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Landec CEO Discusses F4Q 2011 Results - Earnings Call Transcript

Seeking Alpha

07/27/11 - 05:02 PM EDT

Landec Corporation ( LNDC)

F4Q 2011 Earnings Call

July 27, 2011 11:30 am ET

Executives

Gary T. Steele – Chairman, President and Chief Executive Officer

Gregory S. Skinner – Vice President – Finance and Administration and Chief Financial Officer

Analysts

Tony Brenner – Roth Capital Partners

Chris Krueger – Northland Securities, Inc.

Morris Ajzenman – Griffin Securities

William Lauber – Sterling Capital Management

Warrick Jervis – Trailhead Asset Management, LLC

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Landec Fourth Quarter and Fiscal Year 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this program is being recorded.

I would now like to introduce your host for today’s program, Mr. Gary Steele, Chairman and CEO of Landec Corporation. Please go ahead, sir.

Gary T. Steele

Good morning, and thank you for joining Landec’s year-end and fourth quarter fiscal year 2011 earnings call. I have with me today Greg Skinner, our Chief Financial Officer.

This call is being webcast by Thomson Reuters and can be accessed at Landec’s website at www.landec.com on the Investor Relations page. The webcast is available for 30 days through August 26, 2011. A replay of the teleconference will be available for one week until midnight Eastern Time, Wednesday, August 3, 2011, by dialing 888-266-2081 or 703-925-2533. The access code for the replay is 1540771.

During today’s call we may make forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our filings with the Securities and Exchange Commission, including the company’s Form 10-K for fiscal year 2010.

For our fiscal year 2011 which ended in May revenues grew 16% to $276.7 million and adjusted EPS grew to $0.33 per share prior to a one-time $4.8 million non-cash, non-tax deductible impairment charge for the write-off of Landec Ag's goodwill.

Landec generated $14.5 million in cash from the operations this past year, up 93% from our prior fiscal year. Cash balances remain strong at $36.3 million. Landec’s achievement and results in 2011 fiscal year are based on substantial progress in each of our businesses.

Our acquisition of Lifecore exceeded our expectations in the first year. In addition to the successful integration of our Lifecore Biomedical business with Landec, Lifecore demonstrated substantial growth in revenues from $20 million prior to the acquisition to $32.5 million, representing a 63% increase in sales for our fiscal year.

Lifecore EBITDA grew from $2.9 million prior to our acquisition to $9.9 million this past fiscal year, reflecting substantial leveraging of Lifecore’s capacity utilization as we increased unit volume sales to customers. We had expected $7 million to $8 million in EBITDA, but Lifecore was able to generate $9.9 million in EBITDA and achieve the sales growth as I mentioned of over 60%.

Revenues in our Apio fruit business increased by 3% or by $7.3 million in spite of quite difficult consumer economic conditions in the food sector and in spite of terrible weather in major produce growing regions. Extremely poor weather in California and Arizona adversely affected our ability to source produce for a value-added, specialty packaging food business, resulting in approximately $5 million in weather-related variances. In spite of those difficult conditions, we continue to serve our customers well during this time period.

In the fourth quarter, the industry fresh-cut category grew 3%, which was the first time the category has shown any growth in several years. Also in the fourth quarter, we resumed sales growth in Apio's value-added vegetable business and we grew revenues 9% in the quarter.

During fiscal year 2011, we also continue to work closely with Chiquita to expand the Chiquita-to-Go banana program and to launch the Fresh & Ready Avocado product line with both programs utilizing our BreatheWay proprietary packaging technology. Both programs continue to expand. The newer Avocados program is delivering fully ripened and ready to eat avocados to consumers and at the same time, the program is delivering two participating retailers, good revenue growth in the new category for Chiquita providing double-digit sales increases compared to conventional avocados.

In our third fiscal quarter, we announced $15 million equity investment in Windset Farms. Apio, our food subsidiary had an existing exclusive license agreement with Windset and views the equity investment as a continuation of our ongoing strategic partnership in the fresh produce market.

Apio gives Windset Farms, the most advanced hydroponic greenhouse producer in North America where the demand for hydroponically grown produce is rising rapidly. The hydroponic process just as in the side uses no soil and only a fraction of the water required in fuel production. Furthermore, the process results in higher yields per acre and it is not burdened with traditional weather-related or soil-borne risk.

In our existing license agreement, Windset Farms license from us the exclusive rights to Apio’s BreatheWay packaging technology for use with their hydroponic greenhouse grown cucumbers, tomatoes, and peppers.

As part of our strategic equity investment in Windset, we also received a 7.5% annual dividend on our investment and quarterly we will recognize 20.1% of the change in their fair market value. By example, from the closing date of February 15, 2011 through the end of fiscal year 2011, which was this past May, Landec recognized $328,000 in dividends and $662,000 in income from the increase in the fair market value of its investment in Windset.

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