Landec Corporation Reports Third Quarter and First Nine Months Fiscal 2018 Results
“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 15% in the third quarter and 10% in the first nine months of fiscal 2018, compared to the same periods last year. This increase is primarily due to growth of Eat Smart salad sales which increased 27% in the third quarter and 24% in the first nine months of fiscal 2018, compared to the same periods last year. The Eat Smart salad growth was primarily driven by a 57% increase in salad revenues from the U.S. retail channel during the first nine months of fiscal 2018. 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
“Gross profit gains from higher sales of our Eat Smart salad products in the third quarter and first nine months of fiscal 2018 were more than offset by the previously announced weather issues that negatively impacted our produce sourcing costs within our lower margin fresh-cut vegetable bag business. The third quarter was adversely impacted by the cold weather in
“At O Olive, operating performance for the first nine months of fiscal 2018 is slightly below expectations with revenues of
“Lifecore had a very profitable quarter with revenues of
Summary of Third Quarter 2018 Results Compared to Third Quarter of 2017
- Revenues increased 9% to a record
- Gross profit decreased 14% to
- Gross profit margin decreased 370 basis points to 13.5%
- Operating income decreased 26% to
Revenues in the third quarter of fiscal 2018 increased 9% to
Gross profit and net income during our third fiscal quarter were negatively impacted by
Reported net income in the third quarter of fiscal 2018 was
Fiscal Nine Months 2018 Results
Revenues in the first nine months of fiscal 2018 increased 1% to
Net income in the first nine 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 with both Eat Smart Salads and Lifecore revenues expected to significantly exceed their respective revenue goals for fiscal 2018, driving increased profitability and partially offsetting the unplanned produce sourcing cost increases from our fresh-cut vegetable bag business that impacted the first nine months of fiscal 2018,” stated
“As we previously announced on
“For the fourth quarter of fiscal 2018 we expect revenues from continuing operations, which exclude the food export business, to increase 13% to 16% compared to the fourth quarter of last year. Key drivers of this growth include our Eat Smart salad product sales growing 12% to 15%, Lifecore revenues growing 40% to 43%, and O Olive recognizing revenues of between
“For all of fiscal 2018, we expect revenues from continuing operations to grow 10% to 12% compared to the prior year. This growth is being driven by Lifecore revenues that are now projected to grow 10% to 11%, up from our original projection of 6% to 8%, and by Eat Smart salad sales that are now projected to grow 20% to 23%, up from our original projection of 10% to 12% and from our most recent projection in our
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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|
|February 25, 2018||May 28, 2017|
|Cash and cash equivalents||$||7,650||$||5,409|
|Accounts receivable, net||50,438||47,083|
|Prepaid expenses and other current assets||7,614||3,498|
|Total Current Assets||94,451||81,280|
|Investment in non-public company||65,800||63,600|
|Property and equipment, net||143,362||133,220|
|Intangible assets, net||76,859||77,590|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Other accrued liabilities||10,369||9,125|
|Line of credit||12,000||3,000|
|Current portion of long-term debt||4,940||4,940|
|Total Current Liabilities||71,187||51,454|
|Long-term debt, less current portion||38,595||42,299|
|Capital lease obligation, less current portion||3,665||3,731|
|Other non-current liabilities||6,417||8,391|
|Additional paid-in capital||144,498||141,680|
|Accumulated other comprehensive income||915||432|
|Total Stockholders' Equity||248,632||226,609|
|Total Liabilities and Stockholders’ Equity||$||385,836||$||358,608|
|CONSOLIDATED CONDENSED STATEMENTS OF INCOME|
|(In thousands, except per-share data)|
|Three Months Ended||Nine Months Ended|
|February 25,||February 26,||February 25,||February 26,|
|Cost of product sales||129,195||113,136||353,971||341,298|
|Operating costs and expenses:|
|Research and development||3,113||2,014||9,204||5,917|
|Selling, general and administrative||13,807||15,009||40,786||41,969|
|Legal settlement charge||—||2,080||—||2,580|
|Total operating costs and expenses||16,920||19,103||49,990||50,466|
|Loss on debt refinancing||—||—||—||(1,233||)|
|Net income before taxes||3,177||5,050||7,360||12,351|
|Income taxes benefit (expense)||12,909||(1,556||)||11,451||(4,138||)|
|Consolidated net income||16,086||3,494||18,811||8,213|
|Non-controlling interest benefit (expense)||2||6||(90||)||(75||)|
|Net income available to common stockholders||$||16,088||$||3,500||$||18,721||$||8,138|
|Diluted net income per share||$||0.58||$||0.13||$||0.67||$||0.29|
|Shares used in diluted per share computations||27,918||27,682||27,884||27,608|
THIRD QUARTER ENDED
QUESTIONS & ANSWERS
1) What impact will a lower federal tax rate have on
For the fourth quarter of fiscal 2018 we expect an overall effective tax rate of approximately 32%, which is the estimated effective tax rate for all of fiscal 2018.
Starting in fiscal year 2019, the statutory federal rate will be 21%, however, we are projecting that our overall effective tax rate, including state income taxes, 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. This compares to our historical overall effective tax rate of approximately 36%. We currently expect to reinvest a majority, if not all, of the tax benefit in fiscal 2019 back into our businesses in order to drive future revenue and margin growth.
2) Why was the gross margin for your packaged fresh vegetables business lower in the third quarter this year compared to the third quarter last year given your salad revenues in the third quarter increased 27%?
The gross margin in our packaged fresh vegetables business of 6.6% in the third quarter of fiscal 2018 was negatively impacted by significant weather events. 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
The 9.6% and 12.2% gross margins noted above for the third quarter and nine months of fiscal 2018 include higher than planned labor rates and 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, more than 10% higher than originally planned, as a result of a scarcity of plant labor workers in all of the locations where we process our products. Labor represents approximately 13% of the cost of sales in our packaged fresh vegetables business. In addition, as an investment in future growth, we are spending more this year on in-store promotions than originally planned to drive consumer trials of our salads, particularly our new single-serve Eat Smart Salad Shake Ups!.
3) What were Apio’s market share numbers at end of the third quarter of fiscal 2018?
For the 52-weeks ended
Our goal is to continue to aggressively grow the Eat Smart market share and ACV in the U.S. 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?
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 are making progress on securing long-term supply of olives and recently entered into one new long-term agreement. We are in the process of exploring other long-term olive oil supply opportunities. Simultaneously, our Apio sales team has just begun offering O Olive products to select existing and new customers which is expected to significantly increase O Olive sales in fiscal 2019.
6) Lifecore revenues are up 3% during the first nine months of fiscal 2018 compared to the same period last year, however, operating income is down 18%. Why the large variance between revenue and operating income?
The variance is primarily a result of a shift in some higher margin product shipments to the fourth quarter of fiscal 2018. For all of fiscal 2018, we now expect Lifecore revenues to increase approximately 10% to 11% compared to fiscal 2017 and operating income to increase approximately 8% to 9%.
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 which 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) 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 “right size” and rationalize 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) continuing to implement aggressive cost cutting programs to offset cost increases.
d) 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 nine months ended
The results are as follows (unaudited and in thousands):
|Three Months Ended||Nine Months Ended|
|Apio Packaged Fresh Vegetables (a)||$||120,942||$||105,447||$||330,662||$||299,370|
|Apio Food Export||4,414||7,276||25,982||56,316|
|Apio Packaged Fresh Vegetables||7,944||10,114||32,404||36,522|
|Apio Food Export||318||558||1,628||3,436|
|Total Gross Profit||20,128||23,432||55,166||63,529|
|Research and Development:|
|Selling, General and Administrative:|
|Total Operating Income||$||3,208||$||4,329||$||5,176||$||13,063|
(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