Virtus Diversified Income & Convertible Fund
Q1 2008 Earnings Call Transcript

Published: 28 Jan 2008

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
Operator:

(Operator Instructions) We will take our first question with Chris Ferrara with Merrill Lynch. Please go ahead.
Chris Ferrara:

Hey, good morning guys.
Jim Marino:

Hi Chris, how are you.
Chris Ferrara:

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:

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:

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:

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:

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:

Hi, that was a tough one. Thanks.
Jim Marino:

Hey Bill, how are you?
Bill Schmitz:

Fine, how are you?
Jim Marino:

I understand you got some good news come in.
Bill Schmitz:

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:

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:

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:

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:

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:

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:

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:

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:

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:

Okay, great. Thanks so much.
Ralph Nicoletti:

No problem, Bill. Take care.
Bill Schmitz:

Like wise.
Operator:

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

Good morning guys.
Ralph Nicoletti:

Hi Jason, how are you?
Jason Gere:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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

About $20 million on a full year basis.
Jon Andersen:

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:

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:

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:

Good morning.
Jim Marino:

Hi, Connie. How are you?
Connie Maneaty:

I'm very well. Thanks.
Jim Marino:

Good.
Connie Maneaty:

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:

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

Yes.
Connie Maneaty:

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:

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:

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:

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:

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:

Hi. Good morning.
Jim Marino:

Hi, Wendy. How are you?
Wendy Nicholson:

I'm terrific, thanks.
Jim Marino:

Been clairvoyant on your upgrades.
Wendy Nicholson:

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:

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:

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:

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:

Terrific, sounds great. Thanks for a great quarter.
Jim Marino:

Hey, Wendy, you have a great day.
Wendy Nicholson:

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:

Good morning, guys.
Jim Marino:

Hi Greg, how are you?
Greg Halter:

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:

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:

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:

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:

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:

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:

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:

Hi, it's the real me.
Jim Marino:

Justin, how are you?
Justin Hott:

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

How is that little girl doing?
Justin Hott:

Lilly is the best. Thanks, Jim.
Jim Marino:

Great.
Justin Hott:

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

Alright.
Justin Hott:

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:

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

Those are doing well.
Justin Hott:

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:

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:

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:

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:

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:

Alright, thanks a lot.
Jim Marino:

Anytime.
Ralph Nicoletti:

Thanks Jus.
Jim Marino:

Take care, Justin.
Justin Hott:

Thanks.
Operator:

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

Good morning, guys.
Jim Marino:

Hi, Nick. How are you?
Nick Modi:

Good, how are you?
Jim Marino:

Welcome to our coverage.
Nick Modi:

Thank you.
Jim Marino:

Alright.
Nick Modi:

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:

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.

Virtus Diversified Income & Convertible Fund Q1 2008 Earnings Call Transcript

Other Virtus Diversified Income & Convertible Fund earnings call transcripts:

Virtus Diversified Income & Convertible Fund
Q1 2008 Earnings Call Transcript