posted July 10, 2008
Chattem, Inc. (NASDAQ: CHTT), Chattanooga-based leading marketer and manufacturer of branded consumer products, announced financial results for the second fiscal quarter and six months ended May 31, including revenue growth of 11 percent.
"The continued strength of our Big 6 brands, ACT(R), Gold Bond(R), Icy Hot(R), Cortizone-10(R), Selsun(R) and Unisom(R), behind effective advertising, and the early results of the 2008 new product introductions has maintained our positive momentum and put us in a strong position for the second half of fiscal 2008," said Zan Guerry, chairman and chief executive officer of Chattem.
"Our revenue growth of 11% for the first six months was driven by ACT, Gold Bond, Unisom, Icy Hot and Selsun, and an additional month of revenue from the five brands acquired from Johnson & Johnson on Jan. 2, 2007. Gross margins continued to improve and we utilized our free cash flow to reduce outstanding debt and repurchase our common stock."
Total revenues for the first six months of fiscal 2008 were $237.5 million compared to total revenues of $213.8 million in the prior year period, representing an 11% increase. Revenue growth for the first half of fiscal 2008 was led by the five acquired brands and strong sales growth from Gold Bond, Icy Hot, Selsun and Aspercreme(R). Offsetting these increases was a reduction in sales of Dexatrim(R) due to increased competition in the diet aid category, Icy Hot Heat Therapy as a result of our voluntary recall of the product in our first fiscal quarter of 2008 and Icy Hot Pro Therapy(R) resulting from decreased distribution. Excluding the impact of Icy Hot Heat Therapy and Icy Hot Pro Therapy and the additional one month of revenue from the five acquired brands, total revenues increased 9% in the first six months of fiscal 2008 compared to the prior year period.
Net income in the first six months of fiscal 2008 was $35.6 million, compared to $28.6 million in the prior year period, and earnings per share were $1.82, compared to $1.48 in the prior year period. Net income in the first six months of fiscal 2008 included a loss on early extinguishment of debt, employee stock option expenses under SFAS 123R and non-recurring expenses related to the voluntary recall of Icy Hot Heat Therapy. Net income in the first six months of fiscal 2007 included a loss on early extinguishment of debt and employee stock option expenses under SFAS 123R. As adjusted to exclude these items, net income in the first six months of fiscal 2008 was $41.5 million, compared to $31.7 million in the prior year period, and earnings per share were $2.12, compared to $1.65 in the prior year period, an increase of 28%.
Total revenues for the second quarter of fiscal 2008 were $116.7 million compared to total revenues of $113.0 million in the prior year quarter, representing a 3% increase. Revenue growth for the quarter was driven by strong sales of ACT, Icy Hot, Gold Bond, Unisom and Cortizone-10. These sales increases were offset by lower sales of Bullfrog(R), Dexatrim, Icy Hot Heat Therapy and Icy Hot Pro Therapy. Excluding the impact of Icy Hot Heat Therapy and Icy Hot Pro Therapy, total revenues increased 6% in the second quarter of fiscal 2008 compared to the prior year quarter.
Net income for the second quarter of fiscal 2008 was $20.7 million, up 39%, compared to net income of $14.9 million in the prior year quarter. Earnings per share for the second quarter were $1.06, up 38%, compared to $0.77 in the prior year quarter. Net income in the second quarter of fiscal 2008 included employee stock option expenses under SFAS 123R. Net income in the second quarter of fiscal 2007 included employee stock option expenses under SFAS 123R and a loss on early extinguishment of debt. As adjusted to exclude these items, net income in the second quarter of fiscal 2008 was $21.5 million, or $1.10 per share, compared to $17.3 million, or $0.89 per share, in the prior year quarter, up 24% for both net income and earnings per share as compared to the prior year.
KEY HIGHLIGHTS
-- Gross margin for the second quarter of fiscal 2008 was 72.0%, compared to 68.9% in the prior year quarter. For the first six months of fiscal 2008 gross margin was 71.6% compared to 69.1% for the prior year period. The gross margin increase was largely attributable to the integration of the manufacturing of certain of the brands acquired from Johnson & Johnson in January 2007. To partially offset cost increases, effective April 18, 2008 the Company implemented a 5% price increase on approximately 15% of its domestic volume across various brands.
-- Advertising and promotion expense (A&P) in the second quarter of fiscal 2008 increased by $0.5 million to $30.2 million, or 25.9% as a percentage of total revenues for the second quarter of fiscal 2008, as compared to 26.2% in the prior year quarter. For the first six months of fiscal 2008 A&P expense increased by $6.2 million to $64.7 million, from $58.5 million in the prior year period, but remained consistent at 27.3% of total revenues.
-- Selling, general and administrative expenses (SG&A) in the second quarter of fiscal 2008 increased by $0.9 million to $15.2 million or 13.0% as a percentage of total revenues for the second quarter of fiscal 2008, as compared to 12.7% in the prior year quarter. SG&A increased by $3.9 million during the first six months of fiscal 2008 to $30.7 million or 12.9% as a percentage of total revenues, as compared to 12.5% for the first six months of fiscal 2007. In the second quarter and first six months of fiscal 2008, the Company absorbed transition services costs similar to those paid to Johnson & Johnson related to freight and administrative costs that were recorded as acquisition expenses in the second quarter and first six months of fiscal 2007.
-- Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding one-time product recall expenses was $41.3 million, or 35.4% of total revenues, for the second quarter of fiscal 2008, up 14.7%, as compared to $36.0 million, or 31.8% of total revenues, for the prior year quarter. EBITDA excluding one-time product recall expenses was $80.2 million, or 33.8% of total revenues, for the first six months of fiscal 2008, up 21.3%, compared to $66.1 million, or 30.9% of total revenues, for the first six months of fiscal 2007.
-- Interest expense decreased $1.8 million in the second quarter of fiscal 2008 as compared to the prior year quarter and $2.4 million for the first six months of fiscal 2008 as compared to the same year ago period reflecting the use of free cash flow to repay debt.
-- In the second quarter of fiscal 2008, the Company repurchased 183,681 shares of the Company's common stock for approximately $12.3 million, or an average cost of $67.04 per share. Subsequent to May 31, 2008 and through July 9, 2008, the Company purchased an additional 230,900 shares of the Company's common stock for approximately $13.8 million, or $59.65 per share. During fiscal 2008, the Company has repurchased a total of 418,281 shares of the Company's common stock for approximately $26.3 million, or $62.94 per share.
FISCAL 2008 GUIDANCE
The company currently expects earnings per share in fiscal 2008 to be in the range of $4.00 - $4.20, trending toward the upper end of this range, excluding the non-cash stock option expense under SFAS 123R of $0.21 per share, any non-cash loss on debt extinguishment, which was $0.02 per share in the first six months of fiscal 2008, and the estimated $0.20 per share impact of the non-recurring recall expenses recorded in connection with the Company's February 8, 2008 voluntary recall of its air activated Icy Hot Heat Therapy patch product.
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