Landec CEO Discusses F2Q2011 Results - Earnings Call Transcript

Landec Corporation (LNDC)

F2Q2011 Earnings Conference Call

January 5, 2011 11:00 a.m. 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

Morris Ajzenman – Griffin Securities

Chris Krueger – Northland Capital

Walter Schenker – Moss Partners

William Lauber – Sterling Capital Management

John Mulhouse [ph] – Mulhouse and Company [ph]

Craig Peter – Wells Capital Management

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Landec second 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. Please go ahead, Sir.

Gary Steele

Good morning, and welcome to Landec's second quarter fiscal year 2011 earnings call and I have with me today, Greg Skinner, Landec's 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 will be available for 30 days through February 4, 2011. A replay of the teleconference will be available for one week until midnight Eastern Time Wednesday, January 12, 2011 by calling 888-266-2081 or 703-925-2533. The access code for the replay is 1501183.

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.

As announced in our second quarter earnings release, we increased revenues 15% and net income 34% during our second quarter 2011. Our Lifecore Biomedical subsidiary had a very good quarter with revenues of $8.4 million generating $5.4 million of gross profit resulting in gross margin of 64%.

Overall, in the second quarter our gross margin increased to 16.9% from 12.2% in the year ago quarter. In our Apio food business, prolonged cold and wet weather adversely impacted produce sourcing. For those on the West Coast you know that Northern California, Southern California, Arizona and Mexico have experienced torrential downpours and flooding as well as unusually cold weather during the months of November and December. Fields are flooded. Produce shields are way down as produce quality is down.

We project that negative weather related variances overall for the full fiscal year will be roughly $3.5 million with two-thirds of these variances recognized in the second quarter just ended. The timing was not good for consumers, retailers or for us, since November through January is the high season for many of our produce products, as families gather for the holidays and for ball games. To add to the problem retailers have had difficulty getting their trucks to and from the West Coast due to severe snowstorms in the Mid-west and on the East Coast.

We last experienced adverse weather of this magnitude during the winter of 2006. Fortunately, we have a number of positive offsets to the financial impact of produce sourcing issues, which Greg will cover in his comments. In our press release of December 13, we provided updated guidance based on our knowledge of the produce supply and retailer demand issues in November and December.

Hopefully, the weather will return to a more normal pattern during the remaining five months of this fiscal year and our updated guidance assumes this.

Let me turn the discussion of financial results over to Greg.

Greg Skinner

Thank you, Gary. And good morning, everyone. In yesterday’s news release, Landec reported that for the second quarter of fiscal year 2011, revenues increased 15% to $70.2 million versus revenues of $60.9 million for the second quarter of last year. The increase in total revenues during this year’s second quarter compared to last year’s second quarter was primarily due to the $8.4 million in Lifecore revenues, and from a $2.6 million or 15% increase in Apio's export revenues. This growth was partially offset by $1.6 million or 4% decrease in revenues from Apio's valued added fresh cut vegetable business as a result of weather related produce sourcing issues and from Apio exiting some low margin business during the second half of fiscal year 2010.

For the second quarter of fiscal year 2011, Landec's net income increased 34% to $2.1 million or $0.08 per share compared to $1.5 million or $0.06 per share for the second quarter of last year. The increase in net income during the second quarter of fiscal year 2011 compared to the second quarter last year was due to the $2.8 million of net income before taxes from Lifecore.

This increase was partially offset by first, a $909,000 decrease in gross profit from Apio's valued added fresh customer vegetable business, due to produce sourcing issues, which were partially offset by lower promotional costs and reduced packaging costs. And second, from a $768,000 increase in operating costs at Corporate and Landec Ag, due primarily to an increase in stock-based compensation expenses and as a result of the amendment to our agreement with Monsanto, wherein beginning in the third quarter of last year, Landec is now responsible for paying for all of Landec Ag's operating expenses.

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