Chris Gough - Edgewell Personal Care Co. David P. Hatfield - Edgewell Personal Care Co. Sandra J. Sheldon - Edgewell Personal Care Co..

Ali Dibadj - Sanford C. Bernstein & Co. LLC Faiza Alwy - Deutsche Bank Securities, Inc. Nik Modi - RBC Capital Markets LLC Olivia Tong - Bank of America Merrill Lynch Jason English - Goldman Sachs & Co. Kevin Grundy - Jefferies LLC Jason M. Gere - KeyBanc Capital Markets, Inc. Armani Khoddami - Consumer Edge Research LLC William B.

Chappell - SunTrust Robinson Humphrey, Inc. Stephen R. Powers - UBS Securities LLC Katie Grafstein - Barclays Capital, Inc..

Good day, and welcome to the Third Quarter Fiscal 2017 Earnings Call for Edgewell. All participants will be in listen-only mode. Please note, this event is being recorded. I'd now like to turn the conference over to Chris Gough. Please go ahead..

Thank you. Good morning, everyone, and thank you for joining us for Edgewell's third quarter fiscal 2017 earnings conference call. With me this morning is David Hatfield, our President and Chief Executive Officer and Chairman of the Board; and Sandy Sheldon, our Chief Financial Officer.

David will kick-off the call 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, savings and costs related to restructuring, 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 Factors in our Annual Report on Form 10-K for the year ended September 30th, 2016, as amended and supplemented in our quarterly reports on Form 10-Q for the quarters ended December 31st, 2016; March 31st, 2017; and June 30th, 2017.

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'll 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 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 our business. With that, I'd like to turn the call over to David..

Thank you, Chris, and good morning, everyone. Before Sandy takes you through the financial results, I'll briefly comment on the quarter, noting several of our key product launches in the quarter in support of our growth initiatives, and I'll discuss our outlook for the remainder of the fiscal year.

Overall, we continued to operate in a very challenging environment, particularly in the U.S., where all of our categories declined in the quarter, and the heightened level of competitive intensity continued, particularly in the Wet Shave and the Feminine Care.

However, even with that as a backdrop, I was relatively pleased with our overall performance in the quarter, as we delivered strong adjusted operating profit growth of nearly 40%; adjusted EPS growth of 68%; good cash flow generation, and the share gains in Wet Shave and Sun Care.

Additionally, we continue to get traction from innovation in both Wet Shave and Sun and Skin Care. And in the third quarter, we launched several key offerings in e-Commerce, and emerging markets in support of our key growth initiatives. Looking across our segments in the quarter, in the Wet Shave, we again shared globally, and in the U.S.

across Men's, Women's and the Disposables in the terms of sales, overall organic net sales were flat, we accelerated growth in the International as expected, and we grew sales in North America Men's Systems.

In Sun and Skin Care, our organic net sales were up in the both North America and International, and across both the Banana Boat and the Hawaiian Tropic brands.

North America growth benefited from lower returns and decreased promotional spend compared to the prior year, while International continued to benefit from innovation and incremental distribution.

Our Feminine Care business continues to be challenged on the top line, impacted by declines in the Sport pads, as expected, and also soft category metrics and intense competition.

On our conference call last quarter, we discussed at length the objectives of our three strategic pillars, and I'd like to spend a few minutes talking about some of the progress we're making against them. As a reminder, our first pillar is to continue to focus on and improve our fundamentals, including providing compelling innovation for consumers.

Our second strategic pillar is to rapidly reconfigure our business against growth opportunities that we see in the marketplace, such as e-retail, direct-to-consumer and growth channels. And our third pillar is to build organizational capabilities and generate resources to support and fund these initiatives.

In the quarter, we made progress in each of these three strategic pillars. In the Wet Shave, innovation contributed to our market share gains in the quarter, including Quattro You Disposables in North America and our three-bladed Fits Mach3 private label offerings in the many markets around the world.

In Sun, we had all 5 of the top 5 new items in the U.S., according to Nielsen; and 7 of the top 10, contributing to share gains for both Banana Boat and Hawaiian Tropic.

In Wet Shave, we launched our first direct-to-consumer site in the U.S., schickhydro.com, featuring our new Hydro Connect innovation, featuring cartridges with three and five-blade hydro technology that fit on Gillette handles.

We also introduced Hydro Connect in China through our Tmall partner, and we launched Hydro Connect into retail channels in Italy and several markets in Central Europe. Although these are just the beginning, they're important steps on our path to delivering on our financial algorithm. To wrap up, let me make a few comments on the remainder of the year.

The resiliency of our business model, and the financial discipline being shown by our colleagues around the world. We continue to see unprecedented category declines and competitive pressure in the U.S., which impacted us in the third quarter, and we expect will continue into the fourth quarter as well.

Despite this, we grew share in Wet Shave and the Sun. We benefited from our geographic and product mix, and we benefited from the actions we've taken to drive productivity and efficiency in our business. As we look to the remainder of the year, we've revised our full-year sales outlook to reflect the ongoing weakness in our categories.

However, we're increasing our adjusted EPS and adjusted operating margin outlook, reflecting the strong profit performance in this past quarter, cost and expense actions that will help mitigate the additional top line softness we're expecting in the fourth quarter, and an improved outlook for tax.

So, we've put ourselves in a good position to achieve or exceed our adjusted EPS and operating profit objectives for the full fiscal year. We continue to invest for the future, and we're acting with urgency to accelerate our efforts to drive growth while focusing on our cost reduction, and the productivity initiatives.

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

Thank you, David, and good morning, everyone. I'll cover our third quarter business performance, beginning with a few headlines.

Net sales in the quarter were $638 million, down about 1% on a reported basis, and down 0.6% on an organic basis, with growth in our Sun and Skin Care segment offset by Feminine Care net sales declines; Wet Shave was essentially flat.

From a geographic perspective, North America organic net sales were down 2.5%, while international organic net sales increased 3.2%. Adjusted EBITDA grew 35%, and adjusted EPS grew 68% versus a year ago; strong profit performance in a challenging market and competitive environment.

Cash from operating activities was $119 million year-to-date, and we repurchased 1.3 million shares through the first three quarters of 2017.

Turning to sales; reported net sales were down 1.2% in the quarter at $638 million, and down 60 basis points on an organic basis, which includes a $4 million benefit from the Bulldog acquisition and a $7.9 million negative impact from currency.

Overall, volume was down slightly, 0.5%, as higher volumes in Wet Shave were offset by declines in Feminine Care. Overall, price mix was relatively flat at minus 0.1%, as improved international pricing, lower promotional spend, and improved Sun Care returns were offset by unfavorable mix in North America.

I'll review more details of the drivers from a segment perspective in a few minutes. Gross margin with 50.5%, an increase of 230 basis points, the increase was driven by lower product costs resulting from both operational efficiencies and favorable commodity costs, as well as favorable product mix.

A&P expense as a percent of net sales was 17.9%, down 110 basis points, primarily due to higher spending last year in support of Feminine Care innovation and promotional campaigns in Wet Shave. Through the first three quarters of the fiscal year, A&P was 14.3% of net sales, roughly in line with the same period last year.

SG&A expense was 15.3% of net sales, excluding prior year's spend related costs, SG&A as a percent of net sales decreased 50 basis points. Benefits from lower compensation expense in the quarter, and ZBS savings helped to offset increased investments in support of our China and e-Commerce growth initiatives, as well as investments in IT.

Other income was $1.6 million compared to an $8.2 million expense in the prior year, primarily reflecting the impact of a net benefit from foreign currency contract gains and losses in the quarter, the revaluation of non-functional currency balance sheet exposures, as well as $3.2 million of interest expense related to settlements with tax authorities recorded in the prior-year.

Interest expense was down reflecting lower debt level this year, and the effective tax rate through the first nine months was 22.9% versus 19% in the same prior-year period. Excluding tax associated with restructuring expenses, the adjusted effective rate was 23.9%, essentially flat with the prior-year period of 23.8%.

Net of all these factors, GAAP diluted EPS was $0.95 in the quarter as compared to $0.61 in the prior year; and adjusted EPS for the quarter was $1.11, as compared to $0.66 in the prior year. Net cash from operating activities was $119.4 million for the first nine months of 2017, as compared to $4.1 million in the prior year.

The improvement reflects the discretionary funding of certain international pension plans of $100.5 million in the prior year, and higher net earnings this year, partially offset by higher current year deferred compensation payments. We continue to expect free cash flow to be approximately 100% of GAAP net earnings for the fiscal year.

So those are results on a total company basis. Let me turn now to our segment results. Starting with our Wet Shave segment, organic net sales were flat in the quarter, as higher net sales in Men's Systems globally were offset by declines in the remainder of the portfolio.

International organic net sales increased in the quarter as expected with growth in Men's Systems, Women's Systems and private label.

However, International sales growth was somewhat below our expectations, due to softness in Europe, driven in part by temporary supply chain issues related to our Wet Shave footprint project, as well as lower promotional activities.

In North America, organic net sales decreased in the quarter, largely due to declines in Women's Systems, partially offset by growth in Men's Systems driven by promotional activities. The decline in Women's Systems was largely category based, as the category declined 14% in the quarter.

We also grew North America Disposables volume with innovation and distribution gains, although higher promotions and negative mix more than offset the volume gains in the quarter. Wet Shave segment profit increased 31% due to improved gross margin reflecting lower product and commodity costs, and favorable product mix.

In addition, A&P spending was lower in the quarter on decreased media spend for Women's Systems and Disposables, partially offset by higher spend in Men's Systems. Turning to the Wet Shave category, like last quarter, we continue to see material softness across Men's and Women's Systems; Disposables was down, but to a lesser extent.

As measured by Nielsen, the U.S. manual shave category was down over 10% in the latest 12-week data and Men's manual shave was down over 16%. When factoring in non-measured channels, we believe the U.S. Men's category was down over 8%, with the overall razors and blades category down about 6%.

From a value share perspective, we grew share globally, and versus a year ago, our U.S. share was up over 200 basis points in manual shave, driven by market share gains in branded Men's, Women's, Disposables and private label. We also grew EQ share (16:39) over the 12-week period, a strong data point given the competitive dynamics in the category.

Sun and Skin Care net sales increased 6.5%, including the positive impact of the Bulldog acquisition. Organic net sales increased nearly 5% in the quarter, driven by solid gains in both North America and International.

Growth in North America was largely driven by lower returns and lower promotional spend, partially offset by the impact of exiting the private label Sun Care business this year, which resulted in a drag of about $2.6 million in the quarter with an estimated impact of $9 million for the full year.

International net sales grew behind volume and category increases. And although not included in our organic metrics, our Bulldog men's grooming product line continues to perform well from a sales and market share perspective as we rapidly increase the number of store launches in both U.S. and international.

Segment profit increased $8.1 million, driven primarily by lower returns, lower promotional spend and cost savings generated through restructuring programs. Within the U.S. Sun Care category, consumption was down about 3% in the quarter, primarily driven by cooler weather. Our U.S.

market share improved in the quarter, in both Banana Boat and Hawaiian Tropic brands, largely driven by new products, including our Banana Boat Dry Balance and Hawaiian Tropic Silk Hydration Weightless C-Spray and face products.

As David mentioned earlier, our new products are performing very well this year as we had top five of the top five new products in the U.S. as measured by Nielsen with Banana Boat Kids Sport SPF 50 at number one. Both Banana Boat and Hawaiian Tropic are well represented on the top SKU list for 2017.

Turning to Feminine Care, organic net sales decreased $10.7 million or 11% due to volume declines related to distribution losses, increased competitive pressure and category softness. Sport branded pad sales were down approximately $4 million, as expected, due to distribution losses.

Growth in our Sport Compact tampon was not enough to offset distribution losses in (18:47). Feminine Care segment profit increased $0.2 million, driven by lower A&P and overhead spending, which offset lower volumes and unfavorable price mix.

Sequentially, Feminine Care gross margin and segment profit improved as incremental product cost related to the transition of manufacturing from Montréal to Dover, Delaware, were largely offset by improved commodity costs, and cost savings from restructuring.

With these incremental transition costs, largely behind us, as we move to complete those project in the coming quarter, we expect to see improved segment profit again in the fourth quarter. Overall, the Feminine Care category was down 150 basis points in the quarter with declines in tampons, pads and liners, our market share declined 1.4 points.

And finally, in our All Other segment, organic net sales decreased 1.9%, driven by declines in our cups and bottles business. We continue to grow both Diaper Genie and Pet Care in the quarter, and that's the seventh consecutive quarter of organic net sales growth in our Diaper Genie business.

Turning to our full-year outlook, we are revising our outlook for organic net sales to be down 1% to 2% for the year, down from our previous outlook of flat. This outlook reflects additional declines in Feminine Care and U.S.

Wet Shave due to category softness and heightened competitive intensity, and it reflects the impact of lower Wet Shave net sales in Europe in the third quarter. We are raising our previously-stated outlook for adjusted EPS, reflecting the lowered outlook on sales, the strong profit performance in the third quarter and lower tax rate.

We will continue to take a balanced approach to investment in the business for the long-term and expansion in the year. So for the full fiscal year 2017, we estimate that organic net sales and reported net sales will be down approximately 1% to 2%.

This includes an estimated 60 basis point headwind from currency, and an estimated 60 basis point benefit from the Bulldog acquisition. Our GAAP EPS outlook now is now in the range of $3.55 to $3.70, and our adjusted EPS is now in the range to $3.90 to $4.05.

Adjusted operating income margin is now anticipated to expand by 50 basis points to 70 basis points. The effective tax rate is now estimated to be in the range of 24% to 25%.

The full year estimate for restructuring related costs is now $28 million to $30 million for fiscal 2017, reflecting an increase in Wet Shave footprint costs as well as the estimated non-cash charge related to the disposition of real estate.

We continue to expect, incremental restructuring savings of $20 million to $25 million in 2017 and an additional $20 million to $25 million in 2018 and 2019 combined. The Sun Care production move to our Dover plant is now complete, and we do not expect to incur material restructuring charges related to this project in fiscal 2018.

Our Zero Based Spend initiative remains on track to deliver an estimated $10 million to $15 million in net savings for fiscal 2017, and we continue to estimate, we can deliver $35 million to $45 million in net savings over 2017 and 2018 combined.

As I mentioned last quarter, two year savings goals have been established by category, and we're putting the tools in place to generate sustainable savings, including enhanced visibility and detailed KPI and savings tracking.

The ZBS spending and budgeting initiative will be fully embedded into the operating structure of the company as we move into 2018. Thank you, and with that, we'll open it up for questions..

We'll now begin the question-and-answer session. The first question comes from Ali Dibadj with Bernstein. Please go ahead..

Hey, guys. I've two questions.

One was, just in terms of the balance between top line and bottom line, I mean, is it – sorry about the background noise – is it wise to cut A&P, I understand you're lapping some from last year – but is it wise to deliver so much to the bottom line, cut A&P, when your top line is growing the way it's growing, and how do you ensure that the balance is right between those (23:07) competitive environment? That's one question.

And the second one is, you mentioned a little bit of private label expansion in Europe as well, bolstering some of your growth rates there. Can you talk about the competitive nature in Europe, and whether you anticipate it getting in any way as aggressive as it is in the U.S.? Thanks..

Thank you, Ali. On the A&P front, as you noted, the spend varies kind of quarter-to-quarter, depending on product launches, program phasing, whatnot. When you look at our total year, we actually think that our overall marketing pressure on our brands as a percent of sales will actually be up.

Why I say that is, during the year, we have shifted some A&P up to trade spend, funding coupons, trade programs, et cetera. We've also – through ZBS, we've cut some non-working funds. Also, with the private label, I mean, growing modestly in the mix, that lowers A&P as a percent of sales.

So you net all of that, and when you get underneath the hood, we think overall marketing pressure is actually up for the year against brands. How we judge whether enough is enough, or where we should spend, is really a bottom-up market-by-market exercise, and we feel share of voice is where we need it, versus share of market.

On the Europe front, answering your question about where competitive pressure goes means that I kind of have to speculate about competition, and I'm not sure that I want to go there. I'll make the point that, that markets in Europe are very competitive now, both promotionally, and we see Nivea in Germany and whatnot.

So it's a competitive situation, one that we're actually dealing with well, and are confident in our capabilities..

Can I just ask on that, more broadly, a follow-up question. When you guys spun out and took – say, your long-term guidance was 2% to 3%.

Sun Care's doing okay, it looks like, but I guess, what do you need from Wet Shave and Fem Care to get to 2% to 3%? Do you anticipate getting there – kind of is that still your target, because it just seems tough to consistently get there, understanding this is a tough competitive environment.

Right now, I don't really know if you have confidence it's going to get much better going forward, to get to 2% to 3%. Thanks..

Yeah. Sure. We've remained confident in our medium-term algorithm. We actually hit it on the high-end of the range last year on an underlying basis, and we think over the medium-term, we can do so. It's really predicated on our ability to modestly gain share in our global categories of Wet Shave and the Sun.

And it's also predicated on a modest category growth in those segments.

And as you indicated, this year, with the competitive situation, that's a challenging factor on Wet Shave, looking forward as we anniversary that, and as we work our way through the Feminine Care issues that we face, we're actually confident that we can presume the medium-term sales growth outlook..

Okay. Thank you, Ali..

Okay. Thanks..

Operator, next question – next question please, operator..

Our next question is from Faiza Alwy with Deutsche Bank. Please go ahead..

Yes. Hi, good morning. So, I just wanted to – I have two questions, one is just on the Women's Wet Shave category, it seems like the U.S. category has decelerated significantly, I think, you mentioned it was down 14%.

So one, I just wanted to clarify is that based on Nielsen or is that across all channels; and what is driving this decline, and what is your sort of longer-term outlook on the Women's category?.

Yes. Thank you. Yeah, the Women's Nielsen category this quarter significantly slowed, it was down 14% in dollars, and almost 11% in units. It was – like the units were a significant sequential slowdown.

We think that in hindsight, part of it – a fair amount was actually driven by a pantry loading due to holiday gift sets plus then the planogram markdowns in January; those were a significant pantry load.

Besides that, several customers shifted their promotional emphasis to Women's Disposables, and I think that we're seeing modest, but a sequential growth in online growth also. That all drove the quarter unit declines, and then there's been some category deflation, and a product mix that contributed to the dollar decline.

Looking forward, we think a lot of those factors are relatively one-time. So I don't see a systematic issue with the Women's category that can't be rectified..

Okay. And then, just my second question was on the gross margin. I think, you came in well-above our estimate, and I think, you mentioned commodity several times.

Can you remind us what the major commodities are, because it looks like most of the commodities were actually inflating in the first half of the year; so I'm just a little bit confused by that. Thank you..

So the commodity favorability we had in the quarter was really a continuation of what we've had all year, although slightly better just because of volumes, but our main drivers are resins, packaging, third-party manufacturing, we do produce some products outside, steel costs, and we also had lower freight costs..

Okay. Thank you..

Great. Thank you, Faiza.

Operator, next question please?.

Next question is from Nik Modi with RBC Capital Markets. Please go ahead..

Thanks. Good morning, everyone.

Just a couple of quick ones from me, maybe if you can give an update on three areas, the direct-to-consumer launch that you had during the quarter; trade spending efficiency, I know, you guys have been working on a project there; and just wanted to get an update, if you're starting to see any benefits? And then just quickly kind of big picture thoughts on the M&A environment, if there's things that are out there that are interesting to you? Thanks..

Okay, sure. Sure. Thanks, Nik. On the DTC front, we're actually pleased with the launch; we're making progress, I think, from a financial metric point of view, we've actually grown rapidly off of a Zero Base.

So the results are not really material, but I think, we've learned a great deal, both even in the short time that we've been out there from a messaging point of view. I think that we're learning a lot, and I think that we've also learned a lot operationally.

On the trade spend front, we actually continue to make good – make progress, sorting all of our events into four quadrants and moving the lowest efficiency quadrant events to higher productivity tactics.

So I think that we're making progress there, and then on the M&A front, I guess, all I can really say is, as we continue to fill the funnel, and to track several targets as we always do..

Thank you, Nik..

Operator, the next question, please?.

Next question comes from Olivia Tong with Bank of America Merrill Lynch. Please go ahead..

Great. Thanks. It's interesting to me that you wind the full-year organic sales range with just one quarter left to go. So it doesn't play a fairly large sort of 4 point to 5 point range for Q4. So you talked about the incremental softening in a couple of key areas. But what gets you from one end of the range to the other.

I know the comp is pretty tough, but I always thought that, that was more a function of the year prior to that, in other words fiscal 2015 being such an easy comp for fiscal 2016; so that by this Q4, we'd be back to a more normalized base, and then I have a follow-up?.

Yeah. Thank you. I think, the range just reflects, partially we're comping a very strong year-ago Sun Care season, and how this one plays out relative to that is a little bit up in the air.

And I'll say that the incremental softening in the third quarter of both Men's and Women's Shave gives us a little pause, and so I think, that just reflects exogenous factors, and so I think that's the main driver. Sandy, any other comment....

The only other piece I guess, that would factor into the range is the – some of the supply chain issues we saw in Europe in third quarter. We may have a bit of an overhang in fourth quarter. So I think that also factored into the – to the wider range..

Got it. And then, just your view on promotion and advertising, has that changed at all since Gillette made its pricing moves because you've obviously got advertising down triple digits this quarter after – on a down triple digit comp, and we saw that ad spend is down in every division and promotions down in your two biggest.

So how much of this is timing or short to medium-term shift or just a broader change in terms of how you think about levels of spending required to support your businesses?.

Yeah. Thank you. No, the third quarter was just a timing. We're committed to supporting our brands, and any quarter-to-quarter change, yeah, that would have been planned several months to a year ago, and that's not in response to – you had a competition per se.

Like I mentioned, one of the reasons that is down is that, we did move some A&P up to a trade spend, and that's generally in a reaction to overall competitive pressures over the last year..

Thank you, Olivia.

Operator, next question please?.

Next question comes from Jason English with Goldman Sachs. Please go ahead..

Hey, good morning, folks. Thank you for letting me ask a question.

Can you dive in a little bit deeper into the positive mix effects in Wet Shave this quarter; it was certainly surprising to see that realize this quarter from our perspective?.

Well, the main driver was, we had higher Men's Systems volumes in the quarter, and that drove a very healthy mix for our overall business..

And what drove higher Men's Systems in context to what you're saying about Men's Systems slowing competitive intensity most isolated there, and some of your volume growth being driven by private label, if anything, I would expect the mix to go the other way.

And related to that, and I guess, so I'm really getting at is, did shipments track the consumption of Men's Shave or Men's Systems, is there any sort of residual issues that we need to be aware of as we contemplate fourth quarter for both the sales and margin mix perspective on that?.

Yeah. So, I'll – let me just give you a couple of bullets, and then, I'll let David talk through the consumption discussion. So we had very strong growth on Men's Systems in both International and North America. Internationally, as you may recall, we had a price increase initiative in our Japan affiliate.

So we had a very good experience this quarter, both from a promotional, higher promotional in the quarter as well as better price mix. So all of those things actually drove our volumes up in Japan, pretty significantly.

And then within Men's in North America, we had higher volumes on, really again more promotional activities in the quarter, we had some – some of it was a little bit of timing, but overall pretty good branded Men's sales..

Yeah. I think that's....

Okay. Thank you..

...that pretty much summarize it in the U.S. There was a timing benefit in the unmeasured channels; I think, some of that will actually reverse in the Q4..

Okay. Appreciate it. I'll pass it on. Thank you..

Thank you, Jason.

Operator, next question, please?.

Thank you..

All right. Next question is from Kevin Grundy with Jefferies. Please go, ahead..

Thanks. Good morning. First, Sandy a housekeeping question. Can we get an update on the tax rate, longer-term you've had a couple of favorable revisions this year, I think, down a few points? So an update there I think would be helpful. And then the second question is on productivity in the Zero Based savings.

So we have your guidance for this year and for next, but what inning are we in here, how much opportunity is there beyond fiscal 2018 would be question number one related to that, and two, is the incentive structure in place down to the business level for employees in this area? And I guess, I ask this in the context, and there are some questions on long-term guidance before it seems like, given top line pressures, the company is going to become increasingly reliant on this area.

So the 2% to 3% organic sales growth is still on the table, but it looks like if the new normal is sort of modest declines, which is what we've had in two of the past three years, and then looks like it will be the case again this year, it seems like the company will have to lean again more heavily.

And then, related to this is, is high-single-digit EPS growth still – which is the long-term target – is that reasonable sort of in the current environment, if things do not change, can you sort of get there? It would seem like perhaps too big of an ask in this area on productivity savings to offset the top line weakness.

So there's a lot there, but your commentary would be helpful. Thank you..

Okay. So I'll try and start. So on tax rate, and what our longer-term rate is; just as a reminder, we are having very favorable mix this year, and that's one of the things that's driving our tax rate lower, and we also had a favorable return to provision in the quarter that's helped us.

So we've had some discrete items, as well as mix, that have impacted our rate this quarter. I can't really give an outlook today for next year's tax rate, but certainly below a 30% rate ,given mix of our International earnings.

In terms of ZBS and what to expect beyond 2018, the organization's very dedicated to continuing and sustaining savings against all of our P&L line items.

I don't have a good number or a good set of savings initiatives that are in play beyond 2018 at this point, because we've been working so hard on trying to get the savings initiatives that we have identified through 2018 into our budgeting process, and trying to deliver on all of those initiatives, and there are many, many initiatives to deliver on.

Certainly, those initiatives will continue to provide savings incrementally, even into 2019, just at a lower amount, because we need to really come back and refill the funnel in 2018 to continue growing to – increasing our savings in 2019.

So I don't have an outlook for you today on it, but I will tell you that we are very committed to continuing to finding productivity in all the line items in our income statement..

And I'll chime in that, we remain confident and committed to our algorithm, and that includes the EPS targets. To do so, certainly, we need to attack top line, we need to grow margin, and we need to manage cash. Incentives for the whole organization are directly tied to sales, to profit, and to cash – to balance sheet management.

Therefore, I think the whole organization sees that we need to remain committed, with a sense of urgency, to manage productivity and cost. And like Sandy said, we're really working to make ZBS part of the culture, and I'm confident we're going to keep attacking costs with urgency going forward..

Okay. Thank you, guys. Good luck..

Thanks, Kevin.

Operator, next question please?.

All right. Jason Gere with KeyBanc Capital Markets. Please go ahead..

Okay, thanks. And then, maybe just continuing with Kevin's question; so obviously, the margin improvement, especially on Wet Shaving, was quite impressive in the quarter.

So I guess, as we think about the next 12 months, category trend's a little bit tougher, when you think about the acceleration in ZBS for next year, how do you kind of bucket the reinvestment rate that you might need of those cost savings, in terms of – some of both the trade spending, the A&P, and understanding that it's going to be up a little bit this year, kind of combined.

But also, when you think about the e-Commerce platform, IT capabilities, China, et cetera, do you see any change in terms of the reinvestment rate that you might see over the next 12 months, versus where maybe you were six months ago?.

We're in the middle of planning that now, and I don't mean to beg-off, but I think it's a little premature for me to comment. You highlight, I think, some of our key priorities in our planning process.

They're going to be at the top of the list, and we do have several reinvestment priorities, and that just means that we need to work harder and harder for productivity to fuel them. Beyond that, I can't really, really speculate yet..

Okay. And then, just if I could just add another quick thing. What was – excluding, I guess, the distribution losses – can you just talk about Fem Care, just a little bit more broadly, in terms of the growth you're seeing and the efforts there to kind of stabilize that business? Thanks..

Sure. Thank you, Jason. Yes, Feminine Care for the quarter had a sequential slowdown, and the category was actually down about 1.5%. Beyond that, we had several planogram disappointments where we lost; items carried, we were down about 7%, driven by losses on our Sport pads and liners.

So that was the major driver along with a loss of quality merchandising in a couple of customers on our liners business. So the focus over the upcoming quarters and years is to really re-double efforts against fundamentals, really managing share of shelf, bringing category solutions plus innovation and the team is focused on the fundamentals..

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

Next question is from Jonathan Feeney with Consumer Edge Research. Please go ahead..

Hey, how're you doing? This is Armani Khoddami in for Jon. Thanks for the question.

Maybe just a quick one about the European supply chain impact, is there any way you could quantify that? It sounds like the price increases in Japan went well, so just trying to understand internationally what, maybe a run rate growth look like versus the impact from the supply chain piece, that'd be great. Thank you..

I'm not sure, I have – it was around five of the quarter (48:46) shortfall, and it was a product of two or three different projects, the timing issues that all kind of – that kind of aggregated to a pretty severe supply chain issue. We think it's mainly a Q3 issue, but we might have a little hangover going into Q4..

Okay. Thank you very much..

Thanks, Armani.

Operator, the next question please?.

Next question is Bill Chappell with SunTrust.

Please go ahead?.

Good morning, thanks.

Hey, David, just a question both on Skin Care and really Wet Shave, I mean, do you see signs of stabilization in the end markets in terms of the overall category seeing some stabilization or more rational pricing, or are we still middle innings, I mean, how do you gauge that as we look over the next 12 months?.

Well, on the U.S. Wet Shave issue, I think that, we're in the early days to middle phases of it, certainly, the competitive list price action just happened as of April, so we have a while to go before we anniversary that, and the situation is influx. There's several channels that haven't even taken pricing down, yet.

So that's going to continue, but we'll emphasize that, that's U.S. that I'm talking about, and I think around the world, I think, while the competitive levels remain high, I don't see them, they haven't accelerated at all.

And then Feminine Care, from a competitive point of view remains high, and I think, it's actually gotten a little worse for us, I don't know – I can't speculate where that goes..

And just on that, I mean, is that being helped by the – or accelerated by a favorable commodity environment, I mean would you expect if commodity started to spike, there would be any pricing or that would be an incremental headwind?.

Well, I think the competitive situation right now isn't really related to commodities, and I can't really speculate either where commodities go or what they'll do in a reaction to that, what you see right, yeah, I think that I'll leave it there..

Thank you, Bill.

Operator, next question please?.

Next question is from Stephen Powers with UBS. Please go, ahead..

Hey, great. Maybe, if you could just shed a bit more of a spotlight on e-Commerce, maybe you can provide some early learnings with respect to Tmall, just going back to that launch last quarter.

And I guess related to that, as well as the direct-to-consumer experiment with Hydro online in the U.S., it's some of what you've announced or talked about today with respect to Europe, you clearly began to expand distribution of Hydro Connect, so maybe some color on what the uptake and consumer feedback has been so far, and maybe why not launch it more aggressively in the U.S.

whether brick-and-mortar outlets or a placement at Amazon et cetera? Thanks..

Okay, great. Yeah. Thank you. First, on with the Tmall, yeah we've – we got our new site, and our new store this past quarter, and a we've had – everyday actually sales grow, we launched Hydro Connect on Father's Day to great reaction, and it's now kind of number two on our list from a sales point of view. So we're pleased with the progress there.

It's really early days to comment about sales, the sales rates in the Europe. We're just getting retail placement now. So I don't have any real good color for you on that. And in terms of a broader distribution of it in the U.S., we'll certainly evaluate that.

We sort of like having it on our site as a differentiator, and a reason to come to our site, and it's working well in that regard..

Okay, great. And then....

Thanks. Sorry, to interrupt..

I'm sorry. I'll pass it on. That's fine. Thanks..

Thanks, Steve.

Operator, next question please?.

Next question is from Kate Grafstein with Barclays. Please go ahead..

Hi, thanks. So, last quarter, I think, you mentioned that Men's Systems in the U.S. declined 23%. So I was just wondering, if you could give that figure for this quarter, and then on Women's Systems, have you seen any change in that category dynamics outside of the U.S.? Thanks..

Sure. On the second question, I don't see a major trend or anything really notable on that front.

And the 23% was at Nielsen?.

No that was us..

Yeah..

And so this quarter U.S., our North America Men's grew 15%..

Okay. Thanks, Katie.

Operator, next question please?.

This concludes our question-and-answer session. I'd like to turn the conference back over to David Hatfield for any closing remarks..

Yeah. Thank you. And I'd like to thank everyone for your time and your interest. Have a nice day..

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