Zila's Ester-C sales slip in US, international strong
in Q1 2006, when net revenues fell by 15 percent. But the company
expects strong sales on the international front to restore it to
its growth trajectory before the fiscal year is out.
Net revenues from both domestic and US activities were $7.41 million, and the unit's gross profit for the three months also fell from 68 to 62 percent. The company said the drop was the result of increased sales discounts and start-up costs for its newest Ester-C product.
While factors affecting sales for the company's largest customers had a knock-on effect on Zila's own domestic sales of Ester-C, CFO Andrew Stevens told NutraIngredients-USA.com that international sales were actually up around 20 percent on the prior year period.
International markets account for around 15 percent of the unit's overall sales.
Chairman, president and CEO Doug Burkett said that two of Zila's largest customers have reported flat to negative revenue compared to last year, which were attributed to high gasoline prices and some merchandisers reallocating shelf space away from supplements.
In addition, negative sales trends for vitamin E were cited as an indication that the single supplements category as a whole is down. Stevens said that market reports indicate that the vitamin C is declining by about 10 percent per year overall, and vitamin E by 40 percent.
The latter is likely to be a continuing reflection of negative publicity following published research questioning the safety of high doses of the antioxidant last year.
However Stevens said that Zila's own vitamin E, Ester-E, has bucked the trend by showing growth.
Part of the optimism for the international side of the business comes from last month's inking of a distribution agreement in Japan with Asahi Godo, which could represent a way-in to the Pacific Rim.
Stevens said that he does not expect this agreement to generate sales for the next six months or so, depending on the pace of the regulatory procedures. "We are looking forward to that relationship moving forward," he said.
This week the company also announced agreements with Cederroth International and Bringwell to expand its market presence in Scandinavia.
Stevens said that, as these international efforts bear fruit and distribution is expanded, he is confident that Q1 will show as a blip in the data, and that the nutrition unit will return to the trajectory it followed previously.
In Q4 2005 revenue increased 14 percent compared to the prior year period, from $8.4 to $9.5 million, contributing to $35 million for the full 12 months (19 percent increase on 2004).
However the margin for the final quarter slipped to 63 percent compared to 66 percent in Q4 2004, explained by manufacturing inefficiencies due to maintenance. For the year as a whole the margin was better (68 percent) thanks to ascorbic acid obtained more cheaply.
