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NBTY Reports Solid Q2 Sales Growth, Investors Take Notice

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.


Related Links:

NBTY Revenues Up, Profit Margin Down for Fiscal ‘09 Q1

NBTY Reports Strong October and November Sales Growth

NBTY Reports Strong 3rd Quarter Sales

Who Is to Blame for Childhood Obesity?

I’m a big fan of comedian Bill Maher, host of HBO’s Real Time With Bill Maher, in large part because he is such a strong proponent of good nutrition (high-fructose corn syrup is his nutritional nemesis) and of creating a U.S. healthcare system that is focused on preventing disease before it takes hold. This was a topic Maher addressed yet again on his April 24, 2009, Real Time broadcast. I’m posting a partial transcript of the discussion here because it touches upon many of the issues NBJ has been thinking and writing about as part of our healthy kids’ market research. I found the exchange between Maher and New York Times’ ethics columnist Randy Cohen over the question of who is to blame for the current childhood obesity epidemic particularly salient for the U.S. nutrition industry.

Bill Maher: We are never going to solve this healthcare crisis unless people make the connection that most of what they buy in the supermarket is making them sick. Then the pharmaceutical companies offer relief, which makes them sicker. I know I am a broken record on this, but it is true. I mean, I read this last week that one out of four children under 4 is obese. I gotta ask the question, because kids don’t feed themselves at that age, is that not child abuse?

Randy Cohen, New York Times ethics columnist: Well, wait a second. I think you’re blaming the victim an awful lot here. There are many reasons why that kid is overweight. One reason is that there is so much car traffic that he can no longer walk to school the way we could when I was a kid. So that exercise is impossible. We’ve cut the budget at his school so there is no gym program, so he doesn’t get that kind of exercise. McDonald’s advertisements are a billion dollars a year to promote [fast food]. You’re saying this little four year old should stand up and say, “No, no! Bring on the carrots.”

Maher: No, I’m saying his parents should.

Cohen: Even when you’re asking an individual parent to stand up against the weight of massive social forces…

Maher: Well, when it’s your child, yes, you should.

Cohen: Well, it would be a lovely thing if everyone could.

Howard Dean, former Democratic National Committee chairman: I think Bill is on to something here. You know, we’re talking about healthcare reform in Washington. All we talk about is Medicare and who gets what and public and private and all of this stuff. A lot of the health problems in this country are [due to] lifestyle choices. They really are.

Cohen: I reject this. What you’re calling a choice… the reason the kids in my old neighborhood don’t ride their bikes to school is because it is much too dangerous to ride their bikes to school. There is too much traffic. Their parents are right not to let them. That is not a lifestyle choice. That is responding to the actual world that we live in.

Maher: Then go to the park.

Bethany McLean, Vanity Fair contributing editor: They had soda pop and chocolate when I was growing up, and we didn’t have it in the house because my mom wouldn’t let me eat it. She took our Halloween candy away and doled it out over the course of the year.

Cohen: Your mom is so mean [laugh]. But when McDonald’s spends a billion dollars a year to advertise to these kids, they are not doing it because it is ineffective. To suddenly say, oh, why doesn’t this working mother stand up for her kids and say no.

Dean: It’s not just the working mothers. The whole society has to say no.

Cohen: Thank you. Thank you.

Dean: We have to have a wellness society instead of an illness model.

Dana Gould, comedian: My kids are 5 and 6 and we go through this. They do want to go to McDonald’s, and it’s hard to keep the bad things… the bad things just have to be out of the house. And it’s hard. Everybody is running around, everybody is busy. But you do just have to sit down ahead of time, like we do on Sunday night, and say, “Here’s the healthy stuff. These are the healthy choices.”

Dean: Not to beat up on McDonald’s too much. Look at McDonald’s changes in the menu. They’re not perfect, but they have gotten a lot better. Why? Because people like you [points to Dana Gould] have said, “I’m not taking my kids to McDonald’s unless you start having salads and stuff like that.”

Cohen: Whenever someone starts saying, “It’s all the mother’s fault,” that is when I reach for my actually quite legal automatic gun [smiles], because you’re ignoring the tremendous social forces that lead the world to be the way it is.

Maher: Well, for the ethicist, you’re such an apologist.

Cohen: I’m not an apologist, but I think you’re blaming the wrong people.

Maher: I think you have a tremendous lack of personal responsibility… I’m not going to follow your ethics anymore, Mr. Ethicist [laugh].

Cohen: I think you’re seeing people as isolated, atomized individuals when in fact they are social creatures. They are members of communities, and people tend to behave pretty much like their neighbors. So this doesn’t eliminate our responsibility. It means we have a responsibility to create good neighborhoods, and that is politics and that is social policy and that is why Canadians are so slender and attractive. It is because of that. It is a healthier society. It is why Tuscany is so damn pretty and why no one wants their summer houses in Detroit. [laugh]

Gould: But it goes back to what we were talking about before: unlimited consumption. … [we now have] fun size Snickers bars, which are the size of support beams [laugh]. There is no cause for that. No one should eat that much Snickers. At a certain point it stops being fun. It just becomes suicide.

Maher: No one should eat any Snickers. Excuse me, but where you folks set the bar, where you set the goal post on health is going to keep us sick for the next century.


Related links:

U.S. Healthy Kids’ Market Positioned to Tackle Obesity and Other Top Health Issues

Renegade Lunch Lady Takes on School Lunch Programs

Much Work Remains in U.S. Diabesity War, Author Says

Nutrition Industry Must Tackle Childhood Obesity Epidemic Head On

Over the last several months, the NBJ team has been deeply immersed in studying, researching, analyzing and scrutinizing the U.S. healthy children’s market for our U.S. Healthy Kids’ Market Overview issue (which is hot off the presses this week). The more I learn about childhood obesity and the food our kids are eating, the more convinced I become that the nutrition industry must step up and address this problem head on. I mean, heck, we’re living in a country where kids eat more French fries than they do vegetables.

Sure, progress is being made in improving the way our children eat, and this industry is playing an important role in educating parents and kids about nutrition and in rolling out healthier food and beverage offerings for kids. Yet, so much more could be done to create even-better-for-you products that prime children for a lifetime of healthier eating. I’m not talking about organic versions of candy or cookies, but rather tasty, nutrient-dense foods and beverages that help teach kids at an early age to appreciate and crave healthy, whole food fare.

In fact, I believe a convergence of forces—the Obama administration’s focus on children’s nutrition, the childhood obesity epidemic, parents’ growing concern over food quality and safety, and even the troubled economy—is creating a “sweet spot” in the kids’ market for the U.S. nutrition industry. Yes, children’s products in general are hot, but the real growth is likely to be in natural and organic offerings that are truly healthy and free from long ingredient lists, artificial colors and preservatives, high-fructose corn syrup and even common allergens, such as gluten and nuts. As our research and interviews with more than 25 companies revealed, parents are proving increasingly willing to pay for such products for their kids, even if it means scrimping on something for themselves in the current economy.

On May 28, NBJ will host a Web seminar that is designed to help companies evaluate, break into and succeed in the U.S. healthy kids’ market. Along with providing an overview of children’s product sales by category, we’ll delve into product trends and opportunities, finance and investment options for healthy kids’ product companies, and advice on how to target and effectively communicate with mothers from a moms marketing expert. If your company is operating in, attempting to move into or simply evaluating the children’s nutrition market, you’ll want to attend this Web seminar. To register, contact Chris Lasonde at clasonde@nutritionbusiness.com.

Also in May, NBJ will publish our in-depth report on the U.S. Healthy Kids’ Market.


Related links:

U.S. Healthy Kids’ Market Positioned to Tackle Obesity and Other Top Health Issues

Renegade Lunch Lady Takes on School Lunch Programs

Kids’ Obesity Epidemic Spurs Paradigm Shift in Schools’ Vending Machine Policies

FTC Hammers Kellogg for Ad Claims, But Why No Fine?

The U.S. Federal Trade Commission announced yesterday that it was settling a false advertising case that further illustrates why I, as a parent, rarely pay attention to advertising—particularly when it comes to health claims made about children. The proposed settlement involved print, TV and Internet advertising statements cereal giant Kellogg Co. made about its Frosted Mini-Wheats, which the company said improved children’s attentiveness by nearly 20%.

According to the FTC, Kellogg was misrepresenting a study which actually found that only about half the children who ate Frosted Mini-Wheats for breakfast showed any improvement in attentiveness, and only about one in nine improved by 20% or more. The FTC called Kellogg’s claims false and said they violated the law, but the cereal company’s only punishment (other than the bit of bad press the company received over the phony advertising statements) is that it must stop making false claims about its Frosted Mini-Wheats. The company is also barred from misrepresenting future research in any advertising.

That’s it. Unlike some other false advertising settlements, this one involves no monetary fine or penalty for Kellogg—and that has at least one nutrition industry executive perplexed. “Almost every case like this in the supplement industry ends up with the company paying whatever it has left from its sales of the product to the FTC as consumer restitution,” Marc Ullman, a partner with New York’s Ullman, Shapiro & Ullman law firm, told me via e-mail yesterday. “I guess this case indicates that it’s OK for Kellogg to keep the money it tricked parents into paying for its cereals with the bogus claims.”

The FTC’s proposed settlement—which the commission pointed out “does not constitute an admission of a law violation” on the part of Kellogg—is open for public comment through May 19. After that date, the commission will determine whether to finalize the agreement. Once it becomes final, Kellogg could be subjected to a fine of $16,000 and other penalties should the company break the terms of the agreement.

Kellogg issued a statement yesterday saying, “We stand behind the validity of our clinical study yet have adjusted our communication to incorporate FTC’s guidance.”

The Center for Science in the Public Interest (CSPI) called Kellogg’s Frosted Mini-Wheat claims “laughable on their face” and said they “never should have surfaced in an advertising campaign by a major food manufacturer.” The public watchdog organization also used the FTC settlement news to call for Kellogg to begin removing Blue 1, Blue 2, Red 40 and other synthetic food dyes from some varieties of its Mini-Wheats products. “Those dyes exacerbate some children’s hyperactivity and behavioral problems and have no place in foods aimed squarely at children,” CSPI said in a statement.

Although Kellogg said it is in full compliance with Food and Drug Administration regulations regarding its use of food dyes, the CSPI’s call dovetails with growing consumer demand for kids’ food and beverage products that are free from artificial colors and flavors.

Nutrition Business Journal’s U.S. Healthy Kids’ Market Overview issue includes discussion of this and other healthy kids’ food and beverage product trends and explains some of the steps Kellogg has taken over the last several years to improve the nutritional value of those cereals it markets to children under age 12.

Available this month, the issue also provides a detailed analysis of the recession-resilient children’s nutrition market by these product categories: natural & organic foods and beverages, functional foods and beverages, supplements, and natural & organic personal care and household products. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to www.nutritionbusinessjournal.com.

Related links:

Breakfast Foods Look to Healthy and Functional Platforms for Growth

Going With The Grain: Major Manufacturers Launch Breakfast Bars and Healthy Cereals

Group Danone’s Q1 Revenues Fall as Bottled Water Sales Take a Dive

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.


Related Links:

Dannon, SunOpta Introduce New Leaders

NextFoods’ GoodBelly Goes Mainstream

Nestle Eyes Mothers, Infants With Probiotic- Containing Formula