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Article Excerpt
PARTICIPANTS
. Jim Marino, Alberto Culver Co., President and CEO . Nick Modi, UBS, Analyst . Bill Schmitz, Deutsche Bank, Analyst . Ralph Nicoletti, Alberto Culver Co., CFO . Chris Ferrara, Merrill Lynch, Analyst . Wendy Nicholson, Citigroup, Analyst . Linda Bolton Weiser, Caris & Co., Analyst . Connie Maneaty, BMO Capital Markets, Analyst . Jon Andersen, William Blair & Company, Analyst . Andrew Sawyer, Goldman Sachs, Analyst . Jason Rogers, Great Lakes Review, Analyst . Jason Gere, Wachovia Securities, Analyst
OVERVIEW
ACV reported that 1Q09 sales increased 2.8% on a reported basis or 9.5% organically after excluding impact of FX rates and acquisition of Noxzema. 1Q09 pre-tax earnings on a continuing operations basis, excluding restructuring were nearly $61m and diluted EPS from continuing operations, excluding restructuring and discrete tax items was $0.41.
FINANCIAL DATA
A. Key Data From Call 1. 1Q09 sales growth = 2.8% on a reported basis or 9.5% organically after excluding impact of FX rates and acquisition of Noxzema. 2. 1Q09 pre-tax earnings on a continuing operations basis (excluding restructuring) = nearly $61m. 3. 1Q09 diluted EPS from continuing operations (excluding restructuring and discrete tax items) = $0.41. 4. 1Q09 gross profit margin decreased 40 BP vs. last year. 5. 1Q09-end cash, cash equivalents and short-term investments = more than $330m. 6. In 1Q09 Co. has no debt.
PRESENTATION SUMMARY
S1. 1Q09 Business Review (J.M.) 1. Overview: 1. Strong growth in 1Q09 revenues and pre-tax earnings. 2. Sales increased 2.8% on a reported basis, or 9.5% organically after excluding: 1. Impact of FX rates. 2. Acquisition of Noxzema. 3. Pre-tax earnings on a continuing operations basis, excluding restructuring, increased a strong 24.5% to nearly $61m. 4. Organic sales growth was driven primarily by growth in TRESemme, Nexxus and continued strong [genes] in international markets. 5. Foreign currency negatively impacted sales growth by nearly 9.5%. 1. Although dollar has been strong vs. all international currencies, since last call, dollar strengthened significantly particularly against British pound, Co.'s largest international market. 6. US: 1. In US, sales increased 8% to $224m, led by double-digit growth in: 1. TRESemme. 2. Nexxus. 2. Overtook Unilever to become third largest hair care co. in US, as reported by IRI. 7. International: 1. Generated strong international organic sales growth. 2. On a reported basis, international sales decreased 5%. 1. This was adversely affected by nearly 24% of negative currency impact. 3. TRESemme once again led international growth. 8. Generated good growth in: 1. Multi-cultural brands. 2. St. Ives. 9. Alberto VO5, flat on a constant currency basis. 2. Brands: 1. TRESemme: 1. Generated double-digit organic sales growth in: 1. US. 2. Internationally. 2. US consumption trends for TRESemme remain strong, as it was the fastest growing Top-10 hair care brand in most recent 12-week period for IRI. 3. Introduction of TRESemme in Spain continues to perform well. 1. Even when excluding sales in Spain, Co. would have still generated double-digit organic sales growth for TRESemme. 2. Nexxus: 1. Recorded strong sales growth, mainly due to growth in club channel. 2. Strengthened styling, and initial shipments of Co.'s new items for FY09. 3. To build on success of Nexxus in US, Co. is in early stages of introducing Nexxus in Canada. 1. Has plans to enter Chile later in 2009. 4. Continues to feel good about Nexxus and its potential outside of US. 3. Alberto VO5: 1. Sales decreased low-single digits on a constant currency basis, primarily due to declines in US: 1. Styling. 2. Treatment products. 2. In US, opening price point shampoos and conditioners generated low-single digit growth, despite opening price point category decreasing more than 25% in measured outlets. 4. Sales for St. Ives skin care brand were flat on a constant currency basis, as strength in Latin America was offset by declines in US lotions, which were mainly impacted due to timing of promotions. 5. Remains excited about newest addition to Co.'s portfolio, Noxzema, which Co. acquired at beginning of Oct. 1. Presently working on integrating Noxzema into Co.'s operations in addition to investing in consumer and market research and actively developing a brand strategy that will better position ACV for 2010. 3. Other Financials: 1. Gross profit margin decreased 40 BP vs. last year, mainly due to higher raw material costs, which similar to 4Q08, negatively impacted GM by approx. 250 BP. 1. Offsetting this cost increase were: 1. Manufacturing efficiencies. 2. Favorable product mix. 2. Expects higher raw material costs to continue in near-term, driven by: 1. Lag effect of higher oil prices from earlier periods. 2. Recent increases in other input costs, such as tinplate and some other chemicals. 3. Excluding impact from FX, advertising and marketing investments decreased slightly vs. prior-year. 1. Optimized advertising and marketing investments in US and shifted more emphasis to international markets. 4. As percentage of net sales, Co. would expect to be higher on balance of the year than reported in [1Q], as Co. continues to support key initiatives in brands and geographies. 5. As percentage of net sales, selling and administrative expenses decreased approx. 140 BP from 1Q08, mainly due to cost savings initiatives in selling and distribution, together with foreign currency transaction gains. 1. Decreases were partially offset by: 1. Cost associated with start-up of Jonesboro, Arkansas manufacturing facility. 2. Higher stock option expense. 6. Net interest income, $1.3m, $1.8m sequential decrease from 4Q08. 1. This was mainly due to: 1. Significantly lower investment rates. 2. Lower cash balances after acquiring Noxzema. 2. Looking forward, interest income for short-term safe investments will likely be lower the remainder of 2009. 7. Effective tax rate, negatively impacted by a discrete tax item. 1. Expects effective tax rate for remainder of FY09 to be approx. 34%, which is similar to this qtr.'s level, excluding discrete tax item. 8. Excluding restructuring and discrete tax items, diluted EPS from continuing operations increased 24.2% to $0.41. 4. Balance Sheet: 1. Finished 1Q09 with more than $330m in cash, cash equivalents, and short-term investments after using more than $100m in cash during 1Q09 to: 1. Acquire Noxzema. 2. Make capital investments. 3. Pay dividends. 2. Has: 1. No debt. 2. Full access to Co.'s $300m revolver. 3. Co. is in a sound financial position. 4. Has the liquidity to continue to: 1. Invest in brands. 2. Pursue strategic acquisitions. 3. Expand into new geographies. 4. Buy back shares when and if appropriate. 5. Closing Comments: 1. Despite hair care categories that continue to be soft around the world, and softness in retailers to same-store sales comp numbers, Co. has been able to: 1. Continue to gain market share. 2. Grow sales and earnings. 2. Impossible to predict how: 1. Remainder of this year will play out. 2. Consumers will behave in this difficult environment. 3. Hair care and skin care categories continue to be attractive for Co. 4. Brands are strong, and have good momentum. 5. Together with new initiatives planned for 2009 and continued success in new geographies, Co. believes it can deliver mid-single digit organic sales growth for full-year. 6. In terms of pre-tax, expects 1H09 to be hindered by higher input costs, while depending on severity of FX rate movements, currency is expected to put pressure on pre-tax growth throughout the year. 1. Has taken steps to mitigate these pressures, such as: 1. Selective price increase in Jan. 2. Carefully monitoring overhead and CapEx. 7. FY09 will likely be a tough year on many fronts. 8. Co. is in a position of strength, and has the ability to invest in its business. 9. This is not the time to sacrifice brand investments for any short-term benefits to a qtr. or year. 1. If that means difficult comps for a qtr., so be it. 2. Co. is going to do the right things for the business, and will remain focused on building shareholder value over the long term. 10. Has the programs in place believed to continue to: 1. Drive organic sales...
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