This FAQ represents a set of Questions and Answers that were included in the most recent Landec Quarter Earnings Release (Read Press Release issued on Jan 3, 2019 for the quarter ended Nov 25, 2018) and offers comments for understanding Landec's business. Following the Disclaimer below, there is a list of questions. Thank you for your interest in Landec.
Important Cautions Regarding Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially, including such factors among others, as the timing and expenses associated with operations, the ability to achieve acceptance of the Company's new products in the market place, weather conditions that can affect the supply and price of produce, the amount and timing of research and development funding and license fees from the Company's collaborative partners, the timing of regulatory approvals, the mix between domestic and international sales, and the risk factors listed in the Company’s Form 10-K for the fiscal year ended May 27, 2018 (See item 1A: Risk Factors) which may be updated in Part II, Item 1A Risk Factors in the Company’s Quarterly Reports on Form 10-Q. As a result of these and other factors, the Company expects to continue to experience significant fluctuations in quarterly operating results and there can be no assurance that the Company will remain consistently profitable. The Company undertakes no obligation to update or revise any forward-looking statements whether as a result of new developments or otherwise.
- Labor, freight and packaging costs continue to increase.
- Abnormal weather conditions continue to add volatility to our food business.
- The vegetable tray category is declining.
- The shifting landscape in U.S. retail to more private label products from branded products.
- The trend for pharmaceutical and biotech companies to outsource product development and aseptic filling to CDMOs is growing and the need for a CDMO which specializes in difficult-to-handle materials has never been greater.
- The North America healthy eating trend continues as packaged salad kit, core vegetable and green bean categories continue to grow.
- The rapidly growing consumer segments for plant-based, 100% clean and natural products are looking for solutions.
The cost-out initiative is going very well. Hackett, along with our dedicated internal teams, have identified numerous cost-out projects, with the initial projects beginning during the second quarter of fiscal 2019 and new projects being added throughout fiscal 2019. We expect to start realizing a net positive impact from these cost-out initiatives during the fourth quarter of fiscal 2019.
For the 52-weeks ended October 27, 2018, the size of the North American market in which Apio participates (vegetable bags, vegetable trays and multi-serve salad kits) was approximately $4.1 billion (in consumer retail dollars), including retail and club stores. Of this market, Apio’s overall market share per Nielsen was approximately 14% while Apio’s Eat Smart multi-serve salad kits had a market share of approximately 13%. In the retail market, excluding Costco, at October 27, 2018 our Eat Smart multi-serve salad kits in Canada had a 38% market share and an 85% ACV and in the U.S. achieved a 6.4% market share and a 48% ACV. Our goal is to continue to grow the Eat Smart market share and ACV in the U.S. and Canada for all our multi-serve salad kit products, as well as our newly launched single-serve salad kit products.
Over the last couple of years, Windset has completed a 10-acre facility that uses a new type of greenhouse structure for growing strawberries on a small commercial scale and a new 30-acre glass greenhouse which has been fully planted with peppers and has purchased approximately 200 acres of land, with an option to buy another 100 acres, adjacent to its currently owned greenhouses in Santa Maria. Windset is in the early planning stages of further expansion in California and/or Nevada with construction estimated to begin in 2020.
We are currently estimating that the change in the fair market value of our Windset investment during fiscal 2019 will be approximately $2.5 million.
We initially began shipping Now Planting soups in October 2018 to Publix in the U.S. and Loblaws in Canada. We are working closely with these two strategic customers in a market test to optimize product placement, pricing and promotional plans, to maximize consumer adoption. We expect the work in these initial test stores will continue through the remainder of fiscal 2019.
The Company currently has approximately $145 million of debt which translates into a debt to equity ratio of approximately 0.57 and debt to tangible assets ratio of 0.43. Our leverage ratio at the close was approximately 3.7, our covenant is 4.5 or less which means we had borrowing capacity in excess of $30 million. The third and fourth quarters of our fiscal year is when we generate a large majority of our cash flow from operations and therefore we expect our leverage ratio to decrease and our borrowing capacity to increase by fiscal 2019 year end. Our covenant stays at 4.5 until December 2019 and then drops to 4.0 and stays at that level until December 2020.
Our continuing priorities are:
- Working with the Hackett Group to identify, quantify and implement cost saving initiatives in our LNF business.
- Integrating the Yucatan team and operations into our LNF business.
- Investing in our three growth platforms: 1) Lifecore, 2) Eat Smart salads, and 3) LNF emerging natural food brands.
The results are as follows (unaudited and in thousands):
|Three Months Ended||Six Months Ended|
|Natural Foods (a)||$||109,466||$||108,348||$||221,517||$||211,965|
|Total Gross Profit||16,593||14,921||32,930||33,723|
|Research and Development:|
|Selling, General and Administrative:|
|Operating (Loss) Income before Allocation of Corporate Expenses|
|Total Operating (Loss) Income before Allocation of Corporate Expenses||(606||)||(695||)||(1,053||)||2,030|
|Corporate Expenses Allocation:|
|Operating (Loss) Income after Allocations of Corporate Expenses:|
|Total Operating (Loss) Income after Allocations of Corporate Expenses||(606||)||(695||)||(1,053||)||2,030|
|Non-Operating Income (Expense) (c):|
|Total Non-Operating Income||22||1,109||658||739|
|Net (Loss) Income from Continuing Operations:|
|Net (Loss) Income from Continuing Operations||$||(584||)||$||414||$||(395||)||$||2,769|
(a) Natural Foods includes Apio Eat Smart, Apio Packaging, O and Now Planting.
(b) Included in Other are Corporate expenses and acquisition-related expenses.
(c) Non-Operating income (expense) includes: Windset dividends and FMV change, net interest expense and income taxes.