Matrixx Initiatives Inc. F4Q10 (Qtr End 3/31/10) Earnings Call Transcript

Matrixx Initiatives Inc. F4Q10 (Qtr End 3/31/10) Earnings Call Transcript
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Matrixx Initiatives Inc. (MTXX)

F4Q10 Earnings Call

May 11, 2010 11:00 am ET

Executives

William Hemelt – President, Chief Executive Officer

Bill Barba – Treasurer

Analysts

Scott Henry – Roth Capital

Kevin Kendra – Gabelli

Peter Mondejar – Tradelink Securities

Brad Leonard – BML Capital Management

Matt Daniels – Madison Street Partners

Presentation

Operator

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Welcome to the Matrixx Initiatives fiscal 2010 fourth quarter earnings results conference call. (Operator Instructions) I will now introduce your host for today’s conference, Mr. Bill Barba.

Bill Barba

Good morning everyone. Thank you for joining Matrixx Initiatives 2010 fourth quarter and year-end conference call. At the conclusion of today’s prepared remarks, we will open the call for a Q&A sessions.

But before we begin prepared remarks, I need to advise you that this call may contain forward-looking statements not limited to historical facts but reflecting our current beliefs, expectations or intentions regarding future events. A number of factors could cause these results to differ materially from those forward-looking statements. Because actual results may differ from expectations, we caution you not to place undue reliance on these statements. Additional information concerning risk factors that could affect our results, are described in our filing with the SEC including our 2009 10-K and quarterly 10-Q’s.

I would now like to turn the call over to Mr. Bill Hemelt, President and CEO.

William Hemelt

Good morning everyone and thank you for participating in our conference call this morning to discuss our yearend financial results for fiscal 2010. As noted in our press release, our net sales for the year ended March 31 were approximately $63.7 million, which was within our revised guidance of $67 million to $68 million.

The drop off in revenues from the prior year is attributable to the loss of revenues from our Zicam nasal products, which we withdrew from the market last June. The loss of revenues from these products coupled with the cost of recalling the products from the marketplace and the associated non-cash write down of certain assets, combined to produce a very large net income loss for the year of $23.6 million.

Before I turn it over to Bill Barba to discuss the financial results for the quarter and the year in more detail, I want to address what I think is the most important aspect of the recently completed quarter and year.

And that is, our number one objective for the year in response to the events of last June was to ensure that the Zicam brand was protected and secured and that we could establish a growth profile for the brand going forward.

I believe based on the data that was referenced in the press release, we achieved that objective. For the full year, our Zicam cold remedy oral products grew 12% despite flat category growth and despite a growing share of the category transitioning to store brand generic products. The growth in the Zicam oral products is a true testament I think to the strength of the Zicam brand and the loyalty of the Zicam customers. We intend to build on that in the future.

With that as a backdrop, I’ll turn it over to Bill now to discuss the financials.

Bill Barba

The H1N1 publicity did result in retailers building inventory early in the cold season. This early season inventory build affected fourth quarter sales as the incidents of colds and flu declined. Net sales for the fiscal fourth quarter were $6.3 million and we incurred a net loss of $9.6 million which equates to a loss of $1.04 per share. This compares to sales of $30.8 million and net income of $3.1 million or $0.33 per share in Q4 of fiscal ’09.

For the full fiscal year, net sales decreased 40% to $67.3 million versus $111.6 million in the fiscal year ended March 31, ’09. The full year sales were adversely impacted by the recall of our nasal cold remedy products. Those products accounted for $42.5 million of fiscal ’09 sales.

Partially offsetting losses in nasal cold remedy sales was a 22% increase of oral cold remedy products, which accounted for approximately 66% of our fiscal year sales. During the year, we also experienced declines in sales of our non-core product offerings including cough and multi-symptom products.

Due to declines in consumer market consumption on those products, we experienced higher than anticipated returns at the end of the season, which resulted in a $2.3 million increment to our returns reserve in the fourth quarter. This did have a significant impact on fourth quarter gross margin.

For the year, the company incurred a net loss of approximately $23.6 million or $2.56 per diluted share compared to net income of $13.9 million or $1.46 per share in the prior year.

The recall of nasal cold remedy materially affected our operating results in fiscal 2010. The loss from operations was $38.3 million compared to $22.3 million of income in ’09. Included in fiscal 2010 results are charges of $9.2 million for recall related refunds as well as $23.9 million for good will and asset impairment. Fiscal ’09 included a small comparative amount of $2 million for recall related charges.

Excluding the recall charges and asset impairments, fiscal 2010 loss from operations would have been $5.2 million as compared to income from operations of $24.3 million in ’09. Additionally, 2010 results include $2 million in expenses associated with the discontinuation of sales in Canada.

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