NBTY Aiming To Double Rexall Earnings; Closes Deal

NBTY plans to double newly acquired Rexall Sundown's earnings before interest, taxes, depreciation and amortization (EBITDA) to $78 mil. in the next nine months.

"For the last 12 months ended March 31, Rexall had...pro forma EBITDA of $39 mil. We believe in six to nine months, we will be able to double that EBITDA. So 2004 should be a banner year for" us, NBTY Chairman & CEO Scott Rudolph said in an earnings call July 22.

NBTY's acquisition of Rexall from Royal Numico for $250 mil. closed July 24, according to the Bohemia, N.Y.-based company. An agreement for the purchase was announced on June 10 (¹ (Also see "NBTY Wholesale Business Would Reach $700 Mil. Annually With Rexall" - Pink Sheet, 16 Jun, 2003.), p. 11).

When asked how NBTY could achieve its EBITDA goal for Rexall, Rudolph said "there are many factors involved. You have some redundancies in certain [product and manufacturing] areas with some synergies there."

Additionally, NBTY is more accurate with product shipments to customers resulting in fewer returns, he said, whereas "last year [Rexall] had a very high return rate." Rexall also "had more disposable inventory by ordering the wrong kinds of inventories," he added.

"So when you look at every one of these aspects...that is how you are getting to these higher [EBITDA] numbers," Rudolph stated. "It is about running the business much more hands on and closely, like we do here."

NBTY plans to bring its sales force to Rexall in the next two months to "give them good solid direction on where we are going with everything," Rudolph said.

For example, he said, products marketed by NBTY that are not part of Rexall's Sundown line will be added to Sundown and vice versa. "So immediately there will be an additional 40 products going to the Sundown brand. That is all being done right now and some of it is completed already."

Rudolph also addressed how the firm will handle product overlap between NBTY and Rexall brands in the low carbohydrate bar and joint health supplement categories as well.

Regarding the low carbohydrate bar sector, he explained, "it depends if you want to hold more shelf space or not. We launched a brand called CarbWise and now [Rexall is] going to bring us CarbSolutions . The bars are somewhat different. Why not hold the shelf space for both brands" instead of rationalizing promotions or advertising for either.

In the joint health supplement category, however, NBTY will evaluate whether it should reduce marketing spending for its Flex-A-Min brand. "I would think more advertising would go to [Rexall's] Osteo-Bi-Flex than Flex-A-Min. It has got substantially more distribution," Rudolph pointed out.

"We always leave the egos out of it...so whatever makes the most economic sense is where the advertising dollars are going to go," he stated.

Rudolph predicted analysts "might see flat to somewhat of a dip in sales at the beginning [of the integration process]. Then, once we get a full grip on the thing, which could be anywhere from three to four months, we start getting very aggressive and promoting. So I would expect the sales would start rising then."

NBTY is "shooting" for $500-$600 mil. in sales for the Rexall business, the exec noted. For the year ended March 31, Rexall sales totaled $434 mil.

NBTY's Nature's Bounty wholesale division increased revenues 17% to $94 mil. in Q3 (ended June 30), boosted by utilization of "consumer sales information received from...Vitamin World and direct response/ E-commerce operations," the company stated in a July 22² release.

Sales in the firm's Puritan's Pride direct response operation advanced 23% to $61 mil. during the period.

Looking ahead, Rudolph predicted "the major investments we have made" in the direct-response business - "upgrading the catalogue to a more modern look, a faster and easier Web site, timing changes in our promotional catalogues and fast delivery to our customers" - will result in a continued increase in sales.

NBTY's U.S. Vitamin World and European Holland & Barrett retail sales increased 6% and 39% respectively. The firm's overall revenues were up a robust 22% to $308 mil. in the period. Net income, meanwhile, fell 3.4% to $29 mil. in part reflecting a $15 mil. one-time vitamin price fixing settlement payment recorded in Q3 2002.