Edgewell Personal Care Co (EPC) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Edgewell Personal Care Company's fourth-quarter FY15 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference all to Chris Gough, Vice President, Investor Relations. You may begin your conference.

Thank you, Karen. Good morning, everyone, and thank you for joining us for Edgewell's first full-year and fourth quarter FY15 earnings conference call. This quarter is Edgewell's first quarter following completion of the spinoff of the household products business on July 1, 2015 and as such it only includes results of the personal care business. But as a reminder, the results include both the personal care and household products businesses for periods prior to the spinoff with historical results of the household products business presented as discontinued operations.

Historical results on a continuing operations basis, including the first three quarters of FY15, include certain costs associated with supporting the operations of the household business as these costs are not eligible to be reported in discontinued operations. As a result, EPS this quarter and this fiscal year is not comparable to the prior year as the prior year's results include SG&A expense, interest expense, spin costs, restructuring costs and tax associated with supporting the household business. Additionally, EPS will not be comparable year over year as we move through each of the first three quarters of FY16. To assist investors additional reconciliations are provided in our press release.

With me this morning are David Hatfield, President and Chief Executive Officer; and Sandy Sheldon, Chief Financial Officer. David will kick off the call and then hand over to Sandy for the earnings and outlook discussion followed by Q&A. This call is being recorded and will be available for replay via our website, www.edgewell.com.

During the call we may make certain statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, the impact of go-to-market changes on sales, savings and costs related to restructuring, changes to working capital metrics, currency fluctuations, commodity costs, category value, future plans for return of capital to shareholders and more.

Any such statements are forward-looking statements which reflect our current views with respect to future events. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended September 30, 2014, as amended and supplemented in our quarterly reports on Form 10-Q for the quarters ended December 31, 2014, March 31, 2015, and June 30, 2015.

These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances.

During this call we will refer to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures are shown in our press release issued earlier today which is available in the Investor Relations section of our website. Management believes that these non-GAAP measures provide investors valuable information on the underlying trends the business. With that, I would like to turn the call over to David.

All right, thanks, Chris, and good morning, everyone. I'll let Sandy take you through the financial results and the category commentary and then we'll go to Q&A. But first, I wanted to make a few comments on the actions we're taking to best position the business going forward, the impact that those actions had on our performance in the quarter, and finally our outlook for FY16.

As I mentioned on the last quarter's call, Edgewell's priorities going into the fourth quarter were to focus on the actions needed to transition our Company to a steady state as quickly as possible. We focused on four key areas and I'll take them one at a time.

Our first priority was to complete go-to-market and functional realignment initiatives around the world. We've made significant progress to date in this regard. Remember, this is a major undertaking affecting commercial organizations in 24 countries and the many functions, including back office and supply chain around the world. Overall, we're on plan in executing these go-to-market changes. We estimate their impact to sales to be 2.3 points for the quarter, in line with our forecast.

Secondly, we wanted to continue to invest in our brands. Accelerating growth is a top priority in our long-term model and we have increased A&P and the total marketing spend as a percent of sales in each of the last two years. This quarter we spent at a rate of 17% of net sales above our projection from last quarter.

During the quarter, we decided to invest into momentum of several of our new product launches, including the Sport pads and liners launch in the US and the Hydro Silk trimmer and groomer in several markets. These actions impacted our top- and bottom-line results in the quarter, but we believe the timing was right and that they were the right call for our future growth and success.

Our third priority was to solidify our US business and here we continued to see strengthening metrics in the US market. Overall, our categories grew 1.4% in the quarter and EPC grew consumption 5.3%, holding or growing share in all of our segments except infant. Significantly, baseline shares improved on most businesses, reflecting improved underlying fundamentals and momentum into FY16.

Our fourth priority was to align our teams around the new structure and priorities. We've accomplished a great deal in these first three months as a stand-alone Company, particularly in setting up a new structure and organization and building out financial plans for 2016. But there's a lot of work yet to be done.

To summarize, we're making great progress against the key initiatives that we highlighted at our Analyst Day back in June and again last quarter. While the actions we took impacted the top and the bottom line, we see positive trends in the categories and our own share performance.

Turning to FY16. We have new innovation coming in our Hydro line and in other parts of our portfolio and we remain confident in our ability to execute go-to-market changes and complete our goal of overcoming dissynergies within FY16. We are on track with the long-term strategy and business plan that we presented back in June and our expectations for FY16 are for organic net sales and adjusted EBITDA to be flat on an organic basis compared to 2015.

As we saw this quarter, this transition year won't be linear but we fully expect to exit FY16 on a much stronger basis than we began. Thanks, and with that, I'll hand it over to Sandy.

Thanks, David. Good morning, everyone. As previously mentioned, full-year results include three quarters of both personal care business as well as the household products business with household products being treated as discontinued operations and one quarter with personal care as a stand-alone business.

As a result, adjusted EPS and adjusted EBITDA include costs associated with the household products business that were not eligible to be treated as discontinued operations. These costs affect SG&A, interest expense, other financing items, spin costs, restructuring and tax. Therefore, GAAP and adjusted EPS, GAAP and adjusted EBITDA for FY15 are not comparable with the prior year and will not be comparable year over year as we move through each of the first three quarters of FY16. To address this, we have provided normalized FY15 and FY14 EBITDA reflecting pro forma adjustments to SG&A. You'll find these normalizations in the non-GAAP reconciliations in the back of the press release.

Now let's turn to performance in the quarter beginning with net sales. Net sales decreased 14.4% in the face of significant currency headwinds. Excluding this currency impact, organic net sales climbed 7%. Excluding the international go-to-market impacts organic net sales were down approximately 5%.

In North America, trade and price promotion investments were increased to support the Playtex Sport branded pads and liners launch and promotional activities across all segments within wet shave, primarily supporting new products. This contributed to an improvement in a number of key sales metrics including increased market shares in the quarter in wet shave, feminine care and sun care. In addition, baseline shares improved, reflecting improved fundamentals.

Gross margin decreased 420 basis points to 48.1%. Gross margin declined 310 basis points excluding negative impact of currency and the change of Venezuela results, driven by increased price promotions that more than offset product cost improvements as a result of ongoing restructuring efforts.

A&P was $95.7 million or 17% of net sales. This represents a decrease of $26 million or 150 basis points as a percent of net sales due to lower investments in the quarter related primarily to timing of spend, as overall A&P in the fiscal year was up 100 basis points versus the prior year.

In the fourth quarter of 2014, A&P was at higher than normal levels due to investments supporting our acquired feminine care brands. Relative to our expectations coming into the quarter, this was a higher level of A&P as a percent of net sales.

During the quarter we saw an opportunity to invest further behind new products in wet shave and fem care which increased A&P above our initial outlook without an immediate pickup in net sales. Overall, we feel our actions will help stabilize our market shares in North America, one of our key goals coming into the quarter and will benefit the business for the medium term.

SG&A was 16.7% of sales, excluding spin costs in the quarter, which was in line with target levels. This is a focused area of reduction as we continue to overcome impacts of dissynergies. Adjusted earnings per share for the fourth quarter was $0.64, a 39% increase over the prior-year quarter. Fourth quarter adjusted EBITDA is $83 million versus a normalized fourth quarter of $110 million.

Declines to gross margin due to promotion activity and $17 million negative impact of currency were partly offset by lower A&P and SG&A in the quarter. This result was below our outlook due primarily to the decisions we made during the quarter to add support behind promotions in A&P behind recent new product launches.

Now, turning to other items that impacted the quarter. The Company recorded a pretax non-cash intangible asset impairment charge of $318 million to adjust the carrying values of indefinite lived trademarks related to the Playtex, Wet Ones and Skintimate brands. While we remain optimistic about the future potential and value of these brands, declining performance over the past 12 months impacted growth and cash flow projections. The impairment charge has no impact on cash balances, operating cash flows or our business outlook and will not impact the ability of the Company to achieve its long-term objectives.

The sale of the industrial blade business was completed in September and resulted in a fourth-quarter pretax charge for the loss on sale of $10.8 million and $32.7 million for the year. This sale enables us to provide more focus on our core businesses. Spin charges for the quarter were approximately $30 million and $142 million for the year.

Now let's move on to our segment results. Wet shave organic net sales decreased $22 million or 5.2% in the fourth quarter, driven by the impact of international go-to-market changes, transition issues in international markets and higher sales and trade promotions in North America.

Within the US, the manual shave category was down 2% year over year, with growth in women's systems and disposables offset by a 10% decline in men's systems. Versus a year ago our share was up 2.3 points in manual save with gains in both men's systems and disposables.

Our investments behind Hydro and Xtreme3 and men's systems and disposables translated into share gains. Hydro men's systems increased share 0.9 points. In women's systems our consumption was up 3% behind the Hydro Silk TrimStyle launch and increased investments.

Our global branded shave share was also up by 0.5 points driven by disposables in men's systems with improvement in four out of five top countries. This includes continued Hydro share improvement in all three segments. Wet shave organic segment profit declined $26 million, or 26%, as higher sales promotions and increased investments in R&D were only partially offset by higher volumes and lower A&P spend.

Sun and skin care organic net sales were down slightly at minus 0.3%. Growth in North America due to higher sun care volumes related to late season replenishment and promotions were almost fully offset by international sales supplies related to go-to-market changes, transition issues and promotional spending. Organic segment profit declined $1 million, or 15%, as higher promotional spending was only partially offset by higher volume and improved price mix.

For feminine care organic net sales decreased 19.7% or 16.7% in the fourth quarter, driven primarily by higher investment in sales and trade promotions in support of Playtex Sport pads and liners in North America and to a lesser extent, go-to-market and other transition impacts internationally. The feminine care category grew approximately 2.5% versus a year ago with our share increasing 5.3%, driven by our recent launch of Playtex Sport pads and liners.

Organic segment profit was down $1.1 million or 14.6% as increased sales of trade promotion spending was mostly offset by lower A&P and lower product costs. The infant and all other segment had an organic net sales decrease of $4.4 million or 9%, due to lower volumes related to competitive pressure and share loss particularly in cups and bottles. Organic segment profit increased $1.2 million or 40%, driven by lower A&P spending and improved cost mix which more than offset lower volumes.

Before moving on to our outlook, let me just wrap up the year quickly and talk to some of the key metrics and trends we saw in 2015. Full-year organic net sales were down 2.5%. These results include the impact of international go-to-market changes of approximately 60 basis points and other transition issues related to the spinoff.

After three solid quarters of growth, international sales were down 0.4% for the year, reflecting the impact of go-to-market changes in the fourth quarter. Underlying international sales, excluding the go-to-market impact, were up driven by growth in Asia-Pacific in both wet shave and sun and skin care. North America organic net sales were down 3.7%, driven by increased trade and promotional investment in the fourth quarter as well as declines in infant care.

Gross margin increased 50 basis points excluding the negative impact of currency, driven by lower product costs and favorable mix. A&P spending increased to 15.2% of net sales, up 100 basis points, due to increased investments in wet shave and sun and skin care.

Finally, adjusted normalized EBITDA was $462 million, compared to 2014 normalized EBITDA of $525 million, down 12% related to unfavorable currency, lower sales and gross margin as well as higher A&P spending, partially offset by lower spending in SG&A. Normalized EBITDA for 2015 includes an assumption of a full-year run rate of corporate SG&A of $74 million.

Looking forward, we are on track with a long-term strategy and business plan that we presented to investors in June. We will continue to build on our progress, executing on the initiatives to implement our go-to-market changes, overcome dissynergies related to the spin and stabilize North America.

The year will not be linear and we expect the first half to be more volatile due to the transition, with stronger top- and bottom-line performance in the second half. In particular, we will see the highest go-to-market and transition and currency impacts in Q1, impacting both the top and bottom line with improving trends as the year progresses.

We are providing a broad-range projection for the full year as follows. Organic net sales are expected to be generally flat for the year. Organic net sales growth will be impacted by go-to-market changes in the first three quarters of FY16. Underlying sales growth, excluding the go-to-market changes is expected to increase in the low single-digits.

We are projecting underlying growth in international, consistent with historical trends and improving trends in north America. We expect unfavorable foreign currency impact on net sales of $40 million to $50 million and therefore reported net sales are expected to decrease in the mid single-digits.

FY16 adjusted EBITDA is projected to be $440 million to $460 million. This range includes $15 million to $20 million of negative currency, dissynergies, the year-over-year impact of Venezuela and industrial and restructuring savings.

Gross margin, A&P and R&D as a percent of sales are all projected to be generally in line with 2015. SG&A as a percent of sales is projected to be between 15% and 16%, excluding corporate amortization. Adjusted EPS is projected to be in the range of $3.20 to $3.40 which excludes items such as restructuring and costs.

We expect to incur spin costs of $10 million to $12 million in FY16 primarily in the first half of the year. Restructuring-related costs are anticipated to be $40 million to $45 million for the fiscal year. And we expect incremental savings of approximately $15 million in FY16 and an additional $40 million to $50 million in FY17 and FY18. Our restructuring projects are tracking as expected and encompass the closure of our Montreal plant as well as other footprint rationalization and asset optimization projects. The savings on these larger projects will lag costs and be achieved largely in 2017 and 2018.

Finally, let me comment on our priorities for uses of available cash flow. Our priorities are to invest in the business to drive top-line growth, invest in disciplined M&A to grow and expand our portfolio, and finally, to return capital to shareholders through share repurchase. In the fourth quarter, we repurchased 2.2 million shares at a cost of $188 million. This completes our prepared remarks. David and I will be happy to take your questions.

(Operator Instructions)

Our first question comes from the line of Olivia Tong from Bank of America.

Thank you. First question is around comparison to Nielsen. Can you talk about some of the differences between sell-in versus the sell-through. There's a pretty big divergence in trends. Was growth materially different in tracked versus untracked? Did international trends change meaningfully? I'm talking excluding the 2-point hit from go-to-market. And then I have a follow-up question.

Thank you, and good morning. As you indicated, we have pretty strong consumption trends around the world, really. And international, the big difference between the consumption trends and the sales really does primarily fall on the go-to-market and the transition impacts.

And I'll just preface there, I'll take a moment to define what we mean by each of those terms. Go-to-market, when we talk about that, we really mean almost the mathematical result of turning our own business over to third parties, where you lose both the pricing and the gross margin that the third party has to get. So that's a little bit mathematical and we modeled and we planned for that, plus some temporary volume erosion.

Transition impacts are where we've seen in the many markets where we weren't really changing the model, but with the separation we've had places where we have very new management or even gaps. An example there would be Latin America where it's been a regular growth area and this quarter we actually saw it fall over 20%. So we had some of those impacts. So anyway, internationally between go-to-market and transition, that was the major difference between consumption and sales.

When you move to the US, it gets a little more complicated but it's basically -- in a manual shave we did have an impact in promotions in the quarter, which impacted sales. And we also had a comparison with a prior-year accrual that impacted us. Secondly, fem care was soft coming out of a pipeline in the previous quarter, plus pretty significant trial promotions that we put in place in the quarter. So those were the big impacts. Sandy, did I miss anything?

No.

Got it. If I could follow up on pricing versus promo and the impact on sales and margins. Obviously you mentioned heavy trade spend in quite a few categories. It might be helpful, I don't know if you're willing to provide it, but the volume versus price breakout, particularly in feminine care and shaving.

As you think about your organic sales expectations for next year, what do you have embedded in there in terms of price promo? Are you looking for -- because you're looking for a fairly decent acceleration excluding the go-to-market impact. And I'd just be curious on the key drivers of that. Is it primarily volume-driven or do you think you can pull back on some of the promotion spending that you did this quarter? Thanks so much.

I could maybe touch on that and I'll then ask Sandy to augment it where she thinks I should. We're holding our overall marketing spend generally versus this past year. And I will say we will put a lot of calories against marketing mix but then trade promotion management.

I think we've been putting in tools over the last year that really help us. We have a major system we want to put in to really automate that. That was put on hold during the separation and we're accelerating that. And in the meantime we have tools that the teams had been using and we want to turn that up because I really think one of the keys here is to optimize our trade spend. With that, I'll hand over to Sandy.

In the quarter I would say that the biggest impact related to promotional spend and price mix. We did have some volume pickup to a lesser extent in wet shave. And in the US we also had some volume pickup in fem care but some of that volume was internationally. As we were going through some of the go-to-market on fem care, we exited a large market outside the US which impacted our global performance on volume. But to answer your question, the majority of the impacts in the quarter were price mix.

Thanks, Olivia. Operator, next question, please.

Thank you. And our next question comes from the line of Nik Modi from RBC Capital Markets.

Thanks for the question. I was wondering if you could provide some context around how you're thinking about the cost structure generally. I know it's messy right now with all the carve-out accounting and you guys are getting your sea legs. If you could conceptually give us some thoughts on how you're thinking about it longer term so we can think about it as we look at our long-term models. Thanks.

We've had a culture of cost control, and since 2008 we were successful cutting SG&A 500 basis points. We just completed taking another $90 million out with our 2013 work. As a public Company going forward, we're looking to take $30 million to $40 million more out over the next two years. And as a percent of sales what are we shooting for, Sandy?

On SG&A we're shooting for 15% as we exit this year, early into 2017.

We've been working hard to defeat the dissynergies. A lot of the go-to-market work that we've done was really designed to simplify the organization, take layers out, lean it out. That's one of the major ways that we're going to defeat dissynergies. We have a lot of work to do yet and it's one of our key focal points, but we're making progress.

And then, Nik, just to add onto that, from a product cost perspective, in the near term we're expecting relatively flat costs going into 2016 from a materials perspective, commodity perspective. So we're feeling pretty good about where we are with cost of goods and not seeing any major issues there with commodity costs or other input costs. Over the long term, as David mentioned, we're working on all of our operational and footprint projects that will lower costs over the next two to three years.

Thanks, Nik. Operator, next question, please.

Thank you. And our next question comes from the line of Bill Chappell from SunTrust.

Thanks, good morning. Just want to dig a little bit into when you're looking at the organic growth next year, your thoughts and how that's changed on the category growth. Are you seeing any meaningful slowdown in category growth as you look to next year for wet shave or for Feminine Care? Or is it really more market share related?

Thank you, Bill. We're actually seeing market growth at similar trends that we've seen over the past year. They rebounded somewhat from a few years ago and they seem pretty stable.

So we see shaving growing as a category in Asia, LatAm, parts of Germany. We actually see it pretty stable in North America, down a little in Western Europe. So overall, the category we see growing modestly which is pretty similar to what it's been over the last year. We see modest share growth for us around the world, fueled by solidified baseline shares which are really driven by share of shelf, our brand equity and our innovation.

Sun care we see growing internationally and we see growth there, primarily through market expansion internationally and then growing where we are internationally. We see fem care category pretty flat and we may gain modest share but not much. We see basically holding fem care share.

Finally, the model going into next year is we see infant falling somewhat, less of a decline than what we've had over the last couple years. We're working hard to turn that around but we don't see that happening before the end of the fiscal year.

Okay. And as a follow-up on sun care, if you look back over the past year or the past season for the US market, what kind of growth was there? And what was the impact of weather?

Sun care's been a complicated story. And I hate talking weather but you can't avoid it with sun care. We had a record wet spring and then early summer and the market was terrible and I think major customers really shied away from bringing inventory in. And then as most of us know, the weather turned around in the summer and the late summer and actually there were weeks and a month there where the market was up 25%.

So through that roller coaster the market ended up being up, I want to say, 3% or something. But it didn't really accrue very well to the manufacturers, given the inventory stance of the major customers. So we didn't benefit by -- we have relatively seasonal share where we really benefit when folks buy protection brands going into summer. We didn't get quite the merchandising that we normally would. So we had a flat to slightly down share year.

When we plan for next year, because of weather, we just don't get ahead of our skis in budgeting for sun, so we plan it to be flat. Over the medium term, this category ought to grow with the household penetration being well below 50%. We need to get folks to use it and we see it as a medium-term growth category.

Thanks. Operator, next question, please.

Thank you. And our next question comes from the line of Bill Schmitz from Deutsche Bank.

Hey, guys, good morning.

Good morning, Bill.

Philosophically it seems like everyone is shifting advertising money to promotional spending. I'm wondering, is that competitive-driven or is that more retail-driven? When do you think you toggle back?

Conventional wisdom is you rent share with promotion but you build long-term share with advertising. So I'm curious if you think that's still the case and how long the onslaught of contra-sale promotion is. It's not just you guys, by the way, it's everybody.

This quarter was a little bit of an anomaly and I think we've been working hard to try to move money to equity building in support of innovation and we see those efforts continue. I think this quarter was a little unique. I think that our game plan going forward is to work really hard to increase trade promotion efficiency and then move money to brand building and support innovation.

Okay, great, that's helpful. And then do you have a response to the forthcoming Gillette launch in December and January? I'm sure that's going to also be accompanied by a lot of media and promotional spend.

And then, part and parcel with that, why is 17% of sales the right A&P number? I'm curious, like is it based on your share of voice relative to the share of market? How do you come up with that? My guess is that the different businesses probably spend materially different levels of advertising based on where they are.

Yes, on that second question first, we're actually targeting on an annual basis between 14% and 15%. We feel like that's an appropriate level given where our brands are. And you're right, that's a product of working out the required share of voice versus share of market and the weighted average of all of our different businesses which are supported very differently. So you're right to think about it that way, so 14% to 15% is where we see it.

We know Gillette's coming and we're building plans to succeed around that. We also, for a while we've been planning, and we will launch next-gen Hydro come early next fiscal year.

Calling it next generation actually does a disservice to it. Hydro, when we launched it back in 2010, we were the first system that really staked out a claim against comfort and skin care. With this next gen, we have upgraded almost all aspects of the mechanical cartridge and the result is a shave that is significantly superior to current Hydro in all of our measures of comfort and skin care. So that's a pretty high bar. So we're really bullish about this for the medium term and that's our play in the systems side for the next couple years.

When was that launch, did you say?

Early next calendar year.

Okay, thanks.

Thanks, Bill. Operator, next question, please.

Thank you. Our next question comes from the line of Kevin Grundy from Jefferies.

Thanks, good morning, guys.

Good morning.

Sandy, a housekeeping question, then I have two broader questions. Could you provide for us the ending cash and debt balance as of year end? That would be helpful.

And then the broader question for both of you, actually, is visibility on returns on your spend. So I think we've discussed in length the decision to increase trade spending and advertising and marketing. But the top line was still weak and understanding its gross to net, do you feel like you have the right tools in place to measure returns on your spend, number one?

Number two, were you satisfied with the trade spend return? That's more immediate, understanding the advertising marketing piece is longer and hopefully you'll see that here as we move into next year.

With respect to that, what gives you the confidence with that spend that we're going to see a reacceleration here given your guidance of low single-digit organic sales? And then I have a follow-up. Thanks.

Okay, Kevin, I'll start with your balance sheet questions. Our ending cash balance was around $700 million at the end of the year and our debt balance was $1.7 billion.

Thank you.

Generally in line with Investor Day, albeit with some debt increase as we updated -- or as we repurchased the shares in the quarter.

Okay. And then on your questions about trade spend, I think it's only been over the last year or two that we've gotten some reasonable tools. I think the teams are using them now and are doing the quadrant analysis of ROI and the lift.

As you might guess, there's many promotions that are high ROI and high lift but there's many, many that are in the bottom left one where we're not getting the proper ROI. It's only been the last couple years I think teams have had the tools to even look at it at that level.

We're not satisfied with that but we're making progress. As I mentioned, we have an IT project to really automate it and to allow customer plans to be pre-analyzed, not only post, but also pre-analyzed and then optimized. I think we will make a lot of progress here over the next several years.

So that's one part of why we think that over the next year we will begin to get to our medium-term algorithm. It's a combination of category growth, baseline shares, behind share of shelf and then equity spend and then innovation like the new Hydro, like our Sport pads and liners launch, that kind of thing. You then layer on trade spend optimization and I think that we'll do a better job in the coming years.

Thanks, Kevin. Operator, next question, please.

Thank you. And our next question comes from the line of Ali Dibadj from Bernstein.

Hey, guys. So yes, two questions. One is I wanted to go back to the top line. Maybe I'm confused but you went from a negative 7% to a negative 5% because of just go-to-market. But then I think you said consumption was positive. So I'm trying to bridge the gap between that negative 5% and the positive consumption. Is that all the transition issues or are there other things to close that gap?

No, part of that minus 5%, there's some transition issues. But then there was some -- so there was transition issues. There was a little bit of category softness in Southern Europe. But then it really reflects the investment that we made against the fem care launch and then some legacy declines.

But I think the biggest point there, maybe talk a little bit more about fem care. What happened, I actually mentioned last quarter that the distribution build on the fem care launch was slower than we had hoped. Well, this quarter we actually got it to where we wanted it, both from an ACV weighted distribution point of view, but also merchandising.

That, combined with the fact that the repeat rates have been very, very good because the product's performance has been very well received. So repeat's good and then we got the shelf where we wanted it. So we really topped off the launch and added trial generation promotions on it. I think that was a major part of the decline.

Wait, I apologize, I'm still confused. So the negative 5% -- I think you said consumption was up some percent. Does that consumption number exclude what you just said in terms of pricing? In terms of the promotion you put behind or the investment you put on fem care? I'm still trying to bridge the gap between the negative 5% and the consumption which you said was up. I'm just struggling what's in those. So if you could clarify that.

Because I know I'm going to get cut off, let me throw in another question which is around divestiture. Industrial blades, why the loss and what else should we expect divestitures, particularly from all other? Thanks.

I'll answer the second question and I'll hand it to Sandy, to see if you can help a little bit more on that. On the divestiture, it was a non-core business and the loss was an accounting loss based on how we had to capitalize it when we bought it, back three or four years ago. It was a non-core business and it made sense to let it go.

Other one, that's an example of where we look at the portfolio regularly. I won't really comment on that but we look at all of our product lines on a regular basis.

So back on the consumption, is that what you --

Yes.

Back on the consumption. I guess the best way we can describe it is where David was, which is we saw great retail off-take. And mathematically certainly we had gross sales increases, but we were promoting the product, so that was depressing our net sales.

Beyond that, I'm not sure how else to help you understand it. I think the good news is the promotions were working and we were getting the off-take and that's where the consumption was coming. The timing of the promotion -- for instance, some of the promotions were very back-end loaded in September, so we won't see that uptick until 2016. Some of them did generate volume later in the quarter, it just was not enough yet to offset the price mix. And I think that's the best way we can describe it.

Okay, thank you. Operator, next question, please.

Thank you. Our next question comes from the line of Chris Ferrara from Wells Fargo. Chris Ferrara, your line is open. Could you check your mute button, please? They may have stepped away from their phone. We will move on. Our next question comes from the line of Jason English from Goldman Sachs.

Good morning, folks. Thank you for the question. A couple of quick ones. I think you gave SG&A guidance excluding corporate amortization. First, is that right? And then if so, can you give us the quantification for the corporate amortization that you expect next year?

Yes, you're right, the 15% to 16% excluded corporate amortization and that amount is somewhere in the $15 million range, $14 million to $15 million.

Thank you, that's helpful. Now, moving on to market dynamics. Two-fold question. First, can you give use little more color on what you're seeing in Europe? Particularly in context of Bayer Store's decision to build it themselves and start expanding.

And then on North America, I think in your remarks you said you expect stabilization of the North America wet shave market. Given recent trends, it's hard to have confidence in that, given the erosion. Can you give us some of the assumptions that underpin that outlook?

Okay, great. Why don't I tackle that first? What you're seeing is systems measured within Nielsen and that's particularly soft right now. It's down almost 10% as the market has to comp the razors that came along with Gillette's FlexBall launch last year, so it's particularly soft. But then women's and then dispo's up. So Nielsen's down somewhat but not as much as systems.

Then the untracked channels continue to gain share. So whether it be clubs, dollar stores or the direct-to-consumer subscription models, those are taking more and more share. When you add those back in, the US market's actually flat to up slightly.

Might be down a little; I don't do the math every quarter and I think this one's pretty soft. So the total US market might be down in this quarter modestly. But I think if you look at it over the year or so, it would be flat to up modestly.

About Bayer Stores, they launched a -- they have a razor that's part of a regiment plan where they're trying to sell skin care to women. They launched a test market in Austria and they've now rolled that out into Germany, into a large retailer. We are watching it and have defense plans but that's basically like one women's razor in a larger skin care launch.

Thank you, that's helpful. One quick follow-up on your comment on US growth. The growth is happening in unmeasured channels. Can you detail your participation in those unmeasured channels, whether it be club, dollar or direct-to-consumer, particularly the DTC stuff?

We don't participate actively in the club, in the dollar store and in direct-to-consumer. I don't really want to talk about particular customers but we have a significant growth in all those that I listed.

Understood, thank you so much.

Operator, next question, please.

Thank you. And our next question comes from the line of Steve Powers from UBS.

Thanks. I have a number of modeling questions I can cover off with Chris later. If I could focus on two questions here. First, you bought 2.2 million shares in the quarter at about $85. And yet I think your outlook assumes essentially no or very few increment buybacks in 2016. I'm curious as to why that is, especially with the share price now lower.

Secondly, you must be aware of all the discussions that surround your stock regarding potential interest from a strategic buyer. Discussions that probably only intensify as we get further away from the spin date and reach expiration of the shareholder rights plan.

How are you thinking about that? And specifically, how do those considerations impact your day-to-day lives as managers? Do they impact employee morale and motivation? How do you ensure focus, I guess, is really the question. And related to that, should we expect any extension of the poison pill into calendar 2016? Thank you.

Thank you. No, we don't plan to be a poison pill. We'll let that lapse. How we focus, I think we only focus on what we can control. I think we've talked a lot with colleagues about that and the fact that our mission is to build a great personal care company, one that wins in the marketplace and is good to work in. That's our goal. Everything else is just speculation and it's outside of our control.

And on the share buyback, like we said back in Analyst Day, it's one of our priorities for use of cash after putting cash back into the business. Either to fund innovation or else cost reduction or else disciplined M&A that then comes next. We'll use it opportunistically like we have in the past.

Okay. Just to clarify, the guidance does assume essentially no incremental buybacks. Is that a fair read?

Yes, that's correct.

That's the assumption, yes.

Operator, next question, please.

Thank you. Our next question comes from the line of Javier Escalante from Consumer Edge.

Hi, good morning, everyone. I would like to tackle the whole gap in the top line in a different way. So if you could please tell us what was the organic sales in the US versus international piece? And confirm whether all these changes in distribution were actually on the international side as opposed to the domestic side. So that would be very helpful.

The other would be if you can tell you us of the gap, which I understand is from minus 5% to 5%, how much was the timing of shipments? Say that the 1% organic growth that you posted in the prior quarter was anticipation and was sell-through this quarter and thus the disconnect. How much it is the actual increase in trade spending?

And when it comes to the increase in trade spending, is this permanent? It was tactical? And should we expect, then, organic sales to ramp up in Q1 because of the timing of the shipments?

So if you can explain those, organic sales in the US, the impact of timing on the shipments, whatever fell into the past Q3 and whatever was draw-down of inventory this quarter. And how much was the actual trade promotion and to what extent this is a permanent increase or this was something tactical? Thank you.

That's a lot. I'm not going to be able to do that total justice. Let me just say this was a rare quarter and I think that a fair amount of the ramp-up was tactical behind the -- it isn't permanent. It was a top-up and a complement to the fem care launch, so it's trial devices with that and I would not use this quarter to model forward.

I don't know how to better ladder the consumption to the sales than what we've said. It's a combination of fem care, promotion on manual shave, so --

Could you tell us at least what was organic sales growth in the US?

I don't have that.

We don't have it right in front of us. I believe it was -- I think it was down 5% to 7% -- down 3% to 4% in the quarter. North America was down 3%.

Shipments were down 3% to 4%. The last clarification that I would like to -- you mentioned that promotions were working. Does it mean that in the next quarter sales should ramp up?

No, I wouldn't want that to be the take-away. In fact, I think, particularly because of the go-to-market changes internationally and the transition issues, I think Q1 will actually be one of the softer quarters that we have. I think that we'll ramp up after that. But I think Q1's going to be pretty soft primarily because of international, yes.

Finally if I may, one more, one more clarification. If you can talk about in wet shaving which part is doing better, the branded or the private label? In your end in terms of your shipments, not retail sales because we already know retail sales. But in terms of your shipment, which part of the business is doing better, private label or the branded side?

At least for now, I think we're going to shy away from really breaking out or commenting private label. I'll just say that they're both growing pretty well on a gross sales perspective.

Next call, please, operator.

We have no further questions at this time. I would like to turn the conference back for any additional comments.

No, thank you all very much for your time and your interest in Edgewell. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.