Prestige Brand Holdings, Inc. (PBH)

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Prestige Brand Holdings, Inc. (PBH)

F4Q08 Earnings Call

May 15, 2008 8:30 am ET

Executives

Dean Siegal – Director, Investor Relations

Mark Pettie - Chairman and CEO

Pete Anderson - Chief Financial Officer

Chuck Jolly - General Council

Analysts

Bill Chappell – Suntrust Robinson Humphrey

Joe Altobello – Oppenheimer

Neely Tamminga – Piper Jaffray

Chris Ferrara – Merrill Lynch

Jon Andersen – William Blair

Reza Vahabzadeh – Lehman Brothers

Presentation

Operator

(Operator Instructions) Welcome to the Fourth Quarter 2008 Prestige Brand Holding, Inc. Earnings Conference Call. I will now turn the call over to Dean Siegal, Director of Investor Relations.

Dean Siegal

Welcome to our Fiscal 2008 Fourth Quarter Conference Call. During this call statements may be made by management of their beliefs and expectations as to the company’s future operating results. Statements of managements expectations of what might occur with respect to future operating results are what as know as forward looking statements.

All forward looking statements involve risks and uncertainties which in many cases are beyond the control of the company and may cause actual results to differ materially from managements expectations. Additional information concerning the factors that might cause actual results to differ from management’s expectations is contained in the company’s annual and quarterly reports that are filed with the US Securities and Exchange Commission.

Now I’d like to introduce Mark Pettie, Chairman and CEO.

Mark Pettie

In addition to Dean, with me is Pete Anderson, Prestige’s Chief Financial Officer and also joining us today is Chuck Jolly our General Council. I will begin today’s call with a brief overview of our fourth quarter and full fiscal 2008 results. Pete will then review the financials for the quarter in more detail and I’ll come back with highlights of our segment performance and our outlook for fiscal 2009. In addition I will discuss our progress against the four strategic growth thrusts I highlighted on our last call. We’ll then open the call for questions.

Let’s get started with our reported total revenues for the fourth quarter which were $80.4 million a 3% increase over last year. As you know, organic sales growth in the quarter is the same as total growth as we have now lapped the Wartner acquisition which closed in late September 2006. Reported net income for the quarter of $10.4 million was $2 million or 24% greater than last year’s reported net income of $8.4 million.

The increase in net income compared to prior year was driven by improved gross margin resulting from sales increase and reduced cost of goods sold combined with favorable G&A and interest expense. Finally, we generated $9.6 million of free cash in the quarter. Our continued strong cash generation helped us to pay down an additional $15 million on our term loan reducing total debt to $411.2 million at March 31.

Now let’s take a brief look at annual results for the 2008 fiscal year. Total revenue for the year was $326.6 million, $8 million or 3% greater than fiscal year 2007. Organic sales which remove the April to September benefits of the Wartner acquisition were up $2.6 million or 1%. Net income of $33.9 million with $2.2 million or 7% below fiscal year 2007 reported net income of $36.1 million. As you may recall fiscal year 2007 net income benefited from favorable non cash income tax adjustments in the third and fourth quarters amounting to $2.2 million.

After adjusting for this benefit fiscal 2008 net income was equivalent to fiscal 2007 net income. Finally, free cash flow for the year was $44.5 million and we paid down $52.1 million in term loan debt during fiscal 2008. That’s the brief summary for the quarter and the year and now I’d like to turn the call over to Pete who will provide additional commentary and financial detail.

Pete Anderson

As Mark mentioned net revenues for the quarter of $80.4 million were 3% ahead of prior year net revenues. Operating income of $24.8 million was $2.2 million or 10% above last year’s operating income of $22.6 million and net income of $10.4 million was $2 million or 24% better than last year’s reported net income of $8.4 million.

Cost of sales for the quarter of $39.2 million was $400,000 or 1% higher than cost of sales last year. As a percent of revenue, cost of sales declined from 49.7% in fiscal year 2007 to 48.8% in fiscal year 2008. This cost of sales decline was primarily due to a reduction in obsolescence expenses in fiscal year 2008 as last year included charges related to cough/cold products which were facing expiration dating.

Advertising and promotion expense of $6.3 million was $100,000 greater than spending of $6.2 million last year. G&A expense of $7.4 million was $300,000 lower than the prior year’s expense of $7.7 million. Lower professional service expenses primarily related to reduced expenses for Sarbanes-Oxley compliance testing were partially offset by increased legal expenses.

As we saw in our fiscal third quarter our legal expenses continue to run ahead of last year’s levels but the absolute amount of spending was lower than the previous quarter reflecting the successful resolution of the OraSure litigation in December. However, as we mentioned on our last call the litigation to defend our Doctor’s Night Guard patents and trademarks is ongoing. As a result we anticipate legal expenses to continue to exceed what we would consider to be a normal run rate until this case is concluded.

Read the rest of this transcript for free on seekingalpha.com