•  Synutra Q2 turns to loss
  •  Sales down one-third
  •  Lowers outlook, predicts FY loss

Chinese infant formula group Synutra International has lowered its full-year outlook for a second time, having booked a second-quarter loss.

The company said net losses totalled US$44.2m in the three months to the end of September, against an income of $8.5m in the comparable period of last year. Net sales fell by around a third, falling to $66.1m from $99.1m last year.

The company attributed the decline to lower volumes which came in response to pricing action it has taken for its infant formula products. The company said distributors had stocked up on its products in the final quarter of the previous year, in order to avoid a planned price increase.

For the full year, Synutra now expects a loss of $30-50m on revenue of $300-350m. This is the second profit warning issued by the company this year. In August, Synutra had cut its full-year net profit forecast to a range of $50-57m, down from previous guidance of $55-65m.

Show the press release

Synutra Reports Second Quarter and First Half Fiscal 2013 Financial Results

QINGDAO, China and ROCKVILLE, Md., Nov. 9, 2012 /PRNewswire/ -- Synutra International, Inc. (NASDAQ: SYUT), ("Synutra" or the "Company"), which owns subsidiaries in China that produce, market and sell nutritional products for infants, children and adults, today announced financial results for the second quarter of fiscal 2013 ended September 30, 2012.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "Our fiscal second quarter financial results were impacted by a slowdown in sales stemming from the price increase implemented on our infant formula products in the beginning of our fiscal first quarter as our customers have taken advantage of purchasing products at pre-increase pricing levels. On a sequential basis, our inventory position in the second quarter decreased 11% to $77 million from $86 million in the fiscal first quarter. Sales orders measured in tons increased 5% to 4,605 tons from approximately 4,380 tons in our fiscal first quarter."

"Since September, we began to adjust our sales and distribution channels to ensure channel inventory control and streamline our retail network for better efficiency. These actions were based on our assessment of the current market environment for our products which reflects heightened competition and increased levels of cross-territory selling among certain distributors. As part of this effort, we will focus on top-performing distributors and retail outlets, regain control of the marketing dollars with each of our distributors, and gradually exit from relationships with low performing retailers. Our objective is to implement uniform retail-end pricing and distributor discounts. We expect to reduce our current number of company-authorized retail outlets by over half, to about 25,000, by January 2013. Additionally, we are setting up an inventory tracking system, which will go beyond the distributors to gain better visibility at the retail level. We aim to complete the system by early 2013."

"In the short term, these efforts have compounded the negative effects of the price increase and the seasonal slow-down in the second fiscal quarter ended September 30 th. As we expected, distributors have prudently slowed down their orders resulting in low sales volume. We also estimate we may incur expenses in terminating relationships with certain outlets. However, in the two months since the implementation of the sales channel adjustment, we have seen stable sales orders and reduced selling cost, and we expect to gain transparency through our sales channel going forward. We expect sales in our fiscal third quarter to be in a similar range to our second quarter level with sales expected to pick up in the fiscal fourth quarter and produce quarterly profitability by the end of the fiscal year. We believe the successful implementation of this strategy will lay a solid foundation for strengthening the management of our sales channel and achieving greater sales volume in the long term."

"Over the next year, our efficiency enhancements in the main lines of our infant formula product segment are expected to put us back on solid footing and lay the foundation for continued growth in the coming quarters. We are also excited about the prospects of our nutritional ingredient and supplements segment, where we are uniquely positioned to capture new customers in new geographic regions."

Original source: Synutra International