Prestige Consumer Healthcare Inc (PBH) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2010 Prestige Brands Holdings, Inc.

Earnings Conference Call.

My name is Stacy, and I will be your conference moderator for today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr.

Dean Siegal, Director of Investor Relations.

Please proceed.

Good morning and welcome.

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 US Securities & Exchange Commission.

Now, I would like to introduce Mark Pettie, Chairman and CEO.

Thank you, Dean, and welcome to all of you joining us on the call this morning.

In addition to Dean, with me is Pete Anderson, Prestige's Chief Financial Officer, and Chuck Jolly, our general counsel.

I will begin today's call with a brief overview of our first quarter results.

Pete will then review the full financials for the quarter in more detail.

I will follow that with highlights of our segment performance, and a look at the balance of the year.

We will then open the call for questions.

So, getting underway, our reported total revenues for the first quarter were $73.2 million, $0.3 million, or less than 1% below last year.

In the quarter we experienced revenue increases for our OTC and Personal Care segments, which were offset by lower revenues for the Household Cleaning segment.

Moving to our bottom line, net income for the quarter of $8.3 million was $500,000, or 7% greater than last year's net income of $7.8 million.

EPS for the first quarter was $0.17 compared to $0.16 last year.

Finally, we generated $18 million of free cash in the quarter, an increase of 18% over the first quarter of last year.

Our continued strong cash generation allowed us to pay down $17 million on our term loan during the quarter.

At June 30, total debt was reduced to $361.3 million.

That is a quick summary for the quarter, and now I would like to turn the call over to Pete, who will provide additional commentary and financial detail.

Pete?

Thank you, Mark, and good morning, everyone.

As Mark mentioned, net revenues for the quarter of $73.2 million, were $300,000, or 0.4% below last year's net revenues of $73.5 million.

Last quarter I spoke about our expectations that we would be negatively impacted by FX for the first two quarters.

Although the US dollar weakened versus the Canadian dollar and the UK pound compared to our fiscal fourth quarter, the dollar remains stronger than it was in the first quarter of last fiscal year.

Consequently, this year's first quarter growth was negatively impacted by 1.5 percentage points, and we expect to see a continuation of the negative FX impact at least through the second quarter.

Our operating income for the first quarter was $19.1 million, $2.1 million below last year's operating income of $21.2 million.

This operating income decline was primarily due to a 21% increase in our A&P expense compared to last year.

The increased spending year-to-year was primarily due to spending on the Allergen Block launch in both the US and Canada, and increased advertising on Compound-W compared to last year's quarter, when we delayed the first quarter advertising until we got our Freeze Off pricing at shelf corrected later in the wart care season.

Offsetting the operating income decline in the quarter was a $3 million reduction in interest expense in the current year's quarter due to the large pay-down of debt over the past year, combined with low interest rates on our bank debt.

Net income was $8.3 million, or $500,000 more than last year's net income of $7.8 million.

As Mark mentioned earlier, we had another very strong quarter of free cash flow.

During the quarter we generated $18 million of free cash flow.

That is a $2.7 million improvement over last year's first quarter free cash flow of $15.3 million.

We used $17 million of the cash flow to reduce our debt to $361.3 million, and our cash balance on the balance sheet increased by $1 million to $36.2 from our year-end balance of $35.2 million.

Now, I'd like to turn back to the operating performance for the quarter.

Cost of sales for the quarter was $34.4 million, or $100,000, 0.3% greater than the prior year's quarter.

As a percent of revenue, cost of sales increased slightly from 46.6% in last year's quarter to 46.9% for fiscal year 2010.

Advertising and promotion expense of $8.8 million was $1.5 million, or 21% more than A&P expenditures of $7.3 million last year.

The increase was due to increased media and consumer promotion expenses, which were up 33% compared to the previous year's quarter.

Our G&A expense of $8.2 million was $200,000, or 3% more than the prior year's expense of $8 million.

The increase was primarily due to increased compensation expenses as we had no vacancies in the first quarter this year.

Now, let's briefly review the first quarter results by segment.

Net revenues for the OTC segment of $40.3 million were $1.1 million, or 3% greater than last year.

The sales increase was driven by increased sales on Chloraseptic, Clear Eyes, Compound-W, Little Remedies, and our Allergen Block products.

Partially offsetting those increases was a decline on the Murine Ear Care brand.

Gross profit for the segment was $26.8 million, 3% greater than last year's gross profit of $26 million due to the sales increase.

And gross profit of the percent of revenues was 66.4%, a slight improvement over the previous year's quarter of 66.3%.

Contribution margin of $20 million for the segment was 5% less than last year's contribution margin of $21 million due to increased advertising and promotion spending.

A&P spending for the segment of $6.7 million in the current year was $1.7 million, or 34% greater than last year's A&P spend of $5 million.

The spending increase was driven by increased advertising and consumer promotion spending on the new Chloraseptic and Little Remedies Allergen Block products and Compound-W, partially offset by reduced spending for the Murine Earigate product.

Turning to Household Products, net revenues of $27.4 million were $1.6 million, or 5% less than last year.

Spic and Span experienced flat revenues, while both Comet and Chore Boy had sales declines compared to last year's first quarter.

Gross profit of $9.6 million was $1.5 million below the prior year.

The decline in gross profit was due to the sales decline, combined with the increases in product costs partially offset by declines in transportation expenses.

As a percent of sales, gross profit declined from 38.2% to 35.1%.

The Household Product segment contribution margin for the quarter of $7.7 million was $1.3 million less than last year due to the gross margin decline.

Net revenues of $5.5 million for the Personal Care segment were $200,000, or 4% greater than last year.

A sales increase for Q tax was partially offset by a decline on the Denorex brand.

Gross profit of $2.4 million was $300,000 better than last year.

Product costs and transportation costs were favorable to last year.

Finally, contribution margin of $2.3 million was $400,000 greater than last year due to the gross profit increase.

And now I'll turn the call back to Mark, who will provide additional perspective on the first quarter and the remainder of fiscal year 2010.

Thanks, Pete.

We will begin, as usual, with our OTC business.

As Pete mentioned, total reported OTC revenue grew 3%, and in this segment we had three brands of double-digit growth, including our largest OTC brand, Clear Eyes, which was up 13%.

During Q1, we completed the sell-in of our new line of Clear Eyes Tears products, which is one of a large number of new products that I mentioned on our last call.

The new six-item Tears line represents a meaningful step-up in Clear Eyes participation in the large dry eye segment of eye care.

As reflected in our first quarter shipment, retailer acceptance of this sub-line, which also features fresh, new Clear Eyes graphics, has been quite strong.

Integrated consumer support for this launch, including TV, print and radio begins in our second quarter, and we look forward to Clear Eyes Tears building on the base momentum of this important OTC brand.

Another strong performer was Little Remedies, up 40%, driven by continued healthy underlying consumption at plus 34%.

Three key factors drove this growth, headlined by the continuing success of our Little Remedies Saline Mist product, which was introduced last fall.

Broader distribution of existing products, such as our Little Remedies Safety Pops, has also led to increased consumption while a successful and permanent dual placement featuring several of Little Remedies products in a leading national chain drug account is the third significant contributor.

A full quarter of distribution of our new Chloraseptic and Little Remedies Allergen Block products also added meaningfully to Q1 revenues.

We now have the experience of a complete spring allergy season under our belts.

And while total factory revenues generally performed in line with our expectations, we believe that there may be opportunities to elevate consumer takeaway that we will be instituting for the upcoming fall allergy season.

Another driver of Q1 OTC growth is the Doctor's brand, up 47%.

While this quarter's performance is largely attributable to year-ago costs that were constrained by one-time costs associated with the conversion to our new Advanced Comfort bruxism device, we are looking forward to increased consumption of this number one bruxism SKU with the commencement of advertising support in Q2.

On the Wart Care front, you will recall that we were in the throes of a major pricing reset across the Cryogenic segment in Q1 of last year.

For Compound-W and Wartner, new pricing paradigm was finally achieved on a broad basis midway through Q2 of last year, and I am happy to report that our total Wart Care revenues this quarter were stable versus year ago.

Importantly, the news is encouraging on the share front, with our flagship Compound-W brand gaining 2.7 percentage points during the quarter behind strong sal acid performance in improving Freeze Off trends.

On a four-week basis, the news is even better with Compound-W share up 6.5 percentage points, lifting our overall Wart Care share at 2.7 percentage points.

The more stable cryogenic pricing environment expanded sal acid distribution, and increased A&P support levels are the major contributors to our accelerating Compound-W momentum.

Partially offsetting these favorabilities was continuing softness in our Murine Ear business due to reduced Murine Earigate consumption, and distribution losses on our base Murine Ear Wax Removal business.

We believe Earigate's performance continues to reflect, in part, the prevailing macroeconomic environment, and we are implementing tactical initiatives to mitigate the declines we have seen in recent quarters.

In addition, we are evaluating new packaging innovations to bring relevant news to our core Earwax Removal business.

Moving to our Household portfolio, aggregate revenues declined 5% in Q1, and revenue for our largest Household brand, Comet, declined a like amount.

Within the Comet franchise, our core Powders business continues to show good momentum with consumption up 4% during the quarter, and just under 6% for the most recent measured four-week period.

However, intense competitive activity in the Spray segment more than offset Comet Powder strength as several national brands ran significant price promotions during the quarter.

Revenues for our Chore Boy business also declined in Q1, although the rate of decline has moderated fiscal '09.

The new programming we introduced to the wholesaler distribution channel in Q4 of last year appears to be taking hold, and we are looking forward to the introduction of new claims in consumer programming as we move through the year.

Headlining this programming is Chore Boy sponsorship of the popular PBS cooking show, "America's Test Kitchen," which begins in September.

Finally, our Spic and Span business experienced a second consecutive quarter of essentially flat revenues in the intensely competitive All-Purpose Dilutables category.

New package graphics highlighting our EPA-backed Design For the Environment, or DFE formulations, are reaching retail shelves in Q2, bringing timely and salient consumer news to the Spic and Span franchise.

With respect to our Personal Care business, I am happy to reiterate Pete's statement that revenues increased over 4% during the quarter driven by a 19% increase in Cutex sales.

This gain on Cutex reflects a combination of strong consumption at plus 15%, and a modest amount of new distribution.

As we discussed last year, the return to the iconic Cutex bottle design is certainly helping consumption, and we also believe this is one category actually being aided by the macroeconomic environment, as more nail treatment occasions are taking place at home as opposed to more costly nail salons.

Switching briefly to our international business, revenues were off 19% versus a year ago, largely driven by the continuing negative effects of FX, which, as Pete mentioned, will continue to be a drag on results at least through the first half.

Excluding this impact, international results were off 6%, reflecting underlying growth of 7% in Canada and a 28% decline in other international markets.

Canadian growth is principally driven by the introduction of our Chloraseptic and Little Remedies Allergen Block products in conjunction with the spring allergy season.

The Canadian Allergen Block selling was particularly strong and included launch of a dual pack SKU in a major club account.

As we pursue opportunities to elevate our domestic Allergen Block consumption, the early success of this unique Canadian offering is high on our list.

In other international markets, aggregate performance largely reflects a shift in timing of certain eye care product shipments, which we expect to recover as we move through fiscal '10.

So, that wraps up our overview of Q1.

While the macroeconomic headwinds continue to blow during the quarter, we are seeing signs of stabilization in retail inventory levels after the significant decline that affected our results in the latter two quarters of fiscal '09.

However, consumer purchase behavior remains soft in many of our categories and we continue to believe that those infamous green shoots notwithstanding, this will remain the case until consumer confidence in the economy shows sustained improvement.

While we were once again able to grow share across the majority of our focus brands during the quarter, we do maintain the cautious outlook for the balance of fiscal '10 that we discussed on our last call.

From a full year revenue standpoint, this translates to a reiteration of performance below our stated long-term goal of +2% to 4%.

Although improved from the -4% we experienced in fiscal '09, even after factoring in the effects of unfavorable FX, which we project will continue at least through our first half.

Speaking specifically to our outlook for Q2, we believe it will be our most challenging quarter from a revenue standpoint.

In addition to the negative FX impact I just mentioned, in Q2 we will also be lapping the majority of the US pipeline selling of our Allergen Block products, as well as inventory positions taken by retailers ahead of a late September, fiscal '09 pricing action we took on a number of our Household Product sublines.

All of these impacts will put pressure on our Q2 top line performance.

So, in summary, while our Q1 performance was in line with our expectations in aggregate, we continue to acknowledge a cautious outlook for the year.

As I highlighted on our last call, our continuing emphasis on differentiated consumer-driven innovation, effective and efficient marketing, and vigorous control of our entire cost structure are our keys to navigating the current macroeconomic environment as successfully as possible.

These essential factors will remain at the center of our attention for the balance of this fiscal year.

Thank you.

The call is now open to questions.

(Operator Instructions) Your first question comes from the line of Joe Altobello with Oppenheimer.

Please proceed.

Hey, guys, good morning.

First question, I guess, is on the gross margin.

I'm a bit surprised that it was down.

I think most companies that are reporting this quarter are seeing some benefit from lower commodity costs and lower energy and transportation costs.

Why hasn't that flowed through into your P&L at this point?

Joe, if you look at the segments, you will see that OTC, slight improvement, and Personal Care, a definite improvement.

Where we didn't see it is in Household, and that is due to really two factors.

During the course of last year, second and third quarters, primarily, there was a rather large increase in surfactants which go into those products, and those costs went up, and having come back down.

The second piece is that within the Household Products realm, as Mark said, the Comet Powders were up, but we saw a decline in the other parts of Comet, and so that is a mix issue.

We definitely got benefits from transportation being down, and there have been benefits from packaging costs coming down.

But the Household was the combination of those two other factors.

Okay.

And then that leads to my next question in terms of Comet and Chore Boy, both being down.

Chore Boy has been down for a while now, but what are you guys doing, I guess, in this quarter and the balance of fiscal '10 to sort of reverse that decline in Comet, since that is your biggest brand?

Yes, Joe, it's Mark.

First, we need to just aggregate Comet, as I did in my comments just a couple of minutes ago.

We are very pleased with the underlying performance of the Powder business, up 4% consumption-wise on the quarter, and up 6% in the last four weeks.

So, we feel the momentum is positive on that piece of the business.

Where we really are turning our attention is to the spray side, where there has been an awful lot of competitive activity, particularly price-driven activity in the first quarter.

And first quarter we elected not to participate in that, but as we look ahead to the balance of the year, it is clear we are going to need to be more aggressive on the pricing front to regain the momentum on the gross sales line on that business.

And so we are taking a hard look at the right tactical initiatives starting this quarter to become more competitive in that particular segment of the overall Comet business.

Got it.

Okay, and then one last one, if I could.

In terms of the new products you've got launching this year, are there any one or two that you really look at as potential blockbuster?

The biggest one for this year continues to be our full year of experience on Allergen Block, Joe.

The balance of them, as you recall, are primarily seasonal in nature.

We've got our host of products going into the cough/cold season, both Little Remedies and Chloraseptic, and we are very pleased with how those are selling at this stage of the game.

I would say if there is one that stands out aside from Allergen Block, it's the launch of the Tears line, the new six-item Tears line, which is nonseasonal and which we started the last quarter, but sold in large part during this quarter.

And as we start support for that in the second quarter, we are looking for that, as I mentioned, to have a significant effect on our Clear Eyes business.

So, I would say Allergen Block, number one, making sure we take full advantage of the full year of distribution and two full seasons of that.

Number two, the Clear Eyes Tears items, and then number three, the seasonal items we are introducing under Little Remedies and Chloraseptic.

Got it.

Perfect.

Thank you.

Your next question comes from the line of Bill Chappell with SunTrust.

Please proceed.

Good morning.

Just kind of a one-off question, but it is the first time I can remember where the Personal Care division actually led on the growth front.

Is there any movement there in terms of trying to divest this?

We saw the other day that Church & Dwight was able to sell some of their smaller brands and I just didn't know if now that business has started to turn or at least flatten out, maybe there is a greater chance of selling that off?

Bill, we continue to experience interest in those businesses, both singly and as packages.

You will recall that there is about 10% of our total revenue that is wrapped up in the businesses that we consider to be nonstrategic.

About 6% of that revenue, to your point, is in the Personal Care businesses, Cutex and the Shampoo brands.

And, again, we do continue to experience interest on all of those.

But as we stated before and we will continue to state, they are strong contributors to our cash flow story and we are not going to be willing to let them go for what we think is anything less than full value.

So, it's originally high barrier out there, but it hasn't diminished the interest in it; it's just that we haven't had anybody yet come to the table who has been able to see eye-to-eye with us on valuation.

That may change, to your point, if the trends continue, but as we sit here today, I would say that the level of interest we have seen recently is roughly equivalent to what we have experienced over the last year or so.

And would you expect at least the Cutex trends to continue for the next few quarters?

You know, I think in large part, I think any go forward trends are going to be driven more by the economy than by the packaging.

We are on the cusp of lapping the reintroduction of that bottle, the iconic bottle last year, and that certainly has given us a terrific shot in the arm.

But on a go-forward basis, it is going to be contingent on a little bit of that dynamic between out of home nail treatments and in-home nail treatments, and clearly that is pegged to consumer confidence in the economy.

Got it.

And moving to the A&P line, I understand that you are stepping up in terms of spend this year.

But is there a point where you have said, hey, we need to get 13% of sales or 15% of sales, let's just go ahead and ratchet it all up this year since this is kind of a reinvestment year anyways?

No, again, we haven't pegged a long-term target, Bill.

As I have said on prior calls, while we would expect our spending behind our businesses to generally increase over time as a rule of thumb, how it performs or behaves in any given year is going to be dependent on what the level of new product introductions we have in any year and the size of those new product introductions.

So, our outlook on A&P for this year remains the same as it was on the last call, which is actually on a reported basis, you should expect it to decline modestly from what we reported last year as a percent of sales.

But inside that number, the working spend, the spend on consumers via media, consumer promotion, etc., will actually be up on an absolute dollar basis.

And where we are clawing back is in what we call the non-working parts of spending that really aren't helping drive purchase intent or equity for our brands.

Got it.

One last one.

Is there a target to try to get down to three times leverage and just continuing to use the cash to de-lever the balance sheet?

At this point, Bill, that is exactly right.

There is no stated target, but clearly our intent in certainly the short to intermediate term is just to continue to use the substantial free cash flow to reduce the debt.

Great.

Thanks so much.

Your next question comes from the line of Olivia Tong with Banc of America-Merrill Lynch.

Please proceed.

Hi.

Good morning.

Just wanted to follow-up a little bit on A&P and the timing of spending, just because it was up so substantially in Q1.

Are you expecting it to be down in basically Q2 through Q4, or is there some lumpiness in that as the year progresses?

Well, again, it is going to be dependent on the spend behind the new items, and historically we would go up and down based on new item introduction timing.

I think to Q2, relative to a year ago, you can expect it to be off modestly, because a year ago was the launch spend behind our Allergen products domestically.

And so we are lapping that, and generally that tends to be a fairly significant early on investment in the introduction of any significant new product.

But partially offsetting that will be full season spend behind Wart Care that we touched on in the call, and we are upping the spending on some of our other products, which is Doctor's, in the second quarter.

But on net, as you think about the second quarter relative to revenue, we would expect spending to be off versus a year ago.

Makes sense.

And then just kind of following up on your comment about being cautious on the full year and leaving the outlook the same.

You talked a lot about distribution gains and plans to push on the fall allergy season, and then Compound-W recovering, and in a couple of cases you cited fails ahead of consumption.

Can you give us an idea of what it is that is sort of holding you back other than the obvious macro backdrop that is making you still pretty cautious?

Are you hearing anything about any update on shelf space, de-stocking, anything like that?

No.

It is more a cautious outlook on the macroeconomic basis, Olivia.

What we believe -- the place we believe we are in today is where the go-forward look is going to be more in the hands of consumers than in the hands of the retailers.

You will recall, and I touched on it again in my remarks here, that our fiscal third and fourth quarters of last year were fairly significantly impacted by retailers tightening up their inventories dramatically, really working to conserve their cash.

And as we moved through the first quarter, we saw evidence of that stabilizing.

And so from a go-forward standpoint, again, it is really now more in the hands of consumers and what their behavior will tend to be on a go-forward basis.

We haven't seen any evidence of that changing yet as we look at the categories and the trends in our categories.

And so until their confidence starts to pick up, we don't expect to -- or are not projecting that to change.

And a lot of that will have to do with what they believe the underlying economic trends are.

And one major economic trend underneath that, we believe, is unemployment.

So, until -- it is our belief that until we see some sort of turn there that is in turn going to give consumers confidence that the negative trends we are going to see in several of our categories are likely to persist, and hence our cautious outlook.

Got it.

And could you sort of cite some of the businesses that you think are a little bit more economically sensitive?

Yes.

I touched on the Murine Earigate business in my remarks.

But basically we do have a handful of businesses that are relatively high priced compared to the analogs that are available in the categories.

And, again, Murine Earigate is probably a poster child for this with a $15 ring plus or minus, out against a set of alternatives, such as Q-Tips.

And that makes, despite the unique technology and attractiveness of that technology to many consumers, that makes it more of a difficult sell in this macroeconomic climate than might otherwise be.

To a lesser extent, our Allergen Block product, which represents incenting consumers to try something new and a new behavior at a fairly high price point is also somewhat vulnerable o that.

Although there are other like-priced alternatives out there in traditional tablets and liquids for allergy symptoms.

Nonetheless, when you are trying to invoke a new consumer behavior in a time like this and an absolute ring around the $15 price point that we have on that product, it can be a bit more of a challenge than in other economic times.

Got it.

And just lastly, if you could give us an update on anything as far as SKU rationalization, shelf space, whether you have heard anything, any update on that?

Yes, really nothing new to report there.

Again, we are confident in our position as retailers continue to evaluate their SKU assortments, and we are confident that if we continue to bring innovation along the lines of what I just discussed in response to Joe's question, and back it up with smart consumer, relevant media and news, that we will be well protected defensively from any of the continuing evaluations that are ongoing of retailers.

Got it.

Thanks very much.

You're welcome.

Your next question comes from the line of Jon Andersen with William Blair.

Please proceed.

Good morning.

Mark, I think this is the first quarter in several you haven't really talked, at least in the prepared comments, about some of the four strategic initiatives.

I'm talking here about portfolio management, the direct selling model, the cost reduction, etc.

Could you give us an update on those, where they stand today and what kind of benefits you are seeing from them?

Yes, Jon, happy to.

We are comfortable with the progress on all four of those and intentionally didn't get back into it again because I didn't want to get terribly redundant.

But we are happy with the way we have aligned our resources internally against the new portfolio model.

Again, our focus brands, as I did touch on, grew share across the majority of those brands, and so further evidence that our focus of resources on those brands is pointing us in the right direction.

From an innovation standpoint, again, the breakthrough innovation for this year that we are determined to make successful is Allergen Block, so I don't expect us to be backing that up with a new breakthrough innovation introduction this year.

But, nonetheless, we continue to evaluate innovations of that nature for potential downstream introduction.

As far as Canada goes, we put a lot of emphasis on that last year and continue to believe that that, among our entire international markets, is the one where we have the opportunity to make the most immediate gains.

And a 7% increase there, once you back out the FX impact, is heartening for us in that regard.

We are going to be bringing four new products to Canada this year as part of our initiative to continue to close down that market development gap, and three of those are already in market with the fourth to come.

We are pleased with the uptake on those.

And then, lastly, in terms of the Organizational Effectiveness Initiative, and in particular the Direct Selling Model, you will recall we completed our transition to that model in the fourth quarter of last year, so this is the first quarter that we have been out there effectively full-bore with it.

And early returns for me are equally comforting in terms of the return that I think we are getting on our trade investment.

Our relationships with customers are improving.

Not that they were bad, but they are improving even beyond our solid foundation that we have always had.

And I think that there are starting to be signs of opportunities for incremental distribution coming out of that model that we may be able to grab onto on a more accelerated basis than we might have under the other model, the former broker model.

So, that is a real quick synopsis for you, and the bottom line is, (a) continue to believe in it for us, and (b) continue to be heartened by some of the quarter-over-quarter progress we are making in that regard.

Thanks, that is helpful.

On Allergen Block, you have now kind of had a full year and recently exited the spring allergy season.

And I guess I was wondering if you could just kind of characterize it.

Have the products met your expectations in terms of the sell-through to date, and what are some of your plans heading into the fall allergy season?

I'm just wondering if you can comment on kind of placement distribution and your plans to support that going forward?

Sure.

From a factory shipment standpoint in the quarter on an all-in basis, as I mentioned, the revenues met our expectations.

We had a particularly strong sell in Canada.

That reflects or represents two of the four new products we are introducing up there.

I will tell you that the consumption in the States in the spring allergy season was below what we had hoped, but we do believe there are a number of things we can do, as I mentioned, to elevate that, as we head into the fall season, which effectively starts toward the tail end of this month.

One of the things we do know, and it comes through loud and clear to us virtually every day, is when consumers try this product they love it.

And we received an inordinate amount of positive testimonial, unsolicited testimonial to that effect.

And what we are doing as we go forward is turning those testimonials into a campaign that you will start to hear on a regular basis on the radio.

Because we believe if we start to put the true consumer sentiment of the people that have tried this in front of the broader allergy category population, our trial of this product will increase significantly.

So, you can expect to see that as one immediate change in our strategy as we look to elevate the domestic consumption.

We are also going to be looking at, from a distribution standpoint, opportunities to push our distribution more broadly.

We did just pick up a major mass account, and we will start to ship the Chloraseptic product in there as we speak.

We have opportunities, we believe, to improve our shelf placement in the accounts that we already have, and so we are working on that on a regular basis.

And then the last thing I would mention is the success of the dual pack item in the major club account in Canada is something we might be able to import, if you will, to the States as we look to improve consumption trends here as well.

So, bottom line, we are not pleased and certainly not satisfied with where we are consumption-wise in the States, but we believe there are a number of initiatives, many of which we are on the cusp of enacting, that will move us to a better place.

Thank you.

And last question.

I'm thinking about the modeling in Q2 top line.

You did have some comments that would be the most challenging comp for you through the balance of the year.

Is there a way we can think about the impact of, I guess the pre-buy ahead of the price increase last year, as well as the Allergen pipeline?

Without quantifying it, Jon, what I will tell you is this, in priority order.

The Allergen Block pipeline is probably the most significant impact on a year-over-year basis.

FX is probably number two, at least as we look forward.

And then the impact of the pre-buy on those Household items, number three.

But they all have impacts.

Great.

Thank you very much, guys.

As a reminder, ladies and gentlemen, that is star, 1, to ask a question.

Your next question comes from the line of Mimi Noel with Sidoti & Company.

Please proceed.

Thank you.

Hi, Mark.

Hi, Pete.

Can you expand a little bit on your claims that you are beginning to see stabilization with the retail inventories?

I suppose if you back out any difficult comparisons, FX, etc., are you seeing year-over-year deceleration and declines, or are you seeing ordering trends positive, accelerate?

Yes, it is more the latter, Mimi.

In our fiscal third and fiscal fourth, we saw order patterns that were markedly below what we considered to be normal run rates of the major retailers, both in Mass, Drug and in Food.

And what we are seeing now is what I will call return to normalcy in those ordering patterns.

So, if you think about third and fourth quarter being certainly abnormal and atypically low, I think your latter statement more accurately characterizes what we are seeing now, which is a bounce back up in the order patterns.

And, as I said, on the move-forward basis we expect to see a much tighter or much narrower range between ship to consumption, and the consumer takeaway really drive what future order patterns will be from retailers.

And do order patterns look similar across all channels, or is Drug still lagging Mass a bit?

No, I would say across all channels in general they look the same in terms of relative to historical norms.

Again, there are few retailers in each channel that are still in the world of search, if you would, trying to figure out their new equilibrium on retail inventories.

But with each passing day that number of retailers mitigates and certainly at this stage of the game the vast majority of retailers are back on serve with what I think we would consider to be their normal ordering trends.

Okay.

And I know you have been asked a lot of questions about the A&P budget and expenditure in this June quarter.

The year-over-year increase, if you could just clarify for me, that reflects a relatively difficult comparison year-over-year.

You pulled back on support for the Compound-W, certain of your Compound-W products; is that right?

You are talking about the first quarter year-over-year?

Yes, that is right.

Okay.

And, also, don't forget, Mimi, that in the first quarter last year we did not have Allergen Block on the market at all, and so you've got two things going on there.

You've got a somewhat subdued first quarter a year ago because of the absence of the Compound-W advertising that you alluded to, and a somewhat increased first quarter this year because of the Allergen Block for the spring season.

Okay.

Thank you.

And then another question I had was about the loss distribution for the Murine product.

Is there something going on in the category, or was it specific to your product?

What happened there?

Why did you lose the distribution?

Well, I think that as the retailers are reviewing the category, the Murine, the basic Murine Ear Wax business is one of those businesses that we have not innovated around or supported in the recent past.

And so that one was vulnerable in certain accounts.

And that is one of the reasons why we are excited about the packaging innovation I touched on, and we will be planning to talk with you more about in the future as a way to bring some meaningful news to that business on a go-forward basis.

Certainly, we have been promoting the overall trademark in the past with Murine Earigate, but the Murine Ear Wax drops and kit business, the underlying core business, has not gotten any support or innovation in the recent past.

And certainly as retailers have looked at their SKU assortments, that is one that has been vulnerable in our portfolio.

So, we are about to rectify that.

Do you think you are still -- or retailers are still winding their way through that increased scrutiny, the evaluation of which products are keeping on their shelves and therefore you could have potential pitfalls in, say, the next quarter, from a similar evaluation?

I think they are doing it on a planogram-by-planogram basis, Mimi.

It's a staggered schedule?

It is a staggered schedule and for virtually all of our products the planograms have been reviewed already.

One of the ones that is most important to us, as you know, is the cough/cold planograms, and those have already been reviewed and we know the results of those, and we are in a very comfortable position there.

Okay.

So, we are happy with the distribution situation as we head into the core cough/cold season coming up, that primarily runs through the revenue stream of our third and fourth quarters.

All right, that is helpful.

Thank you.

And I have one last easy one for Pete.

At the end of fiscal 2009, you swung to a shareholders' deficit.

That was just from the write-down for some of the carrying values of your intangibles related to the stock price?

Correct.

Okay.

That is all I have.

Thank you.

Why does Pete get the easy ones, Mimi?

Thank you very much.

Your next question comes from the line of Reza Vahabzadeh with Barclays Capital.

Please proceed.

Good morning.

You touched on this a couple of times as far as consumer spending trends and consumption trends for your products.

In aggregate, what kind of POS would you say you have been experiencing recently?

I'm sorry, in aggregate?

Yes.

What kind of POS?

Yes.

We don't really give out those numbers in the aggregate.

(Inaudible)

I'm sorry?

Directionally.

Directionally, POS has been flat to down, in line with the category trends.

But as I mentioned earlier, inside many of our categories we have been able to grow share during those periods.

So, we are not suffering relative to competition the same extent that others are, and that includes private label.

Right.

But there is no doubt, if you look across our categories, there are a number of them that continue to be impacted by consumer sentiment and are showing various signs of contraction.

Right.

I guess what I am trying to find out (inaudible) inventory loading of last year and the like, and you have easier comparisons in the second half of the fiscal year.

What is the run rate, sell-through rate that would roughly lead to a similar shipment rate?

I mean, are we talking about just slightly around flattish levels, or give or take?

I'm sorry, I am not sure I understand the question.

I guess I am trying to find out what is underlying sales rate based on consumption trends?

And you are saying that it is slightly negative right now?

Yes.

Okay.

And so was there any inventory deloading by retailers in this first fiscal quarter?

No.

No, no.

Again, we think the retailers in this quarter by and large, with a few exceptions I alluded to, were operating with stable inventories this quarter.

There was an awful lot of inventory deloading by consumers that affected our third- and fourth-quarter results in our last fiscal year, but we think much of that is behind us now.

And, again, from a go-forward standpoint, what our pull-through rate is going to be largely reflected of and therefore our factory shipment rate is going to be largely reflected of is consumer behavior.

Right.

The retailer is more or less out of the equation, in our judgment, at this point.

Right.

Is A&P spending increase going to be spread throughout each quarter, or is it going to be more heavily skewed in favor of one quarter?

Well, again, remember that on the full year, our A&P, reported A&P as a percent of revenue will actually be down on the P&L, but inside that our working A&P, again, the dollars that we spend on television advertising, broadcast media, consumer promotion, etc., will be up in the absolute.

But as you think about the quarters on a year-over-year basis from a purely reported standpoint, I think with the exception of our first quarter here, where we were up versus a year ago, we would be modestly off versus a year ago as we move to the balance of the year.

Got it.

Okay.

To bring the full year-end down modestly.

Got it.

And then as far as the balance sheet is concerned, Pete, you are comfortable operating the business as it is without a revolver?

Sure, because I am sitting with $36 million of cash.

Right.

I hear you.

And as far as debt maturities and the like, are you still comfortable with the balance sheet as it is and you are just going to de-lever until opportunities arise?

Correct.

Got it.

Thank you much.

Okay.

Have a good day.

You're welcome.

At this time, I would like to turn the call back over to Mr.

Pettie for closing remarks.

I just want to thank everybody, as always, for joining us on the call today.

I look forward to talking with you more at the end of our second quarter.

Enjoy the day.

We thank you for your participation in today's conference.

This does conclude your presentation.

You may now disconnect and have a great day.