Prestige Consumer Healthcare Inc. (PBH) Earnings

Management highlights

- Core Business & Portfolio Performance - The company reported a challenging fiscal 2026 that fell short of internal expectations, with overall revenue declining due to iCare supply constraints and macro/geopolitical headwinds. Most non-eye care brands performed well: the GI franchise (Dramamine, Fleet, Hydrolyte) grew full-year, Summer's Eve stabilized and is positioned for future growth, and Monistat maintained market share despite a multi-year category decline. - The three-pillar long-term strategy (leveraging leading brands for growth via consumer insights, generating consistent free cash flow, and disciplined strategic capital allocation) delivered a 3% compound annual revenue growth rate and ~6% CAGR for adjusted EPS and free cash flow over the past five years, including the volatility of fiscal 2026. - iCare (Eye Care) & Supply Chain Updates - In December 2025, the company completed the acquisition of manufacturer Pillar 5 to gain full direct control of its sterile aseptic eye care supply chain and address historical quality and output variability from the prior third-party owner. - Q4 2026 Clear Eyes sales missed expectations due to delayed product shipments and an extended production shutdown to complete line upgrades. Pillar 5 has now begun production on a new high-speed line, with quality prioritized over rapid output to meet regulatory and consumer safety standards. - Most of the company's eye care supply chain has completed recent regulatory inspections, reinforcing the company's quality-focused operating model. - Brand Building & Innovation - The company's growth playbook focuses on consumer connection via marketing, relevant innovation for unmet consumer needs, and broad distribution. The GI franchise delivered strong results: Dramamine expanded into pediatric nausea and targeted GLP-1 users with healthcare practitioner outreach, while Fleet grew market share to over 50% following the launch of the travel-sized Fleet Mini Animas. - Fiscal 2026 innovation launches include Compound W Skin Tag Remover (leveraging existing wart removal technology), new Dramamine formulations, Mental Alertness for Goodies, and new Hydrolyte flavors. A multi-year pipeline supports additional launches in fiscal 2027. - Channel Strategy - E-commerce continues to be a high-priority growth channel: the business delivered double-digit consumption growth in fiscal 2026, pushing company-wide e-commerce penetration to ~18%. The company is updating digital content and brand presence to align with shifting consumer behavior driven by AI and social media to sustain this growth. - Capital Allocation - The company's business model generates sustainable, best-in-class free cash flow: low annual capital expenditures (1% to 3% of sales even with Pillar 5), high margins from regulated OTC categories with high barriers to entry, and a mid-teen cash tax rate from past acquisitions support an EBITDA margin in the low 30s. In fiscal 2026, the company deployed cash for $150 million in share repurchases and $110 million in long-term eye care manufacturing investment. - Priorities for future capital deployment, after investing in core brands, are near-term debt reduction following the pending Breathe Right and Lacorium acquisitions, potential return to share repurchases once leverage targets are met, and continued evaluation of future consumer healthcare M&A opportunities.

Guidance

- Fiscal 2027 Guidance (does not yet include impact from the pending Breathe Right and Lacorium acquisitions, to be updated on the Q1 2027 call in August): - Total revenue: $1.1 billion to $1.12 billion, representing 1% to 3% organic year-over-year growth. The wider-than-usual range accounts for iCare supply volatility and ongoing macro uncertainty; the low end of the range assumes no iCare improvement from fiscal 2026, while the high end assumes meaningful production growth in the back half of the year. - Q1 2027 revenue is expected to be approximately $250 million, flat relative to the prior year, with iCare shipments expected to be relatively flat year-over-year due to extended shutdown impacts and low existing safety stock. - Adjusted EPS: $4.42 to $4.51. - Adjusted gross margin is expected to be approximately flat relative to fiscal 2026, with incremental Middle East conflict-related diesel cost increases expected to be offset by cost reduction activities and tactical pricing as needed, consistent with the company's historical performance during inflationary periods. - Advertising and marketing is expected to be over 13% of sales for both Q1 and full fiscal 2027. - Adjusted G&A is expected to be approximately 10.5% of sales for the full year, with the increase driven by the addition of Pillar 5 and normalized incentive compensation; Q1 G&A is expected to be ~$30 million. - Capital expenditures are expected to be approximately $25 million, and free cash flow is expected to be $250 million or higher. - The International OTC segment is expected to return to approximately 5% annual organic growth, with improvement in shipment trends after Q1. - Longer-Term (Fiscal 2027 through Fiscal 2029) Outlook: - Total revenue CAGR is expected to approach 10%, combining 2% to 3%+ organic growth from the core portfolio and iCare recovery, plus incremental growth from the two pending acquisitions. International revenue as a percentage of total revenue is expected to approach 20% over this period. - EBITDA margins are expected to remain in the low to mid-30s, with EPS CAGR of approximately 8% or higher. - Cumulative free cash flow over the three-year period is expected to approach $900 million. - Pending Acquisition Details: - Breathe Right (expected to close in June 2026) is expected to generate over $125 million in annual revenue, be accretive to EPS and EBITDA margins, and deliver annual cash tax savings. - Lacorium Health (expected to close in Q2 2026) generates over $40 million in annual sales, is expected to be neutral to slightly accretive to EPS out of the gate, and reach a $12 million annual EBITDA run rate once fully integrated.

Segment performance

For full fiscal 2026: - Total company revenue decreased 4% year-over-year, with a 4.5% organic decline. Q4 2026 revenue was $281.6 million, a 5% decline from the prior year's $296.5 million (a 6.4% decline excluding foreign exchange). - North America segment: Organic revenue decreased 4.9% (excluding FX), driven by constrained iCare (eye and ear care) supply that offset growth in oral care and GI categories. This segment represents approximately 80-85% of total company revenue, consistent with historical structure. - International OTC segment: Organic revenue decreased 2.8% (excluding FX), also impacted by limited iCare supply and Middle East shipment disruptions from the ongoing regional conflict. This segment makes up approximately 15-20% of total company revenue. Full year 2026 profitability metrics: - Adjusted gross margin: 55.6%, flat relative to the prior year's 55.8%. - Advertising and marketing (A&M): 13.7% of sales, down from the prior year. - Adjusted diluted EPS: $4.38, down from $4.52 in the prior year. - Free cash flow: $246.4 million, up 1.3% year-over-year.

Risks & headwinds

- Heightened macro and business environment uncertainty remains due to ongoing supply chain constraints, persistent high inflation, and geopolitical instability, particularly the Middle East conflict, which has already caused shipment disruptions and increased diesel fuel costs. - iCare (eye care) production and supply chain volatility continues: output remains below historical levels, near-term period-to-period shipment volatility is expected, and the extended production shutdown at the newly acquired Pillar 5 facility negatively impacted Q4 2026 and Q1 2027 results. It is difficult to predict the exact timing of full production stabilization. - Soft consumer demand across many consumer health categories has persisted longer than expected, driven by ongoing macro volatility, interest rate hikes, and inflation, creating uncertainty around consumption growth forecasts. - The company's guidance includes wide ranges to account for the combined uncertainty of iCare supply volatility and shifting consumer sentiment.

Analyst Q&A

• Q: Susan Anderson (Connecticut Genentee) asked for detail on the Lacorium acquisition, including competitive landscape, growth opportunities, and synergies, followed by an update on the Clear Eyes recovery timeline and the impact of the recent production shutdown. /

  A: Lacorium is primarily focused on Australia and New Zealand, with a small emerging footprint in the U.S. and Canada. It offers a broad portfolio of therapeutic skincare products for conditions like eczema and cold sores with a fragmented competitive landscape. Growth opportunities include expanding into additional skincare categories and leveraging Prestige's existing Australasian distribution and sales force for geographic expansion, plus back-office integration to capture cost synergies. For Clear Eyes, the Q4 shortfall came from delayed Q4 shipments (released after quarter-end) and a longer-than-expected production shutdown for facility upgrades, which will also impact Q1 2027 output. Management expects meaningful production improvement to occur in the back half of fiscal 2027, with the guidance range accounting for this lumpiness; the acquisition of Pillar 5 was a strategic move to gain full control of quality and supply, and ongoing process improvements are expected to stabilize output by the second half.

• Q: John Anderson (William Blair) asked how much of the Q4 sales shortfall came from Clear Eyes versus Middle East disruptions, how persistent Middle East pressures will be, how the company plans to offset current energy inflation, and whether the recent supply setback pushes Clear Eyes recovery out an additional year. /

  A: Approximately two-thirds of the Q4 shortfall came from Clear Eyes supply issues, and one-third came from Middle East shipping disruptions. Longer lead times for Middle East shipments are incorporated into the fiscal 2027 guidance, with continued pressure expected in Q1 before improvement in the back half, and excluding iCare and disruptions, international business is aligned with long-term growth targets. The guidance assumes current oil-related inflation levels will persist, and the company will offset these pressures with cost reduction first, followed by targeted tactical pricing, consistent with past inflationary periods. The extended shutdown occurred late in Q4 after scope was expanded to address long-term reliability issues; management notes the 1-3% guidance range already accounts for the updated timeline, with full improvement expected in the back half of 2027 and no additional one-year delay to the recovery trajectory.

• Q: Keith Devas (Jefferies) asked how the recent industry-wide competitor eyedrop recalls create an opportunity for Clear Eyes, given the company's ongoing supply ramp. /

  A: Management confirms the recalls create a meaningful long-term opportunity for Clear Eyes to gain market share once supply catches up to demand. Retailers are now prioritizing partnerships with trusted, quality-focused branded suppliers amid widespread out-of-stocks and private label recalls. Prestige maintains strict internal quality control: all Clear Eyes product is reviewed and released by the company's in-house quality team rather than relying on third-party suppliers, which positions the brand well to capture share from affected competitors as production ramps up.

• Q: Rupesh Parikh (Oppenheimer) asked about management's confidence in executing multiple priorities simultaneously: the Pillar 5 integration, two new acquisitions, and Clear Eyes recovery. /

  A: Management confirms it always evaluates M&A based on bandwidth to execute successfully. Breathe Right has a nearly identical business model to Prestige's existing portfolio, so integration requires minimal additional specialized bandwidth. Lacorium is based in Australia with very limited resource overlap with the Breathe Right integration team, and Prestige has monitored the business for over five years, so management is confident in the ability to deliver on all strategic priorities in fiscal 2027.