Edgewell Personal Care Co., the maker of Schick razors, is looking to reduce its debt as cost pressures weigh on the business.
(Bloomberg) — Edgewell Personal Care Co., the maker of Schick razors, is looking to reduce its debt as cost pressures weigh on the business.
Bringing down debt is taking priority over pursuing acquisitions, Chief Financial Officer Dan Sullivan said in an interview. The Banana Boat sunscreen owner plans to use a “meaningful” portion of the $150 million in cash it expects to generate during the remainder of its current fiscal year to whittle down debt.
“This is a pretty high cost environment right now,” Sullivan said. The company’s interest expense is expected to come in at $79 million this fiscal year, an increase from $71.4 million the prior year.
The ratio of Edgewell’s net debt to earnings before interest, tax, depreciation and amortization stood at 3.8 times as of March 31. The company expects that to decline to 3.5 times as of the end of September, the end of its fiscal year. Household-products companies such as Edgewell usually aim for a ratio of net debt to ebitda of around two times, according to Bloomberg Intelligence analyst Deborah Aitken.
Edgewell, which in November 2021 spent $310 million on razor brand Billie Inc., continues to scout for bolt-on acquisition targets, but deems the current environment not helpful for deal making. Valuations for potential add-ons remain elevated, despite the rising cost of capital, Sullivan said, noting that paying down debt and investing in internal growth will provide the company with better returns.
“The bar is really high, and likely will remain high for the next 10 to 12 months,” he said. “If we see something super interesting, obviously, we’ll engage, but right now I think the prioritization is elsewhere.”
Edgewell, which is taking steps to simplify its business and improve efficiency in its manufacturing and supply chain, last week reported quarterly results that surpassed analysts’ expectations. Net sales rose 9% in the period from a year earlier, helped by both higher prices and volumes sold. Net income was $19 million in the quarter, versus $23.2 million during the prior year, due in part to changes in foreign currencies.
The company reported net debt of $1.28 billion as of March 31, largely unchanged from $1.22 billion a year ago. Edgewell saw a jump in its debt following the purchase of Billie. It also bought men’s grooming products maker Cremo Co. in 2020 for $235 million. About 80% of the company’s debt is fixed rate, with a floating-rate revolver making up the remainder.
Like many of its peers, the maker of Playtex feminine-care products is still trying to get its margins back to pre-pandemic levels. The company’s gross margin as a percentage of net sales was 40.4% at the end of its most recent quarter, compared with 46.5% during the quarter ended March 31, 2020.
“We’re seeing turnover rates that are still elevated from pre-Covid. It’s getting healthier, but still I would say the overall labor remains tight,” Sullivan said. “There’s real wage pressure.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.