Officials atPrestige Brands (
) could probably write an opera about how buyout talk affects a
company's stock price.
Prestige sells brand-name, over-the-counter health care,
household cleaning and personal care products. Its lineup
includes Clear Eyes eye care products, Luden's cough drops,
PediaCare children's medicines and Comet household cleansers.
Over the past several months, the company's stock price has
bounced all over the place thanks to M&A chatter.
Prestige's shares rose 20% in late December when the company
announced a $660 million buyout of 17 different brands from
British drugmakerGlaxoSmithKline (
The stock got an even bigger lift Feb. 21 when Genomma Lab, a
Mexican pharmaceutical products firm, said it would buy Prestige
for $834 million in cash.
That announcement sent Prestige shares up 21% to a 6-1/2-year
closing high of 16.41. The stock price kept climbing over the
next few months before tanking May 3, when Genomma said it would
drop its buyout bid after Prestige rejected the offer.
Genomma's cash offer equaled $16.60 a share, a premium of 23%
over Prestige's closing price before the offer was made. In
March, however, Prestige said the deal was "inadequate."
Prestige's stock price fell 15% to 13.93 the day Genomma
pulled its offer. That was roughly the same price it sold at
before the offer was even made.
Since then, however, Prestige shares have crept back up to
near 16 as Wall Street's attention has shifted back to the
company's solid financial performance.
Prestige has averaged 18% annual sales growth and 16% annual
earnings growth the past two years as it rebounded from
lackluster results in fiscal 2009 and 2010.
The company turned in its best performance in years during its
fiscal first quarter, which ended in June. Prestige grew
year-over-year earnings 52% during the quarter, while revenue
showed a 54% increase.
"The fiscal 1Q results reflect continued progress on a number
of fronts, including growing its core OTC business, integrating
the recently acquired Glaxo brands and de-leveraging its balance
sheet," Oppenheimer analyst Joseph Altobello noted in a
Prestige completed the last two of its Glaxo purchases in
April when it finalized the deals for Debrox ear wax remover and
Gly-Oxide oral rinse.
Other brands that came aboard in the Glaxo deal include Clear
Eyes, Luden's, Chloraseptic sore throat treatments, Efferdent
denture care products, BC & Goody's headache powders and
Fiber Choice and Beano digestive aids.
The $660 million purchase price was a lot for a company that
produced $441 million in sales last fiscal year. But company
watchers say Prestige is doing a good job shoring up its balance
"The company continues to work on reducing its debt level and
expects to exit fiscal 2013 with free cash flow of $110 million,"
Zacks Equity Research noted in a recent report.
Prestige sells its products mainly to mass merchandisers,
drugstores, supermarkets and dollar and club stores. Most of its
business is in the U.S. and Canada, though it also sells to other
The company competes against a number of much larger firms,
includingJohnson & Johnson (
) andProcter & Gamble (PG).
Prestige used a combination of buyouts and organic growth
initiatives to bulk up and build larger economies of scale. Much
of its growth strategy is focused on bulking up its lineup of
over-the-counter products, watchers say.
Last fiscal year, OTC goods made up 78% of the company's
overall sales. In its note, Zacks said Prestige's aim "is to
generate 85% of its revenues from OTC products by the end of
Prestige is well on its way to reaching that goal. Fiscal Q1
revenue for the OTC health care segment grew 77% from the prior
year to $126.2 million, or 86% of the total. Much of the gain was
driven by products from the Glaxo buyout.
"The company's No. 1 priority in the first quarter was the
integration of the 17 acquired brands into our business and
organization," Chief Executive Matthew Mannelly said in a
statement. "We are particularly pleased with our strong financial
results during this important transition period."
The OTC gains helped offset a 13.6% decline in sales of
household cleaning products, which were hurt by promotional
programs as well as a challenging retail environment.
Earnings for the quarter rose to 35 cents a share from 23
cents a year earlier, topping estimates by 6 cents. Gross margin
came in at 56.9% vs. 52.3% the previous year. The improvement was
mainly because of higher OTC sales.
"Our strategic emphasis on OTC continues to enhance our
financial profile," CEO Mannelly said. "In addition, our
consistent free cash flow enables us to rapidly deliver. We are
pleased with our progress and look forward to realizing the full
effect of the Glaxo acquisition moving forward."
Analysts polled by Thomson Reuters expect full-year earnings
to rise 35% to $1.34 a share. They see fiscal 2014 profit growing
11% to $1.49 a share.