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Yongye Intl (YONG) – Comments & Business Outlook
Third Quarter 2012 Financial Highlights
- Revenue decreased 7.7% to $129.7 million from $140.6 million in the third quarter of 2011
- Gross profit decreased 5.9% year-over-year to $80.5 million
- Income from operations decreased 55.0% to $22.8 million
- Net income attributable to Yongye decreased 57.0% to $16.8 million from $39.1 million for the same period of 2011. Diluted earnings per share for the quarter was $0.28, compared to $0.69 for the same period of 2011
- Adjusted net income attributable to Yongye, which excludes non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, a change in the fair value of derivative liabilities, and goodwill impairment charge, was $29.7 million, or $0.51 per diluted share, compared to $39.7 million, or $0.70 per diluted share, in the same period last year*
- Cash flows used in operating activities was $(52.3) million for nine months ended September 30, 2012, compared to cash flows used in operating activities of $(20.5) million in the same period of 2011
Orders and shipments for the third quarter were very strong, while selling prices have remained stable. The shipments made by the Company in the third quarter of 2012 and 2011 were 14,251 tons and 11,913 tons, respectively, representing a 19.6% increase over the prior year quarter. Despite this fact, the Company did not recognize revenue for a significant portion of those shipments, as a result of the previously disclosed delayed revenue recognition for certain distributors. It is important to reiterate that since the fourth quarter of 2011, for those provincial-level distributors with prolonged payment records, the Company has recognized revenue upon the receipt of cash, instead of upon shipments. Yongye continues to provide these provincial-level distributors with six-month credit terms. During the third quarter of 2012, the Company primarily collected cash for sales to these distributors with shipments made in the first quarter of 2012, which is a non-peak season for the Company. Consequently, a significant amount of sales and related profits were not recorded in the Company’s financial statements for the third quarter of 2012.
Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International, stated, “Despite the impact we continue to feel from the delayed revenue recognition for certain distributors, our business trends remain very strong. Shipments for the quarter were up almost 20% and we continue to expand our reach while solidifying our brand by increasing the number of branded retailers with whom we partner. Additionally, during the quarter we completed our capacity expansion project at the Wuchuan Factory. We have now increased our manufacturing capacity by 52% to 70,000 tons compared to the 46,000 ton capacity that we had before this project was initiated. As we have stated previously, this is consistent with our strategy to expand our product diversity and capacity in order to take advantage of the growing market demand for our products.”
Business Outlook
According to the Company’s revenue recognition policy, certain distributors’ revenue is being recognized on a cash basis rather than a shipment basis. In addition, the Company’s distributors’ payment cycle has been longer in 2012 compared to prior years. As a result, the Company has difficulty knowing what its revenue will be with specificity until cash collection is completed. The second and third quarters are the largest quarters for shipments and as the Company provides six-month credit terms, it currently cannot predict how much cash it will collect in the fourth quarter of 2012. As a result, the Company believes it is prudent to temporarily withdraw the previously provided revenue and net income expectations. The Company intends to update the market in early January 2013 on collections as of year-end 2012.
The Company’s business growth and profitability remain strong. Yongye will now, and going forward, provide more formal expectations on shipments, which is not impacted by the revenue recognition issue mentioned above. The Company expects total shipments in 2012 to increase 30% with a total amount of $510 million over 2011, in line with its original full year revenue growth guidance. The Company also reaffirms that its branded retailer network will be expanded to 35,000 by the end of 2012, which represents a 16.3% increase over the 2011 year-end number of 30,086.
2012-11-09 18:21:05
Source: http://geoinvesting.com/companies/yong_yongye_intl/research/comments_business_outlook/0040544
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