduction on Beyond, but are you having any positive pricing that you are able to get through on any of your products?

We have not announced any price changes at this time but of course, as we plan our business for 2006, we are looking at various profit structures of our business and we will be considering what the right thing to do is going forward.

Final question, can you comment a little bit on Diaper Genie? First quarter, it was a timing shift from fourth quarter into first quarter, and second quarter also had some kind of a timing switch. And this quarter it seems like there's a bit of competitive activity. Can you comment on what's going on with that product?

Sure. Diaper Genie, it was introduced -- that was a unique product probably more than ten years ago. And for a long time, it was really the only product on the market. We continue, by Nielson's measure at least and as you know Nielsen doesn't cover all the accounts, to have a share well above 85% or 90%. And that share continues to be very strong.

But we are seeing competitive entries in the market and those competitors are, while we think not as good as our product, they are in some cases underpricing us or competing aggressively with us. And it's affecting our business in the short-term. And we are responding -- we are and will respond going forward with various marketing changes to meet that competitive requirement. This business remains a strong business for us and it's just a competitive environment we face.

What percent does Diaper Genie make up of your Infant Care category? Is it about 20%?

In that ballpark. It's not one of the bigger pieces, obviously our bottle business is a bigger business, as well as the cups business.

Okay. Thanks so much.

Thank you.

Your next question comes from the line of Reza Vahabzadeh of Lehman Brothers.

Good morning. You mentioned the timing of promotions helped your sales. Can you elaborate on that a little bit more?

Sure. We promote this year a little bit differently than we promoted last year. And the difference in the timing, we estimate, helped our sales in Feminine Care. Nevertheless, we are still seeing good growth of consumption at retail and the latest data suggests we are building share in that category. I also might add we looked at our trade inventories which are not really out of line. It's hard to estimate in any period the exact promotional effect but we did feel there's some promotional effect quarter to quarter.

I see. Would that reverse in the fourth quarter or -- any thoughts on that?

Well, the fourth quarter we have a significantly increased advertising and marketing plan and we hope those promotional quantities that we shipped in there sell through and that's the indication we have already. It will remain to be seem what happens.

On the cost outlook, Kris, I mean, are costs rising at an accelerated pace for you now in the fourth quarter? Or are you somehow locked and loaded because of contracts and are just concerned about it in '06? Can you elaborate on the cost outlook, please?

As I mentioned before, the raw material cost increases are going -- we anticipate to impact us by about 200 basis points for the full year of '05. Obviously, any increases in cost that are going on currently will roll into our costs for probably '06. It's a little late for them to be into inventory for this year. I don't anticipate an acceleration, when I came up with that estimate of the 200 basis points. But how it impacts next year -- if prices increase, yes, it will exceed that.

Has the cost impact to gross margin also been 200 basis points year-to-date?

No, it's less than that year-to-date. It's been coming more in as the year has continued because we did have some contracts that kept us from having the impact hit us in the earlier -- in the first quarter in particular.

But do you have an idea of how much costs have hit you year-to-date? Is it 100 basis points? How much less than your full year impact?

It's somewhere around the 100, 150 basis points.

Okay. Thank you much.

You bet.

Your next question comes from the line of Bill Chappell of SunTrust Robinson Humphrey. Please proceed.

Good morning. On the gross margin side, can you help us understand on the mix shift is that just -- how much of that was driven just by a strong Sun Care season? And how much was just the pricing of products, higher end products versus lower end?

As you know, this is not a big volume sunscreen selling appeared for us, the third quarter, so it's more coming from our Feminine Care sales than from the sunscreen.

So you see this shift is pretty sustainable going forward.

Well, two things. As far as sustainable -- with Fem Care sales, as Neil mentioned before, we are optimistic about it but we will have to see. And then the fourth quarter is when we start selling in all the new Sun Care products for 2006 , which we are very optimistic on.

While we are on the Sun Care -- anything further you can tell us on some of the programs to reduce returns that you talked about last quarter, how you feel about that going forward?

Well, these programs are in place. And actually we don't have any data yet because we haven't -- we are just now beginning to see what the returns are going to be like. We are about two or three months early to know whether those programs are going to pay us dividends for '05. We are optimistic. We are focused on this. As I mentioned on the last call, Bill, our key accounts don't want to really return things. We are working with them to get out of this business. In terms of the -- new terms that we are asking our accounts to abide by, again, we are in the process of converting to these. And the results will be known over time.

Got it. Just one last thing on the new products, you may have done this in the past, but is there any way to quantify your expectations next year for some of these new products? When you look at the 5% top line growth expectations, what percent comes from new products or anything like that?

When we launch new products -- or look at new products, we do in fact calculate how much volume and incremental volume of sales we will get for those. We are not going to disclose that here for various reasons, all obvious. But I will tell you we are very enthusiastic about our programs for next year. I can't give you a volume estimate for it because these new products will come in various times during the year, some in the first quarter, second, et cetera.

I also want to point out to you, Bill, that our long-term growth rate of 5% is -- we continue to feel comfortable with. And take a look at some of our categories. Sun Care for example, the category was up 9% this year. It's not hard to grow 5% if the category is up 9%. Wet Ones, the category is up 12%. We remain comfortable with our long-term growth rate of 5%.

Okay. Great. Thank you.

You bet.

Your next question comes from David George of Deutsche Bank. Please proceed.

My questions are answered. Thank you.

Your next question comes from Reade Kem of Banc of America.

Thanks. Can I assume that all of the bonds you bought back were the 8%?

Yes.

OKay. And you currently can buy back on the subs, it's about $10 million. Is that right?

No. You have to hit an interest rate coverage before you can do that.

Okay. And you said earlier you think you are going to meet that. Can you give the timing on that?

We anticipate to meet that coverage ratio at the end of the fourth quarter.

Okay. Thanks. And then on the new products -- sorry if I missed this one, but is there anything coming up in '06 on the Feminine Care, in specific, the tampons franchise?

We have not announced anything on tampons.

And then the other question on tampons that I'm just curious about -- have you done any market studies that look at your acceptance among different age categories? Specifically, I was wondering, among the younger consumer strata, what you are seeing in terms of market share if you track that in some way?

We can't track market share by age of user. We don't have that data. We do do studies on an ongoing basis among various segments and obviously, younger consumers are one of our focus.

How do you think the perception is there of the brand relative to your competition?

I think we are perceived well. I mean it varies a little bit when you measure it and whether you are having something new in the market or somebody else does. But basically, this is a focus of ours. I am not going to give you any specific data.

Okay. Thanks a lot.

You bet.

Your next question comes from the line of Alexis Gold of UBS.

Good morning, or good afternoon at this point.

Quick day.

Just a couple more questions on your debt. Your debt -- the nine and three eighths are callable later -- or middle of next year. Any early thoughts on refinancing? And I guess, specifically, do you have the ability to refinance those with floating rate notes. given the collateral package on the eights?

No, the eights obviously restrict the refinancing of the nines. And so it would -- and then you have to look at the total cost of doing it. So the -- as I mentioned before, we have a basket ability to buy back the nines under the eights and therefore it limits how much we can take out. If you wanted to totally refinance it you would have to get agreement from the eights. And all of that costs a lot of money and have to look at the net benefit of doing so.

Fair enough. On the $120 million that you repurchased, I think you said that was year-to-date. Was $20 million of that subsequent to quarter-end?

Yes.

And I know you've exceeded your target. Do you plan to continue repurchasing debt at this point?

As I mentioned before, we will look at it as time goes on. And looking at what the best use of our excess cash is, whether in buying back the debt or investing in our businesses. And also, buying back the debt depends on the availability in the open market as well as the price in the open market. And then as I mentioned before, the thought about waiting to use our basket once we hit the two to one interest coverage ratio at the end of the year to either go after the nine and three eighths in the open market or wait until they are callable in the beginning of June. So all that has to be looked at.

Just to switch gears for a minute, on your cost of goods sold, can you give us a sense for what percentage of your costs are packaging and raw materials?

It's about a third in general, is the answer to that.

A third total or a third each?

A third total.

Great. That's very much.

Your next question comes from the line of Martin Karru of CIBC World Partners. Please proceed.

Good morning. It's Karru Martinson. In terms of the cup business, it seems like you have certainly gotten some traction. And I was wondering what we are seeing there for competitive offerings. Is that a category that's moving more towards these types of licensing agreements with Sponge Bob, Dora the Explorer and Disney?

I think it is, actually. I think we can expect to see, from our competition, a continued array of these products and we certainly are looking at and we continue to look at various options to introduce innovation. Our focus however, is more than just putting a character on the cup. It's bringing some real innovation and benefits into this category. Our new soft spout, our talking cup, our lenticular 3D insulated cup. Those have more to bring to the market than just a character on them. But we continue to look at characters, also.

In that vein, then, you still feel that there is a value in the base Playtex brand that communicates to parents?

Absolutely. Playtex communicates to parents and parents will often pay more for Playtex because they know the quality is there.

Back on Diaper Genie, you mentioned this was more of a price point competition. Or are we seeing people coming in with -- on the higher end, more features -- things of that nature?

No, we continue to believe our Diaper Genie is the best unit on the marketplace -- performs the best. Others have different benefits that's similar to price points. Some higher, some lower, but Nielsen still shows that we have a 92% share of this market now. We know Nielsen's coverage doesn't include some key accounts. But it's just a more competitive business today.

Okay. Now with the relaunch of the baby toiletries business, are we expecting some shelf space gains? Or is this just going to be sort of a straight one for one exchange here?

Well, we have totally redone the lineup and we are in the process of presenting this to our accounts, so I don't have an answer to you on whether we will end up with more or less shelf space. But our objective is to make the entire line-up of products much more attractive to consumers, who are of course, the ultimate determinants of success.

Just lastly on raw materials again; did you have any supply interruptions on the resin side with various producers declaring [force major] and so forth?

No. But I will tell you that in some areas of raw materials, it's been very, very tight.

That's the [force major] that came through and obviously tightened things for us. And we maybe had to fall below our normal level of inventories and safety inventories.

Safety inventories.

But they were no where near any problems relative to making sure we could meet the commitments to our customers.

Okay. Thank you very much.

You bet.

Your next question comes from the line of [Ethan Lacy] of Merrill Lynch. Please proceed.

Good morning. Or good afternoon. One last question on the debt repurchase, Neil. I think the basket built roughly from -- I think it was the 50% of net income is how the basket for the nine and three eighths is built, subsequent to the issuance of the eights. And I kind of have that, once you meet the two times figured charge in sort of the $40 to $45 million range, does that sound about right to you?

You are in the ballpark.

Okay. Fair enough. And then on the gross margin front, one other question, if we look at your year-over-year improvement of about 210 basis points and I think you said you were seeing about 100 basis point decline due to raw materials. Can you give us a sense of ex raw materials, how much of that improvement is coming from mix versus benefits from the restructuring?

The mix is the driving factor. So if you -- to rank it, the mix is the bigger of the two factors.

Got you. Okay. And I guess last question would just be on working capital front. For the fourth quarter, for next year, you guys have been making some improvement on inventory days and DSOs. Should we sort of look at the improvements you are making there as an ongoing process? Or do you think you've gotten about all you are going to get out of your working capital?

No. We've put our goals in our strategy to reduce, for instance, our average receivable days to 45 from where we are at 61 today. So there's plenty of room to go there. As we've mentioned, the bigger factor is the term change on Banana Boat that will help us get the quantum leap there. And inventory days -- moving to a target of 60 from the current 76, I believe -- 76 we are today. So, yes, there's plenty of room and there's plenty of projects ongoing to get there, SKU reductions, et cetera, many of which Neil mentioned.

And just on the days payable, it seems that that was down year-over-year. Can you give us a sense of what's going on?

Days payable, I don't really look at that closely, because our payables include so many services for advertising and whatever that are all based on timing. So I don't really follow days payable. I look at the combination of our payables and our accruals and look at our timing on spending, on paying our vendors. But I don't see -- I see improvement there, nothing special.

Thank you very much.

Your next question comes from the line of Lori Scherwin of Goldman Sachs. Please proceed.

Hi. Most of my questions have already been answered so, Neil, let me ask you somewhat of an odd question. I wanted to get your thoughts on the new extended cycle contraceptive pills and the potential longer-term implication for tampon demand, recognizing that it's probably not going to have any near-term implication on your results. And I guess it's been some time already that BarLabs has had their pill on the market. The scrip data we've seen doesn't suggest that they've taken a ton of market share but they are launching new products. Wyeth is looking to come with a new pill last year that would allow women to menstruate only once per year. When you are thinking and doing long-range planning with your team, do products such as these factor into your expectations for the category longer-term?

The brief answer -- and it's a very interesting question, we could spend a lot of time on this -- the brief answer is no, they do not factor into our plans for the business. I think the science of these pills is still quite controversial. I've seen a number of studies which indicate that, while they are effective in I say, quote, reducing the frequency of menstruation, the fact of the matter is that the absolute level of problems women have in breakthrough bleeding, they call it, is significant. And ends up having the women needing a tampon or an alternative as frequently or almost as frequently as without these pills. The studies I've seen certainly don't indicate these pills provide women with a meaningful benefit. I'm not an expert in this area and we are following this technology, but we certainly are not expecting -- or in any way anticipating that these will meaningfully affect tampons consumption.

Well, maybe not in the near-term. And I guess I'd agree with you and I have seen those same studies. But it'a also possible that we could be just in the very early days and as these pills evolve, we could be sitting here five years from now -- and clearly this is much of a longer-term phenomenon. And it might be further along with the science and those problems would not be here any more. I was curious if had you thought about what penetration of women taking the pills would it begin to have an impact? But it sounds like it's not on the docket.

Lori, I haven't thought about it like that, but obviously we are following it. I think it's a very good question, it's a very long-term question.

Okay. Great. Thanks guys.

You bet.

Your next question comes from the line of Jim Barrett, CL King and Associates.

Hi, everyone.

Good morning -- afternoon.

Neil, could you talk, first of all, the Fem Care promotions in Q4? Are they trade promotions or will they be consumer-oriented or both?

They are promotions with our retail partners but they are oriented towards getting consumption -- increased consumption and they involve various kinds of packs that we are offering the various segments of the trade we do business with.

These would be special packs, bonus packs?

Special packs, bonus packs, things designed to generate featuring and display.

I see. And then you mentioned the Nielsen data showed market share gains. Could you -- I take it that's the September Nielsen's?

Yes.

Okay. Could you give us some sense as to what the gains were and how that looked?

I think probably the best way to look at the share data is not in any given month but for the quarters. Because in any given month there's too much movement.

Understood.

Kind of like, in the way we look at it -- in the first quarter of this year our Nielsen's share was 25. In the second quarter it was 25.3. And in the third quarter it was 25.4. So we are actually quarter-to-quarter, slightly building share. We had talked earlier in the year, when asked about our share, we felt that our share had stabilized at about the 25 level. I think my feeling is our shares are beginning to rise slowly quarter-to-quarter. Two out of the three last months, we were up in share. And what I'm seeing from a consumption standpoint for various places where we could follow that, we should continue to have modest share gains coming forward.

Okay. Very good. And then on a final note, how would you describe the performance in Wal-Mart relative to the measured accounts with A.C. Nielsen?

We are very happy with our Wal-Mart business.

Okay. Well thanks a lot.

You bet.

Next question comes from the line of Linda Bolton Weiser of Oppenheimer. Please proceed.

Hi, how are you doing?

Hey, Linda.

Just a question on -- I'm wondering if you are pushing out of CapEx spending into early '06 -- if that implies anything about the timing of new product launches?

It doesn't.

Okay.

I mean, we are not pre-announcing anything.

Okay. Just in terms of the new innovations you have in the cup area, I know it's been very competitive in that category. Can you speculate on what the likely responses of the competition might be to your new product?

I can't. I think they will continue to bring designs and ideas of their own to the marketplace. I think that's the only reasonable assumption. From our point of view, we want to continue to bring meaningful innovation based on consumer-need analysis to the marketplace. So I think you just assume that that competition will be there.

Okay. And finally, just on your operating cash flow for the year, are you still thinking it's going to be down for the full year? Is there anything unusual in the comparison for the fourth quarter that would make the operating cash flow be down in the fourth quarter?

Well, operating cash flow is normally down in the fourth quarter for the Company, as we build working capital. And CapEx will probably be in line with last year in the quarter itself. So based on what was seen today in the positive results in the third quarter, I now believe that our operating cash flow, or our free cash flow if you want to reduce it by Capital Expenditures, is probably going to be at or above the five-year past average of $60 million. So, yes, we are seeing -- we've seen some positive movements in free cash flow since last time we talked.

Okay. Thank you very much.

You bet.

Your next question comes from the line of Tom Molitor of Wachovia Securities. Please proceed.

Good morning. Or good afternoon. When do you expect your 2006 line reviews to be complete?

You mean by -- with our key retailers?

Yes.

Oh, it varies by retailer. The process is ongoing -- and by category.

Well, is there anything that you can share with us, relative to how you would expect to recoup your higher raw materials cost, either -- for example, X percent through price increase and Y percent through other cost reduction measures?

Let me step back first and just mention something on line review. As I mentioned line reviews -- we do all year long, but it depends on customers. We recently completed line reviews at a couple of our key accounts and done quite well with them, especially at Wal-Mart. And there's a new shelf set in the new Wal-Mart stores. We feel good about the progress we are making and working with our key retail partners. In terms of margins, which was the second question and how much is coming from cost reductions -- ?

Versus price increases.

Versus price increases -- we are not planning any price increases at this time. That doesn't mean we won't have any price increases next year, but we are still looking at our options. Year-to-date, we made no price changes in calendar 2005 other than the reduction of Beyond in pricing.

Okay. And then just one other quick question. With Diaper Genie, it sounds like you are holding your shares. but if the sales are off it sounds like the category is off. And I'm wondering if you could comment? Do you look at the purchase of Diaper Genie from the consumer standpoint as a discretionary purchase, for example as compared to the tampon category, which would be a staple?

In that sense, yes, but if you asked new mothers, what is one of the products that they simply cannot live without -- Diaper Genie, for the past seven plus years, has been one of those products. I guess it depends on who you ask, but a new mother would find it a pretty important product.

I don't think the category is declining. I think it's a question of the fact that Nielsen coverage isn't very good because -- in this particular account, because they don't cover the Babies R Us account or Wal-Mart, who are two large factors in this business. So while our shares from Nielsen remain strong, in two large accounts we have no data. And in both of these accounts, this segment of the business is very competitive. We are still the market leader but there's new products coming out all the time.

Okay. All right. Thank you.

You bet.

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

Hi there. Just a couple of follow-up questions. Is the talking cup a new product for you or is it new to the market? Did you license it in? And will there be all sorts of talking cups on the market?

It's new for us [toy cup speaking] 'B is for Boat' and it's the only one in the market. I have to put it down, otherwise it keeps talking. And we invented this, designed it -- designed the electronics and we brought it first to the market. And to date, the only one to the market.

Is it patented?

I don't know if you can patent this kind of thing. It's certainly -- the design is unique and the circuitry is unique. I don't think we've been able to get a patent -- I don't believe we filed on this, candidly. And it has an off switch for the moms.

Very helpful. On the Fem Care sales, given how strong sales were in the third quarter and they were tied to promotions, should we expect fourth quarter Fem Care sales in -- insales to be up or down?

They were partly tied to promotions. And I think the -- I think we are looking for a solid fourth quarter. My guess is that the Fem Care sales will be up but I don't know. I mean, as I say, I am seeing the pull-through at retail to be very encouraging.

So sales growth in line with category growth would be then very encouraging, I suppose.

That's right. But again, I think we are building share modestly.

Okay. On the manufacturing cost savings -- I think you talked about throughput and things. Could you give us some metrics that show the change that has occurred with the realignment and restructuring?

What do you mean by metrics, I guess?

Well, capacity utilization or something that you have quantitied that shows us what kind of progress has been made?

We track, Connie, we track our manufacturing results on a productivity basis. We track it on a capacity utilization basis. I don't have those numbers in front of me. But -- and also on a quality basis, safety basis. And we are doing very well against a wide range of very specific metrics that we use. We also have specific cost savings objectives we set up for manufacturing. And we are exceeding these, due to the great work of our operations team for the year.

And one final question. How do you feel about the consensus of $0.57 for next year?

Who's consensus is that?

That's with First Call, I think.

We have no comment. We are going to address our own estimates of earnings in our end-of-year call.

Okay. Thanks.

Connie, it's Laura. Maybe since it hasn't come up, you could ask more model questions about '05.

Ask some model questions about '05. Yes, what happened with the tax rate in the third quarter, by the way?

The tax rate in the third quarter -- obviously, we have estimates during the year based on basic tax issues with some excess reserves in there. So it's a little bit of an adjustment there. So the effective rate is slightly down in the third quarter. This is obviously after we take out the repatriation benefits, which again we will have a benefit of repatriation again in the fourth quarter.

And looking at -- gross profits, we've given you pretty well guidance on the full-year gross profits. From an SG&A standpoint, based on all the increased advertising and promotions and then the significant charge for equity compensation and higher bonus charges, et cetera, probably would be coming in significantly higher than the prior year fourth quarter and just slightly less in dollars than SG&A last year. This obviously is excluding unusual charges.

Higher -- say that again, higher in dollars, slightly less -- ?

Higher in dollars -- significantly higher in dollars in the fourth quarter and a little bit less in total dollars in the full year.

Oh, full year. Okay.

And finally -- the tax rate -- the tax rate for the full year should be about 39%. Is that right?

Yes.

Is that a good rate for next year also? Or are there some tax programs going on.

No, nothing unusual that I can think of at this point, so I would stay with the effective rate around 39%.

Laura, did I miss any modeling questions?

No, thank you very much. I noticed you picked your estimate up for the fourth quarter so I just wanted to be clear about our SG&A.

It was only $0.01 change, I think.

Everything counts.

Everything counts.

Thanks, Connie.

Thank you.

Your next question come from the line of David Morrow from First Albany Capital. Please proceed.

Good afternoon. Most of my questions have been answered. Wonder if you guys could comment on the Beyond component of Fem Care -- just where that is in terms of market share? And where you see that headed?

Our Beyond business has responded nicely to our new marketing programs. And as I mentioned earlier, we actually saw some slight share gain in the latest period and that's despite the 17% decline in price. So our unit sales are up very significantly year-on- year. This business continues to be in a part of our portfolio and we are encouraged by our recent progress.

Can you say how many basis points, I guess on a unit volume basis, given the price decline, would be distortion. But on a unit basis what percent of the -- or how many points of the 25.4% Nielsen number does Beyond make up now?

It runs around 3%.

And Laura, just in terms of gross margin, I mean obviously mix was a big driver of gross margin, it exceeded my expectation based on my raw material outlook. But I would imagine Fem Care would be a little less robust in Q4 four -- we shouldn't expect the same rate of gross margin expansion in Q4. That would be accurate, correct?

Correct.

And you guys have done a great job turning around the cups business. I guess, just a broad question, since most of my questions have been answered -- what's your biggest concern going forward as you head into '06? Is it the raw material front? Is there any particular category or product line that worries you, away from Diaper Genie?

I don't think there's any particular product line that worries us. I mean, we are running a business where there is lots of variables that are out of our control; including raw material costs, the need of price to recover, all the competitive activity are always a source of concern. And also of course, we are launching a lot of new products next year and we need to make these products successful. So these are our challenges going forward. Combine this with our ongoing cost savings efforts and we will have a very interesting year next year. It should be a good year.

You are doing a good job -- and the rest of the team. Thank you.

Thank you.

You have another question from the line of Reza Vahabzadeh of Lehman Brothers. Please proceed.

Question has been asked and answered. Thank you much.

Is that the last question?

Yes. I would like to turn it back over to management for closing remarks.

Okay. Thank you very much for your questions. In summary, I want to reiterate that things are going pretty much as planned and in fact, even slightly better during this transitional year. We posted good results so far and our plans for the year are still on target. We continue to execute our strategy. And we are well underway towards achieving each of our strategic objectives. Besides we are having fun doing it.

Here's a summary of what we have accomplished this year. We continue to reduce our costs. We have improved our year-over-year operating margins and we continue to generate significant free cash flow. We have paid down more debt than we indicated earlier and we are deleveraging our balance sheet and reducing our interest expense. The Company's cost savings and realignment plans are on target and new marking plans are producing desired results.

We have implemented new compensation plans and performance review system Company-wide. We have three key new members of our Board of Directors. The senior management team is in place. And we have set up an Executive Committee.

We have announced that we've acquired the last three outstanding Banana Boat distributorships, giving us full control over Banana Boat distribution and capturing profits and reducing costs. Our new Banana Boat Sun Care trade returns and cost-reduction programs are moving along as anticipated.

We continue to reduce working capital, bringing up cash with DSOs and days inventories continuing to decline. We have increased the amount of net sales from new products and reversed negative trends in cups and Fem Care.

And finally, we have a number of new products in development and slated for 2006 -- a record number. All of this has resulted in increased shareholder value for investors. Ultimately, our charge as management of the Company is to generate higher returns for our shareholders. I am confident about us achieving our long-term goals and I am very proud of our associates who have done a great job for us so far this year.

I want to thank all of you are participating in this conference call today and for your continued interest in Playtex. Please feel free to follow-up with Laura on any other questions you may have. Thank you for attending the call. Good afternoon.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. [OPERATOR INSTRUCTIONS] Good day.