Edgewell Personal Care Co (EPC) 2016 Q1 法說會逐字稿

Good day, and welcome to the Edgewell Personal Care company's first-quarter FY16 earnings conference call and webcast.

(Operator Instructions).

Please note that this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President of Investor Relations. Please go ahead, Sir.

Good morning, everyone, and thank you for joining us for Edgewell's first-quarter FY16 earnings conference call.

As a reminder for comparative purposes FY15 first-quarter results -- FY16 first quarter results -- FY15 first quarter results include both the personal care and household products businesses with the results of the household products business presented as discontinued operations.

Historical results on a continuing operations basis include certain costs associated with supporting the operations of the household business as these costs were not eligible to be recorded in discontinued operations. As a result, EPS this quarter 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 was not comparable in the first quarter nor will it be comparable in the second and third quarters of FY16. To partially address this, we have provided normalized first quarter FY15 EBITDA reflecting pro forma adjustments to SG&A. You'll find these normalizations in the non-GAAP reconciliations at the back of the press release and on our website.

With me this morning are David Hatfield, our President and Chief Executive Officer, and Sandy Sheldon, our Chief Financial Officer. David will kick off the call, and then hand the call 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 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 restructurings, 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 10K for the year ended September 30, 2015, as amended and supplemented in our quarterly reports on Form 10-Q for the quarter ended December 31, 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 certain 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 these non-GAAP measures provide investors valuable information on the underlying trends of the business.

With that I would like to turn the call over to David.

Thanks, Chris. And good morning everyone.

Before Sandy begins, I will briefly comment on Edgewell's performance in the quarter and the status of the ongoing actions we are taking to best position the business going forward.

From a top line perspective, we had a positive start to the new fiscal year for Edgewell. Organic sales were up 50 basis points excluding the impact from go-to-market changes, underlying growth was up nearly 3%. North America returned to growth and international underlying sales grew nearly 4%. However, currency continues to be a major headwind and the global macro environment is concerning, particularly the slowdown in some international economies.

While delivering these improved results, we continue to execute on our key strategies and initiatives and remain on track with our expectations for 2016.

Turning to other key accomplishments in the quarter, our teams continue to manage go-to-market and a functional group realignment initiatives around the world and we are tracking to our milestones.

In our major commercial initiative, the execution of the changes in our international go-to-market model, we remain on plan and expect these changes will be fully completed by the end of the third quarter. We estimate that the impact to the sales this quarter from these go-to-market changes was 2.4 points in line with our forecast.

Last quarter, I had mentioned that temporary transitional issues impacted both the top and the bottom line. While we had some of these issues continue into Q1, the impact was on far fewer markets and was significantly less material. I expect that those issues are primarily behind us and should not be a material factor going forward.

The investments in our brands over the past several quarters is a contributor to our sales growth in this quarter. Spending in support of several of our new product launches including the sport pads and liners launch in the US and the Hydro silk trimmer and the groomer launch in several markets resulted in improved performance in the wet shave and the feminine care businesses compared to last quarter.

The focus we put on solidifying our US business showed through in the results this quarter was solid or organic growth up 3.5%. We continue to see improving metrics in the baseline shares along with strong holiday sales in women's systems, new distribution and shave prep, improved feminine care, and an early start to the sun care season. Outside of the US, we continue to see solid underlying growth in most markets across wet shave and sun care.

We continue to drive innovation. We are excited to be shipping our next generation Hydro line this quarter. With the new Hydro, we have upgraded almost all aspects of the mechanical cartridge. From a redesigned guard bar and reduced blade spans to a dramatically upgraded hydrating gel reservoir that is not even comparable to competing lubrication strips.

The sum of all these improvements is a shave that is significantly superior to current Hydro's already excellent shave on all measures of comfort and advanced skin care.

Looking forward, we still have work ahead of us this year on the actions we are taking to transition the Company. We are encouraged by this positive start, which gives us continued confidence in our outlook for the year and reinforces our view that we are taking the right steps to position Edgewell for future growth and success.

Thanks, and with that, I will hand it over to Sandy.

Thanks, David. And good morning everyone. I would like to turn to our performance in the quarter beginning with net sales.

Net sales decreased 7.9% as we again faced significant currency headwinds which accounted for 4.6% of the year-over-year decline. Excluding the currency impact, and the impact of Venezuela and industrial, organic net sales grew 50 basis points.

In addition, impacting our year-over-year comparability we estimate approximately 13 million sales decline in the international markets where we are making significant go-to-market changes including exits and transitions to distributors. Underlying sales, excluding this go-to-market impact, were up almost 3%, of which about one point can be attributed to shipments ahead of consumption due to sun care early season shipments and shave crop distribution builds.

Growth was driven by wet shave and sun and skin care. Wet shave sales were primarily driven by growth in North America and Asia, and sun and skin care increases were led by strong performance in Asia-Pacific.

Both North America and international had solid underlying growth this quarter. Organic net sales in North America were up 2.7%, while organic net sales in international were down 2.1%, but underlying sales were up approximately 4%, excluding the 13 million negative impact from go-to-market.

Gross margin decreased 180 basis points to 46% in the quarter. 90 basis points of the decline came from translation. Let me walk you through some of the key drivers for the balance of the decline.

On the plus side, margin benefited from global volume growth and improved mix, as well as restructuring savings. Price mix was essentially flat and some net price improvements were offset by promotional investments in the quarter. Commodity and material prices were about generally flat to the prior year overall with some positive and negatives at the segment level that generally balanced out.

On the negative side, the majority of the decline was due to transactional currency effects on product costs as we buy or ship materials and products in USD in our international plants. This should diminish as we move through the year with the largest impacts in Q1 and Q2. The remainder came primarily from higher one-time production costs in sun care related to operating levels in our plant.

Our go-to-market initiatives do impact gross margin rate negatively, but this impact in Q1 was largely offset by the benefit of the industrial exit. And finally, there was a small impact from promotional costs related to higher holiday packs shipped in the quarter versus last year.

We continue to expect gross margin's percent of sales for the full year to be generally in line with FY15 with improved comparatives in Q3 and Q4.

A&P expense was $46.6 million in the quarter were 9.4% of net sales. This was consistent on a percent of net sales basis with the prior year and in line with our plan for the year. The decline in absolute spend was mostly attributable to currency, go-to-market changes and some shifts in timing as investment and A&P can fluctuate by quarter as we support new products.

Turning to SG&A. Excluding spend, acquisition and integration costs, SG&A as a percent of net sales was 18.8%. When we adjust last year's SG&A for the cost associated with supporting the household products business that were not eligible to be reported in disc ops, SG&A as a percent of sales was up 70 basis points which was due, in part, to expected dissynergies in this transition year. We continue to work on focus areas of cost reduction to overcome the impact as the year progresses.

First quarter adjusted EBITDA was $94.4 million versus a first quarter 2015 normalized EBITDA of $117.4 million. The decline was primarily due to currency of $10 million, and Venezuela industrial of $4 million and the remaining $9 million from lower gross margin and higher SG&A discussed earlier.

The year-to-date effective tax rate was 22.8% as compared to a 4.2% benefit in the prior year. The tax rate from the prior year reflects a tax benefit of higher charges related to separation and restructuring which occurred in higher tax rate jurisdictions. Excluding the impact of the separation and restructuring, the adjusted effective tax rate this quarter was 27.7%, consistent with the prior year quarter.

Now turning to other items. Net cash used by operating activities was approximately $59 million during the first quarter of FY16. The quarter was negatively impacted by the seasonality of our business, primarily related to sun care, as well as the timing of payments per year-end accruals and other payments such as interest, which is paid biannually.

Given the seasonality of our business and the timing of our fiscal year, operating cash is expected to be primarily generated in the last half of the year with Q1 generally negative and Q2 breakeven to slightly positive. This year, however, the Company expects operating cash flow to be negative for the second quarter of FY16 due to the discretionary funding of certain international pension plans. For the full year we expect to generate positive operating cash flow and generally meet our full-year objective of 100% free cash flow conversion.

Now let's move on to the segment results. Wet shave organic net sales increased 1.1% in the first quarter. Underlying growth was up approximately 4.5% excluding the impact of international go-to-market changes of $11.5 million. This is driven by volume growth in North America, behind shave prep distribution gains and strong promotional programs, volume gains in Xtreme3 and private label disposables and strong holiday pack sales in women's systems. Asia and Latin America also drove volume growth and favorable price mix across the portfolio.

Organic segment profit declined 14% or $12.7 million driven by lower gross margins and higher SG&A. The majority of the gross margin decline was due to the currency effect on product costs in our international plan, which should diminish as we move through the year.

Turning to the category. The global, manual shave category as measured by syndicated services was relatively flat in the latest 12 week data, and we had modest share gains. The US manual shave category was down 2.8% in the latest Nielsen 12 week data with growth in women's systems and declines in both disposables and men's systems categories.

Versus a year ago our share was up 60 basis points in manual shave with gains in men's systems and disposables driven by our investments behind Hydro and Xtreme3. We also posted solid share gains in shave prep category where the overall category was down by about 1%. Note that our US branded market share results will be impacted over the next several quarters as we transition our opening price point branded product offering in a major retailer to a private label product line which we supply.

Moving on to sun and skin care, organic net sales were up 4.4%. Growth was driven by strong international sun care sales in Oceana and other emerging markets in Asia, as well as modest growth in North America due to some early season inventory builds in select customers.

Skin care sales declined in North America as competitive pressure continued to impact volumes. Organic segment profit declined $1.1 million or 30% as higher sales volumes and lower SG&A were more than offset by lower gross margin due to lower production volumes versus a year ago related to temporary changes in plant operating levels.

Within the US, the category grew nearly 5%, but keep in mind that this quarter represents less than 5% of the overall consumption in the year. Category results in key international markets continue to be favorable with growth across most key markets.

Feminine care organic net sales decreased to $2.2 million or 2.3% driven by go-to-market impacts in Asia and Latin America, which accounted for 1.5 points of the decline. Sales in the US increased 1% as volume gains in sport pads and liner business were partially offset by declines in legacy products due to competitive pressure and timing of promotions. Organic segment profit was up $3.1 million or 20% driven by lower A&P spend and improved gross margin due to restructuring savings.

The feminine care category grew approximately 3% versus a year ago with our share largely flat as share gains from our recent launch of Playtex sport pads and liners were offset by declines in legacy brands. All other organic net sales decreased $1.1 million or 2.4% as lower volumes in Ensign cups and bottles related to competitive pressure and share loss were partially offset by increased sales of Diaper Genie. Organic segment profit increased $1.9 million or 28% due to lower operating costs including favorable product and SG&A costs which more than offset the impact of lower volumes.

Turning to our outlook, as David mentioned upfront, operationally we are on track with our key initiatives. This quarter we continue to make solid progress on those initiatives, including executing our go-to-market changes, stabilizing North America, driving innovation, and continuing to invest in our brands.

However, we, like everyone else, have a close eye on macro economic challenges and the headwinds from currency. We estimate the currency will have a larger impact on both our top and bottom line for the year than we projected last quarter. But given our start to the year, and sizing some additional opportunities, such as commodity upside, we think we can offset a moderate level of additional currency impact. Therefore, we are maintaining our outlook for organic net sales, adjusted EPS and adjusted EBITDA, although continued strengthening of the dollar will have to be monitored closely.

For the full FY16, organic net sales are expected to be flat and will be negatively impacted by go-to-market changes through the end of the third quarter of FY16. For the full year the go-to-market changes are estimated to impact top line by approximately 1.5%. Therefore, underlying sales growth, excluding these go-to-market changes is expected to increase by low single digits.

Unfavorable foreign currency impact on net sales is expected to be in the range of $50 million to $60 million for the full fiscal year versus the prior outlook of $40 million to $50 million. Reported net sales are expected to decrease by mid-single digits.

Adjusted EBITDA is projected to be in the range of $440 million to $460 million for FY16 including $20 million to $25 million of negative currency impact for the full fiscal year versus our prior outlook of $15 million to $20 million.

Adjusted EPS is projected to be in the range of $3.20 to $3.40 for FY16 including $20 million to $25 million of negative currency impact for the full fiscal year.

The adjusted tax rate is now expected to be in the range of 30% to 32% for FY16. This reflects a change since the previous outlook, based on the lower rate this quarter, which is due to the favorable mix of foreign versus US earnings.

Gross margin as a percent of sales is still projected to be generally in line with 2015 as cost savings and lower material costs will help offset translation and transactional exposures.

SG& A as a percent of net sales will be in the range of 15% to 16% excluding amortization and intangibles which are expected to be approximately $15 million for the year.

A&P and R&D as a percent of net sales will be roughly in line with 2015 for the full year. Finally, restructuring related costs are anticipated to be $40 million to $45 million for the full fiscal year. 2016, we expect incremental savings of approximately $15 million and an additional $40 million to $50 million in FY17 and FY18 combined.

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 products will lag costs and be achieved largely in 2017 and 2018.

To conclude, during this quarter, we made solid progress in achieving our goals by managing our go-to-market changes, stabilizing North America, driving innovation and continuing to invest in our brands. Looking forward, we will continue to execute on these strategies in order to realize improved results and best position Edgewell for long-term growth and success.

This completes our prepared remarks for this first-quarter earnings call. David and I will be happy to take your questions.

(Operator Instructions)

Our first question comes from Bill Schmitz of Deutsche Bank.

Hi. Good morning. Can you guys hear me?

Yes. Good morning.

Thanks. Is there going to be any benefit from the shipments and maybe some additional spending behind the Hydro launch in the first quarter? I just don't know how big that pipeline still might be.

Yes. There was very, very little Hydro, new Hydro shipments in the quarter. We're actually beginning to ship as of early January almost everywhere around the world.

Okay. Great. With that have a material impact again at growth, sorry, in the March quarter?

To make a point about this versus some other launches, this is more of a flow-through, because except for limited markets, this is not a segmented launch. It is actually a flow-through, so there won't be quite as much [hype], there won't really be any hype per se. There will be promotional merchandising and that kind of thing, so we do think that it will benefit men's systems for the quarter, but it isn't like a normal segmented launch where we get hype also.

Okay, great. If it's part of the analyst day I think a big part of the use of cash was M&A, so are you guys still looking aggressively for deals, and what kind of stuff are you focusing on?

Yes, we continue to get a look and emphasize M&A. As I mentioned before, we generally look close to the core, so we are looking at things like sun care, skin care, that kind of thing.

Okay, great. Thanks for your time.

Thank you, Bill.

Our next question comes from Ali Dibadj of Bernstein.

Hi guys. I wanted to get your perspective on some North America wet shave top line momentum here, because certainly last quarter, your ex currency top line growth in North America wet shave was below the Nielsen numbers. In this quarter, it looks like it's caught up a little bit. But if one looks at the Nielsen numbers, December and January, Nielsen data for wet shave looks like it's a pretty sharp negative turn, so I mean you see the numbers, as well, probably your negative eights and negative 13.5%, all in sales. That is mostly driven by volume decline.

So, I'm sure you've seen that. I just want to understand how you explain the gap relative to your expectations. Should we just rip up the Nielsen and throw it out? Are there shelf space losses you are seeing? What is driving this big gap between your expectations and this sharp, sharp turn downwards in terms of volumes for wet shave according to Nielsen which isn't perfect but typically has been indicational.

Thank you, Ali. The first, the major part of I think what folks are seeing and in our numbers for the quarter ending January 9, Schick branded disposables consumption actually grew 5% for the Schick brand behind strong baseline shares and promotional support. However, you are right, also, the total Edgewell disposable consumption actually fell 8%, and if you look at the four weeks ending January 9, Edgewell is down 20%.

What is happening here is that we're working with a major customer to transition from one of our opening price point brands, namely Wilkinson Sword, to an owned brand of theirs which we supply. So what you are seeing, actually, for that four week period is that Wilkinson Sword is down 80%, and that's really driving it.

The net will actually be that for the next year, you're going to see Edgewell branded share negatively impacted as Wilkinson Sword brand goes away. However, we are actually confident that our private label sales and consumption will more than make up for that loss once the transition's done, which should be by springtime.

We actually believe this is good for the customer and their category, and it will be good for our sales and our profits, too. It's an example of us leveraging the full portfolio, not only trading up the premium end, but also making sure that we deal with the full category, and in this case, optimizing the value segments to satisfy their shoppers.

So, this is very helpful. So you are shifting away from the OPP Wilkinson Sword brand in this retailer, going to your private label and just to replay, so I understand. The impact on your top line is already in your guidance, and the impact on margins would actually be positive? Is that how you are describing it?

No, it is in the plan, also.

Okay, but it is in the plan. Okay. And then does that have anything to do with the ad spend, at least for the quarter, being in line with what it was last year, even though the end-of-year target is still, kind of this 14% or 15% type range? Does that have anything to do with it, or is it very much just that is the cadence of the new Hydro initiatives, Hydro launch, and so we're just going to see it ramp up based on innovation as opposed to any of this shifting around on the brand spend.

You are right. It is more of the latter. It is just timing. We held the A&P as a percent of sales for the quarter, and that is just phasing of our launches and our innovation, and I will say that it was down a little, absolutely, just because of go-to-market changes.

Okay, and if I may, my last question is on gross margin and the decline in gross margin, 90 base points decline in gross margin. I'm trying to understand that. Clearly a lot of commodities are much lower. I get your supply chain, much of the production is outside of the US on handles and such.

Is that currency mismatch really the driver of the problem? So when you say 90 basis points ex currency gross margin. That doesn't include the currency impact on commodity costs. Is that right or can you just help me figure that out?

Right. So 90 basis points was translation, and really, virtually the balance of that, of the rest of it was this higher transaction cost in the international plants. And that impacts our raw material costs, our component costs as they move into the international plants, because a lot of them are in US dollar.

Okay. Make sense. Perfect. Thanks, guys.

Thank you, Ali. Next question please.

The next question comes from Bill Schmitz of SunTrust.

Thanks. Good morning.

Good morning, Bill.

Good morning. Just a quick clarification on the currency since you last reported in November. Is it safe to say most of the change was on the Canadian Dollar or was there another thing that we should be looking out for as we move through the year.

Yes, I would say the Canadian Dollar was a big piece of it, but we also have issues in some of our Latin America currencies. I would say those are the two biggest pieces.

Okay, but you don't have much exposure to Argentina, do you?

No.

Okay.

No, Argentina and Brazil, not much.

Second, as you look at the wet shave landscape, I'm trying to understand as we talk about step up of advertising and promotion in this next quarter, is that more around Hydro five or is it kind of part of the go-to-market? It seems P&G has a new product out. They're taking the offensive as well. Is it more trying to play ball on the whole category?

I think, like we've done over time, we support innovation. You have the new Hydro launch has been planned for several years, and we plan to support it accordingly. We're actually very happy with the product. It is a significant upgrade, and we think it will position Hydro very well going forward.

But you are not seeing P&G become any more aggressive than you originally thought with their new product launch?

You know it is early days. I can't really speculate. I would think that they would support their innovation, also. I should think that it is good for the category innovation. And I don't really think this is a zero-sum. I think we are both trying to trade up our user bases. So I think this is good for the category, and we will compete and grow Hydro.

Thank you Bill. Operator, next question, please.

Our next question comes from Steve Powers of UBS.

Great, thanks. So a question on your guidance. It looks like FX is modestly worse, as you called out, but you are seemingly offsetting that within your EBITDA guidance, and at the same time you bought back some stock and the expected tax rate has ticked down a bit, I think as you described that.

Should we be implying from all that that your EPS should shy towards the upper half of that 320 to 340 range, or is there something else that I am missing?

Well, I would say, given the currency impact, I would say we're still sort of in the mid to low end of that range, but you know, there's still a lot of year ahead of us. We're still working on all the levers to help offset this currency impact. And, again, there is a lot ahead of us in the year.

Okay. And then looking through that year, I think, David, last quarter you had framed Q1 as likely one of your softer quarters from a top line perspective. And yet all organic growth came in up half a point which is right in line with the full-year guidance. Would it be wrong to still be expecting improving results as the year progresses, or has something changed in the cadence?

We're actually pleased with the quarter. The underlying growth of nearly 3%. It was solid. I think we are tempering it somewhat. We think that we might have shipped over consumption by about one point, so while we are on track for the year average, we might have pulled a little bit forward, so Q2 might actually be a little softer, but I think we will finish the year somewhat stronger.

Okay, that's great. And if I could, just kind of a broader question on fem care. Obviously, it's a business that you've tried to grow, including your predecessor company for the better part of a decade. And we've seen several innovation pushes and several advertising pushes, and I think recently there are some signs of progress. But at the same time, when I look at the consumption data, it doesn't seem to be sticking as consistently as I would like. And I'm interested in your perspective on that. Am I looking at it wrong? And if I'm not, what is the missing link, and how do you actually make that business stick and become a source of growth as opposed to almost a distraction from wet shave and skin care.

Thanks. For the quarter, we solidified share and consumption trends on both pads and particularly liners, and the US sales were actually up modestly this quarter.

That said, fem care is a very competitive category, and we've seen increased competitive spending negate some of our programs on the pads and liners front and it impacted us on our legacy tampon business.

Stepping back more broadly to answer your question, the brands that we got from J&J were in a harvest mode and were weak. We've spent time over the last year, year and a half, to invest in equity trial and then sampling, and we are seeing some improvement. I should think that it will take awhile over the medium term to get where we want to be, and namely, that is really just to stabilize the business and to hold share.

The main goal with our fem business really is to grow profitability, and we have plans over the coming couple years to really grow the bottom line. So it is less of a top line game. We think it is a solid business, and one that we can operate profitably.

Thank you. Operator, next question, please.

Our next question comes from Javier Escalante of Consumer Edge Research.

Hi. Good morning, everyone.

I wanted to come back to the gap between what we see in measured channels and what you reported. And I know that you mentioned that one point is pull forward from distribution, but could you give us a sense of how much, essentially, the growth that you showed in North America has to do with non-measured channels and private label consumption. That is one question. If it was a point in terms of pull forward, how much the other two contributed versus what we track in measured channels?

The other has to do with a bigger picture question with regards to disposables. It has to do, also, with precisely the delisting of Wilkinson Sword in one of your retailers. To what extent, could you talk about your private label strategy, and to what extent you are tackling the share losses in disposables that you are having vis a vis Bic as opposed to Gillette? And whether this is caused by a price gap versus branded big products, or is it because retailers see bigger business and better margins by delisting branded as well disposables into private label disposables? Thank you.

Thank you. Taking your second question first, this move from Wilkinson Sword, which was positioned as an opening price point brand, to a private label is just an example of what we're doing trying to leverage the full portfolio. And there is a lot of talk about the high end and certainly the news we have with our Hydro launch shows that we are committed to grow the premium segment and the category there. But with our full range, we sit down with our customers, and we really talk about all of their shoppers and where there is only arguably 20% of the units up in the super premium segment, there is a full 80% of the users and the shoppers that go through the middle tier and the value tier.

This example, we worked with a customer, and we tested what was the best option for them to best capture shoppers and to generate profits, and we found that the transition from this opening price point brand to a private label made the most sense. So that is how we do it kind of all the way through the category and with all of our customers.

You also asked about non-measured channels, and I don't really want to divulge that for competitive reasons, but I will say that in those channels we under index as a share, but we've been growing rapidly over the last couple of years. Private labels, from a similar point of view, I would rather not divulge for competitive reasons, but we've seen solid growth there also.

David, if you could follow up on your strategy, again. Because it seems to be focusing a lot on Gillette, but the competitor that is doing more damage to your business is actually Bic, and it is certainly cheaper than Gillette. Any thoughts about how you can hold these market share losses and how can you or even correct them? Thank you.

Thank you. I think the way that we are going to win is to leverage the full portfolio, so we plan to grow branded Schick disposables, and then also use private label where it makes sense from a category point of view. So we're actually committed to building our brands, and we think we can leverage the full portfolio to grow total Edgewell sales and profits.

Thank you, Javier. Operator, next question, please.

Next question comes from Kevin Grundy of Jefferies.

Thanks, guys. Good morning.

Good morning, Kevin.

Two unrelated questions. First for Sandy, if you could talk about productivity and specifically quantification of that. So not just for 2016, but beyond, because I think investors who would certainly help them in this environment where the US dollar continues to strengthen. I guess there is risk particularly in wet shave if the environment becomes a little bit more competitive, so it would be helpful if we could better understand what that opportunity is. What kind of cushion? What sort of flexibility that Edgewell had. And, Sandy, you also mentioned opportunity as you work through your productivity and restructuring program beyond just this year into 2017 and 2018. Some commentary there would be helpful. That is the first question.

Second question is for David on shave clubs. Just an update there. P&G seems pretty focused on winning in that channel. They have increased their share and they are now up to six points of market share in that channel. So maybe talk a little bit about, and I understand that you guys are supplying in a smaller way to one of the players there, but what is inhibiting Edgewell from playing in a more meaningful way in that channel, and maybe talk a little bit more about that. That would be helpful. Thank you.

Okay. So, Kevin, let me talk through some of our productivity initiatives. And I would think of them into major buckets at this point.

The first one relates to our 2013 restructuring plan, and those actions that are related specifically to us that are still in motion. And those are Montreal plant, wet shave footprint, some insourcing of aerosols, and some other insource and CIP programs.

We also had some commercial initiatives that we undertook, and those are largely complete and behind us. So for the first quarter of 2016 we incurred about $18.5 million in restructuring charges, and estimate our incremental additional growth savings in the first quarter was about $3 million. And we have a full-year estimate right now of about $15 million related specifically to these programs.

So we recognize that the size of the spend of the share which is about $40 million to $45 million and the savings feels a little off, and that's because of the size of the projects we are undertaking and the significance of what that takes to actually move some major production lines out of Montreal and into our Dover plant. So the savings from those programs really lag into 2017 and 2018. And are estimated, at this point, to be about $40 million to $50 million.

So we see big savings coming, and we're spending this year in front of those savings to make sure that we hit those. So that is the major 2013 restructuring.

The other bucket are the savings that we are, the initiatives we've taken to overcome dis-synergies. These are somewhat less visible, because they are designed to offset incremental costs and almost be cost avoidance type projects.

Just to give you a flavor of some of those. One of them is outsourcing our non-core transactional activities. That impacts many of our functions including accounting, IT, payroll, even a little customer service. These are mostly operational with plans to complete by the end of the year, and we think we've got some potential to expand.

We are also centralizing back-office functions, and that impacts predominantly accounting and customer service. And I would say those are mostly operational with some of limited potential to expand.

And then the real big-ticket item, which is the go-to-market footprint, as we've talked about, those are mostly operational and will be complete by the end of Q3. These have impacted market and area geographic functions, and include, not only exits and distributors, but also the structure and overhead we employ to manage those international businesses.

So we would estimate that all of those actions combined have helped offset incremental costs and help avoid costs of the separation of up to $30 million on an annualized basis. So beyond those actions we have a disciplined approach to cost take-out primarily in our production facilities and procurement. And we are looking at, and finalizing, our approach to indirect procurement cost improvement projects as well. You know, we are very focused on it. They are key to our goal of achieving a half a point of annual margin expansion and helping to offset some of the currency issues.

And then finally, I would say, we are implementing a new trade spend optimization tool later this year to help further drive efficiency in our trade investment. So probably, those are most of the projects we're looking at, and I would say it's an area that we are all very focused on.

Thanks. And then to the direct-to-consumer question. Our stance right now is that rather than competing with our customers in our channel partners, we would like to help them. And whether it be the brick and the clicks or the direct-to-consumer businesses, or the shave clubs, we think we are well-positioned to help them grow their total business.

Certainly with the super premium Hydro but also, as I've talked about, all the way down to private label solutions, we think we have the full portfolio to help them, and I think private label allows us to maybe manage channel rivalry. I will also make the point that we are not only focusing on shave, but actually all of our product lines through direct-to-consumer and e-commerce channels.

Thank you, very much.

Thank you. Operator, next question, please.

The next question comes from Wendy Nicholson of Citi Research.

Hi. Good morning.

I totally get that you don't want to disclose many numbers about how much of your business is either private label or direct to the shave clubs et cetera, but can you just remind us what the margins are in that business relative to your branded products, because it sounds like that sort of non-branded business is growing, and I just would love to understand the impact on your overall profitability in wet shave.

And then my second question is just broadly, kind of from a high-level, the go-to-market changes internationally. It sounds like everything is sort of proceeding to plan, but are there certain markets that are proving to be stubborn in terms of finding the right distributor or whatnot? Are there particular places where you say, gosh, this is not working. Again, just generally update us on how that process is going. Thanks.

Sure. Thank you, Wendy. On your margin question. Generally, branded products are more profitable at a gross margin level versus private label. But I will say, that once you net A&P, which you have to spend to support the branded sales, and you don't for a private label, broadly speaking the profitability or the direct product contribution from private label, is probably comparable to our average. It isn't a major issue, I guess is how I would put it. And then from the go-to-market changes, we've been fairly pleased with our progress, and we're making good progress everywhere. We were executing those changes really beginning in June, and so we have them all kind of behind us. And really there is nothing notable to call out. I think we are on trend just about everywhere.

Terrific. Thanks.

Thank you, Wendy. Operator, next question, please.

Our next question comes from Jason Gere of KeyBanc Capital Markets.

Okay, thanks. I was just wondering if you could talk about the balance between A&P spending and promotional spending as you think over the next year or two. Obviously, with some of the changes in your international markets, as well as just the ongoing, I guess, retail landscape changing in the US, too. I was wondering if you could just, has anything changed there that's forced you to rethink the strategy that you have in place where you get the better ROI in order to drive the top line?

Sure. Thank you, Jason. Philosophically, we're really looking to try to drive more efficiency in our trade and our promotional spend and manage that a bit tighter and better and over the medium term move money to more equity spend, to more advertising and digital spend; so that is the philosophy and that's pretty true everywhere.

Internationally, and in some of the markets with our change in our go-to-market, some of the A&P spend is now in the program with the customers and the distributors that we are using. So we will have to manage that with our partners. But I think, generally, the philosophy as I mentioned holds internationally also.

Thank you, Jason. Operator, next question, please.

It appears that we do have no one left in our question queue at this time. This does conclude our question-and-answer session. I would like to turn the conference back over to David Hatfield for any closing remarks.

Thank you, everyone for your time and your interest. Have a nice day.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.