Alberto Culver Announces Second Quarter and First Half Fiscal Year 2010 Results

MELROSE PARK, Ill., April 26 /PRNewswire-FirstCall/ -- Alberto Culver Company (NYSE: ACV), a leading manufacturer and marketer of beauty care brands including TRESemme, Alberto VO5, Nexxus, St. Ives, Simple and Noxzema, today announced results for its fiscal year 2010 second quarter and first half ended March 31, 2010.

Alberto Culver President and Chief Executive Officer V. James Marino said, "The strength of our brands, led by TRESemme, has enabled us to continue to show positive momentum and generate especially strong growth in our international markets.  This comes in the face of a sluggish global hair care category and the impact on our U.S. business from the manufacturing and supply chain issues that we discussed on our last earnings call.  While we have made solid progress in restoring customer service levels, particularly in March, we expect some of the disruptions to continue into the current quarter."

Second Quarter

• Net sales for the second quarter increased 11.8% to $384.8 million compared to $344.3 million in the prior year quarter.  On an organic basis, which excludes the effect of foreign currency fluctuations and acquisitions and divestitures, sales increased 1.2% in the current quarter.
• Diluted earnings per share from continuing operations increased 7.1% to 30 cents in the second quarter compared to 28 cents in the prior year quarter.  Excluding restructuring and discrete items, diluted earnings per share from continuing operations increased 10.7% to 31 cents compared to 28 cents in the prior year quarter.  Second quarter growth was tempered by a charge of approximately three cents per share related to the voluntary withdrawal of select SKU's in the Company's relaxer kit business.

First Half

• Net sales for the first half of fiscal year 2010 increased 7.3% to $747.8 million compared to $697.2 million in the first half of the prior year.  On an organic basis, which excludes the effect of foreign currency fluctuations and acquisitions and divestitures, sales increased 0.6% in the current year first half.
• Diluted earnings per share from continuing operations increased 11.7% to 67 cents in the first half of fiscal year 2010 compared to 60 cents in the first half of the prior year.  Excluding restructuring and discrete items, diluted earnings per share from continuing operations increased 10.1% to 76 cents compared to 69 cents in the first half of the prior year.  First half growth was tempered by a charge of approximately three cents per share related to the voluntary withdrawal of select SKU's in the Company's relaxer kit business.

In the U.S., despite strong growth on TRESemme, reported sales declined 1.7%, largely due to lower than normal customer service levels as a result of the Company's manufacturing, supply chain and systems disruptions.  International sales on a reported basis increased 38.7% (the effect of foreign currency fluctuations as well as acquisitions and divestitures accounted for approximately 31.7% of the growth) behind strong TRESemme growth.

The Company's gross profit margin was 52.2% in the second quarter compared to 50.3% in the prior year quarter.  The improvement in gross margin was primarily a result of lower commodity costs which were partially offset by increased trade promotions and costs related to resolving the Company's manufacturing and supply chain disruptions.

Advertising and other marketing investments in the second quarter increased nearly 21% to $69.4 million compared to $57.6 million in the prior year quarter, partially due to foreign currency fluctuations (4.1%) and the acquisition of Simple (6.0%), but also by strong double-digit increases on TRESemme, including investments behind new product initiatives and geographic expansion.  Mr. Marino added, "During the second quarter our investments in TRESemme helped to generate strong growth in the U.S. and internationally."

Selling and administrative expenses as a percentage of net sales increased 130 basis points to 22.8% in the second quarter compared to 21.5% in the prior year quarter.  The increase was mainly due to certain costs related to the voluntary withdrawal of select SKU's of relaxer products, costs associated with the implementation of a new ERP system, including depreciation expense, and higher stock-based compensation expenses.  Together these items increased selling and administrative expenses as a percentage of net sales by approximately 160 basis points in the quarter.

Carol Lavin Bernick, Executive Chairman of the Company, said, "While we are continuing to focus our efforts towards resolving our U.S. service issues, the balance that we have created between our international and U.S. businesses and our strong portfolio of brands has continued to allow us to produce positive results.  We will continue to focus on brand growth in all our markets and to resolve our U.S. service issues with urgency and tenacity."

Ms. Bernick also announced the Company's board of directors approved the regular 8.5 cents quarterly cash dividend.  The dividend will be paid on May 20, 2010 to shareholders of record on May 6, 2010.

On December 18, 2009, the Company completed the acquisition of all of the issued and outstanding shares of Simple Health & Beauty Group Limited.  Simple is a leading skin care company based in the United Kingdom that was owned primarily by Duke Street, a mid-market private equity fund.  The total purchase price was approximately $385 million, and the transaction was funded from the Company's existing cash.

On July 31, 2008, the Company sold its Cederroth International subsidiary to a company owned by two funds controlled by CapMan, a Nordic based private equity firm, for 159.5 million Euros.  As a result of the transaction, the results of operations of Cederroth are reported as discontinued operations.

On November 16, 2006, the Company closed a transaction that separated its consumer products business from its beauty supply distribution business and resulted in the formation of two separate and independent publicly-traded companies:  new Alberto Culver and Sally Beauty Holdings, Inc.  As a result of the transaction, the results of operations of the beauty supply distribution business are reported as discontinued operations.

Due to the disclosure of organic sales growth and financial results excluding restructuring and discrete items, this press release contains certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission.  A description of the Company's restructuring activities and discrete items, as well as a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures, are included as a schedule to this release and can also be found on the Company's web site at www.alberto.com.

The Company will discuss its preliminary second quarter and first half fiscal year 2010 results with investors in a call to be held later today (Monday, April 26, 2010) at 11:00 a.m. Eastern Time.  The dial-in numbers for the call are 866-742-2281 or 660-422-4763 (international callers) and the conference ID is 68631279.  The numbers for a replay of the conference call are 800-642-1687 or 706-645-9291 and will be available through Monday, May 24, 2010.  The conference ID is 68631279.    The call and a replay will also be available on the internet for 30 days at www.alberto.com in the Investing Section, and at www.earnings.com.

Alberto Culver Company manufactures, distributes and markets leading beauty care and other personal care products including TRESemme, Alberto VO5, Nexxus, St. Ives, Simple and Noxzema in the United States and internationally. It is also the second largest producer in the U.S. of products for the ethnic hair care market with leading brands including Motions and Soft & Beautiful.  Several of its household/grocery products such as Mrs. Dash and Static Guard are niche category leaders in the U.S.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are based on management's current expectations and assessments of risks and uncertainties and reflect various assumptions concerning anticipated results, which may or may not prove to be correct.  Some of the factors that could cause actual results to differ materially from estimates or projections contained in such forward-looking statements include: the pattern of brand sales; competition within the relevant product markets; loss of one or more key customers; inability of efficiency initiatives to improve the Company's margins; manufacturing and supply chain disruptions; inability of the Company to protect its intellectual property; the disruption of normal business activities due to the Company's implementation of a new worldwide ERP system; special demands by key customers; risks inherent in acquisitions, divestitures and strategic alliances, including, without limitation, undisclosed liabilities and obligations for which the Company may have limited or no recourse; loss of one or more key employees; risks inherent in expanding in existing geographic locations and entering new geographic locations; loss of one or more key suppliers or copackers; adverse changes in currency exchange rates; the effects of a prolonged United States or global economic downturn or recession; health epidemics; unavailability of raw materials or finished products;  increases in costs of raw materials and inflation rates; events that negatively affect the intended tax free nature of the distribution of shares of Alberto Culver Company in connection with the separation of the consumer products business from the beauty supply distribution business on November 16, 2006; changes in costs; the unanticipated costs and effects of legal or administrative proceedings; the risk that the expected cost savings related to the reorganizations and restructurings may not be realized; adverse weather conditions; loss of distributorship rights; sales by unauthorized distributors in the Company's exclusive markets; and variations in political, economic or other factors such as interest rates, availability of credit, tax changes, legal and regulatory changes or other external factors over which the Company has no control.  These forward-looking statements speak only as of the date of this press release, and there is no undertaking to update or revise them as more information becomes available.  Additional factors that could cause Alberto Culver's results to differ materially from those described in the forward-looking statements can be found in the Company's 2009 Annual Report on Form 10-K filed on November 24, 2009 with the SEC and available at the SEC's internet site (http://www.sec.gov).

Schedule - Reconciliation of Non-GAAP Financial Measures

The Company's press release announcing results of operations for the three and six months ended March 31, 2010 includes references to certain of the following "non-GAAP financial measures" as defined by Regulation G of the Securities and Exchange Commission:

• Pre-tax earnings from continuing operations excluding restructuring and discrete items
• Earnings from continuing operations excluding restructuring and discrete items
• Diluted earnings per share from continuing operations excluding restructuring and discrete items
• Organic sales growth

In June 2009, the Company committed to a plan primarily related to the downsizing of its manufacturing facility and the consolidation of its warehouse and office facilities in Chatsworth, California.  During fiscal year 2009, the Company recorded restructuring costs related to this plan of $6.3 million (none in the first half).  During the first half of fiscal year 2010, the Company recorded additional restructuring costs related to this plan of $211,000 (a benefit of $175,000 in the second quarter).

In November 2009, the Company committed to a plan primarily related to ceasing all manufacturing activities at its facility in Chatsworth, California.  This plan is in addition to the Company's initial plan to downsize the Chatsworth manufacturing facility.  During the first half of fiscal year 2010, the company recorded restructuring costs related to this plan of $4.3 million ($680,000 in the second quarter), primarily related to severance.

In addition to these two plans, the Company recorded restructuring costs of $80,000 in the first half of fiscal year 2010 (a benefit of $102,000 in the second quarter) and $519,000 during fiscal year 2009 ($271,000 in the first half and a benefit of $21,000 in the second quarter) related to previously announced plans.

In total, the company recorded restructuring and other costs during the first half of fiscal year 2010 of $4.6 million ($2.9 million after taxes or 3 cents per diluted share from continuing operations) with $403,000 in the second quarter ($208,000 after taxes and no effect on diluted earnings per share from continuing operations).  In fiscal year 2009, the company recorded total restructuring and other costs of $6.8 million ($4.2 million after taxes) with $271,000 in the first half ($121,000 after taxes and no effect on diluted earnings per share from continuing operations) and a $21,000 benefit in the second quarter ($45,000 after taxes and no effect on diluted earnings per share from continuing operations).

In connection with the acquisition of Simple Health & Beauty Group Limited on December 18, 2009, the Company incurred transaction expenses (primarily investment banking, legal and other professional service fees) during the first half of fiscal year 2010 of $6.0 million (6 cents per diluted share from continuing operations).  In the second quarter of fiscal year 2010, the Company recorded an adjustment to reduce transaction expenses by $111,000 (no effect on diluted earnings per share from continuing operations).  These amounts are not expected to be deductible for income tax purposes.

In the third and fourth quarters of fiscal year 2009, the Company incurred costs related to a dispute with a supplier of $2.9 million ($1.9 million after taxes).  In the first half of fiscal year 2010, additional costs of $882,000 ($605,000 after taxes and no effect on diluted earnings per share from continuing operations) were incurred with $642,000 in the second quarter ($440,000 after taxes or 1 cent per diluted share from continuing operations).

The Company's provision for income taxes in the first half of fiscal year 2010 included net discrete tax expense of $62,000 (no effect on diluted earnings per share from continuing operations).  The provision for income taxes in the second quarter of fiscal year 2010 included net discrete tax expense of $19,000 (no effect on diluted earnings per share from continuing operations). The Company's provision for income taxes in the first half of fiscal year 2009 included net discrete tax expense of $8.7 million (9 cents per diluted share from continuing operations), primarily related to taxes on a local currency gain on U.S. dollar denominated cash held in Sweden following the Cederroth sale. The provision for income taxes in the second quarter of fiscal year 2009 included net discrete tax benefit of $229,000 (no effect on diluted earnings per share from continuing operations).  

Schedule - Reconciliation of Non-GAAP Financial Measures (continued)

Reconciliations of these non-GAAP financial measures to their most directly comparable financial measures under GAAP for the three and six months ended March 31, 2010 and 2009 are as follows (in thousands, except per share data):

Management uses these non-GAAP financial measures to evaluate the performance of the Company and believes the presentation of these amounts provides the reader with information necessary to analyze the Company's normal operations for the periods compared.

SOURCE Alberto Culver Company