Prestige Consumer Healthcare Inc (PBH) 2005 Q4 法說會逐字稿

Good morning and welcome to the Prestige Brands Fourth Quarter 2005 Earnings Teleconference. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Jeremy Zweig, Manager of Investor Relations for Prestige Brands.

Thank you, Amy.

Good morning and welcome to the Prestige Brands Fourth Quarter and Fiscal Year End Investor Call.

Today's call will be hosted by Peter Mann, Prestige Brands Holdings, Chairman, President, and Chief Executive Officer; and Pete Anderson Chief Financial Officer; as well as Jay Rogers, Finance Director.

Before we get started I'm required to note that information to be discussed on this conference call and webcast will include forward-looking statements.

Forward-looking statements and our plans and expectations are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated and our business is general is subject to risks that could affect the performance of the company.

All statements other than statements of historical facts are statements that would be deemed forward-looking statements.

These risks and uncertainties and assumptions including risks associated with general economic conditions affecting our product in their respective markets, the high level of competition in our industry and markets, our dependence on a limited number of customers for a large portion of our sales and disruptions in our distribution capabilities.

Further information of potential factors that could affect the financial results of Prestige Brands are included in the company's S-1 of February 9, 2005, as file with the Securities and Exchange Commission.

Now I would like to introduce Peter Mann, Chairman, President and CEO of Prestige Brands.

Thanks, Jeremy.

Welcome everybody.

We are very pleased that you've been able to join us as we talk about our fourth fiscal quarter and full fiscal 2005 financial performance.

We think it's a pretty good story.

Of course the biggest single event that took place in the last quarter was our very successful initial public offering with our shares now being traded on the New York Stock Exchange.

Both Pete Anderson and I enjoyed visiting so many of you on the road show prior to the offering and we are generally appreciative of your interest and investment in Prestige.

I'm happy to say that while the IPO certainly was major undertaking during the quarter and it could well have been a distraction to the day-to-day operations of the business, I think you'll -- as you'll hear the story, Prestige had another very good bordering on exceptional quarter.

During the quarter we delivered 22% year-on-year revenue growth and our operating income more than doubled, up 165%.

While at the very bottom line we ultimately ended the quarter with a net loss, all of this was entirely due to a series of one time expenses all related to the IPO.

For me far more importantly on a pro forma basis assuming that the IPO had occurred on January 1, 2005, for the quarter, the Company showed a very healthy net income of $0.26 per share.

In a few minutes Pete's going to take you through the mathematics of that in some detail.

Another important event that occurred after the quarter, in fact just a couple of days ago, as many of you may have seen in a press release that went out yesterday we have just announced the election of two new additional outside and independent directors, Ron Gordon and Pat Lonnergan.

I really couldn't be more pleased to have both of these two men on the Prestige Board.

Both have extensive general management experience, both have very, very direct experience in our specific operating segments.

Both are eager and have the time available to invest a great deal of time in working with the company and I have known both men for a long time.

Both are individuals of really high personal character.

We are definitely a stronger company with Ron and Pat serving our board.

I'm now going to turn the call over to Pete Anderson who is going to walk you through both the fourth quarter numbers and our twelve-month results.

When he's finished, I'll come back and I'll give you quite a bit of additional color commentary on events of the quarter and what we see generally going forward.

So now here's Pete Anderson.

Thanks, Peter, and good morning, everyone.

Net sales for the quarter were $78.4 million.

That was up 22% over the prior year pro forma results for the same quarter.

Operating income for the quarter was $30.1 million.

That was up very nice 18.8 million, or 165% over last years Q4 pro forma operating income of 11.3 million.

The improvement in operating income was largely due to the strong sales results.

In addition to gross margin improvement which resulted from a favorable sales mix, cost efficiencies and lower G&A expenses.

As Peter said and as you saw on the press release our GAAP net loss available to common shareholders for the quarter was $14.3 million, or $0.37 per basic and diluted share.

However, as Peter said and as I'm sure you understand the fourth quarter contained our IPO and as such we incurred some unusual charges.

In addition because the IPO took place in the middle of the quarter Prestige did not operate for the full quarter under the more advantageous post IPO capital structure that we now have.

So reported earnings reflect an average number of shares outstanding and also interest expense reflected both the pre and the post IPO structure.

So under GAAP the following factors are included in the actual net income for the quarter.

First of all there was a loss on extinguishment of debt of $19.3 million, again, resulting from the IPO.

Reported interest expense for the quarter was $10.8 million.

Had the IPO taken place at the beginning of the quarter that interest expense would have been $8.2 million.

In addition there was a loss attributable to common shareholders of $14.3 million for the cumulative dividend earned on preferred units redeemed during the quarter.

Again had the IPO not happened that wouldn't have been incurred.

As I said before the weighted average number of shares during the quarter was approximately 38.1 million shares.

Now if we exclude the items that I just mentioned and assuming the IPO had occurred on January 1st, with a share count of 50 million shares, our calculation is that pro forma earnings per share would have been $0.26 for the quarter.

As you know we divide the Company into three operating segments, over the counter, personal care and household products.

The Company's sales growth for the quarter was driven by the largest segment, the OTC segment, which had a 37% increase over the prior years pro forma revenues.

For the quarter revenues for the household cleaning segment also grew up 13% over the prior pro forma while the household -- excuse me, while the personal care segment declined by 7%.

In the quarter ended March 31 within the OTC segment our Clear Eyes, Chloraseptic, and Little Remedies brands recorded good year-over-year growth.

Compound W which had been seeing explosive growth over the past few quarters actually was flat for the quarter.

The OTC segment had best sales in total of $45 million compared to pro forma net sales of 33.2 million in the prior year's quarter.

Within household cleaning the Comet brand showed solid growth for the quarter while Spic&Span posted a small decline.

In total the segment had net sales of $24.9 million compared to pro forma net sales of $22 million for the prior year period.

Net sales for personal care were 8.1 million in the quarter compared to pro forma net sales of 8.7 million for the same quarter last year; primarily due to declines for both Cutex and Denorex

Gross profit for the quarter of $44.9 million was 14.6 million, or 48% greater than prior year pro forma gross margin of 30.4 million.

As a percent of sales gross profit for the quarter ended March 31, 2005, was 57.3%, compared to 47.4% for the pro forma quarter ended 2004.

The improvement in the gross margin percentage is due to the increase in sales in our OTC segment, particularly the Chloraseptic and Clear Eyes brands which have higher gross margins than the remainder of the business.

Our adjusted EBITDA of $32.4 million was 14.3 million, or 77% greater than pro forma EBITDA for the prior year of 18.5 million.

Turning to the full year, full fiscal year revenues for the Company were $303.3 million.

That's an 8.5% increase over the prior year pro forma revenues of 279.4 million.

This increase reflects strong revenue growth in both the OTC and household cleaning segments, plus the mid year acquisition of the Little Remedies brand.

Gross profit of 162 million for the year was 10.4 million, or 7% greater than last years gross margin of 151.6 million.

Operating income was 93.6 million.

That's 35% greater than the pro forma operating income of 69 million for last fiscal year.

And fiscal 2005 GAAP net loss of 100 -- 11.9 million or $0.41 per basic and diluted share.

As we talked about for the quarterly results, GAAP earnings for the year were affected by the extraordinary factors related to the IPO.

And you can find details in yesterday's press release.

Excluding those factors earnings per share for the fiscal year would have been $0.82 per share.

Adjusted EBITDA for the fiscal year of 2005 of 109.3 million was 22.9 million, or 27% greater than pro forma adjusted EBITDA of 86.4 million for the fiscal year ended March 31, 2004.

On a segment basis for the full year all four major brands in the OTC category;

Chloraseptic, Clear Eyes, Compound W, and Little Remedies posted solid gains versus the prior year.

Both of the household cleaning brands, Comet and Spic&Span posted gains as well, while personal care had declines which were primarily related to Denorex and Prell.

And now I would like to turn it back to Peter to take us through some of the brands highlights.

Okay.

We are going to walk through, first the quarter's results on a segment and then brand-by-brand basis, trying to give you color commentary on what where the key activities and developments of the quarter.

So first OTCs.

Now as you know OTCs is far and a way our largest product segment.

It is also considerably our most profitable and it is our primary focus.

That's not to say that it's our only focus, but it is our primary focus for new product development.

And this is the first -- also the first quarter where we had full ownership of the Little Remedies brand for the entire quarter.

As those of you who were with us on our call describing the results for the December quarter we talked then about an unusually slow to develop cold flu season which negatively impacted Chloraseptic sales in the December quarter.

And we told you then that we thought, believed, based upon data available at the time, that the March quarter would show a much stronger cold flu season and therefore be much better for Chloraseptic and that's exactly what happened.

We recaptured all of the, if you will, lost sales in the December quarter, by strong volume in the fourth quarter where Chloraseptic showed particularly strong year-on-year growth.

And I take great comfort from the fact that even though the total '04, '05, the December and March quarters combined flu season, was overall somewhat weaker than the prior year, Chloraseptic registered a gain both in factory sales and in consumer sales, and that spells out continued share gains.

Important contributors to those share gains were our two new items that we introduced this cold flu season, Kids Grape and Adults Citrus Relief Strips.

Both have been nice successes for us and have contributed importantly to Chloraseptic growth.

The Little Remedies business in it's first full quarter as part of Prestige Brands is proving to be an extraordinarily are good acquisition for us.

The base big business continues to grow nicely and the overall umbrella of Little Remedies is already serving as a wonderful platform for to us launch new items and to expand into new segments within the pediatric marketplace.

Specifically in the quarter just concluded we introduced five new Little Remedies items.

Two under the Little Teethers brand name, one is Teething Tablets and the second are Teething Swabs.

The next two items were under the Little Fevers brand name, very unique cooling towelettes as well as a Little Fevers allergesic and finally an important entry into the diaper care catagory under the Little Bottoms trademark, we have a daily use diaper rash treatment.

As we look at the Little Remedies business now, both the new items that we are just in the process of launching now and perhaps more importantly the established SKUs are performing well and above our initial expectations.

We've been quite successful in adding additional distribution on the existing items both getting totally new customers and then within customers that already stock the line we've been successful in getting additional SKUs, for example, Wal-Mart now has an additional SKU and most of the large drug chains have added more Little Remedies items.

Turning to Clear Eyes, we also had a very strong quarter on the Clear Eyes brand both on the basic business and in part benefited from the introduction of new items under the Clear Eyes for Dry Eyes trademark.

These two SKUs are our entry into the new eyecare segment for us which is the Liquid Tears segment.

We introduced these in the middle of the quarter.

Distribution is continuing to build and we have now obtained listing approval from basically every major retailer and most retailers have taken both knew items.

We've also just completed production of two new television commercials which feature the dead pan comic, Ben Stein, who has been the Clear Eyes spokesperson for a nu -- number of years now.

One of these new commercials which is set in the desert emphasizing the Dry Eyes aspect will be solely dedicated to those two new SKUs.

Both commercials will beginning airing within the next couple of months.

Turning to Compound W, Compound W continues to be one of our strongest businesses and it also performed well in the quarter.

As Pete said it was essentially flat versus a year ago.

That is in part that -- that flatness is in part, driven by the timing of some Wal-Mart promotional orders which -- which occurred at the very end of December.

If you look at the compound W. or the Freeze Off volume over the last six months, you see very strong year on year gains.

We are continuing to expand distribution for Freeze Off particularly in food outlets where there is still great room for growth.

And while obviously we can't replicate the extraordinary growth rates for Freeze Off that took place in the past year there is still a major opportunity for us to convert wart sufferers who right now are treating their warts in a doctor's office, convert them to OTC use.

And that's exactly what our advertising, which is both TV and brand new magazine advertisements reaching mothers.

That's what our -- that's what are advertising is focused on, that you can treat these warts at home with the same effective treatment that physician use in their office.

While -- while Chloraseptic, Little Remedies, Clear Eyes and Compound W are certainly our most important OTC franchises it's worth noting that other OTC brands within our portfolio, brands like New Skin, Murine, Dermoplast, and Mosco all contributed very nicely to our OTC strength during the quarter.

We're -- we're still adding significant new distributions behind New Skin Scar Therapy.

Murine in particularly is benefiting from our increased international presence which I'll talk about in a little more detail later.

Dermoplast continues to strengthen it's market positions in hospitals and the hospital physician yields or leads to increased consumer take away and drug stores.

And finally Mosco, which is a brand you probably never even heard of, is our line of corn and callous removers, continues to grow handsomely particularly driven by gains in Wal-Mart.

So all together a very good quarter for our OTC businesses.

Turning to household products, Comet had an exceptionally strong quarter posting solid gains in a quarter that is particularly an off season quarter for household cleaners.

We've talked to you about our relaunch of Comet Cream, that's the abrasive cream that is designed to compete primarily against Soft Scrub.

That relaunch is going well.

We are adding new distributions regularly.

And in the next couple of months dedicated marketing support in the form of TV advertising and [SSIs] will begin behind Comet Cream.

We also successfully implemented a 6% price increase on Comet Powder in the middle of March.

That is now done and implemented everywhere.

We added important new distribution of Comet Spray, it's a -- it's a 32-ounce sprayer banded together with a gallon refill in Sam's Warehouse Clubs.

That went into Sam's in the middle of the quarter and is already essentially sold out.

And we are very pleased about that and we expect continued business from Sam's on that.

We added Comet Powder, a 25-ounce size of Comet Powder, into Lowe's Home Improvement Centers, that's the first time ever that Comet has been distributed in a do-it-yourself center.

And we look for added volume not only from Lowe's but from their competitors.

And most important of all basic Comet Powder in -- in -- in food stores and particularly in Wal-Mart and dollar stores continues to grow as it takes share of market a way from competitors.

The same interestingly is true for Comet Powder up in Canada where sales have been growing in double-digits for the last year.

Spic&Span, as Pete said, were declined ever so slightly.

They were essentially flat during the quarter.

But for the year, Spic&Span reported very strong year-on-year growth.

The brand has really great vitality driven by a lot of new items like our new [Lavender Fresca] dilutables and sprays, our 22ounce bacterial spray in Dollar General, Lavendar Fresca in Family Dollar and so on and so on and so on.

So it was a good quarter and a good year for our household products business which is -- you know is about a third of our total revenue.

Finally turning to our personal care portfolio which is far and a way the smallest segment within our bis -- business both -- both Cutex and Denorex had somewhat weak quarters posting modest year-over-year declines.

The issue for Cutex;

A., the March quarter, is the dead off season for nail polish removers.

Nail polish removers are very seasonal to the summer months, and the overall nail polish remover category was weak in the March quarter.

Cutex was considerably stronger than the -- than the category.

The category was down 8% or 9%.

Cutex sales declined only 1% during the quarter.

Denorex continues to show weakness but we are guardedly optimistic about the outlook for the future.

As I think we told you on our last call, at the start of the quarter we had taken significant initiatives to repackage, reprice and reposition Denorex.

Those initiatives were implemented during this quarter.

It takes some time for the new sizes and the new packaging to roll through retailers.

So it took awhile for that to take place.

But definitely at the end of the quarter we saw definite change in trend for Denorex.

The best barometer of that is Wal-Mart point-of-sale data, which we can watch every week and do watch every week.

And in that sale we saw Denorex switch from low double-digit declines, to mid single-digit declines, to positive trends.

We take great optimism for that.

So that was -- that's a look at the quarter and a little bit at the year looking backwards.

But now as we turn from has happened to what we think will happen, I want to give you at least some general indications of what you can look for from Prestige in the months and year ahead.

As you know, a key component to our ongoing business success has been our regular introduction of new items, capitalizing on the consumer awareness, consumer trust, and consumer acceptance of our well known portfolio brands.

Looking forward this is very much going to continue to be the case.

For obvious reasons I don't want to alert our competitors or telegraph our punches by announcing the specifics of what we are going to do before those specifics actually reach the marketplace.

But having said that I can and want to share with you the general guidelines of what some of our new product initiatives will be for the upcoming quarters.

In the next six months some of our biggest and most important projects will be focused on the Chloraseptic brand.

First you will start to see relatively soon the brand getting a face lift to an entire redesign of our packaging graphics which better link the long, important heritage of the brand with the product innovations that we have now introduced and which consumers expect from Chloraseptic.

On the new product front for the '05 '06 cold flu season we will be launching three brand new Chloraseptic items.

These are items that didn't exist.

Forms and flavors and benefits that didn't exist before.

We just now have begun initial trade presentations for these items and the reaction has been unusually positive.

Retailers have seen our success in the past year.

Retailers have become almost accustomed to thinking of Chloraseptic and Prestige as an innovator in the sore throat category and so we believe and we're seeing now that these new items are being met with an ever creased -- ever increasing level of retailer acceptance.

In addition and concurrent with those new product introductions for Chloraseptic we are also now beginning to sell a completely redone formulation for our Chloraseptic line of sore throat lozenges.

These new formulas, which will be shipping to retailers again in time for the '05, '06 season, these formulas look and feel different to the users.

They are a very visible and noticeable improvement in product form -- formulation.

And it's an example of how our outsourcing model works to perfection.

As I think you know Proctor and Gamble is our our third party manufacturing partner on this product line.

And we have worked very closely with our friends and partners at Proctor to introduce this new [lozens] technology and it really is a direct out growth of that outsourcing model.

And since of course our lozens line already has essentially perfect universal distribution we can look for these improved products to be totally available next fall when consumers start to feel their throats getting scratchy.

Turning to Clear Eyes, the focus over the next few months will be finishing the distribution job that we started on the Dry Eyes line and then, and most importantly, generating consumer trial.

We know from research that once consumers try this unique formulation which is thicker, more viscous and doesn't run out of their eyes, our research tells us very clearly the consumers, triers will become long-term users.

So you can look in the months ahead for sharply increased levels of TV support behind Clear Eyes all using the Ben Stein campaign that I referenced before but with two different points of focus.

Half now on the red eyes segment, the traditional part of the Clear Eyes business and half on the brand new Liquid Tears item.

More support is also in the cards for Compound W. As I think I mentioned earlier in this call, we are adding magazine advertising to our very successful TV campaign.

The magazine adds are focused directly against mothers who are the prime treater of children's warts.

And those adds will start to appear in the next couple of months.

Our TV campaign for this season is already on air and it is quite amazing to watch the immediate impact that the TV advertising for Compound W has.

As I said before we watch our sales through Wal-Mart point-of-sale data weekly and often daily.

And it's really amazing, the minute we put TV advertising on behind Compound double -- W Freeze Off the rate of sale in Wal-Mart for that item, which is already very good, jumps quite noticeably.

In fact, in a more general way, more advertising support is a fundamental part of our plan for fiscal '06 and beyond.

And you'll see that trend very clearly in the quarters ahead.

As we told so many of you on the IPO road show, one of our fundamental philosophies is to work as hard as we can to reduce spending in all other areas in order to use those dollars to spend more against -- directly against the consumer.

And you are going to see that against all of our supported brands as we move ahead.

New products are an important part of our OTC plan for the year, but new products definitely are not limited to just the OTC segment.

We have lots of new product activity in our household cleaning arena as well.

Of course probably the most important one of those is our new Comet Cream which we are in the midst of launching now and will begin supporting.

But in the months ahead you can definitely look for a lot of new items coming out of both Comet and Spic&Span.

New sizes and flavors of Comet Powder were recently introducing, Lavender Fresca, a flavor there which has been met with surprisingly strong trade acceptance.

We are expanding distribution of the very successful Spic&Span Citrus flavor, which has sold very well in the handful of retailers where we've tested the item.

We now developed and are introducing a new line of Spic&Span auto cleaning items.

Those are already in distribution in dollar stores and we are increasing distribution behind those every day.

We are expecting broadened distribution of Comet both powder and spray into additional warehouse clubs and into more do-it-yourself centers.

And, of course, we are continuing to add new items to the very important and continue to grow dollar store class of trade.

So lots of new product activity in our household cleaning segment as well.

Finally a word about two other important more general topics.

International business and acquisitions.

First, International.

As we've told you several times we believe that the growth outside of North America is a very large and largely unbudgeted area of growth for the company.

We currently do about 2% of our total sales outside the U.S. and Canada.

And when we look at most of the companies against whom we either compete or against whom we compare ourselves, all of those companies do sharply higher percentage of their business internationally.

We believe that's a great growth opportunity.

We've just in the last few weeks hired a second highly experienced exec -- executive who actually started with us officially yesterday.

He's an individual well known to all of the Prestige management team.

And up until now he has been responsible for the day-to-day management of most of the international business for one of America's largest food companies.

He will oversee and manage all of Prestige's international activities which have already begun to grow and to bear fruit.

In the March quarter our international sales still largely in the geographies that we inherited from Abbott, grew nicely year-over-year and we expect in this quarter and beyond to add significant new ge -- geographical markets as well as adding new items within the geographies that we already sell.

So we look for international to do -- to do an ever increasing percentage of the Comp -- Company's growth and that's going to add significant top line revenues in the quarters and years ahead.

And finally acquisitions.

While in a very real sense we don't need acquisitions to deliver the strong top and bottom line growth we told you we are budgeting on during the IPO process but acquisitions in a very real sense of the gravy that can take our top and bottom line growth from strong to exceptional.

As you know looking backwards Prestige has historically made at least one good size acquisition every year and this acquisition track record, in combination with our excellent organic growth, is what has enabled the company to essentially triple top line revenues over the past four years.

And, of course, just six months or a little more than six months ago we made the wonderful Little Remedies deal which is proving to be such a great addition to our product line.

But looking forward as we look at the potential acquisition pipeline today I can tell you that it's more active, more robust than I can ever remember.

Obviously we can't talk about specific brands or transactions that are -- are in the marketplace today.

But I can tell you right now that there are a number of very interesting opportunities that we are looking at, that we have at least preliminary interest with.

And interestingly all of these so far are opportunities that we sourced on our own.

Now, acquisitions is a highly unpredictable science.

And all of these can easily not happen, but the fact that there are so many things happening right now is, I think, a clear indication of the level of activity that we are experiencing now and that we think will if anything intensify over the months and quarters ahead.

Acquisitions is probably the area where I place the great -- my greatest personal focus on spending a significant amount of every week talking to sellers and prodding sellers who aren't yet sellers or don't yet know that they are going to be sellers.

And, of course, as you know, there are a number or at least a couple, of larger publicly announced transactions that also could be potential strategic fits for Prestige.

So in summary lots of acquisition activity.

But for me the good part of all that activity is that it means we can afford to continue to be highly selective in the businesses that we look at and ultimately acquire.

We can afford to review all the possibilities and then pick out only the ones that fit our basic overall criteria, which as you know, are well known brands with high levels of national distribution, hi levels of consumer awareness, that are growable and expandable into new categories.

So I'm very pleased with the acquisition activity and I have high expectations that it will bear fruit in the year ahead.

So that's pretty much the conclusion to our story.

It was a wonderful quarter for the Comp -- Company.

The IPO was a -- was a terrific experience and a great success.

But beyond that, I'm most pleased at how well the Company and all the employees kept our collective eyes on the real ball.

The real ball being running the business, managing the business and growing the business.

I think we executed our plans and delivered against our plans phenomenally well.

As you know most of our employees are shareholders and that makes their interest exactly the same as mine and yours, to build shareholder value.

And everybody has that objective clearly in mind.

Looking forward we -- we have outstanding momentum.

Our brands are both unique and successful.

The financial structure of the Company driven by our lean organization and our outsourcing model has the ability to significantly expand our portfolio both through innovation and organic growth as well as strategic acquisitions.

So while we've had a great quarter and an excellent year I really believe that the best is yet to come.

So that's the ends of our prepared remarks.

We'd be happy to try to answer any of your questions at this time.

[OPERATOR INSTRUCTIONS] Bill Chappell, SunTrust.

Good morning, and nice quarter.

A couple of questions on the -- the gross margin side.

Is there any way to break out how much of the improvement was mix and how much was just cost savings.

Bill, essentially the vast majority of it was mix was the business moved considerably more to -- to -- to the OTC segment.

Also playing in that are previous quarters had the impact of us selling at lower prices some of the, I am going to call it obsolete inventory that we inherited from the former Prestige, all of that has now been moved through.

We didn't lose money on it but -- but we didn't make as much or make our stated margins on it so there is some impact to that as well.

Second on the international business, is there any target for where you would like to be at the end of fiscal '06 in terms of percent of sales?

We -- we -- we haven't set a specific target.

It's not going to be a dramatic ramp up, simply because the -- the process of selling our OTC items internationally requires each individual country's regulatory approval.

We are deep into that process on a country-by-country basis.

It's a little bit unpredictable as to when each equivalent to Food and Drug Administration will approve the registration.

But -- but we definitely look over a longer term time frame to get our international sales up to 10% over the next two, three, four years.

And you should see the first signs of that in fiscal '06.

And just one last question, I mean I know your guidance is fairly general but it seems like on a 5% to 7% top line growth this year, with all the new products and the pricing it seems somewhat conservative.

I mean how should we view that looking at this year's numbers?

Well, our -- our guidance is that over a long -- longer term type time frame 5% to 7% top line growth is -- is what we see and we do have good momentum going into the -- into the new year.

And I would ask you to draw your own conclusions from that.

Okay.

Thank you.

Amy Chasen, Goldman Sachs.

Good morning.

First of all on the pricing environment, you mentioned Comet.

You didn't mention Cutex.

You had taken a price increase for that.

Is that -- is that coming through?

And if so I'm surprised that we didn't see that in the Cutex numbers.

And can you just comment, sort of, across your portfolio whether you see other opportunities for price increases?

We've seen a slew of price increase announcements in the quarter from a lot of your peer companies.

Yes.

Hi, Amy.

The reason we didn't mention Cutex was that that price increase actually took place late in the third quarter.

And we actually did see some impact of that during the quarter.

As I think I said, the -- the overall nail polish remover category, during the quarter, was down 9%, I think is the number as measured by IRI.

And Cutex was down only one -- 1%.

And some of that is attributable to the price increase.

I want to also remind you that the -- with the pricing action on Cutex was only on the liquid piece of the line so some of our other segments, Twister and the pads did not have a price increase.

The other part of your question, looking forward on pricing, we are very actively looking at selective price increases on a number of our other items.

For example while it's a smaller brand we actually did take a 4% price increase on one of the Dermoplast SKUs again in mid March and that went in with -- with -- without a problem.

We are looking at, selectively, other of our OTC lines where we think either our pricing is slightly below our competitor or where we are clearly the market leader and were we think we can, if will you, be bold and take the initiative to raise prices unilaterally with the expectation of competitors.

So while I don't want to overstate the case and tell you that there is going to be a slew of pricing action for our brands, I think you can look for selective pricing action particularly in our OTC line as -- as we move forward.

Okay, great.

And just secondly in the quarter you filed a registration for five million shares for employee stock options.

Can you talk a little bit about where you are and in looking at your compensation structure and how we should think about dilution from increased shares outstanding over the next couple of quarters and years?

We -- we are in the midst of -- the board is in the midst of an overall review using an outside compensation expert to -- to -- to review that process.

It is not, at this point, at all clear whether we will actually have an option program or not or whether we will go to a restricted stock program.

That's very much up -- up -- up for discussion and an ultimate decision.

I would -- I would say that the likelihood of significant dilution from those programs is -- is not great at all.

Okay.

Last but not least can you comment on why Comet -- Comet is seasonal?

People -- it's really I was more -- household cleaning in general -- people tend to clean their house in the -- in the warm weather months.

So -- so you do see, for many household cleaning categories, a -- an uptick in the spring and then -- then through the summer into the fall.

Many retailers run spring cleaning features and so on which probably drives some -- some of that activity as well.

Okay.

Thanks.

Mark Miller, William Blair.

Hi, good morning.

Can you talk about the timing of your planned advertisement and promotional spend for fiscal '06?

There's a lot of activity amongst the brands and hoping to understand how that might flow through the year.

Should we still look at the first quarter as being the largest band and tapering after that?

And then what's your thought or your target as relates to percent of revenue that you want to be reinvesting?

And then I have a follow on question.

Okay, the first part of that is -- is that the -- the flow of our advertising will be very similar to how it's been historically.

That -- that -- that we have a number of brands, you know that are seasonal to the summer months that's -- that's Compound W, that's Cutex, it's New Skin and those brands will continue to be advertised on the same timing as they had been before.

And then other of our brands, Chloraseptic and Denorex and Clear Eyes is also a, sorry, a summer c -- seasonal advertised brand.

So you shouldn't look for significant seasonal changes in how we spend our advertising.

We are -- our plans are to invest a bit more advert -- a bit in measured media which will raise the percentage of that slightly.

I don't have that number in front of me, Jay, do you have that?

We are looking for our total A&P below the line A&P to be right around 15%.

Okay.

And then I know you don't want to be spe -- it sounds like you don't want to be specific about quarterly guidance but given the limited history as it consists today can you help us understand?

I mean quarters two through four, that's your strongest period.

In '05 fourth quarter was the strongest but I'm wondering if that is a little bit of an anomaly with the flu.

Should we think about quarters two to four being roughly equivalent or how should we see that?

The -- the -- our first quarter, the June quarter, has traditionally been the -- the least profitable of the four -- four quarters driven by exactly what you talk -- talked about, which is a -- significantly higher as a percent of sales.

Advertising (inaudible).

In -- in the most recent year, the year just concluded, the third quarter, the December quarter was -- was a bit softer than normal.

Driven by exactly what you said which is the -- the -- the slow to develop flu season.

It's impossible for to us predict whether that pattern will repeat itself this year or not.

But it's driven -- in some degree that's driven by events outside our control.

It's one of the reasons why we are on a March 31 fiscal year.

That we capture, in our year, both quarters of the cold flu season.

And so, while it matters from a quarter-to-quarter basis in the overall annual performance, we get the whole season regardless of when it develops.

And Mark, just to add on to that, the fourth quarter, traditionally is -- is relatively high from a profit standpoint because compared to other quarters there is less advertising that happens then.

Okay.

And then my final question is with all the acquisition activity you are seeing, can you just tell us your focus?

Is it predominantly in existing segments or what consideration are you giving to looking at other segments?

How should we think about that focus?

If you mean segments as OTC, personal care, and household, all of our acquisition focus is in those existing segments.

Okay.

Great.

Thank you.

Ronald Phillis, Banc of America

Hi guys.

And congratulations to both of you Petes.

I was wondering if you could give us some balance sheet detail.

Sure.

Okay.

Cool.

For us debt folks, cash and then total debt?

Cash at the end of the quarter was 5.3 million.

Total debt was -- .

495 million.

495.

And then do you guys recall what the availability was?

Yes, well we have a -- we have a $60 million revolver all of which is available.

Cool.

And then the last three would be AR inventory and AP if you have it.

Net AR would be 43 million.

Inventory is about 21.6 million.

And then AP if you have it.

20.7 million.

Okay.

Thanks and congratulations again.

Chris Ferrara , Merrill Lynch.

Did you guys just say that advertising and promotion for the full year is expected to be about 15% of sales?

That -- that's the advertising and promotion that appears b -- below the net sales line.

Of course a meaningful amount of advertising and promotion in terms of slotting, couponing expense, and trade allowances appears in the gross to net reduction which would take that num -- number up considerably to -- to well north of 20.

So what would -- what would you expect?

I guess year-over-year that would be the 15 from the operating expense portion of it, would be up a couple hundred basis points, if it were to come in at 15.

What's happening on the net sales side and where would you expect total A&P to be for the year, relative to last year?

We -- we -- what I was trying to -- to say was that within the total A&P spending, which is going to be, as a percent of sales, not meaningfully different year-on-year, that more of those dollars are going into advertising and less of those dollars are going into other, in our judgment, less productive areas like trade allowances.

Got it.

That's helpful.

Also then can you talk a little bit about competitive landscape in Freeze Off, what products and also in this New Skin -- New Skin line?

Are you see -- what -- what are you expecting to see for the coming year and what have you been seeing lately?

Sure.

As you know now if -- first talking about the Freeze Off competitive landscape, as you know, now just about a year ago Schering-Plough introduced a competitive item called Freeze Away, which is a very similar product to Freeze Off and is packaged quite similar, too.

And they have been advertising it heavily.

What that advertising appears to have done in combination with our advertising is to continue to significantly expand the OTC wart freezing segment.

So despite the fact that Schering spent a great deal of money and generated significant sales, it did not, and has not over the last 12 months, hurt Compounds W to the extent that Compound W Freeze -- Freeze Off is continuing to grow even in the face of that competition.

So what's happening is that that advertising is raising consumers awareness that now there is an OTC alternative to physician treatment.

Schering is getting some of that and we are getting some of that, but the whole category continues to grow.

The good news there, Chris, is that even though there has been a significant growth to the OTC freezing segment, there is still a long, long way to go before it's tapped out.

It's still, our research says that even today, a large number of -- of families are taking their -- themselves and their children to physicians.

And gradually, as awareness grows and trust grows, we should see the OTC segment continuing to grow and Freeze Off will continue to take a very significant share of that.

Do you have any of those numbers?

What -- what percentage of people who are having their warts frozen off are using OTC products versus -- ?

It -- it used to -- if you go back in time two years ago to essentially before this segment existed, our data said, it sounds weird but I have to say it, half the warts in America were treated at home and half were treated in a physician's office.

Now that has changed to something like 60/40 in fav -- favor of OTC.

But 40% particularly when you realize that when -- when -- when it goes to an OTC sale it's -- it's a 20 to $25 retail sale there is still a great deal of growth potential here.

Got it.

And then one other quarterly progression.

I guess because Chloraseptic was much bigger in this quarter because of the late onset of cold flu.

Is it entirely possible that next year's Q4 will see a down year-over-year gross margin because you wouldn't expect to see that same sort of mix?

Yes.

It's hard to say obviously because you can't predict when pe -- people are gun -- going to get sick.

For me the way to look at it is the six-month period, October through March, and we -- we have high expectations that during that period the -- the cold flu season should be if anything stronger than the total season this year because this toll season was still a little weak.

And Chloraseptic, with the item we now have now plus the three new items that I talked about plus the re-staged lozenges all of that should drive significantly increase Chloraseptic share.

Which should over that six-month period spell out nice Chloraseptic gains.

o you still expect year-over-year margin improvement in the Chloraseptic brands despite the cost of the re-stage and new packaging, stuff like that?

We -- we -- within the Chloraseptic brand per -- per -- specifically no.

But of course Chloraseptic as a brand has a considerably better growth margin than our product line or our Comp -- Company average.

So the greater percentage of our total sales of Chloraseptic, does then represent corporate margin improvement.

Thank you.

Alexis Gold, CIBC World Markets.

Hi.

Good morning.

Just a couple of questions.

I don't think the pro forma revenues that you reported, the 53.9 actually included Little Remedies for that quarter.

Can you give us just a break down of Little Remedies for the most recently reported quarter or for the prior year just so we can get an apples-to-apples comparison?

Sure.

What we ca -- yes, for the -- for the quarter had Little Remedies not been included in the current quarter sales would have been up by 15%.

So Little Remedies was about four mill -- 4.4 million.

And for the year-to-date the sales increase, if you exclude Little Remedies in total, sales increase would have been up 5%.

Okay.

Great.

And could that -- should -- we should actually then be able to back into the first quarter impact just so we can do a year-on-year for our quarterly modeling, does that make -- is that right?

Because you broke out last quarter as well.

I'm sorry, say the question again.

I was also just trying to figure out what the comps should be for the first quarter, for the June quarter of -- for fiscal year '06, so with the Little Remedies benefit would have been in the June '04 quarter.

We've got that.

We've got what the year ago number was.

Okay.

Ask your next question.

Okay.

Can you talk a little bit about your distribution channel?

Are you seeing real shifts there?

You talked about home retailers, dollar store -- stores, additional distribution and club stores.

Where do you see the biggest opportunities?

The answer to that question you really have to think of it as household product versus OTC slash personal care because the dynamics are quite different.

We -- we -- within the household cleaners, Comet and Spic&Span, there is an unmistakable shift away from traditional retailers, particularly traditional food retailers, to the dollar stores, to the club stores, to the do-it-yourself centers.

And we look for that trend to continue, that -- that -- that we are doing an ever increasing amount of our business in -- in the household cleaning category in those retailers.

In fact the IRI data for our household brands now covers slightly less than half of our total sales.

So it's -- the other segments are very, very important and we are working very hard to get new items in there and to broaden our reach in those customers.

Of course we are doing the same in -- in the traditional food outlets but -- but -- but the -- the nontraditional outlets for household are a very important driver of growth.

That is much less the case in OTCs, where the price points of our OTC items in many cases make it difficult to obtain dollar store distribution.

Having said that, we've now -- we have just recently gotten some very exciting new dollar store distribution for some of our Clear Eyes items, for some of our Prell items and so on.

But -- but it is much less of a factor.

And the same is true in the club stores for our OTC items where the -- the clubs carry a very, very limited assortment of OTC and per -- personal care items and getting distribution in there is difficult.

Having said that we got a distribution for a multi-pack of Clear Eyes in -- in Costco and we are very excited about that.

But -- but you can look for a lot of growth in the nontraditional outlets, in household less growth, but still important from the OTC brands.

On a related note you talk a little bit -- you talk about significant number of new products, additional distribution outlets, what about your manufacturers capacity to actually manufacture these new products?

Are they -- do you know where they are operating right now?

We -- I -- you -- you should think of this as our manufacturers which are essentially every contract, potentially every contract manufactured in America almost, our -- our capacity is -- is limitless.

It's not an issue at all.

Great.

And just finally can you quantify the synergies and cost savings achieved during year?

I think you were talking about 12 million.

In rounds numbers 12 -- 12 -- 12 million is exactly the right number.

Those synergies have been completely in place it had been contributing for the last six months.

The quarter com -- coming up -- the year ago did not have any appreciable syn -- synergies.

So -- so there will be a year-on-year benefit from that in -- in the quarter coming up.

Okay, and that benefit should be, what, in the range of 6 million, then, is that about -- ?

Four.

Four.

Okay.

Great.

Thanks very much.

Hang on we have the Little Remedies.

2.8 million for the -- for the first quarter last year.

Thanks a lot.

Reza Vahabzadeh, Lehman Brothers

Good morning.

Hi, on -- on the gross margin front, the expansion was certainly more rapid than in recent quarters.

I don't know if you could shed some light on which, in the product line category saw the greatest gross margin expansion?

Which product lines showed the greatest gross margin improvement?

Yes, you have OTC, you have household, personal care.

The -- I think the way to think about it, Reza is that OTCs have a sharply better gross margin even in personal care which has a sharply better gross margin than household.

So the fact that our OTC business grew so much more rapidly than the rest of the business affected the overall Company average significantly.

Within OTCs because Chloraseptic has a better growth margin than Freeze Off, for example, we saw some margin improvement of mix within OTCs as well.

Got it.

But within Chloraseptic, I suppose, with the late and intense flu season, did that affect, let's just say, either your reserves for returns, or just your pricing late in the -- in the March quarter?

Did that contribute to gross margin expansion for Chloraseptic in the March quarter?

No.

Okay.

Fair enough.

And then as far as the -- the competitive landscape, any particular product line launches by competitors that you anticipate having to deal with in the coming quarters?

Really the most significant competitive issue that we are dealing with is the one that we've already talked about which is the now almost year ago Dr. Scholls launch of a competitive free -- freezing item.

We've -- we've weathered that storm, very well but they remain an aggressive competitor.

They are spending aggressively in TV advertising.

As I think we told you in the past our partners who own the patents on our product, Freeze Off, believe that the Freeze Away product infringes their patent and they filed a patent litigation lawsuit against that.

I have no idea the likelihood of success of that.

The Orasure people are very optimistic but that -- that remains to be seen.

But that's really the most significant competitive issue that we are dealing with and we are dealing with it buy aggressively advertising and promoting our product which we believe to be a superior product.

Got it.

And then as far as the M&I -- M&A environment do you -- do you see that as being relatively target ridge, target light, evaluations, appropriate within what you consider to be appropriate yet?

How would you characterize that?

I would categorize -- or characterize it this way, that all of the opportunities that we are looking at, that the valuations that we're placing on these opportunities, are we think realistic for the marketplace and all yield -- or would yield if they were to come to pass, transactions that in the first year would be at least somewhat accretive to earnings per share.

Okay.

And the free cash flow that you could conceivably generate in fiscal '06, any particular priorities for use of the cash?

Well, the priorities would be if -- if we identify and cut and make a -- an acquisition we would use the cash to fund all or part of that transaction value.

If -- if we are unsuccessful in consummating any acquisitions then it will definitely go to pay down debt.

And do you have a size parameter that you would prefer on the acquisition front?

I would say that we -- the size parameter is more of a -- of a floor than a ceiling, of course it's a ceiling, too.

But -- but -- but we want to buy meaningful brands and it's tough to get a meaningful brand with revenues of less than 12 or $15 million.

It can happen in very specialized categories.

We are looking for brands with revenues of that range or more.

And now with the new capital structure we can contemplate transactions that are sharply larger than that if they are good strategic fits.

Thank you.

Okay.

My -- my chaperones are saying that we really now have time for just one more question.

I'm sorry to have to cut it -- cut it off but let's go forward with one more question.

Tom [Molitor], Wachovia.

Hey guys.

Just a couple quick ones.

Can you give a sense for what the sales contribution in the quarter was from new products?

You mean products introduced during the quarter?

Yes, either during this quarter or during last quarter.

I don't have that number in front -- front of me, Tom.

It would be quite small because the items that we introduced during the quarter, which are the Little Remedies items and the two Clear Eyes items.

They didn't begin actually shipping, which of course is when we recognize rev -- revenues, until the end of February.

And so the -- the overall volume was relatively small.

Okay.

Okay.

And then just one other quick question on -- on the acquisition front, do -- do sellers -- have they expressed any interest in -- in your stock or are your conversations pretty much exclusively cash oriented?

We haven't really gotten to that level of de -- detail yet.

Our -- our -- our approach has been cash but that's not to rule out anything.

Okay.

All right.

Thanks.

Okay.

Well, to all of you thanks for your time for listening.

We appreciate the support that some of you have now been giving us for better than a year and we definitely also appreciate the support that many of you have placed on us in the last few months.

It's something that we value greatly and we pledge to keep working hard in your behalf.

So thanks for your time.

Thank you.

This concludes today's conference.

You may disconnect at this time.