Prestige Consumer Healthcare Inc (PBH) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by.

Welcome to the Q1 2015 Prestige Brands Holdings, Inc.

earnings conference call.

My name is Marie and I will be your operator for today.

(Operator Instructions).

As a reminder this conference call is being recorded.

But now I would like to hand the call over to Dean Siegal, Director of investor relations.

Please proceed.

Good morning and welcome.

As a reminder there is a slide presentation which accompanies this call.

It can be accessed by visiting prestigebrands.com, clicking on the investor relations link and then on the Q1 link.

I am required to remind you that during this call management may make forward-looking statements regarding their beliefs and expectations as to the Company's future business prospects and results.

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 as of the day of this conference call.

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

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 which it files with the U.S. Securities and Exchange Commission.

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

And

Good morning.

Thank you, Dean, and thank you everyone for joining us this morning.

We appreciate it.

As Dean said, we have a investor presentation that we typically follow.

So I will try and tell you when to turn pages.

This morning similar to past calls I'll start out and I'll talk a little bit about the highlights of the quarter.

Ron will then give you a financial overview.

And I'm going to make a couple of comments regarding M&A in terms of the market as well as our outlook for the remainder of the year.

So with that, if you would please turn to page 5 of the presentation.

I think in general for us we are quite pleased, a very solid start to the fiscal year.

Our Q1 net revenue of $145.7 million was up 2.2% versus prior year and our adjusted EPS up 2.5%.

Cash flow of $29.2 million was up 36.1% versus prior year and I think one of the things that I'm most pleased about is our core OTC consumption growth of 2.5% excluding pediatrics and GI, is back growing again and we are quite pleased with that.

From a brand building standpoint we continue to invest in new product introductions and Fresh Guard and Beano Dairy Defense were introductions that came through in the first quarter.

We have several new advertising campaigns that broke including Fresh Guard, Beano, as well as Clear Eyes with our new Clear Eyes campaign with our new spokesperson, Vanessa Williams.

And finally, very recent and very exciting news in terms of some speedy, as I said, brand exposure through our sports marketing association with Daytona and recent Pocono champion, Dale Earnhardt Jr.

And that's been a relationship that we have fostered the last couple of years.

And we have gotten significant brand awareness for BC and Goody's as a result of that.

In addition, as you are probably aware we closed our acquisition of Hydralyte at the end of the month of April.

And that integration is well underway and running quite smoothly right now.

And in addition, more importantly, we have a pending acquisition of Insight Pharmaceuticals, that as of right now is on track to close by the end of September.

And that really is going to be transformational and a game changer for us with our first $100 million brand.

So we are quite excited about that.

I'd say in summary, for the performance, very strong first quarter.

We are on track to continue to deliver strong financial performance for 2015.

We feel very good after Q1, especially in this environment in terms of the results and we still believe we are going to deliver 15% to 18% sales growth, adjusted EPS of $1.75 to $1.85 with that all-important free cash flow of approximately $150 million for the year.

So with that if you will turn to page 6, and as I said on the previous page one of the things I'm most pleased about is our improved consumption performance in the first quarter.

You can see here again total consumption and then consumption if you exclude pediatrics and GI, which we have broken up the last couple of quarters.

And you can see the improvement in Q1 versus all of FY14.

So we are quite pleased, at the end of the day the consumers are picking up our product more often off-the-shelf than over the previous year.

Page 7. And again I caution this and I said this in the past over the last few years, this is really directional.

Because it doesn't cover all the channels, it doesn't cover all the accounts so we don't look at it specifically.

But that said, our consumption has outgrown our shipment -- has exceeded our shipments for three straight quarters.

So as I said that is directional.

It's not meant to be absolute but the fact that it is three straight quarters is a good sign for us that our consumption is exceeding our net shipments.

With that if you will turn to page 8. And what that has led to is again, if you exclude -- this not only excludes this year but excluding previous years as well to make sure it's apples to apples -- pediatrics and GI, you can see that the consumption gains are leading to market share gains and record market shares at 10.6% and excellent market share gains across the majority of the portfolio.

So at the end of the day we are quite pleased with the consumption gains, which are leading to excellent market share gains as well.

A couple of examples from a brand standpoint if you turn to page 9. An example is the brand building include Luden's is a great one.

So I think many of you probably can relate to in the lower left corner the white Luden's boxes that's been around for a number of years.

And it really is a terrific brand with great brand equity.

But when we bought it it had not had much in terms of investment over the last several years.

And we have really changed that.

You can see on the right-hand side a three-year CAGR of +8%, which is twice as high as the category rate over that time period.

And in fact our Luden's Wild Cherry 30 count is the number-one selling throat drop in the category.

So we are quite pleased with what we have been able to do with that brand.

If you turn to the next page in terms of brand building in action, I will just call out we are really excited about the new flavors that we are introducing.

And those new flavors, I think, for us -- we are saying here -- new flavors for a new generation and broader consumer appeal, new Watermelon and Blue Raspberry as well as a new Sugar Free Black Cherry flavor.

So we are excited about what those can bring to the franchise.

Moving on to page 11, this is something I have briefly touched on in the past.

And I thought it would reference it today because it is becoming more and more important to us.

And that is digital and social media and our investment in that area.

And as you may recall when I came five years ago we were spending zero dollars in that area.

And I think over the last three to four years you can see here we have done a lot of learning in terms of our investment focus starting with the basics and moving on from there.

And you can also see that we are increasing our investment.

As we are getting that learning we are increasing our spend in terms of digital marketing over time, 5% back in 2012 and this year it's going to be approximately 15% of our marketing spend.

I think if you think about that and turn to page 12, some examples of what we are doing in digital marketing to drive to build brand equity and drive revenue, a couple of examples.

For Dramamine specifically we are doing very targeted digital media in terms of travel-oriented shoppers on certain websites.

And we believe that has helped drive our consumption and our latest 12-week consumption growth is up over 9%.

Luden's I referenced earlier our three new flavors.

I think this is an interesting example of how we came about those flavors.

We utilized crowd sourcing in terms of feedback from consumers to get their thoughts on which would be the best new flavors and that helped us in deciding to launch those three flavors that I referenced earlier.

And then Goody's and BC we have spent a significant amount of time in terms of social media identifying brand influencers and having one-on-one dialogue.

And our metrics there have increased significantly over time.

If you turn to page 13, I think really what is exciting is where this is going.

And if you think about it real-time mobile marketing and if you think about your smartphone, where it is going is eventually and some of the things that we are looking at is your smartphone eventually is going to be able to proactively tell you that there's a red alert in terms of FAN flu says the cough-cold incidences are up X percent in your region of the country and they know where you live.

It is also going to be able to tell you we know you have two kids under five as a result of your Facebook page.

And therefore since we know you are by a CVS or a Walgreens or a Wal-Mart here's a coupon to go into that store to buy some product to help you in terms of fighting the cough-cold season.

So that type of marketing is not too far off.

Those are some of the things that we are looking at.

And it's actually very exciting in terms of where it is going with digital marketing and we are learning and trying to be part of that moving forward.

Turning to page 14, I referenced at the beginning that our Hydralyte integration is proceeding on schedule.

I think what I would say about Hydralyte and what this page tries to point out is we just closed really at the end of April, May 1 -- it's only been a few months.

We have clearly identified -- not only are we integrating it, we have identified the priorities and are working against tangible initiatives within the first three months to make a difference on the business.

First of all, we are transitioning the sales of Hydralyte to our salesforce which will take effect September 1 and we are training them right now towards that.

So that is very exciting that we are taking control of the sales with our own direct sales force in that region of the country when it has been run by brokers.

Second of all, we've introduced three new products in terms of Hydralyte already.

We have a new ad campaign, we are optimizing our marketing spend, we are putting more money in season behind Hydralyte; we are also getting ready in this fall to expand Hydralyte to New Zealand.

And then finally, which Ron has referenced in the past, we don't talk about quite a bit but we are also looking at some cost improvements in the supply chain that we believe can make a significant difference moving forward.

Moving on to page 15, I also referenced that we are on track to close by the end of this quarter for Insight Pharmaceuticals.

And I am pleased to report that as of today we are on track and I think as I have said this is transformational.

This is really a game changer.

You can see it in the numbers in terms of our revenue, on a pro forma basis goes from $600 million to $800 million.

Our EBITDA goes from $200 to $300 million.

Our gross margin is accretive with this and our pro forma EBITDA margin moves above 35%.

So you can really see once we close on Insight Pharmaceuticals, the magnitude of the impact to that business will have on the Company.

So with that, let me turn it over to Ron who will take you through the details of the financials.

And I will come back to make a couple of comments at the end.

Thanks Matt and good morning, everyone.

And I will be starting on slide 17.

So as Matt has described so far, we are very pleased with our results during the quarter given the challenging retail and competitive environment.

Our three-pronged strategy of focusing on core OTC growth using our strong and consistent free cash flow to rapidly delever and to actively and aggressively participate in M&A continues to deliver results as evidenced in our first-quarter results.

Highlights for the quarter include net revenue growth of 2.2% from our increasingly diversified portfolio and gross margins of 56.3%, which are positioned to increase to approximately 60% after we complete the Insight acquisition.

We also recorded adjusted EPS of $0.41 and free cash flow of approximately $29 million, which was 36% above the prior year's level.

With a solid start to fiscal 2015 we continue to believe we are well positioned to achieve are full-year outlook for sales growth, adjusted EPS and free cash flow.

Moving to slide 18, we also announced today that we expect to launch the financing for the Insight acquisition this afternoon.

We expect to finance the acquisition principally through an add-on to our existing term loan and we expect to complete the acquisition by September 30, pending regulatory approval.

We also anticipate that we will divest a small GI brand as part of the Insight portfolio in order to obtain regulatory approval.

Our flexible capital structure and credit facility continues to provide us the ability to complete M&A transactions efficiently as evidenced by the Care Pharma, Hydralyte and the soon-to-be-completed Insight transaction.

In addition, our current capital structure and industry-leading financial profile continues to allow us to employ our aggressive and disciplined M&A strategy in both the short and long term.

Turning to slide 19, we have our Q1 results.

As a reminder, the information included in today's presentation includes adjusted results that excludes acquisition-related and other items.

A reconciliation between these adjusted results and reported results are also included in today's earnings release.

Our net revenue increased 2.2% to $146 million during the quarter.

This increase was due to improved consumption trends in our core OTC brands and from the addition of Care and Hydralyte, which added $7.3 million to revenues during the quarter.

Organic net revenue declined approximately 3% during the quarter which was a meaningful improvement over the last two quarters of fiscal 2014.

In addition, the revenue increase of 2.2% in the quarter has us well positioned to meet our sales outlook of flat to down percent for the first half of the year.

Our Q1 gross margin was in line with expectations and prior quarters and decreased 2 points compared to last year's level due to household and OTC mix shift as well as changes to promotional activity in response to the retail and competitive environment.

We expect our Q2 gross margins to be in the same range and increase closer to 50% in the second half of the year with the addition and integration of the Insight portfolio.

A&P spending increased 2.2% over the prior year to approximately $19 million during the quarter as the Company continues to invest behind its core OTC brands.

This strategy continues to yield results as highlighted by our record level of market share and core consumption gains that Matt described earlier.

G&A as percent of revenue increase slightly over the prior year's level to 8.1% due to the Care and Hydralyte acquisitions.

Adjusted net income and adjusted EPS increased approximately 2.5% during the quarter with adjusted EPS of $0.41.

Turning to slide 20, we have a summary of our free cash flow for the quarter.

Prestige's consistent and significant cash flow trends continued during the quarter.

The business generated approximately $29 million of free cash flow during the quarter.

We had approximately $16 million of cash on hand at the end of the quarter with a net debt balance of approximately $957 million.

Our debt to covenant defined EBITDA ratio was approximately 4.6 times, which was an increase of approximately 0.4 of a point from March's level due to the closing of the Hydralyte acquisition during the quarter.

We continue to expect full-year cash flow of approximately $150 million to rapidly delever after the Insight acquisition is completed and to have a meaningful increase in M&A capacity by yearend.

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

Thank you, Ron.

If you turn to page 21.

I thought before I get into really the outlook for the remainder of FY15, you may recall last quarter if you look at the investment presentation, I shared some thoughts regarding the M&A environment.

I think things have happened, much has happened since that time so I wanted to briefly communicate our perspective regarding what is happening with this important pillar for Prestige as Ron has pointed out.

It is one of our three key strategies in terms of delivering shareholder value along with driving core OTC growth and exceptional free cash flow.

So if you turn to page 22, I think if you step back and look at it what is going on in the marketplace, there is potentially a significant pool of M&A opportunities that have resulted from a number of actions taken by the large pharma companies.

If you look here you can see everything from a joint venture with GSK and Novartis, and when you look at the combined portfolio I think there are opportunities there for potential rationalization.

Those companies have done that in the past.

And in fact Prestige has a history with GSK in terms of portfolio rationalization and buying some of their brands.

The second one is Bayer's acquisition of Merck, which is a $14 billion acquisition.

And again when you combine that portfolio there is potentially some opportunity for rationalization.

And it is primarily North America focused.

And then finally and the reason I bring this up this topic is really what P&G announced last week on Friday, I believe, in terms of their divestiture and their plan to focus on 80 brands and really divest 90 to 100 smaller brands and most of those under $100 million.

And they participate in the OTC market and they have some brand or brands that are in our sweet spot.

So when you step back and again the reason I am bringing it up is with P&G's recent announcement, when you step back and look at this in aggregate, it says that there is a real sea change going on right now.

If you turn to page 23, this is really meant to be just an illustrative example, nothing more.

And it's meant to show that we review portfolios of our competitors on a regular basis as part of our M&A focus.

You can see here, again as an illustrative example, just a few thoughts.

And that is if you look at the top at the categories, oral health, cough cold, analgesics, etc., skincare, GI, you can see the value of those categories are about $14.5 billion across those categories.

And you can see there's significant overlap in terms of those categories and their brands and where Prestige already participates in terms of categories in which we play in.

The second thing that is interesting is of that $14 billion, there's $4 billion of under $100 million brands, very significant.

So this is really just meant to give you some insight as to how we look at companies, categories and brands and how we monitor it and some of the work we do on a continuous basis in terms of M&A and point out that when you step back and look at it across all of these portfolios, there are clearly opportunities for Prestige.

And it makes sense.

And if you move on to page 24, I think what I would say and the question I get asked a lot is, the state of the M&A market, I think right now the market is the most prolific it has been in the last five years that I have been here.

And I would think based on the previous pages that I just talked about there's likely, as been stated by some companies, to be portfolio rationalizations from some of the existing transactions in the next 12 to 24 months.

I think an example is GSK when they announced a couple of years ago that they were going to divest the bottom 10% as well as P&G's recent announcement last week, may set the stage for other similar announcements from other large players as well.

And we have seen that happen in the past.

It is not just the big pharma companies.

There are also opportunities in terms of family-owned and private equity as well.

As we have seen the private equity market has heated up quite a bit in the last 12 to 24 months.

And when you think about it and the reason we point it out is a couple of reasons.

Number one, we are very logical player for some of these acquisitions and a logical choice since we are the number one independent OTC company in the United States.

And we have said it in the past, we are ready and able to capitalize on new market opportunities.

We have been and will continue to be very aggressive and disciplined in terms of M&A.

We have a well-established criteria of what we look for.

We have demonstrated and proven that we can create value with these acquisitions.

And as I said the reason we talk about it is this is a, not the only, but a key strategy for us in terms of building shareholder value.

So with that if we can turn to page 26, talk a little bit about FY15, our outlook for the remainder of the year.

I'd start by saying the business, the state of the business and the environment in which we are operating in terms of what I just talked about positions us very well to continue to create shareholder value.

From a near-term outlook I'd say we are cautiously optimistic and the reason I'd say that it a couple of fold.

First of all, I am quite pleased as I have said and Ron said here, with our improved consumption trends and our market share gains and the state of our business and the momentum of our business right now seems to be picking up.

That said, everything you read and see says it's a very challenging retail environment that provides some uncertainty and foot traffic continues to be a challenge with retail in all the channels in which we compete in general.

We have very positive momentum heading into the second quarter; however, as you look at our numbers and we said in the past and these are in our numbers, our year-over-year comps for the second quarter are the strongest comps of the whole year.

And as is traditional for the second quarter every year, our cough-cold order patterns and the levels that the retailers take in the second quarter varies year-to-year in terms of Q2 and Q3.

And we can't predict that with 100% of certainty so we have called this out every year in Q2 and Q3 and it has changed in terms of our order patterns year-to-year.

So there is always that risk in the second quarter.

Ron pointed out that in the first quarter we gave outlook of plus 15% to 18% for the year and we also gave outlook of flat to minus 3% for the first half.

I would say based on the first-quarter results, which we're quite pleased with, I would expect us to be closer to the top end of that range in terms of the flat to minus 3%.

So again that's why we are cautiously optimistic.

We are going to continue to invest and build our brands.

We are going to continue to focus on new products.

We are going to continue to focus on our brand communication and new vehicles like the digital marketing that I talked about.

I think it's interesting to note that in tough economic times and tough retail times we have not pulled back our spending.

We have continued to invest in the brands.

And candidly I think part of that investment last year has led to some of the momentum in the first quarter this year.

So I think it is proven to be the right thing to do long term.

In terms of M&A, I have already talked about it that first of all we are going to continue to be aggressive and disciplined.

We are going to focus on integrating the current Hydralyte acquisition and when we close on the game changer acquisition of Insight, we are going to focus on integrating that in.

I think one of the core competencies of this Company is execution and integration of acquisitions and that we have proven that we can do that and create value through it.

And then finally from an M&A we are going to capitalize on that consolidation if and when it occurs.

So I think in summary I talked already about we are confident and we are reaffirming the outlook for the year.

I think if you look at the numbers of revenue plus 15% to 18%, EPS of $1.75 to $1.85, and $150 million in free cash flow, this will be significant improvement over the prior year and a major accomplishment.

And we clearly believe that the team at Prestige is up for the challenge to deliver this in the fiscal year.

So with that I will turn it over to any questions.

Thank you.

(Operator Instructions).

Joe Altobello, Oppenheimer.

Thank you.

Good morning, guys.

First question, in terms of the M&A environment, Matt, you sound very upbeat on it this morning.

Once Insight closes I guess you guys will be about 5.8 times levered pro forma.

So on October 1, assuming it closes on September 30, how big of a deal do you think you could do and what leverage ratio are you willing to go up to?

Joe, let me start and then I will turn it over to Matt.

So the first question really is are we ready to address another M&A opportunity.

Clearly we've got to get Insight integrated and behind us.

But really the answer to what level of leverage we will be comfortable with depends on the profile of the target.

So there's no one answer.

Clearly with how well Insights fits we are comfortable at 5.7 times.

Joe, let me add to that a little bit.

I think to kind of build on what Ron said, our criteria is strategic, executional and financial.

If a brand or brands in those portfolios or others were to be available in terms of to us and it was strategically correct, we clearly would pursue it and could pursue something of significance and I'll talk about that in a minute.

Because the other thing is, as Ron said, is execution as well.

And our organization in terms of the way we have built the organization we are prepared to execute these type of acquisitions.

From a financial standpoint, all right, for us there are number of different ways to fund acquisitions.

And I think I will just go back to, as an example, when we did the GSK North America brands the acquisition was larger than our market cap at that time.

So I think that took some people by surprise saying how could Prestige do something that big?

And I would say the same thing right now.

Our -- when we close I think we'll be at 5.7, right Ron?

We'll be at a 5.7.

I think people would say well clearly they don't have that much capacity.

Number one, we do have debt capacity.

Number two, the type of acquisitions we do and if it's within our criteria and everything, it frees up -- it allows us to do things to acquire additional debt.

And there are other things that we can do.

There are the resources available to us to fund acquisitions and if it proves to be financially viable that we can create shareholder value, we've said in the past and we continue to say that we would consider those alternatives in terms of financing.

Does that answer your question, Joe?

It does.

That's helpful.

And then secondly, just shifting gears a little bit in terms of the retail inventory environment.

Your shipments, as you pointed out this morning, are still well below consumption for now three quarters.

Where do inventory levels stand at retail and are we starting to see the light at the end of the tunnel when it comes to de-stocking?

Yes, Joe.

I think that's the really relevant question for right now.

And what I would say is I think as of now I think if you go back to the third quarter last year and you heard this from a lot of companies not just us, that's when the inventory reduction really started.

And there was a huge hit for a lot of people at that time in our third quarter, which is fourth quarter for a lot of other people.

But what we said and others I'm sure said, too, that's not a long-term strategy, they can't keep doing that, there's going to be out of stocks.

So I think you are seeing that some companies that pendulum has swung back a little bit.

And I think inventory right now, to your point, not heavy inventory.

Inventory is quite reasonable and probably actually in our favor to a certain extent.

And so we don't expect significant inventory reductions at this point.

That said, when I say cautiously optimistic retailers have proven that at the end of a quarter or if they're not getting revenue there are two places they go, inventory and in-store personnel.

So I wouldn't rule out in the next year if foot traffic doesn't improve or it gets worse, that at times they try and pinch inventory or in-store personnel to try and improve performance.

So that's why I am cautiously optimistic but in general inventory is in good shape right now.

Does that answer your question?

It does.

Thank you very much.

Frank Camma, Sidoti.

Good morning, guys.

Just wondering on Insight, obviously you are just really getting through Hydralyte here and still integrating that.

But what can you do a head of time to kind of get the jump on that as far as integration and such and what are your plans there as far as combining everything?

I'll give you a couple of tangible examples, Frank.

Because this is what I mean by it's a core competency for us.

We have already -- we don't own the business, let's be clear -- we don't own the business today, so we don't make any decisions on Insight, etc.

But for our own people internally we have already met with our entire salesforce and taken them through a deep dive of Insight in terms of the business, the brands, what expect to do, etc., well in advance of us closing to educate our sales force.

Because they're going out there trying to get the revenue.

We have already announced personnel decisions internally in terms of we have someone who is heading up the entire Insight business as well as a director of marketing to take over for Insight that we have already announced.

And those people are in place full-time before us even closing.

And the other thing that's important is, very similar to GSK which was also a major acquisition for us, we have formed a working group and a steering committee that right now meets biweekly to go through the issues, actions, decisions thoughts, etc., of what we need to be doing on Insight for us to prepare so the day we close we hit the ground running.

So we have plans, functional plans by every area right now that we are reviewing biweekly and once we close those meetings we'll move to weekly.

Does that give you a flavor?

Absolutely.

And the other question is, when you do close this obviously you become pretty significantly more relevant to US retailers at least.

Is that going to help move the needle do you think as far as -- and we hear about certain -- I know you just answered this question a little bit but hear about certain retailers at least in certain categories going back to stocking the shelves.

Do you think that will help open up your shelf space a little bit?

I think where it helps, Frank, candidly for us is it helps more within the portfolio as opposed to across the portfolio.

So when we do these acquisitions if we acquire more brands in cough cold or analgesics or in this case we are building a fem-hy platform, we have more clout with the cough-cold or fem-hy buyers and that is where we gain traction in terms of being able to participate in more of their programs, have greater shelf space, etc.

So that's where we see the potential for us in terms of working with retailers.

Got you.

Okay, thank you.

That's all I have for now.

(Operator Instructions) Linda Bolton, B. Riley.

Hi guys.

Can I ask you about just the gross margin?

I guess it was a little bit lower than I would've expected in the quarter and in reading your presentation you say gross margin reflects current retail and competitive environment.

So do you mean it's sort of more protracted effort to do more trade promo given the environment, or is there particular initiatives that you had in the quarter?

And I guess you already said the gross margin will be similar in the second quarter but I'm just trying to gauge this is like a permanent change in the business because of competition, or something else going on?

Thanks.

Linda, I think a very fair question, a very relevant question to what's going on in the marketplace right now.

I try and answer it a couple of different ways.

Let me step back and say we've said in the past, we reiterate it here, that with the acquisition and with our cost improvement programs that we are tracking to move towards approximately a 60% gross margin once we close and some of those costs initiatives come into play, etc.

Second of all, our gross margin, if you look at our gross margin in Q1 it is very similar with the last three quarters.

So we are really in line with what's been going on.

To your point, it does reflect the current retail and competitive environment.

We had moved some funds up top in terms of couponing and discounts, etc., as a result of the retail and competitive environment to help drive foot traffic at the retailers.

The other thing that I would say is I wouldn't call it permanent and the reason I'd say that is we track our spending and what we call push pull.

What is our push spend and what is our pull spend?

Meaning what do we move through the trade and what do we move in terms of consumers spend.

And we clearly, if you look at what we have done for brand building over the last three or four years, we like to keep within certain bandwidths or ratios in terms of push pull.

We are still within this bandwidth.

So given our track record of brand building and given the fact that we monitor push pull on a quarterly basis, I don't see us ever getting that far out of line of what we want to do from being a consumer products company and a brand building company and having a certain ratio.

So I'm not concerned about it long term because I know what our philosophy is in terms of brand building and what's the bandwidth that we want to be in.

Does that help answer what you are looking for?

Yes, very much so.

So also, when you talk about the Hydralyte transitioning to your own salesforce, is that going to be smooth, or sometimes I've seen sales disruption result.

But are you pretty confident that's going to be a smooth transition?

I have a lot of confidence that it's not only going to be a smooth transition but it's going to be beneficial sooner rather than later.

Because by us having our own direct sales force calling on those key accounts in Australia, I think we have more control over it.

And we have a high degree of confidence on our sales force in Australia based on the results they have delivered in the first year of the acquisition.

So I'm very confident in the transition and I am not that worried about any disruption.

Great.

And then I would just be interested if you have any view, I don't how much you can say, but with regard to P&G's announcement their divestitures of brands.

I would think they would try to do as much in big chunks as possible, that's more efficient for them.

So it would be a two-step process maybe sale to a private equity firm and then they would break off pieces maybe to resell.

Do you agree with that view, or do you think it's going to be truly more of a piecemeal or do you just have any opinion on that?

Yes, I don't -- first of all whether it's P&G or GSK, Novartis or Bayer, Merck, or any Pfizer, anyone, that's their decision, it's not ours.

And if you look at it the big companies have typically when they have gone through I'll say more wholesale rationalizations they have tried to package things.

And again I think that plays in our favor in terms of we have the ability to buy packages.

But as I have said we don't control the selling side, we just need to be prepared and ready on the buying side.

And I think we believe that we can compete in portfolio or packaging or individual process for those $100 million and under brands.

So I think that scenario, as I said in here, I think that's going to take 12 to 24 months for a lot of that to kind of sort its way out executionally.

Again the reason we talked about it today was the latest announcement last week isn't just the only sign of that happening, it just happens to bring it to the forefront, now when you step back and look at it it's going on in a lot of places.

So I think that's our point of view on it right now.

Okay.

And then finally, can I just ask about the A&P spending?

It was roughly flattish year over year.

You had a very high ratio last year in the second quarter.

I don't know, Ron, if you can comment on what to expect.

I would expect you would try to drive consumption again in the second quarter.

But then should we expect to see bigger increases in the second half once you fold in Monistat and start investing behind that?

The answer is yes, I think you will.

And I think that's based on our history, Linda, that we have proven every acquisition we've done we have increased the spend behind those brands.

And first we do the work and once we feel we've got the work done and we've got the right solutions we start spending immediately.

So I would think in the second half you would see that spend.

I think if you look at our track record you will see that -- just take last year as an example, you will see that the first quarter even ex-acquisitions, first quarter is typically a low quarter for us from a spend standpoint and then we start increasing it from there.

So I think you would expect it to be up in the second quarter.

Okay.

Thanks a lot.

Thank you.

Ladies and gentlemen, that concludes your Q&A session.

Now I would like to hand back to Matt Mannelly for closing remarks.

Okay, thank you very much.

We appreciate everyone taking the time to join us today during these summer season and we look forward to talking to you on the next call.

Thank you.

Thank you, ladies and gentlemen, that concludes your conference call for today.

Thank you for joining us.

You may now all disconnect.