Emerald Dairy, Inc. Reports Record Revenue for the Third Quarter 2010

HARBIN, China, Nov. 16, 2010 /PRNewswire-Asia-FirstCall/ -- Emerald Dairy, Inc. (OTC Bulleting Board: EMDY) ("Emerald Dairy" or "the Company") a leading producer and distributor of infant and children's formula products, today announced financial results for its third quarter ended September 30, 2010.

   Third Quarter 2010 Highlights

• Revenue was $12.9 million, up 27.0% from 3Q2009 and a quarterly record
• Gross margins increased 510 basis points to 50.3% driven by higher sales of the Company's high-margin Xinganling(R) brand
• Adjusted net income was 2.0 million and adjusted EPS was 0.06, an increase of 127% and 100% respectively
• $7.2 million in cash flow from operations for the first nine months of 2010

"We had a very productive third quarter on several fronts," stated Yong Shan Yang, CEO and President of Emerald Dairy, "Xinganling® continues to demonstrate increasing market preference among consumers and families who are willing to  pay a bit more to buy Xinganling versus local and lower end brands.     We continued to make adjustment in our current 9,000 ton capacity line and increased our production for the quarter to meet at least part of this demand.  Beginning November, we brought on line our second production line (line "B") at our new facility in Hailun and we have already begun shipping out orders of Xinganling to our customer base. The expanded capacity will allow us to meet incremental customer demand for our products in 'Tier Two' to 'Tier Four' cities which is are showing increasing appetite for mid-range infant formula products like our Xinganling® -branded products.   Our initial target is to reach forty percent capacity utilization over the next six months and near full capacity within 12 months which should meet forecasted demand with our installed customer base. We are pleased with the returns we have seen with our brand and marketing investments to date as evidenced by growth in our key product lines.  We started selling three organic products under our Xinganling(R) brand and will leverage our broad distribution footprint to gain additional market share," Yang concluded.

Third Quarter 2010 Review

Total revenue for the third quarter of 2010 ended September 30, 2010 was $12.9 million, up 27.0% from $10.2 million for the quarter ended September 30, 2009, which was driven by a 344 metric ton increase in production and shipments of Emerald Dairy products in the quarter. Sales of its mid- and high end price point Xinganling®-branded products increased by24.5% over the year ago period and represented 86.2% of third quarter sales. The Company was also able to further maximize production output in on its current 9,000 ton line to produce and ship more of Emerald Dairy's Xinganling product line.   Another contributor to its revenues was higher pricing on some of the Company's subcontracting production runs, leading to sales increasing by 63.4% to $1.1 million in that business segment during the third quarter.

Gross profit for the third quarter of 2010 was $6.5 million, a 41.4% increase from $4.6 million in the third quarter of 2009.  Overall gross profit margin expanded 510 basis points to 50.3% in the third quarter, with margins up in every product category compared to the same period last year.   Xinganling® increased sales volume and margins contributed the most to gross profits and overall gross profit margins for the quarter.  On average, gross margins for Emerald Dairy core products are detailed below.

Xinangling® Milk Powders – 45%-55% margins

Rice Powders (for lactose intolerance) – 60%-68% margins

Soybean Powders (for lactose intolerance)   - 20%-30% margins

Private Label Contracting - ~10%

Operating expenses for the quarter were $4.1 million, an increase of 19.4%, and were attributed to higher advertising and marketing promotion expenses, in addition to investments to increase the Company's sales force.  Operating income totaled $2.4 million in the third quarter of 2010, a 103.7% increase from $1.2 million in the third quarter of the previous year. Adjusted operating income excluding non-cash items was $3.0 million. The Company's adjusted operating margin was 23.6% compared to 11.8% in the third quarter of the prior year, a 1,180 basis point improvement.

GAAP net income for the third quarter of 2010 was $1.5 million, an increase of 66.4% from $0.9 million in the third quarter of 2009. Earnings per share were $0.04 per diluted share in the quarter. Adjusted net income excluding the non-cash value of stock options and warrants expensed was $2.0 million, an increase of 127.3% year over year. Adjusted earnings per share increased 100.0% to $0.06 based on 34.5 million weighted average diluted shares outstanding on September 30, 2010, compared to 30.8 million fully diluted shares in the year ago period.

Revenue for the first nine months of 2010 was $40.5 million, up 29.4% from $31.3 million in the prior year's period, as contribution from each category remained consistent.  Milk powders accounted for 86.6% of revenues, private labeling sales accounted for 7.6% of revenues, rice powder accounted for 3.1% of revenues while soybean powder accounted for 2.7% of revenues for the first nine months of 2010.

Gross profits were $20.1 million, an increase of 41.5% for the period.  Gross profit margin increased by 420 basis points to 49.7% in the first nine months ended September 30, 2010.

Operating expenses grew by 78.3% in the first nine months of 2010 to $17.1 million. Advertising expenses increased by 81.4% to $0.4 million and promotion expenses increased by 64.6% to $0.8 million due to a focus on brand building and marketing.    The Company also coordinated direct marketing programs and introductory promotions to new mothers events with the Company's distributors and retail partners.  

The Company recorded four non-cash charges in the first nine months of 2010;  (i) $5.0 million in liquidated damages as a result of the extension of warrants previously issued by the Company to satisfy certain registration rights provisions (ii) $0.7 million in non-cash stock options for employees (iii) $0.1 million related to the fair value of warrants issued to consultants amortized during the nine months ended September 30, 2010 and (iv) $0.8 related to the fair value of warrants issued for loan costs amortized during the nine months ended September 30, 2010. Excluding these non-cash expenses of approximately $6.6 million, total operating expenses were $10.5 million in the first nine months of 2010 compared to $9.6 million in the first nine months of 2010.

Operating income for the first nine months of 2010 was down 34.7% year-over-year to $3.0 million. Adjusted operating income, excluding $6.6 million of non-cash expenses, was $9.6 million in the first nine months of 2010 compared to $4.6 million in the first nine months of 2009, a 109% increase year over year.

US GAAP net income for the first nine months of fiscal year 2010 was $0.5 million, compared to $3.7 million in the prior year's corresponding period, an 87.6% decrease year over year. Adjusted net income for the first nine months of 2010, which excludes the $6.6 in non-cash expenses was $7.1 million, an increase of 91.9% year over year. Adjusted earnings per share were $0.21 vs. $0.12 in the year ago period, based on 34.1 million and $30.4 million diluted shares outstanding for each respective period.

Financial Condition

As of September 30, 2010, the Company had $14.6 million in cash and equivalents; working capital was $24.4 million, up from $17.3 million as of December 31, 2009; accounts receivable were $6.6 million, compared to $7.2 million as of December 31, 2009; cash flow from operations for the first nine months of 2010 was $7.2 million, compared to $2.1 million for the year ago period due to higher net income and improvements in accounts working capital. The Company had $5.8 million in short term loans as of September 30, 2010. Shareholder's equity was $43.7 million, a 34.0 % increase from $33.4 million reported on December 31, 2009.

Guidance for 2010

Emerald Dairy reiterated its full year 2010 guidance of $60-65 million in revenues and $8.0 to $9.0 in non-GAAP adjusted net income.

Third Quarter 2010 Conference Call

To attend the call, please use the dial-in information below. When prompted, ask for the "Emerald Dairy Call" and/or be prepared to provide the conference ID.

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through November 23, 2010. To listen, please call 1-877-870-5176 within the United States or 1-858-384-5517 if calling internationally. Utilize the pass code 4385521 for the replay.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link, http://viavid.net/dce.aspx?sid=00007E2E or at ViaVid's website at http://www.viavid.net , where the webcast can be accessed through November 17, 2011.

About Emerald Dairy

Through its wholly-owned operating subsidiaries, Emerald Dairy, Inc. is a producer and distributor of infant and children's formula, milk powder and soybean products in the People's Republic of China. The Company's products are sold under two brand names -- "Xing An Ling," designed for middle and high-end customers, and "Yi Bai," designed for low-end customers. Emerald Dairy's products are distributed throughout 20 provinces in mainland China and sold in over 6,000 retail points. For further information about Emerald Dairy Inc., please visit the Company's website at http://www.emeralddairy.com/

About Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP adjusted net income, and non-GAAP adjusted EPS. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance and liquidity by excluding certain expenses and expenditures that may not be indicative of "recurring core business operating results", meaning operating performance excluding non-cash amortization charges for intangibles. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to historical performance and liquidity as well as comparisons to competitors' operating results. The Company believes these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of the business.

Forward-Looking Statements

This press release contains certain "forward-looking statements" that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to, the Company's ability to obtain the necessary financing to continue and expand operations, to market its products in new markets and to offer products at competitive pricing, to attract and retain management, and to integrate and maintain technical information and management information systems, political and economic factors in the PRC, compliance requirement of laws and regulations of the PRC, the effects of currency policies and fluctuations, general economic conditions and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.

SOURCE Emerald Dairy, Inc.