Prestige Consumer Healthcare Inc. Q2 FY2025 earnings call

• Q2 results exceeded expectations, with sales of $284 million slightly down Y/Y due to Clear Eyes supply issues but offset by growth in other areas like International and Canadian portfolios. • Gross margin improved sequentially and was approximately stable Y/Y. EPS was $1.09, up slightly Y/Y. • Canadian business has leading brands, with Gaviscon being the largest, growing above Canadian growth rate, supported by targeted marketing and innovation like Gaviscon Flavor Blend. • For the first half of fiscal '25, revenues decreased 2.5% organically Y/Y. Gross margin was 55.1% in H1, expected to be ~56% for full year. • Generated $121.4 million in free cash flow in H1, with outlook for full year free cash flow of $240 million or more. • Repurchased 566,000 shares for ~$38 million in H1, maintaining strategic flexibility with capital.

In the second quarter, North America segment revenues decreased 3.7% excluding FX, while International segment revenues increased 4.8% excluding FX. Q2 sales were $284 million, down slightly from prior year due to Clear Eyes supply chain limitations and Q1 timing. However, International segment's Hydralyte brand and Canadian portfolio provided growth offsets. The International segment had about 5% of annual sales, with Hydralyte showing strong growth. Canadian business, representing ~5% of annual sales, has leading #1 brands in niche categories with a 4% sales CAGR since fiscal '20 and high single-digit growth YTD.

• Anticipates revenues for fiscal '2025 to be $1.125 billion to $1.140 billion, with organic revenue growth of ~1% Y/Y. • Expects Q3 revenue to show momentum in multiple brands and categories to offset Clear Eyes supply constraints, with Clear Eyes sales improving sequentially in Q3. • Anticipates adjusted EPS of $4.40 to $4.46 for full year, with higher end of range possible due to debt reduction efforts. Q3 EPS expected to be $1.16. • Maintains outlook for full year free cash flow of $240 million or more.

• Business environment uncertainty due to supply chain constraints and inflation, which can impact results. • Drugstore channel store closures, but company's product is broadly available across channels, so impact is manageable. • Competitive landscape in international markets, though Hydralyte has a strong market position.

Q: Please provide an update on Clear Eyes and Summer's Eve?

A: Clear Eyes supply chain is being strengthened with strategic improvements and supply base diversification; sales expected to improve sequentially in Q3. Summer's Eve was flat in Q2 but making progress, with share gain seen at end of Q2 for first time in ~3 years.

Q: Thoughts on drugstore channel store closures impacting business?

A: Expected store closures are consistent with past years, product is broadly available, so company focuses on winning with consumers wherever they shop.

Q: Talk about international business, particularly Hydralyte?

A: International segment had strong performance, Hydralyte grew nicely with double-digit consumption growth; new entrants in Australian market but Hydralyte has strong history and connection with consumers.

Q: Capital allocation between share repurchases and M&A?

A: Strong cash flow enables multiple actions; still looking to buy back shares opportunistically while evaluating M&A opportunities, with ample remaining authorization under repurchase program.

Q: Exposure to e-commerce and organic growth outlook?

A: E-com is ~15% of business, largely in North America; expecting to utilize e-com playbook internationally. Organic growth guide for year is ~1% due to Clear Eyes, but long-term algorithm remains intact with expectations of Clear Eyes sales improvement in Q3.

Q: Impact of air freight costs on gross margin?

A: Expect some continued air freight, but guide anticipates less as year progresses; gross margin guide for full year is ~56% with pricing actions and cost improvements expected to offset future inflation.