CHINA: Q3 loss for Snack food group China Marine
- Q3 loss of $2.5m amid one-offs
- Adjusted net income still falls
- Doubles sales and marketing spend but group sales fall
A revaluation of China Marine Food Group's drinks arm has pushed the food and beverage firm into the red in the third quarter.
The US-listed company, which also makes seafood-based snacks and distributes frozen catch, booked a net loss of US$2.5m for the three months to the end of September, compared to a profit of $800,000 a year earlier.
China Marine pointed to an impairment loss on its algae drinks business for the loss. It also cited costs linked to the acquisition of beverage firm Hi-Power in 2010.
However, without those one-off items, the company's quarterly net profit fell from $2m in last year's third quarter to $700,000. China Marine more than doubled its investment in sales and marketing in the quarter but sales dipped 0.5% to $30.8m.
"We generated revenue growth in our two main businesses – seafood snacks and Hi-Power beverages – during the third quarter," chairman and CEO Pengfei Liu said.
"These strong results reflect our unwavering commitment to invest in our brands. With consistent advertising and marketing support and low channel inventories, we expect to drive further positive sales momentum in the fourth quarter."
China Marine Reports Third Quarter 2012 Financial Results
SHISHI, China, November 14, 2012 -- China Marine Food Group Limited (NYSE Amex: CMFO) ("China Marine" or the "Company"), a manufacturer of Mingxiang® seafood-based snack foods, “Hi-Power” marine algae-based beverages and a distributor of frozen marine catch, today announced its financial results for the third quarter ended September 30, 2012.
Third Quarter 2012 Results
Q3 2012 Q3 2011 CHANGE
Net Sales $30.8 million $30.9 million -0.5%
Gross Profit $9.9 million $7.7 million +29.2%
Net Income -$2.5 million $0.8 million -409.6%
Diluted EPS* -$0.08 $0.03 -366.7%
Adjusted Net Income** $0.7 million $2.0 million -65.4%
Adjusted Diluted EPS** $0.02 $0.07 -71.4%
* Diluted EPS calculated for the period is based on 29.7 million shares on September 30, 2012 and September 30, 2011.
** Adjusted Net Income and Diluted EPS are non-GAAP calculations and do not include $0.6 million of non-cash, amortization of intangible assets related to the Company’s acquisition in Q3 2012 and Q3 2011, $0.6 million of after-tax non-cash stock-based compensation expenses in Q3 2011 and $2.6 million of non-cash goodwill impairment in Q3 2012. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.
“We generated revenue growth in our two main businesses – seafood snacks and “Hi-Power” beverages – during the third quarter,” started Mr. Pengfei Liu, Chairman and CEO of China Marine. “These strong results reflect our unwavering commitment to invest in our brands. With consistent advertising and marketing support and low channel inventories, we expect to drive further positive sales momentum in the fourth quarter.”
Third Quarter 2012 Results
Total net revenues in all segments for the quarter ended September 30, 2012, including Mingxiang®-branded seafood snack foods, “Hi-Power” beverages and marine catch was $30.8 million, down slightly from $30.9 million in the prior year's period.
Seafood Snack Food Segment
China Marine’s sale of processed and packaged seafood snack foods generated $15.0 million in revenue, a 3.7% increase from the third quarter of 2011, representing the first year-over-year growth in seafood snacks revenue since the second quarter of 2011. Sales were higher in Fujian province as a result of continuous market penetration efforts and marketing support.
Seafood snack foods accounted for 48.7% of total revenues in the third quarter of 2012. China Marine has maintained its product line of 27 Mingxiang®-branded seafood jerky snacks sold to consumers at retail locations. Gross profits margins for the seafood snack foods segment were 30.3% in the third quarter of 2012 compared to 27.4% in the same period last year as a result of reduction on headcount and the change in product mix to products with lower packaging costs. Retail points for seafood snack foods include major supermarket chains, convenience store chains, general food stores, campus canteens and local corner shops in Fujian, Zhejiang, Guangdong, Shandong and major prefectures like Shenzhen.
“Hi-Power” Beverage Segment
Revenues from the “Hi-Power” algae-based beverage line were $13.8 million in the third quarter of 2012, a 63.2% increase compared to $8.4 million in the third quarter of 2011. Sales increased year-over-year in Fujian and Zhejiang provinces.
The total numbers of retail end-points for “Hi-Power” were about 14,000 on September 30, 2012. Since 2011, the Company has focused on increasing sales growth through existing distributors. “Hi-Power” beverages are sold and promoted in major international retailers such as Walmart®, China-based supermarkets like Trust-Mart®, convenience stores, bars, restaurants, school canteens and local corner stores that carry “Hi-Power” beverages, and certain locations where Mingxiang®-branded seafood products are also sold.
Gross margin was 38.6% in the third quarter of 2012, down 40 basis points from 39.0% in the same period last year due to higher raw materials costs, packaging costs and manufacturing overhead. The Company outsources production, bottling and distribution to minimize its working capital and capital expenditures. China Marine continues to invest in sales and marketing, with various seasonal promotions including in store promotions and sporting event sponsorships, to drive trial and brand awareness.
Marine Catch Trade Segment
China Marine’s frozen marine catch business segment generated $2.0 million in the third quarter of 2012 compared to $8.0 million in the same period a year ago. The Company purchases and sells marine catch to distributors on an opportunistic basis. Gross profits were minimal in the marine catch business during the three months ended September 30, 2012 compared to $0.4 million in the same period a year ago. Consolidated costs of goods sold totaled $20.8 million for the quarter, or 67.7% of net revenues for the period ended September 30, 2012, which consists of the cost of raw materials, packaging materials, direct labor and manufacturing overhead.
Gross profit in the third quarter of 2012 was $9.9 million compared to $7.7 million in the third quarter of 2011. Consolidated gross margins increased 750 basis points to 32.3% for the third quarter of 2012, up from 24.8% for the three months ended September 30, 2011. Gross margin improvements were a direct result of higher sales of seafood snacks and “Hi-Power” beverages, and lower sales of marine catch at relatively lower margins.
Operating expenses in the quarter ended September 30, 2012 were $12.4 million compared to $6.7 million in the prior year’s period. The Company increased sales and marketing investments by approximately $3.8 million to $8.4 million in the third quarter of 2012 as a result of $2.5 million in advertising campaigns and $5.4 million in promotional costs to strengthen its brand position and improve market awareness. As a result of significant selling and marketing expenses for the nine months ended September 30, 2012 that resulted in a significant operating loss for the algaebased drink business, the Company is performing an updated valuation of its drink business using updated forecasted results. Preliminary estimated results prepared by the Company do not indicate a probable impairment loss to the intangible assets as of September 30, 2012. However, based on the preliminary results of the Company’s valuation of the drink business, the Company recorded a goodwill impairment loss of $2.6 million during the quarter ended September 30, 2012.
As a result, GAAP operating loss in the third quarter of 2012 was $2.4 million compared to an operating profit of $1.0 million in the prior year’s period. Excluding the $0.6 million of non-cash amortization expense related to the “Hi-Power” acquisition, and the $2.6 million of non-cash goodwill impairment, adjusted operating income was $0.8 million for the three months ended September 30, 2012.
GAAP net loss attributable to China Marine shareholders was $2.5 million in the three months ended September 30, 2012 compared to $0.8 million net income in the same period a year ago.
Excluding the non-GAAP financial measure as mentioned above, adjusted net income for the quarter were $0.7 million, with adjusted earnings per share of $0.02.
Original source: China Marine Food Group
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