Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Alberto Culver Co. (NYSE:ACV)

F2Q08 Earnings Call

April 28, 2008 11:00 am ET

Executives

V. James Marino – President, Chief Executive Officer

Ralph Nicoletti – Senior Vice President, Chief Financial Officer

Doug Craney – Head, Investor Relations

Analysts

Wendy Nicholson – Citi Investment Research

Connie Maneaty – BMO Capital Markets

William Schmitz – Deutsche Bank Securities

Jason Gere – Wachovia Capital Markets

Olivia Tong - Merrill Lynch

Jon Andersen – William Blair & Co.

Greg Halter – Great Lakes Review

Christopher Ferrara – Merrill Lynch

Operator

Welcome to the Alberto Culver conference call. A replay of this call will be available for 30 days beginning this afternoon. The call numbers are (888) 203-1112 or (719) 457-0820. Please enter a pin code of 3684550.

All lines will be muted during the broadcast. After the presentation there will be an opportunity to ask questions. If you would like to ask a question at that time press *1 on your telephone keypad. If you are in the queue and no longer wish to ask your question please press *2.

Should any participants needs assistance it is done by pressing *0 for operator assistance during the call. If you do have trouble accessing the operator please call Theresa Miller at Alberto Culver at (708) 450-2545.

If you are using a speakerphone we suggest you pick up the handset before entering commands.

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 10Q and 10K reports which the Company invites you to study. In addition, due to the disclosure of organic sales growth and financial results excluding re-structuring expenses this call may include mention of certain non-GAAP financial measures. Reconciliation’s of these financial measures to the most directly comparable GAAP measures are provided on the Company’s web site in the “Investing” section and are attached to the earnings release issued this morning and filed on form 8K with the Securities and Exchange Commission.

Now at this time it is my pleasure to introduce the host of this call, Jim Marino, President and CEO of Alberto Culver Co.

Mr. Marino please go ahead.

James Marino

Good morning and thank you. I would like to welcome all of you this morning for our second quarter and first half fiscal year 2008 conference call. I am joined today by Ralph Nicoletti, our Chief Financial Officer and Doug Craney, our head of Investor Relations.

I am very pleased to report strong second quarter sales and earnings from continuing operations for Alberto Culver and its shareholders. During the quarter our sales grew 7.7% and pre-tax earnings increased 26% to nearly $43 million, excluding restructuring expenses of $2 million in the current quarter and $593,000 in the prior year quarter.

On a constant currency basis our sales increased 3.7%. Despite some softness in our categories and a challenging retail environment we were able to deliver another record quarter of sales and earnings growth for our shareholders and meet, and in some cases even surpass, our internal expectations.

This quarter we also lapped the launch of TreSemme in Mexico and the entry of Nexus into our club channel.

Let me spend a couple of minutes outlining our second quarter results.

TreSemme continued its strong growth and again generated double-digit sales growth. TreSemme’s global consumption trend outpaced category growth and in the U.S., its largest and most mature market, we had another terrific double-digit growth quarter for our styling products, shampoos and conditioners. Nexus consumer consumption grew more than 10% in the latest twelve-week period ending March 16, 2008 driven by strength in styling and daily hair care, while net sales decreased due to lapping our prior year launch into the club channel as I started out mentioning.

Alberto V05 sales were essentially flat on a constant currency basis. Our international Alberto V05 sales increased slightly on a local currency basis mainly due to growth in styling. In the U.S., V05 net sales decreased mainly due to declines in some of our older treatment products. However, we continue to grow market share in opening price point daily hair care.

Multicultural hair care brands including Motions and Soft and Beautiful generated very nice growth for us in the second quarter.

Our St. Ives skin care brand generated low single-digit sales growth on a constant currency basis mainly due to growth in Latin America and Canada. In the U.S. both lotions and scrubs were a bit soft in the quarter.

Gross profit margin in the second quarter increased 130 basis points compared to last year. The improvement was mainly due to more effective inventory management and manufacturing efficiencies. Our inventory days improved versus last year and we are seeing the benefits in our PNL and cash flow.

We continue to increase our advertising and marketing investments increasing more than 5% from the prior year’s second quarter due to higher investments behind TreSemme, Soft and Beautiful, St. Ives and some impact from foreign exchange.

As a percentage of net sales, selling and administrative expenses increased approximately 50 basis points from the prior year’s second quarter mainly due to costs related to our planned implementation of a new, world-wide ERP system, costs associated with the start-up of our Jonesboro, Arkansas manufacturing facility and higher stock option expense.

Together those items accounted for approximately 70 basis points.

Net interest income was higher this quarter versus the prior year but was down sequentially from the first quarter despite a higher cash balance. This was due to lower investment rates in the current quarter as we moved most of our investments into lower yielding, more liquid money market funds. We continued to generate strong cash flow during the quarter and our balance of cash and investments increased by $69 million to $453 million at March 31, 2008 from last quarter end.

Included in our cash balance are $77 million of high quality auction rate securities. All of these securities are AAA student loans with the backing of the Federal Government.

We reclassified these securities to long-term investments as a result of the current market conditions with failed auctions. We also recorded a temporary impairment charge of approximately $3 million to stockholder’s equity based on a fair value estimate.

During the quarter we recorded approximately $2 million in pre-tax restructuring expenses consisted primarily of fixed asset charges and severance related costs associated with the closure of our manufacturing facilities in Toronto, Canada and Dallas, Texas.

Last quarter I talked about entering a new market for TreSemme and this morning I’d like to share these plans with you. We are currently in the early stages of launching TreSemme in Spain. Spain is the 11th largest hair care market in the world and has a well developed distribution network with contemporary channels, very similar channels to our other current markets. TreSemme performed very well in pre-tests we conducted with consumers in Spain.

We are manufacturing the products in our Swansea plant in the U.K. and entering Spain through a distributor. A complete TreSemme product line with shampoos, conditioners and styling products is being launched and will be supported through a strong advertising campaign including television, print, sampling and in-store merchandising.

As mentioned on the last call the advertising begins in the third quarter and continues into our fourth quarter. Therefore we do expect our advertising and marketing investments to be higher in the second half of the year compared to the first half.

Our entire team is very excited about this opportunity. TreSemme has not only proven its ability to generate growth in its existing mature markets, but also to be successful in new markets like Mexico, Chile, Argentina and soon Spain.

As I discussed there are a lot of exciting things happening at Alberto Culver. Our fiscal year 2008 is currently more than half over and we could not be more pleased with our accomplishments. First half sales increased 10.7%. First half pre-tax earnings from continuing operations excluding restructuring increased 42.5%.

Now it is impossible to know how the economic environment will play out and how, if at all, it will impact our categories. What we do know is that we have a very strong portfolio of beauty care brands that are well positioned across consumer segments and that our overall momentum and our growth rates remain strong. Our core brands are healthy, we continue to invest behind them, we continue to positively impact our margin and we continue to generate very strong cash flows.

With that I would now like to open this call up to questions.

Question-And-Answer Session

Operator

Very good. Today’s question-and-answer session will be conducted electronically. If you would like to ask a question you are welcome to do so by pressing the * key followed by 1. We will pause just a moment to assemble the question roster.

Your first question will come from Wendy Nicholson with Citi Investment Research.

Wendy Nicholson – Citi Investment Research

Hi. Thanks very much. I have a question sort of following up on the organic sales growth in the quarter. I think it was lower than some of us have expected and if I’m not mistaken I think it was a little bit lower than what you kind of suggested might be the case back in January and I wondered…clearly it seems your market shares are still holding good and TreSemme is on fire and that is all great, but do you have a sense there was inventory de-stocking as a trade in the first quarter to explain that gap? Or is it just people trading down? What is going on there because I think less than 4% I think is lower than what you’ve seen for awhile?

James Marino

Well, that was a big question, Wendy. Let me try and break it down a little bit.

Wendy Nicholson – Citi Investment Research

I’m just trying to understand better because I heard all the morning pieces…V05 down, St. Ives down, but still overall sub-4% organic growth, I just don’t think that was what anyone was expecting.

James Marino

Well, you know I think the way you need to look at this is comparing this quarter versus last quarter and last quarter we did have a few extraordinary things going on, as I mentioned. We launched TreSemme in Latin America, we had a launch of Nexus into the club channel, and we had a lot of commercial activity in our European business that was anniversaried. So those are all things we expected internally. I tried to set you up last time by saying can this single to high single-digit growth rate continue? Absolutely. Quite frankly I would think the second half of the year that is precisely where we are going to land.

Wendy Nicholson – Citi Investment Research

The only thing is, just to challenge you for a second, is it kind of strikes me as odd to call out all of those things that made for a tough comp in the second quarter because on an organic base, second quarter of 2007 was by 100% your easiest comp of the year. So I guess in terms of our degree of confidence in the back half of the year returning to that accelerated organic growth rate, it requires a little bit of a leap of faith I think.

James Marino

Well, I think Wendy I’m not sure that last year’s second quarter was the easiest comp…although the growth rate was about 2.5%, we were overlapping a huge quarter in 2006. So all of this kind of carries forward to us.

Wendy Nicholson – Citi Investment Research

Very fair. Very fair.

James Marino

So I’m not sure that you’re looking at it quite the same way that we are. I guess on the other side of this thing, and I said this 18 months ago when we split the business, it is going to be tough to look at this stuff quarter-to-quarter. I think if you look at our first half results I think that is more indicative to the trends we are seeing out there versus looking at the quarter. We are going to have these dips quarter up and down, we’re going to have a 14% increase one quarter or a 4-5% increase the next quarter, and that’s just going to happen. It is driven by launches. It is driven by new activity and initiatives. It is driven by promotional activity. It is driven by a lot of things. You’re going to see some of that and I don’t think that is going to go away. I think when you factor all that in and you understand what Q2 looked like 24 months ago and what it looks like today and where our brands are at, quite frankly as I said I my prepared remarks we either met or exceeded all of our expectations internally.

Wendy Nicholson – Citi Investment Research

Perfect. And honestly that clarifies it a lot. So I appreciate that. But just to sum up, no question in your mind sort of 6-8% organic growth for the third and fourth quarter? Spain sounds awesome. St. Ives element stuff looks great. So it sounds like this historical blip of maybe the street expecting something different than you were and we ought to be back on track for the third quarter?

James Marino

I think that is…again I wouldn’t say back on track, but I think your projections are certainly in the ballpark.

Wendy Nicholson – Citi Investment Research

Awesome. That sounds great. Thank you so much, Jim.

Operator

Our next question is from Connie Maneaty with BMO Capital Markets.

Connie Maneaty – BMO Capital Markets

Good morning.

James Marino

Hi Connie, how are you?

Connie Maneaty – BMO Capital Markets

Good thanks. The ad spending in Spain, does your budget call for advertising and marketing to be higher of the percentage of sales in Q3 or Q4? Just trying to get a sense of the ramp up of the activity over there.

Ralph Nicoletti

We’ll be higher in the back half than the first half in percentage of sales, Connie, and we would expect Q3 to be higher as well.

Connie Maneaty – BMO Capital Markets

So Q3 will be higher than Q4 as a percentage of sales?

Ralph Nicoletti

Most likely.

Connie Maneaty – BMO Capital Markets

Okay. The investment spending in ERP and Jonesboro and options of 70 basis points, how long do you think that will continue?

Ralph Nicoletti

Largely in this quarter. There will be a little less in the third quarter as we ramp up Jonesboro and really start to absorb those costs into production. So that is really more of a transition into this quarter.

Connie Maneaty – BMO Capital Markets

So the quarter that you just reported?

Ralph Nicoletti

Yes, the quarter we just reported.

Connie Maneaty – BMO Capital Markets

So if we were to say like 50 basis points in Q3 and 30 in Q4, would that capture what you were planning to do?

James Marino

I don’t want to give you an exact number on it but it will be certainly less than what we experienced this quarter.

Significantly less.

Connie Maneaty – BMO Capital Markets

I was also wondering, your share count is up year-over-year and you have an authorization to buy back 5 million shares…when might you start to utilize that?

James Marino

Well, as you say we do have authorization to acquire up to 5 million shares. Looking at the market out there I would say that is a distinct possibility in the not too distant future.

Connie Maneaty – BMO Capital Markets

Would it be to offset options or to lower the share counts in general?

James Marino

You know, some of it is opportunistic. Certainly you will offset the option grants, but it may go a bit beyond that.

Connie Maneaty – BMO Capital Markets

Okay. If I could ask this one last question on Nexus. I understand that sales declined against last year’s pipeline fill in to club stores. Would you expect it to….another thing I was wondering was you mentioned your ad spending against all sorts of brands but not against Nexus in the quarter. So…is it supported in the quarter and what do you think of sales for the back half of the year for Nexus?

James Marino

Well we certainly supported Nexus in the second quarter. Significantly. There was no let up in support. Consumption trends in Nexus are quite good, up double-digits over the last twelve-weeks. So it seems that our investments are paying out. It is just that shipments are not matching consumption on Nexus because of an inordinate quarter that we had in 2007. So I would expect this to smooth itself out in the second half.

Connie Maneaty – BMO Capital Markets

Okay. Many thanks.

Operator

Our next question is from William Schmitz from Deutsche Bank Securities.

William Schmitz – Deutsche Bank Securities

Good morning, Jim.

James Marino

Hey Bill how are you?

William Schmitz – Deutsche Bank Securities

I’m great thanks.

James Marino

How about those comps huh?

William Schmitz – Deutsche Bank Securities

They look great don’t they?

James Marino

I tell you I’m excited.

William Schmitz – Deutsche Bank Securities

So am I. St. Ives…the St. Ives element launch. You said it was flat to down in the U.S. Is that below your plan? It seems like there is a lot of fanfare for the new launch.

James Marino

No. Not at all. We are about where we expected to be. I really can’t comment that much on the launch because it is just going out there now so it is too soon to tell what that will all be. I guess I need to temper some of your expectations on that. It was never meant to be the [pandasia] for the brand or anything like that. But we feel it is a very viable launch. It is well positioned. It has tested extremely well and we begin supporting it during this quarter. So we feel pretty good about it.

William Schmitz – Deutsche Bank Securities

Great thanks. Can you just talk about the magnitude of this retailer inventory de-stocking? We have heard it from L’Oreal. The trades have been talking about it more. When do out of stocks start becoming a problem? What is kind of the retail strategy to take all this inventory out?

James Marino

I have to admit, Bill, we haven’t really seen a lot of this. So, we don’t plan to hide behind de-stocking or anything like that. We haven’t really seen it and it has had very little impact on our business. Retailers and inventory is an ongoing issue. Out of stock is an ongoing issue for everybody in these categories. If you shop this section on Sunday afternoon you are going to see a lot of out of stock unfortunately. I think all of us are fighting as best we can to make sure we are well represented on the shelf. But there are no easy answers to that. It really hasn’t impacted our business in any measurable way. I wouldn’t take that as a factor in our business.

William Schmitz – Deutsche Bank Securities

Okay. Then lastly just on the balance sheet, the gas is really starting to creep up. I think now, wouldn’t it be an ideal environment to do some of these [Bolton] acquisitions you talked about? Because there is really no private equity bid. You have no leverage so multiple tax would be coming down. Why wouldn’t now be the time to get a lot more aggressive about some of these deals?

James Marino

You’re right. Now would be the time to get more aggressive on those kinds of deals.

William Schmitz – Deutsche Bank Securities

Alright. That’s a good answer. Perfect. Thanks so much.

Operator

Our next question is from Jason Gere with Wachovia Capital Markets.

Jason Gere – Wachovia Capital Markets

Good morning.

James Marino

Hey Jason how are you?

Jason Gere – Wachovia Capital Markets

Good. Just a couple of questions. One, obviously adding on to what Bill asked before…the sense that you are moving more of your funds to more liquid funds…is there any read on that in terms of there is more out there than meets the eye from an acquisition standpoint?

Ralph Nicoletti

No, I wouldn’t say there is anything unusual about that. Some of it was we had more cash invested in auction rate securities last quarter than we do now so it was more moving it there. I wouldn’t read anything more into it than that.

Jason Gere – Wachovia Capital Markets

Okay. Then, I guess if you could talk about Cederroth just a little bit. I know there are some businesses that you have exited, but how you balance between the sales growth and the margin, expansion…it seems like one goes in the right direction and one doesn’t every quarter. Can you just talk about how that maybe fits into your strategy as a beauty company going forward?

James Marino

Cederroth is obviously a very complex situation for us. It is a very different business than what we have in our core business. As I have mentioned, I think I mentioned last quarter we are right in the midst of exploring all various solutions to the Cederroth issue and I would think that by the next quarter we will have some more to say about the Cederroth issue.

Jason Gere – Wachovia Capital Markets

Okay. Then I guess the other question that was asked, lets go back to the competition on the shelf, and certainly my observations have been TreSemme looks like it is gaining a good amount of shelf space at some of your mass players…can you just talk about the trends you saw in the quarter? January, February versus March…was there any notable deceleration? It sounds like your comments are that you are not seeing the de-stocking that is supposedly out in the industry and your inventories actually looked pretty lean during the quarter…so I guess there are a couple of questions in there but I was just wondering if you could just comment on some of my observations?

James Marino

As I mentioned before I don’t think retailer de-stocking has had any appreciable impact on our business. If it has impacted some other players so be it but we really haven’t seen it. In terms of, I’m sorry…

Jason Gere – Wachovia Capital Markets

TreSemme with the shelf space.

James Marino

TreSemme we continue to build real estate at retail. We have got a great deal of momentum behind it. Having said that we are never satisfied with the space tray we get. We are always looking for more. We still think there are some opportunities to gain our fair share. But I think certainly if you walk the aisle and you look at TreSemme’s position today versus what it looked like 2-3 years ago it is night and day. Obviously that is a function of our tremendous success and increased consumer consumption behind the brand.

Jason Gere – Wachovia Capital Markets

Is that coming from…I mean from V05? Or is that all incremental for the hair care?

James Marino

I don’t think one has anything to do with the other. I think it is coming from the competition and competitive brands.

Jason Gere – Wachovia Capital Markets

Okay great.

James Marino

Now I will say, and I think you asked this question too in terms of the category. The category growth rates are declining. If you looked at hair care over the last twelve weeks I think it was down about a point in total…in dollars. Units are down even further. So, I think the same is true in skin care. They may not be declining but they are certainly increasing at a decreasing rate.

So it is interesting and that is not just a U.S. phenomenon. That is a phenomenon we are seeing in most of our markets. That follows what is going on in retail. If you look at retail comps you are seeing a similar situation.

So we’re looking at that very closely. The good news is that despite that we seem to be performing exceptionally well. So we are very pleased with where we have netted out.

Jason Gere – Wachovia Capital Markets

Okay. Then the last part of my long-winded question was just in terms of the March trends both shipment and consumption relative to January and February. Do you have any color there?

James Marino

I’m sorry, can you give me that one more time Jason?

Jason Gere – Wachovia Capital Markets

How your shipment and your consumption sales trends were in March relative to January and February? Were they pretty steady across the quarter? Was there a notable deceleration?

James Marino

I see. No, I would say it has been pretty consistent.

Jason Gere – Wachovia Capital Markets

Okay. Terrific. Thanks a lot.

Operator

Our next question is from Olivia Tong with Merrill Lynch.

Olivia Tong - Merrill Lynch

Hi. Good morning. How are you?

James Marino

Good thanks. How are you?

Olivia Tong - Merrill Lynch

Very good.

James Marino

It is raining in Chicago. We need some good weather here.

Olivia Tong - Merrill Lynch

I wanted to ask you with the implementation of the ERP system and the start up of Jonesboro, are there any one-time implications of that to the top line of this quarter?

Ralph Nicoletti

Olivia not at all. It was really more just in the transition. In the case of Jonesboro as we started up and phasing down Dallas and then for the European implementation we are really just in the early stages of the project.

Olivia Tong - Merrill Lynch

Okay. Then, on Cederroth, what drove the sales up as much as they did and what drove margins down? Can you talk about any specifics associated with that?

James Marino

I think a lot of the sales increase is currency.

Olivia Tong - Merrill Lynch

It’s currency?

James Marino

Yeah. So I think you need to be careful in looking at that.

Olivia Tong - Merrill Lynch

Currency is probably what, like 10-12% of that I assume?

Ralph Nicoletti

Roughly about 5% on a constant currency basis. Some of that was driven by Allevo, which is their new weight management product that was being launched this quarter.

Olivia Tong - Merrill Lynch

Okay. Got it. Thanks so much.

Operator

Our next question is from Jon Andersen with William Blair & Co.

Jon Andersen – William Blair & Co.

Good morning.

James Marino

Hey Jon, how are you?

Jon Andersen – William Blair & Co.

Good. I hope you are well too.

James Marino

Very good, thanks.

Jon Andersen – William Blair & Co.

Just for clarification, the TreSemme shipment and launch in Mexico and the Nexus pipeline itself, were those both a Q2 phenomenon in a year ago period and don’t have an impact going forward?

James Marino

Certainly the TreSemme launch in Mexico was a Q2 phenomenon so that won’t have an impact as we move through the rest of the year. With Nexus, the Q4 was a huge promotion activity in club that we will have to anniversary so I’m going to suspect that our Nexus shipments will once again lag consumption in Q4. Q3 should be pretty clean but I think Q4 will probably be pretty soft in relation to last year because of the promotional activity that will not be repeated this year.

Jon Andersen – William Blair & Co.

Okay. Then with the TreSemme introduction in Spain can you talk a little bit about that market? How it compares in terms of size relative to say some of your other markets in Latin America such as Chile and Argentina? Also when do you expect the sales to begin…do they begin in the third quarter in conjunction with that launch?

James Marino

Yeah. Spain is the 11th largest hair care market in the world. It is certainly larger than both Argentina and Chile. I guess if you thought about it maybe as a combination of those two together it would probably be close. I’m doing that off the top of my head, Jon, so don’t necessarily quote me on that one. We’re really excited about it. The real reason we are excited is it is another Western European market and we think this brand can play very well in Western Europe. Secondly, it is really our first foray into a market where we don’t have infrastructure so we are excited about that. We’re hoping to not only do well but gain a lot of valuable learning in this launch that we can take to other places.

Jon Andersen – William Blair & Co.

Okay. Fair enough. One lastly…in terms of restructuring I think a year ago in the second quarter you were running at about $2.5 million run rate per quarter, $10 million per year. This year it is more like a $20 million run rate. Is that the right annual run rate? $5 million per quarter – is that the way to think about it? And, I guess more importantly looking ahead are there incremental benefits you expect from bringing Jonesboro up, closing Dallas and in bringing Toronto offline as well?

Ralph Nicoletti

Jon this is Ralph. The second quarter last year we were already at about $4 million run rate basis. So, this year there is about 20 basis points benefit incrementally year-over-year, so we are closer to $5 million this year versus last year on restructuring and that benefit will continue to build over time as we expand Jonesboro and fully optimize that facility. We will also get the benefit in the back half of the year from the full closure of our Dallas and Toronto facilities.

Jon Andersen – William Blair & Co.

And what was that benefit?

Ralph Nicoletti

We’re not giving an exact number on that, but I think on Toronto I had said we would be saving about $0.01 a share in the back half of the year.

Jon Andersen – William Blair & Co.

Okay. Thank you.

Operator

With that there are no more questions in the queue at this time. Once again, if you would like to ask a question please press *1 on your touchtone telephone. We’ll pause just a moment.

We do have a follow-up from Connie with BMO Capital Markets.

Connie Maneaty – BMO Capital Markets

Hi. Ralph just a question on the tax rate with the one-time benefit in the second quarter. What do you expect the tax rate to be for the full year?

Ralph Nicoletti

About 32%.

Connie Maneaty – BMO Capital Markets

Okay. That’s it for me. Thanks.

Operator

We’ll next go to Greg Halter with Great Lakes Review.

Greg Halter – Great Lakes Review

Good morning gentlemen. I wonder if you could provide the cash flow from operations for the quarter.

Ralph Nicoletti

Year-to-date, $99 million is our estimate for cash flow.

Greg Halter – Great Lakes Review

Okay. And was there any particular benefit from sales to Sally in the quarter?

James Marino

No. That will no longer impact our results after the first quarter of this year.

Greg Halter – Great Lakes Review

Okay. Thank you. Lastly, relative to raw material costs, I just wanted to get your feedback on what kind of impact that had on the quarter and what you expect going forward?

James Marino

Well we certainly see the impact of the higher input costs, although I’d say in the back half of the year it is about 100 basis point pressure on our gross margin. Despite that we have a lot of programs in place from the restructuring and some of our ongoing cost initiatives to more than offset that so we would expect our gross margins to improve in the back half of the year in the face of some of those rising input costs.

Greg Halter – Great Lakes Review

Okay. Thank you.

Operator

We have another two in the queue. We’ll go next to Christopher Ferrara with Merrill Lynch.

Christopher Ferrara – Merrill Lynch

I’m sorry, I got on late. I’m sorry if someone asked this. Jim, I heard you talking a lot about what we have seen on the scanner data which is a slowing U.S. beauty business and U.S. hair care business anyway. I am wondering if you can just talk about what you see as a…what is that. Do you think it is pantry de-loading? Do you think it is trade down? Do you think it is both? Do you have any sense for what a mix between those two factors might be, if any?

James Marino

We know it is not trade down. That we know. If anything consumers continue to trade up versus down. So that is not it at all. You can’t say this with 100% certainty, but when we look at it, it certainly seems as if consumers may be decelerating their…pantry loading is probably not the right term, but if I’m a consumer and I have four shampoos in the shower and now I only have three that is a 25% decline. I think there is some of that going on. I think there may be a bit of softness on usage going on. It seems to be spread pretty much across the board. But again, the categories are…it’s not like they are taking a bit hit, but when you have hair care going from 2-3% up to about 1% down, it is a 3-4 point swing in total and that seems to be across all sub-segments of hair care. When you look at the skin care categories there is a similar phenomenon going on. Rather than being up 5, maybe only being up 2 depending on the segment. So, it seems to be pretty much across the board.

I think consumers are just getting a little more discerning in terms of what they are going to buy. But they are not trading down, that is for sure.

Christopher Ferrara – Merrill Lynch

Great. That is helpful. I’m sorry, again if this is something you have addressed already, but are you seeing any type of inventory action being taken by retailers at this point? In other words is anybody squeezing inventory right now?

James Marino

Chris that has been asked a couple of times and the answer is we haven’t seen an impact on our business. So, if that is happening it doesn’t seem to be impacting us in any appreciable way.

Christopher Ferrara – Merrill Lynch

Great. Sorry for the repeat question.

James Marino

No problem, Chris, any time.

Operator

We do have a follow-up from Jason Gere with Wachovia Capital Markets.

Jason Gere – Wachovia Capital Markets

Hey guys. Two quick things. One, can you just talk a little bit about the U.K. market right now? Obviously it is still very promotional and I wanted to get any color on what you are seeing out there. I’ll ask the other one afterwards.

James Marino

Yes, there is no question about it. I looked at the numbers a couple of weeks ago. In fact, I was in the U.K. a few weeks ago. Sales done on promotion in the hair care category are like 70%. It is very much a very, very intense promotional environment. Unfortunately you either participate in that or you don’t play. So, one of the things that we did this quarter is we let up a little bit on promotion because we just thought it was getting a little out of hand.

That probably impacted our business a bit in Q2. But we seem to be coming back now. As I look at the consumption numbers they were not as impacted as our shipment numbers and we are off to a pretty good start in Q3. So, it is a very difficult category in the U.K. now.

Jason Gere – Wachovia Capital Markets

Okay. So if I read that right then obviously that helped with the margin a little bit, but a little bit less in the top line, and going forward you might be giving a little bit more promotion just to stay active in the game?

James Marino

Yeah. That is about where we stand. At some point I think some sanity will come back into that category. We can’t keep giving them one free with one forever. So I would hope that both our competitors and our customers will see some wisdom in some deceleration of the promotional activities.

Jason Gere – Wachovia Capital Markets

Okay. Great. Just the last question…when you look at Q2 of last year what was the benefit percentage from Sally that you don’t have this year? Just for clarification. Was it 2%? 1.5%?

I think last quarter there was about 150 basis points?

James Marino

Probably in that same neighborhood, Jason.

Jason Gere – Wachovia Capital Markets

Okay. I just want to look at it from an apples-to-apples perspective. Great. Thank you very much.

Operator

We have a follow-up from Bill Schmitz with Deutsche Bank.

William Schmitz – Deutsche Bank Securities

Hey…is there any tax basis in the Cederroth assets?

Ralph Nicoletti

Yes.

William Schmitz – Deutsche Bank Securities

Okay. So there won’t be a massive tax if you do end up signing. And how about [Deanna Well] in Europe, is there one from that business?

Ralph Nicoletti

No.

William Schmitz – Deutsche Bank Securities

Okay. Those are easy. Thank you.

Operator

Mr. Marino since there are no further questions in the queue, please continue with closing remarks.

James Marino

Thank you all again for joining. This was a very good quarter. As I mentioned earlier we either met or exceeded our expectations. We feel real good about the direction our brands are going. We feel real good about the way our brands are positioned. We feel real good about the way we are impacting our margins. I’d like to thank all of you for your time this morning. Enjoy the rest of your day. If you have any additional questions please feel free to give us a call at any time.

Thank you.

Operator

Thank you, Mr. Marino. I’d like to mention a replay of this call will be available for 30 days beginning this afternoon. The call in number is (888) 203-1112 or (719) 457-0820. Please enter a pin code of 3684550. This does conclude today’s conference call. Thank you for participating. We do wish every one a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Alberto Culver Co. F2Q08 (Qtr End 03/31/08) Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts