Q3 2024 Prestige Consumer Healthcare Inc Earnings Call

Participants

Phil Terpolilli; Vice President, Investor Relations and Treasury.; Prestige Consumer Healthcare Inc Earnings Call

Ron Lombardi; President and CEO; Prestige Consumer Healthcare Inc Earnings Call

Christine Sacco; Chief Financial Officer; Prestige Consumer Healthcare Inc Earnings Call

Rupesh Parikh; Analyst; Oppenheimer & Co

Susan Anderson; Analyst; Canaccord Genuity

Jon Andersen; Analyst; William Blair

Linda Bolton Weiser; Analyst; D.A. Davidson

Mitchell Pinheiro; Analyst; Sturdivant & Co.

Anthony Lebiedzinski; Analyst; Sidoti

Presentation

Operator

Good day, and thank you for standing by, and welcome to the Prestige Consumer Healthcare's third quarter fiscal 2024 earnings call.
At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session to ask a question. During the session, you will need to press star one one on your telephone. You will then hear an automated message. Advising your hand is raised to withdraw your question. Please press star one. Once again, please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Phil Tripoli, Vice President, Investor Relations and Treasury.
Please go ahead, sir.

Phil Terpolilli

Thanks, operator, and thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President and CEO, and Christine Sacco, our CFO. On today's call, we'll review our third quarter fiscal 2024 results, discuss our full-year outlook and then take questions from analysts.
A slide presentation accompanies today's call can be accessed by visiting Prestige Consumer Healthcare.com, clicking on the Investors link. And then on today's webcast and presentation, remember some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measure are included in our earnings release and slide presentation.
On today's call, management will make forward-looking statements around risks and uncertainties, which are detailed in the complete Safe Harbor disclosure. On page 2 of the slide presentation accompanying the call. These are important to review and contemplate business environment. Uncertainty remains heightened due to a variety of factors, including high inflation, geopolitical events and supply chain constraints, which have numerous potential impacts. This means results could change at any time and the forecasted impact of risk considerations is a best estimate based on the information available as of today's date. Further information concerning risk factors and cautionary statements are available in our most recent SEC filings.
Most recent company 10-K yet. I'll now hand it over to our CEO, Ron Lombardi from.

Ron Lombardi

Thanks, Phil. Let's begin on Slide 5. We are very pleased with our Q3 performance that exceeded our sales and earnings expectations and added to our strong results earlier in the fiscal year. Net sales were $283 million in the third quarter up nearly 3% and ahead of our outlook. This performance was thanks to strengthen our ear and eye brands in the U.S. and continued strength in our international segment, which more than offset the impact from the strategic exit of the private label business we've previously discussed.
As expected, gross margin improved versus the prior year, enabling increased marketing reinvestments for EPS. We generated $1.06, up 2% versus the prior year. These results translated into robust free cash flow of approximately $70 million, enabling further debt reduction that had us finished the quarter at 2.9 times leverage. We are now within the long-term leverage target of operating with less than three times leverage that we outlined back in May. We will discuss the benefits and capital deployment optionality. This gives us later on in our remarks. So, in summary, our strong Q3 performance built on a solid first half, and these results continue to enable robust free cash flow that can drive incremental shareholder value from our proven business strategy.
Now let's turn to page 6 to discuss the strength in ear and eye care in more detail here in eye care is our third largest category on a percentage of revenue basis, representing over 15% of sales. As shown on the left side of the page this category contains a wide assortment of leading brands, each design to solve for a specific consumer need. Clear Eyes is a time-tested and proven leader in redness relief and has a long heritage with consumers.
Theratears is well established as a leader in dry eye solutions for a consumer. It stands for suiting eye relief, eyedrops, ointments and compresses define the category and help alleviate the discomfort associated with Stifel.
And lastly, shown here, Deborah, the leading solution for air care at home and without a doctor's visit by strategy, we've created a portfolio that gives us market-leading scale and eye care with the number one position in units across OTC eyedrops. We leverage our broad learnings to provide unique insights. These help establish category leadership with both retailers and consumers that enables brand building and long-term growth. There are two examples of this on the right side of the page for marketing. We continue to drive consumer awareness across TV and digital channels around the benefits of safe and effective eyedrops like Clear Eyes and TheraTears. We also continue to invest in digital content, which helps consumers find the eyedrop solutions access to them.
Innovation is also another element to long-term success and generally fits into categories. First, we established claims which help differentiate products for consumers. For example, our 12 hours of hydrating comfort claim delivers the All Day relief consumers desire.
Second, we established innovation across need states that offer specific solutions. Consumers seek Clear Eyes sensitive buys is an excellent example specifically formulated for sensor device. The result of our strategy is a winning franchise that continues to experience solid growth after certain supply disruptions. In fiscal 23, we've returned to growth of over 10% year to date and continue to grow in the mid-single digit range over time. Thanks to these characteristics. With that, I'll turn it over to Chris to discuss the financials.

Christine Sacco

Thanks, Ron. Good morning, everyone, and let's turn to Slide 8 and review our third quarter fiscal 24 financial results. As a reminder, the information in today's presentation includes certain non-GAAP information that is reconciled to the closest GAAP measure in our earnings release, Q3 revenue of $282.7 million exceeded our expectations, increasing 2.6% from the prior year on both the reported and organic basis.
North American OTC segment revenues were flat versus prior year, with strength in the eye and ear care category, offset by headwinds related to the strategic exit of the private label business and weakness in certain non-core brands. International OTC segment revenues increased approximately 20% versus the prior year with broad-based strength that included solid double-digit growth for the Hydralyte brand.
As expected, EBITDA was approximately flat to prior year attributable to higher A&M spend, while EBITDA margin was consistent with first half performance. EPS increased 2.2% in Q3 from the prior year, reflecting the benefit of our free cash flow and reducing debt and a more stable interest rate environment.
Let's turn to slide 9 for more detail and discuss the year-to-date consolidated results for the first 9months of fiscal 24, revenues were up 80 basis points to $848.4 million and grew 1.2% versus prior year when excluding FX by segment, excluding FX, North American segment revenues were approximately flat while the international segment increased approximately 12% versus the prior year.
In North America, the largest category growth drivers for the first 9 months were strong year in eyecare and dermatological category sales, which helped partially offset declines in women's health and the strategic exit of the private label business.
Year to date, we also experienced solid high single digit year-over-year growth in the e-commerce channel. The international segment performed above our long-term expectations, thanks to strong performance across numerous brands and geographies.
Total Company gross margin of 55.7% in the first 9 months was down slightly versus prior year, owing to challenging comparisons in Q1. Gross margin was as we expected and attributable to cost increases, partially offset by pricing actions and cost savings across our portfolio, which entirely offset the dollar amount of inflationary cost headwinds.
For the full fiscal year, we continue to anticipate gross margin flat to up slightly versus fiscal 23 with Q4 estimated to increase nearly 200 basis points versus prior year to 55.5%. Advertising and marketing for the first 9 months was up in dollars versus the prior year and flat on a percentage of sales basis at 13.6%. For Q4, we anticipate an A&M rate of approximately 12.5% attributable to the timing of marketing opportunities.
G&A expenses were 9.4% of sales in the first nine months. Consistent with prior year diluted EPS of $3.19 was up versus $3.14 in the prior year, despite a headwind related to the timing impact of marketing spend and higher interest rates. We anticipate interest expense in Q4 of just over $15 million, thanks to our debt reduction efforts. Finally, our Q3 tax rate was 23.8% and we anticipate a similar rate in Q4.
Now let's turn to Slide 10 and discuss cash flow. For the first 9months, we generated $175.6 million in free cash flow, up mid single digits versus the prior year. At December 31st, our net debt was approximately $1.1 billion, nearly 90% of which is fixed. And we achieved a covenant defined leverage ratio of 2.9 times, consistent with our long-term objective.
Although we anticipate reducing debt through the balance of the fiscal year, our reduced leverage and remaining debt being largely fixed at attractive rates unlock further flexibility around capital deployment moving forward. With that, I'll turn it back to Ron.

Ron Lombardi

Thanks, Chris. Let's turn to Slide 12. To wrap up. We are on pace to deliver excellent full year results and exceed the earnings outlook that we began the year with. We are pleased with this improved EPS forecast that is driven by our proven business strategy and a well-positioned and diversified portfolio. For fiscal 24, we continue to anticipate revenues of $1,135 million to $1,140 million (Sic refer the page number 12 see in the presentation) and organic revenue growth of approximately 1% to 2% versus fiscal 23 for organic revenue growth of 2% to 3%. Excluding the strategic exit of the private label business for Q4, we are forecasting revenue of approximately $287 million, a slight year-over-year increase.
This implies revenue for the full year at the lower end of our original guidance, driven largely by unfavorable FX for EPS. We now anticipate diluted EPS of approximately $4.33 for fiscal 24, thanks to our strong year-to-date results and the power of our cash flow for Q4, we expect EPS of $1.14 up high single digits versus the prior year. Lastly, we continue to anticipate free cash flow of $240 million or more using cash flows for deleveraging through the balance of the year.
With that, let's turn to slide 13 for a reminder around our business strategy and the long-term targets for financial growth even in today's evolving marketplace. Our diverse portfolio of leading health care brands provide a great starting point that supports predictable long-term top line organic growth of 2% to 3% annually. This level of growth is amplified by our industry-leading cash flows that accelerate the top line growth into 6% to 8% organic EPS growth over the long term.
Equally important, our strong free cash flow and resulting deleveraging creates additional optionality for capital deployment, including M&A that can drive significant upside to this algorithm. We continue to assess go-forward opportunities, and we have a long history of using our leading financial profile to help drive further upside, whether it be buying back stock, paying down debt or doing M&A. We remain confident that our business attributes support this proven formula, and we look forward to providing additional details on our expectations for next year on our May call. With that, I'll open it up for questions. Operator.

Question and Answer Session

Operator

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone as well. We ask that you please wait for your name to be announced before you proceed with your question one moment while we compile the Q&A roster. First question today will be coming from Roopesh Park Parker of Oppenheimer. Your line is open.

Rupesh Parikh

Good morning and thanks for taking my question. I guess given there's been a lot of concerns just about cough and cold, I would just love to hear your expectations for Q4 for that category?

Ron Lombardi

The morning pass. So for starters, the cough cold part of our business is about 7% of revenue and sales continued to be largely in line with what we anticipated at the start of the year in Q4 we had and would anticipate to be fairly close to the levels that we had last year.

Rupesh Parikh

Okay, great. And then just on just on women's health, the business improved sequentially just from a decline perspective. Just your latest thinking on that business and your expectations of getting back to growth there.

Ron Lombardi

Yeah. As we said at the start of the year, we anticipated that this year was going to be kind of a recovery and stabilization for the two brands. Monistat is definitely there got recovered earlier in the year, and Summer's Eve continues to see improving trends and should both of those brands should be in a good position to begin growth for next year.

Rupesh Parikh

And then just for FY 25, I know you guys aren't ready to provide a guidance range, but is there any initial high-level puts and takes that we can think of as we look towards your next fiscal year?

Ron Lombardi

yet we finished up the prepared remarks today with that slide that we've talked about for a long time with our 2% to 3% top line growth and mid-single digit bottom line growth. So directionally, I think though that's where you might want to consider starting and certainly we'll get into lots of detail on the May call.

Rupesh Parikh

Great.My final question, just given you guys are in a really good position from a debt paydown perspective, there's only a limited amount of variable rate debt to pay down. So it seems like you have a lot more flexibility to actually deliver on the algorithm?
So how does your team think about even with the excess cash maybe even investing more in the business, given you could even see more accretion going forward for share buybacks?
And just trying to get a sense, just the flexibility to invest more in that business? Because it does feel like you guys have more levers to deliver that 6% to 8% EPS growth?

Christine Sacco

Yes, we're coming to me Rakesh morning, it's Chris. So yes, we did talk about continued deleveraging in Q4, but as Ron highlighted, you hit it right on the head as we head into fiscal 25 and beyond. Leverage now at two nine, right. The remaining debt that we have is largely fixed at very attractive rates. So I think you're going to see increased optionality from us in terms of and whether it be M&A, buying back stock and or continued delevering. We have the optionality to do more than one, and we'll look forward to that as we head into fiscal 25.

Rupesh Parikh

Great. Thank you.
I'll pass along.

Operator

Thank you. One moment while we prepare for the next question, Next question will be coming from Susan Anderson of Cannacord. Your line is open.

Susan Anderson

Hey, good morning. Nice job on the quarter. And I was wondering if maybe you could talk about kind of the puts and takes in the P&L. That's changed a little bit to raise the bottom line while keeping the top line the same? And then also just on the North America sales into that flattish, it looks like really nice growth in ear and eye care. Maybe if you could talk about on the other categories? And then also, I think you mentioned that non-core brands, you maybe saw some weakness there. If you could talk about what what brands as well?

Christine Sacco

Yes. Maybe I'll start and then Ron can take the second part of your question. So the Q3 beat was really a timing behind a strong international performance. We talk about the nature of that business being a distributor model and sometimes that's the quarter to quarter results could be a bit lumpy, and we did see that. So hence, we're at no real change to our full year outlook on the bottom line, EPS really helped by a more stable interest rate environment.
So, as we've said, the power of our cash flow and our ability to delever in fiscal 24 was really offset by the rising interest rate environment. And as we head into a more stable environment, we would expect to continue to see that leverage you've seen in the past from us on the bottom line, as Ron was highlighting earlier, as a result of our capital deployment, you want to take the second part of that.

Ron Lombardi

So in terms of our performance across the portfolio, as we called out the year and I in international in the release and on the prepared remarks today on those two areas continue to have a lot of momentum and do well over time, we would expect that the non-core and tail brands would decline. You may get a little bit of peaks and valleys from quarter to quarter. So there wasn't anything out of line across the tail part of the portfolio in terms of in terms of performance during the quarter.

Susan Anderson

Great. And then maybe if you could talk about or give some color on just what you saw in the quarter on units versus pricing and just kind of your expectations for the rest of the year in terms of volumes versus pricing as those price increases kind of taper off?

Christine Sacco

Yes, Susan, hi, Chris. So we're still benefiting from certain pricing actions that we took in fiscal 23. We still expect the full year to be split about half from price growth from price, about half volume year to date we're pretty consistent with that. For Q3.Pricing was a little bit on less than half, right as we start to lap continued through the year. We do expect that to continue in the fourth quarter. And I think what's important is, unlike some others, you know, our volumes have really remained pretty stable. Last year, we talked about two thirds of our growth coming from price, but we still had volume growth this year. We talk about and half in the years proving out to fall in line with that. So really speaks to the stability of our part of the store and the needs-based nature of our of our products.

Susan Anderson

Okay, great. Thanks. And then maybe one last question. If you could just talk about the cost savings that you have put in place to help gross margin back given the inflationary pressures, I guess, have you started to see those flow through the P&L? And how should we think about that as we look out the next few quarters?

Christine Sacco

Yes, sure. So we have begin begun to see the benefit of that where we're up 130 basis points in the third quarter year over year. Some of that is price, but less than half the other half or a bit more is coming from those cost savings. You mentioned, we have seen a little bit of deflation and on freight, and that's starting to flow through the P&L in the third quarter. And we're calling the fourth quarter essentially in line with the third quarter in terms of gross margin, still on track for the year to be flat to up slightly. So in line with what we expected as we started this year.

Susan Anderson

Great.
Thanks so much.
Good luck the rest of the year.

Operator

Thank you. One moment for the next question. And our next question will be coming from Jon Andersen of William Blair. Your line is open.

Jon Andersen

Thanks, operator. Good morning, everybody, for your time and let's see any any other thing going on from a channel perspective of note, some strengths in certain areas, softness in others? And then if you could talk about some retail inventory levels and any thoughts around shipments relative to consumption going forward?

Phil Terpolilli

So I guess your first question was around channel shift during the third quarter. It was fairly consistent with what we've seen since the beginning of our fiscal year, which is now people are moving around within within channels and shopping a little differently as they look for a better price value proposition to deal with inflation.
That's really been the most notable impact on the high level of inflation at least for our business. So those trends have been fairly consistent over the last year or so. Nothing different than again, we have a broad distribution of our brands, so we really don't mind where the consumer chooses to shop our products are widely available.
And then in terms of retailer inventory destocking, it's been fairly and steady for us for the fiscal year, we haven't seen any meaningful net impact on our business so far, unlike other parts of the store and maybe other CPG companies that data that you're hearing from,

Jon Andersen

Paul, I didn't hear. You mentioned e-commerce. I may have missed it, but how did the online business perform from a growth standpoint? And where does that sit now as a percent of your total business, you're

Christine Sacco

Jon good morning. So, our e-commerce was up high single digits for us in the third quarter. Right now, it's sitting at about 15% of our sales so still nice growth even as we comp some significant growth from prior periods.

Jon Andersen

Great. And I think, Ron, given your comments around just consumers looking for better value propositions and that's kind of a common theme now. Are there any changes on the yield market share front for your brands? You talk to we've talked about kind of organic growth, but not so much share. And have you seen any change from from a competitive standpoint relative to private label in any of your categories?

Ron Lombardi

Yes. In general, we haven't seen any share loss or share shifts as a result of consumers moving away from higher our products to lower priced on private label in particular. So, you know, it goes back to the incidence in occasions for our products here in the category. Once every year, once every 2 years and you're looking for that trusted brand, it's not the time you take a chance to tried something different to save a few pennies. So that attribute we've talked about for a long time as being important and important consideration when you think about our brands and our position.

Jon Andersen

Okay. It's one more. It sounds like just given where you are right now from a balance sheet perspective and continued strong cash generation looking forward, you probably we're going to look more aggressively to M&A as a use of excess free cash. I mean, is that accurate? And like what do you like what's on your shopping list? What are you really looking for what criteria you know from a category products, operational perspective, it was important to you as you evaluate M&A opportunities.

Ron Lombardi

Interestingly enough, John, there really hasn't been a change in how we think about M&A from 2 years ago or today, even though our leverage is down meaningfully, we've got a very well defined criteria of what we look for like leading brands that defined categories that are set up for long-term growth. And that's been the success behind our M&A over the last 10 plus years. And that hasn't changed.
So I wouldn't say we're going to be more aggressive. We're going to continue to look for opportunities that fit that criteria. There's a lot of activity out there seems like we don't goal a week without something showing up, but we stick to what we know will create value for the shareholders over the long term. And I think both in Chris's comments in mind today, it's a reminder that we continue to be very well positioned to create value for our shareholders with our cash flow and our lower level of leverage, whether it's continuing to invest in the business, M&A, delevering, even lower overtime, stock buybacks. So we have a lot of optionality to create value. And I think that's the important focus of which M&A is certainly an important factor factor of it.

Jon Andersen

Yes, that's that's a good approach. I guess with your free cash flow yield in the high single digits, though, looking at stock buybacks, we've done a bad thing in there. So thanks for the time. Appreciate it.

Ron Lombardi

Thank you, John.

Operator

Thank you. One moment for the next question. And our next question will be coming from Linda Bolton-Weiser of D.A. Davidson. Your line is open.

Linda Bolton Weiser

Yes, hi. Good morning. So I was wondering just a little more discussion of the channels, distribution channels. I was curious you don't talk very much about the club channels and what are you in them and which brands would lend themselves to the club channels? And is that something you'd like to do more of in that channel? And then also same kind of question about the dollar stores. What's your approach there, which brands are most penetrated into dollar stores? And how are you thinking about those channels things?

Ron Lombardi

Sure. Morning, Linda. So club isn't a big channel for us, very small, largely due to the nature of our products. If you think of Monistat and you're not going to buy a three pack like you'd find in the club offering. It doesn't mean that we don't focus for opportunity there, Clear Eyes and BC & Goody's and some examples where we do sell through club. That's largely B2B where the small convenience channel may go in and buy product for resale. So it's more of that end of it than consumer care doesn't mean we don't look at it for opportunities to grow.
But just by the sheer nature of our products, it's not an important channel for US dollar is and it's been a nice, a growing channel for us over time. If you go into some of the leading dollar retailers, you'll see expanding consumer health care aisles where they're looking to expand the branded offering of products that are out there. So we have a great product distribution in dollar that's there with unique pack sizes, account sizes so that the margin in that channel is consistent for us as it would be in any other channel. So we look at it to partner with all of our retail channel retail partners to help them be successful so that's a little bit about club and dollar for us.

Linda Bolton Weiser

Okay, thank you. And Tom, just on private label, I know you said you're not really seeing any big shifts or anything regarding market share, but I just wanted to clarify, is it I would think it's the case that private label might have higher share in tracked channels versus nontracked channels, but I don't know. Can you confirm that? Would that be the case?

Ron Lombardi

I believe it is Linda probably skews more heavily to the track track side of the business. The other thing you know of I'll remind the folks on the call today, right? As you know, our number one job is to have differentiated efficacious products so that when the consumer gets to the shelf. There's something different about our products versus private label or any competitor so that we're not losing just on price. So that's what we think about. We come to work every day is making sure that we've got the best products out there that meets what consumers are looking for. And that's been consistent over time and why we continue to hold our share grow our share in the categories that we lead over the long term.

Linda Bolton Weiser

Okay. Sounds good. And then just finally, I wanted to as we've been saying a lot about recalls of various eyedrop products. Does any of that affect our business as there is an eyedropper? Is it costs costs for sure. Up until now there's been some recalls and is any of that benefiting you in any way?

Ron Lombardi

Yes, it's right. The press is reporting on eye care, eyedrop recalls from foreign suppliers for brands. You probably never heard over. We'll hear from again, I guess over the long term, I think it's helpful to the branded players and Clear Eyes and TheraTears in particular, where it just reinforces the importance of staying with trusted brands that you know from companies that you can count on that have disciplined supply chain, our Eye Care suppliers, our long term suppliers. We focus on quality product on time not saving the last penny no matter where you chase it. So over the long term, it's both good for our brands and the industry as consumers were reminded of the importance of those trusted brands and quality products.

Linda Bolton Weiser

Okay. Thank you very much. I appreciate it.

Ron Lombardi

Thank you, Linda.

Operator

Thank you. One moment for the next question. Our next question will be coming from Mitchell Pinheiro of Sturtevant. Your line is open.

Mitchell Pinheiro

The morning. A couple of questions for you. It's just up to some anecdotal, but I kind of look at the eye and ear care ever since you purchased TheraTears And I noticed that category, it continues to especially in the drug channel, you have real spotty inventory coverage. Is it is there something and I must say it's all TheraTears. It's the entire category of brands. And even the private label is there is there anything specific to either the drug channel that where inventory levels are low? Or is it just execution at various drug retailers that make that shelf coverage? Look spotty?

Ron Lombardi

Yeah. So, for first of all, right, the Eye Care category in general has been fast growing and for quite a while now. So rightly that increasing demand over indexing a bit to the drug channel, right? It's a bit more of a serious our condition and people think about it, you know, with seriousness. So we see that across our brands that are more serious affliction related that the drug channel overindexes a bit.
And then in addition to that, right, there's some nuances in the eye care supply chain where periodic shutdowns as they do maintenance and other things can put a little bit of a pause in delivery for all the players in there. And we talked about that last year in the quarter ended December where we had a a little bit of a pause in supply. So it can happen to any of the brands. So you put all those elements together. It may be why and you go into the drug channel and they may look a little bit a little bit short on inventory.

Mitchell Pinheiro

Okay. Thank you. And then when it comes to I'm looking at the gross margin and longer term, it's slowly recovering and from Level zero 5 years ago or more is are those levels, you know, 37%, 57%, 58% and are they achievable longer term? Or is there something structural and maybe is it just the math that causes the gross margin to that? It won't we won't get back to that level.

Christine Sacco

Yes, Hi, Mitch morning, Chris. So there's nothing structural going on within the gross margin, can we see a path back to more normalized margins. Absolutely. Um, when you say that just math, the math is going to dictate the timing. So as we've said in each of the past three years, we have offset inflationary pressures dollar for dollar with cost savings and pricing. But as you mentioned, the math takes the margin part of it a little while to catch up. So we have line of sight several years out to cost saving measures. We feel good about them and our ability to start to recover margin. We'll talk about May, but there is certainly nothing structural that would prevent us from doing that.

Mitchell Pinheiro

And I guess the same at the same question for A&M spend, I mean it's been very consistent on a percentage of sales basis. Is there is there are there any plans for either, you know, and any changes there directionally on A&M. over the longer term?

Ron Lombardi

Yes, Mitch, we'll continue to look to spend more dollars in A&M. over overtime, right? The percentage is one thing, but you put dollars to work frankly, right check. So as we said, as our gross margin picks up, that will give us an opportunity to continue to look for opportunities to spend spend more dollars to support the long term long-term brand-building initiatives by any marketing company? Shall we start with the desire to spend more money. Well, that's how we think about it, I guess.

Mitchell Pinheiro

Yes, last question is from just on I'm on leverage. You've come down here below three seems to be a comfortable level for for many investors in the in the consumer space. And I'm curious whether when you decide, you know, on an acquisition or maybe it's share repurchase, but I'm curious and whether there's a level of leverage where you don't want to exceed end or you know, like just you would like to be in a spot where you can get back to the below three level quicker than you you've had in the past.

Ron Lombardi

Yes, you know, as we've said, we look to operate the business at lower levels of leverage than we had historically for a long time. We operated the business essentially around five plus on average as we were smaller then. So when you did a $500 million or $700 million acquisition, it really moved the needle. It took awhile to get back down to now the market has spoken.
They appreciate companies with lower levels of leverage because it derisks you and gives you more optionality over time. And that was one of the themes that we've talked about not only today but over the last last year or so.
So although we don't set a ceiling like we want to be able to step back and evaluate every opportunity that may create value for our shareholders. It's our job to figure out how to do it the right way in a way that's appreciated. So, I'd never say never I don't see us operating anywhere near the peak levels we did historically.
But it doesn't mean that there might be an opportunity where we pop above three. We're a very short period of time and then get back into this targeted range of less than three over time. So directionally, that's how we think about things, but are clearly operating at lower levels of leverage and talking about all that optionality is where we want to be going forward.

Mitchell Pinheiro

And then I guess just one more, just relative to you mentioned earlier about you're getting a lot of, but you've seen a lot of deal books come come your way and them said it well, but I'm I'm curious. And are you is there any difference in sort of M&A pricing. Are you seeing, you know, and any change in Reno, small deals versus large deals? Anything anything you could share color wise with the flow that you're seeing?

Christine Sacco

Yes, Amit, it's Chris. So really for the kinds of things that we look at, there hasn't been any change. And we do read some of the headlines that you see out there with very large multiples for large deals in very big categories. That's not the nature of the kinds of things that we look at. So we got this question, but two years ago when we announced TheraTears people kept asking us, you know, there's a two handle on it in front of some of the press on some larger deals, and we kept saying the pricing has remained pretty consistent. Theratears was done at about 10 times. So So really no change in the environment, the kinds of things that we that we look for because

Mitchell Pinheiro

Thank you so much thinking there.

Operator

Thank you. One moment for the next question. Next question will be coming from Anthony Lebiedzinski of Sidoti. Your line is open.

Anthony Lebiedzinski

Good morning. And thank you for taking the questions. So just wanted to follow up on the international segment now, certainly impressive growth there. I know that the hydride is driving that. But just the overall that business has been doing well for the last couple of years. Are you guys doing more business with existing retailers or are you signing on new accounts? I mean, just wondering what's driving that and then how sustainable do you think that segment is?

Christine Sacco

Good morning. It is Chris. So um, we don't talk about it much because we focus on Hydralyte and a lot of Hydralyte did have a really strong third quarter and has been continuing to grow for us. And we expect continued growth in the long term. But when we step back, our international portfolio is diverse similar to our North American portfolio.
And this is this year in particular, we're experiencing good growth really across the portfolio. So now a number of factors we talk about in terms of sustainability, right, Hydralyte still at about a 10% household penetration on continuing to innovate there, right? Similar playbook internationally, not in terms of product innovation to meet unmet consumer needs, and we see that across the portfolio opportunities there.
So we feel good about the long-term algorithm for the international business, which is growth that at five plus percent this year, we think we'll be slightly above that, but certainly see a path for that to continue into the future.

Anthony Lebiedzinski

Yes. Okay. That's good to hear. And then so your long-term playbook continues to be 2% to 3% organic growth. So obviously, here we've had a strong international segment. Do you think you can get back to the North American segment to be within that growth range? If so, would like what will be a reasonable timeframe?

Christine Sacco

Yes, the big impact this year, Anthony, really has been the women's health business, which in total in total, is about 2020 ish percent of sales. So we get back to growth for that segment next year. That will obviously have a big impact on on organic level of growth for North America.
Clearly, the international business has grown way above what we would expect it to be opening long term. If you get back to that to the drivers of that 2% to 3% that we had on the last page of the deck today, you would expect the international business to grow mid single digits, 5%, 6%, 7% over time, the North American business to grow 1% to 2% and over the long term. So directionally, that's where we expect things to flush out over time.

Anthony Lebiedzinski

Got you. Okay. And then lastly, also, as you look at your brand portfolio overall, I mean, you have a very diversified brand portfolio for sure, but I know you guys talk about M&A, but I guess, conversely, would you guys be open to perhaps divesting any non-core brands or you think they're worth keeping for just for the cash flow purposes?

Christine Sacco

Yes, companies, we certainly evaluate any offer that comes in on the non-core brands. But as you mentioned, right, these are OTC brands that have good gross margins and don't require a lot of investment because they're non-core. So you're right from a cash flow perspective, as long as we can get there on the math, we would be willing to divest them but when the math doesn't work, they're still driving value by driving cash flow that's reinvested into our other brands. So that's how we think about it.

Anthony Lebiedzinski

Understood. Thank you very much. And best of luck.

Operator

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. At this time. There are no more questions in the queue. I would like to turn the call back over to Ron Lombardi for closing remarks.

Ron Lombardi

Thank you, operator. And I'd like to thank everybody for joining us this morning, and I look forward to updating you further in May. Thank you.

Operator

Thank you for joining the conference call. This ends the call for today. You all may disconnect.