Choppy action in food and wellness product manufacturer Landec (LNDC
13.93, -0.11, -0.8%) continues on Wednesday as investors seem to be placing
more weight on the downside guidance than the company’s first quarter beat.
For those of you who may not be familiar, Landec is a health and wellness products producer and manufacturer within the packaged natural food and Contract Development and Manufacturing Organization (CDMO) markets. The company’s Lifecore Biomedical is a fully integrated CDMO that offers capabilities in fermentation, specialty formulation, aseptic filling, and final packaging for FDA regulated medical devices and drugs. Landec’s Natural Foods business sells products with 100% clean ingredients and includes Eat Smart, O, and Now Planting brands, with a refrigerated supply chain that ensures fresh food delivery.
Jumping right into the report, Landec saw Q1 earnings per share of $0.01 narrowly beat market expectations while sales growth of 7.7% year/year to $124.7 mln, too, narrowly beat expectations. Additionally, Landec reported a worse than expected gross profit of 13.1%, down about 310 basis points from 16.2% a year ago, to $16.3 mln.
All told, consolidated net income from continuing operations in Q1 was $0.01 per share, compared to $0.08 per share a year ago. Management noted the decline was mainly due to a $2.4 mln decrease in operating income at Apio due to a $1.8 mln decrease in gross profit from increased labor, packaging, and freight costs and from a $664,000 increase in operating expenses, a $475,000 decrease in operating income at Lifecore due to the timing of production and shipments within fiscal 2019, which reduced its gross margin to 23.5% during Q1 from 29.0% during Q1 of last year, a $339,000 increase in the net interest expense, a $161,000 increase in the operating loss at O, and a pre-commercialization loss of $190,000 at Now Planting.
By segment, Landec saw Natural Foods revenues grow 8.1% to $112.05 mln driven by an 8% increase in Landec’s Eat Smart business. The increase in revenues was primarily due to the growth of Eat Smart salad sales, which increased 17% in Q1. The growth in salads has been driven by increased distribution in the U.S retail channel.
The smaller Lifecore business saw revenues of about $12.62 mln, essentially flat compared to the first quarter of last year as a result of the timing of production and shipments within fiscal year 2019.
Guidance for fiscal 2019 was reaffirmed; Landec continues to expect consolidated annual revenues to increase 5-7% in FY19, however, the mix of revenue growth has changed. The company now expects Lifecore to grow 16-17%, versus 14-16%. In Landec’s Natural Foods business the company now expects Eat Smart salad products to grow 2-4%, versus 4-6%, its core bags and trays business to grow 2-3% and O and Now Planting combined to generate $9-11 mln of revenues, versus $7-9 mln of revenues, resulting in an overall growth in Landec’s Natural Foods business of 3-5%. The company also reiterated FY19 EPS guidance of $0.45-0.50.
As for Q2, Landec sees worse than expected revenues in the range of $125-129 mln with net income to be break-even to slightly positive.
So, as the guidance would suggest Landec is giving a forecast for growth to decelerate in FY19. The company now sees a different revenue mix in FY19, suggesting it doesn’t see as strong a performance out of salads and other popular items for the remainder of the year. The company’s impending launch of new a new soup line and the timing shift of product shipments may offer a little solace in the coming quarters, but after shares formed a death cross today (when the longer term moving average crosses above the shorter term average) the stock seems to be up against some resistance.
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