Prestige Brands Reports 1Q

First-quarter results from Prestige Brands PBH, reported Tuesday, were uninspiring. Excluding the September 2006 acquisition of Wartner, sales declined 1% from the year-ago period, to $78.6 million. Increased media and promotional spending in the over-the-counter drug segment, coupled with higher stock-based compensation and legal expenses, hurt operating margins and operating income. The increased spending did little to bolster the OTC brands, however, and internal sales growth in the division was only 1% from the same quarter last year. Generally speaking, we're not overly excited about Prestige's product lineup and long-term growth prospects, but in the short term, cost savings from the company's restructuring efforts should offset increased commodity cost increases. Prestige's personal-care brands continue to underperform and will probably be sold at some point, and the company is conducting consumer research to determine the degree to which it can extend its brands into new products. We believe there is room for improvement at Prestige, but in the interim, we expect earnings growth to trail top-line growth.