Landec (LNDC) Reports In-Line Q1 EPS
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Landec (NASDAQ: LNDC) reported Q1 EPS of $0.09, in-line with the analyst estimate of $0.09. Revenue for the quarter came in at $133.6 million versus the consensus estimate of $121.9 million.
Management Comments and Guidance for Fiscal 2015
"For all of fiscal 2015, we are reiterating our guidance for consolidated revenues to increase 7-8%, compared to fiscal 2014 and we expect to surpass $0.5 billion in revenues for the first time in Landec's history," CEO Gary Steele said. "In addition, we are reiterating our guidance for Apio revenues to grow 9-10% and operating income to grow 25-30%. However, we currently expect net income for fiscal 2015 to be approximately 15% lower than fiscal 2014 due to lower than expected results from Lifecore and a lower projected increase in the fair market value change of our Windset investment.
"Apio is off to a strong start based on first quarter results with high demand for our superfood products. We are just now entering the volatile produce sourcing months, which typically run through February, where weather can have a significant impact on quality and yields and thus could negatively impact our produce sourcing costs. In addition, we plan to phase out certain lower margin core vegetable products and selectively seek price increases for other core vegetable products. In the short-term, this could adversely affect revenues and gross profit but should enhance Apio's margins longer term. We believe margin enhancement in our core Apio business is essential for the long-term growth and profitability of Landec.
"Turning to Lifecore, we were recently informed by one of Lifecore's key product development partners that its FDA submission timing will be delayed one to two quarters. Lifecore provides exclusive manufacturing services to formulate, filter, aseptically fill, and package this partner's proprietary finished drug product and we had been expecting product revenues from this program during fiscal 2015, which are now expected in fiscal 2016. Accordingly, we expect this delay coupled with the one-time inventory adjustment previously disclosed from another Lifecore customer to result in Lifecore revenues being approximately 10% lower and operating income being approximately $6.0 million to $6.5 million lower compared to fiscal 2014.
"In addition, we expect the fair market value of our Windset investment to increase this fiscal year but now expect the combined dividend income and fair market value change from our Windset investment to be approximately 25%-30% lower than the $11.1 million in fiscal 2014. Recently received financials from Windset for the six months ended June 2014 showed significant year-over-year growth, however, changes in product mix grown in Windset owned greenhouses and the substantial change in the exchange rate between the U.S. dollar and the Canadian dollar during the first six months of calendar 2014, has caused us to revise the projected fair market value change in our Windset investment for fiscal 2015. We expect to receive Windset's calendar third quarter results and new five year forecast in November providing Landec with more visibility into Windset's calendar 2014 results and the effects the product mix changes and the exchange rate is having on Windset's calendar 2014 results. This new information will allow us to update our estimated Windset fair market value change for fiscal 2015 as we close our second fiscal quarter. Windset continues to grow and prosper and we expect our strategic investment in Windset to continue to grow annually as it has done each fiscal year of our investment.
"As stated in our fiscal 2014 year end release, fiscal 2015 will be a year in which Landec makes significant investments in both Apio and Lifecore. We are investing heavily in Apio's Eat Smart® specialty packaged produce products, which utilize our proprietary BreatheWay® technology to extend the shelf-life of our products. We believe our products are 'on trend' with North American consumers who are increasingly equating healthy eating with healthy living. At Lifecore, the plan is to invest in its aseptic filling business to meet the increasing demand of the medical and pharmaceutical markets.
"During fiscal 2015 we are stepping up our investments in new product development, sales and marketing and production, including significant capacity expansion at Apio's various facilities, as well as continued expansion at Lifecore. These investments are expected to result in increasingly profitable returns and top line growth in the upcoming years as the Company transitions its product mix to higher margin products.
"Looking forward to fiscal 2016, we expect the Lifecore customer, who is reducing their inventory levels in fiscal 2015, to resume their historical ordering patterns in fiscal 2016 and that the revenues and income forecasted for this year from a key development partner will instead occur in fiscal 2016. As a result, in fiscal 2016 we expect significant year-over-year growth at Lifecore, further expansion from Windset and continued expansion and growth in Apio superfoods products. Therefore, we believe consolidated revenues could grow by as much as 10% in fiscal 2016 compared to fiscal 2015 with early estimates of net income increasing by up to 70% to approximately $1.00 per share," concluded Steele.
For earnings history and earnings-related data on Landec (LNDC) click here.
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