By Mike Pare
Deputy Business Editor
Chattem Inc. officials said Monday it will ramp up ad spending for five brands it bought in January in a historic deal for the company that should sharply boost 2007 revenues.
But the company's stock price slumped 5.26 percent, or $3.02 per share, on Monday, closing at $54.40, as its fourth quarter earnings failed to meet analysts' expectations.
The company reported net income doubled in the quarter to $4.9 million, or 26 cents per share, compared to $2.4 million a year ago, or 12 cents per share. But profit missed the analyst consensus of 37 cents per share.
Zan Guerry, Chattem's chief executive, told analysts in a conference call that Chattem plans to raise ad spending dramatically on the brands it bought from Johnson & Johnson for $410 million.
In its biggest-ever deal, Chattem in January acquired anti-cavity mouthwash Act, sleep aid Unisom, anti-itch creme Cortizone, anti-diarrhea product Kaopectate and diaper rash reliever Balmex.
"We're entering a most promising year," Mr. Guerry said.
Bob Bosworth, Chattem's president, said the company expects to spend more than $20 million on ads and promotions for the new brands this year.
"When we buy brands, we don't buy them to milk them. We buy them if we think we can grow them," he said in a telephone interview.
Mr. Bosworth said production of Cortizone likely will be brought in-house this year as will some of the manufacturing of Unisom. Balmex production will come in-house in 2008, he said.
He said new production and white-collar posts will result in "meaningful jobs" being created in Chattanooga, where 400 Chattem workers are employed.
Officials have said the brands could add about $115 million in annualized revenue. That would put annual revenues at more than $400 million, according to Chattem.
For the year, Chattem reported net income was $45.1 million, or $2.34 per share, compared to $36 million, or $1.77 per share, in the prior period.
However, Gary Giblen of Brean Murray downgraded the company's stock to "sell" Monday, saying Chattem's attaining 2007 guidance of between $2.80 to $3.05 per share appears uncertain.
"While our knowledge of Chattem gives us healthy respect for management's prowess in brand building and acquisition integration, the present particulars indicate an unbalanced risk-reward picture to our mind," he said in a research note.
Chattem officials said the year starts with a strong base from its Gold Bond, Dexatrim and Selsun Blue products.
Mr. Guerry said there should be line extensions for Selsun Blue shampoo and Icy Hot topical analgesic brands.
"It should mean a very good year for our big three," he said.
E-mail Mike Pare at mpare@timesfreepress.com
