Thank you for standing by. Welcome to Prestige Consumer Healthcare Inc.'s fourth quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone.
You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd like to hand the conference over to Phil Terpolilli, Vice President of Investor Relations, Treasury, and Business Development. Please go ahead.
Thanks, operator. 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 and COO. On today's call, we're going to re-review our fiscal 2026 results, discuss our fiscal 2027 and longer-term outlook, then take questions from analysts. The slide presentation accompanies today's call. It can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link, 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 measures are included in our earnings release and slide presentation. On today's call, management will make forward-looking statements around risks and uncertainties, which we detail in a complete safe harbor disclosure on page 2 of the slide presentation which accompanies the call.
These are important to review and contemplate. Business environment uncertainty remains heightened due to supply chain constraints, high inflation, and geopolitical events, 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 and the most recent company Form 10-K. I'll hand it over to our CEO, Ron Lombardi. Ron?
Thanks, Phil. Let's begin on slide 5. We experienced a challenging fourth quarter that fell short of expectations, resulting in full-year revenue declining approximately 4%. A difficult consumer environment persisted into Q4 and was further impacted by global conflict. While these dynamics led to certain shipment disruptions late in the quarter, we expect to return to organic growth in fiscal 2027 and are well-positioned to manage ongoing macro pressures, including inflation, as we have successfully done in the past.
In eye care, we continue to experience near-term volatility driven by our deliberate focus on high-quality production. In Q4, Clear Eyes sales were below expectations due to delayed shipments and production shutdowns ahead of line updates. We are actively implementing initiatives to improve production volume and supply consistency, which we believe are essential to supporting our long-term demand outlook.
Many aspects of our diverse portfolio of leading brands continued to perform well despite the environment. For example, our GI franchises of Dramamine, Fleet, and Hydralyte had solid success with all brands growing in fiscal 2026. For our women's health category, Summer's Eve had a year of stabilization and continues to be positioned for growth, while Monistat held share in VAF despite the category declining significantly over the past three years.
Moving down the P&L, adjusted gross margin was in line with the prior year, while adjusted EPS of $4.38 was down versus the prior year, largely tracking the sales change. Free cash flow was approximately $246 million for fiscal 2026, up slightly versus the prior year and in line with the outlook we gave at the beginning of the year.
This durable and resilient free cash flow profile allowed us to repurchase shares in fiscal 26, acquire our manufacturer, Pillar5 Pharma Inc., to enhance our long-term eye care output capabilities, and build cash in advance of the pending Breathe Right and LaCorium Health acquisitions. As we'll touch on later, this disciplined capital allocation strategy continues to enhance shareholder value and positions us for a robust multiyear outlook. Let's turn to page 6 and review our strategy and our tactics that have delivered value over a longer horizon.
Despite the challenging fiscal 26, our business model's 3-pillar strategy has a history of delivering value. First, we use our proven marketing strategy to leverage our leading portfolio of brands. Using consumer insights, we drive effective marketing, channel development, and innovation that underpin our success. Second, the business model we operate leverages our leading financial profile to enable robust free cash flow.
Third, the model uses the first 2 points to enable strategic capital allocation optionality that further amplify shareholder returns. Our ability to use cash flows efficiently through disciplined capital deployment creates incremental value. This includes M&A, like the Breathe Right and LaCorium Health transactions.
Executing these pillars has created value over the last 5 years, with a compounded annual growth rate of about 3% for revenues and free cash flow and adjusted EPS of approximately 6%. These results include the volatile fiscal 2026 just discussed. Let's turn to slide 7 for a detailed update on Clear Eyes and our eye care supply chain. In fiscal 2026, we executed actions that supported our long-term strategic objective of best positioning our supply chain to support our eye care franchise's long-term sales growth.
This included the acquisition of Pillar5 Pharma Inc. in December, which gave us the opportunity to take direct control over this important element of our supply chain. Just over a quarter in, we've made meaningful progress to the benefits of having a dedicated aseptic eye care facility. For example, Pillar5 Pharma Inc. recently began producing product on a new high-speed line, which we have plans for further volume output from during fiscal 2027.
Importantly, production is supported by our rigorous focus on QPOT, or quality product on time, that underpins our operating model. To that point, nearly all of our eye care supply chain has had recent regulatory visits, which helps reinforce this approach. For fiscal 2027, we expect ClearEyes to grow in the year as we continue to ramp production. This includes a meaningful increase in production, but entirely in the back half of the year.
In summary, our leading eye care brands are positioned for long-term growth in the attractive and growing eye care market. The investments we are making behind capabilities in eye care is a long-term, multi-year process, but puts us on a path to returning to historic sales levels over the next few years, and we expect that growth to begin in fiscal 2027.
With that, let's turn to the next section and review a few key areas of how we drive base growth in more detail. As we've discussed in the past, our proven brand-building playbook starts with consumer insights. We seek ways to solve unique consumer needs and leverage our wide-ranging brand-building capabilities to drive long-term growth. 3 of the major ways this manifests itself are, first, using marketing to establish consumer connection.
Launching relevant innovation that solves unmet consumer needs, and being widely distributed and available where consumers are shopping. Example of this is our GI franchise, where we've continued to experience long-term success in our Fleet and Dramamine brands. As shown on the left side of the page, we leverage wide-ranging tactics to expand our category reach and relevance.
We continue to lead in the motion sickness category with engaging motion sickness content like our iconic Ditch the Drama campaign and various travel sweepstakes. We've continued to accelerate our penetration into the nausea category, entering pediatric nausea last year and adding new form factors to help consumers solve their nausea needs on the go. We further broadened our relevance by using digital tactics and healthcare practitioner outreach to remind GLP-1 users the benefits of Fleet and Dramamine in treating side effects.
These tactics continue to prove out in the numbers. In Fleet, shown on the right side of the page, we are driving category growth and have expanded our 50%-plus market share. This is due to proven marketing tactics as well as innovation, like the recent launch of Fleet Mini Enemas. Let's turn to slide 10 to discuss this innovation and others in more detail. Beyond executing successful marketing, innovation continues to be a key part of Prestige's brand-building toolkit.
We operate with a multi-year pipeline of new product development concepts to ensure we generate new SKUs that match the needs of consumers. The Fleet Mini Enema is just 1 of the examples of product launches this year matching consumer needs. With its easy-to-use size and travel-friendly design, the product offers fast-acting constipation relief for both new and existing laxative users.
Another innovation introduced in fiscal 26 is Compound W Skin Tag Remover. Leveraging its leadership in wart relief, Compound W is utilizing its nitro-freeze technology to also solve for skin tags, an adjacent niche category to warts. Other product launches, like new forms of Dramamine, mental alertness for Goody's, and great new flavors for Hydralyte are further example of our consistent pipeline. We are excited for additional new product launches in fiscal 27, and we'll update everyone as the year progresses.
Now, let's turn to slide 11 and discuss e-commerce. Alongside effective marketing and innovation, we are prioritizing investment in consumer-relevant channels. As channel shifts remain, our e-commerce business continues to deliver strong growth, reflecting the impact of our long-term investments. In fiscal 26, we continued to experience double-digit consumption growth, and our e-commerce penetration for the company has reached approximately 18%.
Looking ahead, consumers are not only shifting across channels, but also their behaviors, driven by AI, social media, and other emergent influences. In response, we remain focused on continually refining our content to stay aligned with these trends. By enhancing seasonal relevance, updating brand pages, and emphasizing key terms tied to new innovations, we believe we have the capabilities in place to sustain our success across our e-commerce partners. With that, I'll turn it over to Chris to review the financials.
Thanks, Ron. Good morning, everyone. Let's turn to slide 13 and review fourth quarter and fiscal 2026 financial results in more detail. A quick reminder, information we're about to review contains non-GAAP information that is reconciled to the closest GAAP measure in our earnings release. Q4 revenue of $281.6 million declined 5% from $296.5 million in the prior year, or 6.4% excluding FX. The revenue decline was attributable to lower eye and ear care category sales, owing largely to Clear Eyes supply constraints and a portion of international segment sales affected by Middle East shipping disruptions.
As a reminder, in Q4, we also lapped an approximate $7 million benefit from the timing of certain e-commerce orders in the prior year. Mimicking sales, both adjusted EBITDA and adjusted EPS declined high single digits as certain cost savings and below-the-line items were more than offset by lower sales and gross margin. Last, please note Q4 includes certain adjustments to reported results. These relate primarily to Pillar5 Pharma Inc. and the expected normalized cost structure following operational efficiency improvements as we continue to improve Pillar5 Pharma Inc. manufacturing volume.
Now let's turn to slide 14 for a discussion around detailed consolidated results for the fiscal year. For fiscal 2026, revenues decreased 4.5% organically versus the prior year. North America segment revenues decreased 4.9% excluding FX. Sales declines were largely due to constrained eye care supply we've discussed, which more than offset strength in the oral care and GI categories. International OTC sales decreased 2.8% versus the prior year, excluding FX.
Segment sales declined due to limited eye care supply and disruption in the timing of shipments to distributors due to the Middle East conflict. We expect improved shipment trends and a return to an approximate 5% annual segment organic revenue growth in fiscal 2027. Total company adjusted gross margin of 55.6% for the year was approximately flat to 55.8% in the prior year. Looking forward, we expect adjusted gross margin in Q1 approximately flat sequentially versus Q4, and for the full year to approximate that of fiscal 2026.
Embedded in this assumption are incremental diesel costs stemming from the conflict in the Middle East. As a reminder, we have a history of taking actions across our portfolio to offset the dollar amount of inflationary headwinds. Advertising and marketing came in at 13.7% of sales for fiscal 2026, flat to prior year. For fiscal 2027, we anticipate both Q1 and full year A&M at over 13% of sales. Adjusted G&A expenses were up versus prior year, primarily due to the timing of certain expenses and an increase in bad debt allowance in Q3 for 1 specific customer.
For fiscal 2027, we'd expect Q1 G&A of about $30 million and full year G&A of 10.5% as a percent of sales, with the increase primarily attributable to the inclusion of Pillar5 Pharma Inc. and normalized incentive compensation versus the prior year. Adjusted diluted EPS of $4.38 compared to $4.52 in the prior year, as the lower sales more than offset other favorable line items like lower share count, interest expense, A&M, and other income.
Let's turn to slide 15 and discuss cash flow. For fiscal 2026, we generated $246.4 million in free cash flow, up 1.3% versus the prior year. At March 31st, our net debt was approximately $900 million, and we had a covenant-defined leverage ratio of 2.6 times. Our strong financial position continues to be underpinned by multiple attributes. Our business model, where the majority of revenue remains externally manufactured, results in low capital expenditures of 1%-3% of sales annually, even with the recent inclusion of Pillar5 Pharma.
For example, we are expecting approximately $25 million in CapEx for fiscal 2027. Our products have strong margins, thanks to the characteristics of the categories we participate in, their importance to consumers' health, and the regulated nature of OTC that creates high barriers to competitive entry. We have meaningful tax benefits from past acquisitions that result in a cash tax rate in the high teens.
We remain focused on profitability, with continuous cost-saving efforts helping us maintain a strong low thirties EBITDA margin profile. The result of this model is clear. We generate best-in-class sustainable free cash flow, and our free cash flow conversion remains strong. This enables efficient capital allocation. Fiscal 2026, this included over $150 million in share repurchases and a $110 million investment in long-term eye care manufacturing capabilities.
Looking ahead, we expect adjusted free cash flow growth in fiscal 2027. Now let's turn to slide 16 to review the priorities for capital allocation and use of this cash. Thanks to our strong financial profile, optimal capital deployment is a valuable driver in enhancing long-term shareholder value. Including the estimated benefit of pending acquisitions, we now anticipate that cumulative cash flow over the next 3 years approaches $900 million.
This level of impressive cash generation enables significant capital deployment and allows us to further enhance shareholder value. To start, the number 1 priority continues to remain investing in our strategic brands to ensure long-term success. From there, we expect to execute disciplined debt reduction in the near term, rapidly working to deleverage back towards 3 times following the closure of the acquisition of Breathe Right and LaCorium Health, which we intend to fund with new pre-payable term loan debt.
As we begin to deleverage and demonstrate continued strong free cash flow growth, we would likely consider a return to future share repurchases in the out years, where we currently have over $90 million of existing authorization remaining. Last, of course, as we rebuild leverage capacity, we will continue to monitor for future M&A opportunities in consumer healthcare. With that, I'll turn it back to Ron to discuss our broader outlook.
Thanks, Chris. Let's turn to slide 18. Before discussing fiscal 2027, I want to review the business attributes that leave us confident in our business outlook and have us well-positioned for future growth. Our brands are trusted and diverse, which helps limit the impact from individual category slowdown. This diversity stretches beyond just brands, but into diversity of channels, geographies, and suppliers, each of which benefits our business in periods of uncertainty and volatility.
The majority of our brands also lead their categories with a number 1 market share and are often synonymous with their categories, such as in the case of BC and Goody's, Monistat, Dramamine, and many more. This enables us to leverage our proven brand-building strategy, opportunistically growing categories, and as a by-product, our brands. Our superior financial profile has generated consistent and increasing cash flows over the long term.
Finally, the model continues to be scalable, which allows us to reinforce organic growth with future potential M&A, like the pending acquisitions of Breathe Right and LaCorium Health. In summary, we have the right resources to continue our disciplined capital deployment playbook while reinforcing investments in our existing business. We continue to have confidence that our business model and strong financial profile have set us up for long-term success.
Let's turn to the following pages and review our initial fiscal 2027 outlook. For fiscal 2027, we are forecasting revenues of $1.1 billion to approximately $1.12 billion, with organic growth of approximately 1%-3% for the year. This is driven by solid consumption growth across our diverse portfolio of brands, even against a continued volatile consumer and economic backdrop.
As discussed earlier, we also expect improvement in eye care shipment trends, thanks to improving volume from production in the back half of the year. For profitability, we expect adjusted EPS of $4.42 to $4.51. This follows sales growth as we expect gross margin to remain relatively consistent with fiscal 2026 and higher G&A costs in dollars from the addition of Pillar5 and normalized incentive comp versus the prior year. Our forecast assumes continued oil-related inflation, we believe this will be offset by cost reduction activities and tactical pricing as necessary. This is similar to prior inflationary periods, thanks to the benefits of having a diverse and leading brand portfolio.
For Q1, we expect revenue to be approximately $250 million or about in line with prior year and adjusted EPS of $0.87, largely due to the timing of eye care supply. Lastly, we anticipate free cash flow of $250 million or more in fiscal 2027. The strong free cash flow will allow us to accelerate debt reduction following the acquisitions of Breathe Right and LaCorium Health, which are expected to close in June and the second quarter, respectively. Please note that the guidance I just discussed does not yet include either of these acquisitions.
We expect to update these outlooks on our first quarter call in August. We're excited about both opportunities for many reasons, the highlights of which are on page 20. First, let's discuss Breathe Right. As we discussed in detail back in March, we are acquiring a portfolio of brands from Foundation Consumer Healthcare, headlined by Breathe Right. It's a category-defining brand within the attractive better breathing space.
We expect Breathe Right to generate over $125 million in revenue and believe it is set up for long-term success by growing its category and expanding its international presence over time. The business operates with a strong financial profile that is accretive to Prestige's growth and EBITDA margins. It also reinforces our long-term financial algorithm for organic sales and earnings and brings annual future tax savings that will benefit free cash flow. Moving to LaCorium Health, which we announced last night.
Australian-owned and headquartered in the same office building as our Care Pharmaceuticals team, LaCorium Health generates over $40 million in sales and is headlined by the Dermal Therapy brand, which will become our second-largest brand in Australia behind Hydralyte. The business has been founder-led with a focused mission to treat therapeutic skin care ailments like eczema, cold sores, and more. LaCorium Health's marketing messages like the It Works campaign, unique efficacy-driven innovation, and geographic expansion have each helped the business grow double digits annually for a decade.
We anticipate another solid year of sales growth, thanks to this proven model in connection around efficacy with consumers. Under Prestige, we intend to carry on this heritage while continuing to find opportunities for international expansion. We believe the portfolio can continue its rapid sales growth and be accretive to an international OTC business.
In terms of profitability, we intend to leverage our distribution network to drive revenue and cost synergies and would expect EBITDA of approximately $12 million once the business is fully integrated. In summary, each of these acquisitions offers unique opportunities for us to further enhance and strengthen our portfolio of leading consumer healthcare brands. Let's turn to slide 21 and wrap up.
Looking out at the next 3 years, we see several catalysts that we expect to strengthen our business profile and returns meaningfully. Let's begin with revenue. As the 2 acquisitions I just discussed closed, we believe they will provide accretive organic revenue growth in future years. Additionally, they also provide scale and accelerate a fast-growing international footprint, which we believe will approach 20% over the next few years. In addition to this, we see eye care sales improving as we grow long-term capacity.
Although the timing of this is fluid, we see significant opportunity off the current low base. We also see a stable outlook for our diverse needs-based portfolio of brands. Collectively, these drivers position us to deliver a sales CAGR approaching 10% through fiscal 2029, while creating a clear path towards sustained organic growth at the high end or above our 2%-3% long-term range. Next is profitability.
Thanks to our disciplined financial management, we believe we are well-positioned to continue to maintain low to mid-30s EBITDA margins. We would then anticipate a magnifying effect on EPS from using cash to pay down pre-payable debt. These factors give us confidence in an approximate 8% or more CAGR between now and fiscal 2029. Last, let's touch on free cash flow. We have a proven sustainable model that Chris outlined earlier, generating strong and durable cash flows.
By reducing leverage, it both unlocks future capital deployment opportunities and reduces cash interest expense. Cash flow is expected to continue to be enhanced by cash tax savings, which will have further benefits from the Breathe Right transaction. In aggregate, we believe there is a clear path to delivering free cash flow that could approach $900 million over the next 3 years, enabling debt reduction and further enhancing shareholder value.
In summary, we remain confident in our strategy and our ability to execute against it. Our business attributes and leading brands support our formula for organic growth, leading free cash flow generation, and a proven capital deployment strategy. We have an opportunity in eye care that can drive future upside, the pending acquisitions should further enhance our formula, helping to drive superior returns in coming periods. With that, I'll open it up for questions. Operator?
Thank you. To ask a question now, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Susan Anderson of Canaccord Genuity. Please ask your question. Susan, your line is open.
Hi, good morning. Thanks for taking my questions, and congrats on another acquisition. I guess maybe just to drill down a little bit more on LaCorium Health's brands in Australia and the U.S., maybe if you could talk about just the landscape there and also in the U.S. and kinda who the competitors are. Then also, you talked about leveraging your distribution network and other operating expertise for revenue and cost synergies. Maybe if you could expand on that and talk about where you see the most opportunity to expand geographically, and then also maybe potential category expansion, and then also where you see the efficiencies in the business. Thanks.
Good morning, Susan. LaCorium Health, right? We've actually had this business on our radar screen for a very long period of time. It's actually in the same office building that our Care Pharmaceuticals is outside of Sydney. We're very familiar with what's going on there as we've kept an eye on it over time. First of all, the brand is primarily anchored around Australia and New Zealand. It has a very small footprint in the U.S. and Canada. It's just getting going. The concentration of the business is in Australia. It has a broad offering of products to treat a variety of different skincare needs.
The competitive landscape is fairly broad, whether it's therapeutic skin like skin. Excuse me. Eczema on the skin or cold sores or other skin ailments. There isn't any one key competitor that would be there or it would focus on. You know, growth opportunities exist around further expansion to other skincare conditions as well as international distribution expansion starting first in the Australasia region, much like we're doing with Hydralyte.
We would look to piggyback off of the distributor relationships that we have in that region. Then in terms of integrating into our business, we would look first to integrate into our sales force and take advantage of the sales folks that we have out calling on pharmacy and doctors and other caregivers. Then we'll look to integrate into our backroom organization as well to look for cost synergies there.
Okay, great. That's really helpful. Maybe also if you could just give a little bit more color on the EyeCare business and the timeline that you guys see the recovery and a return to growth. Also, I think you mentioned there was, like, a shutdown or something ahead of shipments that also impacted things. Maybe, is that fixed now, I guess? Should we expect, you know, things to go smoothly going forward? When do you think the new plants will be fully up and running? Thanks.
Yeah. There's a lot in that question. Let me start, Susan, and I'll talk a little bit about the supply background, and then I'll let Chris talk a bit about our outlook, and maybe a bit about the impact we saw in Q4. For starters, and we included some of this in the prepared remarks today, is, you know, we were trying to talk about quality, right? We've received a number of questions following additional EyeCare headlines that have happened over the last quarter or so.
We thought it would be helpful to provide some context around the quality environment of EyeCare and why we prioritize quality first and foremost. At the end of March, we were into Pillar Five just about 90 days, right? We closed at the end of December, we were motivated to acquire Pillar Five because we didn't have the confidence in the previous owner's ability to run the facility and manage the quality environment the way we felt it needed to be.
As we got into this 90 days, we continued to believe it was absolutely the right thing to do. As we saw last year, there's times of variability and unexpected shutdowns in the manufacturing base, right? In the EyeCare suppliers. We saw that in the fourth quarter, really in 2 ways. The first is there was production that we were expecting to get released by the end of the quarter for shipments that didn't happen. That got released after the end of the fourth quarter.
That was a big element of the miss in the fourth quarter. The second part of it was, the facility was shut down to do some upgrades, and the shutdown ended up being quite a bit longer than was originally anticipated. That impacted the fourth quarter a bit, but it's going to have a bigger impact on the first quarter. As we gave our outlook for the first quarter, we reflected that expected impact on supply. For the whole year outlook, we've tried to give ourselves enough runway in the first half to get these things behind us and get back to a more predictable, meaningfully increased level of output versus what we realized in fiscal 2026. Let me ask Chris to add a little bit about the outlook.
Yeah. Yeah. Just to expand a little, I mean, we've taken actions in just this, you know, these 90 days Ron referred to improve output. We've hired additional staff. We're increasing preventative maintenance practices, a whole bunch of things to help make gradual improvements in the long-term output. In the near term, these efforts can impact shipments, right? We will have some likely period-to-period volatility. We're expecting Q1 EyeCare to be relatively flat to Q1 of the prior year. You know, we're feeling that a bit more just also because we have a lack of safety stock that normally would cover for this, right? We'll manage through it.
It's difficult to predict, but as we look to the 2027 guide. You know, we've provided a broader range outlook than we have the last few years, due largely to eye care supply volatility and the consumer challenging backdrop we mentioned in the prepared remarks. You know, the 1%-3% range reflects this potential lumpiness we've seen. Again, we're halfway through Q1 in terms of our Q1 assumption that's built into the guide.
As we make modifications to processes, we install long-term capacity, things that we've discussed in the past. The bottom end of the range that we've provided assumes no improvement from fiscal 2026 for eye care. The mid and high obviously assumes that the back half we will have increased production with efforts mainly focused around Pillar Five. You know, we think our outlook with the majority of the improvement in the back half gives us room for these initiatives for improvement.
Okay, great. Thank you so much for all the detail there. Good luck with acquisitions and the rest of the year.
Thanks, Susan.
Thank you. A moment for our next question. Our next question comes from the line of Jon Andersen from William Blair. Please ask your question, Jon.
Thank you, and thanks for the questions. Wanted to just ask on the quarter itself, if you could kind of put a little more detail around the $12 million sales shortfall relative to your guidance. How much of that was related to the Clear Eyes supply issue? How much is related to, I think you called out Middle East shipping disruptions. On the Middle East shipping disruptions, just to follow up on the prior question. What's your level of conviction that that's in the rearview mirror now and that won't be an issue affecting international sales going forward? Thanks.
Hey, Jon. Morning, it's Chris. About two-thirds of the miss, the shortfall was related to eye care and about a third related to the disruptions in the Middle East. You know, right now we're seeing lead times increase to scheduled transportation into our distributors in the Middle East. Difficult to predict obviously when orders will catch up, you know, to the natural state of our demand right now. These increased lead times are included in our outlook.
You know, we are expecting continued pressure for international in our first quarter, and that's really related to eye care supply and the timing we just discussed that really weighted towards the back half as an organization. If you, if you think about, you know, you take eye care out of fiscal 2026 for our international business and you take consideration for the Middle East disruption, we're pretty close to our long-term algo. As we go into fiscal 2027 for the year, again, Q1 probably gonna be a bit similar to Q4 because of eye care timing. We would expect the full year to get back to our long-term algorithm on international of about 5% growth.
Okay. when you talked about, you know, for 27, kinda a little bit about the cost environment and energy prices are up, obviously that affects different parts of your business in different ways. What are you assuming if on a full year basis are you assuming any improvement in costs? Or are you kind of assuming the status quo? Then how confident are you in your ability to, you know, to use price in this, as you've called it, a very dynamic consumer environment, use price as one of the levers to help offset that?
Hi, Jon. Our outlook for inflation related to the environment right now assumes that there is continued oil-related inflation at current levels. You know, in terms of our confidence, you know, just like past periods of significant inflation, including COVID, right? We believe our leading positions with our brands will enable us to execute, you know, surgical pricing as necessary. We'll start with cost reduction activities as we always do. You know, plans are in place. The teams are working through that as we speak.
Okay. One more if I can squeeze it in. You know, I think when you announced the Breathe Right acquisition, you talked about 2020 EPS accretion of about $0.25 in the first year. Am I remembering that right? Is that the right way to think about it? I know you're not giving formal guidance until it closes, but $0.25. Then how is Locorium accretive to EPS right out of the gate as well? Kinda how long will it take you to get to that full synergized EBITDA run rate of $12 million?
Sure. Hi, Jon. It's Phil Terpolilli. You're exactly right. Back in March, we talked about Breathe Right being approximately $0.25 accretive to EBIT, EPS, excuse me, on an annualized basis. The timeline that Ron Lombardi called out earlier, expecting Breathe Right to close sometime in the June timeframe, would take a few periods of that into the full year. That is not incorporated in our guidance that we gave today. We'll incorporate that in the future once it closes.
Certainly still finalizing things like amortization, cost of borrowing, et cetera, that can impact that. That's our estimate as of now. On LaCorium Health, obviously a smaller transaction, and we talked through the details of that earlier. We'd expect it to be approximately neutral to EPS, to maybe slightly positive. We'll update everyone once that transaction closes.
Okay. Maybe, well, can I squeeze one more in? I'll try one more. You know, I guess, I don't know, I kinda feel like the last time we talked or heard from you around the Clear Eyes supply that things seem to be, you know, progressing according to plan. Now it kinda feels like you've taken a step back there. I know you've talked about some longer downtime ahead of some maintenance that was being done, I guess, in the Pillar Five facility. When did this happen?
Can you give us a little bit more detail around, you know, this time, you know, you think you've kind of handicapped it or put the right programs in place to make sure that, you know, production levels and shipment levels are coming back by the second half of the fiscal year? Really does this kinda push you out another year in terms of getting, you know, more shelf space when the retailers are resetting the shelves? 'Cause I think they only do that once a year. Have you kinda missed the window for 2026 on that, 2027 on that part of the recovery?
Yeah. I guess to add a little more color, Jon. We learned about this disruption, or it happened, you know, late in the fourth quarter. As we've seen in the past, right, of dealing with the previous owners and management at Pillar Five, is what would start out as an expected one-week shutdown to do something turned into two weeks, would turn into three, which would turn into four as things either got more complex or the work got expanded, right?
The previous owners, or in this case, we decided to expand the scope of work that was being addressed to get benefits in the future, right? To help prevent these kind of things from going on. Again, 90 days in, we continue to believe we've made the right strategic investment here to get control of the strategic supply of sterile eye care. Again, our outlook for 2027, as we're, you know, 90 days smarter on the ownership and what it's gonna take to get this stabilized, we believe gives us the right runway to get this kind of thing behind us and get to a more predictable environment.
Thank you.
Thanks, Jon.
Thank you. In the interest of time, please limit to 1 question and 1 follow-up at a time. Thank you. Our next question comes from the line of Keith Devas of Jefferies. Please ask your question. Keith, your line is open.
Hey, good morning, guys. Thanks for the question. You had some comments on what's happening in the eye drop industry, specifically in the U.S., and we've seen the recall headlines with some competitors. I'm just hoping you can talk through how you're thinking about that as an opportunity. You know, maybe it's a little early given you have supply ramping with Pillar Five. Just maybe what you're hearing from your customers on the retail front and how you're thinking about, you know, the recall and the absence of some competitors as an opportunity long term.
Good morning, Keith. Clearly, there's an opportunity for our leading Clear Eyes brand to take share and to grow above where it was historically once we get our supply chain caught up to the opportunity and the potential here. You know, if you go out and you talk to the retailers, you know, given the recalls that they're seeing for private label and the out of stocks that you're seeing broadly across the shelf, they're beginning to understand the importance of partnering with trusted suppliers and brands over time.
You know, we've talked about the importance of quality in this space a couple of times already this morning, and I think it's worth repeating. We have a very high level of focus on quality to the extent that for all of our Clear Eyes suppliers, we review and release the product here in our quality group. We don't rely on the third-party suppliers or even Pillar Five when it was a third-party supplier to review and release product on their own.
We've always felt that it was an important area for us to keep close control of. In the recent environment where there was recalls of private label product, that's an example where if you're not actively involved, you can't be up to speed on what's going on. Again, this, you know, go back to the beginning of your question. We think that this is a solid opportunity for Clear Eyes and TheraTears, quite frankly, over time.
Great. Thank you. Maybe just as a follow-up, I think you mentioned some consumer pressures in the fourth quarter. Maybe just, you know, high level, I think there's a lot of macro volatility, but just thoughts on what's driving that overall. I believe consumption across a lot of consumer health categories in the U.S. at least has been a little bit softer for longer than expected. Just thoughts on what's driving that. I guess in your guidance for organic growth, just expectations for recovery or more so status quo from what we're seeing in the fourth quarter and today. Thanks.
Yeah. Let me start by talking about the consumer environment, and then again, I'll let Chris add some comments around the outlook for next year. Right. Fiscal 2026 had a whole lot of factors going on that in a lot of ways, I feel very good that we successfully navigated them in 2026, right? We started our fiscal 2026 off with tariffs, right? Lots of volatilities about when tariffs were going to happen and at what level and what level of disruption and that kind of thing.
It moved on to government shutdowns, disruptions into government payments, as well as escalating inflation and interest rate volatility during the year. You know, over our last quarter ended March, conflict in the Middle East, and concerns around where that will go and the impact on oil prices. There's been a lot going on. Even with all that going on, you know, we continue to see that our categories are the last place that consumers look to make a change in what they buy, right?
Sticking with the trusted healthcare brand and products that worked in the past is something that's very consistent in consumers for a long time. We start with that benefit, and it really underpins how we're thinking about fiscal 2027, right? The importance of continuing to reinforce that, continue to have a steady pipeline of new products that brings benefits to the user out there. Lots going on, but again, we believe that we start in a good place given what's going on.
Yeah, Keith, just to piggyback on that, obviously difficult to predict, but our outlook assumes kind of status quo on the consumer and to current conditions. Again, we extended our range to be prudent around both eye care and consumer sentiment at this point.
Awesome. Thank you. I'll pass it on.
Thank you. Our next question comes from the line of Roopesh Parikh of Oppenheimer and Company. Please ask your question. Roopesh, your line is open.
Good morning, and thanks for taking my question. I guess, I mean, maybe I just wanna start at a high-level question. You have now two M&A transactions that you need to execute on. Clear Eyes, that's been challenging in recent years. It sounds like this year you expect to make progress. Just your overall confidence in being able to execute all these different priorities this year and going forward?
Yeah. Good morning, Rupesh. Whenever we evaluate M&A opportunities, the first question we always ask ourselves is, can we successfully manage the opportunity, the acquisition? That was true with Pillar5 Pharma Inc. We stood back and said, "Can we manage the complexity of this sterile eye care facility?" Given the expertise we have in-house and the ability to tap into outside experts, we felt very good about being able to manage that. As the Breathe Right opportunity came up, right, largest acquisition in the company's history, we started with that question.
Okay, we got Clear Eyes going on. Are the people involved with that also going to be involved with the Breathe Right portfolio? Do we have enough bandwidth? The similarities of that business model with ours, one, makes it an easier, I hate to use the word easy, but an easier transition into our business. You know, we know the space, sold through the same channels, gives us a nice growth opportunity international.
We felt good about the ability to execute this. You know, as I mentioned earlier, we've been keeping an eye on LaCorium Health and actively engaging with the owner for over 5 years, where I think the owner and seller was avoiding our general manager in the elevator because he liked to ask him when he was gonna be ready to sell the business. We started with that question: Is there overlap between the integration resources for Breathe Right and LaCorium Health? Can we get it done?
We did a deep dive on it, and essentially, there's not a lot of overlap in the Breathe Right business model in Australia, so very limited resources there will be working on both of them. We feel very good about our ability to execute all of these things that need to go on in fiscal 2027. Righting the Pillar Five and the sterile eye care supply chain, closing and integrating Breathe Right. We feel really good about that business opportunity. Closing and integrating the LaCorium business in Australia. Again, it's been the key area of focus as we thought about these things.
Great. A follow-up question just on guidance. For this fiscal year, how are you thinking about sell-in versus sell-out? Within your longer term targets from FY 2027, FY 2029, is there anything you can say at this point phasing of EPS growth and just the magnitude of the Clear Eyes recovery opportunity that you see during that period?
Yeah, Rupesh, it's Chris. Sell-in, sell-out, we're expecting to be normalized, right? We don't have any reason to believe there'll be a large anomaly at any particular customer or channel at this point. I believe your second question was centered around Clear Eyes and the assumptions that we have in the guide.
For the out years.
For the out years.
Yeah. Yeah. FY 2027, FY 2029, just your longer term targets. Like, anything you can say about the phasing of the EPS growth.
Yeah, so-
recovery opportunity is in your Clear Eyes?
Sure. We are not assuming by the end of fiscal 2029 we are fully recovered. We're essentially planning our shipments and sales in line with our increased production and capacity, which will meaningfully increase over the period, but not at the historical levels to get all the way back.
Okay, great. Thank you.
Thank you. A moment for our next question. Our next question comes from the line of Anthony Lebiedzinski of Sidoti. Please ask your question, Anthony. Your line is open.
Thank you and good morning, everyone, and thanks for taking the question. Just in terms of the 4Q reported numbers and your organic sales outlook, can you speak to pricing versus unit volumes? How should we think about those?
Anthony, it's Chris. You know, limited pricing in Q4, probably consistent with historical levels and is anticipated for fiscal 2027. We're thinking volume's gonna drive about 2/3 of our growth and price 1/3.
Thanks, Chris. Just in terms of the different channels of distribution, it sounds like the e-commerce channel is showing the most sales growth. Are there any other sales channels that you're seeing growth? Conversely, where are you seeing the most pressure points in terms of your sales channels of distribution?
Yeah. Good morning, Anthony.
Morning.
Channel shifting by the consumer continues, right? This has been some long-term trends here for us. As we talked about in the prepared remarks, the dot-com, the e-commerce business continues to grow very nicely for us, not only at the big player there, but at the dot-com arms of our brick-and-mortar partners as well.
It's a focused initiative and investment area for us. It's not just happening to us. It's a managed investment and focused area that we feel will continue to grow well above the company's average here. Mass continues to do well, the big player there, as well, and the channels with headwinds are consistent in the fourth quarter and in all of calendar 2026, and we would expect them to continue heading into 2027.
Got it. That's very helpful. Thank you very much.
Thank you, Anthony.
Thank you. Our next question comes from the line of Mitchell St-Pierru of Sturdivant & Co.. Please ask your question, Mitchell. Mitchell, please unmute your line locally. All right, as we are not getting a response, I'll move to the next question. Our next question comes from the line of Doug Lane of Water Tower Research. Please ask your question, Doug.
Yeah, thank you, good morning, everybody. Just looking at slide 21, talking about your longer term outlook. The 10% revenue growth, I think if I understood you right, is probably low to mid-single digits organic and then mid to high single digits from acquisitions. Is that about right?
That's about right. That's organic growth in line with our long-term algo of 2%-3%, and then, the acquisitions.
I think you actually said, at the higher end. Did you give a little bit more optimistic outlook, during this period, or is it right at the 2%-3%?
Yeah. Hey, good morning, Doug. Ron here. right, first thing we gotta do is get these acquisitions closed. We feel really good about them, but in both cases, we've talked about their growth potentials being above their comparable pieces of our business. we think Breathe Right in North America can grow ahead of our organic North American business, and the international piece can be above what we have for the international piece. same for LaCorium. For LaCorium, we think it can grow and expect it to grow well above the international long-term organic outlook of 5%.
The whole intent of getting that comment in there as we put these pieces together, get our eye care recovery going over the next few years, that the organic piece of it could clearly push us above the 3% for periods going forward. First thing is to get these things closed and get them behind us. You know, one of the important messages today that we wanted to get across and why we put this medium-term outlook out there is, you know, we don't wanna get things lost into the fiscal 2026 challenges that we had, right?
Lots of things to unpack in fiscal 2026. We started the year with a headwind from order timings that went into the fourth quarter of 2025 as a result of tariffs. We've had the big impact on Clear Eyes this year, as well as other factors going on that I mentioned earlier around all of the macro disruptions. It was important for us to make sure we emphasized how well the business is positioned and the benefit that these major acquisitions are going to have on our business going forward. We did not want that to get missed in today's discussions.
That's very helpful, and I get that. I guess my follow-up question is, if the acquisitions are accretive, then why would you expect an EPS CAGR to be below the sales CAGR over this period?
Yeah, Doug, what we factored into the long-term numbers is really the new term loan debt that we're anticipating as well as the repricing of our 2028 notes. It's really the impact of interest on the model. All other factors would be similar to and consistent with what you'd expect from our long-term algorithm.
Operationally, you think margins will basically hold, maybe expand a little bit? I mean, how should we look at that?
That's exactly right, Doug.
Okay. Okay, that's great. Thanks.
Thank you. We have now come to the end of the question and answer session. Thank you all very much for your questions. I'll now turn the conference back to Ron Lombardi for closing comments.
Thank you, operator, and thanks for all the great questions this morning. We look forward to providing an update in August. Have a great day.