Canadian Market Saps Leiner Health in 2006

CARSON, Calif.—Leiner Health Products Inc. (www.leiner.com) reported improved U.S. results for fourth quarter and fiscal year 2006, overshadowed by sagging performance in the Canada. For the quarter, revenues were flat at $173.8 million, with modest growth in the United States offset by a $5.4 million decline in Canadian sales. Management attributed the U.S. gains to continued growth of joint care products as well as sales contributed by its PFI acquisition. While gross margin for the quarter improved slightly, net income fell to a loss of $0.4 million, compared to $6.4 million gain a year ago, due mainly to high restructuring charges, interest expenses and PFI acquisition integration costs.

For the fiscal year, net sales dropped 2.2 percent to $669.6 million from $684.9 million sold in fiscal 2005. Again, U.S. sales rose by almost $4 million, tempered by a 25.8-percent, or $19.1 million, decline in Canadian sales, which was attributed to the decision by one of the company’s suppliers to sell directly to retail customers. Despite the end growth, U.S. sales were negatively impacted by sagging sales of vitamin E—a higher margin product—and the absence of new branded product sales. Gross margin for the year fell considerably, due to a shift from higher margin vitamin E to joint care products, which suffered from high raw materials costs. Unabsorbed fixed manufacturing costs linked to customer inventory reductions also impacted margins.The bottom line for FY06 was a net loss of $3.8 million, much improved from a $47.9 million loss posted last year, which included $88.0 million in recapitalization charges.

“The reengineering accomplished in fiscal 2006 will serve the company well in the future,” said Robert Kaminski, chief executive officer (CEO). “Significant landscape changes have taken place during fiscal 2006 in numerous areas, including product mix, customer inventories, global sourcing and quality initiatives, and a substantial restructuring of the Leiner team.” He added the principal drivers of the company’s return to more normal profitability include continued benefits from its scale position in high quality global joint care raw material sourcing and continued full utilization of the company’s manufacturing plants. “The fact that fourth quarter gross margins have returned to 24.5 percent is evidence of the hard work of the men and women of Leiner and the teamwork between Leiner and its valued supplier partners,” he said.