Vitamin Of Champions: Leiner Inks Deal With General Mills

Leiner will supply General Mills with vitamins for the launch of two new product lines under a distribution deal signed during the firm's fiscal second quarter.

GM will introduce Total vitamins and Wheaties vitamins during the third quarter, Leiner CEO Robert Kaminski said during a second-quarter 2005 earnings call Nov. 4.

"We're delighted that General Mills chose Leiner" to be its contract manufacturer, Kaminski said, noting "they had a number of other options."

"We're clearly, aggressively reorganizing here internally and working externally to expand that contract manufacturing business," he added.

The deal could translate to $5 mil. to $7 mil. in the fourth quarter; the products could reach over $20 mil. for the full year depending on consumer success, Kaminski speculated.

Approximately 75% of Leiner's business comes from vitamins, minerals and supplement sales.

Quarterly net sales dropped 7% to $165 mil., reflecting exceptional sales in the year-ago quarter, Kaminski explained.

Kaminski described the prior-year quarter as the "highest organic revenue quarter on record" due to early shift in the new product pipeline and the subsequent success of new products such as loratadine, enrobed acetaminophen and liquigel ibuprofen.

Second quarter 2005 sales were "slowed by soft summer market positions, a six-month differential in the company's new product introductions as well as a number of one-time retail or marketing and inventory adjustments," Kaminski stated.

The firm is aiming to increase sales in the short term for their new D-24 loratadine formulation; private-label competitor Perrigo is the current leader following the debut of the form last August. However, the major mass merchandisers do not yet stock the D-24 version, Kaminski pointed out.

Leiner currently provides Costco and Sam's Club with 10 mg loratadine and orally disintegrating tablet formulas, providing a base from which D-24 can be added.

Leiner already has secured the business of three unnamed major retailers whose D-24 orders are set to be shipped in December.

The private labeler is looking to new products to drive third- and fourth-quarter growth, Kaminski said.

The four SKUs in the General Mills joint venture are the last products of the year which have yet to debut, Kaminski noted. They join a nitric oxide YourHealth product, a liquid multivitamin and "several renditions of glucosamine chondroitin products."

Leiner also is expecting a boost following the resolution of some supply chain problems; the firm oversold their CoQ10 product and also experienced quality issues with their ibuprofen liquigel supplier.

Leiner has said it expects "high levels of flu and pain relief product sales" during the quarter as a result of the flu vaccine shortage (¹ (Also see "Flu Vaccine Shortage May Draw Consumer Attention To OTC Products" - Pink Sheet, 1 Nov, 2004.), p. 7). Kaminski pointed out several retailers are "expanding their promotional operations" to accommodate nervous customers.

Major front-end promotions of seasonal and pain relief products in two top club customers should play a role in a sales jump, Kaminksi predicted. The push is part of Leiner's strategy "to be the clear leader in store-brand VMS and OTC quality service."

The private labeler also is anticipating growth from OTC sales of joint-relief products "as consumers begin to look for safe pain relief for arthritis" following Merck's withdrawal of Vioxx (rofecoxib) (² (Also see "Reversal Of Fortune? Vioxx Recall Presents Opportunity For NSAID Makers" - Pink Sheet, 4 Oct, 2004.), p. 9).

As part of Leiner's plan to expand the contracting manufacturing segment of the business, the firm completed a 32-person workforce reduction, which it expects will save the firm $2.1 mil. annually.

Bayer is Leiner's largest contract manufacturing customer. "Last year we did somewhere around $60 mil. in sales with Bayer," Kaminski noted.

Overall, Leiner's net income dropped 36% for the quarter to $5.4 mil. from $8.4 mil.