Revenues Meet and Net Income
Exceeds Expectations for First
QuarterCompany Reiterates Full Year
Fiscal 2018 Guidance
Landec Corporation (NASDAQ:LNDC), a leading innovator of
diversified health and wellness solutions within the branded
natural food and biomaterial markets, reported results for the
fiscal 2018 first quarter ended August 27, 2017.
“We continue to make progress against our long-term strategic
plan of driving growth and profitability through internal
innovation capabilities within our natural food business, which
includes Apio, Inc. and O Olive, Inc., and at Lifecore Biomedical,
Inc., our biomaterials business,” commented Molly Hemmeter,
Landec’s President and CEO.
“At Apio, our Eat Smart® packaged fresh vegetables business is
off to a strong start, with first quarter revenues increasing 7%,
or $6.6 million, and gross profit increasing 4% or $609,000
compared to the first quarter last year. This performance was
driven by the launch of the new and innovative Eat Smart Salad
Shake Ups!™ plus expanded distribution in key U.S. accounts such as
Walmart, Kroger, Market Fresh and other accounts, resulting in a
first quarter increase of 72% in Eat Smart salad sales in the U.S.
retail market compared to the year ago quarter. Growth in salad
sales within U.S. retail is essential to Apio achieving its
long-term growth objectives. The U.S. retail market for multi-serve
salad kits is approximately $1.4 billion, or over 80%, of the
approximate $1.7 billion North American multi-serve salad kit
market, including Costco. With essentially all of Apio’s growth
during the first quarter resulting from increased salad sales in
U.S. retail, total Eat Smart salad sales increased by 15% compared
to the year ago quarter. This growth demonstrates that we are well
on the way to achieving our goal of low double-digit revenue growth
in our Eat Smart salad business in fiscal 2018 compared to last
fiscal year,” said Hemmeter.
“The U.S. retail All Commodity Volume (ACV) for Eat Smart
multi-serve salad kits increased by 13 percentage points from 15%
to 28% for the 52 weeks ending July 29, 2017 and was up 4
percentage points sequentially from 24% for the 52-weeks ended May
27, 2017. We expect our ACV to continue to increase over the coming
months as our salads start to fill the shelves at new customers. In
Canada, the retail ACV for Eat Smart multi-serve salad kits is
approximately 81%.
“Lifecore exceeded first quarter revenues and operating income
expectations, also contributing to a strong start to fiscal 2018.
Lifecore has expanded its business beyond its historical
capabilities as a premium supplier of hyaluronic acid (HA) to
become a fully integrated contract development and manufacturing
organization (CDMO), providing differentiated fermentation,
formulation and aseptic fill services for difficult-to-handle
medical materials.
“At O Olive, operating performance was consistent with
expectations with revenues for the quarter of $1.0 million and a
net loss of $132,000. We are starting to gain new customers and new
distribution at O Olive. We still expect O Olive to increase
revenues by $5 million to $6 million and to achieve profitability
in fiscal 2018,” stated Hemmeter.
“Last week, Apio launched EatSmartAtHome.com, an online home
delivery service for the Eat Smart portfolio of packaged fresh
vegetables,” continued Hemmeter. “The new service offers Eat Smart
vegetable bags, trays and salads in a premium online shopping
experience and is available in select Western states. With one- or
two-day delivery directly from Apio headquarters in Guadalupe,
California, customers receive their fresh products within 72 hours
of vegetables being trimmed, washed and prepared. The home delivery
service combined with Apio’s patented BreatheWay® packaging
technology delivers extreme freshness and extended shelf life to
consumers. With a commitment to sustainability, our delivery box,
insulation and ice-packs are all 100% curbside recyclable. No
significant marketing expenses are planned this year, rather we
will leverage online email campaigns and social media to grow
consumer awareness as we build our processing and fulfillment
capabilities,” added Hemmeter.
Fiscal First Quarter 2018 Results Compared to First
Quarter of 2017
- Revenues decreased 7% to $123.4 million
- Gross profit decreased 9% to $19.3 million
- Net income decreased 35% to $2.1 million
“Our consolidated revenues decreased 7% to $123.4 million,
meeting our expectations, and net income decreased 35% to $0.08 per
share compared to the first quarter of last year, exceeding our
expectations,” commented Greg Skinner, Landec’s VP of Finance and
CFO. “Revenues were lower compared to the first quarter last year
due to our strategic decision to discontinue lower-margin export
fruit business, a large majority of which is typically sold during
our fiscal first quarter, resulting in Apio’s commission-based
export business revenues decreasing $15.8 million compared to the
first quarter of last year. As planned, our export gross margin
increased 200 basis points compared to the first quarter of last
year. Consolidated net income was lower than the first quarter of
last year primarily due to an accelerated product shipment at
Lifecore during the first quarter of last year, resulting in an
increase in net income in last year’s first quarter. This shift in
Lifecore revenues in last year’s first quarter resulted in higher
margins and a higher Lifecore contribution to net income in the
first quarter of last year than is typical for a first quarter at
Lifecore. In the first quarter of fiscal 2018, Lifecore’s
contribution to net income returned to a more normal pattern for
the first quarter.”
Fiscal First Quarter 2018 ResultsConsolidated
revenues in the first quarter of fiscal 2018 decreased $9.0
million, to $123.4 million, compared to $132.4 million in the
year-ago quarter. The decrease in revenues was due to a $15.8
million, or 68%, decrease in revenues in Apio’s lower-margin export
business and from a $778,000 decrease in license fee revenues at
Corporate due to the completion of two licensing agreements during
fiscal 2017. These decreases in revenues were partially offset by a
$6.6 million, or 7%, increase in revenues in Apio’s packaged fresh
vegetables business and from the $1.0 million of revenues from O
Olive which was acquired at the beginning of the fourth quarter of
fiscal 2017.
Consolidated net income in the first quarter of fiscal 2018
decreased $1.2 million, or 35%, to $2.1 million, or $0.08 per
share, compared to $3.3 million, or $0.12 per share, in the
year-ago quarter. The decrease was primarily a result of (1) a $1.7
million decrease in operating income at Lifecore due to an
unfavorable product mix shift, which reduced its gross margin to
29.0% during the first quarter of this year from 41.5% during the
first quarter of last year, (2) a $1.2 million decrease in
operating income at Corporate due to the completion of licensing
agreements in fiscal 2017 and an increase in G&A expenses that
were primarily due to additional headcount in the area of business
development and an increase in stock-based compensation, and (3) a
$544,000 decrease in export gross profit due to lower revenues.
These decreases in net income were partially offset by: (1) a
$900,000 increase in the fair market value of the Company’s Windset
investment during the first quarter of fiscal 2018 compared to no
increase in the year-ago quarter, (2) a $609,000 increase in gross
profit in Apio’s packaged fresh vegetable business due to higher
revenues, and (3) a $639,000 decrease in income tax expenses.
Management Comments and Guidance for Fiscal
2018“We are reiterating our fiscal 2018 guidance. We
continue to expect consolidated annual revenues to increase 2% to
4% in fiscal 2018 compared to fiscal 2017 based on our Eat Smart
salad products growing low double digits, Lifecore growing 6% to 8%
and O Olive increasing revenues by $5 to $6 million,” stated
Skinner. “We continue to expect the revenues in Apio’s lower-margin
core and export businesses to decrease $20 to $25 million, a
majority of which was realized during the fiscal first quarter with
the $15.8 million decrease in revenues in Apio’s export business.
We continue to project consolidated net income to increase 35% to
55% in fiscal 2018 compared to fiscal 2017, resulting in an
estimated earnings per share range of $0.52 to $0.58. We expect
consolidated cash flow from operations of $32 million to $36
million and capital expenditures of $44 million to $48 million. For
the second quarter of fiscal 2018, we expect revenues to be in the
range of $135 million to $140 million and net income to be $0.06 to
$0.08 per share. This guidance incorporates the impact from a shift
in product shipments at Lifecore from the second fiscal quarter to
the third and fourth fiscal quarters, which will have no impact on
Lifecore’s full year fiscal 2018 projections. 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.”
“As outlined in our press release last week, the U.S. and Mexico
have faced a series of unprecedented weather and natural disaster
events. Over the past week, weather in the West appears to have
cooled, allowing future crops to return to more favorable yields.
Green beans will continue to be in tight supply in the South
throughout October, but additional costs required to maximize
fulfillment to our customers have been minimized due to proactive
management by our procurement, sales and customer service teams and
the increasingly diverse geographic makeup of our partner growers.
Any cost increases that Apio does incur to service our customers
are expected to be offset by additional revenues from new customers
which are included in our guidance,” concluded Skinner.
Conference CallThe 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.
Date: Wednesday, September 27, 2017Time: 11:00 a.m. Eastern time
(8:00 a.m. Pacific time)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 Wednesday,
October 4, 2017 by calling toll-free (855) 859-2056 or direct (404)
537-3406, and entering code #78782864.
About Landec
CorporationLandec Corporation (NASDAQ:LNDC) is a
leading innovator of diversified health and wellness solutions
within the packaged natural food and biomaterial markets. Landec’s
food business includes Apio, Inc. and O Olive, Inc. Apio™ is a
leader in branded, packaged fresh vegetables in North America,
utilizing its proprietary BreatheWay® packaging technology to
naturally extend the shelf life of fresh produce. Apio combines
this technology with the capabilities of a large national fresh
produce supplier to offer healthy fresh vegetable products under
the Eat Smart® brand to consumers through club and retail grocery
stores. Extending its reach into adjacent natural food products
outside of produce, Landec recently acquired O Olive Oil®, an
organic and natural producer and marketer of olive oils and
vinegars under the O brand. Lifecore Biomedical, Landec’s
biomaterial business, is a fully integrated Contract Development
and Manufacturing Organization (CDMO) that offers expertise and
capabilities in fermentation, specialty formulation, aseptic
filling and final packaging for FDA regulated medical devices and
drugs to customers for applications in a wide array of markets
including Ophthalmic, Orthopedic and Oncology. For more information
about the company, visit Landec’s website at www.landec.com.
Important Cautions Regarding Forward-Looking
StatementsExcept 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 28, 2017 (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.
Landec Corporation |
CONSOLIDATED CONDENSED BALANCE
SHEETS |
(In thousands) |
|
|
August 27, 2017 |
|
May 28, 2017 |
|
(unaudited) |
|
|
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and
cash equivalents |
$ |
8,191 |
|
$ |
5,409 |
Accounts
receivable, net |
|
47,851 |
|
|
47,083 |
Inventories, net |
|
28,139 |
|
|
25,290 |
Prepaid
expenses and other current assets |
|
4,339 |
|
|
3.498 |
Total Current
Assets |
|
88,520 |
|
|
81,280 |
|
|
|
|
Investment in
non-public company |
|
64,500 |
|
|
63,600 |
Property and equipment,
net |
|
132,637 |
|
|
133,220 |
Intangible assets,
net |
|
77,369 |
|
|
76,990 |
Other assets |
|
3,941 |
|
|
2,918 |
Total Assets |
$ |
366,967 |
|
$ |
358,008 |
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
Current
Liabilities: |
|
|
|
Accounts
payable |
$ |
26,951 |
|
$ |
25,868 |
Accrued
compensation |
|
5,386 |
|
|
8,211 |
Other
accrued liabilities |
|
9,751 |
|
|
9,125 |
Deferred
revenue |
|
284 |
|
|
310 |
Line of
credit |
|
10,500 |
|
|
3,000 |
Current
portion of long-term debt |
|
4,940 |
|
|
4,940 |
Total Current
Liabilities |
|
57,812 |
|
|
51,454 |
|
|
|
|
Long-term debt, less
current portion |
|
41,064 |
|
|
42,299 |
Capital lease
obligation, less current portion |
|
3,710 |
|
|
3,731 |
Deferred taxes |
|
25,673 |
|
|
24,581 |
Other non-current
liabilities |
|
7,539 |
|
|
7,791 |
|
|
|
|
Stockholders'
Equity |
|
|
|
Common
stock |
|
28 |
|
|
27 |
Additional paid-in capital |
|
142,587 |
|
|
141,680 |
Accumulated other comprehensive incomeRetained earnings |
|
329 86,616 |
|
|
432 84,470 |
Total Stockholders'
Equity |
|
229,560 |
|
|
226,609 |
Non-controlling interest |
|
1,609 |
|
|
1,543 |
Total Equity |
|
231,169 |
|
|
228,152 |
Total Liabilities and
Stockholders’ Equity |
$ |
366,967 |
|
$ |
358,008 |
LANDEC CORPORATION |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME |
(Unaudited) |
(In thousands, except per share
amounts) |
|
|
Three Months Ended |
|
August 27, 2017 |
August 28,2016 |
Product sales |
$ |
123,357 |
|
$ |
132,394 |
|
|
|
|
Cost of product
sales |
|
104,071 |
|
|
111,250 |
|
|
|
|
Gross profit |
|
19,286 |
|
|
21,144 |
|
|
|
|
Operating costs and
expenses: |
|
|
Research
and development |
|
2,719 |
|
|
1,938 |
|
Selling,
general and administrative |
|
14,045 |
|
|
13,736 |
|
Total operating costs
and expenses |
|
16,754 |
|
|
15,674 |
|
Operating income |
|
2,522 |
|
|
5,470 |
|
|
|
|
Dividend income |
|
413 |
|
|
413 |
|
Interest income |
|
31 |
|
|
4 |
|
Interest expense |
|
(404 |
) |
|
(653 |
) |
Other income |
|
900 |
|
|
— |
|
Net income before
taxes |
|
3,462 |
|
|
5,234 |
|
Income tax expense |
|
(1,250 |
) |
|
(1,889 |
) |
Consolidated net
income |
|
2,212 |
|
|
3,345 |
|
Non-controlling
interest |
|
(66 |
) |
|
(33 |
) |
Net income applicable
to common stockholders |
$ |
2,146 |
|
$ |
3,312 |
|
|
|
|
Diluted net income per
share |
$ |
0.08 |
|
$ |
0.12 |
|
|
|
|
Shares for diluted net
income per share |
|
27,858 |
|
|
27,521 |
|
|
|
|
LANDEC CORPORATIONFIRST
QUARTER ENDED AUGUST 27, 2017QUESTIONS &
ANSWERS
1) Why was the gross margin for your packaged fresh vegetables
business lower in the first quarter this year compared to the first
quarter last year given your salad revenues increased 15%?
The gross margin in our packaged fresh vegetables
business in the first quarter of fiscal 2017 was 15.0%, which was
higher than normal for the first quarter due to a $1.2 million
positive variance from unusually favorable green bean pricing and
yields during the first quarter of last year. This favorable
variance increased our packaged fresh vegetables gross margin by
120 basis points last year. Excluding this favorable variance our
packaged fresh vegetables gross margin in the first quarter last
year would have been 13.8% compared to our gross margin during the
first quarter of this year of 14.6%. In addition, 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 and
thus the product mix shift to greater sales of higher-margin
products, along with specific cost reduction initiatives, is
critical for Apio to meet its goal of increasing its gross margin
year-over-year.
2) Can you remind us how much low margin business you have
relinquished at Apio since you began your right-sizing strategy in
late fiscal 2015 and the reasons for those losses?
Through the first quarter fiscal 2018,
Apio has decreased its core packaged bag business revenues
by a cumulative amount of approximately $50 million as a result of
our strategic decision to discontinue select low margin business
and a couple of large customers deciding to shift from single
sourcing to a multi-source strategy. A large majority of the core
packaged vegetables business we relinquished was low margin
business that carried a very high cost to service. We expect to
decrease our core packaged business by approximately $5 million
more in fiscal 2018 compared to fiscal 2017. In addition, we expect
to have an approximate $15 to $20 million decrease in revenues in
our lower margin export business between fiscal 2017 and 2018. We
intend to complete the right-sizing of both the core packaged bag
business and the export business during this fiscal year which
should continue to result in a higher gross margin at Apio moving
forward.
3) What were Apio’s market share numbers at end of the first
quarter of fiscal 2018?
For the 52 weeks ended July 29, 2017, the size of the
North American market in which Apio participated (vegetable bags,
vegetable trays and multi-serve salad kits) was approximately $3.4
billion in consumer retail dollars, including retail and club
stores. Of this market, Apio’s overall market share is
approximately 16% while Apio’s Eat Smart multi-serve salad kits
have a market share of approximately 13%. In the retail
market, excluding Costco, Eat Smart multi-serve salad kits enjoy a
41% market share in Canada and a 4.8% market share in the U.S. Due
to recent distribution gains in the U.S., the U.S. market share
number is up 120 basis points from a year ago.
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 $600 million to $4.0
billion. This product line is designed to attract new consumers to
the single-serve category that currently has a household
penetration of only 11%. Eat Smart Salad Shake Ups! feature unique
flavors, a 100% clean label, nutrient-rich vegetables and plant
proteins in a patented bowl design that makes it easy to enjoy with
less mess. We are currently distributing these
salads to approximately 25 customers in a total of approximately
3,000 doors. We expect the distribution to continue to grow as new
customers add the products during their future reset
periods.
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 this fall we will have the capacity to meet
projected demand for several years. This will also result is a
substantial increase in gross margin for our vinegar product line.
On the olive oil front, we are in the process of securing long-term
supply of olives and entering into long-term agreements with
processors to crush and bottle our olive oils. Starting in the next
few months, Apio’s sales team will begin selling O Olive products
when they call on existing and new customers which should
significantly increase O Olive sales.
6) What is the status of Windset’s expansion plans and the
permitting issues?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. Harvest of
strawberries began several months ago and harvest of the first
peppers should begin next month.
Windset is also looking at constructing an even larger
strawberry structure on land it owns in the City of Santa Maria. It
is in the early planning stages and any construction of this new
facility will not begin until next calendar year.
Windset is still working with the County of Santa
Barbara on permitting land it is leasing in the County for the
construction of greenhouses using its new type of greenhouse
structures.
7) 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 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
ROIC.c) Investing in capital,
R&D, people and systems to drive growth in our three growth
pillars: (1) Lifecore, (2) Eat Smart salads, and (3) natural food
products. 8)
How do the results by line of business for the three months ended
August 27, 2017 compare with the same period last year?
The results are as follows (unaudited and in
thousands):
|
Three months ended
8/27/17 |
Three months ended 8/28/16 |
Revenues: |
|
|
Apio Packaged
Fresh Vegetables (a) |
$ |
102,568 |
|
$ |
95,945 |
|
Apio
Export |
|
7,576 |
|
|
23,339 |
|
Total
Apio |
|
110,144 |
|
|
119,284 |
|
Lifecore |
|
12,164 |
|
|
12,332 |
|
Other
(b) |
|
1,049 |
|
|
778 |
|
Total
Revenues |
|
123,357 |
|
|
132,394 |
|
|
|
|
Gross
Profit: |
|
|
Apio Packaged
Fresh Vegetables |
|
15,015 |
|
|
14,406 |
|
Apio
Export |
|
484 |
|
|
1,028 |
|
Total
Apio |
|
15,499 |
|
|
15,434 |
|
Lifecore |
|
3,522 |
|
|
5,122 |
|
Other |
|
265 |
|
|
588 |
|
Total
Gross Profit |
|
19,286 |
|
|
21,144 |
|
|
|
|
R&D: |
|
|
Apio |
|
1,009 |
|
|
237 |
|
Lifecore |
|
1,368 |
|
|
1,328 |
|
Other |
|
342 |
|
|
373 |
|
Total
R&D |
|
2,719 |
|
|
1,938 |
|
|
|
|
S,G&A: |
|
|
Apio |
|
8,835 |
|
|
9,561 |
|
Lifecore |
|
1,515 |
|
|
1,406 |
|
Other |
|
3,695 |
|
|
2,769 |
|
Total
S,G&A |
|
14,045 |
|
|
13,736 |
|
|
|
|
Operating
Income: |
|
|
Apio |
|
5,655 |
|
|
5,636 |
|
Lifecore |
|
639 |
|
|
2,388 |
|
Other |
|
(3,772 |
) |
|
(2,554 |
) |
Total
Operating Income |
|
2,522 |
|
|
5,470 |
|
|
|
|
a) Apio’s packaged fresh vegetables business includes
revenues and gross profit from Apio Cooling LP. and Apio
Packaging.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.
Contact Information:
At the Company:Gregory S.
SkinnerVice President Finance and CFO(650) 261-3677
Investor Relations:John Mills, Partner(646)
277-1254John.Mills@ICRINC.com
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