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CNS, Inc. (CNXS)

The company is a consumer health care products company with a core group of Breathe Right-branded products including nasal strips, Snore Relief throat spray and Vapor Shot!, as well as FiberChoice, a daily fiber supplement.

The third quarter produced excellent results, some of the highlights of which follow:

* Net sales increased 9% to $28.7 million
* Net income totalled $4.4 million, up 267% from Q304
* Fully diluted EPS came in at $0.30, well over last year's $0.08, and far exceeding the company's own guidance of $0.13-$0.16 a share

Even in the face of a soft cold and flu season, sales were up across all segments, but particularly in the sale of Breathe Right strips. CNS attributes a large portion of the push to increased TV advertising that included brief how-to segments for using the strips. As a result, sales of the strips surged 22% over last year.

Even the company was surprised by the strength of the sales numbers, and even though their earnings enjoyed a boost from a one-time event that raised EPS by $0.05, earnings still would have been ahead of guidance by a minimum 56%. One could speculate on the reason behind the surge in sales, and perhaps it had to do with the flu vaccine shortage right at the start of the cold and flu season.

FiberChoice also saw strong growth, with sales growing 28% over last year. The company has introduced new flavors and will continue to roll out these selections.

Vapor Shot! met expectations for the quarter, after falling short of projections last year. However I had the feeling that management wasn't too pleased with the product as they said they would continue monitoring it throughout the year and would evaluate just how it fit into its overall stable of products. It did not sound like a ringing endorsement to me.

As mentioned, the company was quite pleased with its advertising, and it was going to be unveiling a series of print ads that could be considered "racy." Under the heading, "I'm a Stripper," CNS would be using 7 ads featuring people who use the nasal strips and the reasons why. Part of the series would use three celebrities, including Tom Arnold in People magazine.

A second series of print ads would be continued from their original run in the summer and are entitled "Get Back in the Sack." They would highlight how the nasal strips were reuniting couples in bed again as snoring was no longer an issue.

Particularly intriguing was CNS stressing its goal of acquiring a new product to add to its others. While they originally said they would look to "acquire or develop" a product, they came back several times to acquiring one. That leads me to believe they are actively pursuing this avenue. As cash has increased considerably, up to $58 million, they have the resources available to do so.

The company also raised guidance for both Q4 and the full year. For the year, net sales are expected to be in the range of $88-$91 million; operating profit would come in at $16-$17.5 million; and fuly diluted EPS would be in the range of $0.74-$0.79.

The fourth quarter should see net sales in the range of $23-$25 million; and EPS in the range of $0.09-$0.14, well above last year's $0.02.

International sales were down, year over year, at $3.9 million versus $4.6 million, primarily because Japan was working through excess inventory. The company noted that Japan also had some of the lowest pollen counts recorded which also affected sales. While they expect strong growth in Europe, it's to Mexico that CNS looks for big international gains. They noted the country is the 9th largest market in the world and they are gearing up to supply it. They've been shipping start-up inventory to the country and they expect sales to be big there.

The stock responded well to the news, jumping over 12% on the day and another $0.05 after hours. With a strong fourth quarter expected, it should bode well for the next few months. However, the company did note that profit growth comes in the second half of the year, so it is not completely surprising that the company was able to turn in numbers like this. The caveat may mean that investors might not want to expect such numbers to continue beyond the fourth quarter.

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