Prestige Consumer Healthcare Inc (PBH) 2016 Q2 法說會逐字稿

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  • Operator

  • Good day, ladies and gentlemen, and welcome to the Prestige Brands Holdings Q2 fiscal 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

  • I will now introduce your host for today's call, Mr. Dean Siegal, Director of Investor Relations. You may begin.

  • Dean Siegal - Director of IR

  • Good morning and welcome. As a reminder, there is a slide presentation which accompanies this call. It can be accessed by visiting prestigebrands.com, clicking on the Investor link, and then on today's webcast and presentation.

  • I am required to remind you that during this call, management may make forward-looking statements regarding their beliefs and expectations as to the Company's future business prospects and results. All forward-looking statements involve risks and uncertainties, which, in many cases, are beyond the control of the Company and may cause actual results to differ materially from management's expectations.

  • You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. A complete Safe Harbor disclosure appears on page 2 of the presentation accompanying this call. Additional information concerning the factors that might cause actual results to differ from management's expectations is contained in the Company's Annual and Quarterly Reports, which it files with the US Securities and Exchange Commission.

  • As a reminder, some of the information contained in this presentation includes adjusted results, which exclude acquisition-related and other items. The reconciliation between adjusted results and reported results is included in today's earnings release, along with a full set of disclosures about our non-GAAP financials.

  • Now I would like to introduce Ron Lombardi, our CEO.

  • Ron Lombardi - CEO

  • Thanks, Dean, and good morning, everyone. Today's agenda and presentation will cover our second-quarter performance, give an update on a few brand-building initiatives, and cover the financial highlights as well as our outlook for the remainder of the year.

  • At this point, I would also like to take the opportunity to introduce Dave Marberger, who started as our CFO last week. Dave's background is an excellent match for Prestige with his knowledge of consumer goods and retail channels. We are delighted to have Dave onboard, and he will begin presenting materials on the Q3 earnings call in February.

  • Dave Marberger - CFO

  • Thank you, Ron. It's great to be onboard.

  • Ron Lombardi - CEO

  • Great. So, with that, let's turn to page 5 and get started.

  • We are very pleased with our solid results for the quarter and first six months, which were in line with our expectations, even when factoring in the higher-than-expected FX impacts. The second quarter had strong performance across a number of fronts, including strong consumption in our core OTC brands and our international business, along with record revenues and EPS.

  • Sales were in line with expectations for the quarter and came in at $206 million, and increased approximately 14% above last year. Also, the second quarter were a record level of sales for us by almost $9 million. Organic sales growth came in at negative 0.5% for the quarter, excluding the impact of FX, as we saw a shift in shipments between Q1 and Q2 compared to the prior year, especially in our household business, which impacted organic growth by approximately 1 point during the quarter.

  • Our OTC business continued its strong consumption and sales trends during the quarter, and I'll cover more of this on slide 7 through 9. Our first-half sales growth came in at plus-21.8% and was in line with the plus-20% to plus-23% outlook we had for the period, even with a higher-than-expected impact from FX. FX impacted organic growth by approximately 3 points in Q2 and 2.5 points for the first half of the year.

  • Our core OTC brands continue to benefit from our long-term brand-building focus, with consumption growth of 3.6% in Q2 and 5.5% for the first-half of the year. Our gross margin came in at 58.2% for the quarter, which was up over 100 basis points from last year and in line with the first quarter. EPS came in at a solid $0.60 for the quarter, which was 20% above last year.

  • We also saw strong cash flow performance in the quarter with approximately $46 million of free cash flow for the quarter, which resulted in a leverage ratio of approximately 5.0 times, which is down from 5.7 times when we made the Insight acquisition last year. You can certainly see that we are continuing to build M&A and rapidly delevering. In summary, we are very pleased with our solid performance during the quarter.

  • And turning to slide 6, we have an update on the outlook for the remainder of the year. In terms of our outlook, we continue to be on track to deliver our full-year outlook and strong financial results for the year. We have updated our outlook for revenue to reflect current FX rates and now expect second-half revenues to grow between plus-0.5% to plus-1.5% in the second-half, and again the full-year to be between plus-10% and plus-11% growth.

  • Regarding our full-year EPS outlook, we now expect to be at the high-end of our range of $2.05 to $2.10. And for the outlook for free cash flow, it continues at $175 million or more with year-end debt to EBITDA expected to be approximately 4.7 times.

  • If you turn to slide 7, we'll start with our consumption trends. Slide 7 shows our last six quarters of core OTC consumption and sales trends with consumption trends on the top of the page and sales on the bottom. Over the last five quarters, we have had strong and steady consumption gains, and have outpaced the industry growth rate for most of the categories that we compete in. Consumption for the first quarter was approximately 6% and approximately 4% in the second quarter, with the first-half of the year averaging 5.5%.

  • If you look at the bottom of the slide, you can see our strong consumption levels are driving sales, and that we saw a shift in shipments between Q1 and Q2, with first-half sales up approximately 4.5% over last year for that period. These consumption and sales trends, as well as the strong performance in our international business, has us well-positioned for the remainder of the year.

  • Turning to page 8, we have more information on our core OTC performance. Slide 8 shows that our core OTC performance continues to be broad-based and is driving overall Company performance. During the quarter, we saw consumption growth across 78% of the core OTC portfolio, with our largest brands continuing to outperform the overall categories they compete in.

  • On the right side, you can see that over the last year and a half, that our largest brands have performed extremely well. Starting on the top, DC and Goody's grew approximately 9% over the last two quarters, and that Clear Eyes continues its trend of strong and consistent double-digit growth. At the bottom, Monistat continues its consumption gain trends with consumption growth of approximately 4% during the quarter.

  • I will discuss the first-year initiatives for Monistat in more detail on slide 10. These results are driven by our continued focus in investment in brand-building.

  • Turning to slide 9, we have an update on our first-half sales performance for our Investor Growth portfolio and our Managed for Cash portion of the business. This slide is important for us, as it shows the execution of our growth strategy, and how we are focusing on our core OTC brands in the international business in order to achieve our overall growth objectives. Strategy is about making choices and this is where we are focusing our investments.

  • Our core OTC and international business is where we are investing for growth, and this makes up about 78% of our sales and what drives our overall sales growth for the Company. On the left side of the page, we see that our Invest for Growth portfolio grew a solid 5% during the first-half, and that the Managed for Cash portion declined about 6%.

  • Over time, we would expect the growth of these two areas to vary, but over the long-term, we would expect our Invest for Growth portfolio to grow 5% or so, and that the Manage for Cash portion may decline 5% or more in any given quarter. For the first-half of the year, the combination of these two resulted in total organic growth of about 1.5%. Prestige's industry-leading free cash flow and financial profile allows this level of growth to result in meaningful bottom-line growth and value creation over time.

  • The next few slides give an update on our brand-building initiatives, and starts with Monistat on page 10, if you will turn to that now. We closed on the Insight and Monistat acquisitions just about a year ago, and hit the ground running to reverse a long period of consumption declines for the brand that occurred under its previous owners.

  • Our acquisition due diligence process is concentrated on developing brand-building initiatives, so we were ready to start executing on the day we closed. Our initial focus for Monistat was emphasized and focused on reversing the trends for Monistat, and concentrated on four areas.

  • First was to reengage with healthcare professionals; the second was to reconnect with consumers; the third was to improve Monistat's presence and performance at retail; and the fourth area was to begin work on developing a new product pipeline. The consumption trends on page 8 shows the steady improvement we have had, and we continue to look towards long-term brand-building opportunities for Monistat.

  • Turning to slide 11, we have an update on Little Remedies. Little Remedies is where our pediatric efforts will be focused. Over the last few years, we've expanded beyond the cough/cold category to the fast-growing digestive category, and now offer products of gas relief, gripe water, and colic relief. We have even expanded our television advertising to these products.

  • Our marketing initiatives will include efforts to engage with caregivers and healthcare professionals to build awareness of Little Remedies digestive health products. Little Remedies positioning as Everything You Need and Nothing You Don't is a point of difference in both the cough/cold and G.I. categories, and positions the brand to compete successfully at retail.

  • Turning to slide 12, we have an update on Luden's. Luden's is a classic brand that has been around since the 1890's. Over the last five years, we have aimed our marketing and new product initiatives at revitalizing and modernizing its heritage to connect with a new generation.

  • Our marketing and new product efforts have worked together to introduce new flavors, packaging, and marketing tactics to connect with this new generation. New flavors like watermelon, blue raspberry, and strawberry banana have been huge hits. This, combined with expanding marketing initiatives, has helped grow consumption at a CAGR of over 5% in the last five years in what is a very competitive category.

  • Now, turning to page 14, we'll start the finance section of today's call. On page 14, we have a summary of the financial results for the quarter, and we are very pleased with the results, as I mentioned at the start of today's call. Our results for the quarter include solid revenue, EBITDA, EPS, and cash flow, with strong growth over the prior-year for all of these items, as shown at the bottom of the page.

  • Turning to page 15, we have additional financial detail. Starting at the top of the page, we see that revenue grew approximately 14% in the quarter on a reported basis and 17% excluding the impact of FX. We had very strong gross margins for the quarter in the first half at just over 58%, which was largely in line with our full-year outlook. Consistent with past years, we expect slightly lower gross margins in the second half and expect the full-year to be approximately 58%.

  • Continued gains in gross margin allows us to increase our investment A&P, which was approximately 13.5% of sales for the quarter and first-half, and up over 23% on a dollar basis from last year for the first half. Finally, our EPS of $0.60 is worth mentioning again, and benefited from not only the higher gross margins, but also the strong sales level during the quarter.

  • Turning to page 16, we'll wrap up this section with cash flows. Our free cash flow came in at approximately $46 million for the quarter and almost $90 million on a year-to-date basis. We continue to use all of our free cash flow to reduce debt, and saw our leverage ratio drop to about five times at the end of the quarter. And we've also built our M&A capacity above $500 million through the end of September.

  • Turning to page 18, we can wrap up our prepared comments before we open the lines for questions. We continue to feel very good about the business, consumption trends in our core OTC brands and the international business, as we head into the second-half of the year. However, we do remain cautious related to the retail environment and what we see across the mass, drug, and dollar channels.

  • We've also updated our sales outlook for the remainder of the year, as mentioned earlier. Brand-building and new product development will continue to be our long-term focus, and is delivering results, as witnessed by the consumption trends of our largest brands, as highlighted on page 8.

  • Finally, we continue to feel confident in our full-year outlook, and more importantly, our strategy that is creating shareholder value. Our free cash flow outlook remains at $175 million or more. Our adjusted EPS outlook is now at the upper end of the $2.05 to $2.10 range. And our sales outlook, updated for current FX rates, is now plus-0.5% to plus-1.5% for the second-half of the year, and plus-10% to plus-11% for the year.

  • With that, let me turn the call back over to the operator and we'll open the lines for questions.

  • Operator

  • (Operator Instructions) Frank Camma, Sidoti.

  • Frank Camma - Analyst

  • So, can you talk a little bit about -- I was surprised on the A&P line actually went down as a percent of spending, kind of in light of the fact that you have rolled out some programs there on Monistat, the detailing program. Can you talk a little bit in detail about that and how that -- since it's your biggest brand, like how that might impact the A&P going forward?

  • Ron Lombardi - CEO

  • Sure. I think the first place to start at, though, Frank, is the dollar spend is up on a year-to-date (technical difficulty) [basis] 23% on a 22% increase. So we continue to increase the dollars invested ahead of the sales increase.

  • In terms of the percent of revenue for the individual quarter, in the past, we have talked about variability from quarter to quarter. But the record levels of sales over $206 million and (technical difficulty) over $9 million more than our second-highest level, certainly impacts that as well. So, going forward, we may see some variability quarter to quarter, but our intention is to continue to increase our investment in A&P over time, both in total and specifically for the Monistat business.

  • Frank Camma - Analyst

  • Okay. I guess where I was also going with that, though, is did you see any shift between the actual like A&P line and where you spread the promotional above with revenue -- coming out of revenue, I mean?

  • Ron Lombardi - CEO

  • No. We haven't seen any shift in A&P up to the gross to net lines.

  • Frank Camma - Analyst

  • Okay, good. And can you talk a little bit about retailers, inventory levels? And obviously Walmart is not expecting to be aggressive here, so I was wondering if you could just kind of talk about the mass channel and how that impacts what you are viewing for the rest of the year?

  • Ron Lombardi - CEO

  • Sure. We continue to feel good about the level of our inventory at retail. It's something we keep an eye on. And if you go back and compare our consumption to our shipment levels over the last six to eight quarters, (technical difficulty) there's been good relationships to the two, and we haven't seen either a building of inventory at retail or, quite frankly, a -- much of a recovery from the reductions that took place a couple of years ago.

  • So, we are not planning or anticipating that that will happen, that we'll see a recovery in the next few quarters or the next year, given what's going on at retail. But we don't believe we have exposure to retail inventory levels as well.

  • Frank Camma - Analyst

  • Okay. And final question just if you could remind us on the comp you are coming up against on the cold and flu side. I mean, obviously, it's a smaller component of the business today, but can you just kind of remind us of the challenge there and what the early read is on the season?

  • Ron Lombardi - CEO

  • Sure. So the first comment is, last year's cough/cold incident levels was back to more of a normalized level after a dramatically reduced level the year before. So we are comping up against what I would call a normal level.

  • It's still very early. Right now the indications are cough/cold incidents levels are slightly below last year, but there's four or five categories. And if you look at -- I believe it's cough and sore throat sections, they are actually up, which is good for our business with the Chloraseptic, Luden's and Sucrets business that we have. So, too early to tell but we'll see where it goes.

  • Frank Camma - Analyst

  • All right, thank you.

  • Ron Lombardi - CEO

  • Sure. Thanks, Frank.

  • Operator

  • Joe Altobello, Raymond James.

  • Joe Altobello - Analyst

  • Good morning, and good morning to Dave as well. Welcome aboard. I guess first question I wanted to talk about the revenue outlook for the back half of this year. I think, Ron, the last time you talked about guidance, the FX headwind was about $10 million. And I think, based on what you said this morning, we are probably looking at something more like in the $17 million or $18 million of FX headwinds this year.

  • So, if that's the case, it seems like you are implying a nice acceleration in the second-half on the organic side. So help us sort of understand what we should expect to be driving that acceleration on the organic front versus the first-half.

  • Ron Lombardi - CEO

  • Sure. So, the update in terms of the impact of FX, we originally anticipated that the year would be impacted by about $12 million. We now think it's going to be somewhere between $15 million to $17 million. As a point of reference, FX impacted us about $8 million through the first six months and $5 million in Q2. So that's the first part of it.

  • The second part of your question is that we had originally anticipated growth in the second half of the year to be between 1.5% and 2.5%. So, we are factoring anywhere between 1% to 1.5% of additional FX impact, and expect the business to have organic growth between 1.5% and 2.5% before that impact.

  • Joe Altobello - Analyst

  • Right. So if you look at the first-half, it was up 1.4%, I think, on an organic basis. So you are looking for a little bit of acceleration, I guess. And obviously Monistat should help that, but --.

  • Ron Lombardi - CEO

  • Exactly. So in the first-half of the year, we had one month of organic comp for the -- from Monistat in the Insight business, and we're going to enjoy a full six months in the second-half of the year for us.

  • Joe Altobello - Analyst

  • Okay. Got it. And then that sort of leads to my second question is, you called out Monistat, but what is the rest of Insight doing in terms of revenue?

  • Ron Lombardi - CEO

  • So the trend so far is, the other core brand within the Insight portfolio is Nix, which has done well for us over the last year. The rest of the portfolio is noncore and has fallen generally in line with the -- some of the brands are up, some are flat, and some are slightly down, that you would see within the rest of the legacy portfolio.

  • And again, for us, our strategy is all about investing behind and driving growth in core OTC in the international business. And that will more than offset the trends in the noncore and household portion of the business.

  • Joe Altobello - Analyst

  • Got it, okay. Thank you guys, appreciate it.

  • Ron Lombardi - CEO

  • Okay.

  • Operator

  • Linda Bolton Weiser, B. Riley.

  • Linda Bolton Weiser - Analyst

  • Sorry, I jumped on a little bit late, so sorry if I kind of missed this in all the numbers, but with your core consumption growth being pretty strong, your organic sales were down 0.5% in the quarter. So was that retail inventory reductions? Or is that the noncore brands that are declining? Why is the organic sales actually slightly negative? Thanks.

  • Ron Lombardi - CEO

  • So, the biggest impact on organic growth this quarter was household, which impacted growth by minus 1 point. So without the impact of household, organic growth for the quarter would've been about 1.5%. So household was the biggest factor. And then we did see a little bit of a shift between Q1, which was extremely strong for us in Q2. And we will see some variability on timing from quarter-to-quarter. So it really wasn't out of line of what we might expect. But it was largely household that impacted the organic growth rate during the quarter.

  • Linda Bolton Weiser - Analyst

  • Okay. That's -- thank you for explaining. And then, secondly, in just looking -- kind of looking at your 10-K and some of the numbers that were in there, it was interesting to look at your numbers about distribution. And a lot of your key brands have very high distribution, so there's not a lot of whitespace opportunity.

  • But I did notice that of two that were a little on the lower side, EPT and Nix were a couple that were a little bit lower on the distribution. Are you working to gain additional distribution? Or is there some reason why that's kind of it for them? I mean, is there really additional places you can put those brands?

  • Ron Lombardi - CEO

  • You know, so, first of all, we do generally have very strong distribution across our brands. If you get a large mass retailer or the drug retailers, you get plugged into their national distribution model. For us, the focus is on making sure we have all the SKUs we should have at each of the retailers. So that's kind of the general response to distribution opportunities.

  • We are constantly looking for additional distribution opportunities and making sure we have the right SKU offering. For our EPT and Nix in particular, I think we feel pretty good about the national distribution. There is maybe a little bit of regionality for head lice, which may impact Nix distribution, but EPT, I think we have good -- generally good national distribution, so.

  • Linda Bolton Weiser - Analyst

  • Okay. And then can I just ask you about this backdrop or situation we are in with the healthcare sector right now? I mean, granted you are not in the healthcare stock sector, per se, but we've seen a collapse in many of the healthcare companies' valuations out there.

  • Do you have thoughts on -- I mean, for you, you've actually retained your stock price and your valuation. I mean, does this put you in a better position perhaps to go out there and look for some companies to acquire, maybe perhaps at better values? Or can you just comment on what you are thinking about that? Thanks.

  • Ron Lombardi - CEO

  • Sure. So my first comment is, one of the things that we've talked about for a long time about Prestige is the stability of the categories and consistency of the categories that we compete in were needs-based. We've talked about the financial profile and the strong industry-leading free cash flow that we have. And if investors are looking for -- I guess what I'll call safety of consistent returns, Prestige has been kind of in that position all along. So I think this just reinforces our financial profile and what we offer to it, to investors.

  • In terms of M&A and what's going on in healthcare, many of the businesses that you are reading about being impacted by the healthcare don't generally have big portfolios of OTC. They don't concentrate in this space, so I'm not sure it will create opportunities for us or if it impacts -- if it will impact the valuations that are out there. But if you look back over history, we've seen a steady stream of opportunities at reasonable and appropriate values for us, and we'd expect that that might continue over the long run.

  • Linda Bolton Weiser - Analyst

  • Okay, thanks very much.

  • Ron Lombardi - CEO

  • Okay. Take care, Linda.

  • Operator

  • Karru Martinson, Deutsche Bank.

  • Karru Martinson - Analyst

  • I recognize it's still very early, but in terms of the potential impact from a merger for Rite Aid and Walgreens, I mean, is there any vast difference between your share of shelf with the two? Are there any concerns we should be mindful of there?

  • Ron Lombardi - CEO

  • Yes, it certainly is early to start guessing on how that's going to play out, but we don't see any meaningful difference between our distribution or our presence between those two retailers at this point.

  • Karru Martinson - Analyst

  • All right. And then when you look at kind of revitalizing brands like Luden's, I mean, what's been the competitive response? I mean, typically, you guys are the number one or the number two brand. Is there a response? Or do you kind of just start to own these categories over time?

  • Ron Lombardi - CEO

  • We compete in a lot of different categories against a lot of different competitors. So there's no one answer to that. But generally, it's a fairly competitive environment that we compete in, and we are all vying for consumers' attention and mind space. And the heart of Prestige is all about being a sales and marketing company, and that's what we focus on doing a great job on and what we do every day. So, that's how we focus and that's what we look to do to create long-term value for our investors.

  • Karru Martinson - Analyst

  • When we look at the pipeline of M&A activities, given the capacity that you are rapidly building, I mean, is the mindset kind of doing larger acquisitions or more of the tuck-ins that you can kind of plug-and-play here?

  • Ron Lombardi - CEO

  • Yes. If you look at the six deals that we've done over the last five years or so, we've done both kinds. We've done individual brand acquisitions; we've bought portfolios -- large portfolios; we've bought small portfolios. We've acquired businesses from private sellers, PE sellers and large global pharma.

  • So, quite frankly, really any of those approaches work for us. The important thing for us to do is to stay true to our M&A criteria, and the approach that's been successful and has worked for us over these last six transactions. So, really any of them work for us. And our focus is on making sure that we do smart M&A that fits our criteria, and we -- that we continue to do M&A to build out our portfolio and to acquire brands for long-term growth.

  • Karru Martinson - Analyst

  • Thank you very much. Appreciate it.

  • Ron Lombardi - CEO

  • Sure. Have a good day.

  • Operator

  • (Operator Instructions) Carla Casella, JPMorgan.

  • Carla Casella - Analyst

  • I wanted to clarify one thing. When you talk about having $550 million or a little more of M&A capacity, is that what the restricted payment basket is on your debt?

  • Ron Lombardi - CEO

  • What that is, Carla, is an illustrious calculation based on taking our leverage up consistent with past acquisitions, and that the purchase price and financial profile would also be consistent with them as well. Our credit facilities would also be able to support that level as well.

  • Carla Casella - Analyst

  • Okay, great. And Karru had asked about the merger in the drugstore space, but on the supermarket side, were you under or overpenetrated in the consolidating companies of either Albertson's or Safeway?

  • Ron Lombardi - CEO

  • No, we had typical distribution at both of those grocery store chains. So we weren't overly concentrated in either of those retailers. One of the things that's nice about the Prestige profile is that we are not overly concentrated in any category, in any brand, in any channel or any retailer in any given channel.

  • So we are very well-diversified across a number of fronts. So, as we look at all of the changes that's going on across retail these days -- and there's a lot going on -- in the dollar channel, we've got two of the three big players merging; in the drug channel, we've got two of the three big players proposing a merger.

  • We've got the other acquiring pharmacy that -- at mass retailers, and we've got the largest mass retailer looking to make meaningful investments to help drive long-term growth. There's a lot going on out there. And our diversified approach across all of those things I just explained really has us well-positioned to continue to be successful, even with all of the changes that are being contemplated.

  • Carla Casella - Analyst

  • Okay, great. And then you talked about with Monistat, and actually with your Little Remedies, this part of the strategy is re-engaging with the healthcare providers. Can you just talk about how -- has that been going as you expected? Or what has been the challenges there? And is it taking -- is it quicker or longer than you expected?

  • Ron Lombardi - CEO

  • Yes, so for Monistat and the -- getting into the healthcare practitioners' office, we kicked that off back in July. We've always expected that this is going to be a long-term investment and a long-term payoff for us, as we work over the long-term to get doctors to recommend Monistat versus the prescription. So it's going to be a long road, as expected. We're off to a strong solid start and feel good about that tactic.

  • Carla Casella - Analyst

  • Great. Okay, thank you.

  • Ron Lombardi - CEO

  • Thank you, Carla.

  • Operator

  • Kevin Ziets, Citigroup.

  • Kevin Ziets - Analyst

  • Thanks for taking my question. I just wanted to follow-up on the M&A front. If you think what the environment that we are in is any sort of more or less active than it's been in the past, in terms of -- and whether you want to shade that about the different types of opportunities, that's fine too.

  • And then secondly, just ask whether, as you look at the capital markets, do you think about pre-funding something based on the strength of various markets?

  • Ron Lombardi - CEO

  • Sure. So, again, if you go back and look over history, there's variability in the level of activity in the kinds of opportunities and the number of opportunities that show up. But over the long-term, there's been a consistent and steady stream of opportunities. We expect that to continue over the long-term. So that's the first part of it.

  • The capital markets continue to be fairly robust. Debt pricing is attractive. We are well-received by the credit markets. So there really isn't a need for us to pre-fund anything, and go out and put cash on the balance sheet in anticipation of something. So that's not likely something that we would do, because we don't really need to, and wouldn't want to incur additional interest expense and have cash sit idle on the balance sheet.

  • Kevin Ziets - Analyst

  • Understood. And then I guess just following up on the retailer caution that you expressed, is -- the commentary out of Walmart and their investments, I guess, how do you think about that in terms of whether it's more of a timing of inventory or is it a potential pricing pressures or fee pressures on your business?

  • Ron Lombardi - CEO

  • At this point, we haven't seen any fees or pricing pressures from them at this point. We'll see where that goes over time. But we are in a good category. The OTC aisles in general for the retailers are hiring per item; high turnover. Our inventory levels in general are fairly low and quick-turning for not only Walmart but most of the other retailers as well. So, we continue to feel we are well-positioned and we'll see where that plays out over time.

  • Kevin Ziets - Analyst

  • Okay. I guess just bouncing back to M&A for my last question, is there any more -- I guess, one is, does the current FX environment make you feel any differently about international opportunities? And then, two, are there any more opportunities on that front than maybe what you're seeing domestically?

  • Ron Lombardi - CEO

  • So our first priority for M&A is North America. And certainly the FX environment doesn't really impact at all. The second area of focus for us is Australia. And with the decline in the Australian dollar, it doesn't negatively impact any opportunities there, and it doesn't make us want to focus any more heavily than we already are for that region.

  • So, FX trends for us really don't have any impact on how we think about M&A. We have a very well-defined criteria that's focused on acquiring brands for brand-building opportunities. And that's what we'll stick with.

  • Kevin Ziets - Analyst

  • Okay, great. Thanks so much and good luck.

  • Ron Lombardi - CEO

  • Thank you.

  • Operator

  • Ladies and gentlemen, this does conclude the question-and-answer portion of today's conference. I'd like to turn the call back over to Mr. Lombardi.

  • Ron Lombardi - CEO

  • So, thanks for joining the call today. And we look forward to speaking again next quarter. Have a good day.

  • Operator

  • Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.