Natural Alternatives sees sales rise, but inflation clouds future

By Hank Schultz contact

- Last updated on GMT

©Getty Images - PM Images
©Getty Images - PM Images

Related tags: contract manufacturing, Dietary supplement companies, Dietary supplement industry, Dietary supplements

Contract manufacturer Natural Alternatives International Inc. reported increased sales but saw inflationary pressures cut into its profit in its year end earnings statement released yesterday.

The Carlsbad, CA-based firm does custom formulation and manufacturing of dietary supplements.  The company also holds the patent for and collects royalties on CarnoSyn branded beta-alanine for sports nutrition products.

Sales increase, but profit share shrinks

In the statement released yesterday, NAII reported a net income of $3.1 million in its fourth quarter of fiscal 2022 which ended on June 30.  That profit was a recorded on $52.5 million in net income for the quarter, which was a new record for the company.

That was an increase of 18.3% over the $44.4 million recorded in the fourth quarter of the company’s fiscal 2021, before inflation had really started to bite. NAII notched almost the same amount of net income—$3 million—on that diminished amount of sales, though the profit did show an increase on per share bases because of a stock buyback that reduced the number of outstanding shares.

Demand for contract manufacturing services rose, with sales in the company’s private-label contract manufacturing segment increasing 25.6% to $49.9 million during the quarter.  The company attributed most of that increase to demand from a new customer that markets meal replacement type products in the ecommerce sector. CarnoSyn royalty, licensing and raw material sales revenue decreased 43.6% to $2.6 million during the fourth quarter of fiscal year 2022, as compared to $4.7 million for the fourth quarter of fiscal year 2021, which was mostly attributed to seasonal factors and market conditions, as royalties and raw materials sales for this brand rose on a full year basis.

Staffing shortages

NAII CEO Mark LeDoux said supply chain issues, increased costs and difficulty in keeping the company’s manufacturing operations fully staffed had created significant headwinds in the past year. The company’s backlog in the fourth quarter hit $8 million, LeDoux said.

“We have made significant strides in resolving our staffing shortfall in our domestic manufacturing operations; however, we continue to face challenges with the cost of labor and other rising operational costs related to inflation. We are diligently working with our supply chain and customers to look for ways to minimize the impact of these rising costs, but these obstacles and circumstances are not isolated to our company or industry,”​ he said. 

For the full year, NAII say net sales decrease 4.2%, coming in at $171 million compared to $178.5 million in the year previously.  CarnoSyn royalty revenue rose 13.8% during the year, bringing in $16.2 million compared to $14.2 million in fiscal 2021.

LeDoux noted that the company is forging ahead on a new powder blending manufacturing facility, also located in Carlsbad, which should be operational by the middle of the company’s fiscal 2023.

LeDoux cautioned that inflation has moved from being mostly a raw materials cost concern and is starting to bite at the pocketbook level.

"While we anticipate sales growth during our next fiscal year, there are headwinds within our industry, like many others, indicating that consumer demand is slowing as a result of inflation.  These challenges are causing consumers to make difficult decisions each month regarding where to allocate their disposable income,”​ he said.