First quarter 2011 Results
In November 2010, Emerald Dairy completed equipping the first production line at its new production facility in Hailun City, PRC. In March 2011, the Company received a production permit for this facility from the PRC's State General Administration of Quality Supervision, Inspection and Quarantine ("AQSIQ").
$ 14.7 million
$ 14.3 million
$ 7.2 million
$ 7.1 million
GAAP Net Income
$ 2.0 million
($ 2.3 million)
"While we had begun operations at our Hailun Facility during the fourth quarter, and have found that the equipment is operating to expectations, we were prohibited from shipping product until we received the AQSIQ approval in March of this year," began Yong Shan Yang, Chairman and CEO of Emerald Dairy. "We were essentially operating solely through our existing Bei'an facility during the first quarter, which resulted in minimal year-over-year increase in sales. We are now fully operational, demand appears to be strong, and we are poised to gain additional market share as many smaller producers who cannot secure AQSIQ approval have shut down or suspended production. We remain confident in meeting our target of $70.0 million in revenues for fiscal 2011 and, based on the backlog of orders, we expect robust growth for the balance of this year."
First Quarter 2011 Review
Total revenue for the first quarter of 2011 was $14.7 million, up 3% from $14.3 million for the quarter ended March 31, 2010 due to an 8% increase in the average selling price per ton. Total volumes sold were down approximately 5% to 2,471 due partially to lower subcontracting sales but mostly attributable to shipment delays of Xinganling® infant formula from the Company's Hailun facility while it awaited AQSIQ certification from the government. Sales of Emerald Dairy goods increased by 3.0% as a result of sales of higher priced Xinganling®-branded infant formulas. For the first quarter of the year, sales of infant formula and milk powder accounted for 90% of the sales of Emerald Dairy. The remaining revenue segments in rice and soybean powders and subcontracting sales totaled $1.5 million, or approximately 10% of sales for the period.
Gross profit for the first quarter of 2011 was $7.2 million, 1% higher than the $7.1 million in the first quarter of 2010. Overall gross profit margin was down 80 basis points to 49% in the first quarter due to a reduction in milk powder margins. The cost per ton was up 10% year-over-year due to rising inflation in China. Despite the slight reduction of gross margins in the first quarter of the year, Emerald Dairy expects it will be able to pass along cost increases to customers and maintain its target margins detailed below.
Xinganling® Milk Powders – 45%-55% margins
Rice Powders (for lactose intolerance) – 60%-68% margins
Soybean Powders (for lactose intolerance) – 20%-30% margins
Private Label Contracting – 10%
Operating expenses for the first quarter of 2011 were 4.0 million, an increase of 1.7% versus the first quarter of 2010. Operating income totaled $3.0 million in the first quarter of 2011, a 17.7% increase from $2.5 million in the first quarter of the previous year. The Company's operating margin for the first quarter of 2011 was 23.6%, compared to 11.8% in the first quarter of the prior year, a 1,180 basis point improvement. Operating leverage resulted from prudent expense control coupled with ton line growth.
GAAP net income for the first quarter of 2011 was $2.0 million compared to a $2.3 million loss in the first quarter of 2010. Earnings per share were $0.06 per diluted share in the first quarter of 2011. Earnings per share increased 100.0% to $0.06 based on 34.5 million weighted average diluted shares outstanding on March 31, 2011, compared to 32.9 million fully diluted shares in the same period in the prior year.
Emerald Dairy had $0.3 million of cash outflows from operations in the first three months of 2011, resulting in a cash balance of approximately $16.3 million at March 31, 2011. Working capital was $26.5 million compared to $24.4 million as of December 31, 2010; accounts receivable were $8.5 million, compared to $8.2 million as of December 31, 2010. The Company had $6.4 million in short term loans as of March 31, 2011. Shareholder's equity was $49.7 million versus $47.2 million reported on December 31, 2010.
Management reaffirmed its 2011 financial forecasts of approximately $70.0 million in revenues. The Company currently expects to produce and sell approximately 15,000 tons of products in 2011 compared to 10,050 tons in 2010, although there are no assurances it will do so.