Tuesday, Chattem, Inc. (CHTT), an OTC healthcare products company, reported a 31.6% rise in profit for the first quarter, helped by lower one-time expenses. Further, the company lowered the upper end of its fiscal 2009 adjusted earnings per share forecast, which, however, is still above analysts' estimates.

The Chattanooga, Tennessee-based manufacturer of branded OTC healthcare products, toiletries and dietary supplements reported that its first-quarter net income rose to $19.57 million or $0.99 per share from $14.87 million or $0.75 per share in the prior-year quarter.

The latest quarter results included SFAS 123R employee stock option expense of $1.48 million and a non-cash debt extinguishment charge of $696 thousand, while prior year results included employee stock option expenses under SFAS 123R of $1.34 million, a non-cash debt extinguishment charge of $526 thousand, and non-recurring expenses of $6.04 million or $0.20 per share related to the voluntary recall of Icy Hot Heat Therapy.

Excluding items, adjusted net income for the first quarter was $20.96 million compared to $19.97 million for the prior year quarter, and earnings per share rose to $1.07 from prior year's $1.01.

On average, nine analysts polled by Thomson Reuters expected the company to report earnings of $1.13 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenues for the first quarter ended February 28 fell to $116.09 million from $120.77 million in the prior year quarter, missing Wall Street analysts' consensus estimate of $126.17 million. Excluding the impact of Icy Hot Heat Therapy and Icy Hot Pro Therapy, total revenues decreased 2% in the first quarter.

In the preceding fourth quarter, the company's net income was $16.7 million or $0.86 per share, adjusted net income was $18.2 million or $0.94 per share, and total revenues were $105.5 million.

Chattem attributed the decline in first quarter revenues primarily to a 45% reduction in international revenues to $5.18 million, resulting from the elimination of the sale of English language packaging in Latin America, an adverse foreign exchange rate impact, together with general sales weakness in the company's European markets due to the weakening economy.

Total domestic revenues for the quarter were $110.91 million, slightly lower than last year's $111.32 million, mainly due to lower sales of Icy Hot, Selsun, Bullfrog and Dexatrim, offset by sales increases in the ACT, Gold Bond and Unisom franchises. Domestic revenues, excluding the discontinued products, increased 2% from last year.

In the quarter, Medicated skin care revenues rose 10%, oral care revenues grew 16%, and revenues from Internal OTC's went up 1%. Meanwhile, revenues from Topical pain care, including Icy Hot Heat Therapy, fell 13%, Medicated dandruff shampoos declined 11%, dietary supplements fell 21%, and revenues from other OTC and toiletry products dropped 24% from last year.

Gross margin for the quarter was 69.6% compared to 71.2% in the prior-year quarter, as a result of higher input costs for certain product components and the impact of lower reported revenue as a result of a greater percentage of promotion costs.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, excluding product recall expenses, increased 1.8% to $39.6 million, or 34.1% of total revenues, for the first quarter.

Income from operations rose to $36.82 million from last year's $30.04 million, and operating margin climbed to 31.7% from 24.8% a year ago.

Commenting on the results, Zan Guerry, Chairman and Chief Executive Officer, stated, During the first quarter, we achieved earnings per share growth, generated strong cash flow and effectively managed our capital structure by repaying $20.3 million of senior bank debt and issuing 487,123 shares of our common stock in exchange for $28.7 million of our 2% Convertible Senior Notes.

For the first quarter of fiscal 2009, cash flow from operations increased to $19.7 million from $10.2 million in the prior year quarter.

In addition, Chattem noted that retail sales of its existing brands, as measured by A.C. Nielsen and mass merchandiser point-of-sale data, excluding the discontinued Icy Hot Heat Therapy and Icy Hot Pro Therapy, increased approximately 5% for the four weeks ended March 21, and about 6% for the thirteen weeks ended the same date.

For fiscal 2009, Chattem now expects earnings to be in the range of $4.80 - $4.90 per share, compared to previous forecast range of $4.80 - $5.00 per share. The outlook for the period excludes stock option expense under SFAS 123R of $0.26 per share, and any non-cash loss on debt extinguishment, which was $0.02 per share in the first quarter of fiscal 2009.

In the fiscal year 2008, the company had reported net income of $66.3 million or $3.42 per share, and adjusted net income of $82.2 million or $4.25 per share.

Analysts expect the company to report earnings of $4.60 per share for fiscal 2009, with estimates ranging between $4.45 and $4.80 per share.

CHTT closed Monday's regular trading session at $52.80, up $0.80, on a volume of 761 thousand shares. In the past 52 weeks, shares have been trading in a broad range of $51.00 -$82.00.

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