Revlon, Inc. (REV)

Q3 2012 Earnings Conference Call

October 25, 2012 9:30 am ET

Executives

Elise A. Garofalo – Senior Vice President, Treasurer and Investor Relations

Alan T. Ennis – President and Chief Executive Officer

Chris Elshaw – Executive Vice President and Chief Operating Officer

Steven Berns – Executive Vice President and Chief Financial Officer

Analysts

Carla Casella – JPMorgan Chase & Co.

Patrick Trucchio – BMO Capital Markets

Jeffrey Kobylarz – Stone Harbor Investments

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Revlon’s Third Quarter 2012 Earnings Conference Call. At the request of Revlon, today’s conference call is being recorded, if you have any objections you may disconnect at this time. (Operator Instructions) I would now like to turn the call over to Ms. Elise Garofalo, Revlon’s Senior Vice President, Treasurer and Investor Relations. Ms. Garofalo, You may begin.

Elise A. Garofalo

Thank you, Irlanda. Good morning, everyone, and thanks for joining today’s call. Earlier today, we released our results for the third quarter ended September 30, 2012. If you’ve not already received the copy of the earnings release, you can obtain one on our website at revloninc.com.

On the call with me this morning are Alan Ennis, Revlon’s President and Chief Executive Officer; Chris Elshaw, Chief Operating Officer; and Steven Berns, Chief Financial Officer. Before I turn the call over to Alan, I’d like to remind everyone of a few things.

First, our discussion this morning might include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Information on factors that could affect the Company’s results from time-to-time and cause them to differ materially from such forward-looking statements, is set forth in the Company’s filings with the SEC, including our 2011 Form 10-K and our 2012 third quarter 10-Q, which we filed earlier this morning.

Next, our remarks today will include a discussion of adjusted EBITDA and free cash flow, both of which are non-GAAP measures. These non-GAAP measures are defined in the footnotes to our release and are also reconciled to the most directly comparable GAAP measures in the financial tables at the end of our release. And finally, as a reminder, our discussion this morning should not be copied or recorded. With that, I’ll turn the call over to Alan.

Alan T. Ennis

Thank you, Elise, and good morning everyone. As we’ve discussed for some time, our strategic goal is to profitably grow our business. Overall, we had another very positive quarter as we grew net sales by 4.8%, on a year-to-date basis our net sales were up 3.2%.

From a regional perspective we grew net sales in the U.S., Canada, Asia Pacific and Latin America. However we continue to experience softness in Continental Europe and consumer uncertainties persist in several other countries outside of Europe including China and Australia.

From a brand standpoint our Revlon brands continue to perform well in the marketplace. And we are pleased with the performance of SinfulColors and our recently acquired Pure Ice brands.

From a financial perspective we maintain highly competitive operating income margins and improved cash flow. During the quarter, we announced certain actions to drive operating efficiencies throughout our company including the exiting of certain manufacturing facilities and streamlining our organization in France, Italy, and Latin America. Once fully implemented these actions some of which are subject to consultation are expected to generate annualized cost reductions of approximately $10 million and will further enable us to invest in the execution of our strategy.

So taking a look at our performance so far this year, we've grown the top line, we have sustained highly competitive margins and we are generating positive cash flow, all of which reflect the effectiveness of our strategy. While we remained focused on delivering profitable growth, we are keenly aware of the challenging global economic environment until we continue to manage our resources carefully with a balanced perspective on our long-term growth and profitability.

As we marked our 80 anniversary I would like to comment on our recent public service campaign focusing on the message, Your Lips Can Save Lives. This campaign features Revlon’s global Brand Ambassadors Halle Berry and Emma Stone and encourages women to talk about cancer emphasizing the importance of early detection. Philanthropy is the cornerstone of our heritage and we are proud that this campaign celebrates beauty and depicts the power each individual has to positively impact the lives of others.

So with that I will hand it over to Chris, who will talk about our marketplace performance.

Chris Elshaw

Thank you, Alan and good morning everyone. Today I will review our net sales performance by region and by brands excluding the impact of changes in foreign currencies. Total net sales in the third quarter of 2012 were $347 million, an increase of 4.8% as compared to the third quarter of last year. This increase was primarily driven by high net sales of Revlon color cosmetics, as well as the inclusion of Pure Ice net sales since its accusation on July 2.

In the United States net sales increased $7.3 million or 4% primarily due to high net sales of Revlon color cosmetics and the inclusion of Pure Ice net sales, which will partially offset by lower net sales of Almay color cosmetics, Revlon ColorSilk induction. Net sales in the U.S. region grew in the quarter excluding the results of Pure Ice.

In Asia-Pacific net sales increased $3.2 million or 5.5% primarily driven by high net sales of Revlon color cosmetics in Japan and certain distributor territories partially offset by low net sales of Revlon color cosmetics in China. As you are aware the economy in China has been slowing down. We have also seen a slowdown in consumption. We continue to ensure that we have the appropriate product portfolio for the consumer in China while working closely with our retail partners and focusing on the execution of our marketing plans.

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