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Prestige Brands Misses Earnings Ests, Shares Down

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Prestige Brands Holdings, Inc.’s (PBH - Free Report) earnings (excluding special items) of 30 cents per share in the third quarter of fiscal 2014 missed the Zacks Consensus Estimate of 38 cents as well as the year-ago figure of 37 cents.

Revenues of $146.2 million were down 8.7% from a year ago and missed the Zacks Consensus Estimate of $156 million.

Fiscal Third Quarter In Detail

Third quarter results were impacted by return of competing brands in the market (that were recalled), a weak cough/cold season and softness in the retail environment which led to retail inventory reductions. Prestige Brands had earlier stated that 2014 will be a transitional year for the company due to the return of competing brands.

Excluding an estimated impact of approximately $10 million of retail inventory reductions concentrated in the mass channel, sales in the third quarter would have decreased 2.5%. The acquisition of Care Pharmaceuticals added $4.6 million to the top line.

We remind investors that Prestige Brands acquired Australia-based Care Pharmaceuticals Pty Ltd. in Jul 2013. Effective from Jul 1, 2013, this privately held marketer and distributor of over-the-counter (OTC) healthcare products became a part of Prestige Brands.

Gross margin increased by 60 basis points to 56% driven by favourable over-the-counter mix and the impact of ongoing cost-saving initiatives.

Advertisement & Promotion costs increased by 8.6% to $25.6 million in the reported quarter.

On Jan 31, 2012, Prestige Brands acquired 15 OTC healthcare brands, including related contracts, trademarks and inventory from GlaxoSmithKline plc (GSK - Free Report) and its affiliates. The other two brands, namely, Debrox and Gly-Oxide, were acquired on Mar 30, 2012.

Prestige Brands expects a continued reduction on foot traffic and potential additional retailer inventory reductions. The company expects earnings in fiscal 2014 to range between $1.48 and $1.52. The Zacks Consensus Estimate currently stands at $1.67.

Our Take

Prestige Brands carries a Zacks Rank #4 (Sell). Third quarter results missed our expectations on all fronts. Shares were down 9.08% due to weak third quarter results.  The weakness is expected to extend in the fourth quarter as well and negatively impact results going forward.

Stocks that currently look attractive include Cardinal Health (CAH - Free Report) and Align Technology Inc. (ALGN - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy).

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