NBTY CEO Acknowledges Very Disappointing Year

Steve Cahillane however noted strong performances in the European retail and international wholesale businesses, with the former business posting double-digit sales growth.

Ronkonkoma, New York—Steve Cahillane, the new chief executive of NBTY Inc., one of the biggest U.S. manufacturers and marketers of nutritional supplements and vitamins, acknowledged last week that the 2014 fiscal year was “very disappointing."

Although annual net sales grew to roughly USD $3.21 billion from $3.16 billion, the company suffered a $44 million loss versus a $129 million profit in the 2013 fiscal year.

“While 2014 has been a challenging year due mainly to the lingering impact of negative press first published in December 2013, we have seen the VMHS [vitamins, minerals, herbs and supplements] category return to growth in recent months," Cahillane said at the beginning of a Nov. 25 conference call.

Over a period of several months, a number of research studies have questioned the efficacy and safety of herbs, vitamins and nutritional supplements. Consumers’ reaction to those studies may have depressed demand at retailers such as Wal-Mart, which comprised 19 percent of the wholesale segment’s net sales and 11 percent of NBTY’s overall consolidated sales.

Cahillane, a 49-year-old former Coca-Cola executive, partially blamed NBTY’s disappointing results on the U.S. wholesale business, citing declines in the private label business as well as the joint care and sports nutrition categories. Vitamin World, NBTY’s chain of 414 retail stores throughout the United States, “also suffered from domestic market pressure," he said during the conference call.

“Just to reiterate, the future of our company is maintaining the relationships we have, making sure that we provide excellent customer service where necessary from a private label standpoint but really to invest, grow and focus on the branded side of our business both at retail and at wholesale," Cahillane said.

In the fiscal year that ended on Sept. 30, 2014, net sales in the wholesale segment fell $59.4 million, or 3.1 percent, to $1.88 billion. Net sales for the North American retail segment declined $8.2 million, or 3.5 percent, to $225.3 million.

NBTY, which was incorporated in New York in 1971 under the name Nature’s Bounty Inc., operates in roughly 100 countries. Approximately 40 percent of sales ($1.3 billion) are sold to customers outside the United States.

“Now, there is no getting around the fact that 2014 was a very disappointing year. But the business performance is really a tale of two cities," Cahillane said, citing strong performances in the European retail and international wholesale businesses, with the former business posting double-digit sales growth.

Cahillane also referenced Nielsen data that was encouraging. Andrea Staub, a spokeswoman for NBTY, said she could not publicly share the data, which reflects information the company receives on its brands under a contract with Nielsen.

NBTY failed to meet an annual performance target (adjusted EBITDA or earnings before interest, taxes, depreciation and amortization) that is assessed by its executive compensation committee; the company only achieved 80.9 percent ($478 million) of the performance target ($591 million in adjusted EBITDA), according to its annual report.

A number of executives were not awarded cash bonuses in FY14.

Since September when Cahillane joined the company as CEO and president, NBTY has made a number of recent changes to its executive team. Dipak Golechha, the former chief financial officer of Chobani, joined NBTY in September as its CFO. And last month, NBTY named former Bacardi USA executive Andrew Archambault as its chief customer officer, a new position within the company.

“This great industry has naturally attracted new sophisticated players like Procter & Gamble, Reckitt Benckiser, Bayer and many others and we need to evolve in order to better compete," said Cahillane, the former executive vice president of The Coca Cola Company, commenting on the management changes.

The Carlyle Group, a private equity firm, purchased NBTY in 2010 for $3.64 billion, and a number of Carlyle representatives sit on NBTY’s board.

Some of NBTY’s well-known brands include Nature’s Bounty, Met-RX and Balance Bar, which it acquired in 2012. Since 1986, NBTY has acquired more than 30 companies—and more deals could be on the horizon. “In the fragmented, global VMHS industry, there remains a robust pool of acquisition opportunities across channels and geographies. We expect to continue to take a disciplined approach to acquisitions as these opportunities arise," the company stated in its annual report.

Cahillane said NBTY has generated $1.5 billion in cumulative net cash from operating activities over the last seven years. But the company carries a substantial debt load on its books: approximately $2.16 billion (on a consolidated basis), of which around $1.51 billion is secured.

NBTY ended the fiscal year with working capital of nearly $827 million, including cash and cash equivalents of $139.5 million.

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