Jon Anderson

Jon Anderson sought clarification on Prestige Consumer Healthcare's sales outlook, noting Q3 performance exceeded expectations while Q4 guidance implied slower growth. He also asked about Q3 consumption trends across the portfolio (excluding Clear Eyes) and anticipated Q4 consumption growth, and whether fiscal 2027 could be an 'above-algorithm year' given improving Clear Eyes supply and base business performance.

Answer

Ron Lombardi, Chairman, President, and CEO, clarified that the Q4 outlook reflects retailer order patterns and volatility, not a consumption issue. He detailed Q3 consumption, highlighting strong GI and Skin categories, stable Cough & Cold (despite lower incidents), and impacts on Lice and Analgesics (due to acetaminophen announcements). Lombardi anticipates improved Analgesics in Q4, with overall consumption generally in line with expectations. For 2027, he expects a lift from Clear Eyes supply and good base business performance, with more details on retail order patterns to follow in May.

Jon Anderson questioned the sales outlook, noting that Q3 sales were slightly ahead of expectations, yet the Q4 guidance implies slower growth. He asked for clarification on what factors are affecting the Q4 outlook. He also sought details on Q3 consumption growth for the portfolio (excluding Clear Eyes) and anticipated Q4 consumption rates. Finally, he asked if fiscal year 2027 could be an 'above-algorithm' year given base business performance and improving Clear Eyes supply, or if consumer dynamics and retailer headwinds would offset this.

Answer

Ron Lombardi, Chairman, President, and CEO, clarified that the Q4 outlook reflects observed order patterns and volatility from Q3, where retailers with headwinds are adjusting their orders, rather than a consumption issue. He detailed Q3 consumption, highlighting strong momentum in GI (Fleet, Dramamine) and Skin, stable Cough & Cold (despite lower incident levels), and continued declines in Lice. He noted a surprising impact on the analgesics category due to acetaminophen announcements, though Prestige's brands were less affected than others. For Q4, he anticipates improvement in analgesics but continued softness in Lice and Cough & Cold, with the overall portfolio consumption generally in line with expectations. For FY2027, Lombardi expects a lift from the broad portfolio's consumption and increased Clear Eyes product availability, with more details on retail order patterns and the full outlook to be provided in May.

Jon Anderson questioned the impact of declining ocean freight rates, asking if the year-over-year reduction (estimated at 50%) would significantly offset tariffs and lead to a strong 2026 gross margin outlook, and sought clarification on the composition of COGS.

Answer

CEO Martin Roper clarified that tariffs apply to 60% of COGS, making their impact substantial, and noted current ocean freight rates are down about 33% year-over-year, not 50%. CFO Corey Baker explained that transportation, including warehousing, drayage, and ocean freight, constitutes about a third of COGS. Martin also addressed the implied Q4 sales decline, attributing Q3's strength to a major promotion and private label declines, advising a focus on two-year second-half trends for underlying business.

Jon Anderson asked about the impact of ocean freight rates, which have reportedly been cut in half year-over-year, on the 2026 gross margin outlook, suggesting it could be more impactful than tariffs. He also sought clarification on ocean freight as a component of COGS and questioned the implied Q4 sales guidance of around $105 million, representing an unusually large sequential decline from Q3's $182 million.

Answer

Martin Roper, Chief Executive Officer, clarified that while ocean freight is an important offset, the tariff impact (23% on 60% of COGS) is still significant. He noted that current ocean freight rates are down about 33% year-over-year, not 50%. Corey Baker, Chief Financial Officer, explained that the 30-35% figure previously mentioned refers to total transportation costs, which include warehousing, drayage, and internal distribution, with ocean freight being a subset. Regarding Q4 sales, Mr. Roper and Mr. Baker attributed the sequential decline to Q3 benefiting from a major promotion (skipped last year) and the ongoing private label decline, acknowledging the difficulty in modeling Q4 precisely.