Chattem affected by decreased sales, Icy Hot recall

CHATTANOOGA, Tenn. Chattem’s second-quarter results continue to be dragged downward by the company’s voluntary recall in the first quarter of its Icy Hot Heat Therapy, the supplier reported Thursday, in addition to lower sales of Bullfrog, Dexatrim and Icy Hot Pro Therapy.

Total revenues for the second quarter ending May 31 were $116.7 million, a 3 percent increase. Excluding the impact of the Icy Hot recall and those products experiencing a downturn in sales would have netted a 6 percent increase in revenues, Chattem reported.

Chattem chairman and chief executive officer Zan Guerry on Thursday morning during a call with analysts suggested that its Icy Hot Heat Therapy and Icy Hot Pro Therapy lines have been more or less discontinued, “not quite discontinued, but both were money losers,” he said. The Icy Hot branded franchise, Chattem’s second-largest brand, is up 10 percent for the latest 13 weeks excluding sales results of Icy Hot Heat Therapy, Guerry reported.

And while Chattem’s “Big Six Brands” are doing well, Guerry said, the overall sales results continue to be impacted by a drag in performance of some of Chattem’s smaller brands. “Dexatrim, in particular, has been our largest decliner,” Guerry said, “but is now showing some period-to-period strength and has an excellent chance of being essentially flat by this fall versus being down 30 percent during the first part of this year.”

Dexatrim sales are off “due to increased competition in the diet aid category,” the company noted in its press release. That increased competition is most likely coming from GlaxoSmithKline’s alli, which posted $160.3 million in less than a year’s worth of diet aid sales across food, drug and mass outlets (with the exception of Wal-Mart) for the 52 weeks ending May 18, according to Information Resources, Inc. That compares to a decline of 11.6 percent in Dexatrim Max sales (the leading Dexatrim brand and the No. 9 brand overall) to $6.3 million in the same period.

Dexatrim, as a brand, may soon experience another negative hit. Bob Bosworth, Chattem president and chief executive officer, acknowledged that the company is currently facing 17 potential lawsuits related to Dexatrim with ephedrine and its potential link to heart conditions. Chattem discontinued the sale of Dexatrim with ephedrine in September of 2002, long before ephedra as an ingredient was banned for sale by the Food and Drug Administration. “If lawsuits are filed, and they have not been filed at this point, we do intend to defend these claims vigorously,” Bosworth said. “We do not believe … this will have a significant impact on our ongoing business.”

With regard to the Icy Hot recall, there have been two suits filed to date.

Bosworth also addressed the declining economy and its material impact on Chattem. While an increase in the cost of petroleum are certainly increasing production costs, he said, a recession economy doesn’t necessarily negatively impact many of Chattem’s core product categories. Those product categories, he said, are more need driven, providing solutions for itch, pain, dandruff and sleeplessness, he said, meaning that “they do not decline in a down economy.”

The increase in production costs have contributed to an approximate 5.4 percent increase in pricing across products those products that represented 15 percent of total revenue, which took place in mid-April.

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