Consumables

Landec Corporation Reports Third Quarter and First Nine Months Fiscal Year 2011 Results

Wednesday 30. March 2011 - Landec Corporation (Nasdaq:LNDC), today reported results for the third quarter and first nine months of fiscal year 2011. For the third quarter of fiscal year 2011, revenues increased 26% to $73.5 million and net income increased 33% to $2.3 million compared to the third quarter of fiscal year 2010.

Third Quarter Results
Landec revenues increased $15.4 million during the third quarter of fiscal year 2011 compared to the third quarter of fiscal year 2010, primarily due to the recently acquired hyaluronan-based biomaterials subsidiary, Lifecore Biomedical, Inc., which generated $12.2 million in revenues. In addition, Apio, Inc. export revenues increased $3.7 million, or 43%, compared to the third quarter last year. Increases in revenues were partially offset by lower revenues from Apio’s value-added, fresh-cut vegetable business due to weather-related produce sourcing issues.
Net income increased for the third quarter of fiscal year 2011 to $2.3 million, or $0.09 per diluted share, due to the $4.2 million of net income before taxes from Lifecore. The increase in net income was partially offset by a $2.4 million decrease in Apio net income before taxes primarily due to Apio’s value-added business, and from a $917,000 increase in operating costs at Corporate, primarily attributed to an increase in stock based compensation expenses and higher accounting and tax service fees.
Gross margin improved 3.0 percentage points to 17.0% during the third quarter of fiscal year 2011 compared to 14.0% in the third quarter of fiscal year 2010, representing a 54%, or $4.4 million, increase in gross profit. This increase is attributed to $6.8 million in gross profit contributed by Lifecore, partially offset by the $2.6 million decrease in gross profit in Apio’s value-added business.
Gary Steele, Landec Chairman and CEO, commented, “Considerable progress was made during Landec’s third quarter including: (1) the continuing successful integration of Lifecore with very good results, (2) progress with Monsanto in going from laboratory chemistry to biological lab tests, (3) the advancement by Air Products using Landec’s Intelimer(R) technology for personal care products which has now been formulated into nearly 50 products, and (4) continuing expansion by Chiquita of its program for Fresh & Ready(R) Avocados packaged in Landec’s BreatheWay(R) technology.”
Nine Months Results
Landec revenues increased $28.6 million, or 16%, to $208.6 million for the first nine months of fiscal year 2011 compared to the same period a year ago. The increase in revenues was due to $27.0 million of revenues from Lifecore and a $7.1 million increase in Apio’s export business. These increases were partially offset by a $3.3 million decrease in revenues in Apio’s value-added business and a $2.1 million decrease in Apio’s domestic buy/sell business which Apio exited during fiscal year 2011.
Net income for the first nine months increased 22% to $6.7 million or $0.25 per diluted share compared to net income of $5.5 million or $0.20 per diluted share for the same period last year. Net income for the first nine months of fiscal year 2011 increased $1.2 million compared to the first nine months of last year, primarily due to the $7.7 million of net income before taxes from Lifecore. This increase was partially offset by a $3.4 million decrease in Apio net income before taxes primarily due to Apio’s value-added business. The increase in net income was also partially offset by a $2.0 million increase in operating costs at Corporate due primarily to (1) an increase in stock based compensation expenses, (2) an increase in R&D expenses due to the hiring of scientific staff, and (3) an increase in accounting and tax service fees. In addition, the increase in net income was partially offset by a $662,000 increase in income taxes and from $606,000 of Landec Ag operating expenses as a result of the amendment to our agreement with Monsanto in November 2009.
For the first nine months of fiscal year 2011 gross margin improved 3.7 percentage points to 17.3% compared to 13.6% in the first nine months of fiscal year 2010, representing a 48%, or $11.7 million, increase in gross profit. This increase is attributed to $15.2 million in gross profit contributed by Lifecore, partially offset by the $3.6 million decrease in gross profit in Apio’s value-added business.
Landec ended the quarter with $38.4 million in cash and marketable securities and for the first nine months of fiscal year 2011, Landec generated $12.4 million in cash from operations, a 76% increase over the same period last year.
Management Comments andGuidance
During the third quarter of fiscal year 2011, Landec announced that Apio purchased $15 million of Senior Preferred Shares and $201 of Common Shares in Windset Holdings 2010 Ltd. (“Windset”). The investment represents a 20.1% equity ownership by Apio in Windset. Greg Skinner, Landec’s CFO stated, “This investment includes a 7.5% annual cash dividend on the Senior Preferred Shares plus Apio will recognize quarterly 20.1% of the change in the fair value of Windset as non-operating income (loss). We are excited to be an investor in Windset, one of the leaders in hydroponically grown produce.”
Dennis Allingham, Lifecore’s CEO, said, “Lifecore’s product revenues primarily consist of sales of hyaluronan raw material and aseptically filled hyaluronan finished goods. Orders are filled based on customer requests, which can vary significantly quarter to quarter and which can affect margins based on the sales mix. During the third quarter of fiscal year 2011, certain orders planned for the fourth quarter were filled and shipped at customers’ requests during the third quarter, resulting in the exceptionally strong third quarter for Lifecore in revenue and sales mix. Because some orders planned for the fourth quarter were shipped during the third quarter, we are currently projecting for the fourth quarter that Lifecore revenues will be approximately $5.5 million and that Lifecore will generate a net loss of approximately $600,000 as a result of product volume and sales mix timing. Overall, Lifecore is having an excellent year and is expected to exceed its plan for fiscal year 2011 for both revenues and income.”
“Going into our fourth fiscal quarter, we continue to experience adverse weather conditions with heavy rains throughout California,” stated Ron Midyett, Apio’s CEO. “We cannot predict what the weather conditions will be during the balance of our fiscal year 2011 or how the weather conditions might impact Apio’s value-added, fresh-cut vegetable business.”
Continued Mr. Steele, “We believe at this time that we can meet our existing guidance for revenue growth of 12% to 15%. However, as a result of the continuing weather related sourcing issues at Apio and the uncertainty about the impact these sourcing issues will have on our operating results during our fourth fiscal quarter, it would not be prudent at this time to declare new earnings per share guidance other than to state we believe our earnings per share should show growth over last year’s earnings per share of $0.29 after excluding the non-recurring charges in fiscal year 2010, but will probably fall short of the lower end of our recent earnings per share guidance for fiscal year 2011 of $0.34.”
“Landec’s strategy, as evidenced by the growth in revenues and gross margin during the first nine months of fiscal year 2011, is to continue to shift its revenue mix to higher margin businesses by identifying and taking advantage of high margin business opportunities and by investing in new product development,” concluded Mr. Steele.