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Prestige Brands Holdings Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: February 9, 2012 06:58AM

Prestige Brands Holdings Inc. (PBH) filed Quarterly Report for the period ended 2011-12-31. Prestige Brands Holdings Inc. has a market cap of $678.8 million; its shares were traded at around $13.46 with a P/E ratio of 15.5 and P/S ratio of 2.



Highlight of Business Operations:

Revenues for the three months ended December 31, 2011 were $106.3 million, an increase of $15.6 million, or 17.3%, versus the three months ended December 31, 2010. Revenues for the OTC Healthcare segment increased $17.4 million or 25.9%, primarily due to the higher revenues of $16.6 million from sales of the acquired Blacksmith and Dramamine products, while revenues for the Household Cleaning segment decreased by 7.8% versus the comparable period in the prior year. Revenues from customers outside of North America, which represent 3.8% of total revenues, decreased by $0.1 million, or 2.5%, during the three months ended December 31, 2011 compared to the three months ended December 31, 2010.

Gross profit for the OTC Healthcare segment increased $12.9 million, or 35.3%, during the three months ended December 31, 2011 versus the three months ended December 31, 2010. As a percent of OTC Healthcare revenues, gross profit increased from 54.3% during the three months ended December 31, 2010 to 58.4% during the three months ended December 31, 2011. The higher gross profit was primarily the result of the brands acquired from Blacksmith and the Dramamine brand, which increased gross profit by $8.6 million, as the prior year period included a $3.5 million inventory step-up charge related to the Blacksmith acquisition, and gross profit increases in our legacy OTC Healthcare brands of $4.3 million, including gross profit increases in our legacy core OTC Healthcare brands of $0.8 million. The increase in gross profit as a percent of revenues is primarily due to the inventory step-up charge in the prior year period resulting in an increase of 5.3%, which was slightly offset by the realization of lower margins from the acquired Blacksmith products and the lower gross profit margins from the legacy core OTC Healthcare products.

Revenues for the nine months ended December 31, 2011 were $307.1 million, an increase of $66.9 million, or 27.9%, versus the nine months ended December 31, 2010. Revenues for the OTC Healthcare segment increased $72.2 million or 44.3%, primarily due to revenues of $68.7 million from sales of the acquired Blacksmith and Dramamine products, while revenues for the Household Cleaning segment decreased by 6.9% versus the comparable period in the prior year. Revenues from customers outside of North America, which represent 3.7% of total revenues, increased by $0.9 million, or 8.3%, during the nine months ended December 31, 2011 compared to the nine months ended December 31, 2010.

Estimates of costs of promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions, and (v) communication with customer purchasing/marketing personnel. At the completion of the promotional program, the estimated amounts are adjusted to actual results. Our related promotional expense for the fiscal year ended March 31, 2011 was $21.3 million. For the three and nine months ended December 31, 2011, our related promotional expense was $7.9 million and $20.2 million, respectively. We believe that the estimation methodologies employed, combined with the nature of the promotional campaigns, make the likelihood remote that our obligation would be misstated by a material amount. However, for illustrative purposes, had we underestimated the promotional program rate by 10% for the fiscal year ended March 31, 2011, our sales and operating income would have been adversely affected by approximately $2.1 million. Net income would have been adversely affected by approximately $1.3 million. Similarly, had we underestimated the promotional program rate by 10% for the three and nine months ended December 31, 2011, our sales and operating income would have been adversely affected by approximately $0.8 million and $2.1 million, respectively. Net income would have been adversely affected by approximately $0.5 million and $1.3 million for the three and nine months ended December 31, 2011, respectively.

While we utilize the methodology described above to estimate product returns, actual results may differ materially from our estimates, causing our future financial results to be adversely affected. Among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues. Based upon the methodology described above and our actual returns experience, management believes the likelihood of such an event remains remote. As noted, over the last three years our actual product return rate has stayed within a range of 2.4% to 3.8% of gross sales. A hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales would have adversely affected our reported sales and operating income for the fiscal year ended March 31, 2011 by approximately $0.4 million. Net income would have been adversely affected by approximately $0.2 million. A hypothetical increase of 0.1% in our estimated return rate as a percentage of gross sales for the three and nine months ended December 31, 2011 would have adversely affected our reported sales and operating income by approximately $0.1 million and $0.4 million, respectively, while our net income would have been adversely affected by approximately $0.1 million and $0.2 million for each of the periods, respectively.

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