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Edgewell Personal Care Tackles High Interest Challenges with Smart Debt Strategy

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Leo Gonzalez

May 14, 2024 - 17:55 pm

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Edgewell Personal Care Prioritizes Debt Repayment Amid Rising Interest Rates

In a recent interview, Edgewell Personal Care Co., a prominent player in the consumer goods sector known for its Banana Boat sunscreen and Schick razor brands, has declared a strategic pivot towards debt repayment. With the current financial climate marked by heightened interest rates in the United States, the corporation has signaled its intention to prioritize the settlement of its variable-interest obligations within the fiscal year.

A Prudent Financial Maneuver

Edgewell's Chief Executive Officer, Rod Little, detailed the company's plan to eradicate its floating-rate debt, focusing on retaining solely its fixed-rate liabilities that presently bear an interest rate near 4.5 percent. This financial reorientation comes in the wake of Edgewell's latest quarter fiscal report, which showed an uptick in interest rates on the revolving credit facility. This line of credit was previously utilized to underwrite the acquisitions of the grooming brands Billie and Cremo.

"We have been concentrated on reducing our debt," stated Little. "Given the costly nature of debt at present, our goal is to bring our floating-rate obligations down to null." This assertive stance on debt management mirrors a broader sentiment among corporations seeking to fortify their financial position against an environment of increasing borrowing costs.

Strategic Acquisitions and Financial Health

With a strategic vision, Edgewell acquired Cremo in a $235 million deal back in 2020, and the following year, expanded its portfolio through the purchase of women's razor manufacturer, Billie Inc., at a price tag of $310 million. In tandem with its emphasis on decreasing its debt burden, Edgewell is judiciously channeling its cash flows towards fostering growth trajectories and repurchasing its stock. In the words of Little, the company has set a "high bar" for merger and acquisition activities and is currently not pursuing any additional buyouts. Instead, Edgewell chooses to remain within the spectrum of its staple product categories.

"Our strategic bullseye rests on sun and skin care," Little explained. He also acknowledged gaps within the company’s product suite that require addressing.

Based in Shelton, Connecticut, Edgewell's financial obligations encompass approximately $1.4 billion in debt. Bloomberg's compiled data indicates the ratio of net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at 3.7 times by the end of the last fiscal year. Market analytics show that Edgewell's senior unsecured bonds due in 2028 manifest a 6.3% yield, with the notes due in 2029 closely trailing at a 6.2% yield. Out of a $425 million revolving credit facility, Edgewell has already utilized $111 million.

Challenges in Retail and Strategic Portfolio Realignment

The purveyor of also Hawaiian Tropic sunscreen products, Edgewell reported recently that its sales did not meet analyst estimates in the most current quarter, primarily due to a perceptible downturn in its North American market. CEO Little attributed this setback to value-conscious consumers opting to curtail visits to drug stores like CVS, which is one of the retailer's primary distribution channels. Instead, shoppers display a growing preference for dollar and club stores.

Amid these challenges, Edgewell has opted to discontinue its Stayfree feminine pads brand, shifting its focus towards bolstering the presence of its more prominent Carefree label. However, the transition will see a gradual phase-out of Stayfree, with the provision that certain products will remain accessible in the market for a period of two to three years.

"There was undoubtedly a chance to forge a stronger connection with the consumer base through a unified brand presence," explained Little, emphasizing the superior brand equity and consumer trust held by Carefree, which is substantiated by historical sales and familiarity among patrons.

Conclusion

In light of the attentive guidance provided by experts such as Elizabeth Campbell and Paula Sambo, Edgewell's fiscal strategy is calibrated to navigate through the vagaries of a volatile market. The company's pledge to prioritize debt over acquisitions underscores a broader awareness of the importance of financial stability in an uncertain economic landscape.

Edgewell's commitment to reducing financial liabilities, maintaining strategic focus on its established market segments, and the prudent recalibration of its product portfolio position the company for steadfast growth. As Edgewell moves forward with its decisively sketched financial trajectory, it serves as a testament to the staying power and adaptability required to thrive amid fluctuating market conditions.

©2024 Bloomberg L.P.

For more information on Edgewell Personal Care Co.'s strategies and market performance, visit Bloomberg.

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