Synutra International reports fiscal Q4 net earnings of US$7.5M, compared with net loss of US$8.5M in year-ago period, as revenues rose 7.7% to US$85.4M

Nevin Barich

QINGDAO, China and ROCKVILLE, Maryland , June 14, 2012 (press release) – Synutra International, Inc. (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 fourth quarter and full year of fiscal 2012 ended March 31, 2012.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "We are pleased to achieve profitability for the first full fiscal year 2012 since the 2008 melamine crisis with net income attributable to common stockholders of $16.7 million, or $0.29 per diluted share. Quality and consumer confidence remain key issues within our industry. However, we believe our ability to regain sustained profitability after overcoming multiple industry challenges demonstrates the long term potential of Synutra."

"For the fourth quarter of fiscal 2012, our performance continued to demonstrate the sustained market potential of our powdered formula brands. Sequentially, our results were lower due to several factors. First, as we have previously noted, the earlier timing of the Chinese New Year holiday this year led to some sales being shifted to December 2011 from January 2012. Also, in the fiscal third quarter, our increased promotional efforts for the Super-Love and Helanruniu brands led to strong revenue growth, while in the fourth quarter we paced our promotional activities to avoid the holiday season promotion clutters in the market. The gross margin expansion maintained the trend of gains when adjusted for the holiday order shift to the previous quarter. Early in the quarter, we feared a media event regarding an infant death case in Jiangxi province which alleged a connection to our product could have adversely impacted our business. Through vigorous and successful crisis management efforts, we cleaned our name and we believe the impact of that event was largely limited and localized."

"We are encouraged with our progress and look forward to our initiatives for the upcoming fiscal year. As we have previously announced, we implemented an approximately 15% price increase to accommodate rising costs and industry trends. In the near term, we expect the impact on margins to be minimal and may lead to softer sales in the first quarter of fiscal 2013 as distributors continue to work through their level of higher orders placed in the second half of fiscal 2012 in anticipation of our price increase. Over the long term, we believe our price adjustment will lead to further margin expansion and drive sales growth as well. Furthermore, after adjusting for certain seasonality effects, we believe our steady market share and powdered formula revenue performance over the past few quarters demonstrates that Synutra continues to grow healthier operationally and financially. As we continue on this trajectory, we are confident that our focus on quality products, distribution expansion and strong industry understanding will lead to strong returns for shareholders in fiscal 2013 and beyond."

Net sales decreased to $85.4 million for the fourth quarter of fiscal 2012 from $114.4 million in the third quarter of fiscal 2012. Net sales from the Company's branded powdered formula segment were $82.5 million, or 96.7% of net sales in the quarter, compared to $99.8 million, or 87.3% of net sales, in the previous quarter. As previously announced, this primarily reflects the impact of the earlier timing of the Chinese New Year combined with the Company's announced April 1st price increase, which led to the shift of certain sales to December 2011 from January 2012. Net sales of the Company's Super series infant formula for the fourth quarter were 64.8% of the volume of sales and 75.0% of the net sales of the powdered formula segment compared to 58.9% of the volume of sales and 70.3% of the net sales of the powdered formula segment in the previous quarter. By volume, sales of powdered formula products decreased 19.7% to 7,301 tons in the fourth quarter from 9,088 tons in the previous quarter.

Net sales from Other Products, which includes imported whole milk powder and whey protein powder sold to industrial customers, was $2.7 million, or 3.2% of net sales, in the fourth quarter of fiscal 2012, compared to $14.2 million, or 12.5% of net sales in the previous quarter.

Gross profit decreased to $35.6 million in the fourth quarter of fiscal 2012 from $47.3 million in the previous quarter, in line with the Company's sales performance. Gross margin in the fourth quarter of fiscal 2012 remained stable at 41.7% compared to 41.3% in the previous quarter. Powdered formula margin was 46.1% compared to 48.8% in the previous quarter. The decrease in powdered formula margins reflected steady distributor discounts combined with a lower revenue base for the fourth quarter.

Income from operations decreased to $16.2 million, or 19.0% of total revenue, from $21.4 million, or 18.7% of total revenue, in the previous quarter. Total operating expenses decreased to $19.4 million from $25.9 million in the previous quarter. Selling and distribution expenses increased 9.5% to $13.8 million from $12.6 million in the previous quarter primarily due to the Company's efforts to drive consumer recognition for and market penetration of newer products. Advertising and promotional expenses decreased 23.5% to $5.8 million from $7.6 million in the previous quarter. General and administrative expenses decreased 54.8% to $3.3 million from $7.4 million in the previous quarter, which was mainly due to bad debt reversal and decrease of office rental expenses caused by modification to the lease agreement of Beijing headquarter buildings.

Net income attributable to Synutra International, Inc. common stockholders was $7.5 million in the fourth quarter of fiscal year 2012, or $0.13 per diluted share, compared to $10.3 million, or $0.18 per diluted share, in the previous quarter, reflecting steady profitability.

Full Year Ended March 31, 2012 Financial Results

Net sales for the full year ended March 31, 2012 increased 37.8% to $342.5 million from $248.5 million in the prior year period. Net sales from branded powdered formula products increased 62.6% to $301.7 million, or 88.1% of net sales, from $185.6 million, or 74.7% of net sales, in the prior year period demonstrating the Company's sustained recovery throughout fiscal 2012.

Net sales from Other Products, which consists mainly of imported whole milk powder and raw milk sold to industrial customers, were $39.7 million, or 11.6% of net sales, compared to $61.5 million, or 24.7% of net sales, in the prior year period.

Gross profit increased 81.3% to $140.9 million for full year of fiscal 2012 from $77.7 million in the prior year period. Gross margin was 41.1% compared to 31.3% for the prior year period.

Operating income was $42.8 million for the full year of fiscal 2012 compared to an operating loss of $40.3 million in the prior year period reflecting the recovery in revenues and stabilization of expenses.

Net income attributable to Synutra International, Inc. common stockholders was $16.7 million for the full year fiscal 2012, or $0.29 per diluted share, compared to a net loss of $40.1 million, or $(0.71) per diluted share, in the prior year period.

Balance Sheet

As of March 31, 2012, the Company had cash and cash equivalents of $64.8 million and restricted cash of $51.4 million, including current and non-current portion.

Business Outlook

Mr. Liang Zhang concluded, "Looking forward to the 2013 full fiscal year, we expect revenues to be in the $400 to $420 million range and net income to be in the $55 to $65 million range. We aim to maintain steady profitability while continuing to invest in sales and distribution expenses to drive market penetration of new product lines. Overall, while we recognize there may continue to be short term fluctuations related to industry volatility, we are confident in our ability to deliver sustained market share and long-term growth for shareholders."

These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

About Synutra International, Inc.
Synutra International, Inc. (SYUT) is a leading infant formula company in China. It principally produces, markets and sells its products through its operating subsidiaries under the "Shengyuan" or "Synutra" name, together with other complementary brands. It focuses on selling premium infant formula products, which are supplemented by more affordable infant formulas targeting the mass market as well as other nutritional products and ingredients. It sells its products through an extensive nationwide sales and distribution network covering all provinces and provincial-level municipalities in mainland China. As of March 31, 2012, this network comprised over 650 independent distributors and over 800 independent sub-distributors who sell Synutra products in over 67,000 retail outlets.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.