Company Reports

Prestige Consumer Healthcare reported third-quarter earnings that came in slightly higher than our expectations. Total sales were up 2.6% year over year as robust growth in the international segment proved more than enough to offset a slightly weak North America segment. After updating our model, we are maintaining our fair value estimate of $68.

Narrow-moat Prestige Consumer Healthcare reported solid second-quarter results that were in line with our expectations. Total sales were down 1% year over year, but results from second quarter last year benefited from pent-up demand from COVID-19 recovery and the firm exited certain private-label businesses during early 2023 (which accounted for about 100 basis points of total sales), so we expected difficult comparisons. That being said, demand for Prestige’s overall portfolio remains stable with eye and ear care and dermatological products as well as international markets showing good sales growth. We maintain our fair value estimate of $68 per share.

We are initiating coverage on Prestige Consumer Healthcare with a fair value estimate of $68 per share. Our forecast model has a five-year top-line compound annual growth rate of roughly 2% and a slow year-over-year ramp-up in margin.

Prestige Consumer Healthcare is one of the largest pure-play over-the-counter healthcare providers in the U.S. We expect the firm to grow through product innovations, increasing household penetration, and expanding its e-commerce presence. One way Prestige has tackled product innovations is through broadening its brands’ end markets; for example, Dramamine for a long time only played in the motion sickness space, but Prestige has spent the last number of years expanding its indication to the nausea market. While these outbreaks of categories can certainly expose Prestige to new competition, we believe it also affords the firm a new set of customers that it can win over. And given Prestige’s focus in small and niche categories, we don’t expect the company to try and compete with blockbuster brands from consumer packaged goods, or CPG, giants. Rather, we believe it will seek out adjacent categories that might be underpenetrated or composed of minor brands to displace with its recognizable brands.

We are no longer providing equity research on Prestige Brands PBH. We provide broad coverage of more than 1,800 companies across 91 industry groups and adjust our coverage as necessary based on client demand and investor interest.

The most recent quarter was challenging for Prestige Brands Holdings PBH, particularly as retailers trim their inventory levels and consumers pull back on spending across a number of categories. However, we're holding tight on our fair value estimate, as we have already incorporated these head winds into our valuation.

Prestige Brands' relatively brief tenure in the household and personal products industry has been anything but smooth. Despite its efforts to reinvigorate poor, unwanted brands, the firm's results have been lackluster because of intense competition, rising commodity costs, and elevated litigation expenses. Management is attempting to right the ship by firming up Prestige's focus on core brands, but it remains to be seen whether the firm's current initiatives will enable it to drive sales growth.

Prestige Brands' relatively brief tenure in the household and personal products industry has been anything but smooth. Despite its efforts to reinvigorate poor, unwanted brands, the firm's results have been lackluster because of intense competition, rising commodity costs, and elevated litigation expenses. Management is attempting to right the ship by firming up Prestige's focus on core brands, but it remains to be seen whether the firm's current initiatives will enable it to drive sales growth.

We don't expect to change our fair value estimate for Prestige Brand Holdings PBH following the firm's fiscal third-quarter earnings release. Sales were essentially flat with the year-ago quarter, while the gross margin expanded 120 basis points from last year's third quarter, to 52.9%, despite mounting cost pressures. The operating margin contracted 370 basis points, to 24.9%. However, Prestige increased its investment in advertising and promotional spending in the quarter to 14.2% of sales (up from 11.9% in the prior-year quarter) to support the launch of two new products. In our opinion, this was a wise investment that should propel sales growth over the near term.

Prestige Brand Holdings PBH provided financial guidance for its fiscal third quarter on Monday. Citing a tightening consumer environment, the firm now expects earnings per share to fall about $0.01-$0.02 from the comparable-year period, while revenue will be in line with the year-ago quarter. Although we don't view this announcement as a positive, we are maintaining our fair value estimate, as we believe our forecast already takes into account the challenges Prestige is facing. Additionally, we believe we have adequately captured the uncertainties in valuing Prestige's shares with both a higher-than-average discount rate and a higher-than-average margin of safety. We will update our analysis after the firm releases its quarterly results in a few weeks.

While Prestige Brand Holdings PBH reported unimpressive second-quarter earnings, we're maintaining our fair value estimate as results through the first two quarters are mostly in line with our projections for the full year. That said, we do intend to take a much deeper dive into the results to ensure that our valuation adequately reflects the challenging economic landscape Prestige is facing. Sales increased a mere 1.0% from the prior-year quarter, with gross margins expanding by 150 basis points, to 52.5%. Operating margins were essentially unchanged from the year-ago period at 23.5%, as Prestige increased its advertising and promotional spending to 15.5% of second-quarter sales (up from 12.6% in the second quarter of 2007) to help support not only its existing brands but also the launch of two new products in the quarter. While we agree with management's focus on attempting to rejuvenate its core brands, it remains to be seen whether the firm's current initiatives will enable it to drive the level of sales growth it needs to right the ship, particularly as economic conditions continue to deteriorate and consumer spending tightens.

Prestige Brands' relatively brief tenure in the household and personal products industry has been anything but smooth. Despite its efforts to reinvigorate poor, unwanted brands, the firm's results have been lackluster because of intense competition, rising commodity costs, and elevated litigation expenses. Management is attempting to right the ship by firming up Prestige's focus on core brands, but it remains to be seen whether the firm's current initiatives will enable it to drive sales growth.

Prestige Brands Holdings' PBH fourth-quarter and full-year results came in about as we expected. The firm's performance wasn't spectacular, but there were signs of strength, particularly in the over-the-counter segment, so we are maintaining our fair value estimate.

Prestige Brands Holdings PBH delivered weak third-quarter results, as expected, but the news wasn't all bad. We're sticking with our fair value estimate, although the turnaround at Prestige could take more than a year to play out. With a poor cold and cough season and the voluntary recall of its pediatric cold and cough medicines to contend with, Prestige saw total sales for the quarter stay essentially flat with the year-ago period. We had anticipated some of this, and we've fully baked the firm's full-year forecast of 2%-4% top-line growth into our assumptions. Gross margins also declined on the negative impact of product mix, and with increased advertising costs more than offsetting reduced general and administrative expenses, operating income and operating margins declined as well.

After reviewing Prestige Brands Holdings' PBH second-quarter results and speaking to management, we are maintaining our fair value estimate. There are much stronger consumer product firms around, but Prestige continues to generate consistent cash flows and the stock is looking cheap. We believe our valuation reflects realistic expectations for the company over the next five years, including modest top- and bottom-line growth. Given that it's a no-moat, above-average-risk company, however, we wouldn't be too wedded to Prestige should the stock price recover and approach our valuation. This isn't a candidate for a long-term position, in our view.

Prestige Brands Holdings PBH is currently facing a number of problems, which separately do not give us much cause for concern, but collectively give us pause. We are placing the stock under review as we assess the firm's second-quarter earnings and statements regarding the company's voluntary withdrawal of pediatric cold and cough medications, as well as current litigation involving the firm. We do not anticipate a substantial change to our fair value estimate, but given the firm's deteriorating stock price we want to review the assumptions behind our outlook for Prestige to determine whether we are comfortable recommending the shares.

Some of the brands in Prestige Brands Holdings portfolio are not living up to the firm's exalted name, calling into question the firm's ability to consistently identify neglected brands, add value by giving them some much-needed support, and generate strong returns with its low-cost manufacturing model. We wouldn't be surprised to see Prestige pare its portfolio at some point and divest some brands.

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.

Some of the brands in Prestige Brands Holdings portfolio are not living up to the firm's exalted name, calling into question the firm's ability to consistently identify neglected brands, add value by giving them some much-needed support, and generate strong returns with its low-cost manufacturing model. We wouldn't be surprised to see Prestige pare its portfolio at some point and divest some brands.