Edgewell Personal Care Co (EPC) 2011 Q3 法說會逐字稿

Good morning. My name is Chris and I will be your conference operator for today. At this time, I would like to welcome everyone to the Energizer Holdings Incorporated third-quarter 2011 earnings results conference call. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded. At this time, I would now like to turn the conference over to Jackie Burwitz, Vice President Investor Relations. You may begin your conference.

Good morning everyone and thank you for joining us on Energizer's third-quarter 2011 earnings conference call. With me this morning are Ward Klein, Chief Executive Officer, and Dan Sescleifer, Chief Financial Officer. This call is being recorded and will be available for replay via our website, Energizer.com.

During our prepared comments and the questions-and-answer session that follows, we will be making statements expressing the beliefs and expectations of management regarding future performance, including future earnings, investments on spending initiatives, restructuring charges and cost savings, the impact of the elimination of pack upsizing and price increases, A&P spending, currency fluctuations, raw material and commodity costs, and the ASR acquisition.

Any such statements are forward-looking statements which reflect our current views with respect to future events and are based on assumptions and therefore are subject to risk and uncertainties.

These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described under the caption risk factors in our annual report on Form 10-K filed November 23, 2010.

We do not undertake or plan to update these forward-looking statements, even though our situation may change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

During this call, we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release issued earlier today, which is available on the investor relations section of our website, Energizer.com.

Management believes these non-GAAP measures provide investors valuable information on the underlying growth trends of the business. With that, I will now turn the call over to Ward.

Good morning everyone and welcome to Energizer's third-quarter conference call. Fiscal year 2011 continues to be a year of investment for Energizer. Our investments, as outlined in previous communications, are being made as planned, and we continue to anticipate strong returns going forward as a result.

The launch of Hydro is now past the 1-year mark in North America and I'm happy to report that the sales and consumer assessment metrics have exceeded the high expectations we have for this revolutionary new product.

Meanwhile, our Household Products restructuring initiative is being implemented as previously outlined, and we are well on our way to realized expected savings. In addition, the investments we're making in strategic markets and in product growth initiatives continue to look promising.

In the release, we updated our guidance for fiscal 2011, and now expect total GAAP earnings per share for the full fiscal year to be in the range of $3.90 to $4.10. This is lower than previous guidance due to the make-whole payments associated with the debt refinancing that was completed in May, which was not included in our previous guidance.

Excluding unusual items, most notably the make-whole charges, the household products restructuring and the acquisition and integration of American Safety Razor, we reconfirmed that adjusted diluted earnings per share for fiscal 2011 are still expected to be in the range of $5.10 to $5.30. With that, I will turn the call over to Dan to review the financial highlights of the quarter.

Before giving you an overview of the quarter, I would like to point out some changes that we made to the earnings release.

We have added several tables, including a reconciliation from GAAP earnings per share to adjusted earnings per share, along with net sales and segment profit tables showing the changes year-over-year for the quarter and the year. We have made these changes in response to investor feedback and believe that the new format should better facilitate understanding of the Company's results.

Now let's look at our third-quarter earnings. For the third quarter, earnings per share were $0.94 versus $1.47 in the third quarter of fiscal 2010.

The $0.94 for the third quarter included charges related to the household products restructuring, the acquisition and integration of the American Safety Razor business, and make-whole payments on the private placement notes retired in connection with our recent refinancing. Combined, these items in the quarter negatively impacted earnings per share by $0.43.

Net sales for the quarter increased $158 million, or 15%, due to the inclusion of the American Safety Razor business, favorable currencies, and continued growth in personal care. Organic sales grew $28 million, or 3%, due to solid top line growth in personal care.

Gross margin for the quarter declined 170 basis points, primarily due to the addition of value-priced products from the American Safety Razor acquisition. This impact was expected based on the lower gross margins of ASR.

Advertising and promotion, excluding the American Safety Razor business, was essentially flat as a percent of net sales of versus the same quarter a year ago, as we continued to support the launch of Schick Hydro in key markets around the world.

Selling, general and administrative expenses increased $30 million versus last year's third quarter. This increase is primarily due to the inclusion of the American Safety Razor and currencies.

Now turning to divisional results. In personal care, organic sales growth was nearly 5%, due in large part to strong sun care shipments in the quarter. As we discussed last quarter, as compared to the 2010 season, significant shipments moved from Q2 to Q3, in part due to the timing of the Easter holiday in 2011.

In addition, we have experienced lower sun care returns this year as we have improved our business model over the last year. While timing of shipments did shift between quarters, year-to-date our sun care shipments have grown globally with better distribution and new products. Ward will cover our business model improvement and organic growth drivers in more detail during his remarks.

Our wet shave business experienced solid top line growth versus last year, driven by strong disposable sales growth and increased Hydro sales. Despite the significant pipeline fill associated with the North American launch in the third quarter of 2010, Hydro net sales increased behind the launches in Asia and Europe, while maintaining momentum behind refill sales in North America.

Disposables grew approximately 15% on both higher shipments and favorable price mix. Offsetting most of these sales increases were anticipated declines in legacy men's system brands, due to the launch of Hydro, and the impact of the March natural disaster in Japan.

In addition, women's systems and shave preparation sales were both down modestly in the quarter due to the timing of launches and promotions versus prior year. Both are performing well with higher volumes and favorable price mix year-to-date.

I will highlight 3 other segments briefly. We had solid results in our other skin care brands outside of sun care due to distribution gains and good consumer takeaway with promotional packs. In feminine care, sales were up modestly as our growth in sport behind strong promotional programs more than offset declines of Gentle Glide.

Infant care declined modestly again this quarter across most product lines, consistent with the category. As a result, the personal care segment profit was higher by 14.5% on an operational basis, driven by higher organic sales, as just discussed, and modestly lower advertising and promotional expense. A&P spending remained at historically high levels as we continued to fund the launch of Hydro internationally.

ASR results continue to pace above our original expectations. We initially disclosed that we did not expect the transaction to be accretive on an all-in basis and only modestly accretive ex-unusuals for fiscal 2011.

Given the stronger than anticipated operating results however, we now anticipate that the transaction will be slightly accretive, $0.05 to $0.07 on an all-in basis, and approximately $0.15 to $0.20, excluding the inventory write-up and integration, severance, and deal costs.

Turning to household products, organic sales were flat as pipeline filled for new distribution and space gains in France and the US and returns from strategic international marketing investments offset continued category declines in the US and Western Europe.

Recent pricing increases on C, D, and 9-volt sizes in the US and international markets have partially offset the continued trend of value declines in the battery category. Household product segment profit was down $22 million or 24% on an operational basis versus last year's third quarter. The profit declines were due primarily to increased commodity costs of approximately $9 million and the timing of A&P spending.

During Q3, we began to feel the full effect of rising commodity costs, primarily in zinc, steel, silver, and EMD, and although our zinc hedging program has helped mitigate some of the volatility in commodity prices.

We are launching a positive energy marketing campaign globally behind our household products portfolio, and as a result, have shifted A&P dollars from the first half of the year to the second half. Overall, A&P spending is projected to be flat for the full-year. The timing shifts have impacted year-over-year quarter comparability.

Our restructuring project announced in the fourth quarter of fiscal 2010 remains on track, and we continue to estimate the total restructuring costs will be in the range of approximately $75 million to $80 million with the vast majority in fiscal 2011. We expect to generate annual savings of approximately $25 million to $35 million by the end of fiscal 2012, and have recognized approximately $4 million thus far in fiscal 2011.

The third quarter and 9 months ended June 30, 2011 included pre-tax restructuring charges of approximately $21 million and $60 million respectively. With that overview of the quarter, I will now turn the call back over to Ward.

I will walk you through each of our businesses and the key factors that are impacting them. One the positive side, we continue to make the necessary investments in our business that will drive top and bottom-line growth in 2012 and beyond.

Our personal care business continues to generate strong organic growth across the majority of our product segments. Across the portfolio, we are competing well, reflecting our emphasis on providing consumers with products that deliver superior performance and delivering category expertise and superior category solutions to our trade customers.

The Hydro men's system launch has been a key priority during this year of investment, and is a good example of our focus on satisfying consumer and customer needs better than anyone else.

With consumers, we continue to see extremely strong product satisfaction scores, and very encouraging first, second, and third repeat rates. With customers, we are gratified by strong support of our promotional merchandising programs, and we have given the vast majority of the category unit growth over the last year.

As you know, we have launched Hydro in most of our key markets, including North America, Japan, Western Europe and other markets in Asia. In the United States, we've achieved a 13.5 share for the quarter, the 12-week FDMX, of 0.8 points, versus a tough launch period comparison a year ago.

We continue to be on plan for razor trial, and we have seen that trial translate into increased refill blade share. In the most recent 4 weeks, Schick's unit share of men's refills exceeded 15%, an all-time high.

Internationally, we have also increased our men's system share behind the launch of Hydro, despite intense competitive, promotional and new product activity. For example, Hydro has increased men's share in Europe, on a cumulative basis since launch, with men's share up 1.2 points to 16% in Germany, up 1.8 points to 13% in the UK, and up 2 points to 20% in France.

Looking forward, in existing markets we will continue to focus on building Hydro awareness and generating trial. Please keep in mind that we have just annualized through the April 2010 Hydro launch in the US, and we are still in year-one launch mode in Japan, where Hydro was launched in August of 2010, and major Western European markets, where Hydro was launched in October of 2010. Furthermore, we continue to expand Hydro's presence into new markets.

For example, this quarter we introduced Hydro in Austria, Switzerland and Spain. It is obviously early in those markets, but we are encouraged by trade reception and early turns. By the end of the fiscal year, we expect to have launched Hydro for Men into 13 out of over 140 markets where we do business.

In addition to Hydro, our solid quarter in wet shave was driven by growth in disposables and our American Safety Razor acquisition. Disposable net sales continue to grow behind both the Schick and Wilkinson Sword brands, and across all areas on pricing and higher volumes globally.

We continue to leverage our portfolio of disposable products across all consumer segments in the United States and internationally to provide products to consumers at all price points. As a result, we continue to see growth and trade-up to products like Xtreme Three and Quattro Disposable, but also growth in our twin-blade disposables, like Slim Twin or Exacta. In addition, we have continued to launch and support line extensions for both men's and women's disposable products.

The value segment within disposables has continued to grow, and with the ASR acquisition, we believe we are in an even better position to participate across the globe. ASR results have been better than anticipated as we're benefiting from strong category growth globally, as well as favorable product mix and cost. Integration is going according to plan and our colleagues at branded and private label groups are working well together to maximize the wet shave opportunity.

We continue to receive very positive feedback from our trade customers about the acquisition and our increased category management capabilities across the portfolio.

We are also excited about the early results of our launch of ASR's next generation of 3- and 5-bladed products, which are in very early stages in both US and Europe. I visited several of the ASR locations 2 weeks ago, and continue to be impressed with the colleagues, management team, facilities and operational technical capabilities we acquired. I'm even more confident after these visits in our ability to strengthen our share and profit in the value segment.

In shave prep, we continue to be very pleased with this business. In the most recent quarter, global sales were down modestly, due to the timing of promotional activity behind the Edge and Skintimate brands. However, year-to-date, preps have grown nicely across our major markets in terms of sales and share, driven largely by our launch of Hydro.

We continue to leverage revenue synergies between preps and razors, cross-promoting preps to benefit our razors. We do face increasing commodity and structural costs, and have announced an 8% price increase in the US, effective in October, across the Edge and Skintimate product lines.

Moving on to sun care, we enjoyed a strong quarter with net sales growth in all of our areas, although North America remains the vast majority of our sun care business, we continue to leverage our international battery distribution capabilities to grow sun care, with the international sun care business up 11% this quarter over the prior year.

Market shares are up, we're stable in almost every sun care market in which we compete. Australia is up 1% to a 23.6 share, and Mexico has held its leadership position with a 43.6 share.

In the US, we saw sun care category growth accelerating after Memorial Day and continuing through July 4. The category grew over 4% in the latest 12-week data, and Banana Boat and Hawaiian Tropic are keeping pace with the category. Both Banana Boat and Hawaiian Tropic new products are performing very well this season.

Banana Boat's growth has been strong in all 3 sub segments -- sport, kids and baby. The Banana Boat SPF 110 spray is the number one new item in the sport segment. Hawaiian Tropic's growth has been strong in the general protection segment, and the Hawaiian Tropic Shimmer SPF 20 lotion is the number 1 new product in that segment.

As many of you are aware, the FDA has issued final rules on labeling and testing sunscreens, and is requiring that products manufactured after June 18, 2012 have compliant labeling. We have led the industry by adopting many of the labeling guidelines already, and our overall product road maps are on track to meet this timing.

We have also met with all of our top customers to discuss the category implications of the FDA ruling, and to develop joint business plans to optimally manage the transition.

As many of you know, we have a lean continuous improvement culture across all of our geographies and all of our functions. A recent lean success story can be found in our sun care business this past year, where we applied lean principles to our product return process. Specifically, due to a lean-driven business redesign effort, we decreased product returns by over 20% in the 2010 season, which translates to over $10 million in incremental profits.

In sun care, we grew net sales behind incremental promotional activities and solid trade support. We also gained share of tampons behind continued healthy growth on sport, more than offsetting slowing declines on Gentle Glide.

Switching to household batteries, the overall category continues to struggle, primarily in the United States and Western Europe. Globally, both volume and value declined 4.5% in the latest 12-week period.

As we have stated in previous communications, the Company has taken steps to restore value in the battery category in an effort to combat unfavorable category consumption trends. These actions included implementing price increases in the US on C, D, and 9-volt sizes, and across other sizes in other international markets and eliminating pack up-size in the United States, carefully analyzing trade spending investments, reducing promotional activity, and promoting trade-up from lower-priced carbon zinc to alkaline.

In North America, despite negative consumption and value trends, we are seeing some positive signs. We recently initiated price increases on C, D, and 9-volt sizes are reflected at retail. AA and AAA sizes have been restored to pre-pack upsize quantities.

We are seeing increased merchandising commitments by many major retail customers, and finally the level of promotional discounting is decreased, and as a result, we have seen an increase of 6% in the premium outlet retail average unit price in the US over the latest 12 weeks.

The benefits of these actions are beginning to flow through our P&L,as evidenced by an 11% increase versus prior year on the average unit selling price of premium alkaline batteries sold in North America this quarter. However, this positive price performance is only partially offsetting significant commodity cost increases.

In Asia, household battery consumption continued to grow. Volume was up 1% and value up 1.5% in the latest 12-week period. Much of the growth is driven from Australia and South Korea, where retailers are increasing their support of the battery category. In addition, our share position remains strong in these markets.

In Europe, the category remains challenging and the competitive environment is fierce. Household batteries in the latest 12-week data show volume down 3.2% and value down 5.9%, reflecting intense competitive promotional spending in many of the Western European markets. In the UK, we have reduced our promotional spending, which has resulted in recent share losses.

It is important to note that there are positive signs within other European markets as we continue to realize share gains in France and have expanded distribution in Russia, one of our strategic invest and meant modules.

In Latin America, we have seen stable volume and significant value appreciation in the category, as consumers trade up from lower-priced carbon zinc batteries to alkaline.

In the latest 12-week category data, volume is down 0.6%, but value has grown 9% versus a year ago. In addition, price increases have been successfully implemented to help offset inflationary pressures in many of these key markets. Finally, our share position has remained strong throughout Latin America.

We will continue to monitor device trends and their impact on the battery category, although we have recently seen positive signs that our strategies are beginning to take hold in many markets, we remain cautious in our future outlook in the battery category.

This caution has led us to adjust our battery production operating platform. Those restructuring efforts are progressing as planned, and we anticipate completing these actions during the fourth quarter. These actions are expected to yield savings of $25 million to $35 million through 2012, and better position on go-forward cost structure for anticipated future volume declines.

This is our second restructuring program in the past 3 years, that combined have led to the closure of 3 plants, streamlining of an additional plant, and the reduction of the household division headcount in excess of 8%.

We believe the actions currently underway are appropriate based upon our current projections of battery demand, and we will continue to monitor device trends and battery category trends in an effort to proactively manage our costs to ensure that we are able to remain competitive and maintain our strong margin structure.

During the quarter we took advantage of favorable credit markets to enhance our debt structure. We renewed our US revolving credit facility for 5 years, and upsized the committed amount from $275 million to $450 million. We also renewed our asset-based borrowing facility, extending the maturity from 1 to 3 years, for up to $200 million in borrowings.

Lastly, we entered the investment grade public bond market with an inaugural $600 million 10-year issuance. This offering was over-subscribed by 3 times, and was priced at a coupon of 4.7%. As a result of these 3 transactions, we have lengthened the maturity of our debt portfolio, mitigated short-term refinancing risk, and further diversified our sources of debt financing, all while maintaining the same all-in interest rate.

I am also happy to report that between July 1 and July 25, we repurchased 1.2 million shares of our common stock. This brings the total repurchased amount in fiscal 2011 to 2.2 million shares.

Due to the timing of the shares that we purchased in July, we do not expect that the repurchases will have a significant impact on full-year earnings per share in fiscal 2011. We have an outstanding Board authorization to purchase up to 5.8 million additional shares.

In closing, I believe in Energizer is well-positioned for the future. Within wet shave, the Hydro launch has demonstrated that true innovation is rewarded. In addition, our shave prep business continues to fortify our growing business in razors and blades.

The Edge and Skintimate acquisition in 2009 provided much-needed scale in shave preps, and the introduction of Hydro shave prep within the last year combined with the continued growth of the Edge and Skintimate brand has greatly enhanced our wet shave franchise.

The acquisition of American Safety Razor early in fiscal 2011 has provided capacity, management talent, high product quality, and a range of products that we believe greatly enhance our ability to generate profitable growth in 2012 and beyond.

The rest of our personal care portfolio fits together well with our wet shave business, sun care is clearly a growing market, and we are well-positioned with 2 world-class brands. Fem care, while experiencing some competitive challenges, continues to generate strong cash flows, and our infant care business continues to show strength and is well-positioned to keep moving forward.

Admittedly, our household products business has experienced challenges as secular declines in devices have adversely affected consumption of primary batteries. Even so, this business is led by the industry's most effective and experienced management team and remains highly profitable with a very strong market share position and brand equity, and it continues to generate very strong cash flows.

We anticipate that the restructuring efforts currently underway will allow us to continue to compete effectively. I am confident that Energizer's portfolio of strong brands, our global reach and our outstanding colleagues, together with the numerous steps we've been taking across the organization, ensures that we are solidly positioned for continued growth, success and value creation. Now Dan and I would be happy to take your questions.

Thank you. (Operator Instructions). Bill Chapelle of SunTrust. Sir, you may proceed.

Good morning. I just wanted to dig in a little bit to the dynamics of the battery industry, and I'm trying to understand, coming off of the bonus packs, you would have had, after the holidays, 25% more batteries sold for the same price, and is that creating somewhat of a hangover that is depressing the volumes? Consumers bought more than they would normally use for the first six months, and maybe that starts to pick up as we move back in the holidays for 2011?

I think so. I hope so. Let me be clear. You have seen an increase in consumer pantries, batteries they have at home, which we do track, and have tracked ongoing. As part of result of the pack upsizing, and all those free batteries, to your point, did go into the home and sitting there waiting to be used. That increased inventory in the households does potentially speak of a bit of an inventory glut at the household level, which we believe has impacted the category as we saw in that minus 4.5% trend. The minus 4.5% trend is frankly a little worse than where the category had been trending over the past year or 18 months, and so the real question is -- is it a blip or is it a worsening trend? We think it is a blip, based on what we are seeing in household pantries, but time will tell in the category.

Okay, and one follow-up. Can you help me reconcile the guidance in terms of maintaining the guidance, but now thinking that ASR would be excluding charges of $0.15 to $0.20 accretive versus neutral. Is that just being conservative or is there some offset to that in the current guidance?

Our guidance for this year we have not changed in terms of the adjusted guidance, and so the strength we are seeing in ASR is welcomed. Obviously, we are seeing a little bit more headwinds, and have on commodities. We've seen a little bit softer category as we just talked about on batteries than maybe we were anticipating, and so in all the mix of things, we really haven't seen a reason to change our guidance for this year at this time.

Great, thanks so much.

Sure, thank you.

And our next question comes from Wendy Nicholson of Citi Investment Research. You may proceed.

Hi, I wanted to follow up kind of on the guidance, but more importantly, in the third quarter, just to understand. I know your suggestion, I think, for the third quarter, had been that earnings would be down year-over-year. They came in a little bit better. Is that all -- now you are telling us that the battery business is marginally weaker than you had expected, so is the upside really just from ASR or some of that currency? I'm just trying to figure out which business is tracking that much ahead of your prior expectations

I would say ASR is part of that, and I am looking at Dan, but I would say sun care is a little bit part of that as well. The sun care season, this record heat, is good for our sun care business. We have seen a little bit stronger sun care than we anticipated in the past 90 days. Those would be the two that I think we are on the strong side, and again some of the battery dynamics were on the negative side picks

Got it. And then on ASR specifically, the fact that it is coming in so much ahead of expectation, is that really more top line driven, or is it, because I remember back at the beginning of the year, the reason it wasn't going to be accretive was because it looked like it was sort of an under-resourced organization, and you were going have to spend a lot more money to sort of build out the infrastructure, and yet, the beat relative to my numbers in the third quarter really was on the SG&A side. Are you finding you have to invest less on the SG&A side of ASR or is it all just, wow, top line is going great?

Wendy, this is Dan. It's really a combination of both top line and margin. Keep in mind that because of the close competitive nature of the two business, our due diligence is really limited as we went through that purchase process. As we came out of Cagney and talked a little bit about our expectations, we were still conducting due diligence, and as Ward said, we have been to the plants and the business is even better than we originally anticipated and is performing stronger than the conservative sense that we had at the beginning

Got it. And then my very last question is just on the A&P spending. I know you said it would be back-half weighted for 2011. It is playing out to be that case. As we look forward to 2012, any preliminary sense, the overall annual 2011, kind of 11% of sales? Should we be thinking that sort of stays the same again, and there may be fluctuations quarter-to-quarter or half-to-half, but full-year 11% of sales will still be the right full-year rate is for A&P?

We have not finalized our plans for 2012. I think you can safely assume that our overall A&P spending will be lower than it is this year and clearly as a percentage of sales, as we add ASR to the mix, but even into Q4 going forward, we would expect that we will moderate as the Hydro launch matures around the world.

Terrific. Thank you so much.

Thank you.

And our next question comes from Chris Ferrara of Banc of America. Sir, you may proceed.

Good morning, guys. I wanted to talk a little bit, I guess, your assessment of Hydro and its level of success. Conceding that these are US numbers, and they are Nielsen numbers that we are talking about, but it looks like the razor share is pacing basically in line with what Quattro did when it launched. It looks like refill share is maybe pacing slightly behind where Quattro was, and pricing looks like, and given it's being promoted heavily right now, looks like it's a little, it is a slight premium to Quattro, but I guess, why are the repeat rates -- how do I reconcile that with the repeat rates being so far above and beyond what you've seen historically in this category?

I guess I am looking at different data. First and foremost, the thing that has been most remarkable for us on Hydro have been the repeat rates, and the repeat rates have been almost double what we saw on Quattro, and again, certainly the highest we've ever experienced. It's that repeat rate that is so critical, because that really shows in terms of the acceptance of the product, popularity of the product. So if you follow along with the fact that our cartridge share is hitting at all-time highs, as long back as far as our history goes with Schick Wilkinson Sword, and this precedes even before we acquired it. So, it has certainly a competitive environment as we have introduced, but we are very happy. Hydro is meeting our expectations both in terms of the razor handles year one, in terms of year one trial, repeat rates are above what we expected, and cartridges, though lagging a little bit maybe our expectations, are coming in quite strongly.

That's helpful. And it looks like your level of promotion or the depth of your promotion picked up pretty markedly coinciding with the Pro-Glide relaunch. Is that an accurate characterization? Are you battling them pretty hard on the promo side?

I think that has been true since day one, if not even before day one frankly. It's probably the most competitive category that we participate in. It is also one of the most lucrative. They tend to go hand-in-hand. I think what you're seeing over the past 12-week data in particular is, we had a very good Father's Day. We nailed Father's Day. And got a tremendous amount of promotional support behind Hydro, by a number of customers during Father's Day. Which has just helped in terms of escalating our trial razor, and trial, which bodes well as you go forward into future quarters. That might be part of what you're seeing there.

Great, thank you. Just one last one on a totally different note. And I don't think I've asked this up front, but last quarter you started conference calls. I don't think anyone would dispute that earnings calls are a good thing for you guys. Now you have a very good, best-in-class press release coming out of you guys and the change in comps in the board. And you just talk about why now? I'm not going to dispute that all of those things are good things, right, but why now as opposed to a year ago or two years ago?

I'm not sure I can say why now. We have listened obviously to the Street as we have gone along and gotten pretty consistent feedback in terms of the need for better communications. Not just conference calls, I think the changes you saw in the press release has turned around to reflect some very specific and broad feedback that we solicited frankly, from the Street, in terms of how we can do a better job of communicating our message? So that's part of it.

I think the other part of it is, I think we were intentionally unusually quiet two and three years ago, because we knew Hydro was coming, but no one else did. We knew Hydro was going to be material to our numbers, and to how we viewed things, but it was a very confidential project. And so, the reticence in large part I think if you were to compare now versus 2.5 or three years ago, was pre-Hydro, post-Hydro. What we are doing in Hydro now is well-known by the world and our innovation pipeline, game plan on Hydro is pretty much well known to the world and it is material to the Company unlike most new products for most companies, we can be a little more forthcoming and not jeopardize competitive intelligence and the value that these new products generate for our shareholders.

Great. Thanks.

Thank you.

And our next question comes from the line of Nik Modi, from UBS. Sir, you may proceed.

Good morning, everyone. Just a quick question. You were kind enough last quarter to provide trade spending drag on of the blades and razors business and on gross margins. Just curious if you can give us some perspective on volumes versus price mix in the blades and razors business this quarter. Just trying to get an understanding as we think about 2012, the profit implications of wrapping the initial launch and the heavy trial and sampling. Thanks.

Our trade spending is down a little bit. It's about a 50-50 mix between pricing and mix. Last quarter it was significant enough, as you recall, that it really did have material impact on gross margin. This quarter, the impact was really due to the ASR gross margin, just including that in our financials. So, we are selling more cartridges and there's more emphasis on that as opposed to sampling, so that mix has been favorable for us.

Great, thanks Dan.

Our next question comes from the line of Alice Longley, with Buckingham Research. Ma'am, you may proceed.

Hello, good morning. I just have a couple of follow-up questions about the battery category and your share, a little bit more by region. How much was the category down in the US and Europe in value and volume in terms of what happened to your share in those two regions overall?

Alice, this is Dan. That category in the US is really pretty much similar to what happened overall, Ward said down 4.5 each, it was actually was down a little bit less in terms of value in the US, and it continues to be down pretty significantly really along the same lines within Europe.

So in the US the category was maybe down 3 to 4 in value, but down 4 in volume?

It would have been about 4.5 in volume and about 3 in value.

Okay, and what was your share overall in the US? how much was it up or down?

It was, for the 12 week period -- in the US it was pretty flat. Yes.

Globally, we're up maybe 0.5 a point, the US would be flat. Asia would be up a little bit, Latin America up slightly.

Okay, and what would you expect the battery category to be sort of on a trend line basis in the US, let's say, in fiscal 2012, sort of flat? It would be 1% to 2% in volume and flat in value? What should we use as a run rate?

This is forward-looking and we hope. We have been seeing high single digit declines during the recession. We have seen that abate. And then we saw a little bit of uptick in the rate of decline in this past 12 weeks. That's the concern we were talking about earlier. I think that's a blip due to household pantry reloading, and we expect that to get back to maybe more of a flat scenario from a value point of view, slightly negative on a unit point of view. We really don't know.

This has been the biggest question on the battery business for just the whole category, over the past five years, it is acted in ways we have not seen before, and so as we have lowered our long-term projections on the category accordingly, hence the restructuring in battery operations. There remains a question for 2012. Is it going to be flat in 2012, is it going to be minus 2 in 2012, minus 4 in 2012, I think that's the range to think about, but your guess is as good as us right now.

And maybe Western Europe will be a little worse than the US?

Right now it is, and certainly on the value side, because of the presence of private labels is an extra drag on the Europe scene versus what you find in the US. But, the US and Western Europe are the weak parts of the global battery business, and Latin America and many parts of Asia still show some growth and some trade up opportunity. We are about 75% of our battery business is in the developed world, 25% of the developing world. We are in a good position in the developing world with strong market shares in many of those markets to capture what growth there is, it's just hard to offset when you have a decline in the US or Western Europe

Our next question comes from the line of Ali Dibadj of Bernstein. Sir, you may proceed.

Thanks very much. Just a couple things. One is to follow up a little bit on the pricing question on Hydro. At what point do you expect the true pricing of Hydro from a net perspective to start showing up? In other words, are you going to be able to pull back on promo? And in some sense, is that related to what you're expecting and what you're seeing from your major competitor out there? Just a little bit of guidance on that would be helpful.

Ali, it's really hard to say. It's situational. Trial has been successful, repeat rates have been successful. And so, we have continued to promote and basically get as many handles in consumers hands as possible, given the success of the product. I really can't make a future comment on promotion, that I can tell you that we have been very successful since the launch with both the trial and promotion in getting consumer trial and the repeat rates I think reflect the success of the plans that we put in place.

So let me ask that question more broadly in the context of Ward, something you said, from the beginning of your remarks which was, look, these are investments to get a better return. How should we think about that? How do you maybe think about the return on the investment? So what is going to be the return on Hydro? Is it going to be better or worse than Quattro, especially in the different consumer environment? How do you think about the return on the restructuring in the batteries business? And I guess, perhaps more importantly, how should we think about what you mean by getting better returns by these investments? Because we are hearing from a lot of folks in broad CPG, we're investing, we're investing more, but the results are not coming through, probably because of the macro environment, and maybe probably because of the category environment for you in batteries. But can you give us some idea about how to think about that comment?

Sure. In razors and blades I think the investment model is fairly clear. You invest upfront on in terms of generating trial by getting razor handles in people's hands. And if they like the product, they will come back and buy the cartridges. The razor handles, of course, have lower margin structures, are much more expensive, are expensive to promote, expensive to get out there, expensive to advertise and generate awareness. It is the classic for any new product. The investment is up front and if it is successful, you will see the returns down the road as volume and share grows, awareness and penetration grow, and you don't have to spend as much money going forward to maintain as you do to generate that.

On top of the standard new product cycle is the reality of again the razor and blade model. Will be making money off all of those cartridges going forward, not having to spend all that money getting handles in people's hands, so it's a very powerful model when you look at razors and blades in terms of, if you could just envision what the returns would be down the road. Of course, most of the majority of the investment in the capital complex has already been done as well.

We also, on top of those two comments with Hydro is a third comment in that Hydro is not a new product per se, it is a new platform. When I say a new platform, you can imagine that there are other products we can introduce down the road off of that platform, again leveraging all the investments we've made up front. So I think, really the investments expectations that you could have on the Hydro launch are very real. We're not going to quantify or give forward guidance in that regard, but I think it's pretty apparent.

Same on the battery side. By reducing our manufacturing footprint, we will, for example, increase our batteries per capita, and battery productivity 10% just by reducing the plants. These are all more efficient, more effective ways to do business going forward. The big offset is regardless. And I think it's other consumer packaged goods companies, as well as us, is commodities.

We've seen tremendous run up in about every commodity category you can look at, whether you're talking to food guys, household guys, or personal care guys. And those run ups, in terms of just the cost of raw material going into your product, have been a tremendous headwind this past 12 to 18 months for everybody, and probably eat into some of those savings or profit payouts on the investments that everybody is making. We are confident of the investments we've made in Hydro, we are confident of the investments we are making in resizing our battery production platform, and that's really the source of our comments for 2012 and beyond.

Okay, that is helpful. Just one thing, and seems to go with launches, whether it be by you guys or your competitors. Does it feel to you that the investment period for Hydro is perhaps longer and perhaps deeper than some of the other launches? That's just kind of a clarification.

The answer is yes.

You do. And you still feel the return will be enough?

Absolutely. It's a much bigger idea, it's a much bigger platform, it's a much better product and much more successful. That's why we are at it longer.

And just one last thing about the share repurchases. Do have a sense of what the authorization, what the timing of I guess 5.2 authorization, when you want to use that? If there's any idea that you have, it would be helpful for us in terms of thinking through it.

Obviously, we are back into repurchasing our shares in returning capital back to shareholders after a few years of not doing so. We have much more flexibility in doing that right now. We still do it in an opportunistic way. Opportunistic, and various factors that come into play is what's the share price versus what we do going forward maybe. But also in terms of debt covenants, capital structure and other uses of capital. Right now, as we made our major investments in Hydro are behind us, as our balance sheet has gotten even stronger, as we've gotten through very successful debt refinancing, we have more flexibility in this regard as you see this month we talked about, and as we go forward.

Our next question comes from the line of John Faucher of JPMorgan. Sir, you may proceed.

Thanks, and I just wanted to echo Chris' comments about the press release. It made going through it this morning a lot easier, so thanks. One of the comments that you guys talked about was your blade share being the highest it has ever been, and so one of the things I'm having a little bit of difficulty reconciling is the overall growth that we are seeing at least for the US channels, I realized you have the international business, for the incremental sales that we're seeing from Hydro not showing up as much in the shipment side, as you are talk about the offset from the legacy systems, and you've had a couple of quarters of this.

Any thoughts on what we are missing from that standpoint? Is it inventory? Is it other channel data that we are not seeing? And then can you also talk about the differences versus expectations in the three-blade and five-blade product for Hydro, in terms of, are you seeing any shift down because of the cheaper option? Thanks.

I will answer this, the second part and Dan can maybe get the first part. In terms of the three-blade versus the five-blade, I would say frankly the five-blade has exceeded our expectations. In fact, we offer both options and they are slightly different products than just the three-blade and the five-blade but of course the five blade has the pop-up trimmer which is sold more premium priced in position. That is doing quite well, and frankly stronger than maybe we originally expected. Three-blade at or below what we expected, it's more of a mix issue in terms of when you get into a new product launch, you can't always call the SKUs right. But we are very pleased with the five-blade and I think that speaks to, in a time where consumers are very sensitive to value, and you hear about downtrading in some categories, our experience with Hydro launch has been opposite. In the first part of your question, I am looking to Dan.

I'm not exactly tracking with your comments now. Keep in mind that in Q3 we anniversaried the launch. We are actually very pleased with the fact that we have maintained momentum in North America, and have maintained a very large share of systems. There's been a little bit of cannibalization or attrition with Quattro and some of the other systems but overall, it's really the highest we've ever been. So, I'm not sure what data you are looking at, but we are actually pleasantly surprised that we are as high as we are.

I'm sorry, I was just going to interject. We're not seeing cannibalization rates different from what we were expecting on Quattro. What is interesting is, we introduced Hydro in the advanced of the US and the markets we've gone into, it frees up our Quattro capacity with some of our mid-tier and lower-tier markets where we are also working on growing the business.

I think we are saying the same thing. What I was basically saying was when you guys talk about it, you talk about the growth in Hydro in the press release being offset by the legacy men's systems. We are seeing the big market share gains in the scanner data. So I guess I was trying to wonder, is there anything different between what we're seeing in the scanner data and what you guys are seeing on the shipment side? it doesn't sound like that the case.

No, we are really not detecting any sort of major changes in inventories. This category is so different from batteries, where the retail trade tends to carry huge inventories because of multiple site with the batteries. Razors and blades are much leaner at retail, so we don't see much noise swings generally and we are not seeing that now.

Okay.

I'm sorry, we took a while to answer your question there.

Our next question comes from the line of Connie Maneaty, of BMO Capital Markets. Ma'am, you may proceed.

Morning. Could we talk a little bit about the lean process you employed in sun care? Could you describe exactly what happened that created so much incremental profit, and how far along you are with the programs like these and what the outlook is for other businesses?

Sure. On the sun care process, the standard lean approach, for those familiar with lean, is what you call kaizen, where you have the people involved in the value chain. In this case, sun care sales, sun care returns and processing of those returns. The people on the front lines get together and look at all the individual steps they go through to carry out that function. And when they do it in an integrated manner across sales, marketing, production, inventory control, you get individuals from each department, and you work through all of the steps they're all doing to process these returns and you look for opportunities to take wasted steps, a wasted time, wasted actions out of that process. Time and time again, when we do these kaizens, we see reductions of activities, in the neighborhood of 40%, 50%, 60%, 70%. In other words, the team says we don't need to do it this way, we can totally redesign it and achieve the same objective with 30% of the activity. That kaizen event took place in our sun care return process, and yielded the kind of benefits that we cited.

On your broader question, this is a discipline that we have throughout the organization. It started years ago, frankly, in our battery organization in the production side of the batteries. It's spread throughout the personal care division, and it spreads outside of production. So we will do kaizens on things like the annual budgeting process that affects the entire organization. What do we do to take steps out of that to make it leaner and more effective so then people can spend more time working on things that are important to customers? So that in a nutshell, is kind of the philosophy we've been following for years.

Okay, on 8% price increase in Playtex, are you leading or following the industry?

I believe we are leading on that one, and leading it for the reasons cited. Again, it's a great example of where commodity cost increases really require it. We are leading the industry on that. You are the leader in that industry. It's part of our role as leader. That's how we are going forward.

One final question. Have you already repositioned the Playtex basic tampon as a value brand or is that still to happen?

It is in the works. I think it certainly is known to trade customers. I think the Gentle Glide restage ships next month if I am not mistaken.

Our next question comes from the line of Jason Gere, RBC Capital Markets. You may proceed.

Thanks. Good morning. I guess I just want to get a little more clarity on the wet shaving, the 1% in the quarter. You talked about both the tough comp versus Hydro last year as well as maybe some of the relaunch. Can you give a little bit more color around that? I just wanted to talk, I was glad to hear about the promotional spending versus last quarter, but how should we think about that going forward? Do you think what we've seen, the levels we have seen this past quarter should continue going forward?

Maybe I will take the second part of that. On the promotional spend, again, we don't like to talk forward-looking, so to speak, but I think as Dan mentioned earlier we have certainly annualized through Hydro North America, we have laid out some specifics in our comments today about when we annualize through in Japan and in Western Europe. But then again, you have tail end markets that were not annualized through yet, and some markets that we are just introducing Hydro in. Of course, they're smaller markets, but the bulk of it should be annualized through by, I'm guessing Jan, Feb, March or so, when you throw in the Western European markets. The promotional spend is not a 12 month thing. It goes beyond 12 months, but it's really more rate of spend.

And A&P as a percent of sales has been quite high this year, but now it's off a bigger base off a bigger business as we have been successful with Hydro. And so, our A&P spending will remain competitive, but as a percent of sales, will decline in part due to some adjustments in A&P but also due to the base of the business itself. On a 1% --

Jason, on the 1%, we had about $40 million to $50 million of pipeline fill a year ago in North America, just with the initial launch. We had that due to comp. We did have some declines in legacy brands which as mentioned, were anticipated, but another element in the quarter is, last year we had some fairly large promotion and sales which we were anniversarying, which were negative. All things being considered, we feel pretty good about the 1%.

And then just --

One other thing is we were having some headwinds in Japan as well.

Okay, fair enough. And just clarification away you said earlier. I think you said A&P flat for the year. Was that dollars, percentage of sales? I just want to get a little more color on that.

I don't know that we said it was flat, I think we said it would moderate going forward. Households should be flat for the year. But overall, our spend going forward, on a consolidated basis, with personal care, it should be down for Q4.

And our next question comes from the line of Bill Schmitz of Deutsche Bank. Sir, you may proceed.

Good morning guys. On the European side of the battery business, I guess you mentioned France as being a big driver in incremental distribution. Was that a big carry forward distribution gain?

We don't, as a matter of policy, talk about specific customers, so I'm going to have to not answer your question, although there are very few very big customers in France.

Right, and did you say what the debt to EBITDA was at the end of the quarter? I didn't see it in the press release.

I don't know if we had it in the press release.

Slightly below three on a compliance basis, and that's not net of cash, that's debt to EBITDA.

Okay. Got you. And our we do for a women's system refresh at some point in the near future? There isn't a lot of talk about it, and it seems like those sales are soft, so is that getting ready for something?

Can't comment on future new products either.

Sorry.

That was our final question. I will now turn the call back over to Ward Klein for closing comments.

Thank you everyone for joining us today. We look forward to speaking with all of you again next quarter to review our fourth-quarter and year-end results. Thank you. Operator?

Thank you for your participation in today's conference call. This call will be available for replay beginning at one hour. You may now disconnect. Have a great day.