EDGEWELL PERSONAL CARE Co Q4 FY2021 Earnings Call

Good morning, and welcome to Edgewell's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Chris Gough, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us this morning for Edgewell's Fourth Quarter and Fiscal Year 2021 Earnings. With me this morning are Rod Little, our President and Chief Executive Officer; and Dan Sullivan, our Chief Financial Officer. Rod will kick off the call, and he will then hand it over to Dan to discuss our results and fiscal year '22 outlook, and we will then transition to 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, savings and costs related to restructurings, changes to our 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 Factor in our annual report on Form 10-K for the year ended September 30, 2020, as may be amended in our quarterly reports on Form 10-Q. 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, except as required by law. During this call, we will refer to 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 is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. Management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business. With that, I'd like to turn the call over to Rod.

Thanks, Chris. Good morning, everyone, and thank you for joining us on our year-end earnings call. As you saw in the results we posted earlier today, we closed fiscal 2021 on a strong note with clear momentum. A year ago, amid the ongoing pandemic with much uncertainty around the globe, we pressed forward with an aggressive set of objectives and launched our new growth strategy while providing a financial outlook that calls for sustained top-line growth, margin expansion, commercial reinvestment, and earnings per share growth. Today, I'm pleased to report that we are tracking well against all of those objectives, exceeding our financial commitments for the year while executing on the strategic initiatives that are vital to driving sustainable long-term growth for our company. This performance is a testament to our team members who have executed with excellence in a challenging environment, and it also reflects meaningful investments in our brands, the strengthened innovation pipeline, and increased digital engagement and capabilities. This was evident in our fourth quarter results and contributed to organic net sales growth of more than 8%. Our top-line strength was broad-based with growth in both our North America and international markets as well as across all segments. With strong sales momentum and disciplined operational execution, adjusted operating profit increased 41%, and adjusted earnings per share increased 71%, providing for a strong finish to a very good year. Now let me turn to the full fiscal year. In a year in which first-half sales were heavily impacted by ongoing COVID-19 restrictions in many regions around the world, and the second half was impacted by severe macro supply chain challenges, we grew organic net sales by nearly 4%. We benefited from improving consumption across all categories. And our results were underpinned by strong execution and accelerated growth in Sun Care, Women's Shave, and Men's Grooming. For the year, adjusted operating profit increased 8%. Adjusted EPS increased 11% and adjusted EBITDA increased 7%. This project fueled gross savings of $68 million combined with improved revenue and overhead cost management that helped mitigate significant inflationary pressures that increased as the year progressed. By all of these measures, we exceeded our initial full-year outlook as well as the financial targets outlined in our long-term financial algorithm that were discussed during our Analyst Day 1 year ago. Before we review our segment results, I want to comment on the broader operating environment. As was evidenced in our results this quarter, we are seeing a healthier demand environment across many of our categories, particularly in the United States, and we are encouraged that we will likely see further improvement over time in regions of the world that have yet to experience a full recovery from COVID-19 peak levels. With the improving demand environment, we are committed to investing in our brands, and our teams remain focused and agile, even as the challenging operating environment persists. We also continue to see heightened cost pressures across many commodity categories as well as higher wages and transportation costs. In 2021, gross savings from Project Fuel and enhanced revenue management efforts enabled the business to offset many of these unprecedented increases. As seen by the success of Project Fuel, we have built a strong core competency of continuous improvement, and this discipline is embedded in our go-forward plans. Our teams will continue to execute on productivity and efficiency efforts, and those savings will be one of the levers at our disposal in 2022 to help offset some of the expected cost headwinds. As discussed last quarter, in the spring, we took a double-digit price increase across our Wet Ones business. And last month, we implemented a mid-single-digit increase across our Fem Care business. Over the last few weeks, we have also announced to retailers in the U.S. that we will increase prices across additional areas of our portfolio, with these increases more surgical in their approach and the ultimate amount and timing specific to the category and brand. Outside of the U.S., we are also taking price actions to help offset the rising inflationary pressures being felt by all. Dan will discuss this in more detail. Now let me take you through a few of our segment highlights. Our right to win portfolio of Sun, Skin, and Grooming brands was the catalyst for top-line performance in 2021, delivering 13% organic sales growth and strong market share gains. Our Sun and Skin Care segment was a bright spot for the quarter and the year, reinforcing our Sun category leadership position here in the United States. Organic net sales increased by 25% for the quarter and 13% for the year. Sun Care led the way with organic net sales increasing more than 55% for the quarter and 16% for the year, driven by strong consumption and share gains in North America. We gained share in the quarter, the year, and on an adjusted 2-year basis. And despite the difficult supply chain and regulatory environment, our teams rose to the challenge, meeting the increased demand from both retail customers and end consumers in the quarter with our Ormond Beach, Florida facility producing at a rate 90% above expected run rate levels. Organic net sales in our Men's Grooming business, driven by Jack Black and Cremo, increased by nearly 21% for the quarter and nearly 15% for the year. In Personal Hygiene, Wet Ones' organic net sales decreased 7% against an 85% year-over-year increase in the fourth quarter last year. While category consumption is down compared to a year ago, we regained significant share in the category, and we are benefiting from our price increase in the spring as well as the introduction of Wet Ones Plus, a stronger in-stock position, and less secondary brand inventory on shelf. Wet Ones now makes up 9 of the top 10 selling SKUs in the category. Our Wet Shave business delivered another quarter of growth with organic net sales increasing nearly 4%, reflecting strength in both the North American and international markets as sales rose in Women's Systems, Disposables, and Private Label. Wet Shave organic net sales increased 2% for the year. In Feminine Care, organic net sales increased nearly 10% in the quarter, reflecting increased consumption compared to a year ago as well as an improving share trend, led by share gains in Playtech Sport. Although organic net sales decreased 4.5% for the full year, we've now posted 2 consecutive quarters of growth and we've stabilized our share position as the solid #2 player in the category. Almost exactly 1 year ago, we outlined a bold path forward for Edgewell. And 1 year into our strategy, we have delivered and beaten our ambition. The progress we've made in 2021 has now positioned us to deliver an outlook for 2022 that calls for another year of top-line growth while maintaining an investment stance for the business. Although ongoing cost headwinds are projected to negatively impact gross margins for the year, we will not veer from our investment mindset, and we still expect another year of adjusted EBITDA and EPS growth in 2022. Finally, the strength of our financial performance demonstrated operational progress, strong balance sheet and free cash flow profile, coupled with our commitment to maintaining a balanced and disciplined approach to capital allocation to drive shareholder returns has led to our announcement today of our intent to repurchase approximately $300 million of common stock over the next 3 fiscal years, reinforcing our pledge to increase our return to shareholders. And now I'd like to ask Dan to take you through our fiscal year results and also provide details on our outlook for fiscal '22. Dan?

Thank you, Rod. Good morning, everyone. As Rod discussed, we're pleased with the strong sales and profit growth for both the quarter and full year as we continue to make good progress against our strategic initiatives outlined at our Investor Day a year ago. By executing on our objectives this year, despite increasing supply chain challenges and cost headwinds, we see the impact that predictable top-line growth, committed and disciplined commercial investment, and strong cost control can have on our results and on our overall business model. For the year, organic net sales increased 3.7%. Adjusted gross margin increased 30 basis points. A&P spend increased $25 million and 50 basis points in rate of sale. Adjusted SG&A improved 30 basis points in rate of sale. Adjusted EBITDA increased over 7%. Adjusted EPS increased 11%, and net cash from operating activities was $229 million. Through our newly initiated dividend, we returned $26 million to our shareholders. Before reviewing our detailed results, I would like to provide some additional color on our operations and the continuing inflationary environment. As our industry grapples with supply chain disruptions and unprecedented cost increases, there has been increased pressure on gross margin as we saw in the fourth quarter. Tight labor markets remain challenging and supply and demand imbalances and overall capacity constraints remain broad and sustained across the supply chain. Importantly, we are taking meaningful steps to offset these persistent headwinds and will rely on the inherent capabilities that this organization developed and evidenced during the successful execution of our Fuel program over the last few years. To that end, all of our global manufacturing plants and distribution centers remain open and fully operational. In the face of meaningful labor constraints, we've increased and diversified our efforts to secure the labor pool needed to support our growth objectives. We continue to see sporadic supply shortages across the business, but our teams are taking aggressive actions to mitigate the potential impact going forward, including broadened sourcing efforts, increased upfront raw material buys, staggered production scheduling and overtime utilization, and alternative transportation strategies in the U.S. and across Europe. We also aim to systemically build inventory levels through the first half of the year to ensure product availability and improved service levels to our customers. We expect these actions will likely have some impact on working capital and free cash flow in fiscal '22, and we'll continue to monitor it closely, given the dynamic nature of the environment we are operating in. Now I'll turn to the detailed results for the quarter. As mentioned, organic net sales in the quarter increased 8.4%, with growth across all geographies and categories. Our right to win businesses collectively grew 25%, driven by Sun Care and Men's Grooming. This portfolio has now grown 20% organically on a 2-year CAGR with at least double-digit growth across all 3 core categories. Our right-to-play portfolio organically grew by about 5% in the quarter versus the same period last year, and on a 2-year stack is down just under 1%. Our e-commerce business again saw strong results, increasing by 36% in the quarter on top of over 100% growth a year ago. On a 2-year CAGR, total company organic net sales increased 2.3% in the quarter versus the same period last year. Looking deeper into our segments. Wet Shave organic net sales increased 3.6% in the quarter, largely driven by double-digit growth in Women's Systems and solid growth in Disposables and Private brands. Our Women's Systems business continues to be the primary catalyst for growth with organic net sales increasing 12% driven by our key brands, including Hydro Silk, Intuition, and Skintimate, as well as Private Label, which grew 45% in the quarter, cycling 115% growth last year in Q4. Disposables organic net sales increased 8%. Men's Systems organic net sales decreased 2.2% in the quarter and in the highly competitive North American market decreased by about 6%. For the second consecutive quarter, U.S. razors and blades category consumption increased, growing 7.2%. The category growth in the quarter was seen across Men's and Women's Systems and Disposables. And for the first time since the pandemic began, total category dollars surpassed 2019 levels. For the 12-week period, market share for the Schick franchise declined 140 basis points, driven mostly by declines in Men's branded shave and disposables while Private Label grew share slightly. In branded Women's Systems, transitory supply chain challenges continue to negatively impact our Hydro Silk and Silk touch-up brands on shelf and directly contributed to share loss in the quarter. We continue to take steps to improve product flow to shelf as we work through network-wide supply chain challenges and anticipate a more normalized in-stock position as we cycle through fiscal Q1. Sun and Skin Care organic net sales increased 24.6%, driven by strong Sun Care and Men's Grooming sales. Sun Care organic sales in North America increased about 55% in the quarter, cycling 37% growth last year in Q4. In the U.S. Sun Care category, sales increased 16% for the quarter, in part benefiting from cycling last September's low off-season travel and cooler temperatures. Hawaiian Tropic and Banana Boat both outperformed the category with 24% growth and collectively gained 180 basis points of market share. Our strong execution at Walmart drove 440 basis points of share gains in the quarter and complemented sequentially improved results across both drug and grocery, where we also saw heightened share gains. Banana Boat gained 130 basis points of share, making it the #1 Sun Care brand in the U.S. during the quarter, led by kids and sport and benefiting to some degree from competitive out of stocks. For the season, our Sun Care portfolio reinforced its leading position in the U.S. with consumption growth of 21% and 20 basis points of share gains while cycling last year's 100 basis points of market share gains. All of which serves us well for 2022 distribution outcomes where we have already secured meaningful new distribution in club and anticipate further gains in mass and drug. Men's Grooming organic net sales increased 21% in the quarter, led by strong growth across both Jack Black and Cremo as the category was up 1%. Wet Ones organic net sales decreased 6% in the quarter as compared to an increase of over 80% in Q4 of last year, representing 2-year stack growth of over 30%. Category consumption declined 51% versus a year ago, lapping the full 2020 peak of COVID-driven sales. Wet Ones consumption, however, increased 17%, mostly due to a strong back-to-school season. Importantly, we are seeing continued brand consolidation on shelf as retailers cycle through high levels of alternative brand inventory. Wet Ones has again regained the #1 sales position and makes up 9 of the 10 top-selling SKUs in the category. Fem Care organic net sales increased 9%, while the U.S. category increased 9% as well. This quarter, market share held steady, a marked improvement from last quarter and 52-week trends. Playtech Sport continued to gain share in the quarter, reflective of new product launches and stronger advertising support, offsetting declines in carefree and legacy brands. Now moving down the P&L. Gross margin rate on an adjusted basis decreased 30 basis points compared to the prior year. As expected, we felt the full impact of rising commodity, wage, and transportation costs this quarter, creating a 320 basis point inflationary headwind. This was partially offset by Project Fuel gross savings of about 260 basis points and the benefits from our springtime price increase on Wet Ones. A&P expense decreased $10.6 million this quarter and was 9.2% of net sales, which was in line with our expectations and reflects the cycling of COVID phasing of commercial activity last year. Digital spending represented over 60% of overall advertising spend in the quarter. SG&A, including amortization expense, was $107.2 million or 19.7% of net sales. Adjusted SG&A as a percent of sales was essentially flat versus last year as sales leverage and Project Fuel savings partially offset increased costs associated with the Cremo business and higher incentive costs, some of which were one-time in nature. Adjusted operating income was $80.1 million compared to $56.8 million last year as increased sales, higher gross margin, and lower A&P costs were only partially offset by higher SG&A costs. GAAP diluted net earnings per share were $0.80 compared to $0.38 in the fourth quarter of fiscal 2020, and adjusted earnings per share were $1.01 compared to $0.59 in the prior year period primarily reflecting increased operating income and a lower effective tax rate. Adjusted EBITDA was $102.3 million compared to $80.3 million in the prior year. Now let me turn briefly to a review of our full-year results. Organic net sales for the year increased 3.7%. The increase was largely driven by improving consumption across all categories and strong growth in Sun Care, Women's Shave, and Men's Grooming. Organic net sales increased in North America by 5.2% and international markets by 1.4%. And on a 2-year stack basis, total portfolio organic net sales were essentially flat. Our e-commerce business continued to progress, with sales increasing 25% for the year on top of 82% growth a year ago and now represents about 9% of total company sales. We drove increased digital engagement and activation across the business, added resources to enhance critical internal capabilities, and successfully replatformed our core DTC sites to our new Shopify platform while launching 7 new or replatform sites during the year. Adjusted gross margin rate increased 30 basis points year-over-year as Project Fuel savings and strong revenue management, including Wet Ones price actions, helped to mostly mitigate heightened inflationary pressures, which increased as the year progressed. We generated $68 million in gross savings from Project Fuel in fiscal '21, slightly above expectations, and this was a key catalyst for our margin accretion. A&P expense was $25 million above last year or 50 basis points as a percentage of sales as we incrementally invested in Wet Shave new product launches, Sun Care execution, and new campaigns across our Women's Branded Shave portfolio. Adjusted operating profit increased $20 million and 7.7%, and operating margin for the year was 13.3%, flat with the prior year as we navigated gross margin pressure with Project Fuel savings, efficient A&P deployment, and disciplined overhead cost management. Our business model is characterized by strong operating cash flow generation and efficient free cash flow conversion, which we demonstrated again this year. To that end, net cash from operating activities for the full fiscal year was $229 million, down slightly from the prior year. Free cash flow was $175 million, down $14 million from the prior year. Higher earnings in fiscal '21 partially offset increased investments in capital expenditures and an outflow for working capital versus a working capital reduction in fiscal 2020, and we continue to strengthen our balance sheet. During the year, we further solidified our capital structure by successfully refinancing our $500 million 2022 notes while continuing to focus on liquidity given the turbulent operating environment. These efforts greatly strengthen our capital structure, which now has no long-term debt maturities until 2028 and a weighted average interest cost of 5%. We ended the year with $479 million in cash on hand, full access to an undrawn $425 million credit facility, and a net debt leverage ratio of about 2x. This brings me to the topic of capital allocation. In addition to our expected quarterly dividend payout, we are also announcing that we plan to begin buying back shares on a more proactive and consistent basis. More specifically, we intend to put our healthy excess cash to work and repurchase approximately $300 million in shares over the next 3 fiscal years. We've always maintained a disciplined multi-dimensional approach to capital allocation. And while we will continue to prioritize investing in the sustained growth of this business, we remain equally focused on providing strong returns to our shareholders. With our strong liquidity and credit position, and outlook for continued healthy free cash flow generation, now is the time to implement a more systemic approach to share repurchase to complement the dividend that was initiated earlier in the year. Of course, we will continue to monitor other external factors which may affect the rate and pace of our share repurchases. Turning to our outlook for fiscal 2022. As Rod mentioned earlier, we are encouraged by the improving demand environment across many of our categories, but also recognize that we face a challenging marketplace, with ongoing supply chain disruptions and significant cost inflation likely remaining in place well into fiscal 2022. Despite the near-term macro inflationary pressures, we will remain in an investment stance while appropriately balancing the short-term need to manage this challenging environment by increasing our reliance on accelerated productivity and cost savings programs. Against this backdrop, we feel confident in our ability to sustain top-line growth while accelerating our productivity and efficiency efforts to deliver year-over-year adjusted EPS and EBITDA growth. For the fiscal year, we anticipate low single-digit organic net sales growth with similar growth rates in half 1 and half 2. As we look to gross margin, we anticipate between 80 and 100 basis points of year-over-year decline with accelerated declines in the first half of the year before moderating in half 2 as productivity programs scale and price realization increases. Our outlook contemplates approximately 350 to 400 basis points of inflationary headwinds, partially mitigated by further productivity gains and the benefit of price increases and further revenue management efforts. We will remain in investment mode with respect to A&P in support of our growth outlook, with A&P increasing in dollars and remaining largely flat to 2021 levels as a percent of sales. Adjusted operating profit margin is expected to be largely in line with 2021 levels on a full-year basis. However, we expect significant operating margin rate contraction in the first half of the year as a result of these net inflationary headwinds. We expect that income from operations will sequentially improve as price increases take effect and productivity programs scale. Adjusted EBITDA is expected to be in the range of $365 million to $385 million. Quarterly interest expense is expected to be about $17 million. Other financing income is expected to be approximately $6 million to $7 million for the year, reflecting estimated hedging gains that offset FX translation impacts in gross margin as well as favorable pension income in fiscal '22. Adjusted EPS is expected to be in the range of $2.98 to $3.26. We expect to generate about 2/3 of our full-year adjusted EPS in half 2 of the fiscal year. With respect to our share repurchase, our outlook only includes the expected share repurchases required to offset dilution. The benefit to EPS from additional share repurchases transacted over the course of the year has not been contemplated in our outlook and will be additive to EPS. And finally, free cash flow conversion is expected to be approximately 100% of GAAP net earnings. For more information related to our fiscal '22 outlook, I would refer you to the press release that we issued earlier this morning. And with that, I'd like to turn the call back over to the operator to begin the Q&A session.

The first question comes from Wendy Nicholson with Citi.

Congratulations on the great numbers. I actually have two questions, if it's okay. Just first on the share repurchase program. I know you said you're going to have a balanced approach to capital allocation, but my question is sort of with regard to M&A outlook. You've done a great job with the acquisitions that you've made. Is that still as big a priority? Can you comment on what you're seeing in terms of additional targets? Just want to make sure that we shouldn't read the share repurchase authorization as a statement that may be additional acquisitions is less of a priority.

Yes. Wendy, it's Dan. Thanks for the question. Yes. No, absolutely, our M&A strategy is 100% unchanged. We remain really focused on a primary goal of investing in the growth of this business, and M&A is a super important lever there. Also a really important piece of how we think about diversifying our portfolio over time and gaining a meaningful foothold in growing categories. So that is unchanged for us. And as we've been saying, I think our capital allocation approach, if you will, is multi-dimensional. And so as we think about the M&A component of that, highly focused on it, still thinking about tuck-in-type acquisitions that are less complex and easily able for us to integrate. In terms of the market there, yes, there's quite a bit of activity in the market. There's certainly a high degree of supply right now, and we're super busy looking across all categories for interesting assets. Rod, anything you would add?

Yes. Wendy, I would just add, we've been looking at this capital allocation policy for a while now. And throughout the pandemic, we felt it was important first to get the dividend in place, which we did a year ago. We've always had our eye on share repurchase. And I think just waiting for us to have the level of confidence in our business plans going forward to commit to a meaningful program, which we've now put in place. So we're laddering that in. And to Dan's point, it does not take M&A off the table. Arguably, it raises the bar for M&A, which I think is a good thing actually.

Got it. Great. That sounds great. And then I actually had a totally unrelated question. I hope that's okay. But just you talked about some strong growth in the Private Label business, which is great. But I'm just wondering in this sort of operating environment, the huge headwinds we're seeing from a cost perspective, is there anything we need to think about in terms of the margins on Private Label that you're generating? Or are the Private Label selling prices going up sort of in concert with the branded prices? Are the price gaps staying the same? Or anything we should think about that because you're one of the few guys out there who actually does a meaningful amount of Private Label manufacturing.

Sure. Yes. No. Look, I think you have to really think about Private Label, not just through the entry price point filter, but also branded retailer programs, high-growth online businesses. There's quite a rich balance there within private brands, and we obviously are the supplier of choice. High-growth business for us. And I think as interesting, high contribution margin business for us on par with what you would see on our branded business. So again, we're super excited, given our capabilities here to be growing a big piece of the business. By the way, private brands are bigger than Fem Care if you just kind of think about it in size and spits off some really interesting economics.

The next question comes from Jason English with Goldman Sachs.

I'll echo Wendy's sentiment. Congrats on good results, a good year. A couple of questions. First, just for clarity, Dan, I think you kind of hinted at this in your closing remarks, but your guidance is not predicated on share repo. Should we interpret that to mean like, 'hey, the repo options out there are unlikely to be deployed anytime soon?'

No, absolutely not, Jason. I think the way we thought about it was just complexity of modeling, right, because the repurchase algorithm is always going to be subject to market conditions and our ability to go out and buy. We do intend to put a 10b-5 in the market somewhere in the quarter. So we are committed to the program. We just didn't want it to become a distraction, if you will, from the modeling of the core business.

Got it. That makes a lot of sense. I apologize for being a bit distracted. I missed your comments regarding inflation headwinds for next year. So, I have a two-part question. First, can you recap the inflation pressures from the past year and what you expect for next year? Second, with Project Fuel now completed, how should we approach productivity programs moving forward?

Yes. So the inflationary outlook that we have for the year, I think we said it in our prepared remarks was in the neighborhood of 350 to 400 basis points. Think about it as around 7% of COGS is sort of how we're seeing the picture. And not surprisingly, it's made up of the same ingredients that we've been talking about. First and foremost is commodity pressure where we're anticipating double-digit year-over-year inflation, and then to a lesser degree, labor and warehouse and distribution probably in the mid-single-digit range. So if you put all of that together, it would get you back to your 7% total inflation. As far as fuel becoming productivity, the way that we're thinking about it this year is we have a really good line of sight to somewhere in the neighborhood of 175 to 200 basis points of cost reduction in COGS. So we may not be calling it fuel, and we may not be talking about a formal 3-year program. But as we've said consistently, this is in the DNA of Edgewell now to continue to execute on. And you'll see it in the year ranging from further automation, which obviously helps on the labor line, expansion of our global procurement business. So bigger and bolder, getting into more design-to-value savings, which lead to really interesting structural reductions. Lastly, just a complete sort of intolerance for waste within our manufacturing facilities. So process excellence and relentless on overhead. So that's our view of it. In addition, we have identified another 60 to 75 basis points of cost reduction in SG&A, structural cost takeout mostly across global functional businesses.

The next question comes from Nik Modi with RBC Capital Markets.

Dan, maybe you can just provide some perspective on what you're embedding in guidance in terms of consumer behavior, but also on the input cost inflation. Some companies are using spot rates. Others are actually using forecasts. So I just wanted to get your thoughts around how you guys are thinking about that.

Our procurement team is primarily focusing on 12- to 18-month forecasts for all the commodities we purchase. The balance between spot buying and multiyear contracts varies, with some contracts tied to fundamental indices that align them more closely with market conditions. This creates a lot of fluctuations, but our focus remains on a 12- to 18-month outlook. The environment is quite dynamic, as you may have noticed from other calls. For instance, while we are currently seeing a strengthening in resin prices, there is a slowdown in inflation and an increase in availability. Conversely, we are experiencing some pressure in areas like Sun Chemicals, particularly those sourced from China. It’s very fluid and changes frequently, but we are adopting a longer-term perspective. Rod, would you like to share your thoughts on how we view the consumer categories?

Yes. I think the demand picture, Nik, for us moving forward, we think is net positive versus '21. You have Sun Care business that I think has tailwinds in it for us internationally, in particular, as those markets were later to reopen or are still in the process of reopening. Tourism travel to a certain extent will come back online in fiscal '22. That was effectively a 0 in '21. I think there's some net tailwinds in the Sun Care business as well. On Shave, that's a big business. We've grown our Wet Shave business 3 quarters in a row behind some level of recovery of the category improving. We expect that to continue as we continue to reopen more people get back to the office here in the U.S., but also globally, we're seeing that happen as well. I think in those categories, we're pretty optimistic. And then if you look at Men's Grooming, we've continued to see growth there. I think we continue to be optimistic around the demand in Fem Care as well coming out of the trough of '21.

The next question comes from Bill Chappell with Truist Securities.

Just a thought on pricing. It’s certainly positive that you are now focusing more on surgical pricing rather than a broad approach. However, I'm curious about your position compared to the competition, particularly in Wet Shave. Have you noticed the leaders or competitors advancing more quickly than you, or is everyone progressing at a similar pace?

Yes. So on Wet Shave, Bill, specific to your question, I don't think we're in a leadership position here. We're at a point where others have made some statements about what they intend to do. We would follow where it makes sense. In some cases, we won't. And we'll just look at it segment by segment, SKU by SKU as we kind of assess what we're going to do. We know what we're going to do, but some of it is still not clear in some of the segments, yes. I'll throw it to Dan for a little more specificity because it's very different market by market, the U.S. versus Japan, for example.

Yes. Yes, great point. So I would say we're combining both a broad brush strategy where that makes sense and a surgical strategy where that is required. So the broad brush element, you've actually already heard about Wet Ones, double-digit price increase last spring. So we'll get about a half-year run rate out of that. We've talked about Fem Care with a 6% to 7% increase. That has now been executed through the trade. I would say international Wet Shave while it is absolutely being executed on a category-by-category, brand-by-brand, market-by-market basis, it's broad brush, especially where we have market-leading positions like Japan. I think where you see more surgical application for us is certainly around Sun Care, both U.S. and international and U.S. branded shave. So that's how I would think about pricing for us in '22.

No, that's helpful. As we consider the planogram resets for spring in the U.S. Wet Shave market, you'll be comparing against the expansions of Dollar Shave and Harry's in mass retailers. Additionally, this will mark your first full ownership of Cremo listings as you prepare for the planogram resets. What insights do you have regarding the U.S. market performance?

Yes. It's early, right? We're still not closed here, so to speak. But early signs are really encouraging for us. I'll start with the headline in club, where we are super excited. We've gotten full distribution across Sam's and Costco for Banana Boat. We've gotten new distribution in Sam's for Wet Ones. We've got online distribution with Sam's and Costco for intuition on the women's side of the business. So Club is proving to be a really exciting channel for us. As we look at Shave, still a lot of work to be done. We like where we are on both men's and women's, particularly in drug. We've gotten strong execution at Walgreens. We've gotten hotspot shelf designation at CVS on our Hydro Silk brand. You might recall that was Flamingo last year, enjoyed the year before. Again, there's work to be done here, but the team is doing a phenomenal job, and our early read is positive.

And Bill, I would just build on this, beyond just individual outcomes, which are now net positive in total as Dan is laying out versus the past, not only is that being driven by great brand-building work by the marketing teams, but we are working at a strategic level with our retailers in a better and different way than we were historically. And it starts with what's the pricing gap? Is the one with the consumer, get the pricing right? What's the margin structure with the retailer? Get the retailer margin right. Just get those fundamentals in place. Once those are in place, then the brands have a chance to do their thing and compete versus whatever else is out there. I think it's a strategic structured and layered approach as we work with the big U.S. retail partners to strengthen those relationships to set the ground for the brands to do their things. And that's taken a couple of cycles to get that right, and you're now seeing the fruits of that labor come through.

The next question comes from Kevin Grundy with Jefferies.

Congratulations on the continued progress. A question probably for both of you actually, just the building blocks for the low single-digit organic sales growth guidance, which if you can do it, will look great, particularly on a 2-year stack basis, it will be a number that the company has not put up in quite some time. So the question is really around visibility and the building blocks to get there, the year-over-year comp is going to be more difficult, consumer behavior sort of normalizing, but still a little bit of flux. We see Colgate dealing with this in hand. So right now, as an example, pricing elasticities have been good. Is that going to hold? My humble opinion is probably not to the degree that it is at least at the moment? I guess, Rod, when I heard you say earlier that the guidance is predicated on continued growth in Wet Shave and Fem Care. So the progress is good, a, but b, that is sort of unique, and we haven't seen the company there in a long time in either one of those businesses, at least on a sustainable basis. Relative to the company's long-term algorithm, which is 10% to 15% growth in the right to win and flat to down in the right to play. So it seems like the guidance is predicated on improvement that you haven't seen in a while in some of the troubled businesses. So a big windup for your visibility on this and your confidence to deliver on this algorithm, which is a little bit different than how you kind of put together the longer-term algorithm. So a little bit for both, but I appreciate your insights there.

Yes, thanks, Kevin. You're correct, it is a bit different. I'll start with a high-level overview and then turn it over to Rod for specifics by category. It will always depend on what each category is experiencing. We considered the COVID recovery and the role of pricing in each category. With that in mind, I would say our expectation is low single digits. We've modeled a 3% growth, just to be clear. We believe that about half of that will come from price and half from volume. The growth rates for the first and second halves are fairly consistent, as are the international and North American growth rates. Then we need to look at each category individually. We are indeed expecting continued growth in Wet Shave, which we observed in Q4 and for the full year, so we will build on that growth. In Fem Care, we are expecting growth after experiencing mid-single-digit declines, with the 6% to 7% price increase being a significant factor. Those are the main points regarding our outlook. Rod, do you want to add anything regarding specific categories?

Yes, Kevin, your question reflects a solid understanding of our strategy, and we're not changing it. As the year progresses, we expect to see accelerated growth in our key focus areas. This growth will outpace what we observe in the other segments like Wet Shave and Fem. It's crucial to note that our strategy encompasses all areas of the business, each contributing to growth at varying paces. In the past, certain parts of the business required attention and had issues, but we've improved that through enhanced brand health. I also mentioned earlier the importance of retailer relationships, which allows us to enhance our digital engagement with consumers. Two years ago, we experienced an 87% growth in e-commerce, and last year, we added another 25% on top of that. We forecast continued growth in that area, which has increased from being just 3% or 4% of sales a couple of years ago to 9% last year, and it's expected to grow further. Our brand building, retailer relationships, channel mix, and overall portfolio are positioned for better growth than they were a few years ago. All these factors are contributing to our progress.

The next question comes from Olivia Tong with Raymond James.

Congrats on the quarter and outlook. Can we talk a little bit about Sun Care? Obviously, that's been on fire. Can you just help us quantify how much of that you think is a benefit from the issues at some of your peers? And can you talk about what you're doing to maintain, sustain, what I assume is a fair number of new consumers when competition eventually comes back in those categories? And then I have a follow-up.

Yes. Olivia, I'll start and then throw it over to Dan. So we love the Sun Care category. We've said that before. We love the brands we have in the category and their positioning. As we went through '21, what you saw is demand for people to be outside, outside safe, right, in a COVID environment. There was pent-up demand certainly over this past summer season for people to do that more than ever and can be safe doing that. I think there's also, at the same time, consumer behavior and learning around long-term health and wellness, one of which is taking care of your sun. The #1 thing that ages skin is exposure to sun. Skin cancer incident rates are going up, not down. You put all that together, and structurally, it's a growth category as we look at it. You have that going on in the season. We're up on a 2-year stack basis. Our relative performance vis-a-vis competition this past year, whether it be this year, the 2-year stack period, we've grown share with our brands and outcompeted the competition. Part of that is around just being available at shelf with products that are safe and meet FDA standards. You saw some others struggle with that. We benefit from that, obviously. Now going forward, I think we remain bullish that the underlying trends around people wanting to be outside more, protect their skin more, sets up well for continued growth. Dan referenced some of the distribution outcomes we have. We like the distribution profile in terms of number of points, quality of distribution in the year to come in '22 better than we liked in '21, and '21 was pretty good. It sets up well. So while there's always going to be competition, I think we're in a position where we like our position, and we feel really good about the category.

That's helpful. Regarding share repurchase, you mentioned earlier not to interpret the share repurchase authorization as an indication of the deal environment. How are you approaching the timing of that share repurchase, considering you were out of the market for the past two years? Do you see it as more of a balanced approach over the next three years, or is it more about making up for lost time? I'm curious about your thoughts on the timing of that.

Yes, it's a good question. Look, I think it's difficult to say over a 3-year period how will it play out, right, simply because of the unknowns. But our intent here is to put a 10b-5 in the market in the quarter and begin to actively buy back shares. The other factors will ultimately impact at what pace over the time period. But we think $300 million over the 3 years is the right amount for us, certainly digestible with our excess cash, how that plays out between the years. Difficult to say at this point, other than we intend to be super consistent here in that ambition.

The next question comes from Chris Carey with Wells Fargo Securities.

I just wanted to follow up on Kevin's question just on the algorithm for next year. So Fem Care just sounds like pricing offsets potential volume declines. Sun, Skin feel good about share gains, innovation, distribution availability. I guess it comes back to the Wet Shave business. And I guess what I'm trying to understand is just a bit more at the subcategory level or whatever you want to call it. Clearly, the women's business has driven growth. Mobility is probably a factor there, Private Label driving growth. I mean should we expect a similar shape of that business going into next year? Or are you concerned about some of the comps in the businesses that have been doing well? Are you factoring or relying on, I guess, the return of the office and the men's business? Is it international versus U.S.? You can see what I'm getting at just overall, how would you dimensionalize the shape of that business in order to drive growth next year consciously? It's been a while since you did a positive 2-year stack.

Sure. Yes, I think total Wet Shave, we think, will likely grow in line with total algorithm, right? So in that 2% to 3% range, with a pretty even distribution of volume and price. As I mentioned in the earlier question, while we have been somewhat broad brushed in our price thinking internationally on Shave, given our market strength, we've been more surgical here in the U.S. So there's a lot of puts and takes that factor into your question and how we thought about it. I'm not going to get into the subcategories of that. The thing that I would say, though, is obviously, good line of sight here in the U.S. We've got some interesting new products coming to market. We've got a complete rebranding of the Hydro brand back to a Schick leading name here, which we're super excited about. We have some really exciting news for the trade in men's, continued growth in women's. Lastly, remember, international markets still had much more of sort of puts and takes around COVID recovery and choppiness, particularly in our stronghold like Japan. So again, good line of sight to that for us and overall looking at a Shave category growth that's largely in line with total company algorithm.

Currently, there are no further questions. So this would conclude our question-and-answer session. I would like to turn the conference back over to Rod Little for any closing remarks.

Thank you, everybody, for your continued attention and those that own us your support. We appreciate it. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.