Landec Corporation Reports Second Quarter and First Half Fiscal 2018 Results
Second Quarter Meets Revenue Expectations and Revised Net Income Expectations
Company Reiterates Full Year Fiscal 2018 Guidance
“We continue to make progress toward our long-term strategic plan of driving growth and profitability through internal innovation capabilities within our natural food business, which includes
“At Apio, our Eat Smart® packaged fresh vegetables revenue increased 9% and 8% in the second quarter and first half of fiscal 2018, respectively, compared to the same periods last year. This growth is primarily due to increased Eat Smart salad sales which increased 29% in the second quarter and 22% in the first half of fiscal 2018, compared to the same periods last year. The Eat Smart salad growth was primarily driven by a 64% increase in salad revenues from the U.S. retail channel. The U.S. retail All Commodity Volume (ACV) for Eat Smart multi-serve salad kits for the 52-weeks ending
“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
“We are pleased to announce that
“Lifecore met expectations through the first six months of fiscal 2018 with revenues of
Summary of Second Quarter 2018 Results Compared to Second Quarter of 2017
- Revenues were essentially flat at
- Gross profit decreased 17% to
- Gross profit margin decreased 240 basis points to 11.5%
- Net income decreased 63% to
$487,000or $0.02per share
Revenues in the second quarter of fiscal 2018 were essentially flat at
Gross profit and net income during our second fiscal quarter were negatively impacted by
Net income in the second quarter of fiscal 2018 was
Fiscal Six Months 2018 Results
Revenues in the first six months of fiscal 2018 decreased 3% to
Net income in the first six months of fiscal 2018 was
Management Comments and Guidance for Fiscal 2018
“The performance of our growth businesses - Eat Smart Salads, O Olive and Lifecore - remain strong and each is expected to meet or exceed its growth goals for fiscal 2018, driving increased profitability and partially offsetting the produce sourcing cost increases that impacted the first six months of fiscal 2018,” stated
“We are reiterating our revenue and net income guidance for fiscal 2018. Our net income guidance for fiscal 2018 assumes an effective income tax rate of approximately 31% to 32%, versus historical rates of approximately 36%, as a result of the new corporate income tax rates that became effective on
“We are reiterating our guidance for the year as we expect sales and gross profit from new customers and new products to accelerate during the second half of the year and we expect a lower income tax rate in the second half of fiscal 2018. We continue to expect consolidated annual revenues to increase 2% to 4% in fiscal 2018 compared to fiscal 2017. Our projected annual revenue growth is based on our Eat Smart salad products growing 12% to 15%, up from our prior projection of 10% to 12% growth, Lifecore growing 8% to 10%, up from our prior projection of 6% to 8% growth and O Olive increasing revenues by approximately
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
To participate in the conference call via telephone, dial toll-free (844) 860-6243 or (661) 378-9884. Please call the conference telephone number 5-10 minutes prior to the start time so the operator can register your name and organization. If you have any difficulty with the webcast or connecting to the call, please contact ICR at (646) 277-1254.
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 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
|CONSOLIDATED CONDENSED BALANCE SHEETS|
|November 26, 2017||May 28, 2017|
|Cash and cash equivalents||$||4,369||$||5,409|
|Accounts receivable, net||56,356||47,083|
|Prepaid expenses and other current assets||4,426||3,498|
|Total Current Assets||95,987||81,280|
|Investment in non-public company||65,800||63,600|
|Property and equipment, net||135,271||133,220|
|Intangible assets, net||77,098||76,990|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Other accrued liabilities||8,471||9,125|
|Line of credit||10,000||3,000|
|Current portion of long-term debt||4,940||4,940|
|Total Current Liabilities||70,191||51,454|
|Long-term debt, less current portion||39,829||42,299|
|Capital lease obligation, less current portion||3,688||3,731|
|Other non-current liabilities||6,863||7,791|
|Additional paid-in capital||143,490||141,680|
|Accumulated other comprehensive income||568||432|
|Total Stockholders' Equity||231,189||226,609|
|Total Liabilities and Stockholders’ Equity||$||379,308||$||358,008|
|CONSOLIDATED CONDENSED STATEMENTS OF INCOME|
|(In thousands, except per-share data)|
|Three Months Ended||Six Months Ended|
|November 26,||November 27,||November 26,||November 27,|
|Cost of product sales||120,705||116,912||224,776||228,162|
|Operating costs and expenses:|
|Research and development||3,372||1,965||6,091||3,903|
|Selling, general and administrative||12,934||13,724||26,979||27,460|
|Total operating costs and expenses||16,306||15,689||33,070||31,363|
|Operating (loss) income||(554||)||3,264||1,968||8,734|
|Loss on debt refinancing||—||(1,233||)||—||(1,233||)|
|Net income before taxes||720||2,067||4,183||7,301|
|Consolidated net income||513||1,374||2,725||4,719|
|Net income available to common stockholders||$||487||$||1,326||$||2,633||$||4,638|
|Diluted net income per share||$||0.02||$||0.05||$||0.09||$||0.17|
|Shares used in diluted per share computations||27,875||27,618||27,866||27,572|
SECOND QUARTER ENDED
QUESTIONS & ANSWERS
1) What impact will a lower federal tax rate have on
Because the new federal tax rate went into effect on
Starting in fiscal year 2019, even though the statutory federal rate is 21%, we are projecting that our effective tax rate will be approximately 24% to 26% 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 to name one.
2) Why was the gross margin for your packaged fresh vegetables business lower in the second quarter this year compared to the second quarter last year given your salad revenues in the second quarter increased 29%?
The gross margin in our packaged fresh vegetables business of 8.8% in the second quarter of fiscal 2018 was negatively impacted by significant produce sourcing issues as a result of hurricanes and tropical storms which resulted in incremental produce sourcing costs of approximately
Other factors impacting the packaged fresh vegetables business gross margin in fiscal 2018 include higher labor rates and increased promotional spending. The labor rate in Apio’s packaged fresh vegetables business is expected to increase 10% to 12% in fiscal 2018 compared to last year as a result of a scarcity of plant labor workers in all of the locations where we process our products. Labor represents approximately 11% of the cost of sales in our packaged fresh vegetables business. We are also increasing in-store promotional spending this year to drive consumer trials of our salads as we gain new distribution.
In order to meet the Company’s goal of increasing its gross margin year-over-year, excluding unplanned incremental produce sourcing costs, Apio continues to shift its product mix to greater sales of higher-margin products, along with specific cost reduction initiatives.
3) What were Apio’s market share numbers at end of the second quarter of fiscal 2018?
For the 52-weeks ended
Our goal is to continue to aggressively grow the Eat Smart market share and ACV for all our multi-serve salad kit products as well as our newly launched single-serve salad kit products.
4) How are the new single-serve salads doing?
During the fourth quarter of fiscal 2017, Apio entered the single-serve salad kit segment with the launch of its innovative Eat Smart Salad Shake Ups!, increasing the total addressable market for our Eat Smart products in the North American value-added vegetable market by approximately
5) How is the integration of O Olive progressing?
The integration of O Olive is progressing according to plan. We are in the process of bringing its vinegar production in house so we no longer will need to use a third party to process our vinegar. When completed during the third quarter of fiscal 2018, we will have the capacity to meet projected demand for several years. This will also result in a substantial increase in gross margin for our vinegar product line. Regarding olive oil, we are making progress on securing long-term supply of olives and entering into long-term agreements with processors to crush and bottle our olive oils. In addition, at Costco in
6) Lifecore revenues are up 8% during the first six months of fiscal 2018 compared to the same period last year, however, operating income is down 34%. Why the large variance between revenue and operating income?
The variance is primarily a result of a shift in higher margin product shipments to later in the fiscal year compared to the previous fiscal year. In addition, production of new aseptic products and the related overhead absorption has shifted to the second half of fiscal 2018, which has resulted in lower margins in the first half of fiscal 2018 compared to the first half of fiscal 2017.
7) What is the status of Lifecore’s new vial filling line?
Lifecore is on schedule to complete the installation of its new filling line by fiscal year end 2018. This new line will further enhance its growth strategy as a CDMO. It is specifically designed to align Lifecore’s capability with market expectations of its partners, from both a capability and capacity perspective. This investment gives Lifecore the incremental capability for filling commercial quantities of drug products in a vial, which expands the breadth of products and markets Lifecore will be able to serve. The new filling line, which expands capacity by 45%, can be used to fill either vials or syringes allowing significant versatility and increased capacity utilization. Beginning in fiscal 2019, this new line will be used to begin commercialization of products currently in development at Lifecore.
8) What are Landec’s top priorities for the next 12 to 24 months?
Our continuing priorities are:
a) Focusing on innovation at Apio, O Olive and Lifecore in order to shift Landec’s overall product mix to higher margin products.
b) Increasing demand for our branded natural food products and biomaterials products to fill existing capacity, drive plant efficiencies and increase our return on invested capital.
c) 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) natural food products.
9) How do the results by line of business for the three and six months ended
The results are as follows (unaudited and in thousands):
|Apio Packaged Fresh Vegetables (a)||$||107,152||$||97,978||$||209,720||$||193,923|
|Apio Packaged Fresh Vegetables||9,445||12,001||24,460||26,407|
|Total Gross Profit||15,752||18,953||35,038||40,097|
|Total Operating. (Loss) Income||(554||)||3,264||1,968||8,734|
(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 Olive operations.
|At the Company:||Investor Relations:|
|Gregory S. Skinner||John Mills, Partner|
|Vice President Finance and CFO||(646) 277-1254|
Source: Landec Corporation