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WIKI ANALYSIS
NBTY (NYSE: NTY) is the largest nutritional supplements manufacturer in the United States by sales, and it sells a portfolio of over 22,000 products through mass merchandisers, drug stores, and company-owned retail outlets in North America and Europe.[1]
Unlike many of its competitors, NBTY owns its own retail outlets. However, much of what its factories produce does not go to NBTY's stores; instead, it is sold wholesale to third party distributors. Supermarkets, pharmacies, and other retailers sell products under about a dozen of NBTY's brand names. Over the coming decades, NBTY stands to benefit from the aging of the US population as this demographic turns to nutritional products for their perceived health benefits.
NBTY has also expanded wholesale operations across Europe, Latin America, and Asia as well. Since the company does a large percentage of its business in Europe (roughly 30% of revenues), a weakening dollar actually benefits the company by increasing the value of its international earnings.
Overview
Business Financials
Brand names such as Nature’s Bounty, Solgar, Sundown, Osteo-Bi-Flex, Ester-C, and Rexall represent 20% of the company's sales and are sold at mass merchandisers, drug store chains, drug wholesalers, supermarket chains and wholesalers throughout the U.S. [2]
In 2009, NBTY earned a total of $2.58 billion, an increase from the previous year of $2.18 billion. It marked the 15th straight year that revenues for NBTY increased. However, its net income has been less stable. Between 2008 and 2009, its net income declined from $153.2 million to $145.7 million.
Business Segments
The company is divided into four segments: i) WholeSale/US Nutrition, ii) Retail, iii) European Retail, and iv) Direct Response/E-Commerce Retail.
WholeSale/US Nutrition (60% of 2009 Revenues)[3]
The WholeSale/US Nutrition distributes many of the company's products under brand names such as Nature's Bounty, Rexall, Sundown, Osteo-Bi-Flex, MET-Rx, Flex-a-min, Knox, and Ester-C. About 65% of sales in the WholeSale/US Nutrition division consist of sales to the mass market. NBTY serves many large-scale retailers including CVS, Wal-Mart, Walgreen Company (WAG), Target, and Eckerd Drugs.
Shoot, who would have thuohgt that it was that easy?
North American Retail (23% of 2009 Revenues)[3]
The North American Retail Segment generates revenue through 537 stores open in North America. NBTY has been focusing on closing non-profitable stores and opening new ones in more favorable markets.
Direct Response/E-Commerce Retail (23% of 2009 Revenues)[3]
NBTY offers discounted nutritional supplements and vitamins through mail order and e-commerce. It operates puritan.com, vitamins.com, and vitaminworld.com. Growing US online sales represents an opportunity for the segment to boost its revenues.
Trends and Forces
An Aging World Population, including Aging Baby Boomers in the US, Increases Demand for NBTY's Products
The aging of much of the world's population is sure to have a significant impact on many companies in the health sector, including NBTY. The United Nations estimates that by 2030, people over age 60 will account for 17% of the total world population as compared to 10% today. In the United States, estimates project that there will be 71.5 million seniors by 2030, are compared to nearly 40 million today.[5] The U.S. government is bracing for an influx of patients into the Medicare system - and as an increasing number of senior citizens consume more healthcare dollars, many of these elderly consumers will also preventive medicines, including the dietary supplements made by NBTY.
Customer Concentration in the Wholesale Segment Leads to Increased Risk
Two customers unidentified by NBTY accounted for a combined 26% of the WholeSale/US Nutrition Division’s revenues. Since NBTY's largest division is dependent on these two customers, it risks a major disruption to its balance sheet if one of these clients chooses another supplier, brings production in-house, or goes out of business.
The Collapse of Leiner Health Products creates an opportunity for NBTY to increase its Market Share [6]
Leiner Health Products is a major manufacturer of vitamins, minerals, and nutritional supplements. The company had revenues of 735 million in fiscal year 2007. However, the company filed for bankruptcy on March 11, 2008 following a quarterly loss and a product recall. [7] If the company does not re-emerge from bankruptcy, its competitors, including NBTY, will try to increase their market share in the nutritional supplements market in the U.S. Leiner is also the largest supplier of vitamins and minerals to the US military. The Leiner bankruptcy represents an opportunity for NBTY to expand into new markets, particularly in sales to the military.
Litigation Threats Leads to Increased Uncertainty
NBTY has faced six lawsuits over the last six years. Most have accused the company of engaging in false advertising in the promotion of one of the company's products. Three of the lawsuits were settled without having a significant impact on NBTY's financial condition. The other three are still pending. [8]
Competition
- Wyeth (WYE) -The company produces scientifically based food products for infants and toddlers under the Gold brand.
- Leiner Health Products - Manufactures store brand minerals, vitamins, and nutritional supplements which stores then sell under their own brands. The company filed for bankruptcy but could still restructure and reemerge.
- Pharmavite - manufactures herbal remedies, mineral supplements, and vitamins.
- Abbott Laboratories (ABT) - manufactures two well-known brands: Ensure, a meal replacement shake and ZonePerfect snack bars.
- Experimental & Applied Sciences - Distributes performance based nutritional supplements.
- Herbalife (HLF) - markets and distributes dietary and nutritional supplements containing herbs, vitamins, minerals, and other natural ingredients.
- Bristol-Myers Squibb Company (BMY) - manufactures infant formulas
- Whole Foods Market (WFMI)
- Nature's Sunshine Products (NATR) - manufacturer and marketer of encapsulated supplements, including herbs, vitamins, minerals.
- Schiff Nutrition International - formerly, Weider Nutrition International, the company develops, manufactures, markets and distributes branded and private label vitamins, nutritional supplements and nutrition bars.
References
- ↑ NBTY 2007 10K, pg. 34
- ↑ NBTY 2007 10K, pg. 2
- ↑ 3.0 3.1 3.2 NBTY 10-K 2009 Item 1 Pg. 5
- ↑ [1]
- ↑ Silverbook.org, Number of Persons 65+, 1900-2030 (in millions)
- ↑ Leiner's Bankruptcy, Slow Economy and the Nutritional Supplement Industry
- ↑ Leiner Health Products files for bankruptcy protection
- ↑ NBTY 2007 10K, pg. F-28
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