Cognis, one of the largest raw material and ingredient supply companies serving the nutrition industry, saw its sales volume decline 18% during the first quarter of 2009 compared to the same period last year, as falling consumer demand and a subsequent customer destocking effect negatively impacted company performance, Cognis reported May 27. When excluding the impact of foreign currency and company acquisitions, net sales were down 13.9% for the quarter on a year-over-year basis.

The company’s three main divisions all turned in poor results for the quarter, with the largest decline coming from the functional products division, which was down 16.9% and which services a number of industries, including the automotive, housing and engineering sectors. The company’s nutrition & health division saw its sales decrease 8.3% to 84 million euros for the quarter, as poor consumer demand contributed to weaker sales. The care chemicals division reported a sales decline of 13.8% to 370 million euros.

As rough as the first quarter was for Cognis, total sales volume for the quarter increased 5% over the fourth quarter of 2008—a period which may prove to be the trough in the consumer spending recession. The nutrition & health division was up 4% compared to Q4 of 2008. “We are starting to see a few positive signs, with the rate of volume decline slowing appreciably in March,” Cognis CEO Antonio Trius said in a prepared statement. “Our goal is to further strengthen the leading position we enjoy in growth markets driven by the wellness and sustainability trends.” Trius said Cognis remains cautiously optimistic that performance will improve in 2009. “We expect our cost-saving measures to counteract lower sales. Most of the initiatives will materialize from April onwards,” he said. “Together with our efforts on optimizing our costs, we will also stay focused on maintaining our healthy cash position.” The company also expressed hope that its strategy of investing in global wellness and sustainability trends will help the company better withstand the recession.

Cognis recorded sales of about 3 billion euros in 2008. The company is owned by private equity funds advised by Permira, GS Capital Partners and SV Life Sciences. Cognis appears to be well positioned for success within the nutrition industry as the company has made a number of strategic acquisitions in recent years, including the purchase of WILD Flavors Inc. and InterMed Discovery GmbH. However, only about 10%-15% of Cognis’s total business is devoted to the nutrition & health division, thus, the company is reliant on other sectors to improve total business performance. NBJ expects the nutrition & health division to turn in progressively more favorable results as the year progresses and the company’s cost savings measures have had a chance to take hold.

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Network-marketing companies doing business in the nutrition industry have seen an increase in the recruitment of new distributors, though many of the top companies are reporting downward sales trends for 2008 and the first part of 2009. Companies have capitalized on people looking for new ways to save money or supplement their income in a down economy, but the distributor increases have not translated to higher sales numbers.

Herbalife, one of the largest network-marketing companies in the industry, reported a net sales decrease of 13.7% for the first quarter of 2009, citing unfavorable impact of currency fluctuations. Nu Skin would have posted a 4% revenue gain for the first quarter, but when factoring in foreign currency fluctuations, the company reported a 1% decline. USANA Health Sciences was no different, reporting a 4% decline in revenues for the first quarter and pointing to a strong U.S. dollar that negatively impacted the business. Scott Van Winkle, managing director of equity research with Canaccord Adams, noted that a large exposure to international markets has been particularly challenging for network marketers in the nutrition industry. “They have simply been walloped by the strength in the U.S. dollar. That has impaired earnings and sales right across the group. That’s been one of the most significant themes in the direct selling industry,” he told NBJ.

As companies work to offset the negative impact of currency fluctuations, many have rolled out new promotional programs to attract more distributors in an attempt to increase sales. Mannatech unveiled a program called the Economic Stimulus Plan (ESP) in February 2009, which created a compensation plan that allowed for a shortened selling curve and entry into the business without the accumulation of excess product. The company’s distributor base of approximately 530,000 increased as a result, according to CEO Wayne Badovinus.

Even after network-marketing companies bring in more distributors, it can often take between three and four months before they have any noticeable impact on the business. Dr. Tim Wood, vice president of research and development for USANA Health Sciences, noted the difficulty of trying to turn more distributors into more sales. “While our base of customers is growing, there is pressure to purchase fewer products every month. It’s a wallet-share deal. People feel the pinch and are going to spend a little less on supplements,” he explained.

Van Winkle told NBJ that the big dilemma network marketers are dealing with in this recession is: “Are there enough new distributors to offset lower sales per existing distributor?” Right now, the answer appears to be no. However, the outlook for direct selling may be more favorable than some retail environments. “The fact that there are more distributors is a counterbalancing effect, so the good news is that [the direct selling industry] is not counter cyclical, but it is less cyclical than other segments, assuming you’re selling the right products,” said Van Winkle. As it stands now, the decline in consumer spending has outpaced the ability of network-marketing companies to offset those declines with production from new distributors. However, nearly all network marketers are seeing an increase in interest from potential distributors, so it will be interesting to see if the influx of new sellers has a measurable effect on the sales growth of the major network-marketing companies in Q2 and Q3.

NBJ’s May issue, Direct Selling in the Nutrition Industry IX, will feature a complete breakdown of the MLM market in 2008, including supplement sales estimates and a feature story on raw material and ingredient supply to network marketers. The issue will also include market quantification and detailed analysis of all 2008 U.S. direct-to-consumer sales in the nutrition industry.

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Shares of NBTY jumped over 27% after the company reported a 12% net sales increase for the fiscal second quarter ended March 31. The company also reported a 20% net sales increase for the combined results of the first two quarters, driven by its Wholesale/U.S. Nutrition division. Profitability remains a concern, as total gross profit margins were down 9% for the quarter, though CEO Scott Rudolph chocked that up to foreign exchange and inflationary pressures—the British Pound Sterling declined 27% compared to the previous quarter–and noted that the company continues to garner greater market share in the supplement market.

The company’s wholesale division continues to drive growth within the company, as total revenues increased 35% to $350 million for the quarter. That represents the only one of NBTY’s four divisions to post growth for the quarter, as domestic retail growth was flat and European retail was down 15%. Direct and e-commerce sales fell 6% compared to the second quarter of 2008.

Profitability in the wholesale division actually decreased from 41% to 27% for the second quarter. The company’s wholesale profit margin has been negatively affected by a raw material market that has seen significant price increases over the last 18 months. In January, executives announced their plans to begin passing along increased raw material costs to consumers. Up until that point, the company had been hesitant to pass along any increases because both the supply and consumer markets were so volatile. The company has increased costs over the last three months, but the increases have not been enough to offset increased material costs. NBTY made a conscious effort to be one of the last companies in the market to increase costs to consumers, according to Rudolph, and it would appear as though the company’s profitability has been slow to catch-up as a result.

Still, investors and analysts see a bright future for NBTY. As of April 28, shares were up 34% over a five day period and were trading at $25.22 per share. RBC Capital upgraded the stock from “Sector Perform” to “Outperform” status. Canaccord Adams increased its target price from $24 to $25 and expressed confidence that profit margins will improve over the next 6 to 9 months.

NBJ doesn’t anticipate any significant bumps in the road for NBTY now that Leiner has been fully integrated. Its wholesale margins can only improve as the company is able to realize profits associated with price increases. Once the retail and direct selling markets begin to show signs of recovery, the company should be firing on all cylinders.

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French food and beverage company Group Danone saw its revenues decline for the first quarter of 2009, as the company’s bottled water and dairy sales slid 3.9% and 1.2% respectively. Total revenues dropped to 3.6 million Euro in Q1, a 2.3% decrease from the first quarter of 2008.

The company’s dairy division experienced positive growth in countries such as Brazil, Italy and the United Kingdom, while sales declined in Mexico and Russia. Danone’s Activia and Actimel brands remain the firm’s primary growth drivers in the dairy segment, according to a company press release. Emerging markets in Indonesia, Mexico and Argentina drove bottled water sales during the first quarter, whereas markets in France, Spain, the UK, Germany and Japan all continued to experience downward sales trends.

During the first quarter, Danone’s baby and medical nutrition divisions each turned in positive growth, which the company partially attributed to price increases implemented in 2008. Sales of baby nutrition products, including popular European brands such as Nutricia, Milupa and Dumex, were up 10.5% as Western Europe and Asia contributed to the above-average growth in the company’s Pediatric product line. Growth of 10.6% in the company’s medical nutrition division was fueled by strong performance in all regions, especially Southern and Eastern Europe.

The company expects its performance for the rest of 2009 to remain on par with first quarter results. “Our scenario for 2009 remains that current consumption patterns in our key emerging and developed markets will continue over the balance of the year, with no significant improvement or dramatic breakdown,” said Franck Riboud, Chairman and CEO of Group Danone in a prepared statement. “Our sales growth will, therefore, continue to be mainly driven by our leading brands, with a clear focus in all key markets on increasing their functional value for money to respond to the spending pattern of our consumers. As a result, we expect to gain further market share in our key geographies.”

Translation? Group Danone plans to implement a tried-and-true management strategy for a large consumer packaged goods (CPG) company operating in a down economy—play things close to the vest in terms of product development, focus on core brands and invest in markets that have a proven track record of success. The company now expects full-year sales growth to be a couple of points lower than the initially forecasted rate of 8%-10%. Still, even with forecasts being reigned in, 5%-7% growth seems somewhat optimistic for the company if the dairy division can’t improve upon its first quarter performance.

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Lifeway Foods posted 24% sales growth for the first quarter as total sales increased from $11.1 million for the period ending March 31, 2008, to $13.7 million for the same period in 2009. Fresh Made Dairy contributed slightly less than $1.4 million in sales since being acquired on February 9 and is on track to exceed 2008 sales, according to a company release. Lifeway’s existing product lines grew 11% for the quarter.

Julie Smolyansky, chief executive officer of Lifeway Foods, recently told NBJ that the company was able to bounce back well from a particularly difficult fourth quarter in 2008. “In my years of working in this company–my father started the business when I was 9 years old–I’ve never seen a quarter like that. That’s not just us, it’s the whole world. Considering that, I’m very pleased with the business. We had a bounce back pretty much immediately in January.”

Edward Smolyansky, chief financial officer, talked about the company’s improved performance in a prepared statement. “We are extremely pleased with our first quarter 2009 revenue results. Given these tough economic times, the strong growth we experienced in the first quarter is a direct result of the marketing and educational initiatives we have invested in during the second half of 2008, and will serve as a strong foundation for future growth.”

Lifeway has also benefited from being in a product category that is on the rise. Natural & organic dairy sales in the U.S. increased 11% to $4.2 billion in 2008, according to NBJ estimates. Organic yogurt and kefir sales increased 9% to $937 million. Julie Smolyanksky thinks that the food industry has been able to bounce back from the recession more quickly than many others, due in part to more consumers shopping for groceries and preparing their meals as opposed to eating out. “I think food is somewhat recession proof. So maybe the recession isn’t over, maybe it’s just because we’re in a great industry. If there was any effect, I think it’s probably over for our company at least.” Lifeway Foods reported total sales of $44.5 million in 2008.

NBJ’s Healthy Kids issue will feature additional coverage of Lifeway Foods’ Pro Bugs children’s beverage, as well as complete analysis of the U.S. kids’ supplement, personal care and food markets in 2008. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, please click here.

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