Schiff Nutrition International, Inc. (WNI)

Q4 2010 Earnings Conference Call

July 20, 2010 11:00 AM ET

Executives

Kirsten Chapman – Investor Relations

Bruce Wood – Chief Executive Officer, President, Director

Joe Baty – Chief Financial Officer, Executive Vice President

Analysts

Michael Gallo – CL King & Associates

Ian Corydon – B. Riley & Co., LLC

Greg Gilbert – BofA Merrill Lynch

Marianne Manzolillo – Angelo, Gordon & Co.

Damian Witkowski – Gabelli & Company, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Year-End Schiff Nutrition International Earnings Conference Call. My name is Sailey and I will be your operator for today. (Operator Instructions) I would now like to turn the conference over to your host for today, Kirsten Chapman. Please proceed.

Kirsten Chapman

Thank you, Sailey. Thank you all for joining us this morning for the Schiff Nutrition International fiscal 2010 fourth quarter and year-end results conference call. By now, you should have received a fax or e-mail of the press release. But if you've not, please contact us at Lippert/Heilshorn & Associates at 4154333777, and we will forward a copy immediately.

As a reminder, this call my contain forward-looking statements of the risks of which are the same as those described in the Safe Harbor language in the Press Release and those detailed in the company’s SEC filings. Actual results may differ materially from those described during the call.

With us from management today are Bruce Wood, President and Chief Executive Officer; and Joe Baty, Executive Vice President and Chief Financial Officer. Please go ahead, Bruce.

Bruce Wood

Thank you, Kirsten, and good morning, and welcome to our fourth quarter and year-end call for fiscal '10. We were pleased with our fourth quarter and full year results. During both periods, our branded net sales increased significantly, which more than offset a decline in Private Label net revenues and drove an overall increase of 7.7% in the fourth quarter and 7.4% for the year, as compared to the respective year-ago periods.

On a quarter-over-quarter basis, we once again recorded significant improvement in our gross profit and operating margins. As a result, for the year, we delivered a strong operating performance and generated solid positive cash flow. That foundation, coupled with our strong cash position, led to the board's decision to return value to our shareholders via a $0.50 per share special dividend that was paid in April.

During the fourth quarter, the overall Supplements category, as measured by IRI, continued its robust growth versus the year ago period, albeit at a rate lower than that of previous quarters. The Joint Care segment remained essentially stable on a quarter-over-quarter basis, while our other focus segment, Fish Oil, continued to grow strongly. With respect to the Joint Care business, we continue to support our flagship Move Free brand with a comprehensive marketing program, including national TV advertising, FSI couponing and loyalty promotions and grassroots PR programs targeted to both consumers and healthcare professionals.

At the same time, we initiated activities to improve our pricing promotion competitiveness on Move Free in certain trade classes to address the ongoing intense competitive environment. Move Free net sales for fiscal '10 were stable overall.

Our Schiff MegaRed Krill Oil brand continue to perform strong beginning the fourth quarter. And as expected, we achieved full mass-market retail distribution on MegaRed by the end of the quarter. MegaRed benefited from a full array of consumer marketing support in the form of national TV and print advertising, FSI couponing, PR support and customer-specific promotions. On the new product front, we shipped our new Schiff Mega-D3 product to certain customers during the quarter. Mega-D3s ingredients include a superior strength 5000 IU dose of vitamin B3 combined, with Resveratrol and Red Wine extract. As such, it offers a broad spectrum of health benefits, all in an easy to swallow soft gel. Mega-D3 capitalizes on the strong growth currently being experienced in the Vitamin D segment, and we expect to support the brand with consumer marketing to support its premium formulation and position. It's too early to read any sales trends, but we do expect to be able to update you on Mega-D3's progress in a subsequent call.

At the same time, we continue to test other new products in market on a very selective basis with certain customers. We'll have more specifics to share with you on our next call in this regard as well.

With respect to Private Label, as noted on our previous call, the business has become much more price competitive and volatile, as bidding processes have resulted in both wins and losses for most, if not all, major Private Label manufacturers. As a result, margins have declined in some cases significantly. We have held our own competitively speaking in terms of the wins and losses. However, we expect that Private Label business segment will continue to be volatile, and it's clear our gross margin will be impacted in fiscal '11 by the new competitive realities. Nevertheless, we believe we can compete effectively going forward based on our strong customer relationships, our reputation for quality and customer service and our solid financial health.

In sum, our fiscal '10 results may prove to be a tough act to follow. We expect fiscal '11 to be profitable but challenging overall in comparison. And Joe will provide some more detail on guidance in our financial outlook in his remarks. Schiff's long-term goal remains to profitably grow our Branded and Private Label businesses while continuing to explore new, organic and external growth opportunities. We’re confident about our future prospects, and expect to continue to strengthen our financial and competitive position in the new fiscal year just begun.

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