Landec (LNDC) Misses Q3 EPS by 2c, Guides FY16 EPS Below Consensus
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Landec (NASDAQ: LNDC) reported Q3 EPS of $0.01, $0.02 worse than the analyst estimate of $0.03. Revenue for the quarter came in at $130 million versus the consensus estimate of $136.99 million.
Landec sees FY2016 EPS of $0.33-$0.37, versus the consensus of $0.39.
We have developed future plans and strategies that we believe are exciting, innovative and achievable; however, this fiscal year continues to be challenging. The severe produce shortages that began in the second fiscal quarter have had a significant negative impact on our financial results,” continued Hemmeter. “Despite these short-term setbacks, we are very encouraged about the progress in, and future prospects for, both of our businesses. Lifecore is having a record year, with projected revenue growth of approximately 25% and operating income growth of 130-140%. We expect Lifecore to average double-digit revenue and operating income growth over the next several years. Our Apio salad kit business continues to increase with revenue growth of 31% during the nine months ended February 2016 compared to the same period last year and we expect to introduce several more vegetable salads over the next year. We are also exploring the addition of innovative and convenient new products outside of produce, particularly in the natural foods space, through both internal development programs and strategic acquisitions.
“The strategy in our food business is to shift our portfolio of products over time to include a higher percentage of innovative, high margin products versus the lower margin commodity-like products in order to drive increased profitability. Thus far, we have been successful in this strategy as we have significantly grown our vegetable salad kit product revenues on an average annual compounded growth rate of approximately 80% from $26 million in fiscal 2013 to an estimated $145 million to $150 million in fiscal 2016. A portion of Apio’s historical business consists of commodity-like items that carry a very high cost of service, especially in times of severe weather challenges. Even after incurring these costs to service our customers to the best of our ability, several of our customers have chosen to leave or diversify their sourcing strategy by moving away from a sole supplier relationship for certain produce items. The result of these changes will be an acceleration of our product mix change, as we see the size of our lower margin business declining this fiscal year and next fiscal year while our innovative higher margin product offerings continue to grow.
“As a result of severe produce shortages and the loss of some commodity-like business, revenues decreased this quarter in our packaged fresh vegetable business and we expect them to be down in the fourth quarter compared to the fourth quarter of last fiscal year. However, excluding the excess costs from produce shortages and the related higher cost of servicing our customers, which amounted to $6.6 million and $12.6 million, respectively, for our third quarter and first nine of months of fiscal 2016, our gross margin in our packaged fresh vegetable business would have been 10.2% for the quarter and 12.6% for the nine months. This compares to 8.4% and 10.3% for the same periods last year and demonstrates that our fundamental strategy to shift our product mix to increase profitability is working. We continue to focus on delivering innovative, on-trend products that make it easy and convenient for consumers to eat healthy, in order to advance and create value for consumers, our customers and our shareholders.
“For all of fiscal 2016, we now expect revenues to be slightly down compared to last year primarily due to not having an adequate supply of produce through most of the second and third quarters and the loss of some customer business. We now expect net income for the year, excluding the GreenLine tradename impairment charge, will be $0.33 to $0.37 per share. We are currently estimating that for all of fiscal 2016 the impact on operating income of the excess costs from produce shortages and the related higher cost of servicing our customers caused by this year’s El Nino will approximate $14 million to $15 million, or $0.33 to $0.35 per share after taxes.
“We are currently developing our budget for fiscal 2017. On a preliminary basis, we expect double-digit revenue growth in Apio’s Eat Smart salad kits and we expect Lifecore to continue to deliver double-digit revenue and operating income growth in fiscal 2017. We see further revenue declines in Apio’s lower margin commodity-like vegetable business. We also expect net income to increase substantially year over year assuming that produce sourcing returns to more normal levels and as we continue to focus our sales efforts on higher margin products. We will provide more specific annual guidance for fiscal 2017 when we report our fiscal 2016 year end results,” concluded Hemmeter.
For earnings history and earnings-related data on Landec (LNDC) click here.
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