Investing.com -- Moody's Ratings has affirmed the Ba3 Corporate Family Rating (CFR) and Ba3-PD Probability of Default Rating (PDR) for Edgewell Personal Care (NYSE: EPC ) Company. The ratings of the company's senior unsecured notes due in 2028 and 2029 were also affirmed at Ba3. Edgewell's speculative grade liquidity rating remained unchanged. Moody's has altered the outlook for the company from negative to stable.

The affirmation of the rating is indicative of Edgewell's improved operating performance, strong free cash flow, and good liquidity. The company's Sun Care, Grooming, and international businesses are experiencing organic growth, helping to offset volume pressure in the US shave and feminine care sectors. Cost savings from productivity initiatives and restructuring, along with moderating input costs, are driving an improvement in EBITDA margin.

Moody's anticipates that Edgewell's leverage will decrease to around 4.5x by the end of the fiscal year in September 2026, down from 4.9x at the end of the fiscal year in September 2024. This forecast assumes that the company will fully repay all outstanding debt on the revolver by the end of this fiscal year. Edgewell aims to reach the upper range of its publicly stated 2.0-3.0x net debt-EBITDA leverage target by the end of the fiscal year in September 2025.

The change in outlook to stable is based on the expectation that Edgewell will reduce its leverage to acceptable levels for a Ba3 rating category over the next 12-18 months. Moody's expects steady organic revenue growth and cost savings to deliver an anticipated improvement in the EBITDA margin and sustained, repeatable free cash flow of approximately $100 million after dividends.

Despite the positive outlook, Edgewell is currently weakly positioned within the Ba3 category. This is due to the high leverage that is declining at a slower pace than previously anticipated. Economic challenges, including high interest rates, are leading consumers to prioritize spending, which is putting pressure on volumes. Lower pricing, higher promotional activity, and the adverse impact from foreign exchange rates are also pressuring earnings.

The Ba3 CFR for Edgewell Personal Care reflects the company's modest scale amidst significant competitive pressure from larger, more diversified, and better capitalized competitors. The company's focus on mature and highly promotional product categories, such as wet shave and feminine care, creates challenging conditions for organic growth.

An upgrade of the ratings would require continued organic growth and improvement to the EBITDA margin, resulting in debt-to-EBITDA leverage sustained below 3.0x. Consistently stronger and stable free cash flow and good liquidity would also be necessary for an upgrade. Conversely, the ratings could be downgraded if EBITDA margins do not improve over the next 12-18 months, resulting in debt-to-EBITDA leverage remaining above 4.5x. Other factors that could lead to a downgrade include continued share repurchase in lieu of reducing revolver borrowings, a deterioration of liquidity, or if the company engages in acquisitions prior to reducing leverage.

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