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Alberto-Culver Co. (NYSE:ACV)

F1Q08 (Qtr End 12/31/07) Earnings Call

January 28 2008 11:00 am ET

Executives

Jim Marino - President and CEO

Ralph Nicoletti -SVP and CFO

Doug Craney - Head of IR

Analysts

Chris Ferrara - Merrill Lynch

Bill Schmitz - Deutsche Bank Securities

Jason Gere - Wachovia Capital Markets

Joe Herrick - Gutternam Research

Jon Andersen - William Blair

Connie Maneaty - BMO Capital Markets

Wendy Nicholson - Citi Investment Research

Greg Halter - Great Lakes Review

Justin Hott - Bear Stearns

Nick Modi - UBS

Operator

Good day, everyone, and welcome to the Alberto-Culver conference call. A replay of this call will be available for 30 days beginning this afternoon. The call in numbers are 888-203-1112 or 719-457-0820. Please enter the pin number of 7707364. (Operator Instructions)

Before we begin, the company has asked me to remind you that actual results, with respect to any forward-looking statements that are made today, might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ are spelled out in Alberto-Culver's annual 10-Q and 10-K reports, which the company invites you to study.

In addition, due to the disclosure of organic sales growth and financial results, and excluding reconstructing expenses, this call may include mentions of certain non-GAAP financial measures. Reconciliations of these financial measures to the most direct comparable GAAP measures are provided on the company's website in the investing section, and are attached to the earnings release issued this morning and filed on Form 8-K with the Securities and Exchange Commission.

Now, I would like to introduce the host of today's call, Mr. Jim Marino, President and CEO of Alberto-Culver Company. Mr. Marino, you may begin.

Jim Marino

Good morning and thank you, Daryl. I'd like to welcome all of you this morning to our first quarter fiscal year 2008 conference call. I'm joined today by Ralph Nicoletti, our Chief Financial Officer, and Doug Craney, our Head of Investor Relations.

I'm very pleased to report a record first quarter for Alberto-Culver and its shareholders. During the quarter, our sales grew 14.1% and pre-tax earnings increased 60% to $48 million, excluding restructuring and other expenses of $4.8 million in the current quarter, and $31.4 million in the prior year quarter.

As also announced in this morning's press release, our Board of Directors approved an 18.2% increase in our quarterly cash dividend. The new quarterly dividend will be $0.065 per share, or $0.26 per year.

Let me spend a couple of minutes outlining what drove our first quarter performance. TRESemme began fiscal year '08 with the same strong growth that we've experienced throughout fiscal year '07 and achieved another very, very strong quarter of sales and earnings growth. TRESemme is achieving growth in mature markets, including the US, the UK, Canada, and is gaining market share in new markets like Mexico, Chile, Argentina and South Africa.

Last quarter I reported that TRESemme for the first time captured the number one styling brand ranking in the US as reported by IRI in what was then the latest 4-week period. According to the most recent IRI data, TRESemme is the number one styling brand in the US in the latest 4-week, 12-week and 16-week periods.

Nexxus had another terrific quarter of sales and earnings growth. We remain very pleased with what we've achieved with Nexxus over the last two years. Our strategy with Nexxus is to continue to see growth in the US vis-à-vis enhanced marketing and product mix, and also to explore its launch in new markets.

Alberto VO5 sales increased low single digits for the quarter, mainly due to the impact of foreign exchange. In the US, the business was flat, driven by continued growth in our opening price point business, and offset by discontinued products that contributed to sales in the prior year quarter.

US IRI consumption data reports: Alberto VO5 opening price-point shampoo and conditioner increased at double-digit growth rates in the most recent 4, 12 and 52-week reporting periods. In fact, we are the number one opening price point hair care entry. Our international Alberto VO5 sales were essentially flat on a local currency basis.

Like Alberto VO5, our St. Ives skin care business generated low single digit sales growth during the quarter, mainly due to growth in a few international markets and the impact of foreign exchange.

Our overall sales growth in the first quarter was aided by favorable foreign exchange rates, which accounted for approximately 4.5 points of our 14.1% growth. In addition, sales to Sally, which were classified as inter-company sales prior to the separation, added approximately 1.4 points to our growth in the quarter. This is the last quarter that sales to Sally will influence comparisons.

Gross profit margin in the first quarter increased to 110 basis points, compared to last year. The improvement was mainly due to favorable mix and cost savings from improving inventory management.

Advertising and marketing investments increased nearly 11% from the prior year first quarter, due to higher investments behind TRESemme, Alberto VO5 and Nexxus, and to a lesser extent from the impact from foreign exchange. Despite this significant investment increase behind our brands, we actually shifted some planned spending from first quarter to later this fiscal year, to help support a new market launch for TRESemme.

As a percentage of net sales, selling and administrative expenses were reduced by approximately 130 basis points from the prior year first quarter, as cost increases, including expenses related to our new Jonesboro, Arkansas manufacturing facility, and cost associated with implementing the new worldwide enterprise system, were more than offset by topline growth leverage, restructuring savings and certain one-time benefits.

During the quarter, we recorded $4.8 million in pre-tax restructuring expenses, consisting primarily of severance-related costs and impairment charges, related to the pending closures of our manufacturing facilities in Toronto, Canada and Dallas, Texas.

As discussed on the last few conference calls, Cederroth sales and earnings results continue to be impacted from the decision to terminate a distribution relationship in the first quarter of last year.

This was a terrific begin to fiscal year '08, and I'm exceptionally pleased with our accomplishments. Our momentum in sales growth rates remains strong. We have a lot of exciting opportunities in each of our main markets. But as we move further into '08, we won't have as many of the benefits as we did this past quarter, especially as it relates restructuring savings.

Broadly, we wouldn't expect the extraordinary profit growth experienced in the first quarter to continue the rest of the year. We remain committed to building this company with long-term growth objectives, and therefore we expect to continue to invest in our brands and in our businesses.

As mentioned, we'll be entering a new market later this fiscal year, and accordingly are likely to invest what we had planned to spend in the first quarter and subsequent quarters. These are the right decisions for the business, and the right decisions for our shareholders. We have had record sales, record earnings, a double-digit increase in our dividend, and an opportunity to continue to generate growth and build value for our shareholders. This is a great beginning to what we expect to be another great year for Alberto-Culver.

I'd now like to open it up for any questions.

Question-and-Answer Session

Operator

(Operator Instructions)

We will take our first question with Chris Ferrara with Merrill Lynch. Please go ahead.

Chris Ferrara - Merrill Lynch

Hey, good morning guys.

Jim Marino

Hi Chris, how are you.

Chris Ferrara - Merrill Lynch

Not bad, thanks. I just wanted to ask, I understand why you are saying that the profit growth you saw this quarter can continue, I was wondering if you could address the sales growth rate at least on a local currency basis?

Jim Marino

We feel, comfortable that the sales growth rate in local currency will be similar as we move through the year. If you look at lavishly quarter-to-quarter it could vary, but we think the momentum we built here in ’07 and continued into ’08 should continue.

Chris Ferrara - Merrill Lynch

Thanks. It's helpful. Also, just understanding the quarterly progression of your earnings not to get you into minutiae between -- I have a hard time finding a quarter when the December quarter wasn’t your smallest earnings quarter of the year when you go back historically, I know you have a somewhat of a different structure now but, and we do expect at least that to continue that, is Q1 going typically still be the smallest quarter of your year, from an earnings perspective?

Jim Marino

Chris, not necessarily at all, and one of the things we tried to really stress when we went through the split with Sally, was that, on a quarter-to-quarter basis this earnings are going to fluctuate, and it's not going to be consistent with the way we’ve reported things Chris split. It's going to be greatly influenced by initiatives, by launches, whether we are talking product launches, whether we are talking market launches etcetera. So I don't think we can sit here and project that the first quarter will be the smallest earnings quarter, the largest earnings quarter somewhere in between as we move forward. I think it's really going to vary on a quarter-to-quarter basis.

Chris Ferrara - Merrill Lynch

Got Jim, one last one, could you take a shot on quantifying what raw materials pressure was for you in the quarter?

Jim Marino

Ralph, you want to comment on that?

Ralph Nicoletti

Chris in aggregate obviously, year-on-year they are up, but we did have other cost saving initiatives going on throughout the quarters, as you noticed our gross margins in aggregate were up year-on-year. Some of that was due to mix, some of that was due to improved inventory management. So they are flowing through the P&L year-on-year, but we were able to offset those.

Chris Ferrara - Merrill Lynch

Yeah, I guess I am just trying to size it a little bit, because obviously the gross margin performance was very good. I just want to see if you can help, can you say was 0 to 50 basis points of pressure, 50 to a 100 at least give us kind of a range?

Ralph Nicoletti

Yeah, roughly in the quarter it's a 25 to 50 basis points.

Chris Ferrara - Merrill Lynch

Thanks. Very helpful. Thanks a lot.

Jim Marino

Okay Chris.

Operator

And we'll take our next question with Bill Schmitz with Deutsche Bank. Please go ahead.

Bill Schmitz - Deutsche Bank Securities

Hi, that was a tough one. Thanks.

Jim Marino

Hey Bill, how are you?

Bill Schmitz - Deutsche Bank Securities

Fine, how are you?

Jim Marino

I understand you got some good news come in.

Bill Schmitz - Deutsche Bank Securities

Yes, holiday now. St. Ives elements I guess it's launching in March, is this probably going to be pipeline till next quarter. Are you going to advertise it next quarter as well, so should we have a like a commensurate step up in advertising expense?

Jim Marino

Advertising will begin once it's on shelves so it will lag shipments a little bit. And sitting here off the top of my head I can't recall when the advertising actually breaks, but it will probably be either toward the end of Q2 or into Q3, probably, majority of it will be in Q3.

Bill Schmitz - Deutsche Bank Securities

Okay. But my assumptions are correct that you should pipeline sale next quarter?

Jim Marino

There will be a little pipeline next quarter, yes.

Bill Schmitz - Deutsche Bank Securities

Okay. And have you gotten a sort of indication of what kind of distribution you are going to get on that?

Jim Marino

It's still a little early. The distribution should be, okay. We are not leveraging strength here. So, I wouldn't talk about this in the same way, I would talk about a TRESemme launch, but distribution should be fine.

Bill Schmitz - Deutsche Bank Securities

Okay, got you. I mean, if you read from some of the stuff that is going to leaking out in the press, it sounds like it's going to be the biggest launch in the history of the brands that you acquired. Is that fair?

Jim Marino

Well, I don't know that I would term it that way necessarily, but we are excited about everything that we do around here.

Bill Schmitz - Deutsche Bank Securities

Okay, great. And then, maybe I'm looking too far into the press release, but if you kind of read, I don't know if this is cryptic or not, it says in our beauty markets outside the US, we generate strong sales and earnings growth. Does that mean the US softened a little bit in the quarter?

Jim Marino

No, not at all. I think what to read into the press release is the fact we were strong, both in the US and outside the US.

Bill Schmitz - Deutsche Bank Securities

Okay, great. And then, just two more sort of housekeeping things. When are you done, anniversary in the nursing oasis discontinuation?

Jim Marino

When are we done with that?

Bill Schmitz - Deutsche Bank Securities

Yeah, because you said, I think, it was in the last quarter, where there is…

Jim Marino

Yeah, it's probably, it could be this quarter, I think. There may be some dribs and drabs, but we are pretty much phasing out of it now. So, I think after Q1, Q2 we should be out of it.

Bill Schmitz - Deutsche Bank Securities

Okay. Then just a balance sheet question, I know you still have a lot of short-term debt out there. I mean, is that going to be refinanced into long-term debt, and this cash flow obviously keeps building. It was a sizeable increase in the dividend, but you could have triple or quadrupled that amount and still wouldn't have had an impact on your leverage ratios. So, any thought on what you are going to do with the short-term debt and then use of the cash?

Ralph Nicoletti

Yes, I mean, the short-term debt was just reclassified there because we have this one-time put, it's actually long-term debt. It is a one-time put that comes to us in April, May timeframe. So, we reclassify the long-term debt into short-term but it doesn't get put to us we move it back to long-term.

Bill Schmitz - Deutsche Bank Securities

Is that term?

Jim Marino

It's due in 2028, it's just a one-time put they have in April of this year.

Bill Schmitz - Deutsche Bank Securities

Okay, great. Thanks so much.

Ralph Nicoletti

No problem, Bill. Take care.

Bill Schmitz - Deutsche Bank Securities

Like wise.

Operator

And we'll our next question with Jason Gere with Wachovia Capital Markets. Please go ahead.

Jason Gere - Wachovia Capital Markets

Good morning guys.

Ralph Nicoletti

Hi Jason, how are you?

Jason Gere - Wachovia Capital Markets

Good. I was wondering, if you could talk a little bit about gross margin, and how we should look at this through the course of the year? Obviously, the last two quarters you've delivered over 100 basis points of gross margin expansion. I know that in, I think, the last quarter you talked about Toronto and the benefits, I guess, to the bottom line being a better penny in'08, but I was wondering in the context of margins or maybe even EPS looking at the Dallas piece, the Toronto piece are looking kind of a whole Jonesboro integration there.

Ralph Nicoletti

The gross margin improvement that we saw in the first quarter was driven largely by favorable mix, and in some of the improvements we may made in inventory management those will continue to see, come into us throughout the year and those will stay with us. As we said before the transition at the Jonesboro is going to take shape over really the next couple of years. We're progressing on track, there is still going to be some startup cost and dislocations quarter-to-quarter that we're going to see coming and haven't said that though we're going to get the benefits of closing Toronto and closing Dallas in the later part of this year.

So, I would say expect to see gross margin this year commensurate with where we've been now this quarter on the full year basis, but the full benefits from Jonesboro, really more hit into '09 and in 2010.

Jason Gere - Wachovia Capital Markets

Okay. And then, I guess, separate question. I guess you were talking about a new market that you'll announce some point or near, when will you announce that and I guess what part of the globe shall I be looking at?

Jim Marino

Well, we'll be talking about it in our call.

Jason Gere - Wachovia Capital Markets

Okay. And then, I guess, last question, you're also talking about TRESemme with a new campaign out there, can you talk a little bit about that to some degree? Especially, I think right now the way, I think, the investors look at your portfolio, obviously you have products that they kind of the low-to-mid tier, which should do well in a weak economy.

And obviously, TRESemme is one of those brands that you should be able to continue to kind of exploit out there, and I was just wondering, can you talk about that and maybe even a little bit about Nexxus and some of the concerns that could be out there in the slowing economy? Thank you.

Jim Marino

Sure. Well, first of all, we haven't seen any trading down by consumers in these categories up until now, so our Nexxus business doesn't seem to be impacted whatsoever at least up until this date.

TRESemme, obviously is positioned extremely well in either scenario. If there is some trading down, if consumers out there who feel a bit guilty stepping up to salon brand, we offer them a fantastic alternative with TRESemme.

So, we think our portfolio really plays well either way, with opening price point brand, where TRESemme is a great salon brand alternative with Nexxus of salon quality brand in that hair care portfolio. We think, we're positioned very, very well, regardless of where the economy goes.

Operator

And we'll take our next question with Justin Hott with Bear Stearns. Please go ahead.

Jim Marino

Hi, Justin.

Joe Herrick - Gutternam Research

Yeah. This is actually [Joe Herrick with Gutternam Research]. Congratulation on the great quarter, Jim. You guys always seem to do very well. A couple of things regarding your operational improvement initiatives, how are you guys looking to improve on those regarding lean manufacturing, keeping on the Six Sigma, what benefits are you expecting to see in the bottomline?

Ralph Nicoletti

Well, all those areas that you just mentioned are really part of how we're managing the new Jonesboro facility. So, those are the kind of benefits that, again, we'll see in more 2009-2010. At this point in time, we're really just beginning to start-up the facility. But those areas that you mentioned, in particular, lean remanufacturing, are part of how we're designing the facility.

Joe Herrick - Gutternam Research

Okay. And in terms of being able to measure certain metrics, what metrics are you going to be looking at to see "are we efficient?" Are you looking at OE, [RONA], what specifically is going to be important to you guys to let the shareholders know this is a sound project?

Ralph Nicoletti

Well, first it's a big investment that the company is undertaking, so it's a high priority for us. All of the senior management will have a lot of focus on this facility. I'd say to all the specific metrics that we'll use in the facility, we could probably review with you at a latter date on a kind of a different forum. But I would say the training that we're doing with the employees and with the management team on lean manufacturing will incorporate all the appropriate metrics to run the facility efficiently.

Joe Herrick - Gutternam Research

Okay. So RONA is going to be very important to you to your return on your net assets?

Ralph Nicoletti

Yeah. The return on net assets is an important metric for us across the company with or without Jonesboro.

Joe Herrick - Gutternam Research

Okay. And final question for you guys, as we're going through a very challenging year with the economy. How long has your continuance program been in placed, and what systems and solutions are you going to be putting in place going forward to accelerate these initiatives so we could see your stock price keep rising?

Ralph Nicoletti

Well, as we've said in the past, a focus on our gross and our pre-tax margin is the priority area for us. The investment we're making in Jonesboro is one area that will drive our margins and help improve our gross margins overtime. We're also putting in new systems and processes on an enterprise-wide basis, which will take a period of years, but we fully expect that to improve both our asset efficiency as well as our operating margin performance.

Joe Herrick - Gutternam Research

Great. Can you elaborate on some of those systems right now?

Ralph Nicoletti

We're starting a process of putting in SAP as we speak.

Joe Herrick - Gutternam Research

Okay. Thank you very much. Congratulations down the road.

Jim Marino

Thank you.

Operator

And we'll take our next question with Jon Andersen with William Blair. Please go ahead.

Jim Marino

Hi, Jon.

Jon Andersen - William Blair

Good morning. I just had, first, a clarification on the elimination as they relate to the sales to Sally. That's kind of a one-for-one offset with respect to the bottomline, isn't it? It does give you some kind of incremental lift on the topline in the first quarter, but it also comes out of gross margin, is that the right way to think about it?

Ralph Nicoletti

There is a negative impact on gross margin that after this quarter we'll be lapping. So there will be no longer an impact.

Jon Andersen - William Blair

Okay. Fair enough. And I was wondering if you could update us a little bit, maybe a little bit more color on TRESemme, and how we think about the performance of the brand in the US versus international, and how the brand contributed from particularly with respect to Latin America, which I know was introduced in Latin America earlier in 2007?

Jim Marino

Well, the good news is TRESemme enjoyed double-digit growth in every market that we're in, including the US. So it's performing exceptionally well. As I mentioned in my opening remarks, we are now the number one styling brand in the US. We're growing in every market. Our Latin American launch has done very, very well. We exceeded our expectations, quite frankly. We're riding a lot of momentum right now, Jon, on TRESemme, and we'll continue to take advantage of it.

Jon Andersen - William Blair

And you'll have more news on the new market launch on did you say in your second quarter call?

Jim Marino

Correct.

Jon Andersen - William Blair

Okay, great. Just one more question. As we think about the quarterly earnings progression, it seems to me that if you look back a year ago, in the first quarter you were kind of ramping up the restructuring initiative, and didn't really have a meaningful contribution there. Is it fair to say that the biggest incremental contribution from the restructuring program, we've seen that in the first quarter and that that would decelerate somewhat as we progress through the year?

Jim Marino

Correct. We will have anniversaried the restructuring savings after this quarter. So, it should start to level-off in the remaining quarters of this year.

Jon Andersen - William Blair

What kind of a run rate are you at right now?

Ralph Nicoletti

About $20 million on a full year basis.

Jon Andersen - William Blair

Will that go up with the Dallas and Toronto closures, and do you have an estimate by how much?

Ralph Nicoletti

It will go up by both of those. I would say it will go up by Dallas, Toronto and the overall implementation of Jonesboro overtime.

Jon Andersen - William Blair

Okay.

Ralph Nicoletti

I think on the last call I had said regarding Toronto, that it would be about $3 million or so a year of savings from Toronto.

Jon Andersen - William Blair

Okay. Thanks. And a very nice quarter, guys.

Jim Marino

Thanks, Jon.

Ralph Nicoletti

Thanks.

Operator

And we'll take our next question with Connie Maneaty with BMO Capital Markets. Please go ahead.

Connie Maneaty - BMO Capital Markets

Good morning.

Jim Marino

Hi, Connie. How are you?

Connie Maneaty - BMO Capital Markets

I'm very well. Thanks.

Jim Marino

Good.

Connie Maneaty - BMO Capital Markets

Could you give us the worldwide sales growth rates of Nexxus and TRESemme in the quarter?

Jim Marino

Well, we never specifically give those growth rates. I'll tell that in Q1 both of those brands were up double-digits plus.

Connie Maneaty - BMO Capital Markets

So is it fair to say that TRESemme grew faster than Nexxus?

Jim Marino

Yes.

Connie Maneaty - BMO Capital Markets

Okay. in the order of magnitude what dollar amount of marketing spending got shifted out of the first quarter to later in the year?

Jim Marino

A few million dollars I think would be the best way to term it.

Connie Maneaty - BMO Capital Markets

Okay. Because the operating margin in the consumer products segment was just so huge, it makes you wonder if is that the sort of margin we should look for that business going forward, it was 14% up from 10.5%?

Jim Marino

No. I think that's was overstated by some of the shifting that we did. And I don't want to underestimate the fact that we did increase our marketing investments in the first quarter by about a 11% versus last year so.

Connie Maneaty - BMO Capital Markets

Right.

Jim Marino

It's that we're cutting back and we cut back on marketing, but actually our original plan was to be slightly more aggressive than we were, and then as some opportunities started to fall into place, we decided to shift some of our spending to later in the year and we just want to make you aware of that.

Connie Maneaty - BMO Capital Markets

Okay. And I hope I plugged the numbers right, because the changes down the balance sheet were quite unusual. Could you talk a little bit what happened in the payables line, where your payable is more than double and how it was net cash tripled year-over-year?

Ralph Nicoletti

Well, the cash component is driven by just our continued operating cash generation. This quarter we generated about $37 million in cash from operating activities, that's for four capital expenditures.

So that's the main driver of the cash balance. And then on the working capital side, receivables in aggregate were down versus the beginning of the year as we progress through some strong collections and just the aggregate sales amounts were lower this quarter than they were in the fourth quarter of last year. And inventories are up, but our days actually were down from versus the same period a year ago, as we've been focusing a lot more on that.

On the payable side, our payables actually were down year-on-year, but that's essentially paying off some of the liability balances from the end of the year regarding, particularly our higher advertising levels that we had in the fourth quarter, as well as some payroll-related items.

Connie Maneaty - BMO Capital Markets

Okay. Thank you very much.

Ralph Nicoletti

Okay.

Jim Marino

Okay, Connie.

Operator

(Operator Instructions)

We'll take our next question with Wendy Nicholson with Citi Investment Research. Please go ahead.

Wendy Nicholson - Citi Investment Research

Hi. Good morning.

Jim Marino

Hi, Wendy. How are you?

Wendy Nicholson - Citi Investment Research

I'm terrific, thanks.

Jim Marino

Been clairvoyant on your upgrades.

Wendy Nicholson - Citi Investment Research

Well, I wanted to say thank you for that. It made me look smarter than I am. Two quick questions, the first one is on the UK business, and we heard a lot about pressure in the UK Tesco with some itchy numbers out of a couple of weeks ago. Have you seen any particular weakness there either from a macro perspective or from a market share perspective?

Jim Marino

Well, the UK has been a very promotionally-driven market in the last couple of years, so there has been a lot of pressure. You're talking about categories that are not growing in the UK and just a lot of competitive activities there so there continues to be a lot of pressure and we continue to compete in that environment. Having said that, TRESemme had a phenomenal quarter in the UK, so we are very pleased with the how that's performing.

But, with the concentration of trade in the UK, which is even more concentrated than it is here in the US, promotional activity can really swing things on a quarter-to-quarter basis. So we like to look at things over a longer period there then, just a quarter, but it is a very promotionally intensive environment. We are competing in that and it's been a difficult one.

Wendy Nicholson - Citi Investment Research

Okay. But nothing incremental, any different or worsening kind of as we speak that makes you nervous about the next couple of months or next couple of quarters?

Jim Marino

No, we are not nervous. We have -- in total we have some of the highest hair care shares in the world and.

Wendy Nicholson - Citi Investment Research

Yeah.

Jim Marino

In the UK. So it's a great market for us, we're the number two hair care marketer in that in the UK, so we are in a terrific position. Having said that, the more share you have the more difficult it is to grow.

Wendy Nicholson - Citi Investment Research

Sure, absolutely. The second thing I wanted to follow up on was the SAP launch and that was news to me, so maybe on out of date, but that kind of made be curious as to where you are in SAP implementation, and are you foreseeing any bumps or lumps as you go through that process, in other words is there going to be a quarter where we are going to have some pipeline filling, if you are doing anything unusual in terms of the building safety stocks or anything like that, that we should sort of foresee?

Jim Marino

We would help not. Obliviously, we are in the very early stages of an SAP implementation which quite frankly will take the several years to complete. But we would hope that it will be business as usual and transparent to our results.

Having said that, you can never anticipate everything that may happen in one of these things, but the good news is we are going to school on a lot of folks and we have some great external help focused on this initiative. So we feel pretty good about it.

Wendy Nicholson - Citi Investment Research

Terrific, sounds great. Thanks for a great quarter.

Jim Marino

Hey, Wendy, you have a great day.

Wendy Nicholson - Citi Investment Research

You too. Bye-bye.

Operator

And we will take our next question with Greg Halter with the Great Lakes Review. Please go ahead.

Greg Halter - Great Lakes Review

Good morning, guys.

Jim Marino

Hi Greg, how are you?

Greg Halter - Great Lakes Review

I'm doing fine. I think the last time we spoke you had indicated you are looking at a capital spending budget for the fiscal year of about $65 million particularly influenced by Jonesboro, is that still approximately where you are seeing that?

Jim Marino

I think I said around $65 million to $70 million, so that's still about at where we are at.

Greg Halter - Great Lakes Review

And do you see that tailing off as we're moving into fiscal '09 and '10 and down the road?

Ralph Nicoletti

That's probably the level to expect for this year and next and tailing off after 2009, particularly after we move to the full SAP implementation.

Greg Halter - Great Lakes Review

Okay. And recounting Jonesboro, I think you indicated you're just beginning to start production now there, is that correct.

Ralph Nicoletti

Correct.

Jim Marino

That's correct.

Greg Halter - Great Lakes Review

And when will you expect to be fully -- at a full run rate, if you will?

Jim Marino

My guess would be not until the beginning of next fiscal year.

Greg Halter - Great Lakes Review

Okay.

Jim Marino

We really only had some trial production runs as of now. We'll probably start producing in earnest, around April and then continue to ramp up throughout the rest of the year, and moving into fiscal year '09 I would anticipate that's been in full production.

Greg Halter - Great Lakes Review

Okay. And we noticed a new launch from St. Ives, the St. Ives Elements. Can you describe that a little more on what you expect to come from that area?

Jim Marino

Well, it is a facial skincare launch that is consistent with St. Ives's positioning in the category, and we think it's very much on trend and hopefully will be a big winner for us.

Greg Halter - Great Lakes Review

Alright, great. And thank you for the information and congratulations on the good results.

Jim Marino

Thank you, Greg.

Operator

And we'll take our next question with Justin Hott with Bear Stearns. Please go ahead.

Justin Hott - Bear Stearns

Hi, it's the real me.

Jim Marino

Justin, how are you?

Justin Hott - Bear Stearns

You want to ask any question to prove it's me, go right ahead.

Jim Marino

How is that little girl doing?

Justin Hott - Bear Stearns

Lilly is the best. Thanks, Jim.

Jim Marino

Great.

Justin Hott - Bear Stearns

I guess my Six Sigma questions were answered. So, let me just go to a couple of other ones.

Jim Marino

Alright.

Justin Hott - Bear Stearns

Nexxus; can you describe in the US, how much of your growth is from the core therapy [Humatris] or the sort of other SKU's being introduced, other formats. Can you give us a little guide there? Maybe some other consumer takeaways you had, how it's doing in channels where there is diversion.

Jim Marino

It will be kind of tough to split it down that granular, Justin. I will tell you that we were up double-digits. The base business was up. We had some launches during the course of '07. Those seem to be doing well. So, in total the brand was up double-digits and I don't know that I can split it apart with that amount of specificity.

Justin Hott - Bear Stearns

Okay, but it's also the core therapy the Humatris, those are still going up?

Jim Marino

Those are doing well.

Justin Hott - Bear Stearns

And when you think about how diversions changed in the last couple of years, and when you can have brands, hundreds of millions of dollars in the mass channel, does that give you more confidence in Nexxus, I guess, before you talked about the sophomore slump couple of years ago, and now it looks like it's going pretty strong. Have you had any sort of change in view on that thinking that remember the number that got throughout of few years ago by your predecessors it was $300 million to $500 million is it look of a better…

Jim Marino

We're trying to get, we will get that number.

Justin Hott - Bear Stearns

No, not going to happen. I am trying to get the last 10 minutes, but...

Jim Marino

No. I think we feel the same way that we have always felt about Nexxus, and that super premium segment of the category. There is obviously a lot of as you say a lot of diversion going into mass retail from some of our competitors and that doesn't seem to have any impact at all in our Nexxus business. And I guess one, I either -- Nexxus business as mass retail becomes more of a destination for salon brands. So, I think everything we expected going in is what we've been seeing so far. So, I think some of you guys are little skeptical on it but I think we've always felt this way and continue to.

Justin Hott - Bear Stearns

Jim, I guess, what I am getting toward is or trying to say that if brands can be, it looks brands can be $200 million at mass, even if they are not suppose to be in the channel. So, does that give you more comfort or less comfort saying that other brands can succeed there just because even if they are being diverted so if Nexxus isn't diverted, the $200 million maybe a $300 million brands seems quite reasonable.

Jim Marino

Well, I don't know [Ramby] is doing $200 million or $300 million.

Justin Hott - Bear Stearns

It seems possible.

Jim Marino

On a diverse basis. So, I would temper my thinking on that. What are our Nexxus possibilities? And certainly we continue to feel bullish on the brand both here in the US and its prospects to go another places, so I don't know that I want to give you a number as to what the top end expectations can be, but suffices to say that we continue to feel extremely bullish on the brand. We have double-digit growth this past quarter. We had double-digit growth in '07 versus a strong launch here in '06, and we continue to invest behind it in a very strong way, so…

Justin Hott - Bear Stearns

And just one other question, I guess, when you think about launching TRESemme, and launching Nexxus, would you at this point, are we still at the stage where you are just looking at TRESemme first, and part of the reason is where we have Nexxus might be 2009 or beyond, as you want to take care of TRESemme first, or could we actually see you launch on both brands? So, you launch internally, more markets with both brands at the same time?

Jim Marino

Well, I think ultimately you may see both of those brands being launched at the same time, but I think in the short-term you'll see net more Nexxus launches, than you will, I mean, I'm sorry, more TRESemme launches than Nexxus launches.

We have to remember, I mean, we have a model here on TRESemme that seems to work very, very well. And so, it's up to us and try to exploit that. Nexxus, we're still experimenting.

Justin Hott - Bear Stearns

Alright, thanks a lot.

Jim Marino

Anytime.

Ralph Nicoletti

Thanks Jus.

Jim Marino

Take care, Justin.

Justin Hott - Bear Stearns

Thanks.

Operator

And we'll take our final question with Nick Modi with UBS. Please go ahead.

Nick Modi - UBS

Good morning, guys.

Jim Marino

Hi, Nick. How are you?

Nick Modi - UBS

Good, how are you?

Jim Marino

Welcome to our coverage.

Nick Modi - UBS

Thank you.

Jim Marino

Alright.

Nick Modi - UBS

Just a few quick questions. Any update on the Cederroth business, just kind of how the process is going in terms of the alternatives there? And then just on TRESemme you had some very good momentum with that brand, just wondering how you think about adjacency expansion, there maybe some other categories with that equity? That's it for me.

Jim Marino

Well, first on Cederroth, we're in the final stages of evaluating that business, and trying to better understand how to optimize that business. So, I would think that, by the time we talk again, we'll have clear picture as to where that's heading. So that's it for Cederroth. With respect to TRESemme adjacent categories, they are interesting to us, we don't have plans at this point to move into adjacent categories. Those are difficult things to deal with, but this equity is so strong it could provide us with opportunities to expand in some different ways.

Nick Modi - UBS

Thanks a lot.

Jim Marino

Anytime take care. Thank Nick.

Operator

This does conclude our question and answer session, I'd like to turn it back over to Mr. Marino for any additional or closing remarks.

Jim Marino

I'd like to thank you all again for sitting in our call. It was a very strong first quarter as you all know and we are extremely pleased with how we rolled out since the split. We are pleased with the initiatives that we have in place. We are pleased with our portfolio, we are pleased with our future plans, and we think this quarter really solidified how we can continue to move forward and build on our momentum. So, thanks again on participating in the call. We hope to see you all soon.

Operator

Thank you, Mr. Marino. I would like to mention that the replay of this call will be available for 30 days beginning this afternoon. The call-in numbers are 888-203-1112 or area code 719-457-0820. Please enter the pin number 7707364. This concludes today's conference and we thank you and have a good day.

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Source: Alberto-Culver Company F1Q08 (Qtr End 12/31/07) Earnings Call Transcript

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