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Landec Corporation (LNDC)

F1Q2011 Earnings Call Transcript

September 29, 2010 11:00 am ET

Executives

Gary Steele – Chairman, President and CEO

Greg Skinner – CFO and VP of Finance and Administration

Analysts

Tony Brenner – Roth Capital Partners

Daniel Rizzo – Sidoti & Company

Peter Black – Wynnefield Capital

Chris Krueger – Northland Capital

Lawrence Goldstein – Santa Monica

William Lauber – Sterling Capital Management

Warwick Jervis [ph] – Trailhead Asset Management

Morris Ajzenman – Griffin Securities

Stephen Rabinowitz [ph] – BNET Partners [ph]

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Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Landec first quarter 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.

Gary Steele

Good morning, and welcome to Landec's first quarter of fiscal year 2011 earnings call. I have Greg Skinner with me today, Landec's Chief Financial Officer. This call is being webcast by Thomson CCBN and can be accessed at Landec's website at www.landec.com on the Investor Relations page. The webcast will be available for 30 days through October 29, 2010. A reply of the teleconference will be available for one week by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1483786.

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 10-K for fiscal year 2010.

As reported in yesterday's press release, for the first quarter of fiscal year 2011, revenues increased 7% to $65 million, up from $60.9 million during last year’s first quarter, and net income increased to $2.3 million compared to $2.2 million during the first quarter last year. Notably, during our first quarter, Landec’s hyaluronan-based materials subsidiary, Lifecore Biomedical, Inc., completed its first full quarter under Landec’s ownership and generated $6.4 million in revenues with a gross margin of 47%, resulting in $3 million in gross profit.

Total gross profit for the first quarter of fiscal year 2011 increased $2.9 million to $11.8 million compared to the first quarter of fiscal year 2010, while gross margins improved 3.6 percentage points to 18.2% compared to 14.6% during the first quarter last year and also increased by 2.1 percentage points compared to 16.1% in the prior quarter.

Overall, during the first quarter of fiscal year 2011, Landec’s financial position continued to improve and strengthen. We generated $4.4 million in operating cash flow, paid down $615,000 of debt and added $2.4 million to cash and marketable securities, which ended the quarter at $50.6 million. In addition, we started repurchasing our common stock under our buyback plan of August 19, 2010. And through September 27, we have repurchased 215,684 shares at a total price of $1.2 million.

Based on the results of our first quarter, we are on track so far for achieving our net income goal of fiscal year 2011 and somewhat behind in our revenue goal. As stated in our press release, some of the revenues are timing related and some are due to a conscious decision to access the domestic buy/sell low-margin business altogether.

In addition, we walked away from some low-margin value-added vegetable business. At this point in time, we are not changing our original guidance for the fiscal year of 2011, which was to increase revenues by 15% or more compared to the $238 million of revenues in fiscal year 2010 and to increase net income by 25% to 40% in fiscal year 2011 compared to fiscal year 2010 after excluding the $3.7 million in non-recurring charges in fiscal year 2010.

Let me turn to Greg Skinner for details of our results.

Greg Skinner

Thank you, Gary. And good morning, everyone. In yesterday’s news release, Landec reported total revenues for the first quarter of fiscal year 2011 of $65 million versus revenues of $60.9 million for the first quarter of last year. The increase in total revenues during this year’s first quarter compared to last year’s first quarter was due to the $6.4 million of revenues from Lifecore, partially offset by $2.5 million decrease in revenues from Apio due primarily to delays in harvesting certain export products that we expect to ship in the second quarter and from Apio exiting some low margin businesses, including the breakeven to low margin, domestic buy/sell business, which has generated $1.8 million in revenues during last year’s first quarter.

For the first quarter of fiscal year 2011, the company reported net income of $2.3 million or $0.09 per share compared to net income of $2.2 million or $0.08 per share for the first quarter of last year. This increase in net income during the first quarter of fiscal year 2011 compared to the first quarter of fiscal year 2010 was primarily due to the net income before taxes from Lifecore of $694,000 and a $236,000 increase in gross profit from Apio technology business.

These increases in net income are partially offset by $212,000 of operating expenses incurred by Landec Ag due to amending the agreement with Monsanto at the end of the second quarter of fiscal year 2010. In addition, net income was negatively impacted from first, a $217,000 increase in research and development expenses for our technology licensing business; second, from a $181,000 decrease in interest income due to less cash to invest; and third, from a $226,000 increase in interest expense due to the debt from the acquisition of Lifecore.

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