Landec Corporation (LNDC)
F3Q 2012 Earnings Conference Call
March 27, 2012, 11:00 AM ET
Gregory S. Skinner – Chief Financial Officer
Gary T. Steele - Chairman, President and CEO
Tony Brenner – Roth Capital Partners
Nelson Opus [ph] - Onefield [ph]
Chris Krueger - Northland Securities
Warrick Jervis - Trailhead Asset Management
Morris Ajzenman - Griffin Securities
Rick Fetterman – Fetterman Investments
Previous Statements by LNDC
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Good day, ladies and gentlemen, and welcome to the Landec Third Quarter Fiscal Year 2012 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 T. Steele
Good morning and thank you for joining Landec's third quarter fiscal year 2012 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 our Investor Relations page. The webcast will be available for 30 days through April 25, 2012. A replay of the teleconference will be available for one week until midnight Eastern Time, Tuesday, April 03, 2012 by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1571046.
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 2011.
Yesterday in our earnings release we reported another good quarter with revenues up 9% to $80.1 million a net income of 107% to $4.8 million. Earnings per share for the quarter was $0.18 per share compared to $0.09 per share for the last years third quarter. The actual net income results for the third quarter are higher than we had anticipated due to a timing shift for the recognition of the increase in the fair market value of our investment in Windset Farms. Recall, that we own 20% of Windset. Based on a recent annual appraisal of Windset’s fair market value we will require to record much of the remaining full year increase in our share of the fair market value change in the third quarter instead of the fourth quarter.
The timing shift does not alter or affect our outlook which remains strong for this fiscal year. We are increasing our fiscal year 2012 guidance for revenue growth to 9 to 10% increase compared to our original guidance of 5% or better growth. And for guiding our year-over-year net income growth to approximately 40% after adding back the one-time impairment charge of 4.8 million to net income for fiscal year 2011 and that is compared to our original guidance of 30 to 40% increase. We continue to focus on growing our two core businesses, our food business and our biomedical materials business and we are benefitting from this focus.
During the third quarter, the Apio value-added food business increased revenues $8.7 million based on a 24% increase in unit volume sales. The fresh-cut produce industry category unit volume continues to improve and the industry category is growing at 6.2% over the last 9 months while Apio’s unit volume has grown 19% over the last 9 months more than triple the category growth. Apio’s food business growth is based on continued and successful efforts in adding customers and introducing new products as well as from its competitive advantages in technology, customer service and product quality.
In our food business, we are also benefitting from our strategic relationship with Windset Farms a leading grower of hydroponic greenhouse fruits and vegetables. Windset Farms is a partner and customer of our BreatheWay fresh-cut food packaging technology. We have hydroponic growing facilities and they have hydroponic growing facilities in Canada, Nevada and Santa Maria, California very near our Apio food operations. The Windset, Santa Maria facility is a newly constructed 3 million square feet state-of-the-art greenhouse facility, which is fully up and running now and is currently exceeding plan for producing and selling high-end premium priced tomatoes which includes Camparis, grapes, and cherry tomatoes.
Based on Windset’s operating performance the recent annual fair market value appraisal of Windset results in the value of our investment increasing by $5.8 million for all of fiscal year 2012. Of that 5.8 million increase, 1.2 million was recognized in the first half of our fiscal year, $3.5 million was recognized in the third quarter and the remaining 1.1 million is to be recognized in our fourth quarter. Windset’s hydroponic growing operations represents important departures from and key advantages versus traditional growing methods. First, there is no soil we used it all and with it 64 acres of hydroponic greenhouses. Windset produces the same amount of tomatoes that otherwise would require 5000 acres of soil growing tomatoes. And secondly, Windset’s hydroponic growing operations uses only 128 of the water for soil grown tomatoes. We are pleased with this investment. In addition to the change in fair market value of our investment on a quarterly basis we also recognize a 7.5% annual preferred dividend on our original $15 million preferred stock investment and that dividend amounts to $1.125 million per year which is accrued at roughly $281,000 per quarter.