Edgewell Personal Care Co (EPC) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2006 Playtex Products Inc. earnings conference call. [OPERATOR INSTRUCTIONS] At this time I will turn the presentation over to Ms Laura Kiernan, Vice President of Investor Relations. Please proceed, ma'am.

Hi, Maria. I just wanted to mention I was hearing some static on the line, I don't know if you guys can check on that. Hopefully people can hear us clearly. I'm going to go ahead and start. Good morning, everyone, and welcome to our first quarter conference call. With me this morning are Neil DeFeo, Chairman 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. Results for the first quarter comparisons are for the 13 weeks ending April 1, 2006 versus the 14 weeks ended April 2, 2005. Our remarks this morning will refer primarily to our results excluding charges and gains as detailed in last night's press release and accompanying financial statement. For your convenience a reconciliation of the results as reported, which is in accordance with GAAP, to 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 web site, at playtexproductsinc.com. A replay of this call will be available beginning this afternoon and will run through the end of the day on May 4th. The replay dial in number is 888-286-8010 and the pass code is 18333951. To access the web replay please go to the investor relation portion of our web site at playtexproductsinc.com. Now I'll hand it over to Neil.

Good morning, everybody, and thank you for participating in this call. Our agenda for this call today is I will review our first quarter results and our progress against our goals. Kris will then talk about the numbers and guidance in more detail, including an update on our restructuring plans which are nearly concluded. We will then do some Q&As and we will try to wrap up by about 11:45. To begin, we started the year with a good first quarter. Last year we set a strategy to grow sales and profits and to deleverage. And we continue to make substantial progress against these goals. For the ninth consecutive quarter we grew sales, net sales retained brands, 3% to $176 million, as we had strong growth in Skin Care, slight growth in Feminine Care and a modest decline in Infant Care sales. If you take a look at the quarter, I want to mention that the shipments to business came in a little bit different this year than last year, with a heavier March than previous years because of a delay by some retailers in taking their Sun Care orders. And as a result our accounts receivable are higher than they were last year. And Kris Kelly will cover that in more detail. Sales grew in the quarter despite retail inventory reductions, which we estimate reduced growth by about 2 to 3%. We successfully launched new Skin Care and Infant Care products, all of which contributed to sales growth. We have had a very favorable response to our planned new product introduction slated for later this year, including a new tampon launch and a new Diaper Genie product, among others. We continue to strengthen our gross margins, which were up 165 basis points in the first quarter despite higher overall raw material costs, which were up about $2 million in the quarter versus last year. Operating profits on our core segments of Feminine, Skin and Infant Care were about the same as last year at $35 million. Total operating income declined by $4.1 million, due to lost operating income on divested brands and equity compensation expense that was not in last year's results. We bought back $49 million in bonds in the quarter, bringing us halfway to our stated $100 million goal for the year. As a result of this buyback and buybacks last year, interest expense declined by 18% in the quarter versus year ago. Net income was $12.1 million or $0.19 per share. Or about $500,000 or $0.02 per share lower than last year. While any decline in earnings per share is an issue, we are pleased with this result given that equity compensation expenses were not in last year's numbers and are in this year's numbers. And also because of the higher number of diluted shares this year versus last year. So the comparison really is quite good. Today we announced a stock repurchase program, the first in Playtex history, where we will be purchasing over the next year up to $15 million in stock. This plan is designed to offset the dilutive effects of our performance based employee equity programs and ultimately to provide greater value to our shareholders. Finally, I want to point out that net shareholders equity for the quarter was up 26% versus last year. So we are building value for our shareholders. Now I would like to look at each of our categories in a little bit more detail. First Feminine Care. Net sales were up slightly in Feminine Care for the quarter versus year ago, which is actually very good when you consider the impact of inventory destocking, which did affect the quarter. Net sales of Gentle Glide tampons grew mid single-digits in the quarter versus the prior year as a result of strong consumption at retail, driven by strong branding programs including increased promotions and improved advertising. Some of these promotions, which we will see the benefit from in later quarters such as sampling and equity building promotions, resulted in higher promotion expense for the quarter and lower operating margins. But these will help our business as we go on. As previously announced, we have increased our prices on Gentle Glide tampons beginning in June 2006 to help offset higher costs that we're seeing across the board. These increases will incorporate new packaging and new tampon counts per box of Gentle Glide in order to be more consistent with industry norms. So for example, we will be moving our 20 count boxes to 18 counts, which is in line with what our competition does. Because of the implementation cost of these changes, such cost of sliding allowances et cetera, we expect to see the benefits of this really beginning in 2007. We are pleased to be launching a new tampon later this summer to help grow our Feminine Care sales. This is an exciting launch for us and the costs of this launch, which are significant, are already in the forecast. We expect this new product to drive top and bottom-line growth beginning in 2007. For competitive reasons I will not be discussing the details of this launch or the product details until we begin shipping the product later this year. Now to talk about Beyond and the balance of our Fem Care business. Similar to the fourth quarter last year, Beyond net sales declined versus prior year, as we primarily focused our efforts on Gentle Glide. We did introduce new advertising in February 2006 for Beyond and have adjusted our pricing in the quarter to improve our competitive position versus P&G's tampons. We have also launched a brand new Beyond 36 count multi-pack in the quarter. These steps should help our business, which will continue, and it has been a challenge on Beyond. Feminine Care net sales in the quarter were also negatively impacted by the phase out of our marginal businesses, two marginal businesses, our heat therapy business and private label tampons. This has been done to enable us to focus on our core business, Gentle Glide and Beyond and our new products. Tampon dollar share remains stable in the quarter as 13 weeks results based on Nielsen were actually up 0.3% in dollar consumption, slightly ahead of the category which was down. Playtex consumption is also growing in non tracked accounts during the period, such as Wal-Mart. We have consistently tracked at about a $25 share for more than the last year, as growth in Gentle Glide has offset weaknesses in Beyond. Tampon margins were down in the quarter due to both increased promotions, increased market research spending and some increased advertising spending. Now let's move to Skin Care. Skin Care net sales were up 9% in the first quarter due to gains across the board in Banana Boat, Wet Ones and Gloves. Banana Boat net sales were up near double digits driven by our new products, including Continuous Spray and the unique Tear-Free sun protection, which we launched in 2006. A total of ten new items were launched in 2006. Banana Boat has also benefited from significant reduced returns, as 2005 returns were lower than anticipated and we begin accruing at a lower rate for 2006. Kris will cover this in more detail. We continue to expect to make quantum improvements in our returns ratios for the future, as we have made substantial improvements across the board in our Sun Care business. We have fewer SKU's, so we can forecast better. We have better trade terms, so we collect the money quicker. And we now own all of our distributor rights and as a result we can better manage our returns than we have been in the last three years. As we mentioned in our 10 K, for every percentage of net sales we can reduce Sun Care returns, operating profits are expected to improve by over $1 million and reducing returns remains a focus. On Wet Ones we continue to see growth, both in the category, and we participate in this growth, and we're benefiting from the launch of new items, slowly gaining distribution on our hand sanitizer and a new outdoor product that we've launched in some accounts. This business is also benefiting from continued increases in advertising and promotion. Our gross growth is improving, and even outpacing the fourth quarter of 2005, as we benefit from improved placements at several of our larger accounts. Now moving to Infant Care. In Infant Care, infant feeding and soothing net sales grew slightly, with good consumption trends at retail. Consumption was up 3.6% in the quarter according to Nielsen versus the prior year, namely on new products and cups. More than offsetting this growth in infant feeding was a decline in Diaper Genie sales, especially refills. This decline was largely due to promotion differences versus the prior year. Net/net Diaper Genie consumption mentioned by Nielsen in the first quarter was off about 5%. But our shipments were down more than this, again, because of the promotion differences. We are pleased to announce that we will have a new Diaper Genie pail system launching in the third quarter, which we expect to help reverse the negative trends in this business beginning later in the year. This new system has patented product improvements and will be priced slightly higher than the current Diaper Genie product. We will unveil the specifics of this on our second quarter call. So in summary, we have followed through with our commitments so far this year and we remain on track to deliver our stated goals for both 2006 and for the long-term. I expect 2006 to be a very exciting year as we launch more than double the number of new products this year as we did last year. Last year about 16% of our volume came from new products. In the first quarter this year that number is now 23%. As we planned all along, these launches will be supported by savings from our cost reduction initiatives, which we have discussed in previous calls. Now I would like to turn the meeting over to Kris Kelley, who will provide you with some additional detail on the rest of our P&L and update you on the results of our restructuring and realignment plans and go over our guidance again with you. Thank you.

Thanks, Neil. I would like to provide you with some additional details on the results for the quarter, again excluding charges and gains, and to give you a final update on our realignment program and go through our guidance for 2006. As Neil mentioned, our gross margins were up 165 basis points in the first quarter, despite higher overall raw material costs of about 110 basis points. The increase was driven largely by the divestiture of the non core brands, which accounted for about 140 basis points of improvement. Higher Skin Care margins and savings from our realignment program also positively impacted margins for the quarter. In the quarter we benefited from lower than anticipated Sun Care returns from the 2005 season as well as a reduction in the estimated returns rate on 2006 shipments based on the improvements Neil discussed. In addition, as a result of buying back the distributor rights last year, we have no distributor costs in our Banana Boat margins this year related to the key regions of California, Nevada, Arizona, New Mexico, and portions of Florida. In addition, these regions have extremely low return rates as the product is purchased year round. SG&A expenses were up 1.3 million or about 2%. This increase was due to equity compensation expenses of 2.2 million, which were not included in last year's results as the new FAS 123R accounting was implemented prospectively. As you're aware, the accounting for equity compensation changed beginning in 2006. This new accounting essentially evens out the expense quarter to quarter and eliminates a lot of the variability under the previous market to market type of accounting that we had in the second half of last year. Excluding equity compensation, while SG&A dollars were down, SG&A as a percentage of net sales in the first quarter 2006 increased by about 140 basis points versus last year. This increase was due to the impact of the divested businesses, which had approximately 15 million net sales and minimal SG&A spending as we were not investing in these businesses. Substantially higher A&P spending in the quarter was funded by savings from realignment programs. Operating income declined by about 4.1 million due to lost operating income on divested brands of about 3.3 million and 2.2 million of equity compensation expense that was not in last year's results. If you exclude these items from a comparable basis, operating income would have been up 1.4 million or about 4%. By segment Fem Care operating income declined in the quarter on essentially the same level of sales, as we invested more in promotions. As mentioned previously, starting the third quarter of 2005 we moved to a year round promotions in tampons. These promotional expenses, which will have longer term benefits, were somewhat funded by realignment savings. While these Fem Care promotions were successful at driving consumption at retail, sales were mitigated by retailer inventory reductions, thereby reducing the operating margins. Fem Care operating margins were also affected by higher raw material costs in the quarter. Skin Care operating margins continue to grow due to ongoing favorable trends, including higher sales, lower returns and profit improvements from the distributor right buybacks and our realignment program. As anticipated, Infant Care operating margins declined year-over-year. This was due to the combination of lower net sales, higher raw material costs and somewhat higher A&P spending. Corporate operating expenses increased 1.5 million, due to the 2.2 million of equity compensation expense partially offset by summary alignment savings. As Neil previously mentioned, interest expense was down 3.3 million or 18% in the first quarter due to our bond repurchase program. Diluted shares outstanding increased by 2.1 million shares in the first quarter, versus last year's first quarter due to the combination of stock option exercises, additional equity grants and our higher average stock price in the first quarter of 2006, thus resulting in more options being quote in the money and therefore more dilutive. Although net income decreased only 0.5 million, our diluted EPS decreased by $0.02. To help mitigate this dilution impact in future quarters, the board has approved up to a 15 million one year stock repurchase plan designed to hold diluted share counts at fourth quarter 2005 levels, or about 63.5 million shares. Diluted share count may still vary slightly this year depending upon execution of the stock repurchases and by the average stock price each quarter, which increases or decreases the amount of option shares counted toward dilution. Now to briefly give you a final update on our realignment program. Our realignment plans are now complete. And the full year benefits will continue to generate savings, as expected, primarily in SG&A but also in gross profits. We will achieve our incremental 10 million in savings in 2006, primarily impacting the first half of the year for total annualized savings of 23 million. Now on to cash flow and liquidity items. Total liquidity at the end of the quarter was 103 million, comprised of cash of 18 million and availability under our asset based lending revolver of 85 million. We still have yet to draw down on our U.S. revolver and we have 6 million drawn under the Canadian revolver. Free cash flow, defined as operating cash flow less CapEx, was a use of 21.4 million in the quarter versus a use of 15.7 million in the first quarter of last year. If you recall, the first quarter is generally the high working capital use quarter due to our seasonal Sun Care business. Cash taxes paid were up 2.1 million and capital spending was also up 2.1 million in the quarter versus the prior year quarter. Working capital use was up about 1.4 million, due primarily to the timing of Sun Care shipments later in the quarter than the previous year. Capital expenditures were 4.1 million in total for the first quarter 2006, versus 2 million last year as some of the spending related to the new tampon project shifted into 2006 from the fourth quarter of 2005. Now I would like to talk you through our 2006 guidance and help bridge you from first quarter results to full year expectations. Our guidance is based on results, excluding charges and gains. Excluding net sales of the brands divested in late 2005, net sales for 2006 are still expected to be up mid single-digits versus the prior year. We have maintained this forecast despite the retail inventory reductions in the first quarter. While our product categories on average grow 3 to 5%, new products and incremental and more effective A&P spending should allow us to grow ahead of category growth, bridging us to our mid single-digit growth forecast for the year. As stated previously, we expect to more than double the number of new product launches in 2006 versus 2005, both in terms of number of new products and SKU's. As Neil mentioned, unfortunately the tampon price increases in June and the new tampon product launch slated for later summer, will mainly benefit net sales and profits beginning in 2007, because of the implementation costs of both initiatives in 2006. We have additional new product launches in Skin and Infant Care late in the year, in time for [INAUDIBLE] changes in these categories that commence at the beginning of each year, which will have some impact to top-line growth in '06. As was stated previously, we expect gross margins to be about 54% for the full year, up more than 50 basis points from 2005 and almost 300 basis points above 2004. While gross margins were 55.2% in the first quarter, as the year progresses we expect gross margins to moderate due to the impact of Sun Care seasonality and cost related to launching new products. In addition, while we have some raw material supply cost that do defer cost increases for some period of time, recent increases in petroleum prices will affect our cost later this year. To support new product launch activity and maintain solid levels on existing products, we expect to increase A&P spending in 2006 by about 10 million versus 2005, funded by our cost savings programs. As stated before, we are maintaining our 2006 operating income guidance of between 103 and 108 million, which compares to 2005 operating income of about 99 million, if you exclude charges and gains and the 8 million of operating income from divested brands. This range includes estimated noncash equity compensation expenses of approximately 9 million, charged almost ratably throughout the year. Interest expense is expected to decline in 2006 by approximately 7 million for the year versus the prior year. By quarter interest expense will be affected by the timing of the repurchases as well as seasonal working capital trends. We still expect to buy back 100 million face value in bonds this year, having repurchased 49 million already in the first quarter. Again, repurchases will depend upon market conditions, including availability and cost. We expect to continue to repurchase bonds on the open market and possibly call a portion of our 9 3/8% notes in accordance with the indenture which are callable beginning in June. As previously mentioned, we expect to buy back up to 50 million in stock this year to mitigate the dilution impact on share count, particularly as our earnings grow as outlined in our long range goals. Free cash flow for 2006 is still expected to be about the same as last year's 52 million, with CapEx expected to be about 14 million and taxes expecting to be about 40% of pretax income. Finally, as Neil stated, we have no changes to our previously announced long range goals. Operator, will you please begin the Q&A.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Reza Vahabzadeh with Lehman brothers. Please proceed.

Good morning.

Good morning.

With the -- as far as inventory at retail do you feel like you are where you need to be or do you think inventory actions by customers could still trickle in in the coming quarters?

There's no way to know for sure, but I think we are where we need to be. The retailers look at their inventory periodically and go through these kind of reductions and I think we saw some of that in the first quarter. I think we're where we need to be. But you don't know for sure. One of the pundits that I know said well, you can expect a big reorder some time in the third quarter when they realize they have gone too far. But I think we're about where we should be.

I see. Then as far as selling of new products, how much did that help you in the quarter, the shipments of new products?

Well, mainly the big new products that we saw in the first quarter were our Sun Care products. And as you know we had a very good quarter for Sun Care. But to some extent that was muted by the fact that some of the retailers took their Sun Care orders a little later, and actually into April, than they had in previous years. So Sun Care was the big beneficiary. It's hard to say how much was from new products because in the Sun Care business you sell them the products and then you have to wait and see what sells out. But initial results are very encouraging.

And Kris, can you tell us how much lower returns [INAUDIBLE] may have helped you in the quarter as far as operating margins?

It was a definite impact to the margins, but I'm not going to give the specific amount.

Okay, thank you much.

Your next question comes from the line of Lori Scherwin with Goldman Sachs, please proceed.

Hi. I understand you're not going to share any details about your new products, but maybe just a broader --

Can speak up, Lori?

Yes, can you hear me?

Yes.

I know you're not going to give us any details on the new products, but maybe just a broader question on that topic. The two you announced, the upgraded Diaper Genie and then the new tampon, I guess they don't strike me as new categories or expansion, but rather within the categories and shelf space that you already compete in. So if you're thinking about Playtex's ability to accelerate sales growth towards the high single-digit level in '07 and '08, are these the types of things you think will get you there or do you maybe have other bigger things up your sleeve that we should be looking out for in terms of a JCC German category entries.

Good morning, Lori. As you know we're very cautious about the way we talk about our new products. And I'm not going to comment about whether we will be getting into new segments or new categories down the road. Obviously, we as all companies look at our opportunities and assess what makes best sense long-term. The two new products that you referred to, our new tampon product and our new Diaper Genie product, are both very exciting products for us. We think both of these innovations represent a significant opportunity for the Company and also provide a significant opportunity for us to better meet consumer needs in these categories. And I don't want to say any more about either one of them. As they begin shipping, the specifics of them will come out and I'm optimistic about both.

I guess it just sounds like you're really relying on share gains to bring you to the next level.

That's what we're doing today. And again, I'm not going to comment on the future. As you know, one of our strategies has been to focus on our core brands. Our most important business is the Feminine Care business. This is the business that over the last five years has been under the most pressure, as over that period of time, I guess it's up to about a year and a half ago, our share had dropped from almost 30% of the market to 25. Now we picked up a tiny bit of that share and it certainly has stabilized over the last 16 to 18 months. But we need to compete in Feminine Care and do a good job there, because that's the most important category. That's why we are focusing there as the first step of revitalizing our business.

Then the realignment is over, but can you provide an update on other cost savings plans in terms of benchmarking to your SG&A and overhead levels? I think there's still a lot left to go there and I'm wondering if the organizational focus has shifted solely to sales growth or it is still all that low hanging fruit to be picked in terms of the cost side.

Lori, as you stand back from the Company, over the past three years we have implemented cost savings that total about 36 or $37 million. These cost savings have been enormously productive for us in helping us offset rising raw material and other costs and to fund our new product marketing expenses, A&P expenses. We remain as a Company focused on cost reduction, but it's of a different kind. We don't expect to have any more restructuring or major reorganization. But rather it's ongoing, looking at how we do business in every element of our business to reduce cost. We have set a cost savings goal this year, which we hope to achieve and which should help us offset the expected increase that we're seeing in raw material expenses.

But this increase in raw materials and marketing setting, that does not change that goal you set out at your analyst meeting about a year ago where you said you wanted to get down to peer levels of sort of that mid to high 20% range in terms of SG&A.

We do want to get our SG&A down, absolutely; we expect to do that through two things. One is the continued reduction in our cost structures and spending and second is through building our sales growth, because both of them are the numerator and denominator of that equation.

Have you or would you quantify sort of order of magnitude which you think is more important to get that cost savings out, whether it's the operating lever through sales growth or this internal cost savings?

The sales, the operating sales growth is definitely the lever that is now going to help move us to be more competitive in our SG&A percentage. The other thing I'd like to mention is when we first discussed the mid 25 range, that was before equity compensation expense which, as you know, is $9 million or about 1.5% of sales. It's going to be a little bit higher because of that new expense.

Okay, got it, thank you.

Lori, good talking to you.

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

Hi, good morning.

Good morning.

Just a few questions. You talked a lot about strength of Banana Boat. I'm just trying to get a sense, it sounds like ten new products and it looks like you've increased your shelf space at some of your core customers. Do you think that is going to drive opportunity at additional retailers and just give us a sense for what the average price plan on the new products is versus your existing products? I'm just trying to get a sense for your pricing versus volumes on your products versus your existing product base.

It's a pretty broad question. We're pretty happy with what's happening in our Sun Care business today. We have seen very good acceptance of our new products and good retail presence of the new products in all classes of trade. Obviously, we continue to want to expand the presence of Sun Care products because our objective is to have these products at arm's length from desire when consumers need them. In terms of price points, there's really no change in the price points, although the mix of products seems to be changing a little bit as we sell our UltraMist products which are slightly higher in price and price per use then others. There's been no price increases in this market and our products are competitively priced.

I know that we spend a lot of time talking about the inventory destocking at mass, and just managing inventory levels more aggressively over the last couple quarters than we have seen, I think most of us have focused on a certain mass for at least the last couple quarters. Are you seeing other retailers try to kind of latch onto what they're seeing at mass and are you seeing that at all out of the drug channel or the food channel at this point or is it really focused on that mass channel at this point?

Well, in the retail business all the retailers watch one another and what they're doing. When one announces that they're having a major look at their retail, all the others kind of look at it. So, more or less I think many of the leading retailers have looked at their inventory.

So do you think that that's something, is that something we should see in coming quarters out of other channels or is that something you think you have already seen in your existing inventory levels out of your entire customer base.

My crystal ball is not perfect here, Alexis, but I think we have seen most of what we're going to see. I've been surprised in my life before, but I think we have seen most of what we're going to see.

You talked a little bit about sliding fees, maybe I missed it, did you quantify those at all?

No.

Would you?

No.

Okay. It was worth a shot. Thanks very much

Okay.

Your next question comes from the line of Bill Chappell with SunTrust, please proceed.

Good morning.

Morning, Bill.

Just a couple things, can you quantify what the impact in the quarter may be on the full year, the exit of the private label and the heat warming business would be on Fem Care?

From a sales standpoint for the quarter it's in the 1 to $2 million type range, not significant. But on the margin side, they were very low margins, so it's going to impact the operating margin percentage with those going out.

So is it like a 6 million, 8 million for the full year in terms of revenue?

Something like that.

A little less than that I'd say.

We started getting out of private label last year in the first quarter, so there's very little impact on that when we get out to the second half of this year. Heat therapy was falling off last year at the same time.

Sure. Then when you talk about new products can you, without specifics, can you give us an idea what percentage of new products were rolled out in 1Q or maybe what the timing looks like over this year, are we going to see it more weighted towards the back half of the year?

More weighted towards the back half with the exception of Sun Care, obviously, which occurs early in the year.

Maybe just help me on the debt and then the share repurchase. As you look forward does the share repurchase stop you from doing more than 100 million in debt reduction? And I guess from that standpoint where are we in terms of the 9 3/8 versus continuing to buy the 8s, which makes more sense?

Obviously the 15 million, as I mentioned, we still plan on buying back the 100 million, the $50 million buyback does not impact that goal. We continue to throw off $50 million plus of free cash flow. So the kitty will build. What we spend that on in 2007, we will see. In essence, with the stock buyback program, that program we're trying to maintain our dilutive share count, and therefore would like to continue that in the future. Now looking at the 9 3/8s versus buying back the 8s, they become callable on June 1st under the basket. I can choose under my basket to buyback the 9 3/8s or buyback stock. So looking at those two there. But whether I buy 8s or 9 3/8s depends on the price of what the 8s are going to be at versus the call price on the 9s. It all depends.

Got it. Obviously doing 50 million of the 100 million in the first quarter, you're ahead of a normal schedule, so I'm just trying to see if things would start to slow down, as you wait to see what makes sense in June or still kind of moving forward. The better question is did you repurchase anything in recent weeks?

As we mentioned, I think we bought back 49 in the first quarter and clearly bought back 49 to date.

Got it. I guess one other question just on the costs, any sense of what you're seeing on terms of resin and plastics on a go forward basis with the recent spike in oil prices or is it just too early to tell?

It's too early to tell, but we did see an increase in resin prices in the first quarter in the high double digits. And we saw price increases in latex and neoprene and some other things. I expect that we will see other increases related to oil prices such as freight surcharges, et cetera, as the year unfolds. It looks like, as I think Kris mentioned, we saw about $2 million of price increases in the first quarter. For the year we're budgeting, obviously, more than that, but it is in the budget so we will just have to see what happens.

Okay, great. Thanks.

You bet.

Your next question comes from the line of Kathleen Reed with Stanford Financial, please proceed.

Good morning. Hi. First in your Feminine Care division did you say that you took another price change on Beyond in this quarter? I know that last year you did a 17% reduction, but did you do something else to the price of Beyond in the first quarter of '06?

What we have been doing here, Kathleen, is trying to get our Beyond pricing in line with our competitor. We took a 17% increase last year and that ended up reducing our prices in certain classes of trade. Then where we didn't get the pricing we needed to, we went out and we took some further action, some other segments of trade to be competitive. Our objective here is to match competition on our pricings at retail. We have been monitoring it all year long. So we took some further action at the end of last year and the beginning of this year. As you know, the pricing in the Fem Care business is a little bit of a moving target today because our competition has announced they're raising their prices depending upon which segment averaged about 6% but it varies by the type of tampon. Our intention here is to remain competitive and so we are taking the actions that we need to do to do that. It shouldn't have, it won't be a meaningful impact on our business in Fem Care from a revenue or profit standpoint.

So right now you're basically matched the competition's price on Beyond.

That's correct; we expect to be, yes

And, again, your new tampon, without the specifics, that's not going to replace any current product.

No.

It's just an add on.

It's something new.

Okay. In your --

And I think you will like it.

Okay. The Infant Care division, can you just elaborate a little bit with Diaper Genie and with the launch of your new generation product are you going to be saving out your older model and should we see stepped up promotions on that product? And I wondered if you had lost any shelf space with Diaper Genie?

We have lost no shelf space at all. We have had good acceptance of our new product when we have talked to our retail partners. We are not phasing out the old product, although there is a strategy, which I'm not going to get into, about how we market the two of them together. I will say that the new product is patented, it is a terrific product. And we expect it to do quite well. Our testing indicates that it's got a high level of consumer acceptance and preference versus the competition.

Okay. Could you comment on how cups performed in the quarter, because I think you still are benefiting from the launch of those new talking cups and some other ones with the new characters on them? And how you have turned, it seems, the bottle business around, I think bottle sales declined in your fourth quarter and what specifically you did to get the bottle business growing again this quarter?

Well, our cups business for the quarter, let me just flip to the page, was flat. But consisted of various parts, but in general the business seems to be doing much better than it was last year at this time. Our new products are having an effect on the business and I'm not going to get into specific successes of each one. Any time you launch four or five new products not all of them will be as successful, but some of them are very successful.

Consumption was better than flat because, again, this is the inventory restocking issue that has impacted our sales versus the consumption of cups.

When we talk to our retailers they're quite happy with the number of our new entries. In terms of our bottles business, our bottles business was up quarter to quarter this year versus last year modestly. Nothing to report there really affecting the business uniquely.

So not increased, because I think the fourth quarter was down just due to increased competition from one of your -- from Advent, I believe.

Yes, the biggest thing in our bottles business is we got a little bit better shelf placement, I think, in one of our key accounts, but in the quarter the business was up very modestly in our total bottles business.

Okay. Can you just -- I think Sun Care returns were down, I think you said 10% near fourth quarter, were they down in that same magnitude or were they down even more than that in your first quarter?

In general, it was two impacts. They were down 10% in the fourth quarter. Our estimate for coming in was they came in even better than that. So we had a pickup in this quarter related to our estimate at year-end. Again, if you remember last year at the same time, the first quarter also had a pickup related to returns going down, because as you can imagine we are doing a lot of improvements in the business and trying to guesstimate the impact on returns on that and being conservative in that. But maybe therefore they are being more successful than we thought. As we ship product out in '06, based on our history of how well '05 was and what was done and implemented as far as SKU's, et cetera, we are accruing Sun Care returns at about 20% lower than we did in 2005.

Okay. Then lastly, just your share repurchase at $50 million, if that was exhausted during the year is there a likelihood that you would institute another program?

Well, we will have to see. We continue to think that this is a good use of the shareholders' money. I think the stock is a good price, good buy at this price. We expect the Company to continue to grow. So it will be a discussion that we will have at the right time with our board. If it's in the best interest of shareholders, then we will go ahead with one.

Okay, thanks so much.

Thank you.

Your next question comes from the line of Linda Bolton Weiser with Oppenheimer, please proceed.

Thank you. Hi, how are you doing?

Hi, Linda.

Neil, in your letter to shareholders I believe you spoke very specifically about more initiatives this year to gain international infrastructure. And I noticed when I was visiting some stores over in the UK that I don't believe ASDA carries your tampons in the UK, but other retailers do. Are there near-term opportunities to gain distribution right away in tampons abroad and can you talk about the longer term initiative?

We noticed that at ASDA, too. There certainly are substantial opportunities internationally, Linda. We are working on several different things to take advantage of those. I'm not going to go into specifics. We have always said that one road for us internationally is to look at acquiring infrastructure and we are continuing to do that. If and when we can find something that makes sense we will go ahead and do that. But we are increasing our focus on international. We believe it represents a growth opportunity for us. We believe our products are competitive internationally, can be competitive internationally, and that there is a need for these kinds of products overseas. Certainly in the developed markets around the world.

Okay. And just getting back to what I think what Lori was asking about in terms of innovation, I know you're very excited about the Wet Ones brand and the opportunities. I know the Wet Ones sell hand sanitizer was one new product that you were trying to take the brand into a related category. Can you talk about how that has done so far and what kind of distribution you have achieved with that product?

Linda, it's off to a slower start than we had hoped. Partly because of the timing of its introduction was not in line with when the retailers wanted to reset their sections and partly because the retailers wanted a clearer understanding from us on why they should take this product. But where we have got distribution, the volume seems to be reasonable, it's coming along and we will just see. It's still very early. It's a very interesting product, we have just completed some research versus the market leader and we're significantly preferred versus that market leader. So, we have got a lot of enthusiasm for it and we're going to have the courage to continue with this product.

Do you see more extensions for that particular brand or are you looking more at your other brands for extensions into other categories?

We look at all the brands Linda. Wet Ones is a very dynamic category, there's lots of opportunity. The category itself is growing, consumers are using these products increasingly and we have got a number of thoughts about what we might be able to do as time goes by. But I wouldn't call our efforts in Wet Ones any more than we're seeing in Infant Care or necessarily in Fem Care.

Was the Wet Ones overall brand up double digit in the quarter?

High singles.

Okay. And can I just, I guess this is a question for Kris. One thing that I never so far have been able to understand about your Company is the high corporate expense ratio and yet the high segment margins. Can you help us understand what you may be allocating to corporate versus the segments versus other similar companies that makes it so different? And also can you explain why it looks like corporate expense declined 5% in the quarter excluding equity compensation. And yet you made 17% headcount reduction in '05. So I'm wondering why corporate expense is not down more.

Well, the headcount reduction in corporate versus the segments, a lot of the realignment headcount reduction is up in the segment operating profits. From the corporate standpoint our corporate has all of our equity compensation, as you mentioned, it also has all of our bonus programs, a lot of insurance and other programs of a Company cost and other cost that we have and other companies have, but other public companies are much larger than we are. So as a percentage it kind of throws off the weighting. Some companies take bonuses and push them back to the segments, we don't. So it depends on what's allocated where, company by company.

So there's not an opportunity to change your allocation to put more accountability for expense on to some of the divisions?

Well, for instance take bonuses, accountability for bonuses, the divisions are going get paid bonuses if the divisions make their divisional profits and PBM targets. So just putting the cost on there is not necessarily the issue. The other issue is that we do have, everybody has about 50% of their bonus based on total Company results because we want to be one total team working together. And therefore it doesn't necessarily get impacted by their individual results.

After all we want to pay bonus to our people if the Company and the shareholders do well. So everybody needs to be held accountable for total Company results; that's our philosophy.

Okay. And finally, just on your comments about the tampon pricing and the implementation costs, can you just talk about that some more? You mentioned sliding fees and I don't understand how that relates to that. Are you expecting to actually gain shelf space from rechanging the count? And also how much of the implementation cost would be capital expenditures versus hitting the P&L?

There's very little capital expenditure involved in the sizing change. But when you make these changes at retail, you negotiate the change with the retailer and the retailer has some requirements whether that's to offset their cost of making the change or you discuss the margins that they are going to make, et cetera. So this is an account by account discussion and these costs are built into the cost of making the price change. This becomes accentuated when you are changing the pack size which is what we're doing. So, all these costs are built into the system and will result in very little, if any, of that cost in price increase seen this year, but in 2007 we will certainly see it.

Okay.

And there's also costs related to us making sure that the change is executed at retail. So we have got to have people in the stores and do the necessary retail work. One just comment, I just want to be clear with you, Linda, you asked the question on Wet Ones. Wet Ones is, we said it was the high single-digits, actually mid single-digits up for the quarter, just to be clear.

Okay. Thanks very much, I really appreciate it.

You bet Linda.

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

Good morning.

Good morning, Connie, how are you?

Good. Do you happen to have what the sales and EPS increase this year would have been on a same week basis, since last year you had an extra week worth of shipments?

No, last year we said that the effect of having an extra week was only modest. I think the effect this year of having a week less was also modest, but I don't think we can characterize it.

Because the week is really the week between Christmas and New Year's it's not a very busy shipping week.

It's something.

It's something, but we don't feel that its material and we didn't bother to go back and recalculate it. The only place it does impact us is interest expense, for instance. There's an extra week of interest expense and things like that in there.

But we're not necessarily attributing our trends for the less week. As Kris says, not material.

Okay. So going forward, on weeks of comparison do the quarters this year have the same number of weeks as Q2 through Q4 last year?

Yes.

So this is the only anomaly?

Only anomaly.

We wait another five years till we have the anomaly again.

Okay, great.

I'll see you then, though.

What month does the new tampon ship, can you say that, and when does advertising start?

The new tampon will ship in late summer, call that August. Advertising will start shortly thereafter when we get distribution, when it's in the stores.

Okay. Okay. So it's a Q3 shipping and advertising event.

Q3, Q4.

Okay. You said that there would be sliding allowances related to the package count change. Are there also sliding allowances related to the new tampon?

I'm sure there are. There always are in certain classes of trade.

Okay. So between the costs associated with the new tampon, just building inventory and all of that, the sliding allowances, the price change on Beyond, the exit of private label and heat therapy, it sounds as though operating margins in that segment should be down every quarter this year, does that make sense?

I don't know if every quarter. I think they will be fluctuating as they did in the first quarter this year -- could be lower in the third quarter. We aren't forecasting what those are going to be to the street, Connie. I mean their expenses in launching these products, we built them into our forecast. I don't think I want to say any more than that in terms of modeling for the quarters.

Okay. So you really do have some tough comps coming up, the middle part of the year is real tough comps in terms of margins for Fem Care and unless there is some sort of pricing benefit what makes sense is that margins should decline. You wouldn't disagree with that thinking, right?

I would not disagree with that thinking, no.

Okay.

But we have taken that into account in terms of our forecast. But again temporarily because of the impact this year on the launch.

Okay.

For example, Connie, just to be clear, when we change our, when we raise our price and change our sizing, that's going to have some disruption too. I'm not exactly sure how that is going to play out when we start that shipment, but that will have a short-term effect. It could be good or it could be difficult, I just don't know yet.

I would guess your own inventory of tampons, given destocking should be -- are they normal or are they up a little bit from where you thought they would be?

Our inventories today that we have?

Yes.

Yes, our inventories today, as you can see in the cash flow, are up slightly. Our inventory days actually on a latest 12 month basis have gone from 76 to 77, because obviously we did not anticipate the destocking and therefore had the inventory built assuming consumption.

But our inventories in the trade are actually down.

Yes.

Do you know how many weeks of inventory the trade is carrying?

I don't, Connie. It's going to vary by class of trade, actually, quite a bit.

Okay. I know Wet Ones -- I just want to go back to the sanitizer launch. You said it wasn't well stocked yet by retailers and perhaps not introduced at the right time around plan-a-gram changes. That kind of sounds like things that might be within your control, so how would you critique this one particular launch and what sort of implications it might have for other new product introductions?

I would say this particular launch was less than perfect. We have some opportunities to improve on it. I'm not going to go into the give and takes of it yet, it's too early to tell, Connie. We do know that the product is a good product, we do know it's well accepted by its users. We have had challenges getting it into the stores. We also had challenges in our own shop. But we will just have to see. Again, it's still early. We have been on a promotion program with Wal-Mart on this product and initial results are solid. The shipment, the progress to take away from Wal-Mart has been good. We will see what happens in that and other accounts.

Thank you very much.

You bet.

Your next question comes from the line of Karen Miller with Bear Stearns, please proceed.

Hi, good morning.

Good morning.

Hi, how are you? Just in terms of the fact that you are free cash flow positive, you have been for the last two years and you expect to be positive again this year and the fact that you have reduced it, where do you stand with the rating agencies, particularly the CCC on your sub notes? Have you had discussions with them?

The rating agencies haven't made any changes, obviously because we have all the restructuring programs and the other changes in the businesses, they have been cautious as far as making any changes.

But do you have a meeting scheduled any time in the near future that you can talk about where they might want to review your progress?

Nothing unusual other than the normal periodic meetings we have with them by phone.

Secondly, in terms of -- you mentioned in the press release about your stock buyback and it made you limited by certain restrictions in your indenture and you touched a little bit about this in your conversations. Could you talk a little bit about the basket and the buyback of the 9 3/8s and the buyback of stock, is this part of the same basket? Could you give us some math on that, please?

Sure. Yes. As I mentioned before we have our restricted payments basket under our indentures that basically is equal to about half of net income since the 8% bonds which is in February. So it's a growing basket that today is somewhere in the range of 50 to $60 million. So that's the basket we can use to either buyback the 9 3/8 or buyback the 50 million in stock. The only other -- obviously our ABL revolver has a restriction, currently has a restriction on stock repurchases but since we obviously haven't used it, they are giving us an amendment to take that out. So we won't have any restrictions under the ABL. So the only restriction is the basket, which continues to grow as the Company's profits increase.

Okay. Then lastly, could you talk a little bit about the price increase that you plan for gentle glide? Have you been able to determine in the past what the impact of price increases have been on your volumes? And then also secondly, do you think this introduction of the new tampon product might cannibalize gentle glide?

Two different questions.

Right.

We don't increase and haven't increased the prices of our products recently, so we don't have any experience in terms of will this affect the take away. I think our thinking, however, is that it will not, For a couple reasons. First of all this is a product that has a high level of consumer loyalty and the consumers need the product on a regular basis. Second of all, the way we are changing the price is simply to align our product counts and pricing with competition. And so at the end of the day the consumer is going to be looking at our products and seeing the exact same value as they do in competition.

Will it be a rise in the sticker price in terms of percentage or it just be a modest price increase and does the change really come from the quantity per pack?

There will probably be no change in sticker price and all they will see is just instead of getting 20 in a box, for example, they will get 18. All we're doing here is moving to the same pack counts that are norms now in the marketplace.

Okay. And then the cannibalization issue.

When we launch new products, obviously, since the population isn't growing, any new products will cannibalize on existing products. We built that into our modeling for our new products. Yes, we expect some cannibalization.. I'm not going to characterize how much for you.

But that is built into your guidance, right?

Yes.

Thanks a lot. That's it for me.

[OPERATOR INSTRUCTIONS] And your next question comes from the line of Justin Gates with Gates Capital Management, please proceed.

Yes, it's actually Jeff Gates. I have two questions. One is I think you made a statement about the destocking hit of hitting sales by 2 to 3%, I just wanted to clarify that was for the entire Company for the first quarter, number one. And number two, I think about a year ago you talked about getting receivable days to 45 days and inventory days to 60 days by the end of 2008. Is that still an achievable target?

The percentage sales effect due to the trade destocking that we said at 2, 3% does in fact apply to the entire Company for the quarter. In terms of our long-term goals of achieving 45 days and 60 days, those are what we still are established within the Company as our goals. And, Kris.

As I mentioned today we're at 60 days, our receivable days are on a LTM basis or at 60 days, but if you look at where our current receivables are they are down into the 50s. So yes, we still do believe that the 45 days will be achievable by 2008.

Okay. Thank you.

You bet.

And your next question is a follow-up from the line of Reza Vahabzadeh with Lehman Brothers, please proceed.

Actually my questions have been asked and answered, thank you.

You bet.

And at this time there are no more questions in queue, I will now turn the call back over to management.

Thank you for all your questions and thank you for your interest in Playtex. In summary, we posted another good quarter results and have continued to follow through on our commitments to all of our constituents. We are building total shareholder value in equity, which I mentioned has been up 26% year on year. Last year we set a strategy to grow our sales and profits and to deleverage. We have continued to make progress on all this. We set a strategy to focus on our core categories, Fem Care, Infant Care and Skin Care, and we are focusing on these and seeing growth. We expect to build on the solid record in future periods. We continue to expect 2006 and our [outuse] to be exciting, as we get all the new products launched and off the ground and continue to benefit from our past cost savings reductions. We are not changing our long-term guidance or our guidance for this year. I want to thank again all of you for participating in this conference call and for your interest in Playtex. Please feel free to follow-up with questions to Laura on anything that we did not cover today. Thank you and good morning.