CHINA: Feihe net profit "significantly better"

By Katy Askew | 12 November 2012

  •  Net profit rises to US$7.5m, up $7.1m
  •  Sales gain 4.3%
  •  Greater focus on value-added

Chinese infant nutrition group Feihe International has booked an increase in third-quarter profits, which it said were "significantly better" thanks to a focus on higher-margin products.

In an earnings release on Friday (9 November), Feihe said net profit rose to US$7.5m, up $7.1m from the comparable period of last year when a tax expense hit the bottom line. Sequentially, earnings were up 29% from the second quarter of this year.

The company said the gain was driven by gross margin, which rose to 54.9% from 35.5% as Feihe focused on higher-margin quality products. Sales during the period were also up, climbing 4.3% to $66.1m.

Show the press release


Feihe International, Inc. Reports Third Quarter 2012 Financial Results

BEIJING--(Marketwire - Nov 9, 2012) - Feihe International, Inc. ( NYSE : ADY ) ("Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk power and soybean, rice and walnut products in China, today announced financial results for the third quarter of 2012. The Company will hold a conference call today at 6:00 am Eastern Time. Third Quarter 2012 Financial Highlights: Revenue increased approximately $2.7 million, or 4.3%, to $66.1 million in 3Q12 vs. $63.4 million in 2Q12: Revenue from branded milk powder products was $62.7 million in 3Q12, up $2.0 million from $60.7 million of 2Q12 and up $7.2 million from $55.5 million of 3Q11. Revenue from raw milk powder was $15,000 in 3Q12 vs. $33,000 in 2Q12 and $16.9 million in 3Q11. Gross profit increased approximately $8.8 million, or 32.0%, to $36.3 million in 3Q12 from $27.5 million in 3Q11, and up $1.0 million, or 2.6%, sequentially from $35.3 million in 2Q12. Gross profit margin was 54.9% in 3Q12 vs. 36.5% in 3Q11. Net income attributable to common shareholders of the Company was $7.5 million in 3Q12, up approximately $7.1 million from $473,000 in 3Q11 and up approximately $1.7 million, or 29.0%, sequentially from $5.8 million in 2Q12. Diluted net income from continuing operations per common share ("EPS") was $0.38 in 3Q12, up significantly from $0.11 in 3Q11, and increased from $0.29 in 2Q12. Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are pleased with our third quarter results. Our improved gross profit and significantly improved net income attributable to common shareholders reflects the success of our efforts to control costs and to focus our sales on higher margin products. In particular, sales of infant milk powder were up 15% from the third quarter 2011, especially our Feifan and AstroBaby series. We plan to continue this strategy and to enhance our premium quality brand awareness." The Company's revenue was $66.1 million for the three month period ended September 30, 2012, up $2.7 million, or 4.3%, from $63.4 million in the second quarter of 2012, and representing a decrease of $9.3 million, or 12.4% compared to $75.4 million revenue for the third quarter of 2011. This year-over-year decrease was primarily attributable to a decrease in sales of raw milk powder, a high cost and low gross profit product, of approximately $16.9 million offset by an increase in sales of branded milk powder of approximately $7.2 million. The increase in sales compared to the last quarter in 2012 was primarily attributable to an increase in sales of branded infant milk powder. Sales of milk powder, our highest margin products, increased to $62.7 million from $55.5 million in the third quarter of 2011. The Company's gross profit was $36.3 million in the third quarter of 2012, an increase of approximately $8.8 million, or 32.0%, compared to $27.5 million in the third quarter of 2011. Our gross profit margin was 54.9% compared with 36.5% in the third quarter of 2011. The substantial growth was primarily attributable to general increases in the sales of high end milk powder and a decrease in the cost of raw milk powder. The Company's income from operations was $5.4 million in the third quarter of 2012, an increase of approximately $2.2 million, or 69.4%, compared to $3.2 million in the third quarter of 2011. Our total operating expenses increased by approximately $6.4 million, or 25.8%, from approximately $24.8 million in the three month period ended September 30, 2011 to approximately $31.2 million in the three month period ended September 30, 2012. This increase was primarily attributable to an increase of $8.9 million, or 48.9%, in sales and marketing expenses from approximately $18.2 million for the three month period ended September 30, 2011 to $27.1 million in the three month period ended September 30, 2012, and primarily related to increases in advertisement fees, marketing promotion and transportation expenses. Net income attributable to common shareholders of the Company for the third quarter of 2012 was $7.5 million, or diluted EPS of $0.38, a significant increase from $473,000, or diluted EPS of $0.11, in the third quarter of 2011, and an increase from $5.8 million, or diluted EPS of $0.29, in the second quarter of 2012. Nine Months Ended September 30, 2012 Revenue was $192.4 million for the nine month period ended September 30, 2012, a decrease of approximately $13.5 million, or 6.6%, from $205.9 million for the nine month period ended September 30, 2011. This decrease was primarily attributable to a decrease in sales of raw milk power of approximately $37.2 million and a decrease in sales of soybean powder of approximately $2.9 million, offset by an increase in sales of milk powder of approximately $25.4 million and an increase in sales of other products of approximately $2.1 million. Gross profit was $105.6 million in the nine month ended September 30, 2012, up $24.2 million from $81.4 million in the same period of 2011. Gross profit margin increased from 39.5% for the nine month period ended September 30, 2011 to 54.9% for the same period of 2012. The increase was primarily attributable to general increases in the sales of high end milk powder and a decrease in the cost of raw milk powder. Income from operations was $20.3 million in the nine month period ended September 30, 2012 compared to $13.4 million in the same period of 2011. Net income attributable to the common shareholders of the Company for the nine month period ended September 30, 2012 was $21.6 million, or diluted EPS of $1.07, as compared to net income attributable to the common shareholders of the Company of $10.3 million, or diluted EPS of $0.60, in the prior year period. As of September 30, 2012, the Company had cash and cash equivalents of $2.3 million and total current assets of $201.1 million compared to cash and cash equivalents of $15.4 million and total current assets of $200.5 million as of December 31, 2011. The Company had a working capital of approximately $31.1 million as of September 30, 2012, compared to a working capital deficiency of approximately $8.0 million as of December 31, 2011. Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased with our financial results so far in 2012. We have upgraded the product mix for our sales and significantly improved our profit margins, with sales of our premium Feifan series products representing 60.8%, our super-premium AstroBaby series representing 5.3%, and our super-premium Feifan series representing 8.5%, of our infant milk powder sales this quarter. We are confident in our decision to focus on infant milk powder and decrease raw milk powder sales, and we believe that we can improve our footprint as a leading infant formula company in the PRC in the coming years."

Original source: Feihe International

Sectors: Baby food, Emerging markets, Financials

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