Landec Corporation. ( LNDC)

F1Q 2012 Earnings Call

October 5, 2011 11:00 am ET

Executives

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

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

Analysts

Anton Brenner – Roth Capital Partners, LLC

Daniel Rizzo – Sidoti & Company, LLC

Peter Black – Winfield Capital Corporation

Morris Ajzenman – Griffin Securities, Inc.,

William Lauber – Sterling Capital Management, LLC

Rick Fetterman – Fetterman Investments, Inc.,

Craig Pieringer – Wells Capital Management

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Landec first 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. Please go ahead sir.

Gary T. Steele

Good morning, and welcome to Landec's first quarter fiscal year 2012 earnings call. I have Greg Skinner, our Chief Financial Officer with me. 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 November 4, 2011. A replay 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 1551099.

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.

As reported in yesterday’s press release, for the first quarter of our fiscal year 2012, revenues increased 13% to $73.3 million up from $65 million during last year’s first quarter and net income was $1.8 million compared to $2.3 million during the first quarter last year.

Notably during the first quarter, Apio our technology food business, increased revenues by 13% driven by an 8% increase in revenues from Apio’s value-added fresh-cut vegetable business and a 30% increase in our export revenues.

Overall, during the first quarter and fiscal year 2012, Landec’s financial position continued to improve and strengthen. We generated $4.4 million in operating cash flow, paid down $1 million in debt and added $3.1 million to cash and marketable securities, which ended the quarter at $39.4 million in cash and marketable securities.

In addition, between September 22, 2011 and October 3, 2011, the company purchased on the open market under its stock buyback plan, 604,768 shares of common stock at a total cost of $3.3 million. While net income was lower during the first quarter of this year compared to the same quarter last year, we exceeded our internal plan for the quarter. We are tracking well towards meeting or exceeding our financial guidance for fiscal year 2012, a 5% or better revenue growth and 30% to 40% net income growth after adding back the one-time impairment charge of $4.8 million to net income for fiscal year 2011.

Also in the recent quarter, Chiquita informed us of its decision to renew and extend the licensing and distribution agreement with our food subsidiary Apio for an additional five years thus maintaining Chiquita’s exclusive right to use our BreatheWay packaging technology for existing programs with bananas, avocados and mangoes, and adding selective shipping container applications to the agreement.

We are very pleased to continue working with Chiquita, one of the global market leaders in tropical fruit sourcing, distribution and marketing. Chiquita has a sizable shipping container technology business that fits well with Landec’s long-term interest in using modified atmosphere technology for preserving produce during global transport.

Our agreement with Chiquita includes guaranteed minimum purchases of BreatheWay membranes for all fields in which Chiquita has exclusive rights.

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

Gregory S. Skinner

Thank you, Gary, and good morning, everyone. In yesterday’s news release, Landec reported total revenues for the first quarter of fiscal year 2012 of $73.3 million versus revenues of $65 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 a $3.2 million increase in value-added fresh-cut vegetable revenues at Apio, primarily driven by the growth of the overall produce category and new product introductions, and a $4.9 million increase in Apio export revenues due to greater availability of fruit to export.

For the first quarter of fiscal year 2012, the company reported net income of $1.8 million or $0.07 per share, compared to net income of $2.3 million or $0.09 per share for the first quarter of last year, this decrease in net income during the first quarter of fiscal year 2012 compared to the first quarter of fiscal year 2011 was primarily due to first, a $348,000 decrease in gross profit for Apio Packaging because of lower BreatheWay packaging sales to Chiquita compared to the initial large orders of BreatheWay packaging for avocados to build inventory that occurred during the first quarter of last year.

Second a $280,000 decrease in gross profit for Lifecore from a product mix change resulting from the timing of shipments of aseptically filled products versus fermentation products, which reduced Lifecore's gross margin to 38% for the quarter compared to Lifecore's expected gross margin of approximately 50% for all of fiscal year 2012.

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