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Operator
Good day, ladies and gentlemen, and welcome to the second quarter 2011 Prestige Brands Holdings earnings conference call.
My name is Latasha, and I will be your coordinator for today.
(Operator instructions.)
I would now like to turn the call over to Mr.
Dean Siegal, Director of Investor Relations.
Please proceed.
Dean Siegal - Director of IR
Good morning, and welcome to Prestige Brands' second quarter fiscal '11 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 US Securities & Exchange Commission.
And now I'd like to introduce Matt Mannelly, President and CEO.
Matt?
Matt Mannelly - President and CEO
Thanks, Dean.
Welcome to all of you joining us this morning.
In addition to Dean, joining me is Pete Anderson, our Chief Financial Officer.
I'll speak first, talk a little bit about what's going on with the business, and then Pete will present an overview of our financial performance.
I'll then come back for a few closing comments and open the call up to questions at that time.
So, first, a few comments about what's going on with the business.
On a personal note, I would start by saying that wow, what a difference a year makes.
I started a little over a year ago.
Our portfolio has changed significantly during that period of time.
A couple of numbers demonstrate the magnitude of the change.
First, personal care represented about 11% of our portfolio a year ago.
Today it represents about 0.3% percent as a result of the sales of Prell, Denorex and now Cutex.
Second, a year ago OTC made up about 60% of our portfolio.
On Monday we closed on the largest acquisition in the Company's history, Blacksmith Brands, which adds five over-the-counter healthcare products to our portfolio.
As a result, OTC now makes up nearly 75% of our portfolio.
And it's not only about the size of this acquisition that makes it important to us.
It's the strategic fit and the transformative nature of the transaction.
Positioning Prestige where we want to be as a company, acting on what we said we would do and strengthening our position in cough/cold products, children's OTC medicines and oral care, all with the ultimate goal of becoming a growth portfolio in addition to continuing to deliver excellent free cash flow.
We believe the combination of these two characteristics will maximize our long-term shareholder value.
While we believe the Blacksmith acquisition is an excellent strategic fit, we just became the owners this week.
Therefore, for today, we're going to focus our discussion and questions on our existing business, with the expectation of sharing with you what and where our plans are with our new brands in the new few months and at the next conference call, after we've had a chance to effectively operate those businesses for a short period of time.
So, with regard to our business and the second quarter performance, I would say that in general we're pleased with our results and the progress we're making towards our previously stated goal of growing our core OTC brands.
We're happy with our solid growth in earnings per share, $0.23 versus $0.18, and income from continuing operations up 28%.
As you may recall, in our first quarter conference call we said we believed Q2 would be a challenge from a revenue perspective given the heavy retailer buy-in for H1N1 last year as well as the continued heavy promotional environment in the household products category.
Therefore, revenues of over $78 million were in line with our expectations and plan.
Pete will take you through more of the details as it's related to gross margin improvement and A&P and G&A spending that contributed to our earnings improvement for the quarter.
For the last six months we've talked quite a bit about our new strategic direction that really focuses on our five core OTC brands.
Again, those brands are Clear Eyes, Chloraseptic, Compound W, Little Remedies and Doctor's NightGuard.
We believe these brands will be key pillars for long-term growth.
This group performed extremely well this quarter for the second quarter in a row, up approximately 2% year over year in aggregate in shipments, but, more importantly, up 5% from a consumption standpoint at retail.
That 5% consumption growth is very impressive when compared with negative 2% consumption for the categories of those core OTC brands.
As we've previously discussed, this is a key metric for how we are measuring our success in the short term -- winning in these OTC categories by exceeding category growth and gaining market share.
So now let's review some of the individual brand highlights for the quarter, and in order to compare our performance against competition and category performance all numbers are consumption-based.
Let's start with Clear Eyes.
The Clear Eyes brand overall performed very impressively, up almost 9% versus the year-ago period and significantly outperforming the eye drops category growth of 2.3%.
Two SKUs increased double digits, Clear Eyes Allergy Redness and Clear Eyes Contact Lens Relief.
In addition, the new Clear Eyes Complete product is also destined to be the next star in the line.
This product treats seven eye symptoms in one product, and it's gaining favor with both customers and consumers.
And we have a great new commercial that just began airing featuring Ben Stein, who's returned as a spokesperson for the Clear Eyes franchise.
Ben's dry humor is a perfect match for a product that treats dry eyes.
All in all, the news is great for the Clear Eyes Brand.
Little Remedies, our full line of pediatric OTC healthcare products for infants and children, also had a great quarter, up an amazing 35% versus year ago.
The full line performed extremely well, and several products stood out this quarter.
First, Little Noses saline products surpassed expectations due to an increase in the incidence of pediatric congestion.
We're pleased that our saline products have become a preferred method of treating cold symptoms as parents seek more natural remedies for their children.
Second, the brand prospered when key retailers added our Little Colds Honey Elixir to their line.
Then Little Fevers benefited from increased distribution and pull-through among key customers during a competitor's recall, while Little Tummys gas drops soared 95% following service issues on competing products.
Little Tummys Gripe Water also contributed to the increase, as well, experiencing distribution gains when a major customer added it to its pediatric section.
The line grew across all Little Remedies retail outlets but soared 48% in the Babies "R" Us chain.
That's the chain that carries the full line of Little Remedies SKUs, all displayed together in one section.
We continue to use social media like Twitter and Facebook to support our marketing efforts and talk directly to parents.
All this is accompanied by a great new print ad campaign focusing on the safety of our products, which we believe will continue to make a difference for the brand.
In addition, we continue to explore new product opportunities for the growing line by meeting consumer needs under the trusted umbrella of this core line.
Next up, our core brand Compound W wart treatment was also up almost 7% versus the year-ago period and significantly outperformed a category which decreased almost 4%.
As a result, Compound W gained significant market share this period at the expense of our key competitor.
We are now closer than we've ever been in narrowing the gap between number one and number two.
We currently have a 36.2% share of the market, and we're up almost four share points compared to last year.
Both our cryogenic SKU Freeze Off and the sal acid SKUs grew this period.
And you may recall last quarter we launched Compound W skin tag treatment in Canada, and I'm pleased to report it's doing quite well as we add new distribution and provide TV advertising to educate consumers in Canada about this new treatment for a common skin problem.
Next to talk about would be Chloraseptic, America's number one sore throat relief product.
It hit a milestone recently.
For the first time in the history of the brand, Chloraseptic surpassed the 40% share mark of the sore throat category, significantly ahead of its nearest competitor.
However, Chloraseptic sales were down 3.5% versus last year.
And, as I think many of you may have heard from some retailers and competitors already recently, cough/cold season is off to a slow start this year.
However, the strength of the brand name, the new website, our new print and TV ads and our new bottle will all combine to help keep the Chloraseptic name number one for sore throat treatment.
In addition, outside of the US we recently introduced Chloraseptic Max Spray in Canada, and we have high hopes for this launch, as well.
And as we enter into the heart of the season we're confident our strong marketing programs will contribute to the brand's success this year.
Last up in terms of the key OTC brands would be the Doctor's NightGuard business.
That business experienced declines for the quarter down approximately 18%, which was really driven by lost distribution at a major retailer that was previously communicated.
However, the good news is after executing a successful test market with that retailer, we anticipate that we'll regain distribution with the retailer in the next quarter.
In addition, for perspective in the drug channel where we maintain distribution, The Doctor's NightGuard continues to be the number one brand in the channel.
We are still the only brand in the dental guard category to support its business with television advertising.
That factor alone we think will provide a strong consumer base and position us well for future growth.
In terms of household products, Comet, the segment's largest brand, maintained its market share in a very competitive and price-sensitive category.
However, sales from a consumption standpoint were about -- down about 7% in our household business overall versus the prior period in a very challenging retail environment.
As I've said previously, we are committed to protecting and supporting the Comet brand and have taken important steps to do so.
These steps include, first and foremost, improving our price/value position at our largest customer, which was recently done; improved package graphics; upgrading the plastic bottles used on the bathroom spray products to be more extremely and consumer friendly; and we're also working closely with retail customers, specifically the dollar channel, on incremental promotions in the second half.
So, with that as far as some specifics of what's gone on with the business and the brands over the last quarter, I'll now turn the call over to Pete.
Pete Anderson - CFO
Thanks, Matt and good morning, everyone.
Before we begin to discuss the results I'd like to remind everyone that since we divested the Cutex brand in September our results for the second quarter and the prior year exclude Cutex revenues and earnings from continuing operations.
You'll find the Cutex income net of income tax reported as discontinued operations.
As you may have seen in this morning's earnings release, our reported net revenues for the second quarter were $78.3 million, $2.4 million or 3% less than last year's net revenues of $80.7 million.
As Matt noted earlier, we expected that Chloraseptic and Little Remedies sales were going to be challenged, as the prior-year quarter benefited from the heavy retailer buy-in for the anticipated strong cold and flu season because of the H1N1 virus.
Unfortunately, our expectations were correct regarding Chloraseptic, which, as Matt said, showed a decline in revenue versus last year's second quarter results.
However, Little Remedies enjoyed an increase in revenue on the strength of the new distributions that Matt spoke about earlier.
Household products also continues to face heavy competitive promotional activity, which resulted in both Comet and Spic 'n Span revenue declines compared to last year's second quarter.
Our net income from continuing operations of $11.4 million, or $0.23 per share, was $2.5 million, or 28%, greater than last year's net income from continuing operations of $8.9 million, or $0.18 per share.
Operating income for the second quarter was $23.8 million.
That's 20% greater than last year's operating income of $19.9 million.
This increase was due to improved gross margin as a percent of revenues combined with lower advertising and promotion and G&A expenses.
During the quarter we generated $22 million of free cash flow.
That was a $300,000 improvement over last year's second quarter free cash flow of $21.7 million.
Our cash on hand at the end of September was $55 million, as we continue to build cash rather than pay down debt, as we were providing ourselves with the maximum flexibility as we assess potential acquisition opportunities over the coming months.
In order to fund the acquisition of the Blacksmith Brands transaction, we increased our term loan by $115 million, and we added $100 million of senior notes.
The bank and the bond debt were priced at our previous rates.
The bonds have an 8.25% coupon and the bank debt is priced at LIBOR plus 3.25%, with a LIBOR floor of 1.5%.
So our blended interest rate effective November 1 is approximately 7%.
Now I'd like to turn back to our operating performance for the quarter.
Cost of sales for the quarter of $35.7 million was $2.2 million, or 6%, less than the prior year.
As a percent of revenue, cost of sales decreased from 47.5% in fiscal year 2010 to 45.6% percent in the current fiscal year.
This improvement was due to favorable sales mix, as a bigger portion of total revenues was generated by the higher margin OTC segment.
In addition, we have begun to see the benefits of improved sales forecasting, which resulted in a reduction in obsolescence expense in the current year's quarter.
A&P expense of $8.2 million was $1.5 million, or 15%, less than expenditures of $9.7 million last year.
The decreased spending year-to-year was due to a significant reduction in A&P spending against the Chloraseptic Allergen Block and Little Allergies products.
For modeling purposes, I'd like to remind everyone that we've been saying that for this fiscal year our total advertising and promotion expense will be slightly higher than last year's A&P spend as we increase spending against our core OTC brands while decreasing spending for non-core brands.
Given that the overall advertising and promotion spend was down in the first half of the year, you can expect that we'll see increased year-on-year A&P spending in the second half of the fiscal year.
Our G&A expense of $8.1 million was $2.4 million less than last year's second quarter expense of $10.5 million.
The primary drivers of the G&A decrease were reduced salary and legal expenses.
As you may recall, the Company instituted a reduction in force in last year's second quarter, so compensation expenses that quarter were unusually high.
For modeling purposes, our G&A expense of $8.1 million in the second quarter is a good proxy for the expected G&A in the third and fourth quarters before the additional G&A required for the Blacksmith acquisition.
I'd also like to point out that on our September call when we announced the acquisition of Blacksmith Brands we talked about one-time expenses of approximately $5 million.
Those obviously will be excluded from this guidance of $8.1 million per quarter.
Now let's briefly review the second quarter financial results by segment.
As a result of the divestiture of Cutex, the remaining brands which were in the personal care segment now amount to less than 0.5 of 1% of total revenues, as Matt said.
Therefore, beginning with this quarter, we'll be reporting those brands' results as part of our OTC results.
We have restated prior periods for comparability.
The net revenues for the OTC segment of $50.8 million were $800,000, or 2%, below last year's second quarter results.
Increased revenues for Clear Eyes, Compound W and the Sleep-Eze brand in Canada were offset by decreased revenues for Chloraseptic and the Allergen Block products.
Gross profit for the segment was $33 million, 2% higher than last year's gross profit of $32.3 million, primarily due to a decrease in obsolescence expense compared to last year's quarter.
Our cost of sales as a percent of revenues was 35%, compared to 37.6% in the prior year quarter.
Contribution margin of $26.1 million for the segment was 5% greater than last year's contribution margin of $24.9 million due to the gross profit increase and reduced advertising expenses of $500,000.
A&P spending for the segment of $6.9 million in the current year's quarter was 6% less than last year's spend of $7.4 million due to a significant reduction in A&P spending for Allergen Block products.
Our household products net revenues of $27.5 million were $1.5 million, or 5%, less than last year.
Gross profit of $9.5 million was $1 million below the prior year.
The decline in gross profit was primarily due to the sales decline.
The household products segment contribution margin for the quarter of $8.2 million was even with last year's second quarter contribution margin.
A&P expense of $1.3 million was $1 million less than the prior year's expenditure of $2.3 million.
And now I'll turn the call back to Matt, who will provide additional perspective on the quarter.
Matt Mannelly - President and CEO
Thanks, Pete.
Just a few comments to wrap up, and then we'll open it up to questions and to reiterate a few things.
I'd say in general we're very pleased with our results for the quarter.
We continue to grow the core OTC brands, and overall revenues were in line with expectations, and profits were quite strong for the quarter.
The important thing to me is we're seeing continued evidence that our core OTC growth strategy is working in the marketplace, and also, as we've said, we will continue to defend our household business in this heavy promotional environment.
So I'd say overall we're cautiously optimistic about the next six months given the challenging retail environment, and we're going to view this environment as an opportunity to invest in our brands for future growth.
To accomplish this, we have very strong A&P programs in place for the second half, and you heard Pete talk about our spending plans for the upcoming six months.
I think we are very excited about the acquisition of our new brands, and there's much to do over the next several months to integrate them into our portfolio and continue to gain momentum with consumers.
So, while I think there is much to do, I feel like things are really starting to come together in terms of delivering on our core OTC growth and augmenting our OTC portfolio with a major acquisition that really is an excellent strategic fit for us.
So I'd say I really like where we are at the midyear point in how we're setting ourselves up for the future.
And with that I will open it up to questions.
Operator
(Operator instructions.)
Your first question comes from the line of John San Marco, with Janney.
Please proceed.
John San Marco - Analyst
Yes, thanks, good morning, and congratulations.
Matt Mannelly - President and CEO
Good morning, John.
John San Marco - Analyst
The A&P growth that you said you expect this year, is that pro forma as if you had owned Blacksmith Brands last year and hadn't owned Cutex?
Pete Anderson - CFO
We're talking totally non-Blacksmith, John.
John San Marco - Analyst
Okay, got it.
That's good.
Matt Mannelly - President and CEO
Yes, John, if you recall, at the beginning of the year we said for the year we would have modest A&P growth for the total year.
We also said it wasn't going to flow evenly by quarter, and we also said that that growth was going to be -- while we have modest single-digit growth for the year, we were going to have strong double-digit growth in the core OTC brands for the year.
John San Marco - Analyst
Got it.
That's helpful.
Thank you.
And then sort of sticking on the OTC side there, can you talk about whether -- what you're witnessing out in the marketplace in terms of Johnson & Johnson's manufacturing disruptions, what effect, if any, it's having on your business?
Obviously it showed up pretty strongly in the Little Remedies growth, but if we could just get some more detail on that that'd be great.
Matt Mannelly - President and CEO
Yes, John, I think I'd say a couple of things.
I think clearly we and others are benefiting from that, and we are benefiting on Little Remedies.
Our pull-through is quite strong.
PediaCare is also benefiting from it.
And the other one, candidly, private label right now is benefiting significantly from the J&J recall.
Private label is up dramatically, while -- which is really all the more reason why our hypothesis and our investment plans for PediaCare is we need to invest behind it to grow it with consumers.
John San Marco - Analyst
Got it.
I mean, 35%, though, seems like a huge number, particularly going into the quarter.
I think this is one of the potential areas of concern.
How much of the -- I mean, if you can quantify it, that'd be great, but I think more valuable qualitatively, should we expect that as we lap these challenges, these somewhat transitory challenges, you're going to have to give some of those shelf gains back and give some of those wins back?
Matt Mannelly - President and CEO
Well, I think, candidly, John, long term when J&J gets back into the marketplace we'd be foolish to not think that we're going to give some of it back.
J&J is too good and strong of a competitor.
But, so what's happened also just on the Little Remedies, to give you a little bit more color on that, you know, 35% is really through the roof.
We're thrilled.
But we've picked up a fair amount of new distribution on Little Remedies this year on some new products, and than that combined with the increased consumption as a result of the recall has led to that number.
For simplicity's sake, think about it in terms of distribution contributed to maybe half of that 35% and increased consumption rate contributed to about half of it.
John San Marco - Analyst
That was exactly what I was hoping to get to.
That's excellent.
And then I guess my last question, which the 5% consumption growth of core OTC.
That's well ahead of shipments.
I think you said your shipment growth was 2% on those five core OTC brands.
Can we extrapolate that retail inventories are unusually lean now in your brands, or were they unusually high to start with?
Matt Mannelly - President and CEO
No, I think right now what I hear from the field is I think inventory is okay.
I think to your point I'm always happy when our consumption and our factory shipments are in the same ballpark so we're not getting a pipeline load.
And in this case, with the results that we've reported, with consumption outstripping factory shipments, I think it bodes well for moving forward.
But I wouldn't say we're really lean or really fat.
I think we're about where we want to be.
I will say in a lot of the infants and kids stuff, whether it's Little Remedies, PediaCare, some of our competitors, I think inventory there is pretty heavy, because I think what happened is the trade, with the absence of J&J, the trade said, "I can't have these empty shelves." So I think the trade ordered quite heavy on a lot of those J&J replacement products.
So I think inventory there might be a little bit strong.
John San Marco - Analyst
Got it.
But generally in the non-J&J affected businesses somewhere around normal.
Matt Mannelly - President and CEO
Yes, I'd say in those non-J&J businesses, yes, I would agree with that statement.
But in the J&J businesses I think inventory is a little heavy.
Not just for us, I think for some of our competitors, as well.
John San Marco - Analyst
Got it.
Matt Mannelly - President and CEO
The trade really ordered in.
John San Marco - Analyst
Well, thank you so much for taking my questions, and congratulations.
Matt Mannelly - President and CEO
Thanks, John.
Operator
Your next question comes from the line of Chris Ferrara, with Bank of America.
Please proceed.
Chris Ferrara - Analyst
Thanks.
Good morning, guys.
Matt Mannelly - President and CEO
Hi, Chris.
How are you?
Pete Anderson - CFO
Hi, Chris.
Chris Ferrara - Analyst
Good, thanks.
The comment you just made, I guess, where inventories are strong in the J&J-affected businesses, can you try and put a number on this, Matt?
I guess like what percentage of your OTC or of your sales do you think you're seeing, did you see a heavy inventory load-up by the trade?
I'm just trying to think about how much we're going to see that reversed maybe next quarter.
Matt Mannelly - President and CEO
Well, I think -- I can't give you an exact number on that, Chris, but I can tell you, think about our core OTC products, Clear Eyes, Chloraseptic, Compound W, Little Remedies, Doctor's, those five core brands.
The only one really impacted by that is Little Remedies.
And then think about the new brands that we just purchased.
I would say the only one impacted by that is PediaCare.
All right?
So in terms of J&J those are the only two brands that are really impacted.
The other one I would say would be -- I don't think inventory is heavy right now, because H1N1 last year, but we're depending on a good cough/cold season to kick in here, us and everyone else is, so that those inventories don't become heavy.
No one ordered in heavy right now, but we're expecting normal consumption to pull those inventories out.
Does that help you, Chris?
Chris Ferrara - Analyst
It does.
It does.
That's helpful.
And I guess can you give some more specifics, I guess, on what you mean about taking advantage of a weak, the weak macro setting, right?
I mean, how much of that is incremental?
It sounds like your A&P spending plans haven't really changed, but the commentary that you made and what you put in your press release about taking advantage and investing in this tough time seems like it's got some feel of being incremental to what you'd thought before.
So can you kind of flesh that out a little bit?
What am I not -- what I am --
Matt Mannelly - President and CEO
Yes, Chris, I don't think it's different.
I don't think -- and so I'm glad you asked it.
I don't think things have changed.
At the beginning of the year we said modest A&P, single-digit A&P growth for the year, with heavy investment in the core OTC brands.
I think we are on that track.
We haven't changed from that at all.
But what I would say is in these tough economic times companies use this as an opportunity to cut back on spending to improve profitability, and what I'm saying right now is we're not going to use that, the economy as an opportunity to cut back on spending.
So I think that's what I meant by it.
Does that make sense?
Chris Ferrara - Analyst
That does make sense, and that's helpful.
And I guess one last one, for Pete, on the restatement relative to the year ago, it looks like, and pardon me if I got this wrong, but it looks like you guys didn't make any reclass on the G&A line.
So it looks like what you pulled out of the year-ago Q2 was essentially I guess a 37% EBIT margin for the Cutex business.
Is that -- does that make sense?
Is that right?
Or I have those numbers wrong.
Pete Anderson - CFO
Yes, I mean, we -- our G&A really didn't change one iota as a result of Cutex being in or being out.
So we run the brands and the brand contribution, so that's correct.
Chris Ferrara - Analyst
Right.
Okay, that's helpful.
Thanks, guys.
Pete Anderson - CFO
Sure.
Matt Mannelly - President and CEO
Thanks, Chris.
Operator
Your next question comes from the line of Torin Eastburn, with CJS Securities.
Please proceed.
Torin Eastburn - Analyst
Good morning.
Matt Mannelly - President and CEO
Good morning, Torin.
Pete Anderson - CFO
Hi, Torin.
Torin Eastburn - Analyst
My first question is on the gross margin in OTC.
It was very good this quarter, not totally out of step with seasonal trends in past years but certainly better than last year.
What do you see going forward?
Pete Anderson - CFO
It's going to be a little tricky, because going forward we're going to add in obviously the Blacksmith Brands, and as we talked on the call for Blacksmith, their gross margins, particularly on the Luden's brands and to a lesser extent on Efferdent, are not as good as our average OTC.
So I would say if we were continuing with just the base, our base business, I'd expect the trends to be similar to what we saw this quarter, with the one caveat that, again, we did have a dip in our obsolescence expense, and that definitely helped us in the second quarter.
To the extent we didn't have that dip, I would expect that gross margin would be slightly less than it was in the second quarter.
Torin Eastburn - Analyst
Okay.
In household, basically since the recession started you've been seeing difficult and negative year-over-year comparisons.
Do you see any let-up coming in the competition there?
And what do you think it would take to change what's going on in that category?
Matt Mannelly - President and CEO
Torin, I think two things, I would say.
Unfortunately, for the last -- this is now the third call that I've talked about household the same way because of the way the competition is dealing in household, and it's become heavy price promotion.
And I don't see, and I'll say the same thing I said last quarter, and I hope to change that tune sooner rather than later, but from a planning standpoint right now I don't see any let-up in the next three to six months in terms of the price activity in household.
We're continuing to see strong price activity from all the competition.
So I don't see a change in the near term.
I think long term that will even itself out.
But also the other thing is I'm hopeful -- one of the key things for us, as I mentioned in this call, was our price/value at our key customer was out of whack in terms of some zone pricing, and we've gotten some changes there, so I'm hoping that's going to provide a change, a meaningful change to lift.
So I think that is, for me, one tangible sign of improvement versus the last two quarters' calls.
Torin Eastburn - Analyst
Okay.
And just two other quick ones.
First, now that you've completed the debt deals, what's your pro forma net debt?
And second, could you just repeat how Clear Eyes performed in the quarter?
Pete Anderson - CFO
So the net debt was $295 million and we added another $215 million.
So slightly over $500 million.
Again, we had $55 million in cash at the end of September netted against that.
Matt Mannelly - President and CEO
And, Torin, Clear Eyes, just to reiterate, from a consumption standpoint up approximately 9% for the quarter, while the category was up 2.3%.
Torin Eastburn - Analyst
Okay.
Excellent.
Thank you.
Operator
Your next question comes from the line of Karru Martinson, with Deutsche Bank.
Please proceed.
Karru Martinson - Analyst
Hi, how are you guys?
Pete Anderson - CFO
Hi, Karru.
Matt Mannelly - President and CEO
Good morning.
Karru Martinson - Analyst
In terms of the cash balance here, I mean, you posted the transaction, I think you guys were looking at essentially a flat, I think around $53 million.
Is that still the case here?
Pete Anderson - CFO
I mean, at this point yes.
Karru Martinson - Analyst
Okay.
And just turning to the brands here, the Compound W outperformance in the market share gain, what is driving that?
Is it really just you guys are putting more advertising behind it?
Is a competitor ceding shelf space to you guys?
Where is that gain coming from?
Matt Mannelly - President and CEO
Well, I think we're continuing to put support, solid -- again, go back to what we articulated at the beginning of the year as far as our core strategies.
We said our spending against the core OTC brands was going to be up 20-some percent this year, while our overall spending was only going to be up modest single digits.
So I'd like to believe that that increase in focus against those core brands, as I said, is paying dividends.
Karru Martinson - Analyst
Okay.
And then, in terms of The Doctor's NightGuard, the pickup of distribution or regaining the distribution, should we expect that sell-in through the next quarter, so kind of a similar type shift?
You were down 18%, so regain that in the next quarter?
Matt Mannelly - President and CEO
Yes, it's going to be -- just so you know, the way customers work in terms of their resets and their section sets and everything, that's not going to come till the last month of the quarter.
So there will not be that much of a pickup in Q4.
But the most important thing is is the section will be reset and we'll be in there, which will set us up for future growth.
Pete Anderson - CFO
But, very importantly, it's Q4, not this quarter.
Karru Martinson - Analyst
Okay, so Q4.
Matt Mannelly - President and CEO
Right.
Pete Anderson - CFO
Yes.
Karru Martinson - Analyst
Okay.
And then in terms of the -- you've got strong free cash flow, strong cash balance, kind of what's the thought process here now having completed the acquisition?
Are we going to be on the hunt for additional tuck-ins, looking at paying down debt here?
Where do we go with cash flow?
Matt Mannelly - President and CEO
Well, I think, again, what we said at the conference call we had when we announced the agreement with regards to Blacksmith, we said that we've got a two-prong strategy here -- drive organic growth through our core OTC brands and make acquisitions in the OTC arena, Blacksmith being a major acquisition for us, but we also said Blacksmith's not the end destination.
If we find the right fits, right categories, right brands, we would make additional acquisitions, and we have the financial wherewithal to do so.
So we are still active in that market, and that market is active.
So we are -- but, so we're continuing to look out there.
Karru Martinson - Analyst
Okay.
Thank you very much, guys.
Pete Anderson - CFO
Thanks.
Matt Mannelly - President and CEO
Thank you.
Operator
Your next question comes from the line of Reza, with Barclays Capital.
Please proceed.
Reza Vahabzadeh - Analyst
Good morning.
Pete Anderson - CFO
Hi, Reza.
Matt Mannelly - President and CEO
Good morning.
Reza Vahabzadeh - Analyst
Just, we've gone around this issue a couple of times, but in the businesses that you have benefited from the competitor recall, how do we calibrate that benefit as we kind of -- as you cycle against this quarter next year and as we try to get a feel for normalized sales in EBITDA?
Matt Mannelly - President and CEO
Reza, I think that's a great question, and I'm not going to tell you I've got a great answer for that.
All right?
I think with everything that's gone on, the magnitude of the recall and the way that category is right now, boy, it would take a crystal ball to give pretty good fairway guidance on that for us or Triaminic or anyone else.
I can tell you this.
From a business planning standpoint, we're going to plan on two things.
One, we are going to invest in our brands for long-term growth, and that's both -- in those categories that means both Little Remedies and PediaCare.
Two, from a planning standpoint we have done and will continue to do some fairly sophisticated modeling that looks at consumption, looks at distribution by key competitor and builds that modeling next year based on what happens this year in terms of with some different scenarios on distribution and pull-through so that we can try and plan the business as best as we can next year.
I would not sit here and say for Little Remedies or PediaCare that I would expect the same revenue next year.
I think that would be fiscally irresponsible of me.
Reza Vahabzadeh - Analyst
Right.
So let me rephrase it, if you don't mind.
Excluding the competitor recall, would you have anticipated your business to have been relatively flattish in this quarter considering the fact that the cold season has gotten off to a slower start because of weather and so forth?
Matt Mannelly - President and CEO
In those core OTC brands?
Reza Vahabzadeh - Analyst
Yes, (inaudible--multiple speakers).
Matt Mannelly - President and CEO
No, I still would've expected it to be up, because, again, remember, now, we're not talking about Blacksmith yet, all right?
But those core OTC brands, the only one really impacted there was Little Remedies.
Well, the numbers were big.
We had strong numbers on Clear Eyes and Compound W also.
Reza Vahabzadeh - Analyst
Got it.
Matt Mannelly - President and CEO
So I think in general we still would've been positive.
Pete Anderson - CFO
And on Little Remedies, just so people understand, we added two SKUs that were the beneficiaries of J&J going out, but, as Matt said, we added a bunch of other new distributions, the Honey Elixir being a notable one, that has nothing whatsoever to do with J&J.
So Little Remedies definitely has been helped by the two fever reducer SKUs, but the inherent growth in the Little Remedies brand is much more than just those two SKUs.
Reza Vahabzadeh - Analyst
Right.
Fair enough.
And then as far as A&P spending, the decrease this quarter and then the increase the next couple of quarters, is that just timing?
Pete Anderson - CFO
Yes.
I mean, basically what it is, Reza, is, as we've been saying, we're going to take funds from the non-core brands -- two of those, now, clearly were the Allergen Block products -- and what we've done, and I think there was a question before about why we have gains in Compound W, the strategy is that we're doing advertising on a more continuous basis.
So what happened in the previous couple of years is that by the time we hit the winter season we had done a lot of seasonal advertising for the brands in the summer and then basically we were kind of off the air for the rest of the brands, with the exception of Chloraseptic.
So I think what you're going to see is that we've added advertising campaigns that are much longer in duration, and in the previous year basically we were black by the time we got to this time of the year.
Reza Vahabzadeh - Analyst
Yes, that makes sense.
And then, as far as acquisitions, obviously you just closed on Blacksmith, do you have to make some progress from your own planning perspective on the integration of Blacksmith before you start looking for other stuff, or do you feel differently?
Matt Mannelly - President and CEO
I think we do not have to.
It's not a step function where we have to integrate Blacksmith and then go out and look for an acquisition.
What I would say is, as we've said, we're continuing to pursue acquisitions.
But to your question, we now have to spend significant time on the integration executing against that.
The good news for us is the Blacksmith model is very similar to our model in terms of they deal with all the same customers that we deal with, so we know them quite well, and their manufacturing strategy is the exact same as ours, and in fact we use a number of the same suppliers, so we're very familiar with them.
So from that vantage point the integration should be easier rather than harder, but, make no mistake, this organization is now focused around integration, as well, to make sure that we do the right thing for the long term.
Reza Vahabzadeh - Analyst
Right.
Thank you much.
Matt Mannelly - President and CEO
Thank you.
Pete Anderson - CFO
Thanks.
Operator
Your next question comes from the line of Joe Altobello, with Oppenheimer.
Please proceed.
Joe Altobello - Analyst
Thanks.
Good morning, guys.
Pete Anderson - CFO
Hi, Joe.
Matt Mannelly - President and CEO
Good morning, Joe.
Joe Altobello - Analyst
The first question I guess is I want to go back to Clear Eyes and the strength in the quarter.
You mentioned that you had a couple of new SKUs.
So, how much of the strength that you saw was maybe some initial sell-in on those new SKUs?
Matt Mannelly - President and CEO
I think, Joe, we're seeing on the Clear Eyes line strength throughout the line, not just on new distribution or new SKUs.
The line in general has been performing very well for a few quarters.
Pete Anderson - CFO
And, Joe, I think the numbers that Matt alluded to were consumption, not -- they weren't factory numbers.
Joe Altobello - Analyst
Oh, I'm sorry.
Okay.
I thought that was shipments.
Got you.
Pete Anderson - CFO
No.
Matt Mannelly - President and CEO
No.
Joe Altobello - Analyst
Okay, and then in terms of the improved forecasting you guys alluded to, could you give us a little more color in terms of what you're doing there to try to get a -- to get a better sense of where sales are heading?
Pete Anderson - CFO
Yes, a year ago we put into place a new forecasting system.
We bought a package, and that resulted in our CapEx being higher than it normally is.
And we've now enjoyed probably eight or nine months of that system being in, and we are definitely beginning to see the benefits of having -- as part of doing this, we created a separate sales forecasting function, which is normal in a lot of cosmetic companies and various consumer products companies, and the combination of fine-tuning the system as well as having that focused effort, just kind of living and breathing forecasting, has resulted in our working cap continuing to improve, inventory levels are down from where they were a year ago, and consequently it's with tighter inventory control you just wind up having less short-dated materials.
Joe Altobello - Analyst
And, as someone who's been there for a while, Pete, it sounds like your ability to forecast and predict is almost night and day from where it was a couple of years ago.
Pete Anderson - CFO
I mean, again, I think it's a combination of a few things.
But I think the most important thing, regardless of the system, is just really having an excellent individual who is focused on just kind of living and breathing it every day and talking to the relevant people in the organization.
Joe Altobello - Analyst
Got it.
Okay.
Great.
Thanks.
Matt Mannelly - President and CEO
Thanks, Joe.
Operator
And our last question comes from the line of Jon Andersen, with William Blair.
Please proceed.
Jon Andersen - Analyst
Good morning, everyone.
Pete Anderson - CFO
Hi, Jon.
Matt Mannelly - President and CEO
Hi, Jon.
Jon Andersen - Analyst
Just coming back to advertising and promotion spending for a minute, if A&P is up modestly on a dollar basis ex-Blacksmith, I think that would put the ratio in a low double-digit range, which is consistent with where it's been the past couple of years.
What kind of support should we anticipate for Blacksmith?
Would the advertising and promotion levels be similar, higher, lower, and what would be the basis for that?
Matt Mannelly - President and CEO
Jon, I think -- good question -- I think the advertising levels are going to be higher, and I think we've said that.
And I think when we did the call we said that long-term EBITDA margins could get in the range of ours, but over the next couple of years we expect to invest in the business so that they would not be in that same range.
I think it's critical for us, and when we bought the business we built the model assuming this, for us to be successful long term with PediaCare, we believe over the next few years we've got to invest at a significant rate to grow that brand in terms of consumer awareness and resonating with the consumer.
So we're going to invest at higher rates than we do with our normal businesses for PediaCare.
We're also going to invest in higher rates for Efferdent, because right now that category has a major new competitor, and we're going to defend our position there.
And we're also going to support Luden's at a normal level, given the kind of business it is.
But when you aggregate those businesses, it's going to be at higher A&P levels over the next few years, no question about it.
Jon Andersen - Analyst
Okay.
That's helpful.
And I know you just completed the acquisition, but just wondering if the $0.16 to $0.20 of accretion, I think it was for fiscal '12, still holds, and does that include any synergies, either top line or bottom line?
Matt Mannelly - President and CEO
A good question.
I think, Jon, to be candid with you, I mean, when we put everything together that's what we said.
I think one of the things I said at the beginning of this call, we've done the diligence on the business.
We've gotten in and seen a lot of things.
But there's a difference between doing the diligence and owning the business and operating it.
So we'll, over the next few months, we'll really get under the hood and in all the details of it, and at the next quarterly call I think we'll be able to talk more about where we're going with the business and what it means for FY '12.
I wouldn't say anything different than we've said so far, but that's why I didn't talk about it more today, because I think we need a few months to really get into the details on the business.
Jon Andersen - Analyst
Fair enough.
In terms of commodities overall, just input cost inflation, what are you seeing there?
Is there anything there that we should be thinking about in terms of margin pressure?
Pete Anderson - CFO
You know, our biggest single driver is certainly petroleum costs.
And over the last month or two there has been, certainly you see in the price of oil, there's been some upward pressure.
Certainly the freight prognosticators are saying that there is some upward pressure expected the back half of the year.
But at this point there's not a major upward pressure.
We are seeing a little bit in packaging, and, of course, our Chore Boy, which is a copper-based product, is always at the whim of copper prices.
They were down at the beginning of the year.
They're up to like $3.80 a pound, which is higher than the average of the year.
But overall there isn't a significant, any significant upward pressure.
So we're pretty comfortable with where we are right now.
Jon Andersen - Analyst
Great.
That's helpful, guys, and congratulations on a nice quarter.
Pete Anderson - CFO
Thank you.
Matt Mannelly - President and CEO
Thanks, Jon.
Appreciate it.
Okay, with that I think I'll wrap it up and say just thanks to everyone.
We appreciate your interest in the business and participation this morning.
And thanks to everyone on the Prestige team for all the hard work to deliver the results this quarter.
So, with that, thank you very much, and we will speak to you next quarter.
Operator
This concludes the presentation.
You may all now disconnect.
Good day.