posted March 22, 2007
Chattem, Inc. (NASDAQ: CHTT), Chattanooga-based leading marketer and manufacturer of branded consumer products, today announced results for the first quarter of fiscal 2007, including a rise in revenues to above $100 million.
Total revenues for the first quarter of fiscal 2007 were $100.8 million compared to total revenues of $84.0 million in the prior year quarter representing a 20% increase.
Revenue growth for the quarter was driven by sales of the five brands acquired from Johnson & Johnson on Jan. 2, continued growth of the Gold Bond(R) franchise, up 27%, the strength of the Icy Hot(R) business, up 23%, led by new product launches, and steady growth from Dexatrim(R) and Pamprin(R), each up 11%. Offsetting these increases was a reduction in sales of Icy Hot Pro-Therapy(TM) from launch levels in the first quarter of fiscal 2006.
Excluding the impact of the acquired brands and Icy Hot Pro-Therapy, total revenues from the base business increased by 11% in the first quarter of fiscal 2007, compared to the prior year quarter.
Net income for the first quarter of fiscal 2007 was $13.7 million, down 7%, compared to net income of $14.8 million in the prior year quarter. Earnings per share for the first quarter were $0.71, down 5%, compared to $0.75 in the prior year quarter.
Net income in the first quarter of fiscal 2007 included employee stock option expenses under SFAS 123R ($0.04 per share after taxes). Net income in the first quarter of fiscal 2006 included employee stock option expense under SFAS 123R ($0.03 per share after taxes), a gain related to a recovery of legal expenses ($0.29 per share after taxes), and a loss on early extinguishment of debt ($0.10 per share after taxes). As adjusted to
exclude these items, net income in the first quarter of fiscal 2007 was $14.4 million, up 25%, compared to $11.5 million in the prior year quarter and earnings per share were $0.75, up 27%, compared to $0.59 in the prior year quarter.
"The company completed its first quarter in history with revenues over $100 million," said Chief Executive Officer Zan Guerry. "The level of enthusiasm at the company is greater than ever. With sales of Gold Bond continuing to exceed expectations, the Selsun(R) franchise continuing to perform well at retail with Nielsen data showing a 12% increase for the latest 13 week period ending February 24, 2007, a strong sell-in of our new products in the topical pain care category and the integration of our newly acquired brands progressing smoothly, Chattem is well positioned to deliver on its growth objectives in fiscal year 2007 and beyond. We are extremely pleased with the company's 27% increase in adjusted earnings per share as we view this as a meaningful measure of our operating performance."
KEY HIGHLIGHTS
-- Gross margin for the first quarter of fiscal 2007 was 69.3%, compared to 69.0% in the prior year quarter. The increase in gross margin primarily reflected reduced sales of the relatively low margin Icy Hot Pro-Therapy line. Gross margins on the acquired business were in line with original expectations and should increase over time as the company plans to bring manufacturing for certain of the brands in-house.
-- Advertising and promotion expense (A&P) for the first quarter of fiscal 2007 increased to $28.8 million from $27.2 million in the prior year quarter. A&P expense as a percentage of total revenues decreased to 28.5% for the first quarter of fiscal 2007, as compared to 32.4% in the prior year quarter, with the reduction as a percentage of total revenues declining largely as a result of the heavy investment spending on Icy Hot Pro-Therapy in the first quarter of fiscal 2006. The company continues to support both the base business and the acquired brands with strong advertising and promotional programs.
-- Selling, general and administrative expenses (SG&A) for the first quarter of fiscal 2007 increased to $12.6 million from $11.6 million in the prior year quarter. SG&A as a percentage of total revenues for the first quarter of fiscal 2007 decreased to 12.5%, as compared to 13.8% in the prior year quarter reflecting the company's ability to leverage its operating infrastructure.
-- Acquisition costs primarily reflect payments made to Johnson & Johnson for services rendered under a Transition Services Agreement related to the acquired brands.
-- Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding litigation settlement items was $28.7 million, or 28.5% of total revenues, for the first quarter of fiscal 2007, up 40%, compared to the prior year quarter.
-- Interest expense increased $4.4 million in the first quarter of fiscal 2007 as compared to the prior year quarter reflecting the impact of the additional indebtedness incurred to finance the acquisition of brands from Johnson & Johnson.
-- The company reduced outstanding borrowings under its revolving credit facility to $15.0 million as of March 21, 2007, versus an outstanding balance of $30.0 million at February 28, 2007 and an acquisition funding balance of $38.0 million on January 2, 2007.
-- To date, the integration of the acquired brands is progressing very well and the company expects any remaining transition services being provided by Johnson & Johnson to cease during the second fiscal quarter.
FISCAL 2007 GUIDANCE
The company currently expects earnings per share in fiscal 2007 to be in the range of $2.85 to $3.10 as compared to earlier estimates of $2.80 to $3.05, in each case excluding stock option expense under SFAS 123R. Stock option expense under SFAS 123R for fiscal 2007 is estimated to be $0.14 per share prior to the impact of any additional option grants in fiscal 2007.
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