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Mark Vickery

Helen's 3Q Mixed, Cuts Sales View

PG HELE

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A global consumer products company, Helen of Troy Limited (HELE - Snapshot Report) posted better-than-expected earnings of $1.18 per share in the third quarter of fiscal 2013, topping the Zacks Consensus Estimate of $1.13 by 4.4% and the prior-year earnings of $1.04 per share by 13.5%. Despite sluggish retail sales environment, the company managed to generate strong earnings owing to higher sales, product innovation and gains from acquisitions.

During the quarter, total sales increased 10.6% year over year to $374.6 million. The increase was attributable to higher sales in the Healthcare segment, driven by sales increase from the acquisition of the PUR water filtration business (December, 2011). Total sales however lagged the Zacks Consensus Estimate of $377 million.

Gross margin expanded 30 basis points to 39.6% due to improved product mix following the addition of the PUR filtration business. Operating margin also increased 30 basis points to 12.6%, driven by higher sales growth and relatively flat selling, general and administrative (SG&A) expenses.

Segment Details

Housewares:Sales in the Housewares category climbed 10.7% to $67.8 million compared with the previous year period, reflecting double-digit organic sales growth due to the addition of new products under the OXO brand.

Personal Care:Sales in this category declined marginally by 0.2% to $148.6 million in the third quarter of fiscal 2013. However, it contributed positively to earnings.

Healthcare Environment: This category witnessed highest sales growth with an increase of 23.0% to $158.2 million in the reported quarter, reflecting favorable weather conditions. The acquisition of PUR water filtration business contributed about $28.1 million to sales.

Other Financial Details

Helen announced its decision to purchase 84 acres of land and construct a new 1.3 million square foot distribution center in Olive Branch, Mississippi, for a total estimated cost of approximately $37 million. Helen expects the new distribution center to be ready for operation in the third fiscal quarter of fiscal 2014.

With this new distribution center, Helen will have a total of 2.5 million square feet of owned and operated distribution capacity in DeSoto County, Mississippi.

Outlook

Even with strong third quarter earnings, the company expects uncertain consumer spending behavior due to pending domestic tax changes and federal legislation in the coming quarters. Helen has thus reduced its fiscal 2013 net sales guidance to a range of $1.275 billion to $1.3 billion from its previous range of $1.3 billion to $1.325 billion. However, the company has maintained its earnings guidance for fiscal 2013 in the range of $3.50 to $3.60 per share.

We have a Neutral recommendation on Helen over the long term. Both Helen and its peer Procter & Gamble Company (PG - Analyst Report) hold a Zacks Rank #3 (Hold).

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