Landec Corporation Reports Fourth Quarter and Fiscal 2018 Results
Fourth Quarter Revenues Increase 40% for Lifecore and 22% for Eat Smart Salads
Landec Launches Innovative Natural Foods Plant-based Brand, Now Planting®
“We continue to make progress toward our long-term strategic plan of driving growth and profitability through internal innovation capabilities within our natural foods business, which includes
“We completed three significant milestones in fiscal year 2018 toward our long-term strategic plan of driving growth and profitability in our three growth platforms: (1) Lifecore completed its transformation to a fully integrated CDMO with the installation of a new vial filling line which provides the required infrastructure to commercialize new products currently in its product development pipeline, (2) Eat Smart® salad kits significantly increased its All Commodity Volume (“ACV”) in the U.S. retail market from 24% to 45% and (3) Landec’s
“Our Lifecore strategy has been to accelerate growth and profitability by expanding the Lifecore business beyond its historical capabilities as a premium supplier of hyaluronic acid (HA). We have achieved this with the completion of Lifecore’s transition to a fully integrated CDMO, providing differentiated fermentation, as well as formulation, aseptic filling and final packaging services for difficult-to-handle pharmaceutical products. We will continue to expand Lifecore’s CDMO development pipeline to drive future commercial product sales,” commented Hemmeter.
“Lifecore had a tremendous quarter, realizing revenues of
“The installation of Lifecore’s new
“Within our food business, we are transforming our traditional Apio packaged fresh vegetable business into an innovative natural foods company, comprised of three brands: Eat Smart, O and the new Now Planting brand. The
“At Apio, our Eat Smart packaged fresh vegetables revenues increased 14% in the fourth quarter and 12% in fiscal 2018, compared to the same periods last year. These increases are primarily due to the growth of Eat Smart salad sales, which increased 22% in the fourth quarter and 23% for all of fiscal 2018, compared to the same periods last year. The Eat Smart growth for multi-serve salad kits was primarily driven by a 50% increase in salad revenues from the U.S. retail channel during fiscal 2018 compared to the category growth of 10% for the same period. The Nielsen U.S. retail All Commodity Volume (“ACV”) for Eat Smart multi-serve salad kits for the 52-weeks ended
“Increasing our Eat Smart share of multi-serve salad kits in U.S. retail accounts is one of our key long-term growth objectives. The annual U.S. retail market for multi-serve salad kits is approximately
“O operating performance for the fourth quarter fell short of expectations with revenues of
“O, the premier producer of high-quality, great-tasting
Fourth Quarter 2018 Results Compared to Fourth Quarter 2017 from Continuing Operations
- Revenues increased 16% to
- Gross profit increased 30% to
- Net income increased 159% to
$6.7 millionor $0.24per diluted share
During the fourth quarter of fiscal 2018, the Company discontinued its food export business. Therefore, the operating results of the food export business are shown as a discontinued operation. The financial statements for the fourth quarters and the full fiscal years of 2018 and 2017 have been reclassified to exclude the financial results of the food export business.
The following commentary pertains to the continuing operations of the Company.
Revenues from continuing operations in the fourth quarter of fiscal 2018 increased 16% to
Net income from continuing operations in the fourth quarter of fiscal 2018 was
Fiscal 2018 Results from Continuing Operations Compared to Fiscal 2017
- Revenues increased 12% to
- Gross profit decreased 1% to
- Net income increased 154% to
$25.8 millionor $0.92per diluted share, which includes the one-time $0.51tax benefit
Revenues from continuing operations in fiscal 2018 increased 12% to
Net income from continuing operations for fiscal 2018 was
Introducing New Natural Foods Brand, Now Planting
Landec’s NVG, formed in fiscal 2017, is leading the transformation of Apio from a packaged fresh vegetable company into a differentiated and innovative natural food company that is focused on growing Landec’s natural foods business through acquisitions and internal innovation efforts. The first initiative of the NVG was the acquisition of O. After researching consumer motivations, lifestyles, eating and purchasing behaviors throughout
These plant-forward consumers are eating less meat, with approximately 70% of their diet coming from plants. As this consumer segment continues to grow in both the U.S (17% of the population) and
Now Planting’s first product platform is a full line of fresh, pure-plant soups. These soups are extremely differentiated from anything currently in the market, with a nutritious ingredient profile that contains no dairy or animal ingredients of any kind and with naturally low levels of sodium, sugar and fat. Celebrating the natural flavor of plants with a unique combination of ingredients and toppings, each soup delivers amazing taste in a convenient, patented packaging design.
During the second half of fiscal 2019, NVG is planning to launch a second natural foods initiative. More details of this initiative will be shared in the upcoming months.
Management Commentary and Fiscal 2019 Guidance (see Questions & Answers section at the end of this release for further details)
Hemmeter concluded, “During fiscal 2019, we will continue to invest in innovation and new initiatives that will accelerate growth in fiscal 2020 and beyond within our three growth platforms by: (1) growing our Eat Smart salad business, (2) expanding our higher margin natural food product offerings, such as our new Now Planting line of refrigerated soups, and (3) growing our Lifecore CDMO business by investing in new capabilities, such as the new vial filling line, in order to expand our product development pipeline with opportunities poised for future commercialization.
“Also in fiscal 2019, we will focus more acutely on reducing operational costs in our food business as a key strategic initiative. Despite our best-in-class ability to understand the consumer, to innovate new products, to disrupt and create new categories and, ultimately, to grow our topline, we recognize the on-going potential impact of increasing sourcing volatility and labor costs required to run our food business. As such, we must assume that abnormal weather is the new normal and create a lower cost basis in our food operations. This will ensure that the profitability we are generating from the launch of higher margin products is available for reinvestment back into the business or to contribute to the bottom line, rather than to cover costs from operations or abnormal weather events. We believe that the investments we are making in our three growth platforms combined with an aggressive focus on implementing cost savings initiatives within our food business positions
“For fiscal 2019, we are projecting consolidated revenues from continuing operations to grow 5% to 7% driven by expectations for Lifecore to grow 14% to 16% and our Eat Smart salad products to grow 4% to 6%. Combined with the 23% growth in Eat Smart salad products realized in fiscal 2018, our guidance implies a two year growth rate for salads of approximately 14% per year. We expect O and our new Now Planting line of pure-plant soup products to generate revenues of
“We are projecting consolidated net income from continuing operations, excluding the one-time tax benefit realized in fiscal 2018, to increase 10% to 20% in fiscal 2019 compared to fiscal 2018, resulting in an estimated EPS range of
“For the first quarter of fiscal 2019, we expect revenues to be
The live webcast can be accessed directly at http://ir.Landec.com/events.cfm or on Landec’s website on the Investor Events & Presentations page. The webcast will be available for 30 days.
Direct Webcast link: http://ir.Landec.com/events.cfm
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A replay of the call will be available through
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 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
CONSOLIDATED CONDENSED BALANCE SHEETS
|May 27, 2018||May 28, 2017|
|Cash and cash equivalents||$||2,899||$||5,998|
|Accounts receivable, net||53,877||45,899|
|Prepaid expenses and other current assets||7,958||3,498|
|Other current assets, discontinued operations||510||2,265|
|Total Current Assets||97,063||81,280|
|Investment in non-public company||66,500||63,600|
|Property and equipment, net||159,624||133,220|
|Intangible assets, net||76,352||77,321|
|Other assets, discontinued operations||—||269|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Other accrued liabilities||8,706||9,045|
|Line of credit||27,000||3,000|
|Current portion of long-term debt||4,940||4,940|
|Other current liabilities, discontinued operations||458||2,126|
|Total Current Liabilities||88,375||51,454|
|Long-term debt, less current portion||37,360||42,299|
|Capital lease obligation, less current portion||3,641||3,731|
|Other non-current liabilities||5,280||8,391|
|Additional paid-in capital||142,087||141,680|
|Accumulated other comprehensive income||1,148||432|
|Total Stockholders' Equity||252,562||226,609|
|Total Liabilities and Stockholders’ Equity||$||404,703||$||358,608|
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per-share data)
|Three Months Ended||Fiscal Year Ended|
|May 27, 2018||May 28, 2017||May 27, 2018||May 28, 2017|
|Cost of product sales||116,267||102,145||445,889||390,564|
|Operating costs and expenses:|
|Research and development||3,596||3,556||12,800||9,473|
|Selling, general and administrative||13,139||12,918||51,951||55,071|
|Total operating costs and expenses||16,735||16,474||64,751||64,544|
|Loss on debt refinancing||—||—||—||(1,233||)|
|Net income from continuing operations before taxes||8,702||2,865||16,398||14,175|
|Income taxes benefit (expense)||(1,989||)||(269||)||9,363||(4,040||)|
|Net income from continuing operations||6,713||2,596||25,761||10,135|
|(Loss) income from discontinued operations||(850||)||(204||)||(1,188||)||837|
|Income tax benefit (expense)||250||72||350||(295||)|
|(Loss) income from discontinued operations||(600||)||(132||)||(838||)||542|
|Non-controlling interest expense||(4||)||(12||)||(94||)||(87||)|
|Net income available to common stockholders||$||6,109||$||2,452||$||24,829||$||10,590|
|Diluted net income per share from continuing operations||
|Diluted net (loss) income per share from discontinued operations||$||
|Diluted net income per share||$||0.22||$||0.09||$||0.89||$||0.38|
|Shares used in diluted per share computations||28,008||27,755||27,915||27,652|
FOURTH QUARTER ENDED MAY 27, 2018
QUESTIONS & ANSWERS
1) What are the principal headwinds and tailwinds impacting your fiscal 2019 guidance?
- Labor 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.
North Americahealthy 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.
2) What impact will a lower federal tax rate have on
Starting in fiscal 2019, Landec’s statutory federal rate will be 21%, however, we are projecting that our overall effective tax rate, including state income taxes, will be approximately 25% to 27% as we will be losing certain tax benefits the Company has been able to utilize to reduce its overall effective rate during past years, such as the domestic manufacturing tax deduction. This compares to our effective tax rate in fiscal 2018, before the one-time tax reform benefits, of 31%. We currently expect to reinvest a majority, if not all, of the tax savings in fiscal 2019 back into our businesses in order to drive future revenue and margin growth.
3) Why was the gross margin for your packaged fresh vegetables business lower in fiscal 2018 compared to fiscal 2017 given your higher-margin salad revenues increased 23% in fiscal 2018?
The gross margin in our packaged fresh vegetables business was 10.8% for fiscal 2018 compared to 12.5% in fiscal 2017. The gross margin was lower in fiscal 2018 due to the negative impacts from significant weather events during the first nine months of fiscal 2018 which resulted in a significant increase in the cost of produce. These events include the aftermath of the hurricanes and tropical storms during the summer and fall of 2017 which were exacerbated by freezing temperatures that impacted green bean growing regions of
4) What were Apio’s market share numbers at the end of the fourth quarter of fiscal 2018?
For the 52-weeks ended
5) How are the Eat Smart salads performing in new distribution points such as
Eat Smart salads have performed well in the new distribution gained during fiscal 2018. As a result of strong performance,
6) How is the integration of O Olive progressing?
We recently began producing vinegar in house and anticipate that we will be bringing the entire vinegar production in-house within the next six months. Once our vinegar production reaches full capacity we will be able to meet projected demand for several years. This will also result in a substantial increase in gross profit for our vinegar product line. Regarding olive oil, we just secured a long-term supply agreement with a processor of all varieties of olive oil which O sells and who has access to a large quantity of olives to meet most, if not all, of our supply needs for years to come. Simultaneously, our Apio sales team has begun selling O products to select existing and new customers which is expected to significantly increase O sales in fiscal 2019.
7) What are Landec’s top priorities for the next 12 to 24 months?
Our continuing priorities are:
- Investing in capital expenditures, R&D, people and systems to drive growth in our three growth pillars: (1) Lifecore, (2) Eat Smart salads, and (3) new natural food products.
- Increasing demand for our CDMO products and branded natural food products to fill existing capacity, drive plant efficiencies and increase our return on invested capital.
- Implement new strategies to reduce our exposure to weather related events including: (1) changing our produce sourcing agreements to reduce our risks when yields and/or costs are impacted by weather, (2) reducing our dependency on the more difficult to source produce items by changing our product mix, (3) continuing to change product mix through innovation while rationalizing the size of our core fresh-cut packaged bag business in order to reduce the quantity of certain volatile produce items needed to meet the revised demand, and (4) implementing aggressive cost cutting programs to offset cost increases.
8) How do the results by line of business for the three and twelve months ended
The results are as follows (unaudited and in thousands):
|Three Months Ended||Twelve Months Ended|
May 27, 2018
|May 28, 2017||
May 27, 2018
|May 28, 2017|
|Apio Packaged Fresh Vegetables (a)||$||124,296||$||108,651||$||454,953||$||408,021|
|Apio Packaged Fresh Vegetables||16,726||14,626||49,130||51,148|
|Total Gross Profit||24,809||19,120||78,338||79,212|
|Research and Development:|
|Selling, General and Administrative:|
|Operating Income before Allocation of Corporate Expenses|
|Total Operating Income before Allocation of Corporate Expenses||
|Corporate Expenses Allocation:|
|Operating Income after Allocations of Corporate Expenses:|
|Total Operating Income after Allocations of Corporate Expenses||
|Non-Operating Income (Expense) (c):|
|Total Non-Operating Income||(1,361||)||(50||)||12,174||(4,533||)|
|Net Income from Continuing Operations:|
|Net Income from Continuing Operations||$||6,713||$||2,596||$||25,761||$||10,135|
(a) Apio’s packaged fresh vegetables business includes revenues and gross profit from
(b) Included in Other are Corporate licensing and R&D revenues and Corporate expenses, the non-Apio and non-Lifecore royalties and profit sharing and the O operations.
(c) Non-Operating income (expense) includes: Windset dividends and FMV change, net interest expense and income taxes.
|At the Company:||Investor Relations:|
|Gregory S. Skinner||John Mills, Partner|
|Vice President Finance and CFO||(646) 277-1254|
Source: Landec Corporation