Reckitt Benckiser Group plc

Rebecca Herrick - Assistant Vice President of San Francisco Office Tarang P. Amin - Chief Executive Officer, President, Director and Member of Executive Committee Joseph W.

Baty - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Damian Witkowski - Gabelli & Company, Inc. Michael W.

Gallo - CL King & Associates, Inc. Unknown Analyst Madeline Miller - D.A.

Davidson & Co., Research Division

Thank you, operator, and thank you, all, for joining us this morning for the Schiff Nutrition Fiscal 2012 Third Quarter Results Conference Call. By now, you should have received a copy of the press release.

But if you have not, please contact LHA at (415) 433-3777, and we will forward a copy to you. As a reminder, this call contains forward-looking statements that are based on management's beliefs and assumptions, expectations, estimates and projections.

These statements are subject to known and unknown risks and uncertainties, and therefore, actual results may differ materially. Important factors that may cause actual results to differ from those expressed or implied by such forward-looking statements are detailed in today's press release and the company's SEC filings.

In addition, the company's presentation today includes information presented on a non-GAAP basis. The company believes these non-GAAP financial measures provide meaningful supplemental information regarding its operations.

We refer you to the press release the company issued this morning, which is available on the company's website, for a reconciliation of the differences between the non-GAAP presentations and the most directly comparable GAAP measures. With us from management today are Tarang Amin, President and Chief Executive Officer; and Joe Baty, Executive Vice President and Chief Financial Officer.

It's now my pleasure to turn the call over to Tarang. Please go ahead, sir.

Thank you, Becky, and good morning, everyone. We're pleased with our fiscal 2012 third quarter results.

Net sales grew 25% over the same period last year, driven by a 53% increase in branded sales. Importantly, all key brands grew with contributions from our probiotic business acquired in June, new product introductions and benefits from a significant increase in advertising.

Historically, the third quarter is our strongest quarter, given key customer merchandising events in January, and our results are further aided by this year by the strong investment we continue to make in our strategy to build premium brands and lead innovations. Gross margins increased to 46% from 36% a year ago, reflecting the sales shift from private label to our branded business.

Based on our third quarter performance, we're adjusting our fiscal 2012 outlook, including increasing net sales, gross margins and operating expenses. Here's an update on our 5 key strategies for growth.

Our first strategy is to build premium brands. We posted growth across all key brands this quarter reflecting progress from our brand-building efforts.

In the beginning of the fiscal year, we discussed our intent to increase selling and marketing expense as a way to drive our premium brands. During the fiscal third quarter, selling and marketing expense as a percent of net sales was 24% versus 14% last year.

We've put this increased investment toward Schiff Move Free, Schiff MegaRed, Schiff Sustenex and Digestive Advantage. All our brands responded well to these efforts.

A great example is Schiff MegaRed, which continued its rapid growth even at a 60% price premium relative to fish oil. Our MegaRed efforts also included gaining over 75,000 likes on Facebook and product sampling on the Dr.

Oz show. We plan to continue this investment to increase awareness and trial of our premium brands.

Our second strategy is to lead innovation. Earlier this fiscal year, we launched new items, including Schiff Move Free Ultra, which offers consumers joint relief in one small pill and MegaRed Extra Strength, which offers 500 milligrams of MSC certified krill oil.

Both products contributed to the overall strong brand results. In fact, in part due to the traction of Move Free Ultra, our overall joint business grew 25% in the third quarter versus last year.

We remain committed to leading innovation in our categories. During the quarter, we tested MegaRed Joint, which uses a proprietary formula of our MSC certified krill oil and Asasantin to promote joint health.

We also developed several promising new items on Move Free. In the fourth quarter, we'll be testing a new Move Free item, which maintains and repairs cartilage, and Move Free Lean, which provides joint relief and support to leaner bodies.

We're also working on several promising innovations involving our proprietary BC30 probiotics technology. The third strategy is to expand the channel and geographic footprint of our company.

Our primary focus remains on building sales by strengthening our long-standing relationships with leading retailers, such as Wal-Mart, Costco, Sam's and Walgreens. In the third quarter, we executed our sales strategy well, resulting in strong consumption in each of our core customers.

We also hired a vice president for our Wal-Mart and Sam's team to further advance our business with these important customers. Additionally, we continue to enable online sales for more of our products.

While still very small, we like the ability to directly engage consumers through the digital channel. The fourth strategy is to pursue acquisitions.

Our June acquisition of Schiff Sustenex and Digestive Advantage continues to perform well. Now we intend to utilize BC30 probiotic technology to drive potential extensions.

As always, we continue to evaluate acquisition opportunities and look forward to providing future updates. The last strategy is to drive world-class operations.

As recognized, time and again, world-class operations are dependent on people and capabilities. During my first year at Schiff Nutrition, my focus has been to leverage Schiff's 75-year heritage of quality to enhance our senior team.

Joe and I have been pleased to welcome talent across all functions to drive greater operational excellence We've also made investments in further refining our long-term strategy and M&A approach, particularly as it relates to the categories and conditions in which we focus and how we will win within these choices. I believe these investments will make us even stronger, and we look forward to sharing the plans with you as they unfold.

Now I'll provide a brief update on legal matters. As reviewed last quarter, we are involved in several cases in which we believe the allegations against us are without merit.

We are committed to vigorously protecting our brands and business. This includes defending our Move Free advertising, as well as a patent challenge to MegaRed.

With respect to the MegaRed litigation with Neptune, there are 2 positive developments this quarter. First, the U.S.

Patent Office agreed to reexamine the patent granted to Neptune that is a basis for the pending lawsuit against Schiff and Aker BioMarine. According to Patent Office data, 89% of cases in which reexamination was granted resulted in patent claims being canceled or changed.

We believe the Patent Office will reach a similar conclusion in this case since Neptune did not include multiple prior art references in this patent application. Second, the patent suit from Neptune was stayed by the Delaware court until the Patent Office's reexamination is concluded.

It's gratifying to see the fruits of our efforts, and we continue to vigorously protect our brands. In summary, our innovation and brand building is driving results.

We believe as we continue to execute the strategy, we will create the foundation for ongoing growth. We look forward to updating you on our future progress.

Now I'll turn the call over to Joe Baty, our EVP and CFO, to review the fiscal 2012 third quarter and year-to-date financials.

Thank you, Tarang. Good morning, everyone, and thank you for participating.

I'd like to start by sharing some FDMx year-over-year IRI data for the 12 weeks ending March 4, 2012. The overall supplements category grew at approximately 6%; joint care grew at 1%.

Probiotics grew 11%, and cardiovascular grew 9%. Schiff Nutrition net sales increased 25% to $72.2 million for the 3 months ended February 29, 2012, compared to $57.7 million for the same period in the prior year.

The increase reflects growth across all key brands, new product contributions and includes another quarter of the probiotics acquisition. Branded sales grew 53% to $61.7 million from $40.4 million.

Private label sales were $10.5 million compared to $17.3 million. As previously guided, the decrease was consistent with expectations.

Our overall joint category sales grew to $26.8 million for the current quarter, compared to $21.5 million for the prior year period. We believe this reflects the positive impact of our advertising and product innovation.

Schiff MegaRed continued its strong performance during the quarter. Early results for Extra Strength are positive, and the brand overall continues to favorably respond to advertising.

Our acquired probiotics brands, Schiff Sustenex and Digestive Advantage overall met expectations. Net sales for the third quarter were approximately $5 million.

Gross profit increased to $33.1 million from $20.9 million in the prior year period. Gross profit as a percentage of net sales increased to 45.8% from 36.2%, primarily due to a much higher mix of branded sales.

Branded sales were 85% of total sales for the current quarter compared to 70% for the prior year quarter. Total operating expenses were $26 million, as compared to $14.5 million reported in the year-ago period.

As previously guided, we increased advertising and marketing support for all key brands. In aggregate, advertising and consumer marketing expense in the third quarter increased almost $8 million versus a year ago.

Total selling and marketing expenses were 24.6% of net sales, as compared to 13.7%. Other operating expenses totaled $8.2 million for the current quarter, including a significant increase in management incentive award expenses, long-term strategy-related costs, higher legal fees related to litigation and other incremental personnel and infrastructure-related costs.

This compares to $6.6 million reported in the year-ago period, which included $1.9 million in expenses primarily related to the CEO transition. For our third quarter ended February 29, 2012, as reported, net income was $4.6 million or $0.16 per diluted share compared to $4 million or $0.14 per diluted share for the third quarter ended February 28, 2011.

Adjusted EBITDA, which is defined as income from operations before depreciation, amortization and stock-based compensation, was $9.3 million compared to $7.4 million for the prior year third quarter. The effective tax rate for the current period was 33.7% compared to 35.1% for the prior year period.

For the 9 months ended February 29, 2012, net sales were $191.5 million compared to $161.8 million for the prior year period. Net income was $11.8 million compared to $9.6 million.

Earnings per diluted share were $0.40 for the 9 months ended February 29, 2012, compared to $0.33 for the prior year period. Adjusted EBITDA was $25.3 million compared to $21.5 million.

On to the balance sheet. In comparing February 29, 2012, to May 31 and November 30, 2011, working capital was $58.2 million, as compared to $79.6 million at May 31 and $52.5 million at November 30.

The decline for May 31 was primarily due to the June 1 probiotics business acquisition. The increase from November 30 was primarily due to net earnings for the most recent quarter.

Cash and cash equivalents, including both current and long-term investment securities, were $26.4 million compared to $46.7 million at May 31 and $25 million at November 30. During the second and third quarters, we paid down $30 million and $10 million, respectively, of the $40 million borrowed to fund the probiotics acquisition.

The $40 million in cash utilized for debt reduction was partially offset by approximately $23 million in year-to-date operating cash flows. Inventories were $34.7 million compared to $34.9 million at May 31 and $43.4 million at November 30.

The decrease from November 30 reflects significant shipments for third quarter branded product promotions. Shifting gears to our fiscal year 2012 outlook.

Our branded sales are up close to 36% year-to-date, and as a result, we are raising our top line growth expectations to range between 16% and 19% for fiscal 2012, as compared to fiscal 2011. The increase is subject to the continuing success of new products, such as Schiff Move Free Ultra and Schiff MegaRed Extra Strength, and impact of competitive pricing pressures among other factors.

As previously discussed, overall growth expectations are tempered by an expected decline in year-over-year private label sales, which are down 31% year-to-date. Gross profit percentage is now expected to be in the range of 44% to 46% compared to 38% for fiscal 2011.

The increase from prior guidance primarily reflects an even higher than previously expected mix of branded sales volume for fiscal 2012. Selling and marketing expenses as a percentage of net sales are expected to be in the range of 23% to 24.5%.

Other operating expenses net, including assumptions regarding the impact of management incentive awards and ongoing legal fees among other factors, are estimated at $27.5 million to $29 million. The increase from prior guidance is primarily attributable to certain strategy-related costs, third-party professional fees and continuing investment in key personnel and infrastructure in support of our long-term growth initiatives.

We continue to expect a very high single-digit operating margin for fiscal 2012. Again, thank you for your participation today.

And now, I will turn the time back over to our President, Tarang Amin.

Thanks, Joe. My first earnings conference call as Schiff's President and CEO was 1 year ago.

At that time, I was excited by our prospects. Today I'm even more encouraged.

We have a great team executing our strategy. I'm particularly pleased of how the business has responded in fiscal 2012 through our sales, marketing and innovation initiatives.

We continue to invest in capability to drive growth, and we look forward to updating you in the months ahead. To highlight a few upcoming investor events, in May, we plan to attend the Imperial Capital Consumer Summit in Santa Monica and the Bank of America-Merrill Lynch Health Care Conference in Las Vegas.

In June, we plan to attend the Jefferies Healthcare Conference in New York City. We hope to see you at one of these conferences.

Now operator, we can open up the call for questions.

Question on advertising. Just curious to know which -- are you changing your -- in terms of what's happening with channel, where are you seeing real success?

Is it TV, radio, online? And also what's happening with just generally pricing?

I mean, is the trend moving up? Or is pricing still pretty decent?

Damian, what we're seeing on advertising, I think, Joe mentioned we took up our advertising quite significantly in the third quarter, about $8 million above year ago. And where we put our advertising is really across multiple different vehicles.

The primary continues to be TV, given our targets and our brands. We also have a pretty significant amount of radio and digital presence as well.

I mentioned on MegaRed a lot of the work we're doing on, for example, on Facebook. We continue to kind of expand kind of our advertising offerings depending on what the target is for each brand.

In terms of pricing, we, similar to many other companies, did upfront buys earlier the year -- in the year, and so we're not seeing much in terms of inflation above kind of going rates we expected in the beginning of the year. So we're pretty well locked in, in terms of our current rates.

Okay. Are you actually buying more for next year as well?

Or is this sort of an annual thing that you do, the upfront buys for advertising?

So we did the upfront. The usual cycle in the upfronts are in the fall, so the cycle goes through the fall, with certain op-out periods as well.

So we'll continue to follow that strategy. We like efficiencies that we gain in that strategies over buying on the spot market.

And are you pretty happy with in terms of what you're seeing in terms of lag and from when you advertise to when you actually see a bump in sales for whatever product you advertised? Is it better than you expected?

And what is it really? I mean, if you run a commercial, d you -- for MegaRed, do you see a pick up in sales almost immediately?

Overall, we're very pleased with the strategy. If you think about the advertising increase and the results and increase in our revenues, we think there's a strong correlation.

And in fact, we can see it in our POS data when we run advertising in different brands. There's different responsiveness by brand.

We don't usually break that out, but we've talked in the past how responsive MegaRed is to advertising. And we'll see it every time we kind of take the advertising up on that brand.

You can see it in the POS data almost immediately.

Okay. And the success in joint care, what's the -- I mean, is that simply -- due to advertising as well?

I mean, supposing that -- I mean, the category is pretty much flat, and you've grown a little bit. I mean, is that purely just advertising?

We attribute joint care's success to a couple of different things overarching strategy. But in particular, in the last year at this time, we're looking at a joint care category, and even our own business, that was down about 11%.

And so we were -- had a business that was down. We decided to -- to me, the reason why it was down is we attribute it to 2 primary factors: one is there's a lot of price discounting going on in the category; and two, there is a lack of innovation.

So we stated really about a year ago, that we're going to do 2 fundamental things on joint care: first was introduce a meaningful innovation; and second was instead of doing more price discounting, put that money into advertising. We think the combination of our innovation, in particular Move Free Ultra, continues to gain traction, supported by strong weights in advertising.

It's been a winning combination for us in our joint care business.

And I mean, I don't know if you make this kind of predictions, but I mean, what is your feeling on -- if you look at your main channels of distribution: Sam's, Costco and Wal-Mart, I mean, do you feel like things are generally getting better overall? I mean, certainly traffic in those channels seems to be improving.

But what is your general status? And then, what is your general sense that if we do have gasoline at $5 a gallon by summertime, what do you think your -- what do you think happens to demand for your products?

I'll start with the overall category perspective. I think Joe mentioned the overall BMS category is 6%, so the category in total continues to do well.

We -- our business is up significantly higher than that, and we believe the main determinant of our business is going to be our execution against a strategy. I feel good about the execution we have right now, and that in turn has driven particularly strong results on our branded business.

So while $5 gasoline certainly is a concern, I would say these are fundamental kind of need products that consumers regularly need. And as long as we continue to execute our strategy, I'm pretty confident that we can -- our business will be good.

And can I just ask, I do think you break out, but what's -- the lawsuit, the incremental expenses from that, have you quantified those? Or are you going to?

Damian, this is Joe. And no, we don't break out the information to that level of detail.

Suffice it to say that overall professional legal fees in FY '12, as compared to FY '11, are clearly up. They're up from third quarter and up year-to-date.

But it's -- the impact of those factored in to our guidance.

Okay. But is that something that can continue beyond 2012, fiscal 2012?

Well, first and foremost, as Tarang noted, we're clearly committed to vigorously defending our business and our brands. We believe these litigation matters are clearly without merit.

And so we will defend them appropriately. It's difficult to predict just how far into the future the situations may exist.

But first and foremost, we're committed to defending our brands. And we'll comment on our fourth quarter call as to some level of specifics in our guidance for FY '13.

Okay. And then just lastly, Joe, I think I missed it, but what's your debt level at this point?

0.

0, so you did pay it off, okay.

Yes.

Congratulations on terrific results, particularly on the branded side. A couple of questions.

Joe, it looks like the private label business, if my math is right, it was about $10 million in the quarter. Looks like it's kind of leveled off in this range.

At this point, should we expect it to kind of stay in this range? And obviously, with branded continuing to grow, should we expect to see sales growth acceleration as you start to lap, I guess, in about a quarter or so, the decline in private label sales?

That's a good question, Mike. Overall, you're reasonably accurate, right.

I mean, we're -- based on our guidance on private label and where we are year-to-date of give or take $30 million in private label sales, we're sort of on a $40 million or so run rate. So this quarter, was leaning a little north of $10 million.

Playing into the future, obviously, we haven't -- we'll comment further on FY '13 on that fourth quarter call. But overall, our sense is that the private label business will be relatively stable, certainly subject to volatility based on future bidding activity and other opportunities to pursue business.

And as opportunities arise that, we believe, clearly makes sense for the business, we can clearly make money, especially with our larger customers, we will pursue those. But overall, as we sit here today, I think, the sort of the reasonable assumption would be our private label business will be somewhere in the range of $40 million or so.

Okay, great. Second question I have is obviously impressive turnaround in your joint care category performance.

So 2 questions on that level. Obviously, you've changed kind of way from a lot of the couponing.

I was wondering -- I mean, obviously, I would think as some of your competitors see that change in strategy and the effectiveness that is happening, perhaps we could see pricing move up within the category, which really hasn't happened in some time. Have you seen any change in the competitive landscape yet?

I mean, clearly, the strategy you're employing of innovating and moving away from couponing is working. Just wondering what you're seeing category-wise.

While Mike, it's interesting. We continue to see price discounting from some of competitors.

And it's a bit perplexing because as we followed our strategy between advertising and product innovation, we've seen much stronger growth rates than the rest of the categories. So I do believe, over time, people are going to take a look at who's actually growing share and who's not, and that should change tactics.

But I tell you, in the interim and really over the last 9 months, I don't think we've really seen that much of the letup in terms of some of the discounting.

Right. I noticed you have a MegaRed Joint Care product.

Is that in meaningful mass distribution? Did that have any impact in the quarter on the joint care growth?

No, we're just highlighting. We've tested MegaRed Joint this past quarter, so the shipments of it were quite small in totality.

But we're encouraged in terms of some of the testing that shows kind of what its incrementality is. And so it's not -- and by the way, MegaRed Joint, we don't actually put in to joint care category.

We define it under the MegaRed numbers. So it really doesn't impact the joint part.

Right. Okay, great.

And then just a question around MegaRed, I mean, clearly, we're starting to see a lot of different MegaRed products. It looks like you have MegaRed blood pressure product in test now.

Should we think about MegaRed as a brand, as a platform that you go ahead and grow a lot of different products into? Or is it just going to just continue to be focused in a couple of different categories?

Is there -- how should we think about MegaRed?

MegaRed has been this phenomenal growth story for us, and we still see a great deal of upside on MegaRed. So it's primarily a heart health, cardio omega-3 brand.

It's the the #1 omega-3 SKU in food, drug, mass club, and we continue to see very strong growth. I think what we're doing is also testing kind of what boundaries and limits of that brand are.

So a lot of these extensions that we're putting out to MegaRed are very much consistent with the heart health overall messaging. And we will continue to also experiment to see where else we can take it.

We still believe there's a big upside on MegaRed.

All right, great. And then just final question Mega-D3, my recollection is you were in about half of Wal-Mart.

I did see it show up, I guess, in Costco for the first time. I was wondering where you stand on expanded distribution for Mega-D3?

Mike, just to clarify, Mega-D3 is not yet in Costco or the warehouses, it does -- other than BJ's. It does have a position.

We got a shared pallet with MegaRed in BJ's. We have full distribution in Wal-Mart, and it has full distribution in what we refer to as the drug class of trade, as well as some smaller retailers.

So the business overall continues to do well. From an IRI standpoint, I would tell you the vitamin D category seems to have softened some, but still in a growth mode.

But we're near the level of growth that it was a while back. But our businesses is, with its current distribution, continues to do well, but not yet in Costco or Sam's.

All right. Well just so you know, they do have it online now at Costco.

Online, yes, but not on the steel as we think of it.

One question for you on distribution. As you -- when one walks into various regional chains throughout the country, it's obvious that you have more success in terms of being placed in some of those retailers; while other retailers, your products are not available or harder to find.

Can you just explain to us what sort of progress you hope to make in terms of getting better distribution in more retailers, as well as better placement on the shelves, instead of being literally on the floor, maybe be 3 feet above the floor for -- to be more easily identified by the consumers? So clearly, you're providing advertising support.

But what else do retailers need to kind of bring them into stores where you're not currently carried?

Yes, it's a good question. We've actually made really good progress in terms of some of our distribution initiatives this year, particularly as we've launched new items and put more support behind our brands.

Our business is fairly concentrated with Wal-Mart, Costco, Sam's, Walgreens, so many of the drug customers. In those customers, we feel pretty good about our distribution and shelf placement.

For example, earlier this year at Walgreens, they changed the Schiff placement, put it more close to eye-level across and banded across our different products. We think that significantly improved not only our shelf presence, share of shelf, but also we've seen movement increases there, Walgreens, behind that shelf initiative.

So we continue to go and look to build distribution, also look to build kind of build kind of share of shelf and get our new items in.

Okay. And then, just to quickly follow-up, regarding your MegaRed Extra Strength and your Move Free Ultra, which, obviously, more convenient products for your customers.

When you look at your other categories, when you have a dosage like this where you provide convenience for the smaller concentrated pill, typically, what portion of consumers find that a strong enough value proposition that they will shift over versus other consumers who just kind of stick with their prior behavior patterns?

I mean, I think, what we basically see is MegaRed is probably the best example where it actually started as a small pill relative to fish oil. And it is now the #1 SKU in the omega-3 section.

We've seen similarly really good response to Move Free Ultra, which gives the joint relief in one small pill versus usually the 2 large tablets consumers have to take. So when I give people the choice, unaided, I have yet to find somebody who wants to take 2 large pills versus one small one.

Certainly, they're at a price premium, so that's probably the biggest difference is the premium, but quite a few consumers prefer that from a delivery systems standpoint.

Right, right. Just to clarify, I mean, would it tend to be 1 out of 5 consumers who will clearly show the preference by shifting over?

Or is it 1 out of 2? What happens elsewhere in the industry?

I don't think we know that across -- from a network of a lot of different categories. I don't think we've had a generalization across multiple different categories.

I don't know, Joe, do you know?

Yes, it's a difficult question to answer. I would say that to Tarang's earlier point, we're very pleased with the growth we're seeing in our krill business and our MegaRed business.

And we certainly attribute some of that to the smaller pill. But as far as trying to quantify what percent of the consumers are shifting because of that, it's difficult to say.

But for us, as we continue to see the success of that business, it's not insignificant. And based on the early results for Move Free Ultra, we certainly believe the consumer appreciates a smaller size tablet there as well.

Yes. The only other thing I'd say is the reason why it's difficult to answer is it's just one component of the MegaRed's success.

When I take a look at the smaller pill, the better usage experience, the brand itself, the advertising and the innovation in our sales fundamentals, there's so many different components to its success that it's very hard to isolate it on one small -- one thing.

And one final question. On the M&A front, you're obviously looking for prospective acquisitions.

Can you give us a sense for if you look at acquisition prospects in terms of a pipeline funnel and you categorize being a, b and c, A the right target, with a good possibility closing versus -- in 6 months, and then B would be less than 50% chance of closing and other -- price and other factors are not quite as good. Just kind of curious how strong your pipeline of prospects is through your efforts.

Well, we don't -- appreciate the question, but we don't respond to that level of specificity as to the pipeline. As we noted earlier, as Tarang laid out, the pursuit of acquisitions is clearly one of our long-term growth strategies, and so we'll evaluate those as opportunities become available.

But more broadly, I would say, some of the key criteria that we'll look at is does it allow us to be innovative, does it allow us to expand our geographic footprint, does it allow us to differentiate ourselves. If you think in terms of our June acquisition of the probiotics business, it allows us to be innovative with the BC30 technology.

We can differentiate ourselves, the acquisition is accretive. So in that sense, we'd respond.

But the level of detail that you're asking, we wouldn't respond to that level.

I know you don't provide a lot of detail on M&A for obvious reasons. But is there a way to just generalize and say, if you don't do an acquisition in the next 6 to 12 months from the pipeline that you're seeing right now, is it more of an issue of finding things that you want to buy?

Or is it more of an issue of price?

It's difficult to answer that question, so I prefer not to comment on that, Damian. I appreciate it.

There are opportunities, but whether we opt to pull the trigger or not could be dependent on a number of things. But we're certainly pleased with the acquisition we made back in June.

And again, with certain criteria, we'll consider acquisitions going forward.

Okay. And then just on commodity costs, any new development there?

Is it positive or negative?

I would say overall that commodity costs are relatively stable. I mean, there are certainly a few ingredients that bumped up.

But on the flip side, we've seen -- certainly seen some savings on other raw material costs. So overall, as we look at FY '12, on our gross profit margin, I would say that commodity costs have been pretty stable and not had a major influence on our overall margin.

Okay. And then just lastly, just going back to Sustenex and Digestive Advantage, remind me -- the long-term strategy.

I mean, the -- if you go to a local drugstore, I mean, there is now more and more choices, seems like every day in probiotics, and obviously, for a good reason, the category continues to grow. But long term, how do you compete?

Is this sort of emphasizing the advantages of the probiotics that you have in terms of how it's delivered and how the bacteria actually lives longer and such? Remind me what this long-term strategy is.

Damian, the strategy on our probiotics is exactly the same as the strategy on MegaRed or Move Free. Fundamentally, it's going to be about how do we build the brands and how do we innovate and lead innovation.

We remain extremely excited about the probiotics space, just given the overall category growth. Last quarter, in terms of some of our specific activities, we turned on advertising, and we started testing expanded distribution.

What probably is still the most exciting thing to us is the BC30 technology. It really provides the foundation from which to innovate.

And so we're really encouraged by the long-term prospects because we believe it fits our model really well in terms of both brands and innovation.

Okay. The reason I asked the question because, I mean, it's sort of, as a consumer, just standing there trying to make a choice, it's hard to how you're going to communicate the BC30 advantage.

And I'm sure you'll find a way. Maybe it's not that.

It's just sort of as I was just standing there in front a shelf full of choices, it became sort of hard to know what an average consumer would think about, and will they understand the BC30 advantage.

No, that's a fair observation. I think in the category on the whole, there's just a lot of confusion with lots of different claims and numbers.

And so our marketing teams has actually been doing a pretty job of getting after core consumer insights in terms of what does it take to convince someone this is indeed better.

Okay. And your pricing in general, I mean, are you priced sort of on par with other brands or below or above them?

I'm just ...

I'd say -- on our probiotics business, if you took a look at the category average, we're pretty much right there at the average. So this is not one where we're super premium priced.

There are a couple of other brands that are priced much higher.

So I had a quick question on the tax rate for the full year. Is there any guidance there?

Anything you guys are expecting?

Well, nothing unusual. I mean, we believe the overall rate will still be in the 36 plus or minus range.

Third quarter can be a little bit lower than that because it is a quarter we actually filed a return and a few assumptions get trued up and so forth. But overall, the range would be somewhere in that 36%.

Okay, okay, great. And for the brand spending in the quarter, obviously it was up year-over-year, but is this -- we know what you're going to do for the full year, but it is this going to be more of a run rate level?

Or was this an initial boost to kind of just getting things going?

Yes, what I'd tell you Madeline is we feel great about our advertising investment to date, just given the strength of our branded sales growth. And we continue to see that level of investment through the balance of this fiscal year.

Longer term, we're not going to be satisfied, nor would you be, with a high single-digit operating margin. So in the longer term, I think we can leverage the selling and marketing operational efficiencies and other factors.

We'll -- as Joe said, in our FY '13 call we'll provide guidance on that, in our July earnings call.

Okay. And then with regard to the other expenses, the long-term strategy investments and the investments in personnel, is the level we saw in the third quarter going to be the run rate?

Or was that more onetime? I know you guys had some litigation in there as well.

Well, again, it's difficult to say what's onetime and what, especially in regards to legal-related fees. I would say the third quarter's maybe a little bit higher than typical just because of some longer-term strategy investment that we've made and so forth.

And back to my comments, it's a little higher than previous quarters as to management-incentive-type costs. Guidance-wise, again, to Tarang's point, it will be easy for us to update that on our fourth quarter call.

But overall, it's maybe just a little bit higher than we would anticipate. But we'll update you on that on the July call.

Okay. And then a few more things.

Just you guys mentioned before that you had -- you wanted to make progress moving into eCommerce. And I didn't hear anything about that, so I just wanted to have a quick update on that.

Sure, so I made a small mention of it Madeline, where we've actually started. Last quarter, we talked about first putting Move Free MegaRed in terms of online sales -- in terms of direct online sales from our website.

This past quarter, we actually started introducing more IMs on to the Schiff marketplace. And it's still very small, but we're pleased with our initial results just given it gives us the opportunity to directly engage with consumers.

So that remains a continued initiative.

Okay. And then last thing, I just wanted to make sure I heard you correctly.

Did you say that MegaRed is now the #1 SKU for all omega-3s? Or is that just for krill oil?

No, for all -- it's the #1 omega-3 SKU in FDMx. And then, also, in, obviously, clubs and non-track where we have even a stronger presence.

Okay. And is that a recent development in the third quarter?

Or has that been the case for a while now?

I'd say in this -- in fiscal year '12 is when we probably crossed that mark, sometime this fiscal year, so potentially a quarter or 2 ago.

Well, thank you, everyone, for participating in the call today. As discussed, we're really encouraged by our progress and look forward to keeping you updated.

We hope you have a great day.

Thank you.