posted September 25, 2008
Chattem, Inc. (NASDAQ: CHTT), Chattanooga-based leading marketer and manufacturer of branded consumer products, on Thursday announced financial results for the third fiscal quarter and nine months ended Aug. 31, including revenue growth and strong sales.
Zan Guerry, chairman and chief executive officer of Chattem, said, "The momentum of our business has continued behind our key brands
such as ACT(R), Gold Bond(R), Icy Hot(R) and Cortizone-10(R),
resulting in strong revenue and earnings growth for the first nine
months of fiscal 2008. In addition, our strong cash flows have allowed
end of fiscal 2008 while also repurchasing approximately 418,000
shares of our common stock in the first nine months.
"This strong growth and cash flow generation result from effective advertising, the strength of our key brands and continued success of our 2008 product launches. With these positive results and the continued strength of our key brands, we are raising our fiscal 2008 guidance and are pleased to provide an exciting initial outlook for fiscal 2009."
FIRST NINE MONTHS FINANCIAL RESULTS
Total revenues for the first nine months of fiscal 2008 were $349.4 million compared to total revenues of $322.8 million in the prior year period, representing an 8% increase.
Revenue growth for the first nine months of fiscal 2008 was led by the five brands acquired from Johnson & Johnson on January 2, 2007 (ACT, Coritzone-10, Unisom(R), Balmex(R) and Kaopectate(R)) and strong sales growth from Gold Bond, Icy Hot and Aspercreme(R).
Mr. Guerry said, "Offsetting these increases in part was a decline 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."
Net income in the first nine months of fiscal 2008 was $49.6 million, compared to $44.9 million in the prior year period, and earnings per share were $2.56, compared to $2.33 in the prior year period. Net income in the first nine months of fiscal 2008 included a loss on early extinguishment of debt, employee stock option expenses under SFAS 123R, non-recurring expenses related to the voluntary recall of Icy Hot Heat Therapy and a settlement related to claims alleging pulmonary arterial hypertension as a result of ingestion of Dexatrim products in 1998 through 2003. Net income in the first nine
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 nine months of fiscal 2008 was $63.8 million, compared to $49.3 million in the prior year period, and earnings per share were $3.29, compared to $2.56 in the prior year period, an increase of 29%.
THIRD QUARTER FINANCIAL RESULTS
Total revenues for the third quarter of fiscal 2008 were $111.9 million compared to total revenues of $109.0 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, Cortizone-10, Aspercreme and Bullfrog(R). These sales increases were offset in part by lower sales of Dexatrim and Icy Hot Heat Therapy.
Net income for the third quarter of fiscal 2008 was $14.0 million compared to net income of $16.3 million in the prior year quarter. Earnings per share for the third quarter were $0.73 compared to $0.84 in the prior year quarter. Net income in the third quarter of fiscal 2008 included employee stock option expenses under SFAS 123R, an adjustment related to the voluntary recall of Icy Hot Heat Therapy products and a settlement related to claims alleging pulmonary arterial hypertension as a result of ingestion of Dexatrim products in 1998 through 2003.
Net income in the third quarter 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 third quarter of fiscal 2008 was $22.3 million, or
$1.17 per share, compared to $17.5 million, or $0.90 per share, in the
prior year quarter, an increase of 30%.
KEY HIGHLIGHTS
-- Gross margin for the first nine months of fiscal 2008 was
71.6% compared to 69.4% for the prior year period. For the
third quarter of fiscal 2008, gross margin was 71.6%, compared
to 69.9% in the prior year quarter. 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.
-- Advertising and promotion expense (A&P) in the first nine
months of fiscal 2008 increased by $5.3 million to $91.5
million, or 26.2% of total revenues, from $86.2 million, or
26.7% of total revenues, in the prior year period. For the
third quarter of fiscal 2008 A&P decreased by $1.0 million to
$26.8 million, or 23.9% as a percentage of total revenues for
the third quarter of fiscal 2008, as compared to 25.5% in the
prior year quarter.
-- Selling, general and administrative expenses (SG&A) increased
by $3.3 million during the first nine months of fiscal 2008 to
$45.7 million or 13.0% as a percentage of total revenues as
compared to 13.2% for the first nine months of fiscal 2007.
SG&A decreased by $0.6 million in the third quarter of fiscal
2008 to $15.0 million or 13.4% as a percentage of total
revenues for the third quarter of fiscal 2008 as compared to
14.3% in the prior year quarter. In the first nine 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 first nine months of fiscal 2007.
-- Earnings before interest, taxes, depreciation and amortization
(EBITDA) excluding one-time product recall expenses and the
settlement related to Dexatrim products was $121.7 million, or
34.8% of total revenues, for the first nine months of fiscal
2008, up 19.5%, compared to $101.9 million, or 31.6% of total
revenues, for the first nine months of fiscal 2007. EBITDA
excluding an adjustment related to the voluntary recall of Icy
Hot Heat Therapy products and the settlement related to
Dexatrim products was $41.5 million, or 37.1% of total
revenues, for the third quarter of fiscal 2008, up 16.0%, as
compared to $35.8 million, or 32.8% of total revenues, for the
prior year quarter.
-- 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 an average of $62.94 per share. In the third
quarter of fiscal 2008, the Company repurchased 230,900 shares
of the Company's common stock for approximately $13.8 million,
or an average of $59.65 per share.
-- Total debt was $460.3 million as of August 31, 2008, a
reduction of $47.7 million from the November 30, 2007 balance
of $508.0 million. The ratio of total debt to EBITDA adjusted
for the one-time product recall expenses and settlement
related to Dexatrim products was 3.0x for the period ending
August 31, 2008.
-- During the third quarter of fiscal 2008, the Company reached a
settlement on all 26 known claims alleging pulmonary arterial
hypertension as a result of the ingestion of Dexatrim products
in 1998 through 2003, including the 17 previously disclosed
claims. The settlement of the 26 claims totals $13.25 million,
of which $2.6 million will be funded from the Dexatrim
litigation settlement trust, and is included as litigation
settlement in the unaudited consolidated statements of income
attached hereto.
FISCAL 2008 GUIDANCE
The company currently expects earnings per share for fiscal 2008 to be in the range of $4.20 to $4.25 as compared to our earlier estimate of $4.00 to $4.20, trending toward the upper-end of this range, in each case excluding stock option expenses under SFAS 123R, loss on debt extinguishment, non-recurring product recall expenses and litigation settlement related to Dexatrim products. Stock option expense under SFAS 123R for fiscal 2008 is estimated to be $0.20 per share.
FISCAL 2009 GUIDANCE
Mr. Guerry said, "Our exciting line-up of new products is expected to continue our revenue growth into fiscal 2009, fuel our earnings momentum and continue to generate strong cash flow.
"We will continue to support our brands with increased advertising spending, monitor our capital structure as we decrease our debt and leverage our infrastructure. We currently expect earnings per share for fiscal 2009 to be in the range of $4.80 to $5.00 per share, excluding stock option expenses under SFAS 123R and loss on debt extinguishment. We will continue to benefit from the tax deduction resulting from the amortization of acquired trademarks and the integrated convertible bond hedge that are not amortized to determine earnings per share, but together generate approximately $19 million of incremental cash flow not considered in this earnings per share guidance. Stock option expense under SFAS 123R for fiscal 2009 is estimated to be $0.26 per share."
| Dining Out | Business | Movies | Focus | About Us |
| Church | Living Well | Memories | Outdoors | Real Estate | Student Scene | Travel |
