Edgewell Personal Care (EPC)

Personal care company Edgewell Personal Care (NYSE:EPC) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 3.1% year on year to $580.7 million. Its non-GAAP profit of $0.87 per share was 3.1% below analysts’ consensus estimates.

Company Overview

Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE:EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.

While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.

Competitors in the personal care market include Proctor & Gamble (NYSE:PG), Unilever (LSE:ULVR), and Kimberly-Clark (NYSE:KMB).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $2.22 billion in revenue over the past 12 months, Edgewell Personal Care is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

As you can see below, Edgewell Personal Care grew its sales at a sluggish 1.5% compounded annual growth rate over the last three years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

This quarter, Edgewell Personal Care missed Wall Street’s estimates and reported a rather uninspiring 3.1% year-on-year revenue decline, generating $580.7 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months, similar to its three-year rate. This projection doesn't excite us and suggests its newer products will not accelerate its top-line performance yet.

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

The demand for Edgewell Personal Care’s products has barely risen over the last eight quarters. On average, the company’s organic sales have been flat.

In the latest quarter, Edgewell Personal Care’s organic sales fell by 1.5% year on year. This decline was a reversal from its historical levels. We’ll keep a close eye on the company to see if this turns into a longer-term trend.

Edgewell Personal Care has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 42.8% gross margin over the last two years. That means for every $100 in revenue, only $57.23 went towards paying for raw materials, production of goods, transportation, and distribution.

In Q1, Edgewell Personal Care produced a 44.1% gross profit margin, in line with the same quarter last year and exceeding analysts’ estimates by 0.7%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Edgewell Personal Care has done a decent job managing its cost base over the last two years. The company has produced an average operating margin of 9.3%, higher than the broader consumer staples sector.

Analyzing the trend in its profitability, Edgewell Personal Care’s operating margin decreased by 2.1 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Edgewell Personal Care generated an operating profit margin of 10.1%, down 1.6 percentage points year on year. Since Edgewell Personal Care’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Edgewell Personal Care’s flat EPS over the last three years was below its 1.5% annualized revenue growth. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its operating margin and repurchased its shares during this time.

In Q1, Edgewell Personal Care reported EPS at $0.87, in line with the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Edgewell Personal Care’s full-year EPS of $2.88 to grow 15.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Edgewell Personal Care has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.7%, subpar for a consumer staples business.

Taking a step back, we can see that Edgewell Personal Care’s margin dropped by 14.3 percentage points over the last year. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Edgewell Personal Care burned through $104.4 million of cash in Q1, equivalent to a negative 18% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Edgewell Personal Care historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.2%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Edgewell Personal Care reported $170.1 million of cash and $1.46 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $341.9 million of EBITDA over the last 12 months, we view Edgewell Personal Care’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $55.08 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Edgewell Personal Care beat analysts’ EBITDA expectations this quarter. On the other hand, its organic revenue missed and its full-year EBITDA guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 5% to $28.53 immediately following the results.

Updated: May 22, 2025 at 10:47 PM EDT

Before making an investment decision, investors should account for Edgewell Personal Care’s business fundamentals and valuation in addition to what happened in the latest quarter.

Edgewell Personal Care falls short of our quality standards. For starters, its revenue growth was weak over the last three years. And while its gross margins indicate a healthy starting point for the overall profitability of the business, the downside is its cash profitability fell over the last year. On top of that, its mediocre ROIC lags the market and is a headwind for its stock price.

Edgewell Personal Care’s P/E ratio based on the next 12 months is 8.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $32.38 on the company (compared to the current share price of $27.11).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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