NBTY's acquisition of private label nutritionals manufacturer Vitarich Laboratories allows the firm to expand its in-house production of liquid nutritional products and builds its presence in the category.

According to a March 14 release, NBTY agreed to pay holding company Argan Inc., of Rockville, Md., $3.1 million for Naples, Fla.-based Vitarich – including an initial payment of $800,000 and $2.3 million to be paid by June 30, 2011.

"It's the perfect example of the kind of acquisition we like to do: great consolidation, immediate cost and a growth engine as well," NBTY CEO Jeffrey Nagel said during a March 18 earnings call.

Nagel was appointed to head NBTY following The Carlyle Group's leveraged buyout in October 2010 (Also see "NBTY Appoints GE Vet To Succeed CEO Rudolph" - Pink Sheet, 13 December, 2010.).

Vitarich's products include vitamin, herbal, sports and functional beverages, protein drink powders and adaptogenic herbs, commonly used in ayurveda and traditional Chinese medicines. The firm also manufactures beverages and powders for other brands, according to its website.

NBTY Chief Financial Officer Harvey Kamil agrees Vitarich's price and assets align with the firm's acquisition strategy.

Vitarich "was going to auction so it was going to be dissolved," Kamil said during the earnings call.

"We were at the right place at the right time. We were looking, just so you should know, we were looking at other companies that were in liquid vitamins, and this one just happened to come, which is part and parcel of the way NBTY operates. We get a tremendous amount of companies coming to us, and we see which ones fit in with us," he added.

Argan looked to shut down Vitarich after the subsidiary's earnings flagged the last several years. According to Argan's website, Vitarich lost $2.2 million for its fiscal 2010 after losing $6.9 million in 2009 and $8.9 million in 2008.

NBTY also boosted its manufacturing capacity and revenue base with a 2008 deal involving a troubled firm – the bankruptcy auction purchase of Leiner Health Products (Also see "NBTY Anticipates Nearly 25 Percent Boost From Leiner’s Business" - Pink Sheet, 18 August, 2008..

NBTY Reports $63.4 Million Q1 Net Loss

For its fiscal 2011 first quarter, Ronkonkoma, N.Y.-based NBTY reported a net loss of $63.4 million as the firm incurred $38.9 million in merger expenses related to Carlyle's acquisition, and as net sales fell slightly from the year-ago period, 1.2%, to $742 million.

According to the firm's same-day earnings statement, costs of sales soared 24% to $510 million and selling, general and administrative costs grew 7.4% to $203.4 million during the October-December period.

The executives pointed out during the 2009 October-December period the firm reached record sales due in part to consumers' response to H1N1 flu concerns ("NBTY realizes income leap post Leiner," "The Tan Sheet" Feb. 1, 2010, In Brief).

The combination of slightly lower sales, the one-time hit from merger costs and generally higher expenses – including a nearly 500% increase in expenses from interest on loans to $46.6 million – pushed the firm's net income down from a profit of $75.6 million in its previous first quarter.

According to the earnings statement, net sales were up 4% for NBTY's North American retail segment to $53.5 million and up 14.5% for the online and telephone sales segment to $60.1 million. Sales slipped 3% to $457 million for the wholesale and U.S. nutrition business and 2.5% to $172 million for the European retail division.

NBTY anticipates generating additional revenue growth through a natural products division it recently established to focus on selling through health food channels and centralizing product development operations.

Nagel said NBTY combined the management of its health food store brands to better leverage the brands and help drive product innovation. The firm also recently moved its product development work into one group.

"We have very strong distribution, so we have a great opportunity to leverage it with a strong new product pipeline," the CEO said.

Surviving Mounting Pressures

Asked about the potential for rising costs for energy and other necessities to cut into consumer spending on nutritionals, Kamil observed that NBTY has endured previous tight economies.

While sales in the firm's most recent quarter were down from the record-level year-ago period, revenue otherwise has not slowed since the worldwide economic slump began more than two years ago.

"The experience of the company over many, many, many years has seen that people will not stop buying their nutritional supplements," he said.

"So, gas prices going high, certainly, we're all under those pressures. But we still believe that the customer will continue to purchase the products."

By Malcolm Spicer

Vitarich Acquisition Expands NBTY’s Liquid Nutritionals Business

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