Prestige Brands Holdings, Inc. Reports 53.4% Revenue Increase & Record Earnings for Second Quarter of Fiscal 2013
Full Year EPS Guidance Increased; Divestiture of Phazyme® Announced
TARRYTOWN, N.Y.--(BUSINESS WIRE)-- Prestige Brands Holdings, Inc. today announced results for the second fiscal quarter ended September 30, 2012, including revenues of $161.9 million, an increase of 53.4% over the prior year comparable period's revenues of $105.5 million. Revenues for the six month period totaled $308.9 million, an increase of 53.8% over the prior year six month period's revenues of $200.8 million. The second quarter and year-to-date growth was driven by the Company's core over-the-counter (OTC) healthcare brands, which experienced 11.3% organic growth in the second fiscal quarter, and revenue from the Company's acquisition of 17 brands from GlaxoSmithKline (GSK), which was completed during the fourth quarter of fiscal 2012.
In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided certain non-GAAP financial information to aid investors in understanding the company's performance. Each non-GAAP financial measure is defined and reconciled to its most closely related GAAP financial measure in the "About non-GAAP Financial Measures" section at the end of this earnings release.
Reported net income for the second fiscal quarter was a record $19.2 million or $0.38 per diluted share, versus $12.9 million or $0.26 per diluted share, in the prior year comparable period, an increase of 48.6% in reported net income and 46.2% in diluted earnings per share. Adjusted net income for the second fiscal quarter was $21.3 million, or $0.42 per diluted share compared to $12.9 million or $0.26 per diluted share, in the prior year comparable period, an increase of 64.7% in adjusted net income. The fiscal second quarter's adjusted net income excludes expenses related to the GSK Transition Services Agreement (TSA) and integration costs totaling $2.1 million net of taxes, or $0.04 per diluted share, which were in line with previously communicated expectations.
Reported net income for the first six months of fiscal 2013 was $33.9 million, or 22.3% higher than the prior year comparable period's results of $27.7 million. Adjusted net income increased $14.4 million or 58.2%, for the first six months of fiscal 2013 to $39.2 million, or $0.77 per diluted share, compared to $24.8 million or $0.49 per diluted share, in the prior year comparable period. The current year's adjusted net income for the six month period excludes expenses related to the TSA, integration and other costs totaling $5.4 million net of taxes, or $0.11 per diluted share. The prior year's comparable six month period excluded a one time net gain associated with a legal settlement and other one-time costs totaling approximately $2.9 million or $0.06 per diluted share.
Reported gross profit for the second fiscal quarter was $90.5 million, an increase of $36.6 million, or 68.0%, over the prior year comparable quarter of $53.9 million. Adjusted gross margin was $92.2 million and 57.0% of revenues for the second fiscal quarter compared to $53.9 million and 51.1% of revenues in the prior year comparable period. The current year period excludes integration and other costs of $1.7 million related to the acquired GSK brands. The year-over-year improvement in adjusted gross margin is primarily a result of a greater proportion of revenue generated from the higher gross margin OTC segment, which now represents approximately 85% of overall revenues and 95% of brand contribution.
Revenues for the OTC healthcare segment were $137.9 million, 74.3% higher than the prior year's second quarter results of $79.2 million. The increase in revenues in the OTC segment was a result of the effectiveness of the increased marketing and advertising support behind core OTC brands, as well as the acquisition of 17 North American brands from GSK. The Company's nine legacy core OTC brands increased 11.3% in the second quarter, representing the ninth consecutive quarter of organic revenue increases for the legacy core OTC product group. Strong sales gains were recorded for Little Remedies®, Compound W®, Efferdent®, PediaCare®, and Chloraseptic®. Net revenues for the OTC segment for the first six months of fiscal 2013 were $264.1 million, 75.7% higher than the prior year's results of $150.4 million, reflecting the growth in the legacy core OTC brands and the acquisition of the GSK brands. Revenues for the Household Cleaning segment, which represent approximately 15% of corporate revenues and 5% of brand contribution, were $23.9 million for the second fiscal quarter and $44.7 million year-to-date. This represents a 9.4% reduction in the second quarter over the prior year comparable period revenues of $26.4 million, and an 11.4% reduction in the prior year's comparable period six month results of $50.5 million.
As part of its strategy to focus on core OTC brands and manage the overall portfolio, the Company divested the Phazyme® gas treatment brand to C.B. Fleet Company, Inc. on October 31, 2012. Phazyme is a non-core OTC product which was acquired in January 2012 from GSK and accounted for less than 1% of revenues for the fiscal year-to-date. The Company will use all proceeds of the sale to pay down debt.
Commentary and Outlook
"Our excellent second quarter performance reflects the success of our strategic initiatives in three key areas; the full integration of the brands acquired from GSK that transformed our company and financial profile, the effectiveness of increased advertising and promotion support behind core brands, and our dedicated focus to superior execution resulting in core OTC growth," said Matthew M. Mannelly, CEO. "Core OTC growth increased 11.3% in the second quarter, representing the ninth consecutive quarter of organic growth, category outperformance, and market share gains."
"Our industry-leading and consistent free cash flow combined with a solid balance sheet puts Prestige in the unique position to be able to quickly and reliably de-lever, and at the same time, provides greater flexibility for future M&A opportunities," Mr. Mannelly said.
"With our strong first half performance, our strategy in place, and a well-positioned portfolio of consumer brands, we are confident in raising our earnings guidance for fiscal 2013 from $1.22-$1.32 to $1.37-$1.42 per share," he said.
Free Cash Flow and Debt Reduction
Free cash flow is a "non-GAAP financial measure" and is presented here because management believes it is a commonly used measure of liquidity, indicative of cash available for debt repayment and acquisitions. Non-GAAP Free Cash Flow is defined and reconciled to GAAP Net Cash Provided by Operating Activities in the section entitled, "About Non-GAAP Financial Measures" below. The Company's free cash flow for the second fiscal quarter ended September 30, 2012 was $41.6 million, an increase of $23.8 million over the prior year comparable period's free cash flow of $17.8 million. For the six month period, free cash flow totaled $55.1 million compared to $33.2 million in the prior year comparable period. The Company continues to expect free cash flow of approximately $110 million for fiscal 2013, in line with what was previously stated.
The Company's net debt at September 30, 2012 was $1,061 million, reflecting a reduction of $42.0 million during the quarter ended September 30, 2012. The Company's covenant defined leverage ratio was 4.59, down from approximately 5.25 at the time of the closing on the acquisition of the GSK brands.
Conference Call and Accompanying Slide Presentation
The Company will host a conference call to review its first quarter results on November 1, 2012 at 8:30 am EDT. The toll-free dial-in numbers are 866-730-5764 within North America and 857-350-1588 outside of North America. The conference pass code is "prestige". The Company will provide a live internet webcast, a slide presentation to accompany the call, as well as an archived replay, all of which can be accessed from the Investor Relations page of http://prestigebrands.com. The slide presentation can be accessed just before the call from the Investor Relations page of the website by clicking on Webcasts and Presentations. Telephonic replays will be available for two weeks following the completion of the call and can be accessed at 888-286-8010 within North America and at 617-801-6888 from outside North America. The pass code is 44647322.
About Prestige Brands Holdings, Inc.
The Company markets and distributes brand name over-the-counter and household cleaning products throughout the U.S., Canada, and certain international markets. Core brands include Chloraseptic® sore throat treatments, Clear Eyes® eye care products, Compound W® wart treatments, The Doctor's® NightGuard® dental protector, the Little Remedies® and PediaCare® lines of pediatric over-the-counter products, Efferdent® denture care products, Luden's® throat drops, Dramamine® motion sickness treatment, BC® and Goody's® pain relievers, Beano® gas prevention, Debrox® earwax remover, and Gaviscon® antacid.
Note Regarding Forward-Looking Statements
This news release contains "forward-looking statements" within the meaning of the federal securities laws that are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" generally can be identified by the use of forward-looking terminology such as "assumptions," "target," "guidance," "outlook," "plans," "projection," "may," "will," "would," "expect," "intend," "estimate," "anticipate," "believe", "potential," or "continue" (or the negative or other derivatives of each of these terms) or similar terminology. The "forward-looking statements" include, without limitation, statements regarding the progress of the GSK integration, the growth of our portfolio and sales volume, our intentions regarding development of the brands we acquired from GSK, our outlook and expected financial results, including earnings per share and free cash flow, and our plans to deliver superior value to our stockholders. These statements are based on management's estimates and assumptions with respect to future events and financial performance and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those expected as a result of a variety of factors. A discussion of factors that could cause results to vary is included in the Company's Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.
Prestige Brands Holdings, Inc.
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