Worth Watching Stocks in the News: Landec Corporation (NASDAQ:LNDC)

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On Wednesday, Shares of Landec Corporation (NASDAQ: LNDC) gained 1.20 percent to $12.65. Throughout the day, the lowest price at which share is traded was $12.35 and hit the highest price at $12.83. The stock’s institutional ownership stands at 95.00 percent.

Landec Corporation (NASDAQ: LNDC), a most important innovator of diversified health and wellness solutions within the branded natural food and biomaterial markets, stated results for the fiscal 2K18 2nd-quarter and 1st-6-months finished November 26, 2K17.

“We carry on to make development toward our long-term planned plan of driving expansion and profitability through internal innovation capabilities within our natural food business, which includes Apio, Inc. and O Olive, Inc., and at Lifecore Biomedical, Inc., our biomaterials business,” commented Molly Hemmeter, Landec’s President, and CEO.

“At Apio, our Eat Smart packaged fresh vegetable revenue increased 9.00 percent and 8.00 percent in the 2nd-quarter and 1st-half of fiscal 2K18, respectively, contrast to the same periods last year. This growth is mainly because of increased Eat Smart salad sales which increased 29.00 percent in the 2nd-quarter and 22.00 percent in the 1st-half of fiscal 2K18, a contrast to the same periods last year. The Eat Smart salad growth was mainly driven by a 64.00 percent incline in salad revenues from the U.S. retail channel. The U.S. retail All Commodity Volume (ACV) for Eat Smart multi-serve salad kits for the 52-weeks ending October 28, 2K17 doubled from 17.00 percent to 34.00 percent and was sequentially up 600.00 basis points from 28.00 percent for the 52-weeks finished July 29, 2K17. This incline in ACV was driven by expanded distribution in key U.S. accounts such as Walmart, Kroger, Market Fresh and other accounts.

“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 about $1.4B, representing over 75.00 percent of the approximate $1.80B North American multi-serve salad kit market, counting Costco. The market share of Eat Smart multi-serve salad kits in U.S. retail increased to 5.30 percent for the 52-weeks finished October 27, 2K17 from 3.80 percent for the 52-weeks finished October 26, 2016, a boost of 150.00 basis points, demonstrating continuous distribution gains in addition to room for additional growth,” said Hemmeter.

“We are pleased to declare that Target Corporation is our newest Eat Smart salad customer. Starting this month, Apio will begin shipping nine Eat Smart salad products, counting 5.0 single-serve Shake-Ups!™ salads and four multi-serve salad kits, to about 330.00 of Target’s top-selling stores in the U.S. Throughout the calendar year 2K17, we entered the single-serve salad category with three products. Because of their success, two additional single-serve salads, the Sweet Kale Salad and the Asian Sesame Salad, were added to the Eat Smart Shake-Ups! offerings.  As our distribution continues to grow, we are able to reach more consumers with easy and delicious ways to eat vegetables and to grow awareness of the Eat Smart brand,” added Hemmeter.

“Lifecore met expectations through the 1st-6-months of fiscal 2K18 with revenues of $26.30M and operating income of $3.10M. Lifecore’s growth is being fueled by the expansion of its business beyond its historical capabilities as a premium supplier of hyaluronic acid (HA) to become a fully integrated contract development and manufacturing organization (CDMO), providing differentiated fermentation, formulation and aseptic fill services for difficult-to-handle medical materials. At O Olive, operating performance was consistent with expectations with revenues of $2.20M for the 1st-6-months of fiscal 2K18 and an operating loss of $242,000.00.

We are currently focused on integrating the Eat Smart salesforce with the O Olive organization to leverage the Eat Smart customer base and relationships throughout North America in order to gain new customers and new distribution at O Olive,” stated Hemmeter.

Summary of 2nd-Quarter 2K18 Results Contrast to 2nd-Quarter of 2K17:

  • Revenues were essentially flat at $136.50M
  • Gross profit reduced 17.00 percent to $15.80M
  • Gross profit margin reduced 240.00 basis points to 11.50 percent
  • Net income reduced 63.00 percent to $487,000.00 or $0.020 for each share

Revenues in the 2nd-quarter of fiscal 2K18 were essentially flat at $136.50M contrast to $135.90M in the year-ago quarter. The slight incline was mainly because of a $9.20M or 9.00 percent incline in revenues in Apio’s packaged fresh vegetables business and a $2.20M or 18.00 percent incline in revenues at Lifecore.

These inclines were offset by an $11.70M or 46.00 percent decline in Apio’s lower-margin export business which was greater than planned, but consistent with the Company’s planned program to transition to higher-margin business.

Gross profit and net income throughout our 2nd-fiscal quarter were negatively influenced by $3.90M from the aftermath of the hurricanes and tropical storms which resulted in higher produce sourcing costs throughout our 2nd-fiscal quarter.

As outlined in the Company’s press release on November 29, 2K17, the most noteworthy impact throughout the quarter was on the supply and quality of green beans leading to extensive green bean shortages throughout the industry.

Throughout the month of November, these shortages resulted in the highest average procurement cost for green beans in over 15.0 years, which were 26.0 percent higher than the 2nd-highest average price for the month of November in 2008.

After Hurricane Irma, with knowledge of a potential shortage of green beans throughout the fall, the Apio procurement team planted green beans in alternative geographical areas to fill that gap. Subsequent to those plantings, unexpected additional storms in the Southeast U.S. exacerbated the impact on the fall transition crop, in addition to on the alternative planting areas.

In addition, the extreme heat and tropical storms in the Western U.S. and Mexico have influenced yields, and thus the Company’s sourcing costs for several West Coast produce items such as Brussel sprouts and broccoli.

Net income in the 2nd-quarter of fiscal 2K18 was $487,000.00 or $0.020 for each share contrast to $1.30M or $0.050 for each share in the year-ago quarter. The decline was a result of (1) a $2.60M decline in gross profit in Apio’s packaged fresh vegetables business mainly because of $3.90M in incremental produce sourcing costs as a result of the hurricanes and tropical storms throughout the quarter, (2) a $1.0M decline in export gross profit because of lower export revenues, and (3) a $617,000.00 incline in merged operating expenses because of a boost in R&D activities partially offset by lower SG&A expenses. These declines in net income were partially offset by: (1) a $1.30M incline in the fair market value of the Company’s Windset investment throughout the 2nd-quarter of fiscal 2K18 contrast to no incline in the year-ago quarter, (2) a $1.20M write-off of unamortized debt issuance costs from the refinancing of debt throughout the 2nd-quarter of last year, (3) a $279,000.00 incline in gross profit at Lifecore, and (4) a $486,000.00 decline in income tax expenses.

Fiscal 6-Months 2K18 Results:

Revenues in the 1st-6-months of fiscal 2K18 reduced 3.0 percent to $259.80M from $268.30M in the same period last year. The decline was mainly because of a higher than expected $27.50M or 56.00 percent decline in revenues in Apio’s export business which was partially offset by a $15.80M or 8.00 percent incline in Apio’s packaged fresh vegetables business and by a $2.00M or 8.00 percent incline in revenues at Lifecore.

Net income in the 1st-6-months of fiscal 2K18 was $2.60M, or $0.090 for each share, contrast to $4.60M, or $0.170 for each share, in the 1st-6-months of fiscal 2K17. The decline was a result of (1) a $1.90M decline in gross profit in Apio’s packaged fresh vegetables business mainly because of $4.00M in incremental produce sourcing costs as a result of the hurricanes and tropical storms mainly impacting the 2nd-quarter of fiscal 2K18, (2) a $1.60M decline in export gross profit because of lower export revenues, (3) a $1.30M decline in gross profit at Lifecore because of an unfavorable product mix shift and lower overhead absorption contrast the 1st-6-months of last year, and (4) a $1.70M incline in merged operating expenses because of a boost in R&D activities partially offset by lower SG&A expenses.

These declines in net income were partially offset by (1) a $2.20M incline in the fair market value of the Company’s Windset investment throughout the 1st-6-month of fiscal 2K18 contrast to no incline in the 1st-6-months of last year, (2) a $1.20M write-off of unamortized debt issuance costs from the refinancing of debt throughout the 2nd-quarter of last year, and (3) a $1.10M decline in income tax expenses.

Administration Comments and Guidance for Fiscal 2K18:

“We are reiterating our guidance for the year as we expect sales and gross profit from new customers and new products to accelerate throughout the 2nd-half of the year and we expect a lower income tax rate in the 2nd-half of fiscal 2K18. We continue to expect merged annual revenues to incline 2.00 percent to 4.00 percent in fiscal 2K18 contrast to fiscal 2K17.

Our projected annual revenue growth is based on our Eat Smart salad products growing 12.00 percent to 15.00 percent, up from our prior projection of 10.00 percent to 12.00 percent growth, Lifecore growing 8.00 percent to 10.00 percent, up from our prior projection of 6.00 percent to 8.00 percent growth and O Olive increasing revenues by about $5.0 to $6.0M as originally projected.

We now expect the revenues in Apio’s lower-margin core and export businesses to decline $25.00 to $30.00M in fiscal 2K18 contrast to the prior year, which is more than the $20.00 to $25.00M decline included in our initial guidance. Most all of this decline was realized throughout the 1st-6-months of fiscal 2K18 because of the $27.50M decline in revenues in Apio’s export business throughout that period.

We also now expect that the fair market value change in our investment in Windset will be $3.00 to $4.00M contrast to our initial guidance of $4.00M due mainly to the timing of new in-house production and product mix, resulting in a lower than originally projected EBITDA for Windset for the calendar year 2K17. We continue to project merged net income to incline 35.00 percent to 55.00 percent in fiscal 2K18 contrast to fiscal 2K17, resulting in an estimated earnings for each share range of $0.520 to $0.580. We expect merged cash flow from operations of $30.00M to $35.00M and capital expenditures of $44.00M to $48.00M.

For the 3rd-quarter of fiscal 2K18, we expect merged revenues to be in the range of $140.00M to $145M and merged net income to be $0.140 to $0.160 for each share,” concluded Skinner.

LNDC has a market value of $347.96M while its EPS was booked as $0.34 in the last 12 months. The stock has 27.51M shares outstanding. In the profitability analysis, the company has a gross profit margin of 15.50 percent while net profit margin was 1.80 percent. The beta value of the company was 0.50; beta is used to measure riskiness of the security.

Analyst recommendation for this stock stands at 1.50.