Tuesday, May 10, 2011

China Marine Food (CMFO) better than expected Q1 results

China Marine Reports Q1 2011 Revenues of $26.7 million and Adjusted Net Income of $6.2 million and EPS of $0.21
Reaffirms 2011 Guidance of at least $150.0 million revenues; $27.3 million adjusted net income and provides $0.93 in adjusted EPS

First Quarter 2011 Highlights

  • Revenue increased 35.7% year-over-year to $26.7 million
  • Expanded "Hi-Power" distribution to 14,000 retail points in total
  • Gross margins expanded 250 basis points to 36.1%
  • Cash flow from operations up 48.1% due to collections of Q4 2010 receivables

Financial Summary

First Quarter 2011 Results

Q1 2011
Q1 2010
Net Sales
$26.7 million
$19.7 million
Gross Profit
$9.6 million
$6.6 million
Net Income
$5.6 million
$3.9 million
Diluted EPS*
Adjusted Net Income**
$6.2 million
$4.5 million
Adjusted Diluted EPS**
* EPS calculated for the period is based on 29.0 million shares on March 31, 2011 versus 25.0 million shares reported on March 31, 2010.

** Adjusted Net Income and Diluted EPS are non-GAAP calculations and do not include $0.6 million of non-cash, amortization of intangible assets related to the Company's acquisition in Q1 2011 and Q1 2010, respectively. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.

"Our first quarter results reflect strong demand for our seafood snacks and 'Hi-Power' beverages," began Mr. Pengfei Liu, Chairman and CEO of China Marine. "We made solid progress by expanding distribution for 'Hi-Power' to 14,000 retail points in total. By penetrating more retail outlets, winning a broad customer base and supporting this expansion with enhanced brand building advertisements and marketing, we expect to maintain strong organic sales growth."

First Quarter 2011 Results
Seafood Snack Food Segment
China Marine's sale of processed and packaged seafood snack foods produced $19.9 million in revenue, a 20.4% increase versus the first quarter of 2010 due to strong sales in Fujian and Zhejiang provinces. Seafood snack foods accounted for 74.5% of total revenue in the first quarter of 2011. China Marine has maintained its product line of 29 Mingxiang®-branded seafood jerky snacks sold to consumers at retail locations. Gross profits margins for the seafood snack foods segment were 33.9% compared to 33.5% in the same period last year. Retail points for seafood snack foods include major supermarket chains, convenience store chains, general food stores, campus canteens and local corner shops in Fujian, Zhejiang, Jiangsu, Guangdong, Shandong and major prefectures like Beijing and Shanghai.

"Hi-Power" Beverage Segment
Revenues from the "Hi-Power" algae-based beverage line were $6.7 million compared to $2.8 million in the first quarter of 2010, when the Company acquired "Hi-Power". Sales were driven by orders in the Company's home province, Fujian. Reorder rates from existing customers remained strong and represented most of total "Hi-Power" sales. The total numbers of retail end-points for "Hi-Power" were 14,000 on March 31, 2011. "Hi-Power" beverages are sold and promoted in major international retailers such as Walmart®, China-based supermarkets like Trust-Mart®, convenience stores, bars, restaurants, school canteens and local corner stores which carry "Hi-Power" beverages, and certain locations where Mingxiang®-branded seafood products are also sold.
Gross margin was 42.3% in the first quarter, up 710 basis points from 35.2% in the same period last year. The Company outsources production, bottling and distribution to minimize its working capital and capital expenditures. China Marine continues to invest in sales and marketing events including in store promotions and sporting event sponsorships to drive trial and brand awareness. The sales staff has increased significantly, from 23 at the beginning of 2010 to 172 as of March 31, 2011, to support the retail expansion for "Hi-Power".

Marine Catch Trade Segment
China Marine's frozen marine catch business segment generated $0.1 million sales during the first quarter of 2011 compared to $0.4 million in Q1 2010. A majority of this catch represents similar types of squid the Company uses in the production of its seafood snack foods and thus limits the Company's exposure to price fluctuations. Gross margin was 37.7% in Q1 2011 compared to 27.4% in the same period last year. Management expects annual gross margin of approximately 9.0%-10.0% for its frozen marine catch business.

Total revenue in all segments including Mingxiang®-branded seafood snack foods, "Hi-Power" beverages and marine catch, for the quarter ended March 31, 2011 was $26.7 million, up 35.7% from $19.7 million in the prior year's period.

Costs of goods sold totaled $17.0 million for the quarter, or 63.9% of revenues for the period ended March 31, 2011, which consist of the cost of raw materials, packaging materials, direct labor and manufacturing overhead. In the seafood snack food segment, costs of raw materials account for the greatest percentage of costs and were 73.9% for the quarter, while packaging represented 12.7%. Conversely, in the beverage segment, costs of raw materials were 15.0% of the total costs of goods, with approximately 67.2% spent on packaging. China Marine produces seafood snack foods at its dedicated production facilities in Shi Shi while "Hi-Power" production is outsourced to two blending and bottling facilities in Fujian province.

Gross profit in the first quarter of fiscal year 2011 was $9.6 million, an increase of 45.5% from $6.6 million in the prior year's corresponding period. Consolidated gross margins were 36.1% for the quarter, up 250 basis points from 33.6% for Q1 2010 as a result of utilization of less expensive packaging and raw materials.

Selling, general and administrative (SG&A) expenses in the quarter ended March 31, 2011 were $2.2 million compared to $1.0 million in the prior year period. Sales and marketing expenses represented 6.0% and 2.0% of total revenues in the first quarter of 2011 and 2010, respectively, mainly attributed to increased sales and advertising costs associated with brand investments for "Hi Power" and the recruitment and training of new sales personnel for both Mingxiang® and "Hi-Power".

Operating income in the first quarter of 2011 was $6.7 million, with operating margin of 25.1%, compared to $5.0 million and 25.3%, respectively in the prior year period. Excluding the $0.6 million non-cash amortization expense related to the "Hi-Power" acquisition, operating income was $7.3 million.

GAAP net income for the quarter ended March 31, 2011 was $5.6 million, compared to $3.9 million in the prior year's corresponding period, a 43.1% increase year-over-year. Adjusted non-GAAP net income for the first quarter of 2011 excludes the non-cash amortization charges of $0.6 million was $6.2 million, a 38.0% increase year-over-year.

Earnings per weighted average diluted shares were $0.19 based on 29.0 million fully diluted shares, while adjusted earnings were $0.21 per share. The Company's 15% preferential tax rate is secured through 2012.

Business Updates:
2011 Guidance

% Change
Consolidated Revenues:
$150+ million
Consolidated Adjusted Net Income:
$27.3 million
Adjusted EPS:

The Company intends to invest approximately 6.0%-7.0% of sales on sales and marketing to promote its Mingxiang® snack foods and expand distribution for its "Hi-Power" beverages.
SEC Filing

More you can read in an article on Seeking Alpha called A New Chance for China Marine Food

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