Good day, and welcome to the Edgewell Personal Care Q4 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Chris Gough, Vice President of Investor Relations. Please go ahead..

Good morning, everyone, and thank you for joining us this morning for Edgewell's fourth quarter and fiscal year 2022 earnings call. 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 then hand it over to Dan to discuss our results and full year 2023 outlook before we 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 for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events, plans or prospects.

These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended September 30, 2021, as may be amended in our quarterly reports on Form 10-Q, which is on file with the SEC.

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. We were pleased with our results in the quarter, which came in largely in line with expectations despite heightened currency headwinds and persistent cost inflation.

For the second consecutive year, we grew organic net sales 4% and we've now delivered organic growth for six consecutive quarters. Organic net sales increased in all segments of the business. And importantly, we had double-digit growth in our right-to-win businesses, which includes Sun Care, Men's Grooming and Skin Care.

A right-to-play portfolio of Wet Shave and Feminine Care also grew organically for the second consecutive year at just over 1%. Growth was broad-based with North America increasing about 3% and in international markets increasing nearly 6%, and reflective of a healthy combination of volume and pricing.

And with the successful launch of Billie at Walmart, The Billie brand contributed 360 basis points to our reported top-line growth in the year. Despite ongoing macro market challenges, including supply chain disruption, heightened inflation and the rapidly appreciating US dollar.

We continued to make significant progress in the transformation of Edgewell, and achieved our objective of sustained top line organic growth. I would like to personally thank our teams across the globe, as this progress is a result of their dedication, continued focus on the fundamentals and good execution.

Evidence of our transformation is seen in four specific ways. First, delivering meaningful consumer-centric innovation. This year, we successfully launched new products in Sun Care and Feminine Care.

We re-architected the Schick brand in the United States, broadened our women's branded shave range, including the introduction of Hydro Silk Touch-Up, the number one selling women's hair removal SKU on Amazon.

And we added new products in Men's Grooming, including the trimmer razor and launched our first new brand since the spin-off with Energizer our new sustainable skin care brand, Fieldtrip.

Second, we further strengthened our presence on shelf, led by our category-leading Sun portfolio of brands and aided by the successful rollout of the Billie brand at Walmart.

Stronger brands, compelling innovation and better retail execution, all led to the best distribution outcomes we've seen since 2015 and helped deliver improved market share results. Third, we continued to improve our capabilities across the organization, particularly in brand building, direct-to-consumer and digital execution.

E-commerce sales now account for approximately 13% of our top line, up 6 points from just two years ago and evidence of our successful pivot to a broad omni-channel approach to our categories.

By in-housing critical capabilities related to site architecture, brand building, data and analytics and performance marketing, we have built the required skills necessary to be successful across all e-commerce channels.

And finally, we remain committed to driving costs out of the business and structurally simplifying and improving our operating model.

On the heels of our three-year fuel effort, which concluded in 2021, we delivered an incremental $40 million in cost of goods savings in fiscal 2022, helping to partially mitigate the broad inflationary headwinds seen across all businesses over the last 18 months.

We further addressed overhead expenses in 2022, delivering approximately $15 million in gross savings, while streamlining business decision-making and improving speed to market.

Importantly, in the face of an increasingly challenging operating environment, we remain committed to investing in our brands, spending just under $240 million, or 11% of net sales for the year in advertising and promotion, while improving the productivity of our spend, especially as we further shifted our focus to digital activation.

Now, I would like to turn to the new fiscal year and provide some insight into our plans and then Dan will take you through the detailed assumptions.

While the external environment remains extremely challenging, with continued year-over-year inflation, growing currency-related headwinds and a likely increasingly cautious consumer, we believe that our results over the past two years demonstrate the benefits of our strategy and the underlying structural improvement in our business.

This gives us confidence that we are taking the right actions to deliver sustained value creation over the long-term. While we navigate this an increasingly challenging environment, our outlook for 2023 is solid with four core highlights. First, continued organic sales growth.

Our outlook calls for organic growth of approximately 4%, largely driven by price execution and underpinned by Billie's retail expansion; compelling innovation in Sun and Grooming; continued strong distribution outcomes that reinforce our brand's growing strength on shelf; and continued improvement in market share trends, most notably in Wet Shave, reflective of our leading portfolio of women's brands in the United States and strong performance in key international shave markets.

Second, a return to gross margin accretion.

Despite continued inflation and meaningful incremental currency headwinds, through a combination of continued execution of our productivity initiatives across cost of goods and increased price realization across most of our portfolio, we will return to a core pillar of our business model, delivering 30 basis points of gross margin accretion for the year on a reported basis or 120 basis points of accretion on a constant currency basis.

Third, we plan to continue to invest in our brands and organizational capabilities with advertising and promotion spending expected to increase in dollars and as a rate of sale with increased focus on top talent development across the organization. And lastly, we will continue to structurally address our cost base.

Our plans include over $65 million in gross cost reductions across both cost of goods and overheads, as we focus on driving efficiency and simplification in how we operate the business.

In addition to the gross margin accretion, I just mentioned, the combination of growth-driven operating leverage and structural cost reductions also provide for another year of improved SG&A as a rate of sale.

As we contemplate our plans for the year ahead and the choices we are making, we remain committed to executing our strategies, and we are focusing on the operational fundamentals and health of the business for the long-term.

To help gauge the progress, we are making on an operational basis, in addition to providing organic net sales results, we will provide a constant currency view of our results, including for adjusted earnings per share and adjusted EBITDA performance.

We think that such a view is an important measure of our underlying performance and points to the strength of our business model when we drive sustained organic sales growth.

By 2023, on a constant currency basis, our outlook calls for adjusted EBITDA growth of 8% and adjusted earnings per share growth of 12%, both of which are well above our stated financial algorithm.

Since our Investor Day in November of 2020, we have now delivered consecutive years of 4% organic growth, meaningfully strengthened our portfolio with the additions of Cremo and Billie, improved our position on shelf and stabilized or even grown market share across our key markets, all while operating in the most challenging macro environment many of us have ever seen.

The underlying fundamentals of this business are far stronger today than they were two short years ago, and we are well positioned to continue our success in 2023 as our outlook reflects. And now, I'd like to ask Dan to take you through our fourth quarter and full year results and to also provide additional details on our outlook for fiscal 2023.

Dan? <> Thank you, Rod. Good morning, everyone. As Rod mentioned, our top line results and operational performance this quarter and this year, point to fundamental improvements across the business and give us confidence that the strategic priorities and choices we are making are driving the desired outcomes.

In the quarter, our continued strong execution across markets delivered solid results that were largely in line with our expectations, despite the continued challenging operating environment, including the rapidly strengthening U.S. dollar against most major currencies. In fact, the U.S.

dollar appreciated about 7%, against both the euro and the yen in the quarter. Organic net sales grew 1.2% in the quarter, underpinned by about 3% growth due to price and promotions management. For the full year, we posted 4% organic net sales growth, for the second consecutive year.

Retail execution behind the Billie brand remained strong, with the brand now gaining momentum as it prepares for broader scale retail expansion in 2023. Adjusted earnings per share declined 22% in the quarter versus the prior year, largely reflecting the impact of heightened inflation, unfavorable currency movements and a higher tax rate.

Before reviewing our detailed results for the quarter, I would like to provide some additional color on our operations and the macro environment.

Over the past fiscal year, our industry has been confronted by supply chain disruptions, unprecedented cost increases, and more recently, currency pressures, all of which created meaningful gross margin headwinds.

As you saw this past year, we are confronting these challenges and taking proactive steps to mitigate their impact, through a variety of levers, including further productivity savings, G&A efficiency programs and broad-based price execution.

And to further stabilize our supply chain, we took the necessary steps to secure additional raw materials through broader global sourcing efforts and strengthened our labor pool, through a combination of enhanced recruitment and pay-for-performance programs.

Despite these efforts, we continued to experience sporadic supply shortages in certain categories, and therefore, increased inventory levels in September, to ensure product availability and improve service levels to our customers.

This included an intentional effort to pre-build raw material and finished goods inventory across our Sun portfolio, much earlier, than in years past. As reflected in our 2022 operating cash flow performance, this resulted in a greater investment in working capital and a lower free cash flow in fiscal 2022.

Given the importance of our Sun Care business, we felt as though this was the right trade-off to make. Now I'll turn to the detailed results for the quarter and highlights for the fiscal year.

As mentioned, organic net sales increased 1.2% or 2.7% excluding, Wet Ones while cycling about 8% organic growth last year, as price gains were partially offset by volume declines. Most of the realized price increases were attributable to Wet Shave, Grooming and Fem Care.

International organic net sales increased nearly 8%, driven by strong performance in Sun Care, Women's Shave and Grooming. North American organic net sales decreased just over 3% as strong growth in Men's Grooming and Shave Preps and modest growth in Sun Care and Fem Care were offset by declines in Wet Ones, Women Shave and Disposables.

Looking deeper into our segments, Wet Shave organic net sales decreased just over 1%, and reflecting the previously mentioned phasing of orders that benefited Q3 as well as cycling the strong growth from the fourth quarter last year.

Significant Shave Prep growth of 14% and was more than offset by mid-single-digit declines in Women's Systems and Disposables. Organic net sales in international markets increased over 3% with growth driven by private label, new product launches and Shave Preps.

While North America organic net sales decreased over 7% as declines in Women's Systems and Disposables were only partially offset by growth in Shave Preps and Men's Systems. For the sixth consecutive quarter, US razors and blades category consumption increased, growing just under 2%.

The category growth in the quarter was led by Men's Systems growing just under 3%, while both Women's Systems and Disposables also saw modest growth. Billie performance at Walmart remained strong, with the brand still holding the number two position in Women's Systems and a 17% share of the category.

The Malibu handle is the top-selling system and the brand holds three of the top six selling handles overall. Importantly, in the last 15 weeks, Billie is the number one Wet Shave refill brand. And for the total launch period, refill sales continued to outperform the previous Joy and Flamingo launches.

These results provide compelling evidence of a strong conversion from trial users to loyal Billie customers. For the 13-week period, our manual shave market share decreased 60 basis points, while branded share decreased 40 basis points, as gains in women's branded shave were more than offset by share losses in Disposables and Men's Systems.

Disposables share performance in the quarter was impacted by lower promotion versus a year ago in drug and food as well as the impact of recent price increases. Sun and Skin Care organic net sales increased about 8%, driven by strong global Sun Care results and double-digit Men's Grooming growth.

Sun Care organic net sales in North America increased nearly 2%, despite cycling 55% growth last year and the shift in certain orders into Q3, where we grew 14%. International Sun Care sales increased over 64% as a return to travel and leisure activity drove demand recovery. In the US, the Sun Care category grew over 7% for the quarter.

While our consumption grew from prior year, our Sun Care brands predictably lost market share as last year we gained 180 basis points of share in large part aided by competitor brand recalls. Over the last 52 weeks, our portfolio gained 60 basis points of share and Banana Boat became the number one brand in the category in the US.

Men's Grooming organic net sales increased about 13%, despite cycling nearly 21% growth last year. Jack Black delivered over 26% growth while Cremo results remained strong, delivering nearly 8% growth and fueled by a healthy combination of new product growth, distribution gains and pricing actions.

Wet Ones organic sales decreased about 24% in the quarter, providing a 150 basis point headwind to total company organic sales. Category consumption declined 31% as the category further reset from the COVID-driven back-to-school demand spikes in the prior year.

Wet Ones consumption was down far less than the category, driving share gains of almost 17 points and a share position now over 67%. Fem Care organic net sales increased 1.7%, largely driven by heightened category demand and improved product availability on shelf. Playtex Sport and Carefree continued to grow, offset by slight declines in Stayfree.

Our portfolio saw over 6% consumption growth, while share was effectively flat in both the quarter and latest 52-week period. Now, moving down the P&L. Gross margin rate on an adjusted basis decreased 450 basis points compared to the prior year.

In the quarter, a 700 basis point gross impact from higher commodity, labor and transportation-related costs and a 100 basis point combined impact from negative mix and unfavorable currency was only partly offset by 350 basis points of offsets, equally delivered from productivity savings and price and promotion management.

A&P expense was 7.7% of net sales, with over 85% of the working dollars geared to digital execution. A&P spend in the quarter was in line with expectations and reflected the timing of new product launches and brand campaign execution.

Adjusted SG&A decreased 70 basis points versus last year, as gains from operational efficiency programs and lower incentive compensation expense more than offset the impact of Billie expenses, including higher amortization.

Adjusted operating income was $66.6 million compared to $80.1 million last year, a decline of 17%, reflecting the impact of higher costs and unfavorable currency movements. GAAP diluted net earnings per share were $0.64, compared to $0.80 in the fourth quarter of fiscal 2021.

And adjusted earnings per share were $0.79 compared to $1.01 in the prior year period, including a $0.20 combined negative impact from currency and tax and a $0.04 benefit from share repurchases. Adjusted EBITDA was $94.7 million, compared to $102.3 million in the prior year.

Net cash from operating activities for the year ended September 30 was $102 million, compared to $229 million over the same period last year.

Intentional efforts to pre-build Sun Care inventory for the 2023 season and to invest in higher stocks to improve service levels across categories for fiscal 2023 have resulted in the increased working capital outflow versus a year ago.

We ended the quarter with $189 million in cash on hand, access to the $264 million undrawn portion of our credit facility and a net debt leverage ratio of about 3.6 times. In the quarter, our share repurchases totaled over $15 million, bringing our year-to-date repurchases to $125 million.

In addition, we continued our quarterly dividend payout and declared another cash dividend of $0.15 per share for the fourth quarter. In total, we returned nearly $158 million to shareholders during the fiscal year. Now, let me turn briefly to a review of our full year results. Organic net sales for the year increased 3.9%.

Our Right to Win portfolio grew almost 11% organically, fueled by strong Sun performance across both North America and key international markets and our Grooming brands, which grew about 9% for the year. Our Right-to-Play portfolio delivered its second consecutive year of about 1% organic growth.

Organic net sales increased in North America by 2.6% and in international markets by 5.9%. Importantly, our market share performance across key markets strengthened in fiscal 2022.

In the US, our aggregate branded business saw slight share gains, reflective of gains across Women's Shave, Preps and Sun Care and underpinned by meaningful better performance on shelf and strong retail execution. Globally, we also drove healthy Wet Shave share gains in Japan, Germany and Mexico.

And finally, our Sun Care portfolio also performed well outside of the US, realizing share gains in Canada, the UK and parts of Latin America. Adjusted gross margin rate decreased 400 basis points year-on-year, reflective of higher commodity, labor and transportation related costs and net of productivity savings.

The positive impact from pricing was largely offset by negative mix and unfavorable currency. A&P expense was down $3 million from prior year or 60 basis points as a percentage of sales. Adjusted operating profit decreased $48 million or 17%.

And operating margin for the year was 10.6%, down from 13.3% in the prior year as we navigated a challenging inflationary environment and absorbed the impact of increased amortization costs associated with the Billie acquisition. Turning to our outlook for fiscal 2023.

As Rod mentioned earlier, we are confident that the strategic choices and actions taken over the past several years have put us in a better position to drive sustained top line growth. And we've strengthened our underlying business model by driving better commercial execution and increased focus on productivity and efficiency across the business.

As a result, we are better prepared for the challenges we will continue to face in the coming year.

Operationally, on a constant currency basis, which excludes both the translational and transactional impacts from currency, net of any hedge gains or losses, our adjusted EPS and adjusted EBITDA growth outlook for fiscal 2023 is expected to be well-above our previously stated financial algorithm.

Before getting into details, I would bring your attention to the supplemental slides that are posted on our website. These slides include additional detail on our outlook assumptions and will be helpful as you model the business, given the complexity related to inflation and currency movements and the commensurate impact on phasing across the year.

For the fiscal year, we anticipate organic net sales growth to be 3% to 5% with similar growth rates in half one and half two. Growth is expected to be largely driven by price with flat to slightly negative volume results in aggregate, although this will vary by segment.

We anticipate net sales to be flat to up 2% as compared to 2022 inclusive of about 360 basis points of currency headwinds and a 50 basis point benefit from billing.

As we look to gross margin, we anticipate about 30 basis points of year-over-year rate accretion with declines in the first half of the year, driven by continued inflation in negative currency, partly mitigated by price realization and productivity savings.

In the second half of the year, we anticipate that gross margins will meaningfully improve both sequentially and year-over-year as inflation headwinds moderate versus the prior year while price and productivity offsets continue to be realized.

For the full year, our gross margin outlook calls for approximately 350 basis points of inflationary headwinds, including approximately 500 basis points in half one, and 90 basis points of combined translation and transactional currency headwinds.

These collective margin headwinds are expected to be more than offset by about 275 basis points of price and revenue management gains and 225 basis points in productivity savings.

We remain committed to investing in our brands through A&P to support our growth outlook with A&P expected to increase both in dollars and rate of sale to approximately 11.6%. As a result, adjusted operating profit margin is expected to be about 30 basis points below 2022 levels on a full year basis.

We expect significant operating margin rate contraction in the first half of the year before we see moderation and improvement in the latter half of the year, largely a result of the gross margin profile just discussed. The impact of currency on a pre-tax income basis is expected to be approximately $33 million headwind, inclusive of hedging offsets.

Adjusted EBITDA is expected to be in the range of $320 million to $335 million. On a constant currency basis, adjusted EBITDA growth at the midpoint of the range is expected to be approximately 8%. Adjusted EPS is expected to be in the range of $2.30 to $2.50 inclusive of approximately $0.48 per share of currency headwinds.

Constant currency adjusted EPS growth at the midpoint of the range is expected to be approximately 12%. Additionally, we expect that the benefit from share repurchases, which is reflected in our outlook, will largely be offset by the impact from a higher tax rate.

We expect to generate about third-quarters of our full year adjusted EPS in half two of the fiscal year with Q1 adjusted EPS meaningfully below prior year results. And finally, free cash flow for the year is expected to be approximately $140 million.

The expected improvement in free cash flow will be driven by improved working capital as the year progresses. For more information related to our fiscal 2023 outlook, I would refer you to the press release and supplemental slides that we issued earlier this morning. And now I'd like to return the call to the operator for the Q&A session..

[Operator Instructions] Our first question comes from Chris Carey with Wells Fargo Securities..

Hi. Good morning. Just, Dan, can you just comment on the complexion of organic sales growth for next year. Obviously, you've already given expectations for pricing and volume. But I think you also noted in your prepared remarks that some divisions would deliver different growth than others.

I'm specifically interested in your expectations for Sun after strong results recently and the potential share performance going forward. So any thoughts there would be helpful.

And if I could just, as a connected, just from a pricing standpoint, it does feel like based on your gross margin outlook that you expect to achieve more realization of that pricing benefit into the gross margin line.

Is that a fair assumption and what's driving that? Are you doing less promotions? Is there a little bit more pricing than prior plan? So I'd love any thoughts there as well..

Yeah. Hey, good morning, Chris. I'll take them in reverse order, and then Rod can certainly jump in for what I missed. On the margin piece and the contribution from price, you're absolutely right. We do anticipate more tailwind into margin from price in 2023 than we saw in 2022.

In fact, you actually saw that in Q4 versus Q3, right? Sequentially, price, particularly in North America as we took price sort of in that late Q2 period was scaling up, hitting the shelf and then running through. So we do – we did see that back half of the year.

We do expect that to continue, and that's why we flagged about 275 basis points of gains from price next year in margin, which is obviously more than what we saw this year by more than 2x. In terms of your first question on organic sales performance, let me just make -- let me hit the headlines and get the bigger picture right.

We are anticipating somewhere between 4% and 5% growth through price and somewhere flat to minus 1% in terms of volume, and that obviously varies by category.

And we've done quite a bit of work, obviously, on sensitivity and elasticity, and how we thought about the price, we're taking the price that's been put into the category by others, and we think we've come to a really thoughtful place around the impact that price will have. Again, with a bit of an unknown around where the consumer will be.

As we think about that by across our portfolio, I think, we're certainly looking for healthy growth across all the segments. I think, we said that in the prepared remarks that we anticipate growth will come across all of our segments.

As you look at it in our Right to Win versus Right to Play portfolios, probably more about 5%, 6% in Right to Win and about 3% in Right to Play. And obviously, Right to Play gets aided by the Billie expansion, which we get 10 months of organic growth, and we didn't see that in organic this year.

So healthy growth across the categories, in part based on price and volume playing out differently by category and growth profiles, like I'd mentioned, about 5% and 3%, respectively, across our Right to Win, Right to Play.

Rod, anything you would add to that?.

Just one point I would add is, Dan mentioned the Billie growth organically that comes in for 10 months. But ex Billie, so the balance of the Shave portfolio, we also expect to have organic growth in the year ahead..

Okay. Thanks so much..

Thank you..

Thanks, Chris. Operator, next question, please..

Our next question comes from Kevin Grundy with Jefferies. Please go ahead..

Great. Thanks. Good morning everyone. First, Rod, just to zoom out a little bit. Dan alluded to a moment ago just sort of the uncertain macro.

Can you just comment on broadly what you're seeing across your geographies? Any signs of consumer weakness that's evident at all and what you're seeing, whether this be by pack size, by channel, consumers extending the life of razors and grooming.

And then just sort of broader macro assumptions maybe that are underpinning your outlook? And then I have a follow-up for Dan. Thanks..

Yes. Thanks, Kevin. Good morning. Let's start here domestically in the US, North America. Consumer has been resilient for the most part, I would say. We're not seeing any meaningful change in consumer behavior. For example, we're not seeing any material trade down on price points or to our private label portion of Shave portfolio.

So consumer has been fairly resilient here domestically. Categories are holding up well domestically. I think we referenced the Wet Shave category grew two points in the quarter just finished. So category is holding up. When you move outside the US into the European -- and that applies to Latin America as well.

I think the categories in Latin America are healthy and most fully recovered from COVID-19. Europe is lagging a little bit. I think we see continued recovery in the European markets that began in 2022.

We expect to continue to see that in 2023, albeit there may be some pressure on consumers in Europe, given what's happening in the eastern part of that continent and some of the pressures around energy. And then as we get into Asia, that's the part of the world that's lagging on reopening.

We are starting to see some progress in some of the Asian markets with some of the markets outside of China opening up, being more friendly for international travelers coming in to those markets. And again, I expect that to continue to be a help to our business over 2023 and 2024 and beyond. So markets relatively good, continuing to recover overall.

Consumer stable, would be the summary..

Thanks Rod. And then the follow-up, Dan, just pivoting to currency because my sense is that probably the shortfall against where consensus numbers sort of were going into the quarter is probably largely tethered to currency; to a lesser extent, the tax rate.

Why don't you just spend a moment, Dan, if you wouldn't mind, just on some of the transactional impacts driving that. And specifically, the call in your guidance is a 3.5% impact to sales, but something much worse to profit and EBITDA. Maybe just spend a moment on the factors driving that.

And relatedly, was there any thought you could perhaps lean in a bit more whether this is around pricing, productivity to try to offset some of that. Then I'll pass it on. Thank you very much..

Yes. Thanks Kevin. I do agree with your thought. I think the difference we see in how we've thought about 2023 and some of the models that exist is largely around the size of FX, and we've put that in our outlook and in our supplemental slides to try to be really clear about how we thought about it.

And that's the $0.48 headwind to EPS that we have projected. Look, I think the main driver here around transactional FX is tied to three markets; they're Japan, Australia and New Zealand. And there are three common elements in these markets. One, you've seen massive dollar appreciation against the local currency.

Two, we have little to no natural cost offset in the market. And three, where we do have a cost profile, it's largely denominated in USD. So, you've got kind of the perfect storm here of appreciation with the dollar, no natural offsets and limited local currency cost transactions.

And so as we've sized it up based on that, those three markets that I mentioned account for about 85% of the transactional headwinds that we're projecting. Europe, you'll see a bit as well there. We obviously have a large sales footprint. We have a meaningful cost base. We manufacture, obviously, in Germany and the Czech.

And in many places, we transact largely in local currency, so you don't see as big an impact there even though you've seen movements in euro and pounds. So, again, the driver here is those three markets that I mentioned.

On your second question around pricing, I think it's good to just talk about what we have done in pricing because we're actually quite bullish around the stance that we've taken across the business. I would think about pricing on three levels, right? The first is there is new price coming into the fiscal year from day one of the fiscal year.

And that you've heard us talk about Sun Care, Fem Care in the US. Those are both mid- to high single-digit price increases. They've been communicated and worked through and essentially on shelf. So those are done. That's the first tier. The second tier is there's wraparound pricing benefits from 2022.

That's largely our branded Shave, Disposable, Grooming businesses and a bit of international shave. And then thirdly, there's new pricing that gets phased into the year over time. So it doesn't come day one, that's largely in international business, Sun Care, Wet Shave.

You put all of that together; we're looking for about twice the impact in organic sales that we saw this year from price. We're about 1.5 to two points of growth from pricing in 2022. And as you've heard us say, we think that will be about four points in 2023. So we think we've taken a pretty healthy stance there. Obviously, we monitor it.

Obviously, we will be on top of it as the year plays out. And if we think we have the opportunity to take additional price or need to based on conditions, we will. And then to your point on productivity, again, productivity savings for the year, 225 basis points, which is even more than we saw in 2022.

So we really feel like we're pulling on the right levers, both price and productivity. You're seeing the benefit of that now in margin accretion, 30 basis points, and that's just core to our business model. We fully expect to get this business back to the margin profile we saw pre-COVID.

And I think 2023 is a good demonstration of year one of that despite meaningful currency headwinds..

Kevin, I would just add -- yeah, Kevin, I would just add, if you step all the way back on this currency thing, we recognize and own the fact that investors are counting on us to deliver earnings and cash flow in US dollars. We've got to do that. And so the reported numbers are the reported numbers.

But I don't want people to lose sight of the fact that we have $0.48 per share of currency impact embedded into this forward-looking forecast year-over-year. And if not for the currency move, we'd be talking about a 120 basis point gross margin accretion in the year.

We'd be talking about bringing a bottom line margin forward 100 basis points in increasing A&P spend. I do not want to change our posture on A&P. We like the brand-building activities we have. And I don't want to price to a point where we're uncompetitive in market. So we're going to stay after this.

But I do expect foreign exchange to moderate over time. I don't know when, we can't control central bank policy. So we're very aware of it.

But equally, we're investing in the business to get to the other side of that and really have our operational results show through in a way that they're just being masked with this guide due to the foreign exchange..

That’s helpful. Thank you both. Good luck..

Yeah, thank you..

Thanks Kevin. Operator, next question please..

Our next question comes from Nik Modi with RBC Capital Markets. Please go ahead..

Thank you. Good morning, everyone..

Hi, Nik..

Rod -- good morning, maybe you could just provide a little bit of clarity. I mean, obviously, the top line track record has improved. But we live in interesting and volatile times, to say the least. So how much visibility do you have, certainly, the pricing component is one area. But even from the volume side, the flat to slightly down.

Can you just provide any context around the visibility you have around that? And then just piggybacking on that, a few companies that deal in more commoditized categories are starting to talk about elasticities being a little bit worse than expected.

And I'm just curious, like when you and Dan were kind of going through the budget and thinking about elasticity, maybe you could provide some context around how much flex you have in some of your assumptions..

Sure. I'll start at a high level by saying we're very confident in our top line growth projections at that 3% to 5% range, or let's call it, 4% midpoint. We have very good line of sight to that. We know the pricing we've put in on that. We've made assumptions around elasticity.

If you look at those two elements around pricing and volume, in fiscal 2022, we did about 2 points of growth on pricing and about 2 points of growth on volume. As we pivot to 2023 and you take that 4% midpoint on organic sales, we have most of that coming through pricing on a flat volume assumption. And so at a macro level, there's your elasticity.

There's a little more pricing and a little less volume as we expect consumers to react to that. We may be wrong in some areas, we'll adjust accordingly. But between the pricing assumptions we've made, the elasticity assumptions around volume that we think are very realistic, those we feel good about.

The other thing we feel good about is we're close to the category evolution. We think we've got category assumptions in a good place moving forward, and we have a very clear line of sight to distribution outcomes year-over-year, which continue to be positive..

Great. Thanks..

Thanks, Nik. Operator, next question, please..

Thank you. Our next question comes from Bill Chappell with Truist Securities. Please go ahead..

Thanks, good morning. I just want to follow-up kind of on the thought on Billie.

Obviously, phenomenal test at Walmart, but didn't know where you might expect to see expanded to in 2023, if that kind of expanded distribution will match what you saw out of Walmart in terms of kind of total contribution or if it will be smaller? And any thoughts of as you're adding the space, I can't quite understand like are you getting incremental space everywhere as you move into the spring, or is it taking away from some of your other Women's Systems space? Thanks..

Yes, Bill. Good morning. So look, first of all, let's just quickly recap the Billie performance at Walmart, because it absolutely exceeded our expectations. You've heard us talk about the 17 share of the category.

The number one Wet Shave system in the category, which is the Malibu starter, the number two refill SKU in the category and number one actually in the last 15 weeks, which just speaks to a customer -- or a consumer that was on a trial with the brand that has now become loyal.

So we were really focused on execution at Walmart because we knew that would be the catalyst for retail expansion in year two. And that's exactly what we are seeing. I would call the retail expansion national. I'm not going to name names.

There are a few Is to dot and Ts to cross, but the demand and the desire of retail has been significant, and we really like what we are seeing that our team now has done being involved in this negotiation on shelf that they weren't a year ago.

I think importantly, as a result of that last point, you are also seeing better outcomes on shelf for Women's core branded business non-Billie. We are not losing shelf space. And in fact, geography-wise, we actually like some of the outcomes that we are seeing.

So we expect Women's branded non-Billie to essentially hold space, and we've actually seen really good buying of some of the MPDs within our women's portfolio as well. So that's why we are certainly looking for strong performance next year in Women's and continued meaningful share gains. Let me stay on that.

Rod talked about distribution outcomes, because we're really bullish on Women's Shave, as I just mentioned. We're actually quite positive on Men's branded in the US, where we expect to essentially hold, which is a really good outcome as we continue to rearchitect the brand.

And in Sun Care, what I would say is, we are clearly carrying the momentum and we're being rewarded by retail for being both a great supply chain partner and obviously having really strong brands. We're gaining phasings at Walmart. We are getting better outcomes in the Islander program.

We've seen really good initial sell-in of our innovation behind Banana Boat. So we're quite encouraged right now, which underpins, obviously, our outlook. We're quite encouraged with what we're seeing on shelf. Billie, a great enabler to that, but our core brands also getting some really good outcomes..

Yes. Thank you. Thanks for the color. Just a follow-up question. I didn't fully understand kind of your commentary about end of the season working capital for Sun Care and, I guess, how it affected cash flow.

Because I guess I would -- I guess the question is, would you now be seeing the cash flow or higher cash flow in the first quarter of 2023 as that kind of worked through the system?.

Yes. Not necessarily in the first quarter. Look, we bought heavy late in the quarter. While we anticipated we would, quite candidly, the inventory build was even more than we expected, obviously. A lot of that -- not all of that, but a lot of that was Sun season and Sun chemicals.

And we essentially saw about twice the days inventory build that we had anticipated. We did it for all the right reasons. It was good global procurement and thoughtful finished good build ahead of the year, but more than we thought to be quite honest. You'll see much better working capital management across 2023.

That's why you'll see a much different free cash flow outcome. I wouldn't necessarily suggest it's in Q1, because you still are subject to the seasonality of the business for us. But again, I think, points back to the structural free cash flow business remains strong..

Great. Thank you..

Thanks, Bill. Operator, next question, please..

Our next question comes from Olivia Tong with Raymond James. Please, go ahead..

Great. Thanks. I just had a question on Wet Shave. Obviously, with respect to the macros, I know like many others, you weren't really seeing any signs of trade down yet.

But as you think about the potential for that to happen in fiscal 2023, what are you preparing for with respect to your private label franchise in particular? And can you talk a little bit about how you manage your portfolio, specifically for Wet Shaving to optimize, not just sales or profit as well, especially considering what could potentially be a continuation of choppiness and possibly worsening choppiness as we look towards fiscal 2023.

Thank you..

Good morning, Olivia. As we've talked in the past, we have a diversified Shave portfolio across Men's, Women's, Disposables, and private label, which we call Private Brands Group. And we're geographically diversified where the majority of our Wet Shave business is actually outside of the United States.

And so, with that diversification, we obviously, within that, look at each of those segments differently, as we're building our plan and strategically. And in the year ahead, I think we've talked about, we've got an emphasis and a priority on women's Shave as a total company.

And so from an area of investment and our focus, the Women's Shave is a disproportionate focus. Within there, though, I think we're feeling good about all segments of the business, as Dan mentioned earlier. We expect all parts of the Shave portfolio to contribute to growth next year.

We're not expecting or planning for big shifts into private label out of branded product. If it happens, we're ready for that. We've got capacity to respond to that. But again, we see all parts of the Shave portfolio contributing to growth, both in terms of the segments, and also geographically the split between North America and international..

Great. Thank you..

Operator, next question please?.

There are no further questions. This concludes our question-and-answer session. I would like to turn the conference, back over to Rod Little, for any closing remarks..

I'd like to thank everybody for your continued interest in Edgewell, and we'll have an update for you in three months as we get our year started. Take care..

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