Prestige Consumer Healthcare Inc (PBH) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2007 Prestige Brands Holdings Inc. earnings conference call.

My name is Nicole and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Mr. Dean Siegel, Director of Investor Relations and Communications.

Please proceed.

Good morning.

Welcome to Prestige Brands fiscal 2007 third-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 management's expectations of what might occur with respect to future operating results are what is known 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 management's 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 it files with the U.S.

Securities and Exchange Commission.

Now I would like to introduce Peter Mann.

Thanks Dean.

Good morning to all of you and as always thanks for joining us.

In addition to Dean with me today as always is Pete Anderson, who is Prestige's Chief Financial Officer, and joining us for what will be the first of many such calls is our brand-new Chairman and Chief Executive Officer, Mark Pettie.

Of course the main agenda item for today is to discuss the quarter's results and Pete Anderson and I will as usual handle that portion of the call.

However in many ways the most important and most exciting news at Prestige is the arrival of Mark Pettie.

As a key member of the search process, I can tell you that we literally reviewed the backgrounds of hundreds of qualified candidates, talked to dozens of them, and from a list of superb executives ultimately selected Mark.

As you have seen from his background, Mark has exceptional business, financial, and marketing experience, and he has a record of impressive accomplishments.

But at the end of the day what made Mark rise to the top of our list was his leadership style which we believe is a perfect fit with the fast-moving, small entrepreneurial organization that is Prestige Brands.

As most of you know, Mark joined Prestige only a couple of weeks ago now, but he is already well immersed in the operations of the Company and you'll be hearing from Mark later in this call as he shares a bit about his background and his experiences as well as his views on both Prestige's performance outlook and the Company in general.

Now turning to results, by now I hope most of you had the opportunity to review those December quarter results which we released last night.

The results are also now available on our website, which is www.PrestigeBrandsInc.com.

First looking at that from the overall corporate perspective, total revenues reached $80.1 million, which was slightly above year-ago levels.

Of course during the quarter we benefited from acquisitions and if those revenues were removed from the quarter's performance, Company revenues declined by almost 6%.

We will provide individual brand detail in just a few minutes, but there were three important general contributors to the overall revenue picture.

First was the slow starting cold/flu season.

I imagine that many of you have read about this dynamic in press releases and earnings announcement from other companies who have important positions in this large category.

The 2006/2007 cold/flu season was weak in the December quarter in part because of the warm weather patterns we have all observed and in part because retailers adjusted their inventories accordingly.

This phenomenon definitely impacted our Chloraseptic and Little Remedies businesses and largely neutralized the positive gains we generated from the new items we launched into this season.

The second general factor that impacted our revenues affected our household business in the year-ago period.

The year-ago period for our household segment included a significant amount of promotional sales to a single large dollar store chain for their major winter promotion.

These were low margin sales and we elected not to participate in this promotion this year.

That decision resulted in definitely improved margins for Comet and Spic and Span this year, but it did cost the quarter about $1.3 million in lower revenues when compared to last year.

Finally and undoubtedly most important general factor that affected the December quarter revenue was again related to last year.

Last year's December quarter significantly benefited from the change in revenue recognition policy that we made last year during this period.

Specifically last year we had $7.8 million in factory shipments during the final four days of September, which we subsequently reclassified to record as December quarter revenues last year.

This year, the comparable number was $4.3 million or a year-over-year difference of about $3.5 million.

So probably for me the simplest way to wash out those quarterly variations caused by last year's change in revenue recognition policy is simply to use the year-to-date revenue numbers.

If you do that, you'll see that year-to-date corporate revenues were up a strong 11% and excluding all acquisitions, year-to-date organic sales are plus 3%.

So now turning to the income side of the P&L, net income from the quarter grew 14% to $10.6 million or $0.21 per share.

There were several key factors which impacted this earnings per share performance.

Operating income was essentially even with last year at $24.5 million.

Within this, the primary factor was a 21% increase in quarterly A&P spending.

As you may remember, we previously told you that this year we spread our A&P spending more evenly over the first nine months of the year.

That change resulted in lower A&P spending and higher profitability during the first half of the year with this quarter then balancing out the equation.

Again looking at the year-to-date numbers, A&P spending is now only slightly behind last year and all of that small decline is attributable to our decision to reduce spending behind the personal care segment.

Helping to offset this higher quarterly A&P spending was a 260 basis point improvement in gross margin resulting from improved profit mix, elimination of the low margin household sales I referenced a few minutes ago, and reduced freight expenses, a result of the recent decline in fuel prices.

Again, year-to-date nine-month operating income is 13% ahead of the prior year period.

The Company also benefited this quarter from a meaningful change in its effective tax rate.

Pete Anderson will take you through the details of this in just a few minutes, but the simple version has two key elements.

For this quarter we adjusted their fiscal '07 income tax rate downward, which resulted in an effective tax rate for the quarter of 26%.

Perhaps more important going forward the Company's effective tax rate will now be 38.6%, which is a 50 basis point improvement over the tax rate we have historically reported.

All of that netted out to net income for the quarter of $10.6 million or $0.21 a share.

That represents a 14% improvement over last year's results and for the nine-month year-to-date, net income is $27.7 million or $0.55 per fully diluted share.

And this nine-month year-to-date number represents a 22% gain over the first nine months of last year.

Finally when you look at our balance sheet and cash performance, you'll see a couple of important things.

Free cash flow for the quarter was $12.4 million, which is 12% better than last year's level and for the nine-month year-to-date period, free cash flow was $54.8 million, which is 55% better than the year ago.

And during the quarter, we paid down approximately $18.5 million of senior bank debt.

Our current total debt now is just over $470 million, which is almost precisely four times our trailing pro forma EBITDA.

So that is the overall corporate performance story.

I would now like to take a look at the quarter first on a segment and then key brand basis.

First looking at OTCs.

As you know, the OTC segment is Prestige's largest and most important operating segment, accounting for well more than half of our revenues and almost two-thirds of our profit.

During the December quarter, segment revenues grew 8% to $45.6 million.

Excluding the impact of acquisitions, which was primarily Wartner, OTC organic sales were up slightly and for the nine-month year-to-date, total OTC revenues are plus 13% with year-to-date organic growth in the OTC segment of plus 5%.

This OTC revenue performance for the quarter was generally in line with consumption trends for the segment, where total IRI and major customer point-of-sale consumption grew 3% for the quarter.

Within the OTC segment on a brand by brand basis were some gains and a couple of declines, but I would remind you that each of the individual brand's growth was negatively impacted by last year's change in revenue recognition policy that we talked about a few minutes ago.

So again year-to-date revenue numbers are more reflective of each brand's individual vitality.

First, Chloraseptic.

Chloraseptic revenues declined mid single digits for the quarter and this trend was generally in line with the brand's consumption trend.

Much of this decline is attributable to the slow start of the cold/flu season.

As you may recall, we introduced five new Chloraseptic items and we believe those launches would have driven good growth in a more normal season.

In particular, our Chloraseptic multisymptom lozenges are showing highly encouraging early signs of consumer acceptance.

As a frame of reference, nine-month year-to-date Chloraseptic factory revenues are up slightly.

Turning to Clear eyes, our Clear eyes North American business grew plus 5% on top of great strength recorded in the first half.

For the nine-month year-to-date, the Clear eyes line has grown over 10%, which is in line with IRI and major customer POS consumption trends.

The recently launched new items are contributing nicely to that overall growth and you'll be hearing more about additional Clear eyes new items later in the call.

Little Remedies posted another strong quarter, growing in the high single digits despite the soft cold/flu season.

Again, factory revenue trends were very much in line with consumption which grew plus 14% during the quarter.

We are continuing to broaden distribution of individual items within the line and we are now launching Little Tummys Gripe Water which promises to be another excellent line addition for the Little Remedies business.

For the year-to-date, the brand's revenues are now up in the high single digits.

One of our newest OTC brands, the Doctor's line of oral care items, had a remarkable success during the quarter largely driven by a new TV campaign in support of the Doctor's NightGuard.

This impactful TV advertising tells consumers in a highly compelling manner that nighttime tooth grinding is actually a serious condition which needs to be treated.

Sales of the Doctor's line more than tripled during the quarter.

As a frame of reference, total consumption for the Doctor's NightGuard grew a remarkable plus 64% for the quarter.

In short, it looks like a genuine success and yet we've only barely scratched the surface with the TV campaign.

A disappointing note in our OTC segment was the performance of our Compound W line, which declined during the quarter after six months of good growth.

Of course the December quarter is the off-season for wart treatments, but nevertheless the brand's performance was disappointing and mirrored weak consumption trends.

However for the nine-month year-to-date, the brand is still showing modest cumulative growth.

Our newest acquisition, the Wartner line of OTC wart treatments, is now fully integrated into the Prestige infrastructure and the brand delivered revenues which were very much in line with our pre-acquisition expectations.

We are now developing plans to support both of our OTC wart lines in the upcoming season and you'll be hearing more about that in a few minutes.

Finally our last two major OTC lines, New-Skin and Dermoplast, both recorded double-digit growth during the quarter.

For Dermoplast this is a continuation of an already strong trend, but for New-Skin it represents a significant turnaround and is definitely an encouraging sign for the future.

Profitability for the OTC segment as measured by brand contribution grew 7% for the quarter and is up 16% for the year-to-date.

Okay, household.

Turning to the Company's second most important segment, household cleaners, we see that total revenues for the segment declined 7% or about $2 million during the quarter.

The year-over-year comparison in revenues was driven by unusually high year-ago revenues resulting from three unique factors, below margin dollar store promotional volumes, which added $1.3 million to last year's revenue numbers, which we deliberately decided to forego this not so profitable business this year.

Secondly, the last year's numbers had about $600,000 of pipeline revenues to a large warehouse club account.

And finally, the segment was also impacted by the change last year in our revenue recognition policy.

Again, the year-to-date totals we think are more reflective of the good vitality of our household products business because they wash out these quarterly fluctuations.

And here we see the total household segment revenues are plus 14% for the nine-month period.

Equally important segment consumption trends remains strong with IRI and major customer PoS consumption growing 3% for the quarter and plus 7% for the nine-month year-to-date.

From a profit perspective, the household segment declined somewhat for the quarter and this is entirely attributable to the revenue decline.

However for the nine-month year-to-date, profits as measured by brand contribution are up a strong plus 16%.

Turning to the individual brands within household cleaning, the segment's largest brand, Comet, was particularly impacted by the various elements from last year and as a result registered a mid single digit decline.

In our view, this result is really quite misleading as the brand continued to post strong consumption gains with IRI and point-of-sale movement growing 5% during the quarter.

One of the elements which drove this consumption growth was the relaunched soft cream clean cleanser, which grew 45% during the quarter.

Lastly under the Comet heading you in a few minutes you'll be hearing about a brand-new comet item which we believe offers huge promise for the future out into fiscal '08.

Spic and Span, the second most important brand in the household segment also declined during the quarter, driven by the same year-ago factors.

Just like the Comet story, this is really not reflective of true brand strength as Spic and Span consumer consumption grew 2% during the quarter.

Finally our newest household brand, Chore Boy, slightly exceeded our internal expectations for the quarter.

Reported consumption during the quarter was flat, but IRI does not capture a number of smaller retailers where Chore Boy has a particularly well developed franchise.

We have now owned Chore Boy for more than 12 months and so future earnings announcements will include organic growth for this brand.

Finally turning to our smallest reporting segment, personal care, which accounts for only about 7% of corporate revenues, this segment continued to decline with all of the major brands reporting losses versus year ago.

These declines were entirely foreseen as revenue for the quarter was generally in line of our internal expectations.

As you may remember, we've cut back A&P support behind this small segment of our business and so despite the revenue decline, segment profit was actually up somewhat both versus year ago and our internal expectations.

Finally a brief word about our international performance.

As you know, we have historically done a very low percent of our business outside of North America and we continue to believe that overseas markets represent a large and relatively untapped source of growth.

During the December quarter, international revenues grew 28% and represented 4.1% of total Company revenues.

That compares to 3.2% of Company revenues last year.

For the year-to-date, international revenues are up 56% and represent 4.4% of total Company revenues.

The comparable number for the nine-month year-to-date last year was 3.1% of revenues, so you can see that our focus on international is beginning to pay off.

In addition to good performance in our more established geographies, much of this growth has come from totally new markets in Asia and the Middle East and you'll be hearing a lot more about our international outlook in just a few minutes.

So that is the report on the quarter, a period where unusual elements in last year's numbers make the year-over-year comparisons harder to understand.

While the slow start to the cold/flu season clearly impacted two of our key brands, the Company is still very much on track to deliver solid growth for the full year.

I would now like to turn the call over to Pete Anderson, who will provide a lot of additional commentary and financial detail on the quarter.

Thank you Peter.

As Peter mentioned earlier, net revenues for the quarter of $80.1 million were slightly higher than the prior year revenue of $79.9 million.

Operating income of $24.6 million was $200,000 or 1% below last year's operating income of $24.8 million, while net income of $10.6 million was $1.3 million or 14% greater than prior year's net income of $9.3 million.

The slight decrease on operating income was due to increased advertising and promotion spending and G&A expenses, which offset the favorable gross profit compared to the prior year's quarter.

Our net income increase compared to last year was driven by a favorable income tax adjustment of $1.7 million.

This favorable adjustment resulted from a project begun in last fiscal year's fourth quarter designed to make the Company's corporate operating structure more efficient.

As a result of that project, a number of initiatives were undertaken which have resulted in the reduction of the Company's ongoing book tax rate from 39.1% to 38.6%.

As a result, the Company recorded the $1.7 million benefit as a reduction to its deferred tax liabilities during the third fiscal quarter.

Cost of sales for the quarter of $36.8 million was $1.9 million or 5% less than cost of sales in the prior year.

As a percent of revenue, cost of sales decreased from 48.5% in fiscal year 2006 to 45.9% in the current fiscal year.

This cost of sales decrease as a percent of revenues was primarily due to favorable sales mix as the OTC segment accounted for a larger percentage of total business than in the prior year's quarter.

In addition, the decline in oil prices in the current year's quarter resulted in favorable transportation expenses compared to the prior year quarter.

Advertising and promotion expense of $8.9 million for the quarter was $1.5 million greater than spending of $7.4 million in the prior year period.

A&P spending for the OTC segment increased by $2.2 million over the prior year quarter.

This was partially offset by a $400,000 decrease in the A&P spending for the personal care segment.

General and administrative expense of $7.1 million was $900,000 higher than prior year's expense of $6.2 million.

The main drivers of the increase were in the areas of bonus, stock-based compensation expenses and legal expenses, partially offset by a decline in public company expenses.

Our legal expenses increased by approximately $250,000 over the prior year quarter, driven by expenses related to the OraSure mediation/arbitration process.

Legal and accounting charges related to the S-3 shelf filing which the Company made at the request of GTCR in December approximated $100,000 in the quarter.

Now we will briefly review results by segment.

Net revenues for the OTC segment of $45.6 million were $3.5 million or 8% greater than previous year's quarter.

Gross profit for the segment was $30 million, a 14% increase over last year's third quarter.

Gross profit as a percent of revenues was 66%, up nicely over last year's gross profit percentage of 63%.

This improvement was driven by favorable sales mix and reduced transportation expenses.

Contribution margin for the segment of $23 million was $1.6 million or 7% greater than the prior year's quarter.

That increase was driven by the gross profit increase, partially offset by increased advertising and promotion spending during the quarter.

Our household products net revenues of $28.7 million in the quarter were $2.1 million or 7% less than last year.

Gross profit of $10.9 million was $900,000 less than the prior year, largely as a result of the sales decline.

Gross profit as a percent of revenues was 38.1% in the fiscal 2007 quarter compared to 38.5% in the prior year's quarter.

This slight decline was due to unfavorable sales mix principally an increase in sales of household to international markets, partially offset by a decline in overall freight costs.

Our contribution margin for the quarter of $9.3 million was $800,000 below last year, resulting primarily from the decrease in net revenues.

Net revenues of $5.8 million for the personal care segment were $1.2 million below prior year.

Gross margin of $2.7 million was $400,000 less than the prior year primarily due to the sales shortfall.

As Peter mentioned before, contribution margin of $2.4 million was actually $100,000 greater than last year as the gross profit decline was more than offset by a reduction in A&P expenditures of approximately $400,000.

Our free cash flow for the quarter, which we define as operating cash flow less capital expenditures was substantially greater than net income, driven by our long-term tax yield, an improvement in working capital, and relatively low capital expenditures, free cash flow for the quarter was $12.4 million.

That represents a 12% improvement over the free cash flow of $11.2 million generated in the quarter ended December 31, 2005.

Free cash flow for the nine months ended December 31, 2006 was $54.8 million.

As Peter mentioned earlier, our continued strong cash flow enabled us to pay down $18.5 million on our term loan during the quarter.

Total debt has been reduced from just under $490 million at the end of September to $471 million at the end of December.

Now I would like to turn the call over to our new Chairman and CEO, Mark Pettie, who will share a bit about his background and experiences as well as take a look at Prestige's performance outlook for the coming quarter.

Thank you, Pete.

Good morning for the first time to all of you who joined us on the call today.

Since this is my inaugural call, I'm going to stray a bit from the conventional script and spend a few minutes acquainting you with myself and my early views on Prestige.

But before I do that, I would like to publicly recognize and thank Peter Mann for all he is meant to Prestige over the past several years.

Most of you are familiar with Prestige as the public company that is nearing its second anniversary on the New York Stock Exchange, but Peter has been leading Prestige and its private predecessor companies for nearly six years.

During that time, Peter and his senior team have built a stable of iconic consumer brands, many of which enjoy leadership positions in their categories.

He has also built a nimble and dedicated organization, a hallmark of Prestige that has enabled impressive growth across a continuously expanding portfolio.

Peter leaves with Prestige a legacy of true entrepreneurial spirit and I'm delighted he will continue as a member of our Board of Directors in addition to assisting my transition over the next few weeks.

So Peter, on behalf of the Board and all of Prestige's investors, employees, customers, and suppliers, thank you very much for your inspiring leadership these past several years and we wish you much health and happiness as you head into the next phase of your life.

You know, it is the key things that Peter leaves behind, strong consumer brands and a versatile organization, that make Prestige such a terrific place to be for me.

If you had time to read my brief bio, you know I've spent my entire career in the world of consumer goods and have been directly involved with driving the growth of several nationally recognized food brands many of which I'm sure you have in your pantries right now.

In addition, you know I have had the very enjoyable experience of leading smaller, more entrepreneurial organizations such as the Pollio Italian Cheese Corporation, which at that time was headquartered not too far from here in Mineola, Long Island.

What you may not know is that in addition to multiple marketing and general management experiences, I have also spent time in the sales world and although sometimes I am afraid to admit it, I actually started my year career as a finance guy.

The beauty of Prestige is it allows me to marry my love for growing consumer brands with my enjoyment of the smaller company environment while also calling on all of the diverse functional background and leadership skills I have acquired over time.

The fact that I grew up with many of Prestige's brands in my home makes leading this particular company that much more meaningful to me.

You know, as excited as I initially was to come to Prestige for these reasons, after just a little over two weeks on the job I'm even more enthused to be here.

Clearly I still have a lot to learn and there is no doubt we have our challenges, but the brands and people of Prestige are a great foundation off of which to continue to grow.

While it would certainly be premature for me to tell you I've already got a crisply articulated vision or a detailed strategic plan, I do believe a future defined by sustainable growth at Prestige is well within our grasp.

Whether it is sharpening our pencil on portfolio management, maximizing our distribution potential on key items, ensuring we have a robust and focused innovation pipeline, or remaining unwavering in the tight management of costs, I do believe we have the capability to consistently grow over a long horizon.

And by working to ensure we have strong mutually beneficial customers and supplier relationships, we'll be taking our critical partners along for the ride.

With respect to macro sources of growth, Prestige's recent history has featured a mix of organic expansion and strategic acquisitions and while our degrees of emphasis may shift between these two avenues, I fully expect each will continue to play a role in our future.

But most importantly, our ability to drive this sustainable growth going forward will depend on the talented and committed people of Prestige and on balancing our constructive sense of urgency with excellence in the execution of everything we do.

So that is enough about me and my early thoughts for the moment, although I do look forward to sharing more with you as I get settled in.

For now, let's turn to the immediate stuff and that means the current quarter.

In Q4, our primary focus is on maintaining momentum behind several of the Company's recent initiatives while also readying two very promising new product launches.

Let me speak first to the recent initiatives that have been successful for the Company to date.

First within our OTC segment we have Clear eyes Triple Action.

This new SKU in the expanding Clear eyes redness lineup was launched a few months ago and has already become a key item for the brand.

While distribution is already quite good, there are a number of opportunities to broaden placement and the item's visible success with current customers will help our sales organization achieve this new distribution going forward.

Next also an OTC is Dermoplast Poison Ivy.

This item was launched last year a little too late to be included in most key retailers' seasonal first-aid sections, but it is a remarkable product that not only relieves the itch of poison ivy but actually stops the spread of the lesions and skin bubbling, which can be more than a little uncomfortable to say the least.

We have added a number of large customers to the item's distribution base and we expect this summer to be a period growth for this item.

Peter also mentioned the remarkable growth of our Doctor's NightGuard product and the new Little Remedies item and we will continue to support both of those going forward as well.

Shifting over to the household front, Peter mentioned Comet cream.

As you may remember, this item competes in the liquid segment of the abrasive cleanser category and combines a differentiated formula with attractive retail pricing and the strong consumer equity inherent to the Comet brand.

We have continuously been adding key points of distribution and have been supporting the item with dedicated TV and print advertising.

Importantly, everywhere it is available, its consumption velocities are meeting or exceeding our expectations.

Also within household is Comet Lavender fresco powder.

This fragrance version of the traditional Comet powder provides a meaningful point of difference to consumers.

It is quickly gaining distribution, expanding category consumption, and improving overall Comet share.

And finally a further word about our international opportunities.

In addition to our focus on the Pacific Rim in the Middle East, the Company has long believed that for many of our brands, Mexico represents a close in and large opportunity.

Many of our brands were sold there at one time in their lives and so Mexican consumers already have an important preexisting level of awareness and trust in these trademarks.

The first major step in developing a Mexican franchise has now occurred.

We have shipped initial orders of four Comet items into most of the major Mexican retailers and consumer support will begin shortly.

The retailer acceptance of Comet is a good harbinger of things to come and our research among Mexican consumers suggests that consumption will be equally strong.

So while the good news is the continuing growth prospects of each of these initiatives and their ongoing contribution to our portfolio, the better news is that we plan to back up these successes with two major new launches we're readying for market.

The first is Comet spray gel mildew stain remover.

This is a totally unique item that competes in the $70 million mildew stain remover category.

For a number of years, this category has been relatively quiet with little product innovation until now.

Comet spray gel is exactly what the name implies.

It is a clear viscous gel which the user sprays onto the surface containing the mildew stains.

Because it is a gel, it clings to the surface far longer than the existing liquids, giving the active ingredient sufficient time to fully kill and bleach away the mildew.

This visual difference lends itself well to product demonstration and we have incorporated that demo into a compelling piece of dedicated TV advertising.

Because the product is a gel, it does not atomize nearly as much as liquids, which gives Comet spray gel the important added benefit of not smelling as poorly as the competition.

We've done extensive consumer research which confirms the appeal of both the basic spray gel idea as well as the performance of the product itself.

We are in the process of presenting this exciting item to retailers everywhere and the initial response has been quite positive.

We've already begun shipments to those quick to respond customers and we expect to achieve widespread distribution over the next few months.

Comet spray gel will only add a small amount of revenue to this fiscal year but will be an important contributor to fiscal '08.

On the OTC set of the business, we are readying a brand-new item which addresses an unmet consumer need and has the potential to create a large and totally new consumer category.

Importantly, this product provides meaningful benefits to people of all ages and we believe it will quickly become a part of its consumers' daily hygiene routine.

The product will be introduced under our Murine trademark and is a high margin item which will allow good levels of introductory support.

It is slated to launch after Comet spray gel and we look forward to telling you more about this great new OTC item in the near future.

So that is the current story for Prestige, a strong first nine months of the current fiscal year with revenues up 11% and net income up 22% inclusive of the Q3 tax benefit we just discussed.

And even stronger nine-month cash flow of $55 million which has funded this year's Wartner acquisition and enabled an $18.5 million debt pay down this past quarter.

As Pete mentioned, an improved tax rate which we expect will enhance net income going forward, recent initiatives which were already contributing to growth and will continue to do so, and an expanding international business which has considerable upside potential.

Finally two promising new items, one in OTC, one in household, which we expect to be meaningful contributors in fiscal '08.

So what does that mean looking forward?

Well, as you know, it is the policy of Prestige not to provide details, specific guidance for a quarter or full year but at the same time, we want to share as much as we can about our internal outlook.

So here is what we see.

For the current fiscal year that ends in March, our expectations are that organic revenue growth will fall within the Company's previously stated long-term range of plus 3% to 4%.

Total revenue growth including the impact of acquisitions will grow in the high single digits and net income will grow somewhat less rapidly than our total revenue growth projection.

As we look ahead to the new fiscal year, I'm sure you can appreciate that after only a couple of weeks I am not in a position to give any tangible outlook.

However the initiatives I mentioned earlier plus the two new product launches we have planned give us reason for cautious optimism.

As we look to build on the successes of the fiscal '07, we're currently developing our plans for next year and I expect to be able to share them with you as appropriate on our next call.

In closing, let me just reiterate my enthusiasm for the brands and the people of Prestige and our future together.

I am excited by the prospects of realizing the full potential of our portfolio, successfully overcoming the inevitable challenges we will face, and delivering long-term sustainable growth.

In short, there is absolutely no place I would rather be.

I look forward to speaking with you about the business and our performance for years to come.

Thank you.

Now we would like to the call up for questions.

(OPERATOR INSTRUCTIONS) [Laurie Sherwin], Goldman Sachs.

Peter and Mark, first just congratulations on your new roles.

Mark, in your opening comments you alluded to knowing the Company has its challenges and understanding you do not have the solutions and specific strategies laid out yet, what do you see as the biggest areas and focus areas that are going to need your attention as you are ramping up in your early days?

I think the challenge for us is to harness the full energy of the great brands we have in the portfolio and through portfolio management, making sure that our marketing dollars are working as hard for us as they possibly can and through putting together a focused and robust pipeline, as I mentioned, that we are driving these brands to their full potential.

So it is really getting my arms around the portfolio, understanding where the energy points are, and then bringing those to life.

Do you think the portfolio was right or could you look to prune some brands that have been underperforming?

I think we are always open for strategic changes, but at this stage of the game as I look at it after two weeks, I am happy with the portfolio we've got.

Okay, I guess more to come over the next couple of months.

In terms of the quarter on the household business, I understand the onetime factors that contributed to the decline, but it looks like even excluding the pipeline to club last year and the elimination of the dollar store promotion, it still looks like sales would have been about flattish.

Is that right?

Also as you lap these onetime items in the fourth quarter, do you expect growth to get back to matching consumption?

It's Peter.

If you take the pipeline sales to the warehouse club and you take out the onetime promotional sales, if you just had those two factors, you are right, sales would have been about flat.

However household was also impacted by the change in revenue recognition policy.

I can't tell you the exact amount that it affected household, but since household is about one-third of our revenues it is not unreasonable to expect that about one-third of the revenue change was caused by the revenue recognition policy would have accrued to household, which would have then given household a couple percentage point growth, which would be generally aligned with the 3 percentage point consumption growth we saw for the segment.

I don't want to get too technical and maybe I'm missing something, but I guess I don't understand why revenue recognition issue would have an impact on comps if you restated the year ago period.

In the September quarter last year, September, the quarter that ended September '05, we did not know that we were going to make a revenue recognition policy change, and so we managed the month towards the normal calendar end.

That resulted in an unusual amount or a normal -- at that point a normal amount of business occurring in the last four days which were reclassified then into the December quarter this year because we knew the policy had changed the amount that was reclassified was meaningful[less].

So it just makes the quarter comparisons difficult.

If you add the two quarters together, it completely washes it out.

So theoretically then the fourth quarter should benefit by as much as the third quarter was hurt?

No, because by the fourth quarter, the March quarter, we last year we were -- we had changed the revenue recognition policy.

We were managing accordingly so that the amount that moved out of December '05 into the March quarter last year is in the same general range as what moved out this year.

I might follow-up on that off line.

Back to household, just it looks like A&P was about in line if not A&P spending was about in line if not somewhat lower than last year.

How are you thinking about this going forward?

I would've expected that to be up sort of like how over-the-counter was this quarter.

I don't have the A&P spending in front of me, but it was generally flat.

We chose from a corporate perspective to put a bit of additional A&P emphasis on the OTC segment.

As you know, that is our primary focus anyhow.

Secondly, we had a number of initiatives in the OTC segment in particular the advertising behind the Doctor's NightGuard, and so we portfolio managed a bit to put a little more emphasis behind the OTC segment.

And how are you thinking about that managing that going forward?

Managing it going forward, we will continue to support the household segment with representative good levels of A&P support similar to what you are seeing now.

Having said that, the Comet spray gel product that Mark talked about is a significant opportunity for the Company we think and we have done enough testing to know that it will be responsive to A&P support so you can look for some -- I don't want to overstate it -- but some reasonable increase in A&P support in the next fiscal year behind the spray gel product.

Okay, great.

Thank you.

Eric Larson, Piper Jaffray.

Congratulations, Mark.

Just a couple of questions.

First just a detail.

Maybe this is Pete Anderson's question.

Pete, should we be penciling in on the quarters going forward 38.6?

Is that the right number?

Yes, that is correct.

I just want make sure because this year given that you had the onetime tax deferral, your tax rate for the full year would be well below that number.

Is that correct?

Exactly.

Correct, but going forward 38.6 or a meaningful ongoing benefit.

Sure.

Then to kind of take off to the previous question, I just want to make sure I understand the revenue recognition issue.

This is where you used to recognize revenues at the time that it was on a truck and it was FOB your plant and now you're recognizing the revenue after the customer actually receives it and you have confirmed receipt?

That is essentially correct.

Before we changed the policy, we recognized revenues at the time that they were shipped from the warehouse.

We now recognize when they are received by the customer, which on average is four days later.

Your business is four days, okay.

For some food companies it has been a little shorter, but then you have a different distribution system, so I just wanted to make sure that I understood that issue.

So that is why we talked about the four days of September '05 versus the last four days in September '05 versus the last four days of September '06.

Okay, got you.

I just wanted to make sure I understood that.

Then just kind of looking at your full year and your guidance, total revenue of high single digits makes a lot of sense.

Your EPS for your full year a little bit less than that implies that -- your fourth quarter advertising spending has got to be huge.

It has got to almost double in order to get to that number for the fourth quarter for the full year.

Am I missing something there or is that -- that would actually put your second half spending higher than your first half spending, which essentially would not spread it evenly as you kind of had alluded to earlier.

We are anticipating fourth quarter advertising spending again just like the third quarter to be higher than fourth quarter last year.

In addition to that, we are anticipating that G&A is going to continue to run higher than the previous year's quarter, driven by two factors.

Again, the continuation of having both a bonus payout this year which did not occur last year, so there was no expense.

In addition to that we've got higher long-term incentive plan expenses simply because this is year two of us having a long-term incentive plan.

So you've got two years worth of expense.

And then finally legal expenses, which as I referred to before have run higher than last year in the third quarter.

We anticipate that that will continue as the cases that are currently out there continue.

Just so that everybody remembers, if you look at last year's reported net income for the fourth quarter, it was substantially lower due to the fact that we had about a $9 million write-down on the personal care goodwill line.

We do not anticipate that happening again.

Bill Chappell, SunTrust.

This is actually Mark in for Bill here.

Just a question Mark Braby on Chloraseptic trend.

I did not know if you had seen maybe a bounce back recent cold spell the last few weeks?

We are eagerly awaiting the IRI report for the period that ends I think January 27 or 28, because that will be a good indicator of what the consumption is.

As you know, factory revenues follow that consumption pretty well, so we and you will have that probably in the next week or so.

The unfortunate thing is we a lot of times refer to the syndicated data that tracks the cold and flu incidents and the latest weekly report still indicates that this season is running below last year's and that measures the incidence of colds and flu.

Okay, that helps a little bit.

And then it looks like you guys paid down a lot of debt this quarter.

I am wondering if that is going to be a trend going forward with use of free cash flow?

Bill, it's Mark.

As you know, our policy on our free cash is to utilize it for one of two things, either to make strategic acquisitions or to pay down debt.

And so our future will be dictated by that policy.

We are still obviously open to strategically align acquisitions at any point.

Absent those, we will continue to utilize the cash to pay down debt.

Great, thanks a lot.

Joel Altobello, CIBC World Markets.

The first question just to make sure this is out of the way, in terms of the next few quarters, is there anything in the year-ago period that would cause the comps to be a little more difficult like this quarter on the top line?

No.

Okay, great.

Secondly if you look at the organic growth this quarter I guess it was down 6 obviously on a plus 4 comp, but was not too onerous.

I was curious are you still comfortable with long-term 3 to 4, because it looks like it seems to be somewhat of a challenge?

You know, that is something that obviously -- this is Mark -- I'm going to dig into as I get settled in here.

I would say at this stage of the game I see no reason to restate that, but I'd reserve the right obviously to come back to that downstream as I dig under the covers here and we start to craft not only our '08 plan but our long-term strategic plan.

Okay, last if I could, in terms of household segments, not to go into too much detail but obviously the gross margin was down year-over-year despite the fact that you did not repeat the low margin promotional sales from last year.

You also had a lot more Comet royalty revenue this year.

I was curious why that was down I guess 40 bps.

Joe, as I said, the big driver of that was that the international business, especially business that we're doing into the Middle East, to start that business we are actually seeding the market with U.S. product which we wind up selling to the distributors at a discount over what the U.S. margins are and then the distributors wind up bearing the cost of the advertising and promotion.

So it really was a mix issue that there was definitely much more international business on the household side this quarter compared to previous year.

Okay, great.

Thank you.

Jon Andersen, William Blair.

Congratulations on the new role.

I just had a question on the wart remover business.

Compound W had been showing some signs of life during the first half of the year.

It looks like it was down in the quarter.

Can you kind of elaborate what may be happening there and how you are going to be approaching that business now that you own Wartner as well in terms of your go to market strategy across both those brands?

Sure, John.

Your facts are exactly right that Compound W recorded good factory revenue growth during the first half and showed some weakness this quarter.

To some degree that is simply a balancing out that the factory revenue growth we'd see in the first half was a little bit better than consumption and the factory revenue decline that we saw this quarter was a little worse in consumption.

So we tended to balance it out.

The wart remover category has been relatively flat and Compound W has been growing slightly but not robustly.

Within that, there are some interesting mix trends that the cryogenic segment of the wart remover category has been a bit softer for us and that has been offset by good growth on the noncryogenic, if you will, the traditional wart products which are compound W, liquid Compound W, Gel Compound is out, so (indiscernible) pads, all of which have substantially higher gross margins and so we are selling a similar number or actually an increasing number of Compound W units, but the mix within has been evolving.

We are -- now that we have the two brands, Compound W and Wartner, we are in the midst of a significant strategic reassessment of how the two brands, how we will market both brands -- we intend to market both brands aggressively and we've done some very interesting consumer research to help us guide how we can differentiate the positioning of those two brands.

You'll see that when we get into the summer months.

I don't want to say more than that now, but we think that we have identified very good strategies to have if you will both ends of the market covered strategically, which should bode well for both Compound W and Wartner.

I would just add to that if I could that not only do I find us in an enviable position with consumers for the reasons Peter mentioned, but I think it also puts us in good stead with our customers.

We have critical mass with them and I think the strategies that Peter alludes to, the customers will find very compelling as well which bodes well for future distribution opportunity.

Thank you.

(indiscernible), CIBC World Markets.

How much of the SG&A was stock-based compensation?

If you gave that number, I missed it.

I'm sorry.

We didn't.

About $200,000.

Okay, and should we expect a similar level going into the fourth quarter here?

It will be up just slightly.

Okay, and in terms of the debt pay down, certainly that is good news, but should we take that as kind of there is not a lot on the market right now that you're looking at in terms of your pipeline or is this just an opportunistic use of the cash flow?

No, you should not take it as that.

You should take it that at the end of the quarter we were not close to closing any transactions and we felt that it was appropriate to use the cash.

The acquisition marketplace remains active and we will be making similar decisions on a quarter by quarter basis as we go forward.

As Mark said, the first priority if there is a good strategically appropriate acquisition is to use the funds there.

If there isn't, and if we're not close to one, then we use the funds at the end in this quarter to do the same.

Okay, and just in terms of the Comet spray gel, can you give us a sense of the size of the market, the competitive landscape?

Are you going up against established brands in that category already?

As we said in the comments, the size of the category is roughly $70 million to $75 million, so it is a meaningful category for us and there are some established players in there, but we think with the gel aspect of what we are offering, it is a meaningful point of difference to consumers that has proven out in testing and so we have got going for us one thing which all consumer products like, which is a point of differentiation with our end-users.

So although we have an already established category that we're entering into the first time, we think we will be able to enter it in a meaningful way and pick up distribution and take away early on.

Obviously our early response customers are agreeing with us by virtue of the fact that they have jumped on this opportunity and this great new product early.

Just lastly, I thought I heard you say on a weekly basis that we're running still behind last year for instances of cold and flu but a lot of the pharmacies, CVS and others, were saying that January was running strong comparatively speaking with December for cold and flu.

I'm trying to just kind of reconcile what you guys are hearing with what the pharmacies and drug stores are reporting?

Sure, the numbers that Pete referenced a minute ago were the incidence of cold/flu symptoms this year versus last year, but relative January versus December, which is what you are referring to, they are up sharply, which is a normal seasonal growth, the January, February, and into March is the peak part of the season.

And so you would expect January store velocity, January consumer consumption to be stronger than December.

Thank you very much.

(indiscernible), Sidoti and Company.

I have one quick question for you, Mark.

It sounds as if you're still very much evaluating your situation at Prestige and everything that lies before you, which is understandable, but it also sounds as if you're more inclined to fall in line with what the legacy leadership and growth strategy has been.

Is this correct, or can you identify any changes you plan to initiate within the first six months call it?

Obviously the growth that Peter and his team have put up here over time is impressive and there are some things that they've done very well.

Obviously I will revisit all the strategic elements inherent in the Company and create my own strategy off of those over the next several months.

As I mentioned earlier, areas of focus for me will be portfolio management, will be marketing optimization.

We obviously need to make sure that every marketing dollar we have working for us is working as hard for us as possible.

Our innovation pipeline, which I believe is in good shape, will also get my attention.

One of the legacy aspects that we can never walk away from is stringent cost management, making sure that our costs are under control.

So there will be areas that I will investigate, as I mentioned, and there will be areas that I think are the bedrock of the organization, which we won't walk away from.

But more to come on those as I settle in.

Thank you.

Congratulations as well.

Reza Vahabzadeh, Lehman Brothers.

Just one housekeeping item.

I thought you mentioned the sales trends for Chloraseptic, but I couldn't catch it.

We did.

We did not provide a specific number but we said that they were down I believe in mid single digits, which is approximately right.

That's fine, thank you.

Then as far as the M&A environment that you are seeing as of this moment, is this an environment that is relatively quiet at this time or target risks and how do you think that could possibly evolve based on your information?

I'm sorry, Reza, say the question again.

As far as the potential M&A environment for businesses that might be of interest to you, is this an environment that is relatively quiet for now?

Do you see a high flow of potential targets or a relatively quiet flow of them?

No, we see a continuing good flow.

The last 12 months there have been a significant number of opportunities, a couple of which we have made, a couple of which we participated in and decided not to go any further and that environment continues.

We, as I know we've told you many times, we are highly selective, wanting only to find things that fit strategically and where the valuation enables us to have those deals be accretive from the get go.

Okay, and then is your maximum leverage target still 4.5 times or is it higher than that?

We have said fairly consistently that for a good, larger acquisition, we would push that up towards the 5 times if we had to.

Okay.

In the meantime with the free cash flow that you have, would you consider share repurchases or just debt repayment and acquisitions?

For the moment our lending covenants preclude us from either paying dividends or buying back shares.

When the debt to EBITDA ratio goes below 3.5, that then triggers an enablement to us to consider those options.

Okay, then lastly how do you feel about inventory at retail for your products?

But also do you see any of your retailers independently sort of cutting back on inventory levels for whatever purpose they might have?

As a generalization, retailers are consistently trying to cut back on inventories as part of their good business management practices. that is a phenomenon that has occurred over the last decade and so the inventory levels that our brands have now are pretty much where the retailers want them.

I'm sure there are individual exceptions to that, but as a generalization, we're not overstocked with inventory at all and on some of our more rapidly growing items for example, the Doctor's NightGuard, it takes awhile for the retailers to catch up and we could actually be underinventoried there.

Got it.

Thank you much.

James Adams, Scopia Capital.

I just wanted clarify one thing on the guidance that you were talking about earlier.

The net income growth, is that inclusive of the tax benefit this quarter?

Yes.

Good, thanks.

David Steinberg, Mast Capital Management.

My question has to do with your capital structure.

Looked at in the context of today's credit markets, your capital structure relative to your credit statistics looks pretty expensive.

Have you looked at potentially taking advantage of the credit markets and it looks like most of your debt is prepayable without a penalty.

Have you looked at refinancing?

Our bonds are not --

Your bonds are not callable, but most of your term debt is.

We are constantly looking at our capital structure.

There are no further questions at this time.

I would now like to turn the call back over to Mark Pettie for final comments.

Okay, well thank you very much for joining us today and we look forward to speaking with you next quarter.

Thanks again.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.