Edgewell Personal Care (NYSE:EPC) Q2 2016 Earnings Conference Call April 29, 2016 10:00 AM ET
Chris Gough - Vice President, Investor Relations
David Hatfield - President, Chief Executive Officer and Director
Sandra Sheldon - Chief Financial Officer
Steve Powers - UBS
Kevin Grundy - Jefferies
Ali Dibadj - Bernstein
Bill Schmitz - Deutsche Bank
Olivia Tong - Bank of America
Bill Chappell - SunTrust
Jason English - Goldman Sachs
Javier Escalante - Consumer Edge Research
Good morning, and welcome to the Edgewell Personal Care second quarter fiscal 2016 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead.
Thank you, and good morning, everyone. And thank you for joining us for Edgewell's second quarter fiscal 2016 earnings conference call. As a reminder, for comparative purposes, fiscal 2015 second quarter results include both personal care and household products businesses with the results of the household products business presented as discontinued operations.
Historical results on a continuing operations basis include certain costs associated with supporting the operations of the household business, as these costs were not eligible to be reported in discontinued operations. As a result, EPS this quarter is not comparable to the prior year, as the prior year's results include SG&A expense, interest expense, spin costs, restructuring costs and tax associated with supporting the household business.
Additionally, EPS was not comparable in the first quarter of fiscal 2016 and will not be comparable in the third quarter of fiscal 2016. To partially address this, we have provided normalized second quarter fiscal 2015 EBITDA, reflecting pro forma adjustments to SG&A. You will find these normalizations in the non-GAAP reconciliations at the back of the press release and on our website.
With me this morning are David Hatfield, our President and Chief Executive Officer; and Sandy Sheldon, our Chief Financial Officer. David will kick-off the call, then hand the call over to Sandy for the earnings and outlook discussion, followed by Q&A. This call is being recorded and will be available for replay via our website.
During the 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, the impact of go-to-market changes on sales, savings and cost related to restructurings, changes to our working capital metrics, currency fluctuations, commodity costs, category value, future plans for the return of capital to shareholders, and more.
Any such statements are forward-looking statements, which reflect our current views with respect to future events. 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, 2015, as amended and supplemented in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2015.
These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do no assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances.
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 are shown in our press release issued earlier today, which is available in the Investor Relations section of our website. Management believes these non-GAAP measures provide investors valuable information on the underlying trends of our business.
With that, I would like to turn the call over to David.
Thanks, and good morning, everyone. Before Sandy takes you through the results, I'll briefly comment on a few highlights of Edgewell's performance in the quarter, and then I'll give a quick status update on the actions we're taking to best position the business going forward.
For the quarter, our topline performance was in line with our expectations. Organic net sales were down 70 basis points in the quarter, but were essentially flat through the first half. Importantly, we grew in the quarter and year-to-date in our two largest segments, wet shave and sun.
Excluding the impact from international go-to-market changes, our underlying growth was up 1 point in the quarter and up 2 points through the first half. In North America, we had good performance in the wet shave and sun. However, that was offset by declines in fem care.
And our international business continued its positive momentum this quarter, growing underlying sales by 4.5%. And while we've delivered improved topline results through the first half of the year, we also continue to execute well on the key initiatives that we targeted to lead us through the transition to a standalone company.
Now, let me give you a quick overview on the status of those key initiatives. First, our teams continue to effectively manage go-to-market and functional realignment initiatives around the world, and we're tracking to our milestones. We continue to expect these go-to-market changes to be mostly completed by the end of the third fiscal quarter. And to date, actual impacts have been in line with our forecast.
Second, the investment in our brand accelerated this quarter, driven by wet shave, including a very successful Super Bowl add in the support of our next-generation Hydro line.
Next, from a geographic perspective, the focus we've put on solidifying our U.S. business continues with growth in the quarter and in the first half in both the wet shave and sun segments. And outside of the U.S., we continue to see solid underlying growth in most of our top markets, driven wet shave and sun.
And finally, we continue to see the benefits from important innovation and the marketing successes in the wet shave, both in measured and unmeasured channels.
As you know, in January we began shipping our next generation Hydro line. We've improved almost all aspects of its mechanical cartridge from a redesign guard bar and reduced blade spans to a dramatically upgraded Hydrating Gel Reservoir that is not even comparable to competing lubrications strips.
The sum of all these improvements is a shave that is significantly superior to a previous Hydro's already excellent shave on all measures of the comfort and advanced skincare. We're seeing that innovation payoff as men's Hydro was the key driver of growth in the quarter, both in North America and international.
The new Hydro is off to a great start and in fact global sales were an all-time record for men's Hydro in the quarter. Our global and U.S. share in March were also at an all-time high. In fact, in the U.S. our wet shave business has now grown share for four consecutive quarters. We're also growing in non-measured channels including online sales, club stores and Dollar stores, reflecting the benefits of our full portfolio approach to wet shave.
So we've had a good start to the year with respect to innovation in wet shave, and you'll see more of that throughout the year, as we address the needs of the shave consumers across the full category.
Overall, we're encouraged by our performance in the first half of the fiscal year, and we are particularly pleased with the performance of our international teams who continue to drive solid underlying growth in the midst of a very complex transition to our new go-to-market model, so my hats off to our team. This all gives us continued confidence in our outlook for the year, and then reinforces our view that we're taking the right steps to position Edgewell for future growth in sales and value.
Thanks. And with that, I'll hand it over to Sandy.
Thank you, David, and good morning, everyone. I would like to turn to our performance in the quarter, beginning with a few headlines.
Organic sales were down 70 basis points with underlying growth of 1%. Solid gains in wet shave and sun care more than offset declines in sun care. On an organic basis, volumes improved, but were more than offset by unfavorable price mix. We delivered $138 million of adjusted EBITDA and $1.17 of adjusted EPS in the quarter.
Overall, these results are in line with our expectations coming into the year and we're pleased with this progress particularly in line of the volatile currency and macroeconomic environment, as well as the internal organizational and go-to-market changes we've made to create a new standalone company.
Moving into details on net sales. Our net sales were $611 million in the second quarter, which is a decrease of 6% with impacts of 1.5 points from currency and 3.9 points from Venezuela and industrial, which were included in prior-year comparatives. In addition, we estimate that about $11 million of the net sales decline was due to the international go-to-market changes, including excess and transitions to distributors.
Underlying sales, excluding those go-to-market impacts, were up about 1 point with international sales up 4.5%, primarily in Asia and Latin America with North America sales down just under 1 point. On a global basis, organic net sales grew in our two largest segments, wet shave and sun and skin care with declines in both feminine care and skin care. I'll come back to drivers at the segment level in a few minutes.
Gross margin was 50.9%, a decrease of 40 basis points, which was primarily due to unfavorable currency translation in the quarter. Costs mix was favorable, driven by improved commodity and material costs and restructuring savings, which more than offset continued unfavorable transactional currency impacts. Roughly offsetting the favorable costs mix was unfavorable price mix, driven by higher commercial spending.
A&P expense was $85 million in the quarter or about 14% of net sales, up from the previous year, which was 12% of net sales. Much of the increase this quarter was related to the rollout of our new Hydro 5 razors, as we continued to support innovation in our brand.
SG&A, including amortization of intangibles, was 16% of sales. When we adjust last year's SG&A for the costs associated with supporting the household products business that were not eligible to be reported in discontinued operations, SG&A as a percent of sales was up about 40 basis points due in part to expected synergies. We continue to work on focused areas of cost reduction to overcome these impacts as the year progresses.
Second quarter adjusted EBITDA was $138 million versus the second quarter 2015 normalized EBITDA of $162 million. The primary drivers of the decrease were $14 million of lower operating profit, due to higher A&P spends and lower gross margins, as well as $5 million unfavorable impact from currency and $6 million to the inclusion of Venezuela operations and the industrial blade business in the prior year.
The year-to-date effective tax rate was 26.4%, as compared to a negative rate of 35% in the prior year. The negative tax rate in the prior year was a result of incurring tax expense on a net loss, driven by the $79 million Venezuela deconsolidation charge that had no accompanying tax benefit. Excluding the impact of the separation, restructuring and Venezuela deconsolidation charge, the adjusted 2016 year-to-date effective tax rate was 28.1%, 40 basis points higher than the prior-year rate of 27.7%.
Now, turning to a few other items. Average working capital as a percent of sales was 15.5% in the second quarter versus 17.5% at the end of fiscal 2015. The 100 basis point improvement through the first half was primarily driven by days payable outstanding. Working capital continues to reflect a higher level of inventory in feminine care. So they should return to normal level, as we complete the transition out of our Montreal plant.
Net cash used by operating activities were $72.6 million for the first half of fiscal 2016. During the second quarter, we made a discretionary contribution of $100 million to one of our international pension plans, which negatively impacted operating cash flow for the current period. We don't plan to make additional discretionary contribution to our pension plans for the remainder of fiscal '16.
As I mentioned last quarter, due to the seasonality of our business and the timing of our fiscal yearend, operating cash is expected to be primarily generated in the last half of the fiscal year. For the full year, we expect to generate positive operating cash flow and made our full year objective of approximately 100% free cash flow conversion.
As you saw in our 8-K filed earlier today, we announced an expansion of our available debt capacity by $235 million. This increase helps provide additional liquidity to allow us further flexibility to make optimal capital allocation decision. This increase also helped improve our credit quality from a rating agency perspective to improve liquidity metrics. We believe our leverage levels are manageable due to our margin structure and ability to generate free cash flow, which will accelerate over the next two quarters.
Now, let's move on to segment results. Wet shave organic net sales increased 40 basis point in the second quarter with underlying growth of 2.7%, excluding an estimated $9 million of international go-to-market changes. Our market share was up globally as well as in the U.S., where we have grown share for four consecutive quarters. These positive results reflect the benefits of taking a full portfolio of product to the wet shave category.
Key drivers of underlying net sales growth in the quarter were men's systems, which were driven by the global next generation Hydro launch and distribution gains in North America, with much of the North America growth being reflected in non-measured channels.
Net sales growth also came from international wet shave, where in addition to growth in men's with our underlying growth in women systems, disposables and shave preps, really strong performance international, which now represents about half of total global wet shave net sales. We had good growth in our non-measured channels, including ecommerce, club stores and private label. None of these important channels are reflected in measured category metrics.
Partially offsetting that growth were declines in North American women's system as we lapped distribution gains and product launches from a year-ago, as well as lower sales in disposables due to increased promotional spend. Shave prep organic net sales declined in the quarter, but on a year-to-date basis are up nearly 6%. Organic segment profit declined $13.2 million, as volume growth and favorable cost mix were more than offset by increased investments in A&P, promotional spend and R&D.
Turning to the category. As measured by syndicated services we employ, the global manual shave category was down nearly 2% in the latest 12-week data, and we delivered modest share gains of 60 basis points. As measured by Neilson, the U.S. manual shave category was down 5% in the latest 12-week data, with declines in men's and women's systems and disposables.
Men's manual shave was down nearly 6%. However, when factoring in non-measured channels, we believe the U.S. men's category was flat-to-up about 1%. Versus a year ago, our U.S. market share was up 130 basis points in manual share with gains in men's and women's system and disposables.
We also helped sharing the shave prep category, where the overall category was down about 3%. Note that our U.S. corporate brand share results continue to be impacted by a transition of our opening price point value branded product offering in a major retailer to a private label product line.
Sun and skin care organic net sales increased $4.9 million or 3.8%. Growth was largely driven by sun care in North America, where we had distribution gains and some pull-forward volume into the second quarter from the third quarter versus the prior year. Skin care sales declined in the quarter, but at a much lower rate than the previous quarter.
Organic segment profit improved $2.8 million or 7.5%, driven by higher sales volumes and modestly better cost mix. Within the U.S. category, consumption was down 9% in the latest 12-week data to the cooler and wetter weather in key early season regions. These amount to Q2 accounts for only 12% of category consumption.
Feminine care organic net sales decreased $9.3 million or 9.2%. Decline was driven by the following. Sport Pads and Liners volume was down as we anniversaried the prior year Q2 launch and invested in promotional support this year, as our promotional support behind the new product didn't start until Q3 last year.
Stayfree volume was down, partially offset by favorable price mix, driven by continued base line decline distribution losses and lower promotional activity. The feminine care category grew approximately 1% versus a year ago with our share down slightly.
Now, I'd like to turn to our outlook for the full fiscal year. As David mentioned upfront, operationally, we are in track with our key initiatives. And our financial outlook remains in line with our previous outlook with the exception of currency and tax rate assumptions. We continue to closely monitor macroeconomic challenges in currency, as we have seen quite a bit of movement in currency already in the first half of the year.
For the full fiscal year 2016, organic net sales are expected to be flat, and will be negatively impacted by go-to-market changes through the end of the third quarter. For the full year, the go-to-market changes are estimated to impact topline by approximately 1.5%. Therefore, underlying sales growth, excluding these go-to-market changes is expected to increase by low single-digits.
Unfavorable foreign currency impact on net sales is now expected to be in the range of $25 million to $35 million for the full fiscal year versus the prior outlook of $50 million to $60 million. Reported net sales are now expected to decrease by 2% to 4%. Our adjusted EBITDA outlook is still projected to be in the range of $440 million to $460 million for fiscal 2016, including $10 to $15 million of negative currency impact for the full fiscal year versus the prior outlook of $20 million to $25 million.
Adjusted EPS is now projected to be in the range of $3.30 to $3.50 including $10 million to $15 million of negative currency impact, and reflects updated tax rate assumptions versus the prior outlook. Our adjusted tax rate is now expected to be in the range of 29% to 31%. This reflects the change in our previous outlook based on the lower rate year-to-date, which is due to the favorable mix of foreign versus U.S. earnings.
Finally, restructuring related costs are expected to be $40 million to $45 million for fiscal 2016. We expect incremental savings of approximately $15 million in fiscal '16 and an additional $40 million to $50 million in fiscal '17 and '18 combined. Let me spend a few minutes discussing this initiative in the larger context of our business model.
This restructuring project is just one element of the long-term strategy to continually drive efficiency and productivity in our business. That strategy began prior to the spin continues now and is an integral part of our business model and financial algorithm going forward.
For a little bit of history, the first significant cost savings project began in fiscal 2013, and while much of the scope for that first challenging activity is related to the Household Products divisions, there were also initiates dedicated to personal care and general corporate savings. Those actions included: consolidation of general and administrative functional support across the organization, reduced our head spending; and a creation of a similar procurement function that resulted in significant materials cost savings.
The first regular project delivered savings of approximately $85 million and a project cost of $40 million. The next round of initiatives announced in January 2014 and continuing today is focused primarily on our manufacturing footprint including the move fem care operations from Montreal to Dover. Similar footprint changes are happening within razors and blades in North America and Europe, as well as incremental operations improvement projects in commercial saving.
Project costs to date from these activities are roughly $85 million with project to date savings of $35 million. The savings from these larger initiatives will add cost and will be achieved largely in 2017 and 2018. In total, for these combined restructuring initiatives, we expect total cost a $125 million to $155 million to generate a $170 million to $180 million of savings through project completion in 2018.
In addition to those larger restructuring projects over the past year, we have had a number of actions underway to help overcome the added expense from the spin-off. These are less visible as they're design to help offset incremental cost, but they are no less complex, and impactful.
Let me give you a flavor of some of those projects. We've outsourced non-core transactional activities, such as accounting, IT, payroll and some customer service. We have centralized back office functions, impacting accounting and customer service. And we completely revamped our go-to-market footprint impacting international area and market overheads across all functions.
These actions have helped offset incremental expenses from the spin-off about to $30 million on an annualized basis. There has been tremendous amount of work done over the past several years generating significant, sustainable savings for the organization. That skill and discipline is now part of our management system.
We have designed a disciplined approach to cost takeout primarily in COGS, in procurement, and we're in the final stages of implementing an approach to indirect procurement, marketing and overhead spend, ongoing productivity actions to help drive out the expense in a systematic way.
In addition, we are implementing new trade-spin optimization tools later this year to further drive efficiency in our trade investment. We are just starting our planning for 2017, but as we get closer to next year, we will layout the next sort of initiatives that will help drive the productivity and efficiency embedded in our business model.
I will now turn the call back over to David for a few additional comments.
Thanks, Sandy. Before we open it up for a Q&A, I wanted to reflect for a minute on our announcement that Ward Klein has decided to retire from Edgewell, effective July 6. As know, Ward has served Edgewell, Energizer and Ralston for 37 years.
And in his tenure as a CEO of Energizer from 2005 to 2015, he was marked by a dramatic growth and a superior value creation for shareholders. During that tenure, Ward was also a driving force behind the growth of the personal care business and he has been instrumental over the past year in the successful creation of Edgewell as a standalone public company.
On behalf of all the colleagues at Edgewell, I thank Ward for all that he has done for the business, the company and our culture. We're grateful for his leadership and council, his tireless efforts to grow Edgewell and Energizer, and his countless contributions to both companies. We look forward to continuing to work with him through the transition into July.
Following Ward's retirement, I've been appointed by the Board to succeed Board as a Chairman. And Dave Hoover will continue to serve as Lead Independent Director. I'll continue to work closely with my fellow Directors and all the colleagues of Edgewell to execute our strategies for future growth and the value creation.
With that, we'll open it up for Q&A. Operator?
[Operator Instructions] The first question comes from Steve Powers with UBS.
David, just maybe picking up where you left off on Ward's departure, could you just give us a little bit of perspective as to was this a new decision on Ward's part or was this planned going back to the separation from legacy Energizer?
Well, I think as Ward said from a personal point of view now is the right for him to retire. And yes, from a business point of view, the year anniversary of the creation of Edgewell seemed like a natural transition point.
And then, either, David or Sandy, I realize there's only a $10 million change, but what's preventing you from flowing through the better FX in your updated EBITDA guidance?
Steve, good question. As you know, we were impacted last quarter by some fairly significant worsening currency and did not change our range for EBITDA that time. So although, it has improved, it really is just sort of solidified and given us confidence in the EBITDA range we have. And I would say that we move sort of towards the bottom end of where we were last quarter to more of the solid midpoint this quarter. So we feel pretty confident with that range.
And then just one last one if I could, which is on the disposables, and I know we've talked a lot about this. But I think, as you've said, the private label additions that you made carry more or less similar margins to the Wilkinson branded SKUs that they replace. I'm curious, two kind of derivative questions on that. Can you just comment a little bit on the $0.01 profit per unit, and if that too is similar, if it's somehow dilutive per unit?
And then can you just confirm; it looks to us at least in the track channel data that though your branded disposables are down given the Wilkinson transition, the actual Schick branded disposable business is up year-over-year. And I just wonder if you could just confirm that or add some color?
On the $0.01 profit, I don't have that handy. And I'll just go back to, I think, the way that we talked about it, being the net-net margins are similar to our overall average. I think that's a good way to think about it.
On your question about what's going on within dispo, certainly, I think, if you look at it over the 12-week period, EPC branded disposable shares were down 3.7 points. But as you know, that actually reflects the transition out of the opening price point of Wilkinson Sword brand.
And if you back that out, Schick shares are flat for the 12-week period. And if you back way from that and you look at the 52-week share, we're up 1.3 points. And if you telescope into the four-week period, we're up also. So we're pretty happy with our branded Schick dispo performance.
Going forward, I think we could see a little bit of softness there as we have a couple of customer share of shelf issues that we may have to tackle. But we're confident over the medium-term that we can grow the branded Schick dispo business through equity building, innovation, and an improved merchandising and fundamentals.
One more point, while I said they were flat from a branded Schick point of view, when you add back the share that we gain with private label and you net out the loss of Wilkinson Sword, our overall EPC value share within disposables is up. And I think this is an example of how we plan to compete going forward with a balanced view of competing on the premium and with Hydro against the big middle with our Schick brands, but in a balance way growing private label.
Thank you, Steve. Operator, next question please.
The next question comes from Kevin Grundy with Jefferies.
Just on the guidance, briefly just to build upon Steve's question there. It seems like organically or fundamentally in the business very little has changed. The move is strictly related to FX. Can you maybe talk about the puts and takes a little bit across the portfolio? And is that a correct comment that the business is indeed trending in line with your expectations?
Yes, Kevin, we're definitely tracking in line with expectations. And again, we feel pretty confident with our outlook in the $440 million to $460 million range for EBITDA. And I'm sorry, I might have miss part of your question, were you wanting --
Yes. It seems like the only real change is FX. You talked about, Sandy, moving to the midpoint of the guide now, which would be all FX-driven. So I just wanted to get a little bit further commentary. As you look at wet shave and skin care, et cetera, if every thing is basically trending in line with when we spoke with you guys a few months ago, is that fair?
Yes, that's absolutely fair.
And then one for me if I may. Sandy, you alluded to the difference in growth and performance in the Nielsen scan channels versus non-track. Can you talk a little bit about that? Some of that is perhaps online, but maybe talk a little bit about the difference in growth rates by channel, what's you're seeing and why you think that's the case?
If I could jump into that. If you look at the measured universe within the U.S., Nielsen's down within shave. Nielsen is down about 5%. We actually estimate that the overall categories flat-to-up 1%. There's a pretty big gap there. And what we're seeing is non-measured is now 25% to 30% of the overall business. And it's driving all of the growth. So we are also growing rapidly within the non-measured channels. We don't really want to break that out, but certainly shaving in the club store channel was a big help for the quarter.
Thank you, Kevin. Operator, the next question please.
The next question comes from Ali Dibadj with Bernstein.
So I have maybe three actually very quick questions. One is, David -- they can be answered by yes or no frankly. One is, David, you mentioned customer shelf issues in the transition. Just want to, in wet shave just a second ago, want to understand what do you mean by that. Does that mean that you're going to be losing some shelf space going forward in wet shave, that's beyond the private label ship? That's question one. Well, go ahead if you want with that.
Sure. The answer is yes. Yes, modestly, they are not a huge amount of the business, but it's -- so I don't want to overplay that, Ali. But there is some SKUs within dispo that we lost and we'll need to get [multiple speakers].
Two is, just back to Ward. Does the departure of Ward from the Board suggest that Edgewell selling itself is more or less likely? I guess, what was his view on Edgewell being sold? So does it make it more or less likely that he has left that you guys would be acquired?
There is no change in that regard, like I do today as a CEO, as a Chairman, I'm committed to delivering value to shareholders, and beyond that we have a strong independent Board and including Lead Independent Director, Dave Hoover, who has a legacy going back to the Energizer days to really creating value for shareholders. So this change doesn't change our corporate direction on that front.
And then last one. No shares were repurchased this quarter, it sounds like that's because of the, at least what we thought discretionary pension contribution. Should we expect a ramp up in share repurchases going forward and how should we think about that in terms of share repurchase from here on out?
We won't really speculate or forecast that, but it's certainly one of the arrows in our quiver and it's one of our key value drivers and that we will look at this quarter-by-quarter on that front.
Operator, next question please.
The next question comes from Bill Schmitz with Deutsche Bank.
Can we just start with the fem care strategy broadly, so what you want this business to become, and including maybe calling some of the mid-tier brands, because it seems like some of those brands you bought, which were great from sort of financial accretion perspective don't really have like a natural fit within the category. So can you just share some thoughts on that? And then I have a follow-up.
Certainly, right now we're actually going through some volatile times, as the brands that we bought were being kind severally harvested and I think we're nurturing, get them back to health. And I think that we're making progress on that front. But the progress is a little bumpy and combined with our work we got to move the production footprint from Montreal to our Dover plant. The ramp up of our production, so we can take out lines and then ramping down that, that's moving cost around for us, plus on currency, so we're actually going through somewhat of a volatile time at the moment.
Over the medium-term, we actually really think that we can hold share in this business. I think that we will need to manage the portfolio, but we think through equity building, innovation, and category management, we can compete well and hold those share. But the real goal is over the medium-term is to grow profitability through this footprint change that I mentioned, continuous improvement projects and then trade up.
And then can you just talk about the strategy in the private brands group within shaving. What percentage of sales it is now and kind of what your strategy is going forward in terms of lifting that?
And then, maybe, I don't know if it's an easy question to answer, but does that business have a competitive margin structure with BIC, because if you look the disposable category, clearly most of the growth is happening at that low end and I'm just wondering if your legacy Wilkinson business and the private label business can kind of compete at those levels with the same cost structure or a better cost structure?
And there has been several questions about the private label, so let me maybe paint this. First of all, there is a real role for private label. First, from a consumer point of view, well, around the world, while there's segment -- the consumers that are doing well, there're segments that are not in a living paycheck to paycheck. There's trade channels catering to the wealthy, but we also see dollar stores, hard discount customers in the Europe. And there's a real role for a private label and we see it as a good fit with our overall portfolio.
The notion that we have though is we want to balance. We're going to certainly try to punch above our weight in the premium segment. We want to build brands at the middle end. And in a balanced way, we actually want to grow opening price point and/or private label.
Its size right now is about a $0.25 billion. That's about what it was when we bought the business back in 2011. Now, we've actually grown it organically, pretty well in the last three or four years. But FX has kept the dollar amount about $0.25 billion. So it's not dramatically bigger than it ever has been.
In the U.S., this is kind of a one-time, one-off situation where we traded off with the customer, opening price point to a private label. It made sense for the customer category and it made sense for us, and as I've said from a margin point of view, we didn't mind it at all.
I won't get into comparable margins with competition, but I will make a point, like I've said several times that a private label margins are, after you net out A&P the net profit contribution is pretty comparable to our overall average. And I know people kind of question that.
But as you might know, shaving is a pretty different business, one that's advantaged versus other CPG categories. And if you analyze it many of the factors that make it so also apply to private label in wet shave. So it's a pretty different category for a private label than you're normally be used to maybe.
Your next question comes from Olivia Tong with Bank of America.
Can you talk about volume versus price mix, if you could break that out for the total company, and then particularly also in shaving and sun? And then what your expectations are for the rest of the year?
Yes, Olivia. So as I mentioned, we did have some pretty strong volumes this quarter, which were generally offset by a favorable price mix. So we ramped up on promotions both in fem care and in wet shave, partially behind the new product launch. So I guess that's really all I can say about it.
We certainly continue to see some strong volumes coming through with wet shave over the remainder of the year and anticipate some good volumes across fem care as well. I'll say our comps in the Q3 differ a little bit, so it's really kind of looking at rest of the year, we feel pretty good about where we're headed with volumes, but we will continue to promote new products and support new launches.
And then just then two categories, shaving obviously pretty difficult to assess the track channels given the data, and you talked about the delta in growth between measured versus non-measured channels being about a 5 point delta. Is your growth differential about the same and if not what factors impact that?
And then on feminine care, what are your plans to fix that business? Because I get that, there is a couple of factors going on, but how does the innovation pipeline look and if profitability is the focus right now as opposed to perhaps the topline or a bigger focus right now, what does that mean for the sales prospects going forward?
Maybe taking fem care first, we were satisfied that we have kind of an appropriate rate of innovation for the category going forward. I think we're going to emphasize on sharper category management in managing our portfolio differently. But we see a line sight to a pretty flat topline, maybe up a little bit with trade up, but much greater profitability growth over the medium term.
From a shaving point of view, I don't know the exact answer to your question, but I'd say that our share in non-measured channels, I think we're under indexed. And therefore, I think we're actually growing faster than the market off of a low base. And that's the way that I think of that.
Thank you, Olivia. Operator, next question please.
The next question comes from Bill Chappell with SunTrust.
My two questions are the same. Sandy, on the FX impact, can you maybe break a little bit more on what you're seeing that's driving that's kind of, which regions, because it's obviously tougher for us to figure out translation versus transaction. And what big moves have happened that kind of give you the confidence on the transaction side going forward for FX?
And then second one, David, maybe, a little on infant care. I mean, I think the talk of that turning around has been going on for about three, four years now. Any signs of hope as we look in to the next three to four quarters?
Why don't I actually take infant, first. I know that we've been talking a lot about it. I actually think the new team in the more formal business unit within a business, that organizational model is working pretty well. And I'm pleased with where the business is trending. Diaper Genie was up high single-digits this quarter. So I think that it's stabilized and we have new products coming on the cups and the bottle line. So there is a lot of work yet to do. And I think we have to prepare some of our share of shelf losses, but I see solid fundamental progress happening within infant. Sandy?
So on the currency impact, so we've seen favorability in Canada, the yen and the euro. I would say those are the three main drivers of the improved currency rates. Latin America rates have been generally the same for us. So those are the main three.
And that's largely transaction too?
Transactional, it would be predominantly euro and then the U.K. So we have some cost rate issues there between euro and the pound.
Operator, next question please?
The next question comes from the Jason English with Goldman Sachs.
I want to come back to wet shave category growth, but not so much in the U.S., on the global figure. I recall back your Analyst Day, you guys had a chart up there, projecting global category growth around 2%. But I believe I heard you say it's actually contracting at about a 2% rate right now. So can you delve into a little bit more, maybe walk us around the world of maybe where some of the weaknesses are, where some of the growth is?
Yes. It was a soft quarter. And I don't think we look at it too hard in our measured markets internationally, because it bounces around a little. But yes, the global is down too in measured. You add back non-measured, and I call it more or less flat.
What you see is it Western Europe has been soft. Actually Germany has been -- Europe has been pretty surprisingly strong. But France, the French markets been weak and kind of Southern Europe has been soft. Central Europe is actually growing fairly well. Asia, as a whole, has been pretty healthy. And then LatAm is actually growing pretty well.
So it was a soft quarter, but I don't take it as a real trend. And I think that we kind of stick with our overall algorithm that the U.S. is total market measured and non is flat-to-up 1. Europe is pretty flat, but when you add the rest of the world, measured plus non, the rest of the world is kind of up to 2 to 3.
And one more question, if I may. Sandy, you mentioned trade budget, I think you said trade spend optimization. I guess, we refer to as TBO, trade budget optimization. We did a lot of work on the topic and we've been surprised that your name has actually come up in a lot of the discussions with people in the industry, as somebody who's on maybe the front-edge of the change, that's a foot in the industry. Can you elaborate a little bit more? I know it's preliminary, but elaborate a little bit more on sort of what the initiatives are that you're looking to undertake? And then maybe what the P&L implications could be for us, as we contemplate our model?
Let me maybe jump into that a minute. We are right on the implementation of a new IT systems that is going to really help us integrate all the way from trade promotion pre-planning, to budgeting, to setting what the actions are, modeling what the category impact is, and our profitability executed and then do post-work on it. So that's actually going into place now.
We've also organized around it. So we've changed some of our commercial organization in our processes to really own that process and to really emphasize that change in how we do things. This will take a little while. So we're doing it right now, but we look forward to some really good productivity.
The way we think is we're going to tackle and try to get the low quadrant, where we waste the most money and/or don't get lift, we're going to take those dollars and then repurpose them to try to grow ROI. From your profit models, I wouldn't drop that to bottomline. I think we're going to first try to really help move those to better generating ROI promotions and/or actions to help benefit sales plus our customers' categories.
Thanks, Jason. Operator, next question please.
The next question comes from Javier Escalante with Consumer Edge Research.
I have a follow-up question actually and probably something that I approached in the last conference call. Do you mind kind of like breaking out the organic growth rate in wet shaving between private label and branded for this quarter?
Did you hear the question?
Hold on. I was just thinking of how do I characterize it? For us, I guess, one way to look at it is in the U.S. our branded consumption, it was down 12%. When you add back private label, we were flat. So I think for those facts, I go back to Nielsen and I think there you can calculate that.
And a question with regards to the pricing gap between private label and branded. I know that you mentioned earlier that you consider to be competing in the high-tier of that category, right? And I imagine that is what Hydro. But Hydro is priced at the mid-tier vis-à-vis Gillette. And from a consumer standpoint it's a mid-tier brand.
So the question is, when you have this very wide price gap between branded, say, Fusion that had been introduced 10 years ago, right, and private labeled which is almost 4x. So don't you worry about the sustainability of a mid-tier pricing strategy, when almost every other category sold for either value or premium?
Good question. I think I'd quibble a little bit and I give you maybe some other framework to think about this. I mean, Hydro is prided 25% below Gillette's top offering. But when you take Hydro pricing per cartridge, we're on par with overall fusion. So we view, I mean, Hydro as a premium product.
Certainly, we have a value proposition versus Gillette's highest product and we don't mind that, but it's a premium product. The big middle is all of the disposables in between Xtreme 3, Quattro and our offerings there. We have very solid mid-tier products that are price actually on Gillette offerings. And then we have private label down in the value segment. So that's how I think about it anyway.
Operator, the next question please.
This concludes our question-and-answer session. I would like to turn the conference back over to David Hatfield for any closing remarks.
End of Q&A
Thank you all for your time, and have a nice day.
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