Edgewell Personal Care Co. Aktie

Good morning, and welcome to Edgewell's Second Quarter Fiscal Year 2026 Earnings Call.

[Operator Instructions]

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

Good morning, everyone, and thank you for joining us this morning for Edgewell's second quarter fiscal year 2026 earnings call.

With me this morning are Rod Little, our President and Chief Executive Officer; and Fran Weissman, our Chief Financial Officer. Rod will kick off the call and then hand it over to Fran to discuss our second quarter 2026 results and full year fiscal 2026 outlook. We will then transition to Q&A.

This call is being recorded and will be available via replay on our website, www.edgewell.com.

During this 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, brand investment, organizational and operational structures and models, cost mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions, dispositions and integrations, impacts from tariffs and other recent developments such as the conflict in the Middle East, changes to our working capital metrics, currency fluctuations, commodity costs, energy and transportation costs, inflation, category value, future plans for return of capital to shareholders, the disposition of our Feminine Care business and more.

Any such statements are forward-looking statements for the 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, 2025, and this may be amended in our quarterly reports on Form 10-Q filed 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. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business and allows more meaningful period-to-period comparisons of ongoing operating results.

As a reminder, our results this quarter reflect 1 month of the Feminine Care business classified as discontinued operations. Prior period results have been recast to reflect this presentation. The results of the Feminine Care business are reported separately from continuing operations. All of our commentary today, unless otherwise stated, on performance and our outlook will reflect continuing operations, including our Wet Shave, Sun and Skin Care business.

With that, I'd like to turn the call over to Rod.

Thank you, Chris, and good morning, everyone. We appreciate you joining us for our second quarter fiscal '26 earnings call.

We delivered a strong second quarter with top line and bottom line results ahead of our expectations, reflecting the actions we've taken to strengthen the business, improving our execution and delivering innovation that is resonating with consumers. The top line strength, together with solid gross margin performance and disciplined execution enabled us to deliver adjusted earnings per share and adjusted EBITDA ahead of our outlook. Importantly, these results reflect continued progress in our strategy execution, concentrating resources on the categories and markets where we have clear competitive advantage. And we're seeing this show up in improved consumption and market share performance, including in the United States.

Internationally, we continue to see solid market share performance across our key markets. In the U.S., we delivered accelerating consumption growth and share gains, both value and volume. U.S. value share increased by approximately 50 basis points in aggregate in the quarter with gains across branded manual shave, shave preps, Grooming, Sun Care and skin care. This is an important inflection point for the company as we expect to transition to a growth profile in the second half of the fiscal year.

While we continue to operate in an uncertain environment, we're executing against 4 priorities that we expect will drive both our near-term performance and our long-term strategy. These priorities are international markets, innovation, productivity and our U.S. transformation. These priorities are at the center of how we allocate capital and focus, directing our resources where we see the strongest linkage between investment, improved execution with the highest returns. This focus is evidenced in our simpler, higher quality portfolio with a stronger margin profile post the Fem Care divestiture, which we completed in February. We are moving forward with flexibility to allocate investments to the categories where we believe we have global scale, clear competitive advantages and momentum. This is Wet Shave, Sun and Skin Care and Grooming.

We're also more regionally balanced with roughly half of our sales in North America and half in international markets. Within the portfolio, Wet Shave now represents approximately 60% of our sales, and our Sun, Skin Care and Grooming businesses combined are now approaching 40% of total sales, with Grooming now over 10% of the business.

With that context, let me give you an update on our progress across each of our 4 priorities. First, durable international growth. We saw a return to growth in the quarter with continued good underlying consumption and market share trends broadly across nearly all key markets. While slower first half sales reflected timing and phasing impacts versus last year, we believe we are now positioned for strong sales growth throughout the remainder of the fiscal year. Second, compelling innovation. We remain committed to delivering consumer-led locally designed innovation across our portfolio. We are now positioned to realize the benefits from the investments we made in fiscal '25 when we expanded Billie into Australia, Bulldog entered premium skin care across Europe. We took Schick into premium skin care in Japan with the launch of Progista, and we broadened CREMO's range in the United States and Europe, driving meaningful growth.

We are also equally excited about the remainder of fiscal '26. We have a robust second half innovation pipeline, including Hydro and Intuition relaunches in Japan, new Wilkinson Sword and Hawaiian Tropic launches in Europe and meaningful launches across Grooming and Sun Care in the U.S. Together, these initiatives reinforce innovation as a key driver of our strategy. All of this is supported by a significant step-up in A&P spend that's focused on brands and markets where we see the strongest linkage between investment, distribution gains, household penetration and repeat rates.

Third, productivity through supply chain optimization. We are executing our productivity agenda with consistency and urgency. This quarter, we delivered approximately 220 basis points of gross productivity savings. These actions are an important driver of our profit profile, softening tariffs and inflationary pressures, simplifying the organization, improving speed and service levels and creating capacity to reinvest behind our core brands. We continue to make progress on our Wet Shave manufacturing consolidation, an important program to simplify our footprint, modernize our shave technologies and capabilities and improve the structural economics of the business.

Phase 1, consolidating the first 2 plants, which primarily support private label into our new greenfield site is nearly complete and represents the most operationally complex stage of the program. Throughout the transition, our priorities are clear: protect customer service, maintain on-shelf availability and minimize disruption for our retail partners.

To support service levels, we're investing to protect fill rates, including, in some cases, running duplicate sites longer than planned as well as absorbing higher operating costs such as overtime and incremental airfreight. Importantly, the program remains on track to deliver the intended service outcomes and savings. As we reach steady state, we expect to begin realizing savings in fiscal '27 with a full run rate in fiscal '28, equating to roughly 2 points of expected company-wide gross margin improvement.

Fourth, our U.S. commercial transformation. From an organizational perspective, we've simplified our U.S. structure to reduce complexity and accelerate decision-making with new leadership in place and clear accountability across our commercial teams. We're also investing behind core capabilities, insights, and analytics, media and content, category development and revenue growth management. We anticipate that this will improve how we execute at shelf with our retail partners and win with consumers. And these actions are already yielding results as reflected in the improved consumption and market share trends we're seeing today. We've also taken decisive action to increase investment in our 5 U.S.-focused brands: Schick, Billie, Hawaiian Tropic, Banana Boat and CREMO, shifting to a more sustained brand building and a balanced full funnel marketing mix.

You can expect to see the step-up in spending in the second half of the fiscal year. We recently launched new campaigns and support for Billie and CREMO, a new Schick master brand, Do Right By Your Skin Campaign featuring Nick Jonas and our first Banana Boat campaign in 5 years. All examples of the kind of bigger, more impactful full funnel campaigns we're bringing to market with support coming soon on Hawaiian Tropic as we head into the sun season in the Northern Hemisphere.

The new Schick campaign sharpens our focus with the skin first approach that treats shaving as the first step in skin care. This builds on our heritage and expertise in hair removal while redefining the category through a skin-first perspective. These campaigns build on the work we've done to identify consumer needs at a more granular level, driving sharper brand positioning and raising the bar on disruptive creative, full funnel and omnichannel excellence, delivered through our recently restructured marketing team and our new fully integrated agency partner.

Moving forward, continued support on our core brands will be coupled with sharper insights, greater focus on innovation and renovation and continuing to push for excellence in revenue growth management and omnichannel execution to drive our growth. Overall, we expect these actions to strengthen our fundamentals and position us for growth over the longer term in the U.S.

So as we look forward to the remainder of fiscal '26, we are reaffirming our underlying outlook for the fiscal year. We are encouraged by our second quarter and our first half performance and the progress we're making across the business, which increases our confidence in our ability to deliver our plan. At the same time, we're operating in an uncertain macro environment, and we have the bulk of our Sun Care season ahead of us. So we are maintaining a disciplined and balanced outlook. Since our prior update, overall risk has increased given the conflict in the Middle East. While we are maintaining our ranges, we see a modest incremental risk to top line, particularly in our Middle East markets as well as higher inflation risk, most notably from oil and higher fuel costs.

At the same time, we continue to see a balanced set of opportunities and levers across the business to help offset these incremental headwinds. which is why we remain confident in our ability to manage through these items, and we are comfortable holding our adjusted ranges.

Our confidence is grounded in the strategy I discussed earlier, durable international growth, compelling innovation, productivity and supply chain optimization and our U.S. commercial transformation. To reiterate the key underlying assumptions embedded in this outlook. First, we expect to return to organic net sales growth, driven by strong second half growth in international markets and a return to growth in North America as our U.S. initiatives continue to take hold through the second half of the fiscal year. Second, our plan includes a step-up in brand and A&P investment, most notably in the United States to support our commercial transformation and to accelerate our key brands. We believe this investment, together with our innovation pipeline will strengthen consumer response and drive higher consumption and market share over time.

Third, we expect gross margin expansion, supported by productivity gains, pricing actions and tariff mitigation efforts that are expected to build as we move into the second half of the fiscal year, partially offsetting inflationary headwinds. Fourth, even as we invest for the longer term, we intend to continue to prioritize adjusted free cash flow generation through working capital improvement and disciplined spending. And consistent with this approach, our near-term capital allocation priorities remain focused on strengthening the balance sheet, most notably using proceeds from the Fem Care sale to pay down our revolver balance this quarter.

Of course, underpinning all of this is the strength of our team and our ability to execute with excellence. The progress we made this quarter reinforces our conviction in our plan and increases our confidence in returning to solid sustainable growth beginning in the second half of our fiscal year, while expanding margins and cash flow in a way that builds long-term shareholder value.

With that, I'll turn it over to Fran to walk you through our results and outlook for fiscal '26. Fran?

Thank you, Rod. As Rod outlined, we are pleased with our performance as we closed out the first half of the fiscal year with better-than-expected top line results and in-line gross margin performance. Additionally, we are increasingly encouraged with the improved consumption results and market share performance of our brands, reflecting the continued progress being made against our focused strategies. As we transition to growth in half 2, supported by further investments in our brands, we have confidence in our ability to execute our plan, but remain mindful of the dynamic environment in which we are operating. And as a reminder, our results this quarter also include approximately 1 month of Fem Care reported in discontinued operations.

Now let's turn to our performance in the quarter on a continuing operations basis. Organic net sales decreased 240 basis points this quarter, better than our expectations as strong performance in Grooming and better-than-anticipated branded Wet Shave were more than offset by expected declines in Sun Care, driven by phasing of orders to Q1 and in private label Wet Shave. North America organic net sales decreased 4.8%, driven by the volume declines in Sun Care and Wet Shave, partially offset by double-digit growth in Grooming and modest growth in Skin. International organic net sales increased 1% as growth in Wet Shave was partially offset by declines in Sun Care and Grooming. Importantly, we delivered growth in several of our key markets.

As we pivot to growth in half 2, we are encouraged by our market share performance. We have grown or held market share in nearly 80% of our markets, which is up from approximately 70% in Q1. Wet Shave organic net sales declined less than 1% as gains in men's and women's systems were more than offset by declines in disposables and prep. International Wet Shave grew 3.6%, largely driven by volume growth, reflecting continued category health, solid distribution outcomes and strong in-market activation. North America Wet Shave declined 6%, driven by continued challenged category and channel dynamics.

In the U.S. razor and blades category, consumption was down 130 basis points in the quarter. Our value share declined 10 basis points overall, reflecting an improvement from Q1 trends. However, our branded share increased 40 basis points, led by Billie, which continued to grow share up 40 basis points, while our other brands held share. Sun and Skin Care organic net sales decreased approximately 4.5%, driven by the expected phasing in Sun Care that I just reviewed, partially offset by growth in Grooming and Skin. In the U.S., Sun Care category consumption grew approximately 17% in the quarter. Our value share grew 180 basis points, driven by volume gains in Hawaiian Tropic, partially offset by slight declines in Banana Boat.

Grooming organic net sales growth was approximately 6%, led by approximately 38% growth in CREMO, partially offset by expected declines across other brands. Wet Ones organic net sales grew about 1%, and our value share was approximately 65%.

Turning to the P&L. Adjusted gross margin decreased 310 basis points, in line with our expectations. Productivity savings of approximately 220 basis points were more than offset by 420 basis points of core inflation and tariffs, 70 basis points of unfavorable mix and promotional levels net of pricing and 40 basis points of unfavorable currency movements. We continue to expect productivity, tariff mitigation efforts and pricing to accelerate in the balance of the year and to deliver gross margin rate expansion for the full year versus fiscal '25.

A&P expenses were 11.3% of net sales, down from 11.6% last year, primarily due to promotional activation timing. We continue to anticipate spending increases in the balance of the year to support the new campaign launches outlined by Rod earlier. Adjusted SG&A was 20.1% of net sales compared to 19.6% last year, primarily driven by higher consulting and corporate expenses and unfavorable currency impacts, partly offset by lower people costs. Adjusted operating income was $49.4 million or 9.5% of net sales compared to $66 million or 12.8% of net sales last year, primarily reflecting the impact of lower gross margins, higher SG&A expenses and partially offset by lower A&P.

GAAP diluted net earnings per share from continuing operations were $0.09 compared to $0.43 in the second quarter of fiscal '25. Adjusted earnings per share from continuing operations were $0.60 compared to $0.69 in the prior year quarter. Currency reduced adjusted EPS by $0.04 in the quarter. Adjusted EBITDA was $73.8 million, inclusive of a $2.7 million unfavorable currency impact compared to $84.7 million in the prior year.

Net cash used by operating activities was $71.6 million for the first 6 months of fiscal '26 compared to $70.5 million last year, primarily due to lower earnings. As a reminder, cash flow is presented on a consolidated basis for both continuing and discontinued operations.

In the quarter, share repurchases totaled approximately $16 million. We continued our quarterly dividend payout, declaring a $0.15 per share dividend for the second quarter and returned approximately $7 million to shareholders via dividend. In total, we returned $23 million to shareholders during the quarter.

Now turning to our outlook for fiscal '26. Consistent with what Rod shared, we are reaffirming our underlying expectations for the year as our first half performance and continued progress against our strategic priorities increase our confidence in our ability to execute our plan. At the same time, we remain mindful of an uncertain macro backdrop and the fact that the majority of the sun season is still ahead of us.

With that context, I'll walk through our fiscal '26 guidance and address a couple of key components of its savings for the fiscal year. Our organic net sales range remains unchanged from previous outlook. We expect organic net sales to be down 1% to up 2%, excluding FX tailwinds. Underlying this outlook for the second half, we expect International to deliver mid-single-digit growth, supported by innovation and continued share momentum in our key markets, while North America is expected to improve and grow low single digits as our commercial initiatives gain traction.

We continue to expect Q3 to be our strongest sales quarter due to increased sun shipments and seasonal timing, while remaining mindful that weather and in-season demand can influence quarterly phasing. Looking ahead to Q3, we expect net sales to be up in the range of 2% to 3%.

Moving to adjusted gross margin. Our expected gross margin rate accretion on a constant currency basis remains unchanged. Reported gross margin accretion is now anticipated to expand by 50 basis points, down 10 basis points due to unfavorable FX. We expect gross margin to expand in half 2, which is consistent with what we shared previously as pricing actions, tariff mitigation efforts and productivity initiatives reach full run rate. The near-term impact of oil price spikes and other operating costs to protect service levels are putting pressure on inflation, which we are working to mitigate through a combination of productivity, volume absorption and mix management, which are disproportionately in Q4. From a phasing standpoint, we expect Q3 adjusted gross margin to be in the range of 44% to 45%, a sequential improvement from the second quarter, with Q4 shaping up as our strongest gross margin quarter of the year, driven by annualization of tariffs, productivity and mitigation initiatives reaching full run rate, improved capacity utilization as well as lapping of last year's onetime headwinds.

Our year-over-year A&P rate is expected to increase 70 basis points for the full year, in line with our previous outlook. As Rod mentioned, we're taking action to increase investment in our 5 U.S. focused brands, Schick, Billie, Wine Tropic, Banana Boat and CREMO. From a phasing perspective, we've shifted spend from Q2 into Q3 to support the launch of our brand campaigns timing, and we expect Q3 to be the highest A&P spend quarter of the fiscal year in the range of 15% to 16% of net sales.

Adjusted EPS remains unchanged from the previous outlook. Adjusted EPS is expected to be in the range of $1.70 to $2.10. This outlook reflects the impact of expected share repurchases, which were completed in the second quarter to offset current dilution and assumes an effective tax rate of 22% to 23%. Adjusted EBITDA remains unchanged from previous outlook and is expected to be in the range of $245 million to $265 million. Given the phasing impacts that I just addressed, we expect to generate about 40% to 45% of second half adjusted EBITDA and adjusted EPS in the third quarter.

Our adjusted free cash flow expectations, excluding the cash impacts of the Fem Care divestiture are unchanged and in the range of $80 million to $110 million for the year, including expected improvements in working capital. Please note, adjustments related to the Fem Care divestiture include taxes related to the sale, working capital and deal-related expenses.

Fiscal '26 represents the peak year for capital and investment spending tied to our plant consolidation and broader supply chain transformation. This program is time-bound, not open-ended. And as we move beyond fiscal '26, we expect capital intensity to step down as the new footprint reaches steady state. At the same time, we expect the benefits to build through improved service, lower unit costs and better working capital efficiency.

Turning to leverage. We expect our balance sheet to continue to strengthen as the year progresses, reflective of our new lower debt position and supported by accelerating operating cash generation and disciplined capital deployment. For full year fiscal '26, we expect adjusted net debt leverage to end the year in the range of 3.3x to 3.5x, which includes an estimated 0.3 to 0.4 negative turn impact from temporary Fem care divestiture timing and related items. The leverage ratio during this transition period is temporarily higher as the net debt reflects our post-close balance sheet, including cash balances impacted by working capital and other items related to our divested Fem care business, while EBITDA excludes discontinued operations. This difference temporarily inflates the ratio in the near term and is not indicative of our underlying earnings power.

And finally, we remain committed to a disciplined capital allocation strategy. The net proceeds from the Fem Care divestiture after taxes and transaction costs have been directed towards strengthening our balance sheet and reducing debt while also supporting continued investment in our core brands with capital expenditures to drive innovation and productivity.

For more information related to our fiscal '26 outlook, I would refer you to the press release that we issued earlier this morning.

And now I'd like to turn the call over to the operator for the Q&A session.

Our first question comes from Nik Modi with RBC Capital Markets.

Rob, can you just -- I guess one of the clarification questions is, how much inflation do you think you'll have to offset as a result of what's going on in the Middle East? If you could just help us kind of frame and quantify that. But more importantly, I just really want to get into your mind about the guidance. There's just so many moving pieces. Obviously, you had a lot going on in the quarter. There's a lot going on in the world. And I'm thinking of it more directly from like flights are getting canceled overseas that might impact tourism because of fuel shortages that could impact Sun Care. Thinking about inflation for the consumer with gas prices during the summer, which could squeeze the ability to consume Sun Care products and other products across your portfolio. So just there's a lot like incremental headwind I see coming. But the fact that you're confirming guidance, I just wanted to kind of get behind some of that and hopefully, you can unpack that for us.

Nik, thanks for the questions. I will start with the overall guidance perspective, and then Fran can hit the expected inflation from the Middle East activity for both this year and I guess, a thought towards next year, even though it's quite premature, Fran can hit both of those.

So look, as we look at our guidance for this year, we're halfway through, right? And we're on track halfway through the year, where we thought we'd be on both quarter 1 and quarter 2 when you put those together. So that's point one. We're holding our outlook for the fiscal year guide across all elements, as you point out. I think there's a couple of things going on. First is despite the incremental headwinds coming at us, we took a more balanced planning stance overall. And so we had a plan that had more flexibility and more levers in it if we did hit some incremental headwinds, which we're now seeing. So the headwinds we see, oil, commodities, the cost piece, and then I think as you're pointing out, this consumer demand question, I don't know where that goes, but it's something we're thinking about.

And then the cost levers to offset that, we've been aggressively working those, and that's part of not changing our guide as we take some of that incremental cost in. We have offsets in other places. Importantly, we're maintaining our A&P stance. We are not cutting brand investment, and we're not cutting A&P to do this. It's other productivity efforts, it's overhead efficiencies and making some tough calls there.

But I think the single thing I'll point you to that gives us optimism and confidence that we can deliver the guide is the step-up in the second half in sales rates, right? We have accelerating consumption and market share data in the U.S. now. You all see that in the scanner data, 26 weeks of consecutive volume share growth, and it's accelerating in the U.S. Fran referenced 80% of our global category country combinations are holding or winning market share. That's the healthiest position we've been in. So there's a broad-based momentum in the business.

Distribution is now confirmed, right, in the planogram resets. So that's now in as expected. International, we've talked about phasing all year that it would be more of a second half phase plan. As an example, Shave internationally in Q2 was at 4%. The phasing was primarily in Sun Care, down in the first half, second half up. And we've got the new campaigns and new innovation all launching with incremental investment behind them. And the content is really, really good, very different than the past when you look at the content we're putting out there and how we're reaching consumers.

Final data point for you is, April is off to a good start. We're seeing the step-up we expected to see in the month of April, which just obviously closed for us in line with this guide that we've put out. So we're seeing that step-up happen.

So final thing before I throw it to Fran around balance. Look, I think your commentary around flights being canceled, travel potentially at risk to some tourism markets here in the second half behind higher oil or maybe jet fuel not available in some cases. We've got line of sight to those risks. We think we're balanced equally with what has been a good start to the sun season domestically here with the category up double digits. Us ahead of that, winning market share from a consumption perspective. And we've not changed our outlook for the year, partly because 80% of the seasons to come. We don't know what will happen with the weather, but we think those 2 pieces, the international tourism risk, the potential upside domestically, we think that's balanced overall, and that's part of what underpins our thinking.

Fran, do you want to anything else there and then touch the inflation piece?

Yes. Thanks, Rod. Just taking it in 2 parts. If we think about fiscal '26 and the Middle East situation, clearly, things are still unfolding. But what we do have a line of sight to and what we have quantified for '26 is about $3 million to $5 million that's affecting us mostly in margin. We've got some top line pressures in the Middle East markets, as we could imagine. That's already factored into our Q3 outlook. And within the gross margin rate, we've got near-term increases around [ W&D ] and some commodities. Most of this gets trapped in inventory. So as this continues, we'll see more of the pressures coming through in '27. And while we have not sized that yet, our best expectation, if we took a snapshot right now, is probably in the size of what we anticipated tariffs to be, which we have more than mitigated this year through our productivity initiatives.

As we look forward to '27 though, it's important to understand that we have strong mitigation factors. Our productivity is expected to accelerate, especially with the consolidation of our plants. We continue to focus on [ FRGM ] as well as mix management. And more importantly, pricing is going to be a lever, of course, that we'll consider both targeted pricing as well as inflationary pricing if appropriate. So still uncovering '27, and we'll come forward as we know more. But that's our best line of sight with what we know today.

And the next question comes from Chris Carey with Wells Fargo Securities.

One follow-up on the inflation and gross margin and then a question on North America. Regarding the inflation, if my math isn't wrong, I mean, there's a really big step-up in fiscal Q4, both on an absolute percentage basis and a change relative to last year. As you just kind of went through it, and I get tariffs lapping and productivity building, it's nevertheless a big number. So I was just wondering if you could just maybe drill even a bit deeper just on confidence levels around that gross margin and that you're kind of continuing to do the right thing for the business.

And then regarding the North America piece, just is there a way to think about the underlying growth rates in North America in the quarter if you kind of normalize for Sun Care shipment timing and the sort of improvement that you're embedding in the business into the back half of the year?

Fran, take the inflation, gross margin piece, and I'll take the North America one.

Sure. So when we think about half 2, we always anticipated that most of our profit, 2/3 of our profit was going to be in half 2. And actually now as we settled half 1, it's turning out to be closer to 60%. And a lot of that was on the back of improved sales performance, but also improved gross margin performance. And I think I would break out gross margin in 2 ways. We see a sequential improvement in Q3, but we always recognize that Q4 was going to be our strongest quarter for 2 specific reasons. One, what we're cycling and lapping from last year. You may recall we had onetime transitory items that were disproportionately hitting us in Q4. That's about 50% of the Q4 step-up, not to mention that tariff mitigation is at full run rate and also, we're annualizing tariffs in Q4 as well. So that is disproportionately driving Q4 to be slightly higher than what we're seeing in Q3.

And then the last piece is just productivity initiatives. We've identified and finalized our productivity initiatives for the year. More of that is falling into Q4 because, as you know, we have over 120 days of inventory. So some of this gets trapped. But the good news is we already have a line of sight to that. So the way it's landing is just disproportionately more into July and August versus June. So those are the main factors that's really driving performance, and it's really in line with what we've expected.

Rod, do you want to talk through?

Yes. And Chris, on North America, I think you put your finger right on the point of inflection. In the first half and particularly in the second quarter in North America, Sun was down about 10% on the quarter, which is just reflective more than anything of a different of sell-in versus sell-out timing and then also those dynamics versus the year ago period, which is always tricky between quarters. Sun is going to be positive, right, in the second half of the year. In fact, we have total North America estimated in this guide up low single digits in the second half of the year. And so it's that flip on Sun and getting the consumption reads coming through where Sun turns positive.

Grooming continues to be very positive for us. As referenced, CREMO was up 38% in the quarter just finished. That momentum continues in the back half of the year. And then we actually have Wet Shave performance improving on a relative basis versus where it was in Q2. And that's behind not only better distribution outcomes, but what we think is really compelling campaigns. And the Do Right By Your Skin Campaign that we launched in Schick last week with Nick Jonas, as an example, has had better-than-expected resonance with consumers and engagement. And so we're optimistic across all elements of the portfolio. And I think we're in a better position right now in North America commercially and where this business can deliver continued growth than we've been in 2 to 3 years. And that's really ultimately the big inflection in our business as we look not only to the back half of the year, but as we go forward to '27. So feeling good about second half, Chris.

The next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on that top line growth. I guess, how are you guys feeling about inventory at retail out there, I guess, particularly in time, obviously, the sellouts have been pretty strong. I guess do you feel pretty confident that the retailers will need to replenish given the strength there? And then also, are you seeing as you kind of roll out these new launches, whether it's Hawaiian Tropic or in Wet Shave in Europe, I think you said in Japan, are you getting any pipes or new shelf space that we should think about that will also help to drive that top line?

And then maybe also if you could just talk about how you're feeling about the competitive environment with promotions in the Wet Shave category in the back half.

Yes. I'll take the first part of that, Susan, and Fran can talk about the competitive dynamics and what we've got assumed in here. Look, I think the second half sets up really well for us in that we don't have any known retailer inventory stocking problem. In fact, we suspect in many cases with our brands, the inventory at retailers needs to be enhanced. And as we go into this, things are very balanced in the trade. And we know, in some cases, the inventory actually needs to be built back up in some cases, in some areas. And I think Sun is a good example. Our consumption has outpaced the market, which has been a healthy category. Frankly, more than we expected as we look at the first half of the year. And so that ought to lead to pull-through in the second half. Even if there's not great weather, I think we're positioned well to do what we've said here.

And there's no big pipeline in the second half around new innovation going in that would create a mismatch or a problem for next year. But there are a lot of places where we did get incremental shelf space in the distribution outcomes that I think not only gives us confidence to deliver the second half of the year, but gives us momentum as we start to think about fiscal '27 and planograms in the year ahead, with the velocities we have and the consumption data we have.

You mentioned Japan, yes, we got incremental shelf space in Japan in branded shape. It's a branded market. There's really not private label there, but also preps. We have significant growth in Japan in the preps category right now, and that is being driven as more of a regimen experience in Japan, where typically perhaps has not been a big part of the business. So we've got growth in that part of the business, a lot of it is distribution.

Across Europe, we've had good distribution wins, some -- winning some tenders in the private label shave area of the business, also some wins in shelf space at shelf across Shave and Sun. And we've talked domestically here in the U.S. about some of the incrementality we've had across totality of Wet Shave, branded and also grooming. The grooming distribution gains are the biggest we've had primarily on CREMO, and that's body wash and APDO. So that we feel like is sustainable and rolls into '27.

Yes. And building on that, as we think about these distribution gains, we've talked at the last call around the importance of half 2 and the growth profile and distribution and planogram resets were factored into that. We have finalized that and they happen as anticipated. So a lot of these distribution gains are factored into our half 2 outlook. And when we think about promotional intensity, we still see the same level of promotional intensity that we've seen. It's factored into our outlook. It's not at a level that's higher than what we anticipated. And I think we see slightly more intensity, of course, in women's shave, but again, broadly in line with what we've already anticipated and built into our promotional plans for the balance of the year.

And the next question comes from Olivia Tong with Raymond James.

Can you potentially provide some goalposts for the next 12 months versus just the second half? You mentioned 120 days on inventory, which obviously pushes much of the higher costs that we're seeing out of the second half. You also mentioned some of the mitigation options you might have, including potential for inflation-related pricing as well. So should we assume that the gross margin gets hit more so in fiscal '27 than the second half fiscal '26? Perhaps could you give us some goalposts on commodities and what you're seeing from your suppliers on rate of change on cost inflation?

And then the second part of the question around pricing promotion. Obviously, the backdrop has been quite challenging from a promotional perspective. So have you seen any changes of late in terms of your competition on promotion and provide some confidence around your ability to potentially take some targeted pricing at some point in the next 12 months?

Olivia, so I'll start and Fran can add in if she needs to add in. Look, we are not obviously in a position to talk about '27 from a guide perspective. But as we look forward beyond the second half of the year, we know we've got some cost productivity levers that we've talked about that are bigger than normal. We expect next year to be a good cost productivity year for us as we start to get the initial savings tranche from the shave manufacturing piece, right? So we've got, I think, a good line of sight to cost productivity efforts around cost of goods and margin that continues beyond the second half. We're not going to size or quantify that.

What we also know we have in the second half of this year that does not continue into '27 are some onetime things in the base that make that Q4 gross margin that Fran referenced earlier outsized in terms of increase versus prior period. And so I think we're into a more normalized range where I'm not going to predict we're going to grow gross margin at this point next year. We're not going to guide to that, but we've got levers that as we finalize our plans to be able to do that, right? We should be able to pull those levers in that way.

The one piece I'll say as we go forward that it's a little different and unknown at this point, with this level of elevation, franchise it as our -- what we have line of sight to now is around what the gross tariff impact was on us a year ago, which we offset largely via cost productivity. I would expect that we would have some pricing power and some ability to take pricing if this elevated oil commodities basket holds where it is today because everybody is hit by that. And what's interesting for us is our business now, as you look at the new portfolio we have without Fem Care, 75% of our business is where we're growing or holding share in a very healthy position. So we've got 25% of our business in this U.S. shave bucket that has been the part of the business that's behind for us.

I don't know if we're going to be able to price in that bucket, but international shave, sun skin grooming with the increased equity strength that we have and kind of the competitive dynamics around that. I would expect if these elevated commodity rates hold that we would be looking at taking some pricing next year. Again, there's no sizing or commitment to it, but that will be definitely a lever we'll look at for next year. And frankly, we just don't have this year in our toolkit at the same level we would with that.

I think organically, when you look at sales growth as we go out into next year, the second half ought to be -- portend what's to come for '27 as we think about putting a guide out there in the next 5 to 6 months. We're not ready to do that. The second half should be a good proxy for sales growth.

Anything you'd add, Fran? No. Okay.

There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks.

All right. Thank you, everybody. We appreciate your continued interest in Edgewell, and we'll talk again in early August with our Q3 results. Have a good summer.

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

Good day, and welcome to the Edgewell First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

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

Good morning, everyone, and thank you for joining us this morning for Edgewell's First Quarter Fiscal Year 2026 Earnings Call. With me this morning are Rod Little, our President and Chief Executive Officer; and Fran Weissman, our Chief Financial Officer. Rod will kick off the call and hand it over to Fran to discuss our first quarter 2026 results and full year fiscal 2026 outlook. We will then transition to Q&A.

This call is being recorded and will be available via replay on our website, www.edgewell.com. Please refer to our website for supplemental information providing more details on the company's divestiture of its Feminine Care business that closed on February 2, 2026.

During this 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, brand investment, organizational and operational structures and models, cost mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions, dispositions and integrations, impacts from tariffs and other recent developments, changes to our working capital metrics, currency fluctuations, commodity costs, inflation, category value, future plans for return of capital to shareholders, the disposition of our Feminine Care business and more.

Any such statements are forward-looking statements for the 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, 2025, and as may be amended in our quarterly reports on Form 10-Q filed 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. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business and allows more meaningful period-to-period comparisons of ongoing operating results.

Before moving on, I want to clarify how the divestiture affects the way to view our results and outlook. Beginning in the first quarter of fiscal 2026, the Feminine Care business is classified as discontinued operations and prior period results have been recast to reflect this presentation. The results of the Feminine Care business are reported separately from continuing operations. All of our commentary today, unless otherwise stated, our performance and our outlook will reflect continuing operations, including our Wet Shave, Sun and Skin Care businesses.

At the same time to help investors compare our results and outlook on a consistent basis with our prior outlook, which included Feminine Care, we are also providing selected information on a consolidated basis, reflecting both continued and discontinued operations. To facilitate comparability, the press release and our remarks provide bridges to review results on a like-for-like basis and reconcile our outlook between consolidated and continuing operations presentation.

With that, I'd like to turn the call over to Rob.

Thank you, Chris, and good morning, everyone. We appreciate you joining us for our first quarter fiscal 2026 earnings call. We delivered a solid start to the year with results modestly ahead of our expectations. Our performance in the quarter reflects progress on the strategy we are executing as we continue to concentrate our resources on the categories and markets where we have clear competitive advantage. While it is still early in the fiscal year, we believe this initial progress demonstrates that we are on the path to delivering on our full year outlook.

Before I get into the details, I want to highlight a significant milestone for Edgewell. As you saw in our recent announcement, we have successfully closed the sale of our Fem Care business to Essity. The transaction closed as scheduled and importantly, the estimated annualized impact of the divestiture is expected to be favorable to our previous outlook. This transaction is a pivotal step in our transformation journey and reflects our long-standing strategic intent to sharpen our focus on the categories where we have clear competitive advantages and strong momentum: Shave, Sun, Skin care and Grooming.

By simplifying our portfolio and reallocating capital and resources towards these core businesses, we believe we are strengthening our ability to compete and invest where it matters most. With this move, we believe an Edgewell is now better positioned to be a more focused, agile and durable personal care company, one we believe can drive sustainable growth, deliver stronger margins over time and create long-term value for our shareholders.

Now turning to our performance highlights. We delivered a solid start to the quarter, executing well in a dynamic operating environment. Overall results came in ahead of our expectations. The strength in North America offset expected softness in international markets. Organic net sales in the quarter decreased by 50 basis points, reflecting stronger-than-expected performance in North America as certain retailers place Sun Care orders earlier than anticipated. This strength more than offset declines in international markets, which was anticipated and was primarily due to new product development phasing in Wet Shave in Japan and lower Sun Care sales in distributor markets where we cycled a large sell in a year ago due to certain formulation changes.

From a consumer and market share standpoint, trends were consistent with category dynamics and recent trends. In the U.S., share pressure was modest and concentrated in specific categories, most notably in core Wet Shave, while we continue to see relative strength in men's grooming. Outside the U.S., we delivered share gains across several key markets, including Australia, Europe, Canada and China, highlighting the resilience of our brands internationally. Over 70% of the markets either grew or held market share in the quarter.

From a profitability standpoint, we delivered above-expectation results, supported by favorable mix and continued productivity gains. Importantly, this performance was achieved while maintaining our investment priorities. Looking ahead, we remain focused on what we control, driving good execution, making thoughtful investments in the business, while simultaneously delivering continued productivity gains that protect and enhance our profit profile and maintaining disciplined capital allocation.

Despite an operating environment that is still choppy, we made good progress across 4 priority areas that are central to our near-term execution and our long-term strategy: international markets, innovation, productivity and our U.S. transformation. These pillars are at the core of how we are allocating capital and efforts, reflecting where we are concentrating resources and driving the highest returns. Progress across these 4 areas reflects disciplined execution and reinforces our conviction in the approach we are taking.

Let me give you an update on each. First, durable international growth. Our underlying consumption and market share trends were encouraging, particularly in Europe and Oceania. But as expected, organic net sales declined in the quarter, reflecting timing and phasing impacts. With the divestiture of the Fem Care business, our international markets now represent nearly half of total company sales, underscoring their importance to Edgewell's growth profile. Importantly, our international markets remain a core pillar of our strategy, and we continue to expect mid-single-digit net sales growth in international markets for fiscal '26, with growth expected to resume beginning in the second quarter.

Second, compelling innovation. We remain committed to deliver a consumer-led, locally-designed innovation across our portfolio, and we are seeing the benefits of that focus. In fiscal '25, we expanded Billie into Australia, Bulldog entered premium skin care across Europe. We took Schick into premium skin care in Japan with the launch of Progista, and we broadened Cremo's range in the United States and Europe, driving meaningful growth. Importantly, this translated into improved market performance that carries over into fiscal '26. As we look to the second half of fiscal '26, we have a robust innovation pipeline, including Hydro and Intuition relaunches in Japan, new Wilkinson Sword and Hawaiian Tropic launches in Europe as well as meaningful launches across Shave, Grooming and Sun Care in the U.S. Together, these initiatives reinforce innovation as a key driver of our focused and durable strategy.

As we step up A&P, we're doing so with a clear return framework. The focus is on brands and markets where we see the strongest linkage between investment, distribution gains, household penetration and repeat rates. This is not about spending more everywhere, it's about reallocating behind fewer higher return opportunities and holding ourselves accountable.

Third, productivity through supply chain optimization. Our execution against our productivity agenda has been consistent. In the quarter, we generated approximately 240 basis points of gross productivity savings, keeping us on track to deliver on our margin expansion for this year. These actions are critical as we work to offset tariff pressures, reduce complexity, increase speed and service levels and free up capacity to reinvest behind our core brands and innovation pipeline.

Longer term, we continue to see significant opportunity to further optimize our North American Wet Shave business and manufacturing footprint, consistent with the actions we outlined last quarter. We are streamlining operations, reducing duplication and unlocking working capital. We believe these actions, combined with our continued investment in blade excellence, next-generation automation and digital tools will enable a more agile, resilient and customer-focused supply chain, positioning us to deliver an accelerated pace of productivity savings fiscal '27 and beyond.

Stepping back, with Fem Care now fully exited, we have a much clearer view of the underlying margin profile of the continuing business. While near-term margins reflect higher inflation, tariffs and deliberate reinvestment, structurally, we believe this is a business that can return to or above pre-COVID gross margin levels for continuing operations over time. The productivity actions we're taking, particularly in manufacturing, simplification and automation, are structural in nature. And as external cost pressures normalize, those benefits will increasingly flow through.

Fourth, our U.S. commercial transformation. As we shared last quarter, we are executing a bold transformation in the U.S., focused on returning the business to profitable sustained top line growth over time. Over the past year, we completed a comprehensive strategic review that reinforced the strength of our category positions while also identifying opportunities to improve focus, execution and speed. We've simplified our U.S. structure to reduce complexity and accelerate decision-making, supported by new leadership and higher investment behind core capabilities, including insights and analytics, brand building and revenue growth management.

At the same time, we are sharpening our portfolio focus and recommitting to our Shave business, where we hold a differentiated position across both branded and private label. While rebuilding distribution and share will take time, we are encouraged by early progress as we refocused on our strongest offerings and improved execution at shelf. We've also taken decisive action to increase investment in our 5 focused brands: Schick, Billie, Hawaiian Tropic, Banana Boat, and Cremo, shifting towards sustained brand building and a more balanced marketing mix.

As we look to the second half, we expect to see a step-up in brand investment against these brands with full funnel campaigns on Hawaiian Tropic, Banana Boat, Schick, and Billie. This is the first time we have had this across the portfolio of core brands, along with strong distribution outcomes on some of our key SKUs. This is particularly true with Hawaiian Tropic and Cremo. These efforts give us confidence that we are laying the right foundations to stabilize our U.S. business in fiscal '26 and position the company for renewed growth over the longer term.

As we look at the remainder of fiscal '26, our outlook for continuing operations component of our business is unchanged from when we spoke to you last quarter. We believe our plan is balanced and achievable even as we continue to operate in a challenging macro environment marked by muted category growth, a cautious consumer and inflationary pressure from tariffs.

To reiterate key underlying assumptions of this outlook. First, we expect a return to organic net sales growth, driven by mid-single-digit growth in international markets and a more stable performance profile in North America. Second, we expect gross margin expansion, supported by productivity gains that partially offset inflation headwinds, including a net of approximately $25 million impact from tariffs.

Third, our plan includes a step-up in investment across trade and A&P to support our U.S. transformation and fuel key brands internationally, which we believe will drive increased household penetration, funded in part by margin improvement. Fourth, while we are making significant investments for the longer-term success of the company, we continue to prioritize free cash flow generation through working capital improvement and near-term capital allocation choices, focused on using the proceeds from the Fem Care sale for debt reduction. Underpinning all of this is the strength of our team. The progress we made this quarter and the results we delivered reinforce our conviction in the plan and path ahead.

With that, I'll turn it over to Fran to walk you through our results and outlook for fiscal '26.

Thank you, Rod. As Rod outlined, we made important progress in the quarter and took decisive actions to further sharpen our portfolio and strategy. We had a solid start to the fiscal year, with results modestly better than our expectations on a continuing operations and a consolidated basis. On a consolidated basis, organic net sales declined 30 basis points, adjusted EPS were $0.03, and adjusted EBITDA were $38 million, all better than our outlook.

Now let's turn to our performance in the quarter on a continuing operations basis. Organic net sales decreased 50 basis points this quarter as strong performance in Sun Care and Grooming were more than offset by declines in Wet Shave and Skin. North America organic net sales grew just under 1% in the quarter, driven by meaningful growth in the quarter in Sun Care as certain retailers placed seasonal orders earlier than expected, in addition to strong growth in Grooming, partially offset by Wet Shave and Skin.

International organic net sales decreased 1.6% as expected, primarily due to NPD phasing in Wet Shave in Japan and Sun Care sales in distributor markets, where we cycled a large sell-in a year ago, as Rob discussed earlier. Outside of this impact, we delivered growth in our other key markets with Oceania and Greater China experiencing double-digit growth, while Europe delivered low single-digit growth.

Wet Shave organic net sales declined approximately 4% as substantial growth in preps was more than offset by declines in disposables and men's and women's systems. International Wet Shave declined less than 1% as volume declines were partly offset by price gains, reflecting continued category health, solid distribution outcomes and strong in-market brand activation. North America Wet Shave declined in the quarter, driven by challenged category and channel dynamics.

In the U.S. razor and blades category, consumption was down 250 basis points in the quarter. Our market share declined 100 basis points overall. However, our branded value share declined 30 basis points in the quarter while our branded volume share increased 50 basis points. The Billie brand continued to grow share, increasing 40 basis points.

Sun and Skin Care organic net sales increased approximately 8%, with robust growth in Sun Care and Grooming. Sun Care grew nearly 20%, led by nearly 60% growth in North America as certain retailers placed seasonal orders earlier than anticipated. Grooming grew nearly 7%, while Skin Care declined approximately 15%. In the U.S., Sun Care category consumption grew nearly 9% in the quarter. Our value share declined 40 basis points in the quarter as gains in Hawaiian Tropic were more than offset by Banana Boat. However, volume share increased by 140 basis points.

Grooming organic net sales growth was approximately 7%, led by approximately 27% growth in Cremo and 6% growth in Bulldog, partially offset by declines in Jack Black. Wet One's organic net sales declined about 15% and our share was approximately 66% as we cycled strong growth in the prior fiscal year period. That strong growth last year reflected a return to normal operations, following the fiscal '24 fire in our facility. Performance was approximately flat on a 2-year basis.

Now moving down the P&L. Adjusted gross margin rate decreased 210 basis points and was ahead of expectations. Productivity savings of approximately 240 basis points were more than offset by 450 basis points of core inflation, tariffs and volume absorption. The impact of favorable exchange and mix were broadly offsetting. As previously noted, we expect productivity, tariff mitigation efforts and pricing to accelerate in the balance of the year, and for gross margin rate to grow for the full year versus fiscal '25.

A&P expenses were 10.8% of net sales, down from 11.1% last year and in line with our expectations as spending increases are planned in the balance of the year.

Adjusted SG&A was 23.7% in rate of sales compared to 23.6% last year. This was primarily driven by higher people costs and unfavorable currency impacts, partially offset by lower consulting and corporate expenses. Adjusted operating income was $8.1 million or 1.9% of net sales, compared to $15.9 million or 3.8% of net sales last year, reflecting primarily the impact of lower gross margins, partially offset by favorable FX tailwinds.

GAAP diluted net loss per share from continuing operations were $0.63 compared to a loss of $0.21 in the first quarter of fiscal '25. Adjusted earnings per share from continuing operations were a loss of $0.16 compared to a loss of $0.10 in the prior quarter. Currency tailwinds were a $0.07 favorable impact to adjusted EPS in the quarter. Adjusted EBITDA was $25 million, inclusive of an expected $5.8 million favorable currency impact compared to $30.9 million in the prior year.

Net cash used by operating activities was $125.9 million for the first quarter of fiscal '26 compared to $115.6 million last year, primarily due to lower earnings. As a reminder, our cash flow is presented on a consolidated basis for both continuing and discontinued operations. We continued our quarterly dividend payout, declaring $0.15 per share dividend for the first quarter, and we returned approximately $7 million to shareholders via dividends.

Now turning to our outlook for fiscal '26. Before we dive into the details, I want to start with an important update on our full year outlook. Following the closing of the Fem Care divestiture, our outlook is now presented on a continuing operations basis only. Importantly, outside of the adjustment for our Fem divestiture, the underlying outlook for our continuing business is unchanged from what we communicated previously. In our last earnings call, we expected the impact of the Fem Care business on an annualized basis to be approximately $0.40 to $0.50 in adjusted EPS and $35 million to $45 million in adjusted EBITDA, net of TSA income. We finalized the net impact as part of our Q1 reporting, and our estimates are in line with the range disclosed in November.

With that context, let me walk you through the key changes to our updated outlook for fiscal '26, including the key assumptions and phasing behind our guidance. For the full fiscal year, we expect the net impact of the Fem Care divestiture to be approximately $0.44 in adjusted EPS and $44 million in adjusted EBITDA. This impact includes 12 months of lost segment EBITDA and stranded costs, net of 8 months of expected TSA income, interest savings and other efficiencies related to the divestiture. On an annualized basis, when normalizing TSA income for 12 months and interest savings for 12 months, the impact would be approximately $0.20 in adjusted EPS or $36 million in adjusted EBITDA, better than our previous outlook.

Now let's turn to the full outlook on a continuing operations basis. Looking ahead to fiscal '26 on a continuing operations basis, our outlook is unchanged. Our Q1 performance only reinforces our expectation to return to organic sales growth and gross margin expansion, supported by increased brand investment. These expectations reflect known headwinds, including a net tariff impact after mitigation of $25 million, higher SG&A year-over-year due to lower fiscal '25 incentive compensation in a normalized tax rate, partially offset by favorable currency. We also continue to expect a meaningful improvement in adjusted free cash flow, driven by working capital discipline and operational efficiency.

For the fiscal year, our net sales range remains unchanged. We anticipate organic net sales growth to be in the range of down 1% to up 2%, excluding 150 basis points of currency tailwinds. In terms of phasing, we expect Q2 organic sales to be down approximately 3%, primarily reflecting the phasing of Sun Care sales into Q1. For half 1, we expect net sales to be down approximately 2%, which was broadly in line with previous phasing. As noted previously, we expect Q3 to be our strongest sales quarter.

As we look to adjusted gross margin, our expected gross margin rate growth remains unchanged, where we anticipate 60 basis points of the year-over-year total gross margin rate accretion. In terms of phasing, as previously communicated, we expect half 1 gross margin rate to decline versus the prior year, with a return to year-over-year margin rate growth in half 2 as pricing actions, tariff mitigation efforts and productivity initiatives reach full run rate. In Q2, we anticipate adjusted gross margin rate to be in the range of 43% to 44%, which reflects the impact productivity, tariffs, inflation and FX, coupled with the mix impact from Sun Care shipments that shifted into Q1.

Our year-over-year A&P rate increase remains unchanged. And with increased investment in our brands, we expect A&P increase in both dollars and rate of sales, with the latter increasing by 70 basis points to approximately 12.3%.

Adjusted operating profit margin is expected to decrease in line with our previous outlook, approximately 50 basis points as gross margin improvement is more than offset by higher E&P and higher SG&A.

Adjusted EPS is expected to be in the range of $1.70 to $2.10. As outlined earlier, the EPS outlook now incorporates a $0.44 headwind from the Fem Care divestiture. In addition, this outlook reflects the impact of expected share repurchases that are needed to offset current dilution and assumes an effective tax rate of 22% to 23%.

Adjusted EBITDA for fiscal '26 is expected to be in the range of $245 million to $265 million, which includes a net $44 million headwind from the Fem Care divestiture outlined earlier.

In terms of phasing, in line with our previous outlook, we expect in half 2 to generate about 2/3 of adjusted EBITDA. In addition, we expect to generate approximately 85% of our full year adjusted EPS, slightly higher than the previous outlook, driven by the favorable impact of lower interest expense post divestiture, which will be realized in half 2.

Adjusted free cash flow, excluding the cash impacts of the Sun Care divestiture, is expected to be in the range of $80 million to $110 million for the year, including expected improvements in working capital. Please note, adjustments related to the Sun Care divestiture include taxes related to the sale, working capital and deal-related expenses.

As we move through fiscal '26, we are nearing the peak of our elevated capital spending and investment tied to our supply chain transformation. Importantly, this is not an open-ended investment cycle. As the new footprint stabilizes, we expect capital intensity to step down, while benefits show up through improved service, lower unit cost and working capital efficiency. We've been deliberate in our ramp-up to manage start-up risk, and the early execution gives us confidence in long-term returns.

And finally, we remain committed to a disciplined capital allocation strategy. The net proceeds from the Feminine Care divestiture after taxes and transaction costs have been directed towards strengthening our balance sheet and reducing debt, while also supporting continued investment in our core brands with capital expenditures to drive innovation and productivity.

While our near-term priority remains strengthening our balance sheet, as leverage improves and free cash flow expands, we expect to retain flexibility in our capital allocation toolkit. We will continue to evaluate the most value accretive uses of capital over time, including disciplined reinvestment in the business, share repurchases and targeted M&A that creates sustainable value creation.

For more information related to our fiscal '26 outlook, I would refer you to the press release that we issued earlier this morning. And now I'd like to turn the call over to the operator for the Q&A session.

[Operator Instructions] The first question today comes from Nik Modi with RBC Capital Markets.

Yes. Rob, just in a kind of post-Fem Care world, I just wanted to get your thoughts on portfolio construction. Obviously, you have proceeds coming in. Just wanted to get your thoughts on how you're thinking about the portfolio, M&A? And any thoughts around just kind of helping to lower the seasonality of the business when you think about the portfolio long term?

Yes. Thank you, Nik. So from a Fem Care perspective, coming out of the portfolio, as a reminder, we got this deal done at a premium valuation to the entire company for what was our lagging part of the business in terms of growth. It was growth dilutive, it's margin dilutive. We're 150 basis points better in gross margin now without Fem than we were before, and it was capital intensive. And so this was a big strategic move for us to separate and sell this business to the right buyer, which we accomplished.

Then what's left is we think a really compelling and interesting company focused in Shave, Grooming, Sun and Skin Care. These are global businesses for us. We have scale. We have know-how. And increasingly, the branding and the marketing capability to generate not only awareness, but desirability to get through the funnel and household penetration, all the key metrics you would want that we've been missing in the past.

We're focused on those categories. We've got 5 power brands within those categories that we're consolidating investment against. And I think we're increasingly confident that we can grow within the range we've always talked about, that 2% to 3%. And it doesn't start next year, it starts in quarter 3, as we've said, as we get the distribution and planogram outcomes domestically here in the U.S. through which were positive across the board. We have new innovation launching in the second half. We have higher pricing in international markets and in Shave primarily coming through. And then we've got our campaigns turning on. As the weather warms up, you'll see our campaigns light up with pretty heavy incremental spend against them because we really like the content and what we think we can do. So we're super excited about where we go from here. We've been waiting a long time to get to this point, and we're here now.

Nik, on the seasonality question you had, look, Sun Care is a seasonal business. As you know, Q1 is a historic low point, particularly in the Northern Hemisphere, it's obviously the opposite at in the Southern Hemisphere. Q2, Q3 are the big seasonal quarters behind that. What we are seeing happen though in the Sun Care category is it is flattening out a bit with a longer season on the front and back end, but we still do have that seasonality in our business that we'll just have to contend with over time.

And as far as M&A, we're not focused there. We are taking the proceeds towards debt reduction to get our leverage from more around 4 to ending the year around 3x levered -- leverage reduction that we feel good about. Share repurchase at the right price will always be in there as an option. And if M&A were ever to make sense, it has to be super obvious and accretive and makes sense to everybody, including our shareholders, first and foremost.

The next question comes from Chris Carey with Wells Fargo.

Can you just expand on the expectations for fiscal Q2 organic sales? Maybe talk about the differences between North America and the shipment timing in the international business? And how do you think about the contribution of North America versus international once we get beyond Q2 into the back half of the year? And I have a follow-up.

Yes. So I'll start with -- let's talk Q2 for a moment. International, I'll take it, and then Fran, you can build on this. In international, we have 2 things going on in the first half. The first is Sun Care shipment to our distributor markets that the entire year's worth of volume went in the first quarter last year due to a formulation regulatory change and just the timing of how we had to manage that regulatory change. This year, that's even across all 4 periods.

As you now get into Q2, we have a phasing around innovation, primarily driven by Japan. It's fairly material, where we are taking stock back in the market in Q2 and putting new product, new innovation into the market, meaningful innovation across men's and women's systems that will go into the market in Q3 with higher pricing behind it. So the combination of those 2 will actually have international back to growth in quarter 2, but it's slight growth. International, the first half is going to be somewhere around flat. And in the back half of the year, 6-plus percent as we see it lining up. So that's the international piece.

And Fran, I don't know if you want to talk to Sun Care a little bit, North America, and then the second half innovation and planogram.

Yes. Chris, thanks for the question. So just specifically on Q2, we're expecting organic net sales to be down about 3%. There's a little bit of timing shift between Q1 and Q2, specifically around Sun Care phasing, that was probably worth about 150 basis points. And then we also have the anticipated phasing in Japan for some NPD promo phasing that was between Q2 and Q3.

I think most importantly, for the half 1, we're down 2%, that's what we expected to be. And overall EBITDA profile is about 1/3 of the year, which is what we called out in our previous outlook. So nothing has changed, a little bit of noise between Q1 and Q2, but really, we're lined up well based on this performance to deliver the full year outlook.

Okay. Can you, I guess, expand a bit on the implications for Fem Care dilution into maybe fiscal '27? And I say that because I think the impact this year is about 2x the annualized impact. I mean does that mean that we should expect above-algorithm earnings growth in fiscal '27 as you cycle that impact from fiscal '26? Maybe just expand on that a bit.

Yes. I think, Chris, we've got 2 things going on. We've got a transitional services agreement that we struck with Essity to provide them services for an extended period of time, up to a year in some cases around some of the service lines. There's an income stream that comes with that this year and for the next 12 months.

What we also have then as a second factor is we've got a stranded cost primarily in SG&A, let's call it, issue that we have to deal with just as a business comes out of a highly integrated structure which we had, we've got to go address those strandeds and rightsize the overhead structure of the company to match the new sales revenue line that we have, and we will do that. That will take us some time, but we're committed to doing that.

I don't know if there's anything to add to that?

Yes. No. I think what's most important is when we talked about it at the last earnings call, the impact of segment EBITDA was about $26 million. And then you have the impact of the strandeds that Rod has talked about, which we're estimating to be around $30 million to $35 million. But the TSA income will mitigate probably about 75% to 80% of that, and that will take us to the middle of '27. We've got plans underway right now to start to address those stranded costs, and that will be probably about 18 to 24 months post the start of the TSA to really bring that into full realization. So we feel like we're in good shape there.

I think specifically, Chris, to your top line question, we anticipated that Fem Care was going to be within the total company range for our outlook. So about flat before the divestiture. So we do expect, as we ramp up performance in North America for our growth profile to accelerate moving forward.

Yes. And Chris, I will add, we're obviously not going to guide to '27 or beyond today. But I think one of the points you were making, we're going to have a stronger portfolio on set of brands as we look to next year that we're more confident that we can grow nicely. We also are going to have a more profitable P&L. We pick up 150 basis points with no other changes just by having Fem Care out. And so we picked that up.

The other thing I will point to is we are going to have a really nice cash flow recovery as we look to fiscal '27 as well. And we're going to put a marker out there. We got to be at $150 million plus free cash flow as we look to next year. And so from a recovery standpoint, I think the cash flow piece of this is one of the biggest recovery items we'll have, primarily because we have all the onetime spend in the Wet Shave consolidation hitting '25 and '26. The bulk of that is behind us, and then we start to get the benefit in '27 as well as some of the cash conversion inventory, things that shape manufacturing unlocks. So you're right, we will have some natural pickup in '27.

The next question comes from Peter Grom with UBS.

Great. Two questions for me. I guess, one, just following up on the organic sales phasing. So there's a lot of detail that you just provided to Chris's question on the timing component. But as you look out to the back half of the year, what are you expecting in terms of category growth? I guess what I'm trying to get at is, is the improvement more related to timing and execution and no shifts in category growth expectations?

And then my second question is, Rob, you talked about kind of returning to the 2% to 3% top line growth. And I know there's a lot of moving pieces as it relates to this year. But with the divestiture now in the rearview, can you maybe just talk about your confidence around delivering more sustainable growth in the U.S.?

Yes, will do. So on the sales phasing for the balance of the year, let's call it Q3, Q4, we have an assumption that the category growth rates that we planned on at the beginning of the year are still relevant and still the right level of category growth rates to have in there, which is effectively low modest growth, kind of around 1% to 2% on an aggregate basis globally.

We are seeing a little bit of slowdown recently in some cases, but I wouldn't say it's meaningful to change our view on the balance of the year. Where you're going to see the second half ramp up and pick up is going to be around better performance relative to the category, i.e., share growth. And you're already starting to see that in some of the consumption reports come through. I think we see it. You all probably see that as well. And what's going to happen as we get into the back half of the year is we have better distribution across the board. Cremo and Hawaiian Tropic are leading the way with material increases in distribution outcomes. Those shelves are resetting now over the next 6 to 8 weeks. It will largely be complete. So as we get into Q3 and Q4, we have the tailwind of that better set of distribution outcomes.

We talked about incremental pricing primarily in international markets, also hitting with new innovation in Q3, Q4. We feel really good about that. And from a share perspective, we will see an improved share position in the back half in both Japan and China with the plans that we have in place and what we now is launching, and we pivoted to positive Shave share in Europe for the first time since separation from Energizer of this company in this quarter with slight share growth. We expect that to continue into the back half of the year. So the back half is more about share growth than it is about category growth.

And then that leads to the last part of your question, obviously, it gives us more confidence in the future that we can and will grow. And particularly, the step change in our results starting in Q3, Q4 and then going into next year is driven by North America. We've had international consistently in that mid-single-digit growth rate for the last 3 years. We'll have that again this year. We're confident in that going forward. We're doing well in Shave, and we've got lots of distribution opportunity across Grooming and Sun Care, which we're starting to realize in bigger ways.

So then you come to North America, and we're right on plan. In fact, we're slightly ahead of plan with the timing of the Sun Care shipments. And the big unlock that makes me more confident that we can really grow from here in North America and be successful is the capability. We have better talent, we have better ways of working, coming in. We're faster, more agile. We're going to bring better innovation, better marketing and activation and we're putting investment against the business. And these are winning brands. Hawaiian Tropic was the fastest-growing brand in the Sun Care category out of the top 10 brands last year. Cremo is on fire in terms of what's happening out in the market, really continues to grow share in every single period. They're becoming a bigger piece of the portfolio. And a lot of the work we're doing against those brands are now phasing in to put up against Banana Boat and Schick master brand as we go forward.

So I said a lot, but we're confident, and the proof points are there. We're seeing them now. And I think we'll only see that accelerate as we go through the balance of the fiscal.

The next question comes from Olivia Tong with Raymond James.

Just a point of clarification on Sun Care, part of the Q1 -- the strength in Q1 came from Sun and Skin and you mentioned that retailers are choosing to stock earlier for the season. Why do you think that's the case given that most categories right now, retailers seem to be actively trying to push the pipeline fill for seasonal categories closer and closer to the start of this season, so basically later.

And then following up on that, the full year outlook for EPS and sales, you did keep an atypically wider EPS outlook despite the Fem Care divestiture now having closed. So can you talk about what it incorporates from the lower to the upper end?

Yes. Olivia. Look, on Sun Care, I think it's a situation where it's been a good start to the season. The early season of Sun Care, the category has been growing consistently versus a year ago. And so I think as retailers look at that combined with the timing of when Easter hits this year, it just sets up in some cases for them to be a little earlier on the orders. In this case, a week or 2 can make a difference, right? It can come out of early January into later December. And so I think we just saw some of that shifting happening.

But look, it's a good start. From a category perspective. I, think it's the biggest thing driving it. And I wouldn't read more into it than that. We're not changing our outlook for the year for Sun Care, but it certainly gives us more confidence that what we put in is achievable.

Fran, do you want to touch on the EPS outlook?

Yes. Olivia, it's important to note that when we thought about our outlook around the key metrics versus prior year, the range really hasn't changed. We had expected on a combined basis that Fem was broadly going to be in line at the total company level. So pulling Fem out around organic sales growth, gross margin accretion, the rate year-over-year remains solid.

The only thing that has changed in our outlook is really the impact of the net Fem divestiture coming out, and that you're seeing that impact in adjusted EBITDA and adjusted EPS. And I'd probably point to the earnings release as well. We included in Note 8 a good walk down that takes you through all the pieces of the divestiture. So we're still committed and believe that the midpoint of the range is where we are targeting for the year. Nothing has changed on that profile.

Q1, we delivered slightly ahead of expectations, that only reconfirms our commitment to grow in the balance of the year. And I think as Rod alluded to earlier on, really encouraged by the distribution outcomes in North America. That has been at or better than expectations across the board. So once we head into half 2 and sort of move past the noise of half 1, really encouraged to come back to growth.

The next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on Wet Shave in North America and just the promotional level, it seems -- it's obviously been promotional for some time. So I guess I'm just curious, are you seeing it pretty similar across all of the channels or are certain channels more promotional than others? And then also, I guess, do you expect this level to kind of persist the rest of the year? Or do you think there's things going on that maybe won't bring that back?

Yes, Susan. Shave North America, look, it's -- from an optics perspective, it's the weakest part of our business at the moment, right? If you're looking backwards and looking at printed growth rates. It's a part of the business as we roll forward here again to the second half. We're pretty confident you're going to see a different trend come through in a better trend as we have the new distribution head the innovation gets in and we get into, what I would say, the peak of the season.

But your point around the promotional intensity, the competitiveness of that category still remains very high. We built in, I would say, slightly higher than typical spend against price promotion dynamics in the category. It's most pronounced in women's, which I would say is the most competitive. We've had a competitor driving price discount rollbacks at some of the big retailers, in response to some of the competition that's come in. There's -- frankly, there's too many brands for the space right now. We're very confident that our Schick and Billie brands are part of the future. But as we work through what is a crowded landscape, you just have that promotional intensity in. I suspect it will continue for the balance of this season as we go through the rest of our fiscal year. We planned accordingly. But we have more tools as we get into the back half of the year, along with some new campaigns and incremental investment on both Billie and Schick as we go forward.

So I think our ability to put a better result up in the back half of the year is absolutely there with everything we have line of sight to. And I think longer term, as we get more focused on winning in Shave in the U.S., including in men's systems, I think we're confident in our path forward. We've got a really good innovation pipeline. And as I mentioned in one of the earlier answers, we have an increasingly capable team that can build brands in a very interesting way that resonate with the target consumers. And that's been our big missing capability in North America over the last 4 or 5 years.

Okay. Great. Maybe if I could just follow up just on the inventory at retail. Are there any pockets still of higher inventory across your categories out there, whether that's North America or international, where you would expect still some retailer destocking? And then also just on private label sales, are you seeing any trade down there at all from the branded business?

Yes. We're not aware of any meaningful inventory pockets, Susan. In fact, if you look at our printed results versus consumption, you'd maybe draw the opposite conclusion for our brands and our categories, right? So we don't see inventory as being any meaningful issue that we have line of sight to anywhere. And I think as we move forward, we're going to be very close to the consumption flows and feeding it.

Yes. And I would say, Susan, what's most important is that we are seeing unit share up. So as we think about value share in the U.S. specifically, we're about flat, but unit share is up, and we're seeing that hold true across our key retailers like Walmart and Target. So inventory levels are really what we believe at a healthy level across retail.

Yes. And then just to close it off season, we're not seeing any meaningful trade down. Private label shares are stable, I would say, in terms of the size of that part of the business. What we are seeing though is consumers deal seeking value seizure within -- across all brands. And so there is a lot of price elasticity right now. But I think to the point Fran is making, the branded piece of this is up. So I think structurally, we're still seeing healthy categories with no material trade down, but it's something we're watching very closely because we are seeing a little more pressure coming against the target consumer.

There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks.

Right. Thanks, everybody. Look, there's a lot of noise this quarter with the divestiture of Fem Care and what's continuing versus discontinued operations and all that goes with it. It's complicated, but the key message here is we're on track in the first quarter, feel good about the fiscal year, and we have cash in the bank from the Fem sales. So we feel good about the start. We'll give you an update in early May. Thank you.

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

Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst.

Just before we get started, a quick disclosure. Please see the Morgan Stanley research website at www.morganstanley.com for important research disclosures and contact your Morgan Stanley representative if you have any questions.

And with that, I'm very pleased to welcome Edgewell back to Morgan Stanley's Global Consumer and Retail Conference. Joining us today are Rod Little, President and CEO; and Fran Weissman, CFO. Thank you very much for being here, guys.

Thank you.

Thank you.

So Rod, I thought maybe we could just start high level. You've made meaningful changes across the organization in the last year, including new leadership in North America, a move to a regional hub model globally, now reshaping the portfolio with the recent Fem Care divestiture, optimization of North American Wet Shave, a lot of changes. As you look at the business today, a, just help us understand how these changes might strengthen your execution? How significant you think the payback from these changes will be and if they can drive higher top line growth going forward? And just, b, organizationally now, what are your biggest focus points or priorities post these changes?

Yes. Well, thank you, Dara, and thanks to everybody for attending today and for the interest. We're at a really interesting moment with the company where we've, I think, are making the biggest moves and the most strategic moves that we've made since the separation from Energizer right now, many of which we've been working on for multiple years, all coming together now. Let's start with just simply what are the couple of things that are working really well as context for then, what do we need to fix and address?

First is our international growth, which is 40% of the portfolio, is super durable. We've been growing mid-single digits now for 4 years running. We expect that to continue in fiscal '26, which for us started October 1. So we're in our Q1 right now. In addition to the sales growth, we're building gross margin every year in international. So it's a very powerful model that we've got with 40% of our sales, growing mid-single digits and growing margin.

Second thing we have going for us is our cost productivity work. A very consistent 200 to 300 basis points of cost of goods sold productivity year-on-year. We have line of sight to that continuing and we'll talk about it even ramping up as we look to '27 and '28. The third thing that is working, and I think rock solid for us, is our new innovation model. We went away from a globally structured model to a locally tailored model, very local with our consumer insights, very local with our NPD development. And we're seeing all the new product development we put in the market, winning on average in a much bigger way and being communicated to consumers in a much more engaging way.

So international growth, cost productivity, innovation model, all really good. The area that, frankly, just being really straight that has not worked well for us is North America, and we needed a commercial reset in North America, which the good news is team's in place, they've been working together now for a while and we'll start to see all the good things come out of that North America reset as we get into the Q3, Q4 for us, which is April, May, June, July, August, September period. So a lot of good things happening there. In addition to a whole new leadership team, Jess Spence, the new President, recruited in October of '24. The team underneath her are really talented backgrounds, really capable brand builders and in a streamlined structure where we now went from five business units in North America to two.

A pure-play Shave business unit and a Sun, Skin and Grooming business unit, two heads, two leaders underneath Jess running those businesses, a new sales leader in, Procter & Gamble background, knew him from my network, top-rated person over there that's now running our U.S. sales team. We put a new CMO position in, Unilever background, Americas Unilever CMO-style background. So some real talent upgrades in addition to a streamlined structure.

The final piece of the North America plan is we're investing incrementally in brand support behind the brands in a meaningful way. Corporately, I'll get into it later, we've increased our spend dramatically over a 2-year period, but that's all going into the U.S. brand building work to reignite and drive growth back into the U.S. My structure is now very simple at the top. I've got four regional leads. I've got four functional heads that report to me directly. The COO layer was always a temporary layer to be in there to allow me to put focus on getting North America fixed and winning. That's done now.

And we've announced the Fem Care divestiture, sold at a premium to -- the total company for our worst-performing unit, if you will, consolidation of Shave manufacturing sites from four sites into one megasite with over $100 million of investment going in there and new capital, new line, equipment to make even better blades. And so our focus as we go forward, kind of to your point on the priorities is really twofold. One, it's winning in Shave globally. We're already winning internationally, which is 55% of our Shave business, and prioritizing winning in the U.S. in Shave is priority one for the total company.

Priority two is continuing to build out the expansion of our Sun Care and Grooming business globally and we have big opportunities outside the U.S. for both of those portfolios, which we're still in the early innings of driving. So a lot going on. But frankly, I'm excited to be at this moment because we're at a point where the execution of the strategy will really start to show up this year in '26.

Great. So we started with the internal changes you made. The external environment, certainly fluid, difficult, I think, is an accurate characterization. You've got muted growth across CPG categories. Can you give us a bit of an update on, first, the consumer, your perspective there, specifically in the U.S. and internationally? What you're seeing? And then, b, just the promotional environment in the U.S., which seems to be ramping up? How are you managing through that? Is there anything incremental to what you expected? Or is that competitive activity more in sort of a normal day-to-day course of business?

So if you look at our categories and take an aggregate average across Shave, Grooming, Sun, Skin Care, where we play, the average growth rate globally is about 2%. And domestically here in the U.S., it's about the same. So we're seeing in that 1.5% to 2.5% range, generally in line with the past 52-week average, the past 26-week average. So we're not seeing a meaningful change in category growth rate, either domestically here or internationally. There are a few markets that look a little different, but on average, a very resilient and robust consumer to this point, I would say.

We have seen, though, some challenges, certainly at the lower middle income consumer demographics, where there's been more pressure in the categories, people deal-seeking a little bit more, seeking value with price pack counts, maybe a little higher, things like that. We're the #1 private label manufacturer in the world. We're not seeing private label share grow in Shave, very steady, very stable. But what that's created is a higher promotional environment in '25. We're not expecting the category growth rates nor the promotional trends to change in '26 and we budgeted accordingly.

We budgeted effectively at low single-digit category growth rate, and we budgeted similar promotional trends carrying forward, which is an elevated promotional level, particularly in women's shave, has been quite promotional. Fem Care has been very promotional. After January 30, I'm not going to have to worry about that one. But I would say a healthy enough category and consumer environment for us to be successful in.

Great. You recently announced the sale of your Fem Care business. What does that do for you organizationally in terms of opening up greater focus or capital for other areas, Rod? And then maybe, Fran, you can just -- if you can discuss capital allocation priorities post the divestiture?

Yes.

Yes. Look, I think the divestiture of our Fem Care business is a transformational moment for the company. I don't want to understate the importance of getting this done. And I'll share a little background as why. We are a globally scaled business in every category except for Fem Care. It's a regional business for us. We do not have the rights with trademark rights and names to operate globally. And even if we did and we could acquire them, the cost to compete and the investment required would not make sense. Financially, it just would not make sense.

So we have a regional scale business, now moving to a buyer who is globally scaled, their hole is the North American geography. They didn't have a brand set to play here. And we've been looking at this business now for six or seven years on what to do with it. We've never had a buyer bring us the value that we thought what we could generate ourselves even in a flat growth area, just the cash flow it generated, created a present value stream of cash flows. It was actually quite substantial. There's one buyer in the world that could beat that, and it's Essity, and so when Essity came forward and was willing to give us the value that's at a premium to the total company for our most dilutive asset, it became a no-brainer to do this deal.

So financially, it makes a ton of sense, selling it for $340 million, value premium for what is the growth dilutive asset in the portfolio, the margin dilutive asset in the portfolio and the highest capital-intensive asset we have in the portfolio, we now have out as of January 30. What we're left with is more flexibility operationally, more optionality financially and a real focus on our core, which is Shave, Grooming, Sun and Skin Care globally with the rights to win and play and be successful globally. So I love the focus we have, and I love the value we got for the sale.

And I think building on our capital allocation strategy, our purchase price was about $340 million. That was the economics of the deal. 80% of that is what we expect will be converted into cash. And I think in the short term, we're really focused on strengthening our balance sheet and paying down debt. I think that's our initial focus. From our capital allocation strategy, clearly, we've anchored across a couple of key areas, capital investment that's really focused around either driving efficiency or driving innovation growth. We've got a share repurchase program that we've had historically. And over the last 12 to 18 months have really taken advantage of what we believe is an undervalued stock price.

And so we have already repurchased in fiscal '25, about $90 million. I think in the short term for '26, our focus is really to offset dilution but -- and really focus around getting our debt leverage to our target, which we believe the Fem proceeds will help do that. And then when we look at M&A, we're always looking at M&A. There's lots of great brands out there. But our threshold is pretty high, and we have filters that we want to focus on creating value. So Fem Care proceeds give us optionality for us to continue to look. But right now, the threshold is high around M&A. So in the short term, it's really strengthening our balance sheet.

Okay. And as we look out to fiscal '27, how quickly do you think you can cut out the stranded overhead in the business post the deal once the TSA agreement concludes and after putting the proceeds to work, can this be accretive as you look out to fiscal '27? What are your thoughts around that?

Yes. I think in terms of timeline over the long term, we do believe it will be accretive. We do have a level of stranded costs. The full year EBITDA for Fem Care is about $25 million. That's what we realized in fiscal '25. Our expectation is the headwind in the short term will be somewhere around $35 million to $45 million. And that factors in profit that we're losing, the stranded costs that remain because we are an entangled business. And then we do have a TSA that we expect will take us through at least early part of '27, so about 12 months.

Our focus is to really address stranded costs and make sure that we are putting our cost base in line with our streamlined portfolio that will take time. But we do have a TSA that we think will extend about a year. We're finalizing the scoping of that will come forward in Q1 to give more specifics around that. But over time, we will anticipate taking the stranded cost out.

Okay. On the subject of cutting out costs beyond Fem Care, can you just further opportunities on productivity longer term? Rod mentioned earlier, how productivity has been a focus and has enabled margin expansion and gross margin expansion. So just give us a sense of the pipeline going forward, what the key buckets are in terms of driving continued productivity going forward relative to the strong track record in recent years?

Yes. Great. So look, we've been building productivity into our DNA for quite a bit of time. We've been delivering well over 250 basis points of productivity efforts, 4-plus years in the making. And I think in '26, when you double-click, our core productivity is about 260 basis points. And then we've got about 50 basis points of additional tariff mitigation. So our total productivity savings is about 300 basis points in fiscal '26. When we think about where we focus, it's really a couple of key drivers. We look at our supply chain and how we distribute that is an area where we've continually optimize and drive efficiency, especially across markets.

We look at labor in our manufacturing plants, whether it's balancing out our full-time, part-time mix, but it's also about automation and taking labor out of the process, and that's been core and how we've been able to deliver productivity. And then we've got footprint optimization. So Rod talked about our consolidation within North America. So I think what gives us confidence right now is we've got strategies in place where we look across markets around footprint optimization. We've got a big strategy within North America, specifically on Wet Shave to continue to drive efficiency there. And we've already realized the cost to achieve by the end of '26 will be about 90%.

Now as we fast forward to '27 and '28, those new programs are going to help reinforce the consistency of our productivity initiatives and delivery. And I think when we think about '26 overall in gross margin, we're accreting. We're growing about 60 basis points on a reported basis and 20 basis points in constant currency. And a lot of our productivity in '26 has gone to offset tariffs, which the net impact is about $25 million to us. So we'll continue to have productivity as a source. It will continue to drive gross margin accretion, hopefully not just to offset tariffs in the long term but really become a source of our reinvestment model.

Great. And Rod, you're planning to increase A&P spending as a percent of sales in fiscal '26. That's versus cutbacks we've seen in prior years as a percent of sales. So why is now the right time to step up spend? And Fran, maybe you can touch on just the level of ROI you're expecting in terms of topline growth from that higher spend, particularly given the difficult environment?

Yes.

Look, now is the right time to increase spend because we've got the right team in place to generate really interesting content, really engaging content and campaigns that break through and ultimately drive sales. So the time is right to do it. In fact, we started the investment last fiscal year as we got into the spring and summer and we saw our plans coming together, specifically around Cremo Scent Kings campaign. Cremo is the fastest grooming brand in the set at Walmart, up 40% last year on a units basis alone. That campaign was a big driver in that.

Hawaiian Tropic, we put a new campaign in place last year. Tana Sutra was the name of the campaign with Alix Earle. There's going to be a multiyear campaign with that. Fastest-growing brand in the Sun Care set last year was Hawaiian Tropic, partly behind that campaign. And then we put a new campaign in place on Hydro Silk, Schick Hydro Silk on women's legacy shave that was very successful. So as we started to see that, Fran can talk about some more of the results. It gives us confidence as we go into '26 to lean in and invest even more because it's the right thing to do for the long-term health of the business. So you'll see us bring new campaigns. In addition to those I mentioned, on Billie, a new master brand campaign on Schick and a new campaign on Banana Boat.

What's interesting is you look at where we were two years ago in '24, the low point was about 10% of sales was invested in A&P. The '26 plan is based on 12%, so a 2-point increase. And if you adjust for our private label business, which consumes no brand support, it's more like 150 to 200 basis points higher on a branded business. So we actually think we're to a quite healthy place now with how we budgeted this year. And the reason we weren't spending 12% in fiscal '24, frankly, the thinking and the campaigns weren't good enough. They wouldn't have given us the return. We're very confident in what we have now that it will.

Yes. And I think building on that point, it is about the quality of the spend, not just the absolute. Now we've taken an investment stance. We increased about 80 basis points in '25, and our expectation is to reach 12% in '26. And a lot of that, in terms of proof points, I'll take that in two parts, international first. We've been on this journey to really build equity within international. And what we've seen is really durable mid-single-digit growth. We weren't there a couple of years ago. And now because we've been more focused on through the line activation, engaging with our customers differently, and more importantly, activating innovation, we've been able to see that proof point come through in our international growth.

And now as we fast forward with the changes that we've seen in North America, our focus around how we invest, how we engage with the brands, how we're bringing the brands to life, is actually in a very new and different way. And we see those green shoots. If you look at North America, where they landed in Q4, they're actually at slightly under 1% decline versus their full year at over 4%. And that is also translating into unit market share and total market share. In Q4 alone, we've seen North America growth, specifically in Wet Shave, where now it's growing versus declining. We saw continued growth in Sun and Grooming.

So I think those green shoots give us really the confidence as we move forward that the campaigns are working. We know that brand building takes time. But as we fast forward to '26, we expect a trend improvement within North America. We expect that North America will land close to where they're landing in Q4, which is flattish to down 1%. And that will really catapult into more growth trajectory into fiscal '27. And then in absolute basis as far as spend is concerned, I agree with Rod, we're really at a healthy level right now. And I think what we'll anticipate is driving more efficiency on that absolute spend because you've got that durable growth that's happening in our core brand building.

Yes. Great. Now the international business is now 40% of sales, as you mentioned, solid mid-single-digit growth in recent years. So it's been a strong growth driver. We touched on earlier some of the factors behind that growth. But just perhaps dimensionalize growth opportunity going forward by geography and product category internationally. What gives you confidence you can sustain that mid-single-digit level going forward?

Yes. So we are confident we can sustain mid-single digits internationally. We've done that the last four years running. The big driver behind all of this at the core of it is people. We've got really strong leaders and now really strong leadership teams in place that work very well together internationally. The average engagement rate positively for the company is 82%. In some of the international markets, it's over 90% in terms of positive engagement. So they're super motivated teams, very good at what they do and success breeds success, right? When you're winning, you start to feel like you're running downhill a little bit, and that's where they are.

So as we look to it, China is an interesting market. Like China was a tough market, just category growth-wise. Last year, we grew double digits in China as an example. We're the market leader in Japan in Shave. We're growing in Japan in Shave and I think we feel like we can actually accelerate our growth. So geographically, Asia will continue to grow and drive our growth longer term. In the short term, Europe is likely to be our biggest growth driver. Interestingly enough, right, in a bit of a flat challenged market, we've got real competence and competitiveness around Shave internationally. 55% of our business we're growing. We're holding share in every single market internationally that we operate in Shave.

And where we're the leader in Japan, we're growing the category. For example, we launched Schick First Tokyo. It's aimed at getting young kids into the category, get more kids into the category sooner. And what's interesting is the younger you go in cohorts, they're shaving more often. They're saving more body parts more often, that's a global phenomenon. And so we've got an innovation pipeline aimed at new market entry into the category.

The other thing I would call out then, if you go to categories, to your question, Shave will, for sure, continue to grow, we think, in that low to mid-single-digit range. But the real growth driver internationally over the next 3 to 5 years is going to be Sun and Grooming. As we look at our path forward, we're just launching Cremo now only online into Europe with the same formulation, the same positioning that are hugely successful here, we will have tripled that brand size from when we bought it about $50 million 3 years ago by the end of this next year. Just launching that into Europe with real strength and real growth tailwinds behind it.

Sun Care, Hawaiian Tropic is winning everywhere. It's growing double digits everywhere. So the Alix Earle campaign that we put in place here, there's a similar campaign in Europe. It's working, and we have huge potential to grow market share in Sun Care outside the U.S. with more distribution points, more brands where we have Banana Boat bring Hawaiian Tropic and vice versa. So I feel really good about the growth internationally, geographically, everybody contributing and from all categories.

And kind of on the strategy we laid out a couple of years ago, where we said Grooming and Sun Care are going to be accelerants to our growth profile. We're seeing that today. In international, we think that will even become a bigger spread as we go forward as Cremo starts to come online.

Great. And then looking at the U.S., you have plans to stabilize organic sales growth, as you mentioned, this upcoming fiscal year. What's the take longer term to get the business back to growth? What are the key drivers? And how much visibility do you think you have on that near-term improvement to get back closer to stability in the U.S. business?

Yes. So visibility to goodness in the U.S., Dara, very high, actually, which may sound odd, given where we're coming from. But we know we've got the team right. We've seen the consumer response to plans and programs we've put in place. And we're kind of at this moment where we're inflecting the trends as we speak, and there's nothing there that should change that trend line. So to start categories, low single-digit growth rate, so not greatness, but also not declining. So in an environment where our categories are growing low single digits, if we hold share, we can grow low single digits.

Last year, fiscal '25, down 4.5% organic net sales, as Fran mentioned. Q4, the end of last year, we exited at minus 1%. We budgeted '26 at kind of that minus 1% to flat range. But the back half of '26, that April to September period is going to be in that low single-digit growth range. And we have line of sight to pricing coming online, we have line of sight to better distribution outcomes across the entire portfolio, committed retailer by retailer. We've not baked all of that into our plan because we've tried to plan a little more conservatively because we think there's real value in building our credibility back of just doing what we say and hitting our numbers, and whether it be inflation or tariffs or foreign exchange or whatever, we need to have the levers to be able to absorb that and still deliver.

And that North American step change that we're seeing happening right now gives us confidence that we can do that. So final thing I'll say in the North America piece, you get the team right. We're putting incremental investment into North America, another full margin point next year behind new campaigns in these five power brands that I mentioned earlier. And so it's -- we're putting our money where our mouth is investment wise, if you will, too. So look, I feel really confident in the North American business despite where we're coming from.

Okay. Maybe we can go deeper into a couple of product categories, Grooming, can you talk about the growth opportunity there from a brand perspective, category growth you're seeing? And then on Wet Shave, maybe you can detail the various pieces of the business there and also category growth and competitive environment relative to market share?

Yes. I'll take them in order. Grooming, we love the category. We've acquired into it with Jack Black, Bulldog and Cremo. It's now globally about 10% of our sales. When you put all that together from 0 a few years ago, we think it's mid- to high single-digit growth rate, both domestically and globally. If you look in Europe, Bulldog is the leader in Grooming. In the U.K. market, for example, we put a premium line in with Bulldog on Skin Care, it's a real authority in the U.K. market and across Pan-Europe a lot of success with Bulldog. So we like our portfolio in Grooming, and we think there's real tailwinds in that category that will continue. We just need to keep doing what we're doing effectively.

On Wet shave, very, very interesting category. And by way of background, I know it really well. I was at P&G when we acquired Gillette. I was on the deal team that brought Gillette in. I've been in their manufacturing plants. Historically, over time, I've operated around that business. We had the deal done to buy Harry's. We spent a year with them, try to plan and get that done before the FTC blocked us in '20. We bought the other nascent start-up Billie. Dollar Shave Club from time to time has been offered to us, right? So we know -- BIC is right across the street from us.

So we know every single competitor in this landscape. And what I will tell you it's fundamentally different in the Shave category than it was 10 years ago, 5 years ago, even 3 years ago, it is less competitive today. Internationally, there's still two players that play. Harry's has tried to launch internationally and failed. They've gone into a couple of European markets and are effectively coming back out. There's two players. It's us and Gillette globally. Domestically, Dollar Shave Club, you know that story. Unilever paid $1 billion for it, sold it for inventory value to a PE firm on the West Coast. That's come and gone, and it's us and it's Gillette and it's Harry's. And Harry's has done a really nice job, part of why we wanted to acquire them was their brand-building skills but it's gotten to a level now it's difficult for them to grow from here.

They're primarily a men's business, and retailers are looking for a full player across men's, women's, disposables and private label. We're the only branded private label manufacturer. So there's a relative competitiveness to this category right now that it's just less competitive than it was previously. Retailers are open to us and wanting us to win and be successful because they know we've got the technology to be able to compete and win and be a counterbalance to Gillette, which, frankly, the category does need because the Harry's story is interesting because as retailers look at it, it's only destroyed value.

Despite them growing, it's traded $4 blade cartridges to $2 and taking value out of the category. So it's up to us to step up and be part of the growth story in the category which we're prepared to do. I mentioned at the beginning, we're elevating Shave as a total company priority, and we're investing in it, including investing in men's domestically here in the U.S., which we've not done in 5 years. So it's a very interesting moment for Shave and a lot of it is applying what we're doing that's winning internationally back to the U.S. market. For example, some of our Japanese innovation will show up in market here over the next 2 years.

Great. That's helpful. We've covered a lot today on the internal changes of the company. Anything as you look at the Edgewell story, Rod, that you think maybe the investment community is overlooking or is underappreciated?

I think there's two things. One is the announcement we made a couple of weeks ago on divesting Fem and the consolidation of our Shave manufacturing platform, which was four legacy acquired sites that were all suboptimal, underinvested in over time, going into a new single site with massive investment behind it. The combination of those two things, the optionality, the flexibility that it will give us is fundamentally different than what we've had in the last 4 or 5 years. And so I think financial flexibility is one where as we plan '26, we're confident we can deliver, right? That's one I don't think is fully internalized yet.

And I understand we've got to earn it, right? We've got to prove it quarter-by-quarter and do what we say and become a reliable delivery like we were a couple of years ago. The second big thing for me is the power of people and the team we have in North America. I would put it up against any team in any category we compete against. It's a really, really talented group, and it will show, I think, in our results quite quickly here. Again, that's a proven story, right? We were coming off of not great results domestically, so we got to prove it, but it's all in place there. It's all there. And weirdly, we sit here more confident today than we've been at any recent point despite where the stock is trading because we know we've got the right plans in place and the right investments to really be successful here.

Great. That's helpful. And we talked a little bit about capital allocation earlier with Fran. How do you think strategically, longer-term, multiyear about M&A fitting into your growth priorities? Is it really a lot on your plate internally in growth opportunities, and that's not a big focus point? Or could this eventually adding another leg to growth be a focus point for you?

Yes. I think it's an and, Dara, to be honest. Like I'm a big shareholder at this point with what I've accumulated over the past couple of years. And so I very much think shareholder first. I always have. I have a financial background, but now more than ever, to be a responsible steward of go get the organic opportunities. They're there to be had, and we've got a good plan for that. If we can accelerate and transform our valuation in a positive way, everything needs to be on the table. It may look different than what we've done in the past. We didn't get credit for Billie. Great acquisition, in my view. We didn't get credit for Cremo. Great acquisition. Why? Because other things were happening that offset that.

So as we get the organic business really rock solid and firm and deliver on that front, if there are ways to accelerate value creation via M&A, whatever it is, we're super open, but it's going to -- when you read about it, kind of like the Fem divestiture, ah, that makes sense. Nice one. It would need to read like that for us to do anything with our capital. Otherwise, we like leverage reduction at this point. And at some point, we like share repurchase at this point as well, but that's the last priority.

Great. That's very helpful. We're out of time. So we're on things there, but thank you very much for being here.

Thank you.

Thank you.

Good morning, and welcome to Edgewell's Fourth Quarter and Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us this morning for Edgewell's Fourth Quarter and Fiscal Year 2025 Earnings Call. With me this morning are Rod Little, our President and Chief Executive Officer; and Fran Weissman, our Chief Financial Officer. Rod will kick off the call then hand it over to Fran to discuss our 2025 results and full year fiscal 2026 outlook. We will then transition to Q&A. This call is being recorded and will be available for replay via our website, www.edgewell.com. Also, please refer to our website for a separate press release detailing the company's plan to divest its Feminine Care business.

During this 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, brand investment, organizational and operational structures and models, cost mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions and integrations, impacts from tariffs and other recent developments, changes to our working capital metrics, currency fluctuations, commodity costs, inflation, category value, future plans for return of capital to shareholders, our planned disposition of our Feminine Care business and more. Any such statements are forward-looking statements for the 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, 2024, as amended November 21, 2024, and as may be amended in our quarterly reports on Form 10-Q filed 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. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, 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 Rob.

Thank you, Chris. Good morning, everyone, and thanks for joining us on our fourth quarter and fiscal 2025 year-end earnings call. Before we begin, I would point you to another important press release we issued yesterday afternoon, detailing our intent to divest our Feminine Care business. This divestiture is a key step forward as we continue to transform Edgewell into a more focused, agile and consumer-driven personal care company. We believe that by focusing our attention and resources on the categories where we have clear competitive advantages and strong momentum that's Shave, Sun and Skin Care and Grooming, we are positioning Edgewell to deliver sustainable growth, stronger margins and long-term value for our shareholders. Together with changes we have made in the U.S. commercial organization, including elevating our talent pool, we are actively strengthening our portfolio and building a better and more durable business. I'll spend most of my time this morning addressing the actions we're taking in our core businesses and provide a clear road map for how we are evolving Edgewell for the future.

Now turning to our performance. In Q4, we generated organic net sales growth of 2.5%. This result was in line with our expectations in both international markets where we saw expected acceleration and in North American markets where relatively flat sales performance demonstrated significant progress towards stabilizing the business. Importantly, we've seen improvements in both consumption and market share performance in North America on a value and a unit basis and are encouraged to see that business begin to stabilize. Although we continue to drive strong productivity savings, earnings were significantly impacted by several transitory items related to inventory, trade and foreign exchange. Fran will discuss this in detail shortly.

As we close out fiscal 2025, I want to acknowledge that it's been a difficult year. We faced significant external pressures, tariffs, foreign exchange volatility, geopolitical tensions and consumer uncertainty that impacted our financial performance and stressed our global supply chain. We faced internal challenges as well, including weaker-than-expected sun care seasons in North America and parts of Latin America and a slower-than-expected recovery in fem care. However, we still delivered strong results across several important areas of our business, including international markets, our innovation program and productivity. We believe this performance is durable and provides a solid foundation moving forward. Let me give you an update on these drivers.

First, durable international growth. Our international markets, which represent approximately 40% of our global sales, delivered strong growth for the fourth consecutive year, with strengthening share across Shave and Sun. Europe generated its third straight year of growth and Greater China delivered double-digit growth. We believe our international markets are poised to deliver mid-single-digit growth again in fiscal '26.

Second, compelling innovation. We are committed to delivering consumer-led, locally designed innovation across our portfolio. In fiscal '25, we expanded Billie to Australia. Bulldog entered premium skin care across Europe. In Japan, we took Schick into premium skin care with the launch of Progista, and we broadened Cremo range in the United States and Europe, driving significant sales growth. In Sun Care, we saw strong growth in Hawaiian Tropic as a result of a successful marketing campaign, updated formulations and on-trend branding. Across all markets, we're seeing the benefits as approximately 70% of our measured markets in the quarter are now growing or holding market share compared to less than 50% one year ago. We are implementing our learnings from Europe and Asia globally and are excited about our multiyear innovation road map.

Third, productivity through supply chain optimization. In fiscal 2025, our team delivered over 270 basis points in gross savings, and we expect approximately 310 basis points in fiscal '26, inclusive of tariff mitigation. Building on our foundation of productivity, efficiency and service, we are navigating tariffs in a dynamic global environment by reducing complexity, improving customer service, shortening lead times and lowering inventory across the value chain. In fiscal '26, we will further optimize our North American Wet Shave business and manufacturing footprint, streamlining operations, reducing duplication and unlocking working capital. By investing in blade excellence and embracing next-generation automation and digital tools, we are building a more agile, resilient and customer-focused supply chain. These actions will enable faster responses to consumer demand, drive innovation and position us for sustained margin improvement.

Importantly, these operational enhancements will not only deliver meaningful productivity savings, but will also support reinvestment in our core brands and innovation pipeline, strengthening our leadership in a highly competitive market. These increased investments in fiscal '25 and '26 position us to achieve productivity savings in fiscal '27 and beyond at a pace that exceeds recent years. While we believe these areas of strength are enduring and foundational, it is unlocking the potential of our North America commercial business that represents a significant opportunity for our company.

As we shared last quarter, we are executing a bold transformation in the U.S., focused on returning the business to profitable sustained top line growth over time. In the last year, we have conducted a thorough strategic review and identified our core strengths as well as key areas that have hindered performance. Our category positions are structurally attractive. We are a leader in sun care, a fast-growing upstart in men's grooming and have a unique branded and private label position in shave. Our brands have established solid awareness and are backed by robust product delivery capabilities. We have strong technical know-how and capabilities with owned assets and a deep R&D bench, and we run the business with a commitment to discipline across operations, cost management and capital deployment.

Our transformation plan is based on leveraging our strengths while addressing the 3 key areas of opportunity identified in the strategic review. First, our portfolio expanded to include a wide variety of SKUs, some of which did not deliver optimal margins or performance. We are now sharpening our focus on our strongest offerings. We are recommitting to our shave business, where we have a differentiated position across branded and private label, underpinned by solid brand awareness and excellent product performance. While we recognize that it takes time to rebuild distribution and share, our immediate focus is to begin stabilizing performance and setting the foundation for future growth.

Second, our approach to marketing investment prioritized certain tactics that while effective in the short term, did not fully support sustainable growth and led us to underinvest in core brands. To address this, we are taking decisive action to increase investment in our 5 focus brands: Shick, Billie, Hawaiian Tropic, Banana Boat and Cremo. By shifting our strategy towards sustained brand building and a balanced marketing mix, we are committed to restoring brand equity, driving deeper consumer engagement and positioning our portfolio for durable growth.

Third, our U.S. structure was too complex, creating duplication, slow decision-making and underinvestment in key capabilities. We simplified our structure to enable faster decisions, greater investment in growth capabilities and increased ownership and accountability. We've implemented significant organizational redesign. We launched a streamlined U.S. commercial organization, bringing together a new talented, proven leadership team, and we are ramping up new teams dedicated to improving our capabilities in insights and analytics, brand building and revenue growth management.

As we look ahead to fiscal '26, this is a year of transition and solidifying foundations for longer-term growth. We anticipate that we will begin to realize the benefits of this ongoing work in the form of stabilization of our North America business as we simultaneously set the stage for renewed growth in 2027 and beyond. So this leads me to our outlook for the full year. As we look ahead to fiscal 2026, we believe our plan is balanced and achievable. We also anticipate the macro environment will remain challenging with muted category growth and the consumer continuing to be cautious around discretionary spending. We also expect increased inflation stemming from the current view of tariffs. Fran will provide all of the details shortly, but I would like to summarize the key pillars of our plan.

First, our top line expectation is for a return to organic net sales growth, driven by continued mid-single-digit growth in international markets and a more stable profile in the North America business. Second, gross margin is expected to increase, driven by productivity gains that are partially offset by inflation headwinds, inclusive of $25 million or nearly $0.55 in pretax earnings per share of headwind from tariffs, net of our mitigation efforts. These mitigation efforts have proven to be more challenging as many of the tariff items like steel, aluminum and certain chemicals cannot be sourced elsewhere, at least in the near term. And although we've already implemented pricing in certain international markets, broadly speaking, the U.S. market to date has not been conducive to price increases. We will continue to actively pursue further mitigation efforts to lower the impact beyond fiscal '26, but commercial pricing in the U.S. would have to play a role to fully offset.

To be clear, our outlook does not assume this offset. So if it were to occur, it would represent potential upside to this outlook. Third, our plan includes significant investment in both trade spend as well as advertising and promotional dollars to support the changes in the U.S., fuel key brands in international markets and drive increased household penetration and brand awareness. These investments in part are expected to be funded by the gross margin gains I just outlined. Fourth, we will prioritize free cash flow generation through working capital improvements, while capital allocation will emphasize debt repayment.

Finally, I am truly energized by the outstanding team we have assembled. We have record high engagement scores across the organization in a dynamic U.S. commercial organization led by a refreshed leadership team that is already executing effectively. This group brings together exceptional talent and proven expertise from leading companies, positioning us for success. Our team is highly motivated and their achievements as well as their compensation and mind are directly tied to the value we create.

So to wrap up, fiscal 2025 was a year of challenge and transformation. While both external and internal pressures impacted our results, we exited the year with momentum, a step-up in sales and share trends and a revitalized brand portfolio. We've reshaped our structure, sharpened our strategy and built a foundation for growth. As we enter fiscal '26, we're focused on execution, margin recovery and delivering sustainable shareholder value. And now I'd like to ask Fran to take you through our results and outlook for fiscal '26. Fran?

Thank you, Rod, for outlining the significant progress and transformation underway at Edgewell. Building on the actions and momentum Rod described, I'd like to further provide details on our financial performance and the operational changes that are positioning us for sequential improvement and sustainable growth.

Fiscal '25 was a challenging year, underpinned by both external pressures such as tariffs, currency volatility and geopolitical uncertainty and internal headwinds, including a softer-than-expected sun care season and slower recovery in Feminine Care. Despite these pressures, we still delivered strong results in key areas. Our international markets continue to expand, innovation gained traction across our portfolio and our supply chain optimization efforts drove meaningful savings. We also made decisive transformational choices that fundamentally reposition Edgewell for long-term value creation.

By streamlining our portfolio, including the anticipated divestiture of our Feminine Care segment and simplifying our U.S. commercial organization, we have sharpened our focus on categories and brands where we hold clear competitive advantages. These foundational changes, coupled with a disciplined increase of marketing investment, set the stage for sustainable growth and margin recovery. As we enter fiscal '26, we are executing a clear road map focused on sequential improvement, stabilizing our North America business, continuing to drive growth in our international markets, unlocking margin improvement and investing behind our strongest brands and capabilities.

Building on this, our fourth quarter results reflect both our progress and some of the challenges we faced. While our top line performance was in line with expectations, driven by solid growth in international markets and key categories, our bottom line results fell short, impacted by several transitory headwinds. These included higher-than-anticipated year-end inventory adjustments in our Mexico plant, higher trade promotions driven by channel and category mix, mainly in Wet Shave and Sun as well as the unfavorable currency and tariff-related pressures, which together weighed on earnings for the quarter. I'll now walk through the details of our financial performance and the factors that shape these results.

Organic net sales increased 2.5% this quarter as strong performance across international markets and robust growth in Sun Care, Skin Care and Grooming offset declines in North America Wet Shave. International organic net sales grew 6.9%, broad-based across all segments and in line with expectations, driven by both volume and price gains. We delivered growth in all key markets with Oceania and distributor markets experiencing double-digit growth, while Europe delivered mid-single-digit growth. As Rod mentioned earlier, North America demonstrated sequential improvement with organic net sales declines of 60 basis points, driven by meaningful growth in the quarter in Sun Care, Wet Ones and Grooming, partially offset by Wet Shave.

Wet Shave organic net sales declined approximately 1% as growth in preps, men's and women's systems was more than offset by a decline in disposables. International Wet Shave grew 6% with both price and volume gains, reflecting continued category health, solid distribution outcomes and strong in-market brand activation. This growth was offset by declines in North America, driven by challenged category and channel dynamics.

In the U.S. razor and blazes category, consumption was down 80 basis points in the quarter, though our market share improved sequentially, declining 50 basis points overall, our branded value share was flat in the quarter, while unit share increased 90 basis points. The Billie brand achieved 90 basis points of share growth and continues to perform well at retail, now holding a 15 share at Walmart and 13 share at Target. Sun and Skin Care organic net sales increased approximately 11% with robust growth across each business. Wet Ones grew nearly 25%, while Sun and Grooming each grew 9%. While Sun Care sales in North America increased 10% in the quarter, the combined effect of end-of-season closeout sales and higher-than-expected adjustments related to trade and returns mix added additional pressure to our gross margin. In the U.S., Sun Care category consumption grew over 6% in the quarter as end-of-season weather improved with sales peaking later than a typical season. Final seasonal replenishment orders were boosted by higher online orders and end-of-season closeout performance. Our value share improved sequentially and was essentially flat in the quarter, while unit share increased by 60 basis points.

Grooming organic net sales growth of 9%, led by over 28% growth in Cremo and over 9% growth in Bulldog were partially offset by declines in Jack Black. Wet Ones organic net sales increased about 25%, and our share was approximately 68% as we cycled supply disruptions in the prior year and have fully returned to normalized operational levels following the fire in our facility in the prior fiscal year. Fem Care organic net sales increased 1%. We saw continued positive consumption and market share trends across the portfolio. Consumption in the category was up 3.5%, though continues to be mostly driven by 5.5% growth in pads, where overall penetration is the lowest. The categories where we compete more heavily, namely tampons and liners, consumption was up 2.7% and 60 basis points, respectively. Overall, the category remains promotional. Our value share improved sequentially and was down 20 basis points, while unit share increased 30 basis points. Now moving down the P&L.

Adjusted gross margin rate decreased 330 basis points or down approximately 210 basis points in constant currency versus our expectation of only slight declines on a constant currency basis. This shortfall was largely driven by unanticipated year-end transitory items, including higher-than-anticipated inventory adjustments related to our plant consolidation wind-down procedures in Mexico, increased trade mix, including increased closeout sales and Sun Care returns and slightly unfavorable net inflation, tariffs and pricing.

A&P expenses were 9.4% of net sales, up from 8.5% last year, in line with our expectations as we rephased some spending for Sun Care out of Q3 and into Q4. Adjusted SG&A was 19.7% in rate of sale compared to 20.5% last year. This was primarily driven by lower incentive compensation expense and the favorable sales leverage, partly offset by higher people and consulting expenses and unfavorable currency impact. Adjusted operating income was $40.3 million or 7.5% of net sales compared to $56 million or 10.8% of net sales last year, reflecting the impact of lower gross margins, FX headwinds of 100 basis points and incremental brand investments. GAAP diluted net loss per share were $0.66 compared to income of $0.17 in the fourth quarter of fiscal '24, driven by the goodwill impairment charge.

Adjusted earnings per share were $0.68 compared to $0.72 in the prior year quarter. Currency headwinds drove an unfavorable $0.19 impact on adjusted EPS in the quarter as the unfavorable transactional currency, hedge and balance sheet remeasurement impact within our other income and expense were only partially offset by translational currency tailwinds to operating profit. Adjusted EBITDA was $59.4 million, inclusive of a $11.2 million unfavorable currency impact compared to $78.9 million in the prior year. Net cash provided by operating activities was $118.4 million for fiscal '25 compared to $231 million last year due to the lower earnings and higher working capital build this year. We continued our quarterly dividend payout, declaring $0.15 per share dividend for the fourth quarter, and we returned approximately $7 million to shareholders via dividend. We had already achieved our target of approximately $90 million in the share repurchases for fiscal year by the end of Q3. Now let me turn briefly to our full year results.

Organic net sales for the year decreased approximately 1.3%. Our -- right to Win portfolio grew about 1%, fueled by nearly 13% growth in skin care and our Grooming brands grew over 9% for the year. Sun Care, highlighted by weaker-than-anticipated core Sun Care season declined approximately 4%. Our right to play portfolio declined about 2%. International markets organic net sales increased 3.5%, nearly equally driven by both volume and price gains. North America organic net sales decreased about 4%, driven by both volume declines and increased promotional levels net of pricing.

Adjusted gross margin rate decreased 110 basis points year-on-year or 20 basis points at constant currency. We generated productivity savings of 270 basis points, which were more than offset by core inflation, inclusive of tariffs of approximately 150 basis points, unfavorable mix of approximately 75 basis points, increased promotional level net of pricing of 45 basis points and 20 basis points of unfavorable absorption. A&P expenses was 11.1% as a rate of sale, an increase of 80 basis points over the prior year as we continue to invest behind our brands.

Adjusted operating profit decreased $48 million or approximately 18% and adjusted operating margin for the year was 9.9%, down approximately 200 basis points in rate of sale. The decrease in adjusted operating margin was attributable to gross margin rate declines, higher brand marketing investments of $15 million and the unfavorable impact of currency of $21 million. Now turning to our outlook for fiscal '26.

Our fiscal '26 outlook does not reflect the planned divestiture of our Feminine Care business. Starting in Q1 '26, results from Feminine Care will be reported as discontinued operations. Following the transaction, we also expect to incur certain stranded overhead costs, which for fiscal '26 will be substantially offset by income from certain services to support the transition of the business following the completion of the transaction. For context, we expect the impact of Feminine Care business on an annualized basis to be approximately $0.40 to $0.50 in adjusted EPS and $35 million to $45 million in adjusted EBITDA, net of transition income. We will update our outlook to reflect the remaining business after the transaction closes, which is anticipated in the first quarter of calendar '26. Importantly, as part of our ongoing transformation, we are committed to reducing stranded overhead costs over the longer term. Our ambition is to fully align our cost structure with our streamlined portfolio.

As we look forward to fiscal '26, our expectations include a return to organic top line growth, gross margin accretion as well as a step-up in investment through higher A&P spend, where we are leaning into focused brand activation. This is expected to result in essentially flat adjusted EBITDA growth at the midpoint of our outlook. This outlook incorporates several headwinds, including a net tariff impact after mitigation efforts of approximately $25 million, higher SG&A spend year-over-year due to lower bonus and incentive compensation in fiscal '25, partially offset by favorable currency. We expect EPS to be down versus fiscal '25 as the annualized effective tax rate returns to more normalized levels. This outlook also contemplates a meaningful improvement to free cash flow underpinned by favorable working capital management and improved operational efficiency.

For the fiscal year, we anticipate organic net sales growth to be in the range of down 1% to up 2%, excluding 150 basis points of currency tailwinds. We expect mid-single-digit growth in international markets and flat to slightly down performance in North America. In terms of phasing, we expect Q1 organic sales to be down 1% to 2%, driven by lower international sales due to the impact of sales phasing within our distributor markets in Japan and for Q3 to be the strongest quarter in the year. As we look to adjusted gross margin, the environment surrounding tariffs continue to evolve and have added significant challenges to the global supply chain. Our outlook for fiscal '26 assumes current tariff rates hold, and there are no material changes in the inbound or outbound flow of materials and finished goods. Our fiscal '26 outlook reflects the gross impact of tariffs of $37 million or $25 million net of direct mitigation efforts.

As we stated earlier, we are not in a position to implement broad-scale price increase to mitigate the full impact of tariffs. However, we have neutralized the impact in gross margin through a combination of core productivity efforts, direct cost mitigation through expanded sourcing efforts, footprint optimization and vendor negotiations as well as strategic pricing in key categories. More specifically, we anticipate 60 basis points of year-over-year total gross margin rate accretion or 20 basis points at constant currency. This includes approximately 310 basis points of productivity savings and tariff mitigation, 60 basis points of price gains and 40 basis points of favorable FX, partially offset by approximately 270 basis points of COGS inflation, inclusive of tariffs and negative mix and other costs.

In terms of phasing, half 2 gross margin rate will grow versus prior year as the full impact of pricing, tariff mitigation and productivity initiatives will be at run rate. Looking ahead to Q1, we expect gross margin to decline 270 basis points as higher inflation, inclusive of tariffs, trailing absorption charges from '25 and other transitory operational cost increases are only partially offset by productivity savings and favorable FX. With increased investments in our brands, we expect A&P to increase in both dollars and rate of sales, with the latter increasing by 70 basis points to approximately 11.8%. Adjusted operating profit margin is expected to decrease approximately 50 basis points as gross margin improvement is more than offset by higher A&P and higher SG&A.

Adjusted EPS is expected to be in the range of $2.15 to $2.55. This EPS outlook reflects only the impact of expected share repurchases that are needed to offset current dilution and assumes an effective tax rate of 21% to 22%. Adjusted EBITDA for fiscal '26 is expected to be in the range of $290 million to $310 million, which is approximately flat to prior year at the midpoint. In terms of phasing, we expect to generate about 2/3 of adjusted EBITDA in half 2 and 3/4 of our full year adjusted EPS in half 2 of the fiscal, primarily reflecting higher taxes and interest expense in half 1 with Q1 adjusted EPS below prior year. Free cash flow for the year is expected to be in the range of $115 million to $145 million, including expected improvements in working capital.

And finally, we remain committed to a disciplined capital allocation strategy and intend to continue to focus our efforts on reducing debt leverage in the near term. We will continue our dividend and share repurchases primarily as an offset to dilution. In the near term, the net proceeds from the Feminine Care divestiture after taxes and transaction costs will be directed towards strengthening our balance sheet and reducing debt while also supporting continued investment in our core brands, capital expenditures to drive innovation and productivity and funding future growth initiatives. Over the longer term, we believe this divestiture creates optionality in pivoting our portfolio to categories where we have a competitive advantage. Our intention is to evaluate targeted M&A to ensure that we continue to add scale that creates sustainable value creation. For more information related to our fiscal '26 outlook, I would refer you to the press release that we issued earlier this morning. And now I'd like to turn the call over to the operator for the Q&A session.

[Operator Instructions] The first question comes from Olivia Tong with Raymond James.

I wanted to ask you first about the outlook, which is a wider range than normal, which is logical against the current backdrop and the changes you've made. And it looks like EPS might be at a loss in Q1 might be on the table. And so -- can you talk about a few things, underlying category growth assumptions, your market share assumptions and how you think about segment results? Presumably, Sun and Skin should grow, but what shape, perhaps not. So that's number one. And then your level of flexibility to maintain the profit goals that you discussed.

Olivia. Thank you for joining us this morning. Look, I'll say as we look at the '26 plan, I would say it's balanced and achievable. I think we feel really good and confident in our ability to deliver this plan. It's a strong bottom-up build. It's based on realistic assumptions. So overall, from a category growth perspective, we effectively have the category growth assumption for '26 in all of the key combinations right around where we've been over about the last 6 months. So it's a low single-digit rate on average when you aggregate it out across our categories. As we said in the script, we're growing share now and growing or holding in 70% of our category country combinations. That's a significant improvement versus a year ago. We don't have that changing. We have our share result assumptions where we are now going forward. So effectively holding share versus where we are today. And I would say we have more flexibility in this plan, certainly than we've had in the last couple of years if we face some headwinds. we'll be able to deal with that in how we've built and profiled this plan. Fran, I don't know if you'd add anything else.

Yes. I think just to address the phasing question specifically, we expect a stronger half 2. As we've stated, 2/3 of our EBITDA is expected in the second half. That's well in line with our historical trends. Fiscal '25 had more unusual fighting as it was more 50-50. So softer performance in Q3 and Q4 at the back end of fiscal '25. But we're confident with a number of factors. As Rod has said, the combination in the half 2 of productivity mitigation at run rate Pricing in both international and U.S. markets are more disproportional between Q2 and the second half. We've got innovation and brand investment also coming into the second half. So more specifically in Q1, yes, we do expect EPS to be at a loss. That's a combination of some of the margin pressures that we're facing as well as some of the tax rate flighting. But as we look ahead to half 2, we're really confident in our run rate productivity and mitigation efforts and really the sales growth and the investment profile that moves ahead.

Yes. And Olivia, I would just add to the segment question you asked. One example of what I think is different in this year's plan is how we thought about Sun Care. The season we just finished, I think most people would agree was not a great sun season, particularly in the peak of it as we got into Q3. We're not planning on a basis where we expect a great recovery for Sun season next summer. In fact, we're planning for a very similar season, which I think is realistic and more conservative than where we've been. So we've got Sun at low single digits. We've got Shave at flat to slightly growing as a segment and then Grooming is the one leading the way, more in line with trend of where we've been.

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

You've been pretty busy making a lot of changes, big changes over the last few years, obviously, with the Sem Care sale. So I just wanted to kind of get your thoughts high level on like what's the North Star here for the strategy for the portfolio? I mean, is there an intent to maybe look at more maybe M&A as asset values come down in this current environment? So just would love to just get your higher-level thoughts on just where you're really trying to point the arrow here.

Nick, thank you. Yes. Look, there's a lot going on here, right? If you try to parse out everything that's happening, there's a lot of moving parts. What I will tell you is, in many ways, this is the moment where our strategy execution really comes together in a very different way than where we've been over the last couple of years. We are focused on winning in shave, grooming, sun and skin. That's the focus from a category perspective. We have global scale, IP know-how, technology and the right to win and be successful in those 4 categories. That's where we sit today with the Fem sale off to Essity. It's a better portfolio. It's a more efficient, more focused portfolio. So focus on those categories is where we are. We believe those categories are structurally attractive. Shave is the category that is viewed probably most negatively within that set. We don't see it that way. It's a structurally attractive category with high margin and very few players. So strategically, with what we have in place, we have a right to win and be successful in Shave. And you've seen us do that internationally. We're now set up to do that domestically here in the U.S. with the new team and the investments we're making.

I would say the other part of our strategy that's coming to life here, beyond the financial flexibility and the optionality, the sale of Fem Care and those proceeds give us, we are making a big investment in our shave footprint and basically setting ourselves up for the next 10 to 20 years in that category with a new highly automated manufacturing plant. We're consolidating 4 locations in North America into a single scaled, highly automated plant that will produce better blades than come out of any factory in the world. It's going to be a best-in-class site. And so this gives us significant financial flexibility as we go forward in addition to the simplification and speed elements that it gives us. So when you put it all together, I've talked about the category focus. We're global in terms of our category plays now. and we've got much better optionality and financial flexibility that at the end of the day, is leading to reinvestment in our brands with a better focus on the consumers we serve to give them better products and better messaging and just a better experience with our brands. Long-winded answer, but that's what we're up to. And Fran, I don't know from your perspective, what you'd add to that.

Yes. I think that's all the right points, Rod. And I think what I'll refine specifically around the Wet Shave optimization, this has been a multistaged approach across North America. And the large portion of these costs and CapEx are already captured in '25. Our decision to expand these efforts in '26 will result in additional investments. But by the end of '26, we're actually almost 90% through those total costs. And as we look ahead, we'll have accelerated productivity and cash flow from that.

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

The productivity number this year or this quarter, excuse me, was, I think, the lowest you have ever disclosed. Can you just expand on that a bit? The gross margin for the year came in quite a bit below expectations laid out only a few months ago. And you're going to start gross margins quite negative in the year with hope for some recovery through the year. And so I think getting a bit more confidence on your ability to use productivity as an offset would be helpful. And then I think you said that there's some pricing coming in the back half of the year relative to the comment that you made around not much pricing in North America. Can you just square those for us? I mean really what I'm trying to do here is establish some confidence that you can see some improvement in the gross margin through the year.

Chris, let me just make a broader comment around the profile and then Frank can get into the gross margin details. We have a second half-oriented plan here as it puts forward. I want you to know, like we've been through this at great levels of detail, and we're very confident in the profile we put forward. And some of what drives the gross margin delivery and the rate delivery is a higher expected sales growth in the second half of the year. In international, it's more around distributor timing. It's more around how we ship the sun season year-over-year with a very specific point in Japan, where we've got pricing going in, in the spring there that obviously helps that gross margin line.

And then in North America, it's a very second half-oriented plan, mostly because we know planogram changes that are happening. In total, they're going to be positive and additive to us as we get into that spring season when planograms reset. And that's also when we launch the new brand campaigns and put most of our incremental A&P spend, which is significant on the year in that timing to drive the growth. So some of it is -- some of the margin improvement is just driven by volume absorption that comes in the second half of the year. But Fran, I know there's more going on.

Yes. So just to reference your first question about productivity specifically in Q4, we anticipated the productivity. It came in line with our expectations. So we knew that Q4 was going to be slightly less than the first half. And some of that is just natural phasing that happens with the initiatives that we put through and implement. But overall, we've consistently been delivering 250 basis points of productivity efforts over the last few years. And as we look ahead to '26, we still believe that we will deliver at its core 260 basis points and with mitigation 310 basis points. I think when we double-click in terms of Q4, the core issue was not productivity. I think those elements have come in largely as we expected.

There were 2 major factors that really put some headwind into Q4. 50% of that was wind-down procedures around our Mexican plant consolidation, where we had larger-than-expected inventory adjustments. That was transitory. We do not expect that to continue for next year. And the other piece was just higher trade promotions and some of that was due to just the closeouts and the mix that we had around promotional and channel dynamics. And that led to, I think, the biggest drivers in terms of Q4 gross margin. But productivity, as we look ahead, will be equally phased with slightly more in the back half, and that's really driven off of tariff mitigation. Tariffs are going to be disproportionately in the first half. And the mitigation efforts, while we have that all in place will just come to run rate more towards the second half.

The next question comes from Peter Grom with UBS.

So I'll know we'll get more of an update on guidance, excluding Fem Care down the road, and you did provide some helpful context last night and this morning. But just on the proceeds from the transaction, I think you mentioned that it will be used to pay down debt and strengthen the balance sheet. So I'm just curious like how quickly do you plan to deploy the proceeds? And then just high level, how could this impact earnings per share once the acquisition closes?

Yes. Look, on the sale, we expect it to close sometime out in early calendar 2026. We'd have proceeds at that point. we would plan to put everything we get from the sale, the net proceeds as well as all the operational cash flow we generate this year towards debt reduction. We're very focused on debt reduction and getting our leverage ultimately down towards that 3x zone. We've talked about 2 to 3 being the long-term target. That's important for us. We'll be looking at M&A along the way, as Fran said, there's a very high bar for that. Anything we would do would be value creating. We'll be very disciplined there. We haven't done anything in a couple of years. But in parallel, we'll be doing that. In terms of the timing and the amount of the flow-through, Fran, I don't know if you'd add anything there.

Yes. I mean, at this point, our best estimate after we've netted taxes and transaction fees is that there's about 80% of the proceeds that will be converted into cash. And as Rod mentioned, that will be focused in the near term on debt paydown.

The next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just in the Sun and Skin category, you talked about higher promotions in Sun as well. Maybe, I guess, how are you thinking about the category going into next year? How are the inventory levels in the category at retail? And then do you think it can be healthier next year? How is the competitive environment, I guess, with some new brands coming in? And then also just curious if you have any new innovation there coming next year.

Susan, thank you for the Sun focused question. We -- look, I think as we look back to the season just completed, it was not a great season. It was very promotional from the start, as you rightly point out, with some competitors going very deep discounts every day. across the set. And so it was, I would say, a higher-than-normal level of promotional intensity all year. The weather was not great and below average in total. And we ended the year not wanting to take any of that drag into next year. So inventories are clean. We landed the year and as part of the Q4 thing we believe is transitory is just making sure we go into next year very clean with any inventory positions, any returns, accrual adjustments, that's all in line, and we're very clean as we go into next year. I can't predict the level of promotional intensity for the year ahead. What I will tell you, if the promotional environment remains, we'll match it. We're not going to be outspent or beat on that front.

As I said to a question earlier, we've not planned for a great sun season. So we've been very conservative in planning for a season that looks a little bit like last year. And I will say what gives us confidence in the category is Hawaiian Tropic was the fastest-growing brand in the set out of the top 10 behind an amazing activation and campaign, better product formulations, better innovation and a new campaign that was put against it. As we look to next year, we're going to go into year 2 of that campaign, very confident in the brand, the distribution we're getting on that brand. And on Banana Boat, which was a laggard for us, we have a new campaign coming. The same team that built the HT campaign is going to launch a new campaign on Banana Boat, and we're investing more behind both brands as we go into the set. So I think we're set up for a very good sun season here in the U.S. We've been more conservative in our planning. And outside the states, we have Sun growing more to that mid- to high single digits. Fran?

Yes. I think, overall, as Rod stated, we're expecting low single-digit growth in '26. And I think a little bit more context around where that growth is coming from. In international, we expect that to be the growth engine for us as we have the combination of higher volumes and pricing and it's really driven by strong regional execution. In Europe, we're accelerating Hawaiian Tropic. In Latin America, we're expanding distribution and enhancing in-store activation and really focused on everyday sun protection, especially with Hawaiian Tropic Beauty Care. And in the U.S., as Rod said, we're more in line with the category trends. So that's low single-digit growth. And our focus is going to be on Hawaiian Tropic with distribution gains and promotional support. Innovation in Banana Bow is ahead, and we've got enhanced promotional strategy to really capture early season share and drive trial with our products.

There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks.

All right. Thank you, everybody. We appreciate your time, attention and for those that invest in us, your continued investment. And we look forward to talking to you in early February.

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

Good morning, and welcome to Edgewell's Third Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. 

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

Good morning, everyone, and thank you for joining us this morning for Edgewell's Third Quarter Fiscal Year 2025 Earnings Call. With me this morning are Rod Little, our President and Chief Executive Officer; Dan Sullivan, our Chief Operating Officer; and Fran Weissman, our Chief Financial Officer. 

Rod will kick off the call, then hand it over to Dan to discuss our third-quarter commercial and operational highlights, followed by Fran, who will discuss our Q3 financial results and our 2025 updated full-year outlook. We will then transition to Q&A. 

This call is being recorded and will be available for replay via our website, www.edgewell.com. During this 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, brand investment, organizational and operational structures and models, cost mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions and integrations, impacts from tariffs and other recent developments, changes to our working capital metrics, currency fluctuations, commodity costs, inflation, category value, future plans for return of capital to shareholders and more. Any such statements are forward-looking statements for the 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, 2024, as amended November 21, 2024, and as may be amended in our quarterly reports for Form 10-Q filed 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. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. However, 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 Rob.

Thank you, Chris. Good morning, everyone, and thanks for joining us on our third-quarter fiscal 2025 earnings call. This was a challenging quarter with our top and bottom line performance falling below expectations. Our results were significantly impacted by very weak Sun Care seasons in North America and certain Latin America markets, largely related to adverse weather. 

While Sun Care performance pressured overall results, we continue to see strong results in 2 important areas. Internationally, we delivered another quarter of growth, coupled with strengthened market share performance and strong supply chain execution led to further productivity gains above the year-to-date trend. Importantly, our market share performance in the U.S. also improved, most notably across our Hawaiian Tropic, Cremo, and Schick Hydro Silk brands, which saw stepped-up investment levels in the quarter. 

The operating environment remains challenging with both tariffs and foreign exchange contributing to full-year profit headwinds. On the consumer side, apart from Sun Care, our categories grew modestly in the U.S., in line with the 26- and 52-week trends. However, retailers further tightened inventory levels, most notably in the fem care category, leading to some divergence between our organic net sales and category consumption levels. 

Despite this challenging environment, as we discussed last quarter, we remain committed to incrementally investing across our business to support new brand campaigns, ensure robust backing for our newly launched innovations, and deliver the necessary improvements in our U.S. business in order to strengthen our portfolio for the longer term. We are encouraged by the early results from these incremental investments, which bolster our confidence going forward, and I will say more on this shortly. 

Our performance in the quarter and over the first 9 months of this fiscal year further reinforced 3 fundamental strengths of our business. First, we continue to seamlessly execute our international market growth strategy across the business that now represents 40% of our global sales. These markets have collectively delivered consistent mid- to high single-digit organic growth over a 4-year period, and we expect this business to deliver mid-single-digit organic growth again this year, with notable strengthening share positions across Shave, Sun, and Grooming in key markets. 

Second, we are committed to delivering consumer-led, locally designed innovation across our portfolio. We have expanded Billie's geographic reach, launching the full Wet Shave line in Australia in July. In Grooming, Bulldog has entered the premium Skin Care category, driving sales and market share growth across Europe. And we are seeing significant benefits from the broadened Cremo range in the United States and Europe. 

In Sun Care, Hawaiian Tropic is experiencing strong U.S. growth due to a successful marketing campaign, updated formulations, and its on-trend branding. And in Japan, we've taken the Schick brand to premium skin care with the launch of the Progista brand in premium channels. Third, productivity and efficiency remain at the cornerstone of how we operate, as demonstrated by the delivery of another quarter of almost 300 basis points in realized gross savings. The work our teams are doing across the supply chain is more important than ever as we tackle the impact of global tariffs and increasing macro complexity. 

Now let's talk about North America, where our results have been below our expectations and where we've been on a journey to strengthen our business in the U.S. as a catalyst for a return to profitable, sustained top-line growth. Let me provide an update on the work that has been done thus far. Following Jess's appointment last October, she and the team have focused their efforts in 3 distinct areas, working with both diligence and urgency. 

First, performing a rigorous assessment of the business and gaining a clear understanding of the challenges inherent within our U.S. portfolio and broader U.S. business model. Second, leveraging deeper consumer understanding and taking a modern approach to brand building that allows us to enhance brand message and better activate our brands with consumers. And finally, designing an organization that can achieve meaningful improvements in both commercial effectiveness and operating efficiency, underpinned by improved capabilities, simplification, and a lower cost to operate. 

This holistic approach is designed to fundamentally strengthen our business for the future, and I'm very pleased with the progress we are making, elements of which were visible in the quarter. 

During the quarter, we were highly proactive in the market, taking actions to support our brands at a different level, and we saw promising results. We designed and executed targeted brand campaigns across our focused brands of Cremo, Hawaiian Tropic, and Schick Hydro Silk. In support of these exciting programs, we have stepped up investments and have strategically shifted our spend to better balance both upper and lower funnel activities. The consumer has responded well, and we've seen each brand's consumption trends improve with Hawaiian Tropic share up 150 basis points in Q3, continued share gains in Grooming with Cremo up 40 basis points, and sequential improvement in Hydro Silk share. 

Also, we just completed the redesign and launch of the new U.S. commercial organization, underpinned by what is essentially a new U.S. leadership team, bringing together a talented, proven, and highly capable leadership group under Jess. This team will be fully in place by September and operating in a simplified, streamlined structure with laser focus on U.S. consumers and building brands that consumers love more and can win in market. 

And as you saw last quarter, and we'll continue to see this quarter, this will come with targeted increased investment in both trade support and A&P, along with a more efficient overhead structure. Where we have winning campaigns, as I highlighted earlier, we will invest. Many of the changes we are making in the U.S. market are in line with the changes we have successfully driven across our international markets, which are now delivering consistent mid-single-digit sales growth and operating margin expansion. 

As with anything, driving a step change in results takes time, but I'm confident the team we are putting in place and the renewed focus we have on doing all of the right things to create value in our most important market. The team is actively building plans for 2026, and we will share more on the U.S. transformation effort as part of our Q4 earnings call. 

This leads me to our outlook for the full year. We're at a pivotal moment in our transformation. We are orchestrating significant change across our North America commercial operations while facing numerous external headwinds, including foreign exchange, tariffs, and a significantly reduced Sun Care consumption profile for this season. 

Last quarter, we discussed the importance of maintaining investment levels for key brands even in the face of a challenging macro environment. Similarly, as we look at the remainder of the year, we will continue to press forward on investment to support the required changes in the U.S. that are already beginning to demonstrate returns through our improved share performance. While these investments weigh on profitability in the near term, we believe they serve to strengthen our business and better position our portfolio in the competitive U.S. market to set us up for long-term success. 

And now I'd like to ask Dan to take you through our operational and commercial performance highlights in the quarter. Dan?

Thanks, Rod. Good morning, everyone. As Rod mentioned, this was a challenging quarter, made even more so by very weak Sun Care category performance, especially in the critical period of Memorial Day through the 4th of July. Despite this, we delivered solid top and bottom line results internationally, drove another quarter of outsized productivity savings, and took meaningful actions in North America, both in terms of commercial activation and investment, and to create a stronger, better fit-for-purpose commercial organization. 

Before discussing performance in the quarter, let me start by sharing perspectives on the broader operating environment.

The macro environment remains challenging and unpredictable. Tariffs and foreign exchange continue to be volatile and have added pressure to our full-year results. Consumption trends have been mixed. While the Sun category has been meaningfully weaker than anticipated, particularly in the U.S., we have seen stability across our other categories in the U.S., which grew modestly in the quarter, generally in line with 26- and 52-week trends. Internationally, consumption trends also remained solid, and our share performance strengthened. 

The environment surrounding tariffs continues to evolve, and the ever-changing policies have added significant challenges to the global supply chain. While in-year cost impact of tariffs for fiscal 2025 remains modest at about $5 million, this is approximately $2 million higher than our previous outlook. Our teams continue to act with urgency, responding swiftly to the evolving landscape and taking action to quickly mitigate some of the near-term impacts via inventory prebuys and other supply chain actions. These steps, including the in-year temporary benefit of these higher costs being trapped in inventory, have kept tariff expenses more modest in the current fiscal year. 

Based on what we know today, we continue to anticipate that gross tariffs before our mitigation efforts would have an approximately $40 million to $50 million impact on an annualized basis or in the range of 3% to 4% of COGS. The team is actively pursuing all opportunities to mitigate the potential impact of tariffs through expanded sourcing efforts, footprint optimization, and heightened vendor negotiations. However, ongoing policy uncertainty continues to pose significant challenges. Fortunately, with the capabilities we've demonstrated over time in our global supply chain organization, we believe we have the right level of urgency and confidence to act swiftly as policy formalizes. In addition to direct cost mitigation efforts and commercial pricing actions in certain markets and categories, we also continue to lean into our ongoing productivity efficiency efforts to support our gross margins. 

In the quarter, the dollar continued to weaken, providing a modest translational net of hedge benefit for our P&L. However, transactional FX headwinds have increased cost pressures, largely due to meaningful appreciation of inter-market currency fluctuations in locations where we manufacture and do not hedge, namely the Czech krona, euro, and Mexican peso. This resulted in greater currency headwinds than originally expected in 3Q. 

Now let's move to the commercial and operational highlights for the quarter. Earlier, Rod discussed our sustained investment approach in support of focused brands and improved innovation platform with a local mindset, as well as new targeted incremental investments within our U.S. portfolio. We believe that these investments are having the desired effects, delivering strong returns while strengthening our market share trends across much of the business. Market share performance internationally was strong in the quarter as we saw significant gains across branded Shave in Greater China and solid gains across Sun Care and disposables in Latin America and Grooming and Sun Care in Europe. 

Additionally, our branded Wet Shave portfolio in Europe held share overall. And importantly, we saw growth in 4 of our 6 key markets as well as in private labels across Europe. In the U.S., we saw a notable improvement in market share trends for the Hawaiian Tropic brand, Women's Systems and Grooming portfolios, in part due to targeted new investments we're making in these brands. 

For Hawaiian Tropic, our new Tana Sutra campaign featuring Alix Earle launched in May and reflects a step change in how we design and activate content to better reach and influence consumers. This through-the-line campaign is successfully delivering on our brand-building objectives while driving notable sales and market share growth. We saw 18% dollar sale consumption growth versus a year ago amidst a declining category and 150 basis point share gain, which was the most for the top 10 brands in our competitive set. 

In April, we relaunched Hydro Silk with new packaging, a new brand campaign, and a modern approach to brand activation, further supported on shelf by investment in promotion and trade. The incremental A&P dollars drove upper funnel focus and delivered a reach of over 70%, all of which contributed to improved organic sales and market share trends. 

Our Cremo APDO launch shifted to a full funnel approach, increasingly focused on Amazon, driving substantial uplifts versus previous campaigns. We increased Amazon media spend and shifted significantly to enhanced video content. This launch has had a strong start, exceeding forecasted unit sales and underpinning 35% year-over-year consumption growth for the franchise. 

Behind our strategic brands, we've seen the early benefits of these strong brand campaigns that are well-architected, reach consumers in a variety of ways, and ultimately influence purchase behavior. We are encouraged by this early read, and we'll continue to invest incrementally where we see such strong returns. 

Operationally, productivity savings remain an important lever in gross margin performance, delivering 270 basis points of tailwinds in the quarter. These savings continue to be realized from a full collection of programs, including global sourcing and indirect savings, labor automation, and broader network efficiency efforts. Importantly, in the face of a more challenging global supply chain, we sustained our strong service performance from a quarter ago and saw global unit fill rates and OTIF measures above target levels across most categories and markets. 

Delivering on our productivity objectives and maintaining strong service levels are key in our effort to mitigate tariff and currency headwinds, support our sustained brand investments, and deliver elevated service levels to our customers. 

Now turning to our business results in the quarter. Organic net sales decreased 4.2% in the quarter. Growth in international markets continued with the 2% organic growth driven largely by price and SRGM gains, while cycling over 6% growth a year ago. This represents our 13th growth quarter in the last 14. Double-digit organic growth in Greater China and mid-single-digit growth in both Oceania and Europe fueled our results. Our international business continues to strengthen in market. And in the quarter, approximately 80% of this business held or gained share. 

Organic sales in North America declined about 8% with volume declines and increased promotional levels in Sun Care, Wet Shave, and Fem Care. 

Now turning to segment performance. Wet Shave organic net sales were down about 2%. International Wet Shave grew about 3%, largely driven by price and SRGM gains, reflecting continued category health, good innovation execution, and strong in-market brand activation. Our private brands business remained a meaningful competitive advantage and source of growth, posting low single-digit gains. Our International Women's private brands branded business continued to grow at a rapid pace, growing over 18% while cycling 54% growth a year ago. 

In North America, our Wet Shave results were as expected, with organic net sales down about 8%. Consumption in the U.S. razors and blades category was down 10 basis points in the quarter, with continued heightened declines in the drug channel. Our market share decreased 30 basis points for the quarter, though sequentially improved 60 basis points versus Q2. We continue to see solid results in Women's Systems with meaningful gains for the Billie brand on shelf, where it gained an additional 140 basis points in market share and now stands at a 16% share of the category at Walmart, 13% at Target, and over an 11% share nationally. 

Additionally, as noted, we saw sequential improvement in market share results for Hydro Silk. Sun and Skin Care organic net sales were down approximately 5% with mid-single-digit growth in Grooming, led by 28% organic net sales growth for Cremo. This was more than offset by declines in Sun, primarily a result of category consumption declines and higher trade spend. Our Sun Care results in the quarter were materially impacted by adverse weather during the Memorial Day to 4th of July period, both here in the U.S. and across notable LatAm markets, including Mexico and Puerto Rico, all of which weighed on consumer consumption and ultimately impacted replenishment orders to retail. 

In the U.S., category consumption decreased over 2%, and we had significant declines in shipments in May and June. Our market share was down 60 basis points as the previously mentioned strong gains for Hawaiian Tropic were more than offset by declines in Banana Boat. Hawaiian Tropic's 1.5 point of share growth reflected sustained velocity and distribution gains as well as impactful NPD, supported by the incremental investments made in the brand. Share losses in Banana Boat were largely driven by poor weather, impacting this occasion-based usage brand. 

In international markets, we saw notable value and volume market share gains across Europe and LatAm, though we saw a sizable category decline in Mexico. Fem Care organic net sales were down approximately 10%. The decline was largely driven by tampons and pads. We saw much-improved consumption and market share trends across our portfolio as expected. However, that improvement was not reflected in organic net sales in the quarter as certain retailers appear to be managing to lower inventory levels, particularly in tampons. Consumption in the category was up 4.5%, though driven by just under 8% growth in pads, where our penetration is the lowest. 

In the categories where we primarily compete, tampons and liners, consumption was up approximately 60 basis points and 30 basis points, respectively. In the quarter, our share declined 30 basis points, a 70 basis point improvement from the 52-week trend, and we saw strong share gains in liners. 

As Rod mentioned earlier, we're at a critical juncture in our transformation as we drive significant change across our U.S. commercial business while also facing numerous external headwinds, including currencies and tariffs. Against this backdrop, much of our business remains healthy, and we remain confident in our ability to grow international and across our right to win businesses of Sun, Skin, and Grooming. These businesses are fundamentally strong, putting aside this year's unusual sun season. Despite short-term transitory pressures, the core underlying fundamentals of our business are unchanged, underpinned by a relevant portfolio of brands, a strong gross margin profile across all categories, relentless cost management capabilities, and the ability to generate strong free cash flow. 

We are thoughtfully and deliberately making investments across the business despite lower-than-expected sales, and these investments are generating strong initial returns. When combined with other transitory headwinds, they are having a short-term impact on profitability and therefore, free cash flow. However, we firmly believe they serve to strengthen our business and better position our portfolio, setting us up to deliver stronger results in 2026 and beyond. 

Now let me turn it over to Fran to discuss key financial results for the quarter and our updated full-year outlook.

Thank you, Dan. Good morning, everyone. Let's jump into a quick review of the third quarter, followed by our updated outlook for fiscal '25. As previously discussed, organic net sales decreased 4.2%, with our North America Sun Care business underperforming our expectations by approximately $25 million in the quarter. Adjusted gross margin rate decreased 150 basis points, or down approximately 40 basis points in constant currency. This was roughly 20 basis points below our outlook at constant currency, as lower Sun Care sales impacted both mix and trade promotion. However, productivity, price, and core inflation were largely as expected. 

A&P expenses were 12.8% of net sales, up from 11.8% last year. While A&P rate of sales was in line with our outlook, we did rephase some spending for Banana Boat out of Q3 and into Q4. Adjusted SG&A was 16.2% in rate of sales and flat versus last year. This was primarily driven by lower incentive compensation expense and favorable currency impacts, which mitigated the negative impact of lower sales. Adjusted operating income was $75.1 million or 12% of net sales compared to $94.8 million or 14.6% of net sales last year, reflecting the impact of lower sales, lower gross margins, incremental brand investments, and the net impact of exchange, which drove a headwind of 100 basis points in the quarter. 

GAAP diluted net earnings per share were $0.62 compared to $0.98 in the third quarter of fiscal '24, and adjusted earnings per share were $0.92 compared to $1.22 in the prior year quarter. Currency headwinds drove a $0.12 unfavorable impact on adjusted EPS in the quarter as the unfavorable transactional currency and lower year-over-year hedge and balance sheet remeasurement gains within other income and expense were only partially offset by translational currency tailwinds to operating profit. Adjusted EBITDA was $96.4 million, inclusive of a $7.8 million unfavorable currency impact compared to $117.2 million in the prior year. 

Net cash provided by operating activities was $44.3 million for the 9 months ended June 30, 2025, compared to $157.3 million in the prior year. Shifts in inventory build and other working capital timing, in addition to lower earnings versus last year, drove the heightened use of cash in the current year. In the quarter, share repurchases totaled approximately $25 million. We continued our quarterly dividend payout and declared another cash dividend of $0.15 per share for the third quarter. In total, we returned approximately $32 million to shareholders during the quarter and achieved our target of approximately $90 million in share repurchases for the fiscal year. 

Now turning to our outlook for fiscal '25. We have updated our outlook for the year to reflect year-to-date performance as well as the expected Q4 financial impact of slightly lower than previously forecasted Sun Care sales, increased brand investments in both trade and A&P in the U.S., as well as additional tariff and FX headwinds, which are only partially offset by more favorable taxes. For the fiscal year, we now anticipate organic net sales to be down approximately 1.3%. 

On a reported basis, currency is now expected to be favorable for the full year reported net sales by 10 basis points versus our prior expectation of a negative 10 basis point impact. On a constant currency basis, our outlook reflects full-year adjusted gross margin rate accretion of 30 basis points, a decline of 40 basis points from our previous outlook due primarily to the impact of higher trade spend, unfavorable mix, and incremental tariffs. On a reported basis, full-year gross margin is expected to decline 60 basis points versus prior year, inclusive of a 90 basis point currency headwind, which is 30 basis points higher than our prior outlook. 

We now expect full-year operating profit margin to be down approximately 150 basis points, inclusive of the aforementioned 90 basis points of currency headwinds. Given these changes, full-year adjusted earnings per share are now anticipated to be approximately $2.65, inclusive of approximately $0.46 per share of currency headwinds. 

On a constant currency basis, adjusted EPS is expected to increase by $0.06 or 2%. Adjusted EBITDA is now expected to be approximately $312 million, inclusive of approximately $29 million in currency headwinds, or down $12 million at constant currency. The updated outlook for adjusted EPS also reflects a lower full-year adjusted effective tax rate of 16.5% compared to 20% in our prior outlook. 

Versus last year, this implies a Q4 outlook on a constant currency basis of approximately 2.5% organic net sales growth, flat adjusted gross margin rate, and approximately 2% growth in adjusted EBITDA, even after incorporating meaningful additional brand investment and tariff headwinds. 

Free cash flow for the year is now expected to be approximately $80 million, reflective of lower GAAP earnings and reduced contribution from working capital in Q4, which includes the impact of higher tariffs trapped in inventory. While the P&L impact of tariffs is approximately $5 million, the cash impact is estimated at approximately $10 million. For more information related to our fiscal '25 outlook, I would refer you to the press release that we issued earlier this morning. 

And now I'd like to turn the call over to the operator for the Q&A session.

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

I wanted to start with cash flow and leverage. So number one, can you expand just on the drivers of the free cash flow cut? And I also want to understand within the organization how the organization is incentivized around cash flow. I'm just conscious that leverage is ticking up, and I just wanted to get a bit more context on key drivers this year and how you're thinking about kind of attacking this over the next 12-plus months?

So I'll start with the incentive piece and cash flow, and then throw it to Fran on how we're looking at cash right now as we move forward. From an incentive perspective, we've had cash flow in for the executive level around delivery. We look at -- when we go down in the organization, we look at operating profit, EBITDA metrics with some adjustment for capital spend. And so we have the metrics you would want us to have in place around cash flow. I will say in this moment, some of that gets overwritten by example, when you have to make adjustments to inventories to try to deal with the new tariff regime that's come up, right? That's not something an individual is responsible for. That becomes a corporate decision when we pivot and make adjustments to plan and put inventory in places that will benefit us not only now, but over time, as we think about tariff mitigation as one example. 

But it's in there as we incent the teams, and I'll flip it over on how we want to address the piece on the cash flow change and leverage.

Chris, thank you for the question. So when we look at cash and we compare versus our previous outlook, you've got 2 main drivers. About 2/3 of the difference is really driven off of lower earnings, the additional FX headwinds, as well as the incremental tariffs to the P&L. And then you've got 1/3 of the increase that's really driven off of working capital changes and namely inventory. So weaker sun season has left us with slightly higher Sun Care inventory levels. We have been leaning in on tariff mitigation efforts, especially around increasing levels to prepare us to mitigate. And I think as we look at the full year, slightly higher prebuild around our Mexican consolidation. So significant amount of transitory items within cash, especially as we compare versus our previous outlook.

Chris, the only thing I would add, it's Dan. The only thing I would add, look, there's a few things this business model does really well, and throwing off free cash flow is one of them, and I appreciate you kind of asking where are we going with this. You know better than anyone as a business, we've thrown off anywhere between $150 million and $200 million of cash flow, and we have a cash flow yield over 10%. So we're really confident in our ability to do that, and I think history shows that. 

Fran's points are fair. They're not great answers, but they're fair. Lower earnings, higher working capital inventory builds around tariffs. We got caught a bit heavy with Sun for obvious reasons, given the season. I mean all of that factors in, but we don't see any of these as structural barriers going forward. And I think importantly, our CapEx rate is largely where it's been as a percentage of sales. So structurally, there's nothing here to prevent us from thinking about a return to the type of free cash flow generation that you've seen from us. We'll talk more about that in November. But I think at the spirit of your question, I think we believe strongly in our ability to continue to deliver really healthy cash flow.

And your next question comes from Peter Grom with UBS.

So maybe following up, and I know we're going to get more details in a few months on fiscal '26. But can you maybe just speak high level, I guess, to the puts and takes as you see them today? Maybe specifically on organic sales, you're exiting the year with much stronger growth than maybe what we've seen in the last couple of quarters. So just curious if there's anything unique that is driving that? Or is that exit rate a fair run rate as we begin to look out to next year? 

And then just on profit, a lot of moving pieces, cost tariffs, et cetera. Can you maybe just help us understand what's transitory versus maybe the headwinds that you would expect to persist as you move into next year?

Yes. Peter, I'll start with this one and take the growth rate and kind of where we are today. If you -- I think you're referencing basically what's implied for quarter 4 is an organic growth rate of 2.5% growth, which would be good, right? That will be the best quarter of the year. And the question is, does that carry forward? We are not going to get into fiscal '26 or give any specific guidance for '26. But what I will tell you, we've got 1 month in the books, July. We're on track for that 2.5% in the quarter.

And structurally, what plays out there is very much in line with how we thought about the algorithm. We've got Fem Care improving in quarter 4 versus where it's been. As you know, Fem Care has been down high single digits to low double digits as we've cycled through the change over the last year of the Carefree master brand execution and all the dynamics that have been in that category. We've got Fem Care back to growth in quarter 4, and I think a flatter business going forward. Shave is an increasing priority for this company. We can win and be successful in Shave, and we're going to do that. In the quarter we just printed, Global Shave down 2% organic. We'll be better than that as we go forward. But this idea that we can be a flat business in Shave absolutely holds. 

Sun Care, we are -- I guess, it depends on how you look at it, glass half empty, we were impacted and maximally negative in the quarter we just reported, down $25 million in the quarter versus what we expected going in. That's 5 points of growth in the quarter right there. So you're seeing that in our print maximally negative due to weather, by the way, not a change in consumer behavior or our brand resonance. So as we go forward, yes, I would look for Sun Care to be in growth position as well, certainly off of what is a very weak base as we move into this. And then we've had Grooming in growth high single digits all the way along with a Cremo brand that is accelerating. So we're not going to give you a number for '26. But I guess what you're getting at is, can we deliver our growth algorithm of plus 2% to 3% as we move forward? We absolutely can. 

And I'm not going to time-stamp that because we're going through the transformation work in North America. But I think we're more convicted than ever when we look at what we have and how we go forward that we can grow this business. Dan?

Yes, Peter, I would only add, I think Rod's comments are fair, and this isn't the moment to start to put numbers on the board for next year. But this has been an incredibly challenging and transitory year on a number of fronts, right? Tariffs, inflation, currencies, a disastrous Sun Care quarter, which is 50% of the season negative year-over-year. So that -- we'll work our way through all of that. I think what we feel really good about, though, what continues to underpin this business, international growth, mid-single digits. We've talked about this, really good proxy going forward. Productivity savings, 250 basis points a year as a placeholder. It will be more than that this year. I just talked about free cash flow and our confidence there. 

So it comes down to the North America business, which Rod just talked about. And so we've got a lot of work to do to get this tariff policy locked down and get mediation efforts in place. And then, of course, the state of the consumer and how they're going to be feeling next year as they feel the effects of likely rising inflation and a pressured job market. So there's a lot for us to work through. But at the core, international growth feel really good. Productivity savings feel really good. Free cash flow will come back. And we just got to cycle our way through some of these other points, and we'll certainly share more about that in November.

And your next question comes from Olivia Tong with Raymond James.

I want to follow up on that a little bit about Q4 and what kind of drives that organic sales growth that you're looking for. That looks like about a 650 basis point turn from Q3 to Q4. What are you thinking in terms of underlying category growth? How much have you seen some rebound now that the season has commenced? And sort of what's your view also on further destocking across the business? And then I have a follow-up.

Yes. Olivia, it's Dan. Yes, look, so let me try to unpack the quarter. And I think you have to look at it differently between what we're expecting internationally, where we are going to see growth rates accelerate, and what we're expecting in North America, where we will expect to see declines moderate and sequentially improve. Let me take them in order. 

For international, we have a really good line of sight to what looks like a step-up in growth of about 5 points. We've been running sort of in the 2% to 3% growth for the year. We're profiling the quarter between 7% and 8%. A couple of drivers to that. We've got new pricing going into the markets that's been fully executed that will start to impact 4Q. That's worth a couple of points. We've got a healthy NPD and product launches, including Billie moving into international new to the quarter. And we've got some successful private brand tenders that ramp in the quarter that had started earlier, but that ramp in the quarter. That collectively is worth 3 points. So you've got the pricing, you've got Billie and other NPD, you've got private brands tenders that have successfully been won, and now scale. That delivers your growth for international.

On North America, there's essentially 3 factors, all of which are fairly equally weighted. One is Sun Care. We are not expecting a minus 11% organic profile in 4Q. We're expecting 4% consumption growth in the category and 4% organics. Two is Fem Care. And I think for Fem Care, here, we're profiling low single-digit growth in North America. And I think here, you have to look at shelf performance to get confident with that. We've seen really improved trends in consumption growth. We grew 1 point in Fem Care in the third quarter and essentially held share. You didn't see it in organics to the inventory point you made, but we're feeling much better about the state of the portfolio there. 

And then lastly is Wet ones, where we've got an outsized quarter profile largely because we're cycling some of the effects of the fire last year and some out-of-stocks. That -- put all of that together, that sort of gets you to that minus 1% that we're expecting in North America. 

Now let me talk about the month we're in because I think or the month we just ended, because I think that's important, and Rod was alluding to that. First of all, we've essentially delivered our sales profile for the month of July, our biggest month of the quarter. I think that's important. It gives us sort of added confidence for the fourth quarter. I think, as importantly, we've seen performance on shelf in the U.S. actually improve. Categories remain healthy, grew about 4% last 4 weeks ended July. Sun Care was up 8%, and we held share. That's a really good indicator. And Fem Care, we again held share. So now you've got about 16, 17 weeks of demonstrated Fem Care strength on shelf. As a result of all of that, total Edgewell business was flat in terms of share. 

So we like what we're seeing. We are seeing evidence of strength on shelf. It doesn't suggest the quarter is done yet, but we have increased confidence today in our ability to deliver that organic growth in the quarter.

And then in terms of investment levels going forward, it sounds like you're quite pleased with some of the new brand support things that you're doing, unfortunately, that ran against poor weather this quarter. So as you think about the go forward, what continues? What -- as you think about elevated levels of brand support in certain areas, we -- should we expect that to continue into fiscal '26? And then as you think about the innovation plan for next year, are there other areas where you could potentially see increased investment as we think about all the different puts and takes for next year?

Yes. So thanks, Olivia. I think what you'll see continue from an international perspective, as Dan referenced that 40% of the portfolio. As we've been growing, we've been incrementally investing behind those brands and growing margin at the same time that we've been doing that by getting leverage out of the G&A profile and also driving really good gross margin management with all the pricing revenue mechanics. So you'll see that continue as we move forward in international. 

In North America, what you've seen us do incrementally in Q3 and what we'll continue to do in Q4 are 3 specific new activations. Cremo, the Scents King campaign is in place and is working and driving Hawaiian Tropic. Dan referenced, you've probably seen the Alix Earle campaign with Hawaiian Tropic. We feel really good about that. And then we've got a nice campaign up against Hydro Silk that's resonating. These are campaigns that are part of broader activations, getting the lineup right, the pricing right, now get the messaging right with good scoring campaigns. We're seeing that we're getting an ROI on those campaigns. 

As we pivot to next year, not only will we continue those styles of campaigns, we'll look to put new campaigns potentially against a couple of other brands as well. I'm not going to mention the brands, but there's 2 brands we've got in mind. Again, you don't just throw a new campaign out there. You've got to have the lineup structure right. You've got to have the capabilities right with the team. You've got to have everything in place and have a point of view on where you want to take the brand. And increasingly, the capabilities built -- being built in the North American business, the U.S. specifically, are really strong in the brand-building area. And so you'll see us continue to invest in A&P. And we haven't talked about it, but it's in the results. You see it. There's also some trade support and investment as well. So there's very much a 360 view as we work to get our brands to healthy positions, not only with consumers, but also with retailers where we can win space on shelf. It's a very holistic set of investments being put in.

Olivia, I would only add, I think we're going to continue to operate with 2 key thoughts in mind. One is we're going to continue to invest where we see good returns, and we're seeing that with the work the North America team is doing. And two, we're going to continue to drive like hell on a productivity and efficiency front to fund it. We talk a lot about supply chain and the numbers there. You've seen that. Equally, in the remarks, you would have heard Fran talk about North America's reorganization, which ultimately led to a more cost-effective and more talented, and more capable organization. So we're going to continue on that front with driving cost out to create dry powder to invest.

And your next question comes from Susan Anderson with Canaccord Genuity.

Really quick follow-up on Sun. I guess, I assume you're expecting some replenishment in the rest of the year with the expectation for 4% growth in fourth quarter. And then maybe if you could just talk a little bit about how inventories right now are in the channel for Sun Care. And then I guess, looking out to next year, are you expecting any new innovation in the category, as it seems like there's been quite a few competitors kind of jump into the space and start to take a little share.

Yes. It's Dan. So look, we're overall profiling a flat to slightly down Sun season. Decent at the start, really tough in the middle, which is the quarter we just exited, and then up mid-single digits here in the final stretch of the season. So flat to slightly down is our profile. Right now -- and so yes, our organic sales expectations for the quarter are largely the replenishments to feed that expected growth. One month in, so far, July, it's holding, and you see the impact of improved weather. 

Right now, I think we're generally comfortable in terms of inventory levels. We sort of worked our way through that last quarter. That's why you saw organics down such a big amount versus consumption on shelf. So I think we're in a pretty good place. I would also say this is where our supply chain is a distinct advantage because we can replenish quicker than others because of proximity and the amount of product end-to-end that we manufacture. So we're hopeful that we can end the season here in a good way, 1 month in, certainly, the data supports that. 

And as for next year, look, I'm not going to get into the specifics. But as always, we have a really healthy view right now of interesting innovation that we will bring to the category, not just here in the U.S. but across international as well. 

Rod, anything you want to add to that?

Yes. On that last point, Susan, on some of the new entrants and innovation. Let's just look at where we are with our 2 brands. Hawaiian Tropic, in the top 10 brands in Sun Care, which is the bulk of the volume, is the fastest-growing brand in the set. The team has done an amazing job with that brand. It's current, it's relevant, and it's resonating with consumers. And that's the campaign. It's the brand positioning, it's the messaging, it's the product lineup, leaning into body butters, tanning, things that enhance skin look and feel. So it's even less about SPF in that case when you look to Hawaiian traffic. 

And then as you look then at Banana Boat, it's more about being outside the fun in the sun, which makes it highly correlated to weather. So when the weather wasn't good between Memorial Day and July 4, you saw Banana Boat suffer. Well, as the weather turns better in July, as we go into quarter 4, we're seeing Banana Boat now perform significantly better. And so it's just interesting from a portfolio perspective, the impact that weather specifically has on Banana Boat. 

Now we're going to take that knowledge as we move forward. And the same team that has built the Hawaiian Tropic campaign, the focus is not only on continuing that for next year, but putting energy up against Banana Boat as well. We've got a multiyear plan for Banana Boat to strengthen what is already a leading brand in the set to ensure that we don't lose that. I would tell you, too, as you look to some of the other brands that have come into the set this year, that happens every year. There's always some level of newness that people come in. There's not necessarily a new form, a new product packaging, a new formulation that's breakthrough or different. We think we're on the leading edge of all of that. It's just a new name for today, grabbing influencer momentum to get out, get some real estate. And again, we see a certain amount of that cycle every year. 

So as we go forward to next year, I assume that will continue, but we feel really good about the momentum we have with our brands and the team doing the work.

And then I guess maybe just a follow-up on the Wet Shave. I guess just curious what you're seeing from a competitive dynamic? Are you seeing it ease at all on the women's side? Or is it still kind of very promotional? Then also if you could talk about how Billie's Body Wash has performed? And have you also seen a similar competitive dynamic in that area, just given a number of brands seem to be kind of moving across categories?

Yes. I'll just address the questions directly on and then I got a bit of a broader statement. On women's in the U.S. specifically, yes, highly promotional continues to be at an elevated level. 

It's a very, very competitive space with that being -- the number of brands in that space right now is too many for the future. Frankly, I don't think we'll continue with all the brands in the set. So women's highly promotional. You see our share results in that space, Billie winning share, Hydro Silk sequentially improving in a material way in the quarter. So we're -- I think we're super competitive in what is the most competitive space. 

As you asked the question about Billie Body, frankly, we're not happy with the results on where we are there. We still feel like Billie absolutely has the right to be a lifestyle brand and can play outside of Shave from a category perspective. In some cases, like we like the products. The products are amazing. They work, but they didn't hit some of the thresholds we wanted at some of the retailers. And so we're looking at how do we reset and go forward with the body range. It's not material. I think if you go back to our language in the past, as we launched this, it was more of a test-and-learn pilot as we put it out there. We've learned, and so we'll adapt and adjust as we go forward. 

What I will tell you, though, the strength of the Billie brand is in Shave. It continues to grow over 100 basis points of share in every period as we go forward. It's now an 11 share brand nationally and has surpassed some of the other brands that were out there in brick-and-mortar before it. 

Final thing I'll say around Shave competitively, and I said it earlier in one of the responses, we are going to increase the priority of winning in Shave in this company. We're the #2 player by far globally. Most of our shave business is outside the U.S., over 55% of our shave business is outside the U.S. It's structurally profitable. It's primarily a 2-player category outside the U.S., and we have wonderful R&D and manufacturing capabilities that we can leverage. And as we get the marketing and brand-building capabilities right, we have a ton of opportunity in what is a stable, slightly growing category. 

Dan, I don't know what you want--

Yes, I would just highlight because I think the Shave performance in the quarter on shelf in the U.S. was a real eye-opening strength for us. Men's Systems we're flat in terms of share. That's about 1 point improvement from where we've been. Women's Systems gained a point of share, including Hydro Silk handles being flat in share, to your point, Rod. Our disposable business grew 40 basis points in share. So we were really encouraged. This goes back to the investing and returning point I made earlier with our Shave performance. 13 weeks does not make a trend for sure, but encouraging results on shelf.

Seeing no further questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Rod Little, CEO, for any -- the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.