Fourth Quarter Revenues Increase 40% for
Lifecore and 22% for Eat Smart SaladsLandec
Launches Innovative Natural Foods Plant-based Brand, Now
Planting®
Landec Corporation (Nasdaq: LNDC), a leading innovator of
diversified health and wellness solutions within the branded
natural foods and contract development and manufacturing (“CDMO”)
markets, reported results for the fiscal 2018 fourth quarter and
fiscal year ended May 27, 2018.
“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 Apio, Inc. and O Olive Oil & Vinegar® (“O”), and
within our CDMO business, Lifecore Biomedical, Inc. Landec
consolidated revenues from continuing operations in fiscal 2018
increased 12% to $524.2 million primarily due to a $46.9 million or
12% increase in revenues in Apio’s packaged fresh vegetables
business and from a $6.0 million or 10% increase in Lifecore
revenues. Net income from continuing operations in fiscal 2018 was
$0.92 per share or $0.41 excluding the one-time tax benefit of
$0.51,” commented Molly Hemmeter, Landec’s President and CEO.
“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 New Venture
Group (“NVG”) created and is preparing to launch a new natural
foods brand called Now Planting®, that will focus on pure-plant
meal solutions for the plant-forward consumer. The first product
platform to be introduced under Now Planting brand is a full line
of fresh, pure-plant soups that will begin shipping in the second
quarter of fiscal 2019 to select customers,” noted
Hemmeter.
Lifecore
“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 $16.2
million and a gross margin of 51%. Revenues increased 40% and gross
profit doubled compared to the fourth quarter of last year. For
full year fiscal 2018, Lifecore revenues increased 10% while gross
profit increased 7% and operating income increased 9% compared to
fiscal 2017.
“The installation of Lifecore’s new $16 million multi-purpose
filling line is complete and validation will begin during the
second quarter of fiscal 2019 with commercial production projected
to begin in late fiscal 2019 or early fiscal 2020. The new line
will further enhance Lifecore’s growth strategy as a CDMO, which is
specifically designed to align Lifecore’s capabilities with the
growing needs and market expectations of its partners. This
investment provides Lifecore the incremental capacity to fill
commercial quantities of drug products in vials, which expands the
breadth of products and markets that Lifecore will be able to
address. Although the new line will be primarily utilized to
fill vials, it can also be used to fill syringes, which provides
significant versatility and increased capacity utilization. At full
capacity, the new dual filling line has the potential to generate
$40 million to $50 million of new product revenues annually.
Revenues and net income contribution will vary due to the product
mix manufactured on the new line during any given year,” stated
Hemmeter.
Natural Foods
“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 Landec natural foods business has a unique
combination of capabilities that makes it truly differentiated in
the market, with proven internal innovation capabilities, a
refrigerated supply chain and a direct produce sales force.
Landec’s natural foods business is uniquely positioned to deliver
on-trend, plant-based and fresh solutions to consumers. We continue
to invest in development programs and capital to make this
transformation successful. These investments will negatively impact
profits in our natural foods business in the short-term but are
establishing a path to meaningful profit growth and enhanced
shareholder value in the long-term,” commented Hemmeter.
“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 May 26, 2018
increased 21 percentage points, from 24% to 45%, and increased 600
basis points sequentially from 39% for the 52-weeks ended January
27, 2018. The increase in ACV and growth in salad revenues during
fiscal 2018 was driven by new and expanded distribution in key U.S.
accounts such as Walmart, Kroger, Target and others. This
incremental distribution in U.S. retail for multi-serve salads
occurred more rapidly than originally anticipated, leading to the
considerably higher 23% growth in Eat Smart salad sales versus the
10% to 12% that we originally forecasted, as some of the salad
growth we expected to occur in fiscal 2019 was accelerated into
fiscal 2018.
“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 $1.5 billion, representing approximately 78% of the
$1.9 billion North American multi-serve salad kit market, including
Costco. According to Nielsen, the market share of Eat Smart
multi-serve salad kits in U.S. retail increased 170 basis points to
6.2% for the 52-weeks ended May 26, 2018, from 4.5% for the
52-weeks ended May 27, 2017, demonstrating continued distribution
gains,” added Hemmeter.
“O operating performance for the fourth quarter fell short of
expectations with revenues of $0.6 million and an operating loss of
$0.6 million. For full year fiscal 2018, operating results were
also below expectations with revenues of $3.8 million and an
operating loss of $1.0 million. This shortfall was primarily due to
permitting delays and the impact from the historic fires in
Northern California during the second quarter of the fiscal year
that resulted in a nearly seven month delay to the startup of its
new vinegar production facility operations. Despite these
obstacles, O revenues grew 12% compared to the twelve months ended
May 28, 2017.
“O, the premier producer of high-quality, great-tasting
California olive oils and vinegars, recently introduced O Organic
Apple Cider Vinegar. Carefully fermented in California’s Sonoma
Valley, O Organic Apple Cider Vinegar is full of bright, fresh
apple flavor without a harsh aftertaste. With no artificial flavors
or preservatives, O Organic Apple Cider Vinegar is raw, unfiltered
and contains live cultures. The market for apple cider vinegar in
U.S. retail has increased rapidly over the last three years
reaching $245 million in U.S. consumer retail sales for the
52-weeks ended June 30, 2018, and according to Nielsen, the market
is growing at an average annual growth rate of 20%, driven by 44%
growth in organic products for the same period. O intends to
penetrate this market with a better tasting, organic apple cider
vinegar product option. O began shipping its organic apple cider
vinegar to initial customers in June 2018,” stated Hemmeter.
Fourth Quarter 2018 Results Compared to Fourth Quarter
2017 from Continuing Operations
- Revenues increased 16% to $141.1 million
- Gross profit increased 30% to $24.8 million
- Net income increased 159% to $6.7 million or $0.24 per 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 $141.1 million, compared to $121.3
million in the year-ago quarter. The increase was primarily due to
a $15.6 million or 14% increase in revenues in Apio’s packaged
fresh vegetables business and from a $4.6 million or 40% increase
in Lifecore revenues.
Net income from continuing operations in the fourth quarter of
fiscal 2018 was $6.7 million, or $0.24 per share, compared to $2.6
million, or $0.09 per share, in the year-ago quarter. The increase
was a result of (1) a $4.1 million or 100% increase in gross profit
at Lifecore, (2) a $2.1 million or 14% increase in gross profit in
Apio’s packaged fresh vegetables business, and (3) a $500,000
increase in the change in the fair market value of the Company’s
investment in Windset, from a $200,000 increase in the fourth
quarter of last year compared to a $700,000 increase in the fourth
quarter of fiscal 2018. These increases in net income were
partially offset by a $1.7 million increase in income tax expenses.
The $1.7 million increase in income taxes was net of a $606,000 tax
benefit resulting from the Tax Cuts and Jobs Act (“TCJA”) enacted
in December 2017.
Fiscal 2018 Results from Continuing Operations Compared
to Fiscal 2017
- Revenues increased 12% to $524.2 million
- Gross profit decreased 1% to $78.3 million
- Net income increased 154% to $25.8 million or $0.92 per diluted
share, which includes the one-time $0.51 tax benefit
Revenues from continuing operations in fiscal 2018 increased 12%
to $524.2 million compared to $469.8 million last year. The
increase was primarily due to a $46.9 million or 12% increase in
revenues in Apio’s packaged fresh vegetables business and from a
$6.0 million or 10% increase in Lifecore revenues.
Net income from continuing operations for fiscal 2018 was $25.8
million, or $0.92 per share, compared to $10.1 million, or $0.36
per share, in the year-ago period. The increase was a result of (1)
a $14.3 million, or $0.51 per share, one-time tax benefit from the
new lower corporate income tax rate as a result of TCJA, (2) a $2.0
million increase in the change in the fair market value of the
Company’s investment in Windset from a $900,000 increase last year
compared to $2.9 million increase in fiscal 2018, (3) a $1.8
million or 7% increase in gross profit at Lifecore, and (4) a $1.2
million decrease from the loss on debt refinancing during fiscal
2017. These increases in net income were partially offset by (1) a
$2.0 million or 4% decrease in gross profit in Apio’s packaged
fresh vegetables business primarily due to $7.8 million of
unplanned produce sourcing costs as a result of weather related
issues during the first nine months of fiscal 2018 and (2) an
$815,000 increase in the pre-tax loss at O.
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
North America, NVG identified a large, underserved target group of
consumers who define healthy eating as primarily plant-based. To
meet the needs of this consumer, Landec created the Now Planting
brand which will offer pure-plant meal solutions for the fresh,
refrigerated sections of retail and club stores.
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 Canada (23% of the population), more people are
searching for and finding pure-plant meal solutions outside of
traditional grocery and in fast-casual restaurants, through
direct-to-consumer meal kit solutions and by cooking in their
homes. Landec is uniquely qualified to partner with retail and club
stores to deliver pure-plant meal solutions to this consumer.
Landec’s entrepreneurial innovation team, refrigerated food supply
chain and direct produce salesforce will develop and deliver fresh,
pure-plant solutions that will increase consumer foot traffic and
sales for our retail and club store customers over the coming
years.
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 Landec for significant revenue
and income growth in the coming years.”
Greg Skinner, Landec’s Vice President of Finance and CFO stated,
“Lifecore’s growth trajectory remains intact with expectations for
low-to-mid-teen revenue growth on average over the next five years.
The recent completion of Lifecore’s new dual vial and syringe
filling line has significantly increased Lifecore’s capacity and
will begin generating additional revenue for Lifecore in late
fiscal 2019 or early fiscal 2020 and beyond. For Landec’s natural
food businesses, we expect revenues of Eat Smart salads and natural
food products combined to generate low double-digit revenue growth
on average over the next five years. All of these growth businesses
are aligned with our long-term strategy to shift our product mix
toward higher margin products. As for our historical core bags and
trays products in our food business, we expect revenues will be
relatively flat over the next five years.”
“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 $7 million to $9 million. We expect the
revenue in Apio’s core bags and trays businesses to increase 2% to
3% while simultaneously shifting product and customer mix to
deliver higher margins,” continued Skinner.
“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 $0.45 to $0.50. These
projections provide the basis for expected cash flow from
operations in the range of $32 million to $36 million and capital
expenditures of $45 million to $50 million in fiscal 2019. Over $15
million of the projected capital expenditures for fiscal 2019 are
from projects that had been expected to be completed in fiscal 2018
but were delayed for various reasons. The remaining $30 million to
$35 million will be primarily focused on capacity expansion, cost
reduction initiatives and innovation.
“For the first quarter of fiscal 2019, we expect revenues to be
$123 million to $128 million and net income to be breakeven to
$0.01 per share. The projected decrease in net income compared to
the $0.08 per share from continuing operations in the first quarter
of last year is due to (1) the timing of production and product mix
within the fiscal year at Lifecore and (2) startup expenses from
the launch of Now Planting soups and O’s new vinegar production
facility,” 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, August 1, 2018Time: 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, August
8, 2018 by calling toll-free (855) 859-2056 or direct (404)
537-3406, and entering code #8777468.
About Landec CorporationLandec Corporation
(Nasdaq: LNDC) is a leading innovator of diversified health and
wellness solutions within the packaged natural food and CDMO
markets. Lifecore Biomedical is a fully integrated 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. Landec’s
natural food business sells products with 100% clean ingredients
and includes Eat Smart®, O, and Now Planting® brands, with a
refrigerated supply chain that ensures fresh food delivery. Eat
Smart is a leader in packaged fresh vegetables in North America,
utilizing its proprietary BreatheWay® packaging technology to
naturally extend the shelf life of fresh produce. O offers organic
and natural premium olive oils and vinegars with real ingredients
sourced from California growers. Now Planting is the Company’s
recently launched brand focused on delivering pure-plant meal
solutions to plant-forward consumers, with an initial offering of
pure-plant soups. 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 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
CORPORATIONCONSOLIDATED CONDENSED BALANCE
SHEETS(In thousands) |
| |
| |
May 27, 2018 |
|
May 28, 2017 |
| |
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
| Current
Assets: |
|
|
|
|
|
| Cash and cash equivalents |
$ |
2,899 |
|
$ |
5,998 |
| Accounts receivable, net |
|
53,877 |
|
|
45,899 |
| Inventories, net |
|
31,819 |
|
|
23,620 |
| 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 |
|
5,164 |
|
|
2,918 |
| Other
assets, discontinued operations |
|
— |
|
|
269 |
| Total
Assets |
$ |
404,703 |
|
$ |
358,608 |
| |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
| Current
Liabilities: |
|
|
|
|
|
| Accounts payable |
$ |
34,668 |
|
$ |
24,527 |
| Accrued compensation |
|
9,978 |
|
|
7,506 |
| Other accrued liabilities |
|
8,706 |
|
|
9,045 |
| Deferred revenue |
|
2,625 |
|
|
310 |
| 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 |
| Deferred
taxes |
|
17,485 |
|
|
24,581 |
| Other
non-current liabilities |
|
5,280 |
|
|
8,391 |
| |
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
| Common stock |
|
28 |
|
|
27 |
| Additional paid-in capital |
|
142,087 |
|
|
141,680 |
| Accumulated other comprehensive income |
|
1,148 |
|
|
432 |
| Retained earnings |
|
109,299 |
|
|
84,470 |
| Total
Stockholders' Equity |
|
252,562 |
|
|
226,609 |
| Non-controlling interest |
|
— |
|
|
1,543 |
| Total
Equity |
|
252,562 |
|
|
228,152 |
| Total Liabilities and Stockholders’ Equity |
$ |
404,703 |
|
$ |
358,608 |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
LANDEC
CORPORATIONCONSOLIDATED CONDENSED STATEMENTS
OF INCOME(In thousands, except per-share
data)(unaudited) |
|
| |
|
|
|
| |
|
|
Three Months Ended |
|
Fiscal Year Ended |
|
| |
|
|
May 27, 2018 |
|
May 28, 2017 |
|
May 27, 2018 |
|
May 28, 2017 |
|
| Product Sales |
$ |
141,076 |
|
|
$ |
121,265 |
|
|
$ |
524,227 |
|
|
$ |
469,776 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Cost of product sales |
|
116,267 |
|
|
|
102,145 |
|
|
|
445,889 |
|
|
|
390,564 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
24,809 |
|
|
|
19,120 |
|
|
|
78,338 |
|
|
|
79,212 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
| Operating income |
|
8,074 |
|
|
|
2,646 |
|
|
|
13,587 |
|
|
|
14,668 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Dividend income |
|
412 |
|
|
|
412 |
|
|
|
1,650 |
|
|
|
1,650 |
|
|
| Interest income |
|
51 |
|
|
|
— |
|
|
|
211 |
|
|
|
16 |
|
|
| Interest expense |
|
(535 |
) |
|
|
(393 |
) |
|
|
(1,950 |
) |
|
|
(1,826 |
) |
|
| Loss on debt refinancing |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,233 |
) |
|
| Other income |
|
700 |
|
|
|
200 |
|
|
|
2,900 |
|
|
|
900 |
|
|
| 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 |
|
|
| |
|
|
|
|
|
|
|
|
| Discontinued operations: |
|
|
|
|
|
|
|
|
| (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 |
|
|
| Net income |
|
6,113 |
|
|
|
2,464 |
|
|
|
24,923 |
|
|
|
10,677 |
|
|
| 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 |
$ |
0.24 |
|
|
$ |
0.09 |
|
|
$ |
0.92 |
|
|
$ |
0.36 |
|
|
| |
|
|
|
|
|
|
|
|
| Diluted net (loss) income per share from discontinued
operations
|
$ |
(0.02 |
) |
|
$ |
— |
|
|
$ |
(0.03 |
) |
|
$ |
0.02 |
|
|
| 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 |
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
LANDEC CORPORATIONFOURTH QUARTER ENDED MAY
27, 2018QUESTIONS & ANSWERS |
1) What are the principal headwinds and
tailwinds impacting your fiscal 2019
guidance?Headwinds:
- 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.
Tailwinds:
- 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.
- The North America healthy 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 Landec in fiscal 2019?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 Florida during January,
and by persistent unseasonably warm temperatures in Western growing
areas that affected the sourcing costs of our lower-margin
vegetable bag business. These weather
events resulted in incremental produce sourcing
costs of approximately $7.8 million, or $0.19 per share after
taxes, during fiscal 2018. Excluding these excess sourcing costs,
the gross margin in our packaged fresh vegetable business would
have been 12.5% or the same as last year even after taking into
account a 10% increase in labor rates this fiscal year compared to
last fiscal year and a significant increase in promotional
expenses.
4) What were Apio’s market share numbers at
the end of the fourth quarter of fiscal 2018?
For the 52-weeks ended May 26, 2018, the size of the
North American market in which Apio participates (vegetable bags,
vegetable trays and multi-serve salad kits) was approximately $3.7
billion (in consumer retail dollars), including retail and club
stores. Of this market, Apio’s overall market share per Nielsen was
approximately 15% while Apio’s Eat Smart multi-serve salad kits had
a market share of approximately 13%. In the retail market,
excluding Costco, at the end fiscal 2018 our Eat Smart multi-serve
salad kits in Canada had a 39% market share and an 85% ACV and in
the U.S. achieved a 6.2% market share and a 45% ACV. Our goal is to
continue to aggressively grow the Eat Smart market share and ACV in
the U.S. and Canada for all our multi-serve salad kit products, as
well as our newly launched single-serve salad kit
products.
5) How are the Eat Smart salads performing in
new distribution points such as Target, Kroger and Walmart?
Eat Smart salads have performed well in the new
distribution gained during fiscal 2018. As a result of strong
performance, Target expanded the number of Eat Smart salads to
twelve (previously they carried nine) in approximately 1,300 stores
(previously 330 stores). Through extensive data analytics, we were
able to show that the Eat Smart salads are bringing new consumers
to the U.S. grocery salad kit category. As a result, Kroger
expanded the Eat Smart salad offering from 4 to 10 salads in 700 of
their stores, with 4 salads remaining in the other 1,400 stores.
The distribution gains at both Kroger and Target commenced in June
2018. The Eat Smart Sweet Kale Salad continues to perform
well in Walmart.
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 May 27, 2018 compare with the
same periods last year?
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 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio Packaged Fresh Vegetables (a) |
|
$ |
124,296 |
|
|
|
$ |
108,651 |
|
$ |
454,953 |
|
|
$ |
408,021 |
|
|
Lifecore |
|
|
16,191 |
|
|
|
|
11,596 |
|
|
65,427 |
|
|
|
59,392 |
|
|
Other (b) |
|
|
589 |
|
|
|
|
1,018 |
|
|
3,847 |
|
|
|
2,363 |
|
| Total Revenues |
|
|
141,076 |
|
|
|
|
121,265 |
|
|
524,227 |
|
|
|
469,776 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio Packaged Fresh Vegetables |
|
|
16,726 |
|
|
|
|
14,626 |
|
|
49,130 |
|
|
|
51,148 |
|
|
Lifecore |
|
|
8,220 |
|
|
|
|
4,114 |
|
|
28,568 |
|
|
|
26,755 |
|
|
Other |
|
|
(137 |
) |
|
|
|
380 |
|
|
640 |
|
|
|
1,309 |
|
| Total Gross Profit |
|
|
24,809 |
|
|
|
|
19,120 |
|
|
78,338 |
|
|
|
79,212 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
1,652 |
|
|
|
|
978 |
|
|
5,457 |
|
|
|
1,840 |
|
|
Lifecore |
|
|
1,252 |
|
|
|
|
1,364 |
|
|
5,360 |
|
|
|
5,387 |
|
|
Other |
|
|
692 |
|
|
|
|
1,214 |
|
|
1,983 |
|
|
|
2,246 |
|
| Total R&D |
|
|
3,596 |
|
|
|
|
3,556 |
|
|
12,800 |
|
|
|
9,473 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
8,634 |
|
|
|
|
7,863 |
|
|
32,584 |
|
|
|
37,344 |
|
|
Lifecore |
|
|
1,491 |
|
|
|
|
1,350 |
|
|
5,878 |
|
|
|
5,422 |
|
|
Other |
|
|
3,014 |
|
|
|
|
3,705 |
|
|
13,489 |
|
|
|
12,305 |
|
| Total SG&A |
|
|
13,139 |
|
|
|
|
12,918 |
|
|
51,951 |
|
|
|
55,071 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income before Allocation of Corporate
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
6,440 |
|
|
|
|
5,785 |
|
|
11,089 |
|
|
|
11,964 |
|
|
Lifecore |
|
|
5,477 |
|
|
|
|
1,400 |
|
|
17,330 |
|
|
|
15,946 |
|
|
Other |
|
|
(3,843 |
) |
|
|
|
(4,539 |
) |
|
(14,832 |
) |
|
|
(13,242 |
) |
| Total Operating Income before Allocation of Corporate
Expenses |
|
|
8,074 |
|
|
|
|
2,646 |
|
|
13,587 |
|
|
|
14,668 |
|
|
Corporate Expenses Allocation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
(1,202 |
) |
|
|
|
(2,243 |
) |
|
|
(5,744 |
) |
|
|
|
(8,971 |
) |
|
Lifecore |
|
|
(641 |
) |
|
|
|
(692 |
) |
|
|
(3,061 |
) |
|
|
|
(2,767 |
) |
|
Other |
|
|
1,843 |
|
|
|
|
2,935 |
|
|
|
8,805 |
|
|
|
|
11,738 |
|
|
Operating Income after Allocations of Corporate
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
5,238 |
|
|
|
|
3,542 |
|
|
5,345 |
|
|
|
2,993 |
|
|
Lifecore |
|
|
4,836 |
|
|
|
|
708 |
|
|
14,269 |
|
|
|
13,179 |
|
|
Other |
|
|
(2,000 |
) |
|
|
|
(1,604 |
) |
|
(6,027 |
) |
|
|
(1,504 |
) |
| Total Operating Income after Allocations of Corporate
Expenses |
|
|
8,074 |
|
|
|
|
2,646 |
|
|
13,587 |
|
|
|
14,668 |
|
|
Non-Operating Income (Expense) (c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
(746 |
) |
|
|
|
(337 |
) |
|
|
12,625 |
|
|
|
(352 |
) |
|
|
Lifecore |
|
|
(1,388 |
) |
|
|
|
(170 |
) |
|
|
(2,638 |
) |
|
|
(2,951 |
) |
|
|
Other |
|
|
773 |
|
|
|
|
457 |
|
|
|
2,187 |
|
|
|
(1,230 |
) |
|
| Total Non-Operating Income |
|
|
(1,361 |
) |
|
|
|
(50 |
) |
|
|
12,174 |
|
|
|
(4,533 |
) |
|
| Net
Income from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
|
4,492 |
|
|
|
|
3,205 |
|
|
17,970 |
|
|
|
2,641 |
|
|
|
Lifecore |
|
|
3,448 |
|
|
|
|
538 |
|
|
11,631 |
|
|
|
10,228 |
|
|
|
Other |
|
|
(1,227 |
) |
|
|
|
(1,147 |
) |
|
(3,840 |
) |
|
|
(2,734 |
) |
|
| 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 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
operations.(c) Non-Operating income (expense)
includes: Windset dividends and FMV change, net interest expense
and income taxes.
|
Contact Information: |
|
|
|
|
| At
the Company: |
Investor Relations: |
| Gregory S.
Skinner |
John Mills,
Partner |
| Vice
President Finance and CFO |
(646)
277-1254 |
| (650)
261-3677 |
John.Mills@ICRINC.com |
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