Prestige Consumer Healthcare Inc. Q3 FY2025 earnings call

• Third quarter results exceeded expectations with record quarterly sales and EPS. Net sales were $290 million, up nearly 3% vs prior year, and EPS was $1.22, up 15% vs prior year.
• GI category is a fast-growing segment, featuring brands like Dramamine, Fleet, and Gaviscon, with strong growth driven by marketing and innovation.
• Clear Eyes saw sequential sales improvement in Q3, and Summer's Eve had sequential improvements. E-commerce had double-digit year-over-year growth.
• Reduced variable term loan debt balance to zero, repurchased shares, and improved leverage ratio to 2.5x.

Net sales for the third quarter were $290 million, increasing nearly 3% versus the prior year. The GI category represents nearly one-fifth of North American sales, with brands like Dramamine, Fleet, and Gaviscon. The International segment saw growth of approximately 8% excluding FX, led by the Hydralyte brand. For the first nine months of fiscal 2025, North American segment revenues decreased 2.1% excluding FX, while International segment revenues increased 6.2% excluding FX. E-commerce continued to have double-digit year-over-year channel growth.

• Fiscal 2025 revenue forecast is $1.128 billion to $1.132 billion with an FX headwind in Q4. Organic revenue growth forecast is approximately 1% vs fiscal 2024, unchanged.
• Q4 revenue is anticipated to be approximately $290 million. Adjusted EPS for full year is anticipated to be approximately $4.5, with Q4 EPS expected to be $1.3.
• Free cash flow is anticipated to be $240 million or more.

• Business environment uncertainty due to supply chain constraints, evolving U.S. and international tariffs, and inflation.
• Impact of Clear Eyes supply chain constraints on prior year sales.
• Uncertainty regarding future changes in tariffs and their impact on costs.

Q: Could you remind us how you think about the recovery of Clear Eyes going forward, including in stock perspective at retail and when we'll get back to normalized levels?

A: For Clear Eyes, Q3 production levels were in line with expectations, sales were a bit ahead due to timing differences. Q4 sales anticipated to be similar to Q3, with production levels expected to increase slightly going forward, ramping up slowly each quarter with likely increase in second half of 2026.

Q: Can you provide more clarity on the puts and takes for Q4 gross margin?

A: Gross margin in Q4 is anticipated to be approximately 57%, driven by the timing of certain cost-saving initiatives.

Q: Is there any initial puts and takes as you look forward towards the next fiscal year?

A: We feel good about the business, have solid momentum, and will have more to share in May.

Q: Talk about the Cold & Cough season impact. Is it going to help Q4 and is inventory high at retail?

A: Cough & Cold is not a significant element of the portfolio. Sales were down in Q3. Retailers seem to be working down inventory from pre-season buy, not expecting reorder rates to increase for our products.

Q: Talk about exposure to tariffs in different regions. Any color on manufacturing exposure?

A: Watching tariffs carefully, majority of manufacturing is in the U.S., supply base is diversified. It's fluid, still unknowns, and we'll be agile in responsive actions.

Q: Expectations for Clear Eyes recovery in terms of promotional intensity and consumption evolution?

A: Clear Eyes is a leading brand, consumers will reach for other Clear Eyes SKUs if one is out. Focus on balance between supporting long-term demand and getting product on shelves, expect to regain historic share over time.

Q: Hydralyte brand evolution and reinvestment plans?

A: Hydralyte in Australia is a long-term brand builder. International expansion is a slow build, building distribution network, working with retailers, and connecting with consumers.

Q: Explanation on Fleet expanding into oral laxatives and Dramamine's expansion into anxiety-related products?

A: Fleet launched constipation-related products not fiber, positioned in line with its heritage. Dramamine launched a product for nausea and stress, done well at retail.

Q: Comment on POS growth comparisons and comping up against prior year?

A: Saw broad-based strong performance in North America in Q3, feel good about trends heading into Q4.

Q: Why wasn't there a bump-up in free cash flow guidance with increased earnings guidance?

A: Original guide was $240 million or more, and we're holding to that, feeling good about cash flow at this point.

Q: Opportunity to get back to historical gross margins and appetite for acquisitions?

A: Longer-term, will continue cost-saving measures and launch margin-accretive products, anticipate creeping margin up over time. Appetite for M&A is healthy, looking at opportunities, remaining disciplined.