Consumer health care products firm Chattem says it hopes aggressive support of several product launches, including Icy Hot line extensions, will shake off the effects of a disappointing first quarter.

Chattem reported revenues of $116.1 million for the quarter, down 3.9 percent from the year-ago period.

In an April 7 earnings call, Chattem CEO Zan Guerry said net sales in the December-February period "surprised and disappointed" the firm.

He attributed the dip to a number of problems. Chattem's international revenues decreased by $4.3 million due partially to currency exchange rates and reduced sales volumes in Europe, where the firm's brands have lower visibility than in the U.S.

In Latin America, the company had difficulty lining up a new distributor after its former partner in the region allowed English-label products to be diverted back into the U.S. at reduced prices.

The recession also hit Chattem's balance sheet, as retailers focused on price-cut promotions during the quarter. Guerry explained that accounting practices dictate such programs be recorded as revenue reductions rather than advertising and promotion expenses.

Finally, retailers' warehouse orders dropped at the outset of the fiscal year and only began to pick up about midway through the quarter as point-of-sale activity proved relatively resilient.

Second quarter "sales are going to be a lot more in line with what's happening in retail unless we see something dramatic change" in coming weeks, Guerry said.

The Chattanooga, Tenn.-based firm reported a nearly 24 percent increase in net income to $19.6 million.

However, during the year-ago period recall costs of more than $6 million cut into the company's net gains, skewing the percentage gain for 2009.

Chattem recalled and discontinued Icy Hot Heat Therapy and Icy Hot Pro Therapy in 2008 after receiving complaints of burns and skin damage (¹ Also see "Chattem To Consider New Icy Hot Heat Therapy Product In Wake Of Recall" - Pink Sheet, 18 February, 2008., p. 5).

The firm revised its earnings per share guidance from $4.80-$5 to $4.80-$4.90 for the year to reflect the first-quarter sluggishness.

President and Chief Operating Officer Bob Bosworth pointed out the new range projection still represents a 13 to 15 percent increase over the firm's fiscal 2008 adjusted earnings per share of $4.25.

Advertising In Season

Along with the recent upswing in factory shipments, Guerry said spring and summer will bear fruit as advertising kicks in for several product lines.

Icy Hot Roll, a flexible bandage-like extension of the pain relief brand, currently is shipping and marketing is set to begin in May or June. Guerry called the roll product "one of our highest-scoring products ever in all kinds of measures."

He added that the firm is also "very bullish" on a "no-mess" applicator for Icy Hot pain-relieving liquid sold in a bottle fitted with a roller ball for applying the quick-drying, stain-free analgesic.

Other recent or up coming topical launches for the company include a "cooling" addition to the Cortizone-10 brand and the first Gold Bond lotion with SPF.

ACT Total Care mouthwash, which the company had called the "star" of its new rollouts, is outperforming competitors in a down market for mouthwash. Still, Guerry said he hoped to see higher sales for the entire line after Total Care's introduction.

He added that Chattem "backed off a little bit" on some of the claims planned for the mouthwash after regulatory concerns were raised.

In November 2008, the firm anticipated bringing ACT Total Care to market as the first product with claims for plaque, gingivitis, fresh breath and fluoride treatment (² Also see "Chattem Launching ACT, Icy Hot Line Extensions, Raises Guidance" - Pink Sheet, 24 November, 2008., p. 5).

In a same-day research note, analyst Douglas Lane of Jefferies & Co. says Chattem's first quarter results "reflected the sluggishness we expected."

He adds the positive outlook for 2009 is contingent on consumer response to the new products.

- Dan Schiff (d.schiff@elsevier.com)

Chattem Relies On Line Extensions To Turn Icy Sales Hot

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