Chattem Reports 51% Revenue Growth in the Third Quarter; Raises Guidance for Fiscal 2007 and Provides Initial Guidance for Fiscal 2008.CHATTANOOGA, Tenn. -- Chattem, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : CHTT), a leading marketer and manufacturer of branded consumer products, today reported total revenues in the third fiscal quarter ended August 31, 2007 of $109.0 million, a 51% increase compared to total revenues of $72.0 million in the prior year quarter. Total revenues in the nine months ended August 31, 2007 rose to $322.8 million, an increase of 37% compared to total revenues of $235.4 million in the prior year period. Revenue growth for both periods was driven by the five brands acquired from Johnson & Johnson on January 2, 2007, which include ACT[R], Cortizone-10[R], Unisom[R], Balmex[R] and Kaopectate[R], continued growth of the Gold Bond[R] franchise and the strength of the Icy Hot[R] business. Net income for the quarter rose to $16.3 million, compared to $15.2 million for the prior year quarter, and earnings per share were $0.84, compared to $0.81 for the prior year quarter. Net income for the third quarter of fiscal 2007 included a loss on early extinguishment The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. of debt and SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123R employee stock option expense. Net income for the third quarter of fiscal 2006 included a net recovery related to the Dexatrim[R] litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement and SFAS 123R employee stock option expense. As adjusted to exclude these items, net income for the third quarter of fiscal 2007 was $17.5 million, compared to $8.9 million for the prior year quarter, and earnings per share were $0.90 compared to $0.47 for the prior year quarter, a 91% increase. Net income for the nine months increased to a record $44.9 million, compared to $40.2 million for the prior year period, and earnings per share were $2.33, compared to $2.07 for the prior year period. Net income for the nine months of fiscal 2007 included a loss on early extinguishment of debt and SFAS 123R employee stock option expense. Net income for the nine months of fiscal 2006 included a loss on early extinguishment of debt, net recoveries related to the Dexatrim litigation settlement and SFAS 123R employee stock option expense. As adjusted to exclude these items, net income for the nine months of fiscal 2007 was $49.3 million, compared to $31.6 million for the prior year period, and earnings per share were $2.56 compared to $1.62 for the prior year period, a 58% increase. "The third quarter proved to be another impressive quarter with total revenues up 51%, adjusted earnings per share up 91% and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become up a significant 102%," said President and Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. Bob Bosworth. "We are very pleased with our results for the quarter led by strong performances from our six largest brands. We have successfully integrated the acquired brands and are well positioned to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. the continued strength of our business." KEY HIGHLIGHTS * Revenue growth for the quarter was led by the five acquired brands as well as strong performances from Gold Bond, Icy Hot and Selsun Blue Selsun Blue is a shampoo, developed by Ross Laboratories, a subsidiary of Abbott Laboratories and later bought by Chattem, that functions as an over-the-counter treatment for dandruff. [R]. Offsetting these increases were a reduction in sales of Icy Hot Pro-Therapy[R] and, due to increased competition in the weight loss category, a decrease in sales of Dexatrim. Excluding the impact of the acquired brands and Icy Hot Pro-Therapy, total revenues increased 4% in the third quarter of fiscal 2007 compared to the prior year quarter. If the impact of Dexatrim is also excluded, total revenues increased 9% in the third quarter of fiscal 2007 compared to the prior year quarter. * Revenue growth for the first nine months was driven by the five acquired brands, continued growth of the Gold Bond business along with increases in the Icy Hot franchise. Offsetting these increases were a reduction in sales of Icy Hot Pro-Therapy and a decline in sales of Dexatrim. Excluding the impact of the acquired brands and Icy Hot Pro-Therapy, total revenues increased 5% in the first nine months of fiscal 2007 compared to the prior year period. If the impact of Dexatrim is also excluded, total revenues increased 7% in the first nine months of fiscal 2007 compared to the prior year period. * Gross margin for the quarter rose to 69.9%, compared to 69.1% for the prior year quarter, and 69.4% for the nine months, compared to 68.8% for the prior year period. The increases in gross margin are primarily attributable to product mix including, most notably, a reduction in sales of lower margin Icy Hot Pro-Therapy. * Advertising and promotion expense (A&P) for the quarter increased by $4.2 million to $27.8 million, or 25.5% as a percentage of total revenues, and rose by $10.6 million to $86.2 million, or 26.7% of total revenues, for the nine months. * Selling, general and administrative expenses (SG&A) decreased to 14.3% of total revenues for the quarter, compared to 15.1% for the prior year quarter, and to 13.3% of total revenues for the nine months, compared to 14.4% for the prior year period. The decrease as a percentage of revenues was attributable to increased revenue without commensurate increases in SG&A, reflecting the Company's ability to leverage its operating infrastructure. * Earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
* The Company's effective tax rate increased to 35.0% for the nine months as a result of an increase in domestic taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. , which is taxed at a higher statutory rate than foreign taxable income. * Since acquiring the five brands on January 2, 2007, the Company has reduced total debt by $46.7 million to $523.8 million as of August 31, 2007. During that same period, the Company funded the purchase of a net bond hedge of $12.1 million in connection with the issuance of the 1.625% senior convertible notes in April 2007; acquired the ACT business in Western Europe Western Europe The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). and the worldwide trademark rights to ACT for $4.1 million; and repurchased 380,129 shares of the Company's common stock for $22.3 million, or an average cost of $58.56 per share. FISCAL 2007 GUIDANCE Based on our strong performance in the first nine months, the successful integration of the acquired brands and the continued strength of our key brands, the Company currently expects earnings per share for fiscal 2007 to be in the range of $3.15 - $3.25 as compared to the earlier estimate of $3.00 to $3.19, in each case excluding stock option expense under SFAS 123R and loss on debt extinguishment. Stock option expense under SFAS 123R for fiscal 2007 is estimated to be $0.19 per share. [TABLE OMITTED] FISCAL 2008 GUIDANCE "With an innovative lineup of new products for fiscal 2008, the ability to delever with strong operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. and continued gross margin improvement as we bring manufacturing of certain of the acquired brands in house, we remain very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the Company's prospects for revenue and earnings growth in fiscal 2008 and beyond," commented Chairman and Chief Executive Officer Zan Guerry. "We expect continued strong sales growth in fiscal 2008 behind our new products and record levels of planned advertising support for our key brands. At the same time, we currently expect earnings per share to grow rapidly to the guidance level of $3.90 to $4.10 per share, excluding stock option expense under SFAS 123R and loss on debt extinguishment, as we leverage our operating structure and delever our balance sheet. Stock option expense under SFAS 123R for fiscal 2008 is estimated to be $0.21 per share." [TABLE OMITTED] NON-GAAP FINANCIAL MEASURES In addition to presenting financial results in accordance with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , or GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). , this earnings release also presents certain non-GAAP financial measures, including adjusted net income, adjusted earnings per share and EBITDA. A reconciliation of adjusted net income and EBITDA to net income reported in accordance with GAAP for the third quarter and nine month year to date periods of fiscal 2007 and 2006 is provided in the unaudited consolidated statements of income attached hereto here·to adv. To this document, matter, or proposition. hereto Adverb Formal or law to this place, matter, or document Adv. 1. . Chattem believes these non-GAAP financial measures provide both management and investors with additional insight into the Company's operational strength and ongoing operating performance. These non-GAAP financial measures should be considered in conjunction with, but not as a substitute for, the financial information presented in accordance with GAAP. See the accompanying Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. under which this earnings release is furnished to the Securities and Exchange Commission for further discussion of the utility of these non-GAAP measures and the purposes for which they are used by management. FORWARD LOOKING STATEMENTS Statements in this press release which are not historical facts, including, without limitation, statements in the Fiscal 2007 and Fiscal 2008 Guidance sections of this release, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements involve risks, uncertainties and assumptions, including those described in our filings with the Securities and Exchange Commission, that could cause actual outcomes and results to differ materially from those expressed or projected. WEBCAST Chattem will provide an online Web simulcast and rebroadcast of its fiscal third quarter 2007 conference call. The live broadcast of the call will be available online at www.chattem.com and www.streetevents.com today, Thursday, September 27, 2007 beginning at 9:00 a.m. ET. The online replay will follow shortly after the call and be available through October 4, 2007. Please note that the webcast requires Windows Media Player Digital jukebox software for Windows from Microsoft that plays a variety of audio, video and streaming formats including MP3, WMA, CD audio and MIDI. Starting with Version 6.2 in 1999, the Windows Media Rights Manager was added for securing copyrighted content. . For additional information please contact Catherine Baker Catherine Baker (born 16 July 1947 in Lille) is a French journalist and home schooling essayist. She has also more recently written against the whole prison system, arguing for a complete abolition. , Investor Relations Investor relations The process by which the corporation communicates with its investors. at 423-821-2037 ext. 3209. About Chattem Chattem, Inc. is a leading marketer and manufacturer of a broad portfolio of branded OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). healthcare products, toiletries toi·let·ry n. pl. toi·let·ries An article, such as toothpaste or a hairbrush, used in personal grooming or dressing. toiletries npl → artículos mpl de aseo (= and dietary supplements. The Company's products target niche market A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. segments and are among the market leaders in their respective categories across food, drug and mass merchandisers. The Company's portfolio of products includes well-recognized brands such as Icy Hot, Gold Bond, Selsun Blue, ACT, Cortizone-10 and Unisom. Chattem conducts a portion of its global business through subsidiaries in the United Kingdom, Ireland and Canada. For more information, please visit the Company's website: www.chattem.com. [TABLE OMITTED] [TABLE OMITTED] |
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