Prestige Brands Holdings, Inc. (NYSE:PBH) today announced results for the third quarter and nine months of fiscal year 2011, which ended on December 31, 2010. Following the close of the quarter, the Company completed the previously announced acquisition of the Dramamine® Brand in the U.S. from McNeil-PPC, Inc.
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Revenues for the third fiscal quarter were $90.6 million, $16.8 million or 22.7% above the prior year's comparable quarter revenues of $73.8 million. The Company's revenue from its five core OTC brands (Chloraseptic®, Clear Eyes®, Compound W®, Little Remedies® and The Doctor's® NightGuard®) increased 14.0% over the prior year comparable quarter. Revenue for the third fiscal quarter for the remaining OTC brands, the Household segment and International, decreased 7% versus the prior year comparable period. Overall, revenues were up $1.6 million, or 2% above the prior year's comparable quarter, excluding the impact of the Blacksmith Brands ("BSB") acquisition in November, 2010.
Operating income for the third fiscal quarter was $13.0 million, which was impacted by $10.5 million of charges associated with the acquisition of BSB. Excluding the impact of these charges, operating income would have been $23.5 million, $0.2 million or 1.0% above the prior year's comparable quarter operating income of $23.3 million. Gross profit for the third fiscal quarter was $44.0 million, which included $3.5 million of charges associated with the inventory valuation from the BSB acquisition. Excluding the impact of these acquisition related charges, gross profit would have been $47.5 million and gross margin would have been stable at approximately 53% of net revenue, in line with the prior year's quarter. During the quarter, the Company invested significantly behind Advertising and Promotion ("A&P") in support of its core brands within the Over-the-Counter ("OTC") segment as well as the acquired brands from BSB.
Income from continuing operations for the third fiscal quarter was $2.1 million and was impacted by $8.2 million of acquisition related charges, net of tax. Excluding the impact of these acquisition related charges, income from continuing operations would have been $10.3 million, 2.4% higher than the prior year comparable period's results of $10.0 million.
For the third fiscal quarter, basic earnings per share from continuing operations was $0.04, and was impacted by the acquisition related charges by $0.17. Excluding the impact of the acquisition related charges, basic earnings per share from continuing operations would have been $0.21 compared to $0.20 in the prior year's third fiscal quarter.
Commentary
"We are pleased with our results for the quarter. Our strategy for growing the core OTC brands is well underway. Increased investment in advertising and promotion coupled with new product introductions resulted in strong sell through during the quarter. Consumption for Prestige's core OTC brands, including Blacksmith Brands, grew 26.5% during the quarter, as compared to a decline of 1% for the respective categories," said Matthew Mannelly, President and CEO. "In addition, our M&A focus is driving the Company's strategic and financial transformation. The Blacksmith Brands integration is on track and we are making the appropriate advertising and promotional investment to support long-term sustainable growth," he said. "Furthermore, we just completed the acquisition of the Dramamine® brand in the U.S. Dramamine has the dominant position in the motion sickness category and possesses attractive growth characteristics. With the addition of this brand, our OTC segment now includes nine core OTC brands which represent approximately 90% of our OTC segment revenue. Looking forward, we are cautiously optimistic as the retail environment shows some signs of improvement. We will continue to view this as an opportunity to build our brands and invest in our future growth. We expect our continued investments in the fourth quarter to position our expanded core OTC portfolio for growth in fiscal year 2012 and beyond."
Third Quarter Results by Segment
Revenues for the OTC segment increased $20.9 million, or 44.9%, during the third quarter of fiscal year 2011 versus the same period in fiscal year 2010. This increase was primarily due to $15.2 million of revenues attributable to the acquired BSB products. The OTC segment increased revenues by $5.7 million or 12.3%, excluding the impact of the acquisition of BSB. Overall, revenue increases for Chloraseptic®, Little Remedies®, Compound W® and Clear Eyes® brands were partially offset by revenue decreases for The Doctor's® brand. To drive revenue growth, the Company increased advertising and promotional activities, which led to increased consumption at retail.
Revenues for the Household segment decreased $4.1 million, or 15.1%, during fiscal year 2011 versus the same period in fiscal year 2010. In a challenging retail and competitive market, the Company's largest Household brand, Comet®, grew market share in abrasive cleaners while experiencing revenue declines in bathroom sprays primarily due to competitive new product introductions and lower consumer demand.
Year-to-Date Results
For the nine month period ending December 31, 2010, revenues were $240.1 million, an increase of 7.9% over the prior year comparable period's results of $222.7 million. Revenues were $2.2 million, or 1% above the prior year's comparable period, excluding the BSB revenues.
Operating income for the nine month period ending December 31, 2010 was $57.5 million, which was impacted by $10.5 million of charges associated with the acquisition of BSB. Excluding the impact of these charges, operating income would have been $68.0 million, $7.3 million or 12.1% above the prior year's comparable period operating income of $60.7 million. Gross profit for the current nine month period was $124.6 million, which included $3.5 million of charges associated with the inventory valuation from the BSB acquisition. Excluding the impact of these acquisition related charges, gross profit would have been $128.1 million and gross margin would have been stable at approximately 53% of revenue, in line with the prior year's comparable period.
Income from continuing operations was $22.7 million and was impacted by $8.2 million of acquisition related charges, net of tax. Excluding the impact of these charges, income from continuing operations would have been $30.9 million, an increase of 17.7%, compared to $26.3 million in the prior year's comparable period.
For the current nine month period, basic earnings per share from continuing operations was $0.46, and was impacted by the acquisition related charges by $0.16. Excluding the impact of the acquisition related charges, basic earnings per share from continuing operations would have been $0.62 compared to $0.53, 17.4% higher than the prior year's comparable period.
Free Cash Flow and Debt
Free cash flow is a "non-GAAP" financial measure as that term is defined by the Securities and Exchange Commission in Regulation G. Free cash flow is presented here because management believes it is a commonly used measure of liquidity, and indicative of cash available for debt repayment and acquisitions. The Company defines "free cash flow" as operating cash flow from continuing operations less capital expenditures.
The Company's free cash flow for the third fiscal quarter ended December 31, 2010 was $18.7 million, an increase of $8.3 million or 79.0% over the prior year's comparable quarter. Free cash flow is composed of operating cash flow of $18.8 million less capital expenditures of $0.1 million. This compares to the prior year comparable quarter's free cash flow of $10.4 million, composed of operating cash flow of $10.6 million less capital expenditures of $0.2 million.
Total indebtedness at December 31, 2010 was $509.5 million. At December 31, 2010, cash on the balance sheet totaled $83.3 million.
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