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Biotech / Medical : RXSD Rexall Sundown -- Ignore unavailable to you. Want to Upgrade?

To: Andy Parham who wrote (210)	12/17/1998 10:35:00 PM
From: TokyoMex	Read Replies (1) \| Respond to of 327

SA have been pounding the table on RXSD,, (Excerpted from Argus Independent Equity Research's "Action Facts AM" for Thursday, December 18, 1998) Buy-rated Rexall Sundown, Inc. (RXSD) reported earnings for the first quarter of fiscal 1999, meeting reduced estimates of 16 cents per diluted share, down 20% from 20 cents a year ago. This disappointing result is reflection of slowing demand in the industry as well as tremendous growth for Rexall in fiscal 1998. In the first quarter of 1998, the company reported sales growth of 83% and EPS growth of 73%, making the comparison exceedingly difficult for this quarter. Despite the earnings decline, sales showed a good year-over-year increase, up 11.6% to $123.6 million. Sales were down sequentially, however, from $133 million in the fourth quarter of fiscal 1998. Osteo-Bi-Flex, the company's largest single product, saw sales increase 81% year-over-year, to $22.5 million, but sales of this arthritis product were down from $32 million in the fourth quarter. Sales to the direct-selling Showcase division increased 15% over 1Q98. Retail accounted for 63% of sales in the quarter, 34% came from Showcase, and the remainder from recently acquired Richardson Labs. The company's share of the Food, Drug, and Mass segment, which accounts for 46% of supplements sold in the U.S., increased by 3% to 12.6%. The company's products can now be found in 73.5% of Food, Drug, and Mass outlets, a significant increase both sequentially and year over year. As would be expected in light of lower than expected sales numbers, the company's margins slipped considerably. Gross margins fell 310 basis points, to 57%, and operating margins fell from 19.8% to 14.1%. We regard these lower margins as a temporary result of the company's fast growth coupled with the sudden sales slowdown, which caused expenses to grow faster than revenues. We expect the trend to reverse by the end of the first half of this fiscal year. We are positive on the prospects for RXSD going forward. We expect that the combination of new products and increased advertising will push sales growth into the 25% range for the year, as Rexall continues to outpace the 13-15% rate of industry growth. Two new products expected to perform well are Neurosharp, for the treatment of Alzheimer's, and Calcium Indulgence, a chocolate calcium product. Moreover, Rexall has no debt and strong cash flow, so we look for further share repurchases going forward if the stock remains near its current price. We remain confident in our estimates of $1.16 for 1999 and $1.46 for the year 2000. Currently trading at 11.9-times 1999 earnings and 9.4-times EPS for the year 2000, the RXSD shares offer a compelling combination of growth and value. We reiterate our BUY rating. The RXSD shares traded late Thursday at $13-7/8, down 1/8. (LHB)