Prestige Consumer Healthcare Inc (PBH) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First-Quarter 2012 Prestige Brands Holdings Earnings Conference Call.

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

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

We will facilitate a question-and-answer session towards the end of this conference.

(Operator Instructions) I would now like to turn the call over to Mr.

Dean Siegal.

Please proceed.

Good morning, and thanks for joining us today.

As a reminder, there is a presentation that accompanies this call.

It can be accessed at our website, which is prestigebrandsinc.com, click on investor relations on the left, and then on webcast and presentations on the right.

I'm now required to remind you that 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.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date of this conference call.

A complete Safe Harbor disclosure appears on page 2 of the presentation which accompanies this call.

Additional information concerning the factors that might cause actual results to differ from Management's expectations is contained in our annual and quarterly reports that we file with the US Securities and Exchange Commission.

Now I'd like to introduce Matt Mannelly and Ron Lombardi.

And here's Matt first.

Good morning.

Thank you to everyone for joining us on the call this morning.

As Dean said, also joining me this morning is Ron Lombardi, our Chief Financial Officer, who will take you through the financials after I make a few opening remarks.

So with that, again, as Dean referenced, we have a presentation.

If you would proceed to slide 3, I'll give you a few comments regarding the overall results of the first quarter.

I think in general we're quite pleased with the results.

A very solid financial performance for the quarter.

In terms of our sales of $95.3 million being up 33.8% we feel is very strong.

I think in particular, again as we've talked about in the past, revenue growth, in terms of shipments up +10.7% of our five core OTC brands.

So if you take out all acquisitions on an apples-to-apples, our core, five core OTC brands being up 10.7%, we are quite pleased with that number.

And obviously the acquired brands are performing quite well as well, and we are gaining share with those acquired brands as well.

I think in addition to that 10.7% number for the five core OTC brands being strong individually, I think when you look at it, the fact that our core OTC brands, this is the fourth consecutive quarter of significant organic growth of those brands, I think is a real testament to the strategy and the people working at Prestige Brands right now.

And we have not really seen, I don't believe, four consecutive quarters of that kind of organic growth of our core OTC franchises in quite some time, so we are quite pleased with that.

And if you look at earnings per share, and if you look at it, again, excluding the one-time net gain, but earnings per share being up 21.1%, again we're quite happy, given the investment we're making in the business, to see that kind of return at the bottom line.

Our cash flow continues to be strong, and Ron will talk to you more about that number as he gets into his section.

I think just in general, I'd say that obviously the strategy that we've been under over the last 12 to 18 months in terms of focusing, really focusing on brand building our core OTC products, it's clearly working.

The higher level of spending of A&P is clearly driving market share gains and driving our topline growth.

And as we do that, we're striking the balance in terms of we're really trying to set the foundation for the long term for these brands while ensuring that we do the right thing for our shareholders in the near term as well.

I think the last thing, as pointed out on this page, is the acquisitions that we made last year, both Blacksmith and Dramamine, at this point, from a supply and a demand standpoint, are fully integrated into the Company and are running seamlessly.

So with that, if you will turn to slide 4, just briefly to let you know that again the numbers, Prestige, in total, up 33.8% in terms of revenue growth for the quarter.

As I said, very solid core OTC.

And the reason we've pulled out the five core OTC is because that's what we compare to versus same quarter last year since we didn't own the other brands.

At +10.7%, we're quite happy.

And as you can see, our Household business, which we've talked about in the past, is down 9.1% in a very difficult retail environment for the Household business.

If you turn to page 5, again, as I talked about you can see here those five core OTC brands -- Clear Eyes, Chloraseptic, Compound W, Little Remedies, and Doctor's NightGuard.

And you can see the growth, consistent growth over four quarters in a row of just up 1.1%, then up 14.1%, 8.4%, and 10.7%.

So again, the headline that we take away from that would be our strategy is clearly working and our A&P investments in terms of growing the brand is clearly working.

If you turn to slide 6, I just showed you numbers on the previous slide from a factory shipment standpoint.

From a consumption standpoint, and again, to reiterate, which we've talked about before, is consumption is based on, it's US-based, which is the majority of our business.

It's IRI, and IRI does not include Wal-Mart -- we're not allowed to publish that number -- and does not include some of the other alternative channels in terms of accounts like Dollar, Club, et cetera.

But it does include the majority of our business, well over 50% of our business.

And you can see here that in total, Prestige is up 13.3% in consumption, basis a flat category.

And you can see our nine core OTC brands, from a consumption standpoint, are up 25.2% versus 3.1%.

So we're eight-timzing the OTC category.

And you can see here our Household business is declining at a slightly greater rate than the categories in which we compete in Household.

So our business is down 7.2% and the category is down 5%.

Slide 7 talks a little bit in aggregate in terms of market share, which is an important way that we look at the business.

And again you can see our nine core OTC brands, we've gained 1.8 share points for the quarter, which we are quite pleased with.

Household, you can see that we're actually only down in the categories in which we compete 0.1 of a point.

So with the declines in shipments, you can see the categories are also down, that we're not losing that much market share in aggregate.

So for total Prestige, in the categories in which we compete we're up 1 share point to 8.5% for the quarter, which again we're quite pleased with.

Slide 8 talks a little bit more about Household, and as you can see here, Household, for all Household cleaning categories is down 2.7%.

For the categories in which we compete is down 5%.

And then you can see categories in terms of abrasive cleaners, which is where the bulk of our business is, the category is down 3.2% and we're down 2%, which means we're gaining share there.

And then non-abrasive cleaners, the category is down 11.5% and we're down 15.8%.

So in the non-abrasives, we are losing share.

And we've talked about in the last call, these are some of the initiatives that we have in place in terms of to stabilize the business, strengthening our value to the consumer.

We have a twin pack that now is at retail that started shipping the first quarter.

We also are expanding into the do-it-yourself channels in terms of Home Depot and those sorts of accounts.

We are, as we speak, working to deepen our penetration in the Dollar Store channel.

And then as we look at additional targets, the Hispanic market is a very strong market for us, and we have gained incremental distribution on our lavender powder in an additional 1,500 stores in Wal-Mart.

If you turn to slide 9, what I thought I would do is just take a moment to discuss a few of the exciting things that are happening on a couple of our brands as a result of that increase A&P investment and the focus on innovation.

So if you'll turn to page 10, we'll talk about PediaCare.

I think on PediaCare, what's really exciting is there is a new dosing measurement system that we are the first to retail with that system.

And it's going to be supported by a new syringe versus a dropper, which will provide much more accurate dosing to both children and infants.

And there will be single concentration that will be used for both children and infants so there will be no risk of mixing up for different kid.

And there will also be a flow restrictor with that, which will help, potentially, parents in terms of preventing from overdosing.

So we are quite excited about that, and it's also a very important move in the kids pediatric category.

We also have just launched new packaging for PediaCare that we believe will give us a stronger presence.

And we continue to gain distribution on some of our key, new products on the PediaCare business.

Slide 11 talks a little bit about Luden's.

I think a couple points I would make on Luden's is we have picked up new distribution on-- our number one flavor clearly is wild cherry.

We have started offering a wild cherry sugar free that we've gained significant distribution that's helping us gain market share.

And for those of you that have had Luden's cough drops, I encourage you to try the sugar free because you will not be able to taste the difference.

You can see on this page also the third from the left, the picture is our new print ad campaign that is running on Luden's that really gives you an idea of in terms of how good tasting our Luden's cough drops are.

And then finally, we have just introduced a new Luden's vitamin C drop, which is the only product in the category that's made with real orange juice.

With that, if you turn to slide 12 we'll talk a little bit about Little Remedies, which again the news is very good on Little Remedies.

As we've talked about in the last quarter or so, we have really started increasing our efforts in terms of professional marketing on Little Remedies because those doctors are key influencers with moms.

So we are putting quite a bit of incremental A&P support behind that.

We are continuing to follow that out with our strong gains with increased advertising and support.

And you can see a picture, the fourth from the left, of our safety zone, "Everything you need, nothing you don't" campaign.

We've also recently aligned with Dr.

Jim Sears of TV's "The Doctors" to help us from a consumer PR effort in dealing with parents.

And then finally, Little Remedies has really been a leader for us the last few years in terms of new products and line extensions, and continues to do quite well and we've put a couple of them on this page.

So with that, I'd like to turn it over to Ron who will take you through some of the financials in more depth, and then I'll come back and just talk a little bit about the outlook at the very end.

Ron.

Thanks, Matt, and good morning, everyone.

So on slide 13, we are very pleased with our financial results during the quarter, highlighted by solid sales growth driven by our effective A&P investments, continued growth in EBITDA and earnings per share, and our consistent cash flow from operations during the quarter.

I'll give you more detail on each of these in the next few slides.

Before we turn to slide 14, as a reminder, unless otherwise noted, the financial information discussed today will exclude the one-time items outlined on slide 15.

So turning to slide 14.

Highlights of our Q1 results include core OTC growth and acquisitions were the driver of our net revenue growth of $24.1 million, an increase of 34% over last year.

Our ore OTC brands, as Matt has mentioned, excluding acquisitions, grew 10.7% over the prior year, while acquisitions added $24.4 million during the quarter.

As expected, our gross margin decreased by 1.0 percentage point from last year due to the impact of the Blacksmith acquisition.

We increased our A&P spending by $2.7 million over the prior year, and it is driving our growth.

Acquisitions added approximately $2 million of the increase, while the legacy business, those brands we owned prior to the acquisitions, increased $700,000 during the quarter.

G&A costs increased $1.7 million to $9.1 million during the quarter due to the impact of the acquisition, headcount additions to support our growth, and the timing of incentive compensation accruals versus the prior year.

Adjusted net increase, excuse me, adjusted net income increased $2.5 million, an increase of 27% over the prior year to $11.9 million.

And finally, we are especially pleased with earnings per share which, excluding the non-recurring items, increased $0.04 to $0.23 during the quarter, an increase of 21%.

On slide 15, we're providing a table to show you the breakdown of the one-time items recorded during the quarter.

Reported results in the quarter included a gain of $2.7 million, net of taxes, which increased EPS by $0.06 during the quarter.

We also realized a small gain related to a tax rate of 37.7% in the quarter versus our new tax rate of 38.7%.

Turning to slide 16, we'll review segment results.

Our OTC segment realized solid growth during the quarter, driven by our effective A&P investments.

Revenues for this segment increased $26.5 million, 59% higher than last year.

The increase in revenue was due to $24.4 million added from the acquisitions-- acquired brands, as well as $2.1 million, or approximately 5% growth from our legacy OTC brands.

We have seen strong consumption growth, which is an important metric for us, across nearly all of our core brands despite the challenging retail environment.

As expected, our OTC gross margin decreased 5.0 percentage points to 59.6% due to the impact of the Blacksmith acquisition.

While OTC A&P increased $3.2 million over the prior year as the acquisitions added $2 million, and we increased the investment in our core OTC by $1.2 million during the quarter.

And now contribution margin.

For the OTC segment, it increased $10.3 million, or 63% (sic - see slide 16), versus last year as the increase followed the increase in sales.

For our Household segment, in the very competitive and price-sensitive product segment, revenues decreased $2.4 million, or 9% from the prior year.

Comet, the segment's largest brand, has a program which Matt outlined which we believe will help stabilize this brand and the segment over time.

Gross margins for the Household segment decreased 3.4 percentage points to 30.9% due to the impact of continued pricing and promotional activity, along with lower volume.

Household products A&P spending was $500,000 lower than the prior year, largely due to the timing of promotional activity.

Finally, contribution margin for the Household segment decreased $5.6 million (sic - see slide 16) from last year's $6.8 million level as the impact of lower sales and gross margins were somewhat offset by lower A&P spending.

Turning to slide 17, we'll finish the section with cash flow.

The business continued to generate consistent flat cash flow from operations during the quarter of $15.4 million.

Cash flow from operations was $5.3 million lower than last year, largely due to the timing of bond interest payments as compared to last year, while the increase in net income was offset by an increase in working capital related to the increase in sales.

The strong cash flow, along with a reduction in cash on hand during the quarter, allowed for a $23.0 million pay down of debt, leaving the year-end balance at $469 million.

At this point, I'd like to turn the discussion back over to Matt.

Thank you, Ron.

If you go to slide 18, just a couple of slides and a few comments before we open it up for questions.

I think, again, just in summary, the brand building investments that we're making are continuing to pay dividends and lead to solid financial performance.

So we're quite pleased with that.

I think I would also point out, similar to last year if you recall, you'll see here in the first quarter our A&P spending is up versus last year's first quarter, but our A&P spending really ramped up as we got into cough/cold season last year, and will do so this year as well.

So our A&P investments will actually even increase during the upcoming cough/cold season.

I think I already talked about the fact that the acquisition integration, both from a supply standpoint in terms of operations and the different suppliers that we're dealing with has been very seamless, and from a customer demand standpoint, it really has been integrated into our sales force without any hiccups.

If you look at the numbers, and we've talked about this in past quarters, clearly we have additional work to do on Household to stabilize the business.

We are actively taking measures to do that.

And I'd say from a business standpoint, I'm cautiously optimistic.

I'm pleased with the strategies we have in place.

I'm pleased with the results.

I think given the economy and retail and consumer confidence, it causes me to be cautiously optimistic for the remainder of the year, given what's going on around us.

With that, if you would just turn to slide 19, this is a slide we've shown in the past, but I think it really demonstrates, and I'd like to reiterate, in terms of our strategy and our course and we're going to stay the course.

Our job one, our day job as I like to call it, is to drive organic growth in our core brands, and that's really what we're focused as an organization to do.

And as I said, we've now had four quarters of doing that.

We're going to continue, as I've said, this year-- last year we were very aggressive in the M&A market.

I think the M&A market remains robust this year.

We are actively participating in that market and looking at options, and if we find the right thing we would consider it.

And then in terms of our portfolio, just as we've done in the past, over the past 18 to 24 months, we'll continue to optimize that portfolio to make sure that we have the right portfolio from a value-creation standpoint moving forward.

So with that, again, I'd like to thank everyone.

And before we get to Q&A, just kind of a word on the presentation.

And the presentations we've used for the past few quarters, we've done that to really help illustrate the effects of the acquisitions on our business, and I hope those presentations have been helpful to you in evaluating how they fit with our long-term strategy.

I think moving forward, we plan to provide you with a presentation at the end of the fiscal year.

In the interim, should there be a corporate or a financial event that can be more effectively communicated through a presentation, we'll provide one.

Otherwise, we will hold conference calls announcing our results and the highlights and followed by Q&A as we have done in the past.

So with that, again, I thank you for your attention.

And now if we could open it up to Q&A.

Thank you.

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

Please proceed.

Thanks.

Good morning, guys.

Good morning, Joe.

Just a couple questions.

First, in terms of your consumption, obviously it's been very strong.

Are there particular channels where it's stronger than others, or is that strength generally broad based?

Well, I think, Joe, it's a good question.

And as I said, you remember the consumption numbers we present don't represent all channels because we don't get consumption from all channels, number one, and second of all, Wal-Mart, from a POS standpoint, doesn't allow suppliers to publish that, which we respect their point of view.

I think in terms of has consumption been strong, well you can see in food and drug it's been quite strong.

And in fact, in drug, if you look at the numbers, and I'm sure you all follow Walgreens, CVS, Rite Aid, the majors, consumption in drug has actually picked up a little bit and we're seeing very solid consumption there.

In the mass market in Wal-Mart, again, as they've reported, consumption has not been as strong there.

And in the Dollar channel overall in the last year, we've seen strong consumption.

But again, I think as the Dollar channel has reported in the last quarter or so, they're seeing a little softening of that meteoric growth trajectory in the Dollar channel.

Does that answer your question, Joe?

Yes, it does.

That's very helpful.

And then secondly, in terms of the Household segment, this has been one that's been a struggle for some time.

How long do you think it'll take to stabilize?

And is it mostly price, or is it price and volume that's down across the category?

And what are your retailers telling you?

Are they giving any hints as to how to maybe turn around the category?

Well, we're working closely with them.

I mean we have a top to top with one of the key retailers literally in a few weeks that we're flying in for to talk about this business specifically.

They are working with us.

We're trying different things.

We've done twin packs.

We've done bonus packs.

We're doing different things to try and bring value to the consumer.

I wish I could tell you it's going to be this quarter or next quarter.

I think the category in general has shifted dramatically over the last couple of years, and I think that's causing some shakeout here a little bit.

And I think it's causing us and other people to rethink the value proposition in the short term and the product propositions in the long term.

As you think about how people clean their houses, what types of surfaces they have and those sort of things, I think we need to be thinking about on both fronts.

Again, does that answer your question, Joe?

Yes, it does.

Thanks, guys.

Appreciate it.

Thanks, Joe.

Your next question comes from the line of John San Marco with Janney.

Please proceed.

Thanks.

Thanks, guys.

Good morning, everyone.

Good morning, John.

The gross-- I want to talk about the gross margin performance in the OTC segment.

Can you help me bridge how much of that was the Blacksmith margin dilution, how much of that was commodities, and any other major drivers there?

John, Ron Lombardi here.

The change in OTC gross margin of approximately 5 points is entirely due to the Blacksmith brand's mix impact over the prior year.

So far this year, we haven't had any meaningful or significant impact from inflation, although we do continue to expect to see it in the future and are planning around it.

To this point, we have not had any meaningful impact from inflation.

Got it.

And then I recall that when you did the Blacksmith deal, I recall a comment along the lines of it having similar margins to the OTC brands you already owned, would suggest awfully dissimilar margins to drive an impact like that.

Do you think I took your comment of similarity too literally, or have margins declined, or have they surprised you, or maybe if you could just speak to that?

Yes, John.

I apologize.

I thought we communicated, and if we miscommunicated, that's my fault.

I thought we had communicated in the past that the Blacksmith margins were lower from an OTC standpoint than our current portfolio.

So it's not like the Blacksmith margins that we've brought in that they've become lower than they were than when they got here.

They're exactly what we've anticipated, and we're working on ways to improve them.

It's just some of those categories, for example cough/cold Luden's, that category is a very low margin category for not just for us, but really for all competitors and that really brings it down.

But the margins from Blacksmith are exactly, are progressing at the exact rate that we anticipated on the acquisition.

So if we didn't communicate that clearly enough, I apologize.

I thought we did when we did the acquisition in a couple of calls.

I'm sure you did.

An awful lot has changed in the last year.

So I take it then it sounds like the Blacksmith margin didn't disappear.

Did the final impact, when you tallied the results from mix, did that surprise you, or did you have a sense that margins in the segment might be 500 basis points lower?

I think we anticipated it all along.

From a planning standpoint, we knew when we bought the businesses that they were lower margin.

So when we built our business plan this year, we built for this mix, and it has proven to be what we thought it was going to be.

So from our vantage point, we're spot on and we're on plan.

Okay, great.

And then just one last one, if I may, on the OTC segment.

How large are the sales for you guys that have benefited from Johnson & Johnson recalls?

To be honest with you, John, I don't have that specific number.

I can tell you that PediaCare and Little Remedies have clearly benefited from that.

I can also tell you based on past presentations that we've given that we've said those core OTC categories are all $20+ million categories, all nine of them, I believe.

So you can surmise from there what percentage that would be in a ballpark term.

We don't give specifics, but it's really only two of the brands that have benefited from that.

Has anything changed on that end as they return to shelves at all?

Are you seeing any new activity from them?

Haven't heard of any change as of this date, John.

Great.

Well, thank you so much for taking the questions.

Thanks, John.

Your next question comes from the line of Chris Ferrara with Bank of America.

Please proceed.

Thanks.

Good morning, guys.

Good morning, Chris.

And actually on that same note, I guess it was notable in the press release that you said, I guess first you're facing tough comps in cough and cold, but that at some point, children's cold products are going to face increased competition in the foreseeable future.

And I'm just wondering what made you want to call that out in the press release?

Well, because I think very simply, Chris, we don't know when J&J is going to be back.

I really have no idea, to be quite honest with you.

I hear all sorts of things just like you do.

But make no mistake; when they're back, if and when they do come back, Tylenol is a formidable brand and brand equity, and it will have implications for everyone in the category.

So as a business person, we need to plan for that.

And by the way, when we acquired the business, we've built that in to our assumptions.

So we understand that.

But we just have to call out that at some point, a major competitor will be back in.

There's no more really hidden meaning to that than that, Chris.

That's great, thanks.

And I guess do you guys have the organic sales growth for the Company; not just the five core OTC brands?

Organic growth for the Company.

For the Company as a whole was basically flat for the quarter.

So you can see OTC was up significantly, Household down 9% netted to about a flat number.

Got it, thanks.

And I guess, and this kind of leads to the other question.

I wonder, you guys talk a lot about the five core OTC, and with good cause.

Clearly they're doing well, they're responsive to the A&P, the returns are probably, they must be pretty good.

But to that end, those five core brands are 39% of sales I guess this quarter.

Meanwhile, the Household businesses, two-thirds of that size and shrinking.

But I guess has there been any evolution of thought around how to unlock more value I guess for your stock?

Because here you have this piece of the portfolio that isn't all of it, obviously.

But the strategy is working; it's doing well.

But you have this drag coming from these other businesses that I get you're working on, but is there anything more serious that can be done to kind of break that gap between the two?

I think, Chris, to your point, we look at all sorts of strategic alternatives in terms of how to maximize shareholder value.

So we are exploring a number of things, we've discussed a number of things.

I really think what we've tried to do here the last 24 months is we've tried to focus the number one thing to do in terms of unlocking shareholder value is to drive topline growth, which will lead to bottom line growth.

And that focus, that change in strategy and focus on OTC in general has done that.

Now there ways to tweak it-- are there ways to tweak it and do it better?

Sure.

But I think we feel like we're going in the right direction with that strategy, and it's yielded, candidly, quite strong results over the last year.

And I can appreciate that.

That makes a lot of sense.

I get-- it just strikes me that you have this strategy that's working, but when you get back to what the stock will act on over time, which is that organic sales growth rate, and it's great that the five core OTCs are growing as quickly as they are and that all of OTC is, but the reality is the Company isn't just those brands.

The Company is the sum of the entire portfolio.

And if the whole thing is flat, it just seems it could be better than that if something more drastic were to happen there.

And I guess you're not thinking about it that way yet at this point.

No, no, we are.

Because think about it, what we just-- we talk about the five core OTC in this because we owned those brands this quarter and a year ago this quarter.

But remember, we now have nine core OTC brands.

We only had five last year.

So we are taking action against that.

And so you can see that our core OTC portfolio is increasing dramatically as a percent of our overall portfolio.

Great.

Thanks for the time, guys.

Thank you.

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

Please proceed.

Hi, guys.

Just have a couple quick questions.

Hi, Jon, how are you?

I'm good.

How are you?

Pretty good.

Just on advertising and promotion to begin with.

Obviously it's up significantly on a dollar basis year-over-year.

Relatively flat as a percent of sales overall.

And I'm just wondering if you could give us a little bit more help in thinking about how that rate may change for the full year.

Should we expect something similar to what we saw in 2011, that is around 12.5% to 13%, or is there an intent to take that higher to continue to move the needle on the top line?

Jon, I think-- I appreciate the question.

I think you know we don't give specific guidance, whether it's on the top line or A&P, the bottom line.

But I think I can help you on two fronts.

I think at the end of the fourth quarter, when we announce fourth-quarter results, we said FY '11, our spend rate was at 12.5% A&P to sales.

And we said given the success we had, and I believe we were-- I'm sorry, we were at 12.5% or 12.7%, Ron?

12.7%.

We were at 10.5% in FY '10, so we had increased 2.2 points.

We said given our success in '11, we will be increasing that and heading north in '12.

So we said we're going to be above that rate for the year.

And then what we also just said here, Jon, was everyone keep in mind, similar to last year, that our increase in spending is more as we get into cough/cold.

So you can see the spending rate we had in the first quarter, and you can assume from what I said that that spending rate, as a percentage of sales, is going to pick up based on what I said last quarter as well as that we're going to increase our spending for cough/cold in the upcoming quarters.

Okay, that's helpful.

The other question I had is when you look at the overall organic growth rate for the quarter, which as you said a minute ago was relatively flat, given the full complement of the portfolio, but you had kind of 30-- I think it was operating income up about 36% on the quarter.

Just wondering if is the way for us to think about was that operating income growth all acquisition-driven, or was there some improvement there that was driven by the legacy business, ex-acquisition?

I think, again, good question, Jon.

Couple things.

I think my first comment would be, in this economic environment, to be basically flat for the quarter, given what other people are reporting, I'm pretty pleased.

I always want to grow, but I'm pretty pleased with that as it relates to this quarter and the last several quarters.

And I think on top of it, if you look at that number and then see that our Household business declined 9%, then you can see what our core strategies, how they're really impacting the business and how much we're growing there

So in general, given the environment and our portfolio, I'm actually pleased with the overall number for the quarter.

So I think-- I'm happy with where we are and I think we're positioning ourselves for growth.

Fair enough.

Just one other follow up.

The International business you kind of called out in the press release.

Not sure you've done that for a while, but it looked like there was strong growth there.

And I was just wondering if you could provide a little bit more color on what's driving that and is that kind of growth sustainable going forward?

I think, Jon, we had terrific growth.

As you know, it's not really a big part of our portfolio, but it grew so much we did call it out.

A lot of that growth came in Canada, because our International includes Canada.

We've had terrific success up there, and specifically we've increased our investment there as well.

And in addition, we introduced Skin Tags there last year, and we've had terrific success with that new product.

And we've been working diligently with the FDA in the US to try and get it approved here, and if that were to happen, we believe that could be a significant growth brand for us in the United States as well.

Terrific.

Congrats, guys, on a good quarter, and talk to you soon.

Thanks very much, Jon.

Appreciate it.

Your next question comes from the line of Karru Martinson with Deutsche Bank.

Please proceed.

Good morning, folks.

In terms of the Household side, it kind of seems like there's a little bit of a race to the bottom going on in terms of pursuit for getting value to the consumer.

Is there an opportunity to create distinction, or do you feel that this is really going to be kind of a price-driven category for the future?

Well, as I-- it's a tough situation.

It's a challenging situation.

I think in the short term, with this economy, value has played a key role.

I think long term, you have to differentiate and win-through product, and that's what we're going to try and do, because ultimately, long term, that's the only way to win.

I think to your point, if you only play on value for the long term, you're right; it's just going to be a race to the bottom and no one is going to win at that.

So as I said, we're proceeding with the two prong approach.

One, we're trying to defend the market share on the short term with value, while we look-- and we've done quite a bit of research in the last couple of quarters to understand our consumers, competitors' consumers, where people are going, what they are looking for, what their expectations, and we're trying to develop products and communication around that, because we believe that's the way that we'll win long term.

Okay.

On inflation, on the input cost sides, you mentioned that you hadn't been seeing that much of it, but still a concern on the horizon.

What are your expectations that you're kind of building into your outlook for 2012 on what inflation is going to do?

Well, we-- for our fiscal year, as you know, ends March 31, so we've built our plans.

And as Ron said, unlike the food business, we have not seen significant increase in commodity prices this year.

However, you also look at, in the OTC category and the categories in which we compete, suppliers really haven't passed along price increases in the last few years.

So prices have held pretty steady, which says at some point, that is going to break.

And so as we look to build on FY '13, we'll take an even closer look at that in terms of our assumptions and how we think that's going to play out.

But in the near term, as Ron said, we don't see significant changes.

Okay.

Thank you very much, guys.

Appreciate it.

Thank you.

Your next question comes from the line of Torin Eastburn with CJS Securities.

Please proceed.

Good morning.

This is Andrew [Gabrin] in for Torin.

Just a follow up on that last point.

When you're talking about inflation expectations in 2013, you mentioned that there hadn't been much for several years.

When that appears, do you expect it to accelerate on itself or just a one-time pop?

Well, to be honest with you, Andrew, I don't think I'm smart enough to answer that, whether it's going to be a one-time pop or accelerate.

I think our plan-- for planning purposes for the business, we've got to look at that and then determine what's the best way to deal with it, whether it's through pricing or alternative ways.

And I'm just saying that we're going to be proactive and look at it upfront as opposed to waiting for it to hit us.

Got it.

Okay, thanks very much.

Thank you, Andrew.

(Operator Instructions) And your next question comes from the line of Reza with Barclays Capital.

Please proceed.

Good morning.

Good morning, Reza.

By the way, these slides that you have presented recently are extremely helpful, so we appreciate that kind of information to the extent that you can provide it.

Thank you, Reza.

On the gross margin front, can you just talk about whether gross margins, or for that matter EBITDA margins, were relatively flat year over year for both the acquired business and for the base business?

Reza, it's Ron here.

For our legacy business, our margins, with the exception of Household, so our OTC margins were largely consistent year over year.

And for the acquired brands, as Matt mentioned, they were generally in line with what we expected at the time that we acquired them.

And the Household?

And Household is down, again, largely from pricing and promotional activity.

Got it.

And on the pricing for Household, would you anticipate that to continue in the near term like the next couple of quarters?

I think, Reza, yes.

In the near term, I would, and I've said this in the last quarter or so, that given this economic environment and what's happening in this category, for the short term I would expect pricing pressures to continue.

Got it.

On the IRI data that you shared, the POS growth for the core OTC brands, is that largely same-store sales growth or does that include some distribution gains or SKU gains within the IRI channels?

Within the IRI channel, it's primarily comp store growth.

On some brands, there's some distribution gains in there, but it's not, I would say it doesn't distort that dramatically.

Is there an opportunity for other distribution gains as in [door] gains or just SKU gains?

Yes.

We're constantly working on that, Reza, for our different brands and our different SKUs in our brands.

We present that every quarter to every major retailer in terms of some of the SKUs that they may not be carrying that are making significant strides with the consumer at other channels or other accounts.

So that's a constant opportunity for us that we're always look at and presenting.

Got it.

And then as far as acquisitions are concerned, what size are you considering, given the M&A opportunities out there this year?

Well, I think we've talked about this in the past.

I think we're somewhat flexible.

I think you can see, based on our track record, that our size has gone up in the last couple of years versus what we did maybe 3, 4, 5 years ago.

So are we talking about Blacksmith or larger?

Depends on whether it would be a portfolio of brands or an individual brand.

Look it, we've done both.

We did Blacksmith, which we are quite pleased with, but at the same time we followed it up with Dramamine, which was just one brand which we're very happy to be the stewards of that brand and what the potential can be.

So it really could be the gamut, Reza.

And there is no maximum size?

There's no outer limit?

Well, I think that that would depend on a number of things in terms of our bank covenants, in terms of our bandwidth, those sort of things.

So I think that would be, those would be some of the determining factors on the upper limit of size.

I hear you.

Thank you.

Thank you.

I would now like to turn the call over to Matt Mannelly for closing remarks.

Okay.

I believe that's all the questions.

Again, we appreciate everyone's continued commitment to Prestige and your participation on these calls, especially in the month of August.

So with that, thank you very much, and we look forward to speaking with everyone next quarter.

Take care and have a good day.

Thank you for your participation in today's conference.

This concludes the presentation.

You may all now disconnect.

Good day.