Nutraceutical International bounces back from poor Q2 to notch 9.5% net sales increase

By Hank Schultz contact

- Last updated on GMT

Tight control of its complex supply chain is a key part of Nutraceutical International's success, CEO says.
Tight control of its complex supply chain is a key part of Nutraceutical International's success, CEO says.

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Nutraceutical International Corporation returned to its record of strong financial performance fueled by acquisitions with the release of its third quarter 2014 results.  The company notched a 9.5% year-over-year net sales increase.  This comes after the second quarter in which the company reported a year-over-year decrease in the same measure.

Nutraceutical International is an integrated manufacturer of dietary supplements and has for years pursued an aggressive pattern of acquisition, mostly in the form of smaller deals. This strategy continues to bear fruit, said CEO Bill Gay.

“Growth came from recently completed acquisitions as well as ongoing sales of branded products.  Our increased net income and Adjusted EBITDA for the third quarter were primarily the result of the increase in net sales.  We continue to invest in acquisitions, facilities and technology to maintain our focus on consistent long-term growth,”​ Gay said.

Acquisition strategy

In the third quarter Nutraceutical International, which is based in Park City, UT, spent more than $16 million to acquire all or some of the assets of six businesses, among them Peachtree Natural Foods, Inc., Northwest Health Foods, Inc. and Bio-Genesis Nutraceuticals, Inc.  These acquisitions were not widely reported at the time as they did not constitute material events for a public company that will report more than $200 million in net sales in fiscal 2014. Since its founding in 1993 (the company at its founding was an amalgamation of some of the oldest brands in the dietary supplement business), Nutraceutical International has completed more than 65 acquisitions.

 These acquisitions in the second quarter add onto to other purchases the company has made in the past nine months which included buying certain assets from Twinlab Corporation.  Twinlab has been going through a management buyout to find a “more relevant”​ structure for the company, according to Twinlab CEO Tom Tolworthy.

Gay put the relatively poor showing in the second quarter to a hangover from the bad winter weather as well as a soft patch in the national economy.  The sales weakness was seen fairly evenly across all of the company’s brands, he said. Other sellers of dietary supplements saw headwinds during the same period.

Supply chain management

A return to growth necessitated a hard look at the company’s supply chain management and cost structure, Gay said.  The company’s acquisition strategy presents a built-in challenge to manage those parameters within an increasingly complex organization.

"In addition to the ongoing efforts by management to review and reduce our overall cost structure, we intend to increase our focus on inventory management.  The financial success of our business is heavily impacted by raw material and packaging costs, which are by far the primary component of our cost of goods sold.  We source over 4,000 raw materials and components in order to produce over 7,500 SKUs.  Aggressively managing these purchases helps assure timely production and customer delivery,”​ Gay said.

But Gay emphasized that Nutraceutical International’s complexity is also its strength. The company has expertise in a wide variety of formulations and delivery modes and has the testing and manufacturing capability to back those up, he said.

Among the company’s finished products brands are Solaray, KAL, Nature's Life, LifeTime and Natural Balance.  The company also operates natural food markets and health food stores operating under trade names such as The Real Food Company, Thom's Natural Foods and Warehouse Vitamins and Peachtree Natural Foods.

Earnings details

For the quarter, Nutraceutical International recorded $55.6 million in net sales, compared to $50.8 million for the same quarter in 2013. Net income for the quarter that ended June 30, 2014 was $4.0 million, or $0.41 diluted earnings per share, compared to net income of $3.8 million, or $0.39 diluted earnings per share, for the same quarter of fiscal 2013. 

Net sales for the nine months ended June 30, 2014 were $162.0 million compared to $157.1 million for the same period of fiscal 2013.  Net income for those nine months was $12.5 million, or $1.27 diluted earnings per share, compared to net income of $12.9 million, or $1.31 diluted earnings per share, for the same period of fiscal 2013. 

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