American Dairy, Inc. Reports Second Quarter 2010 Financial Results
Conference Call to be Held Today at 9:00 am ET
BEIJING and LOS ANGELES, Aug. 9 /PRNewswire-Asia-FirstCall/ -- American Dairy, Inc. (NYSE: ADY; "American Dairy" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced financial results for the second quarter of 2010. The Company will hold a conference call today at 9:00 am ET.
Second Quarter 2010 Financial Highlights
-- Revenue up 26.7% to $52.2 million vs. $41.2 million in 2Q09
- Revenue from branded milk powder products up 9.0% to $35.0 million
vs. $32.1 million in 2Q09
- Revenue from raw milk powder up 223.8% to $13.6 million vs. $4.2
million in 2Q09
-- Gross profit down 23.2% to $18.5 million vs. $24.1 million in 2Q09
-- Gross margin 35.4% in 2Q10 vs. 58.6% in 2Q09
-- Net loss of $(20.7) million in 2Q10 vs. net income of $7.6 million in
2Q09
-- EPS per diluted share down to a loss of $(0.92) vs. $0.40 in 2Q09
The increase in revenue in the second quarter of 2010 compared to the second quarter of 2009 is primarily attributable to expanding the Company's market areas and distribution network throughout China, as well as increased demand for high quality products and increased sales quantities of certain of the Company's milk powder and raw milk powder products.
Gross profit was $18.5 million in the second quarter of 2010 compared to $24.1 million in the second quarter of 2009. Gross margin for the second quarter of 2010 was 35.4%, compared to 58.6% in the second quarter of 2009. Gross profit in the second quarter of 2010 was lower than gross profit in the second quarter of 2009 primarily due to changes in the Company's revenue mix, increased costs of raw milk supply, and increased sourcing of higher quality but higher cost raw milk from the Company's organic dairy farms. The costs of the higher quality raw milk sourced from the Company's organic dairy farms and from local farmers increased 22.0% compared to the prior year period.
Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "2010 has been a unique year of fine-tuning of our operations. After 2009's significant growth and build up of our platform and distribution network, we are continuing to strengthen our sales and marketing operations so that we fully leverage our unique vertically integrated business model with state-of-the-art production facilities. This quarter's results were softer than anticipated, but we are addressing this with certain initiatives to improve future results. Steps taken and being implemented include our plan to modify our selling approach to be more cost-effective, and improve overall sales operations to drive higher returns from existing retail sales points, including actions to adjust existing retail sales points in focused regions."
Mr. Leng continued, "We remain committed to producing the highest quality products for infants and children going forward. With the steps we are taking and our strong fundamentals, we are confident that we will improve profitability and secure our long term position."
Loss from continuing operations was $24.0 million in the second quarter of 2010, compared with income from continuing operations of $0.7 million in the second quarter of 2009. Sales and marketing expenses increased 43.0% to $29.6 million in the second quarter of 2010 from $20.7 million in the second quarter of 2009, primarily reflecting the Company's increased sales and additional promotional activities in the second quarter of 2010. General and administrative expenses increased 208.7% to $7.1 million in the second quarter of 2010 from $2.3 million in the second quarter of 2009, primarily reflecting reversals of bad debt of $2.0 million in 2009, share-based compensation expenses of $0.9 million in 2010, and various additional fees and expenses. In addition, in the second quarter of 2010 the Company disposed of under-performing cows, which failed to meet the Company's dairy farms yield requirements. The loss of disposal of cows was approximately $5.8 million.
The Company recognized other income of $2.6 million during the second quarter of 2010. In the prior year period, the Company had other income of $5.0 million. The lower other income was primarily attributable to a decrease of government subsidy of approximately $2.6 million from the second quarter of 2009, offset in part by a decrease in interest and finance costs paid related to convertible notes that matured in 2009 of approximately $1.1 million from the prior year period.
Net loss attributable to the Company for the second quarter of 2010 was $(20.6) million, or $(0.92) per diluted share, compared to net income attributable to the Company of $7.6 million, or $0.40 per diluted share, in the prior year period.
First Half of 2010 Financial Highlights
Revenue decreased 13.8% to $133.6 million in the six months ended June 30, 2010 from $155.0 million in the same period of 2009. Contributions from milk powder products were approximately $99.8 million, or 74.7%, of sales in the six months ended June 30, 2010, down 28.5% from $139.6 million, or 90.1% of sales, in the prior year period. This decrease is largely due to increased competition from new competitors entering into the Company's industry and old competitors aggressively attempting to reclaim market share following the melamine crisis. Gross profit decreased 41.2% to $56.9 million in the six months ended June 30, 2010 from $96.7 million in the same period of 2009. Gross margin for the six months ended June 30, 2010 was 42.6%, compared to 62.4% in the prior year period, primarily attributable to increases in the price for both internally and externally sourced raw materials, and also to a decrease in sales of milk powder and an increase in sales of raw milk powder, which has a lower gross profit margin. Income from continuing operations decreased to a loss of $(22.1) million in the six months ended June 30, 2010, compared to a profit of $32.3 million in the prior year period. Net income from continuing operations for the first six months of 2010 decreased to a loss of $(15.2) million, or $(0.68) per diluted share, from a profit of $32.1 million, or 1.67 per diluted share, in the prior year period. Net income attributable to the Company for the first six months of 2010 decreased to a loss of $(15.0) million, or $(0.68) per diluted share, from a profit of $35.4 million, or $1.84 per diluted share in the prior year period.
Balance Sheet
As of June 30, 2010, the Company had cash and cash equivalents of $12.7 million and total current assets of $143.4 million, compared with cash and cash equivalents of $48.9 million and total current assets of $177.6 million as of December 31, 2009.
The decrease in cash on the balance sheet was primarily attributable to the Company's repaying selected short-term and long-term debt facilities during the past six months, and a transfer to restricted cash of cash committed for certain dairy cow purchases. The Company continues to strengthen its balance sheet through improvements in the quality of its biological assets, pay down of selected debt obligations, and increased capital assets.
Financial Guidance
Mr. Jonathan H. Chou, the Company's Chief Financial Officer, stated, "Despite the softness in this quarter's results, we are pleased to report three month revenue growth of 26.7% compared to the prior year period. Specifically, sales of our branded milk powder products grew 9.0% to $35.0 million compared to the prior year period. As we approach the middle of the third quarter of 2010, we are confident that we are taking effective measures to continue to improve our operations across all functions. With respect to our balance sheet, we continue to address the Company's cash needs versus debt level, which resulted in repayment of approximately $20 million equivalent in selected RMB and USD debt facilities. We will continue strengthen our balance sheet and match most ideal liabilities available to our PRC assets. Based on cash and actual purchase orders received this quarter to date, we project our total revenue will exceed $55 million in the third quarter of 2010."
Conference Call Details
The Company will hold a conference call on August 9, 2010 at 9:00 am ET to discuss its results.
Listeners may access the call by dialing the following numbers:
United States toll free: 1-888-455-2265
Hong Kong toll free: 800-901-111
Northern China toll free: 10-800-714-1202
Southern China toll free: 10-800-140-1181
International: 1-719-325-2199
The replay will be accessible through August 16, 2010 by dialing the
following numbers:
United States toll free: 1-888-203-1112
International: 1-719-457-0820
Password: 9050942
About American Dairy, Inc.
American Dairy, Inc. (NYSE: ADY) is one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in the People's Republic of China. American Dairy conducts operations in China through its wholly owned subsidiary, Feihe Dairy, and other subsidiaries. Founded in 1962, Feihe Dairy is headquartered in Beijing, China, and has processing and distribution facilities in Kedong, Qiqihaer, Baiquan, Gannan, Longjiang, Shanxi, and Langfang. Using proprietary processing techniques, American Dairy makes products that are specially formulated for particular ages, dietary needs and health concerns. American Dairy has over 200 company-owned milk collection stations, two dairy farms, seven production facilities with an aggregate milk powder production capacity of approximately 1,250 tons per day and an extensive distribution network that reaches over 95,000 retail outlets throughout China. For more information about American Dairy, please visit http://www.americandairyinc.com.
Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking information about the Company's operating results and business prospects that involve substantial risks and uncertainties. Statements that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements include, but are not limited to, statements about the Company's plans, objectives, expectations, strategies, intentions or other characterizations of future events or circumstances and are generally identified by the words "may," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "targets," "could," "would," and similar expressions. Because these forward-looking statements are subject to a number of risks and uncertainties, the Company's actual results could differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading "Risk Factors" in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2009 and in other reports filed with the United States Securities and Exchange Commission and available at www.sec.gov. The Company assumes no obligation to update any such forward-looking statements.
For more information, please contact
In the U.S.:
[email protected]
In China:
May Shen
Tel: +86-10-8457-4688 x8810
Email: [email protected]
AMERICAN DAIRY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2010 2009
US$ US$
Assets
Current assets:
Cash and cash equivalents 12,695,511 48,949,524
Restricted cash 9,607,045 --
Notes and loans receivable, net of
allowance of $4,000,000 155,245 438,776
Trade receivables, net of allowance of
$594,666 and $791,119, respectively 23,038,198 27,495,190
Due from related parties 2,409,029 2,188,243
Employee receivables 1,214,838 396,724
Advances to suppliers 23,395,479 24,417,968
Inventories, net of allowance of
$87,068 and $518,561, respectively 58,284,823 59,044,665
Prepayments and other current assets 280,972 1,814,472
Refundable taxes 7,400,017 8,532,629
Other receivables 1,932,667 4,307,680
Short term investment 2,937,461 --
Total current assets 143,351,285 177,585,871
Investments:
Investment in mutual funds - available
for sale 102,581 136,466
Investment at cost 264,370 263,264
366,951 399,730
Property and equipment:
Property and equipment, net 155,747,540 154,572,409
Construction in progress 33,059,104 23,170,909
188,806,644 177,743,318
Biological assets:
Immature biological assets 35,137,414 35,672,123
Mature biological assets, net 19,288,183 13,232,124
54,425,597 48,904,247
Other assets:
Deferred tax assets 3,632,815 3,632,815
Prepaid leases 28,786,650 29,016,486
Other intangible assets, net 664,139 821,331
Goodwill 1,796,470 1,784,331
Deferred debt issuance cost, net -- 369,608
Total assets 421,830,551 440,257,737
Liabilities
Current liabilities:
Current maturities of long term debt 7,343,654 7,312,935
Notes and loans payable 45,515,008 62,372,922
Accounts payable 41,385,640 37,956,046
Accrued expenses 10,834,587 8,365,245
Income tax payable 1,108,661 2,980,774
Advances from customers 6,876,878 6,893,947
Due to related parties 119,026 10,531,851
Advances from employees 443,071 483,647
Accrued employee benefits 4,696,307 4,120,053
Other payables 43,807,803 23,693,617
Current portion of capital lease
obligation 155,624 --
Total current liabilities 162,286,259 164,711,037
Long term debt, net of current portion 28,522,751 32,427,230
Capital lease obligation, net of
current portion 602,122 --
Long term tax payable 5,057,504 4,747,083
Deferred income 8,897,018 10,538,313
Performance share obligation -- 11,382,000
Total liabilities 205,365,654 223,805,663
Commitments and contingencies
Redeemable common stock (US$0.001
par value, 2,625,000 and 2,100,000
shares issued and outstanding as of
June 30, 2010 and December 31, 2009,
respectively) 65,027,093 53,645,093
Equity
American Dairy, Inc. shareholders'
equity:
Common stock (US$0.001 par value,
50,000,000 shares authorized;
19,654,376 and 19,607,376 issued and
outstanding as of June 30, 2010
and December 31, 2009, respectively) 19,654 19,607
Additional paid-in capital 57,256,826 54,482,098
Common stock warrants 1,774,151 1,774,151
Statutory reserves 6,861,224 6,861,224
Accumulated other comprehensive
income 26,534,044 25,651,571
Retained earnings 58,631,883 73,672,879
Total American Dairy, Inc.
shareholders' equity 151,077,782 162,461,530
Noncontrolling interests 360,022 345,451
Total equity 151,437,804 162,806,981
Total liabilities, redeemable common
stock, and equity 421,830,551 440,257,737
AMERICAN DAIRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended June 30, Six months ended June 30,
2010 2009 2010 2009
US$ US$ US$ US$
Sales 52,194,506 41,186,466 133,630,409 155,008,313
Cost of goods
sold (33,730,167) (17,054,053) (76,728,349) (58,298,322)
Gross profit 18,464,339 24,132,413 56,902,060 96,709,991
Operating
expenses:
Sales and
marketing
expenses (29,571,923) (20,676,176) (57,853,747) (52,316,064)
General and
administrative
expenses (7,080,692) (2,322,879) (12,574,515) (11,301,083)
Loss on
disposal of
biological
assets (5,788,171) (457,942) (8,573,433) (820,801)
Total operating
expenses (42,440,786) (23,456,997) (79,001,695) (64,437,948)
(Loss) income
from
continuing
operations (23,976,447) 675,416 (22,099,635) 32,272,043
Other income
(expenses):
Interest income 109,550 118,768 207,186 211,085
Interest and
finance
costs (714,099) (1,828,430) (1,558,962) (3,413,977)
Amortization of
deferred
debt issuance
cost (356,737) (33,914) (376,057) (67,828)
Government
subsidy 3,419,709 6,014,120 9,158,482 6,744,408
Other income,
net 155,343 727,685 364,025 1,514,681
(Loss) income
before
income tax (21,362,681) 5,673,645 (14,304,961) 37,260,412
Income tax
expense 642,196 (1,345,393) (943,621) (5,174,741)
(Loss) income
from
continuing
operations,
net of tax (20,720,485) 4,328,252 (15,248,582) 32,085,671
Net income from
discontinued
operations,
net of tax -- 3,286,694 -- 3,289,908
Net (loss)
income (20,720,485) 7,614,946 (15,248,582) 35,375,579
Add: Net loss
attributable to
noncontrolling
interests 145,893 16,497 207,586 42,645
Net (loss)
income
attributable to
American
Dairy, Inc. (20,574,592) 7,631,443 (15,040,996) 35,418,224
(Loss) earnings
per
share of common
stock -
Basic
(Loss) income
from
continuing
operations
attributable to
American
Dairy, Inc. (0.92) 0.25 (0.68) 1.86
Income from
discontinued
operations
attributable to
American
Dairy, Inc.,
net of tax -- 0.19 -- 0.19
Net (loss)
income
attributable to
American
Dairy, Inc. (0.92) 0.44 (0.68) 2.05
(Loss) earnings
per
share of common
stock -
Diluted
(Loss) income
from
continuing
operations
attributable to
American
Dairy, Inc. (0.92) 0.24 (0.68) 1.67
Income from
discontinued
operations
attributable to
American
Dairy, Inc.,
net of tax -- 0.16 -- 0.17
Net (loss)
income
attributable to
American
Dairy, Inc. (0.92) 0.4 (0.68) 1.84
Weighted
average shares
of common stock
outstanding
Basic 22,273,266 17,339,311 22,009,564 17,296,845
Diluted 22,273,266 20,161,916 22,009,564 19,712,263
SOURCE American Dairy, Inc.
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