SOURCE: Feihe International, Inc.

August 09, 2012 07:00 ET

Feihe International, Inc. Reports Second Quarter 2012 Financial Results

BEIJING and LOS ANGELES, CA--(Marketwire - Aug 9, 2012) - Feihe International, Inc. (NYSE: ADY) ("Feihe International" 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 2012. The Company will hold a conference call today at 8:00 am Eastern Time.

Second Quarter 2012 Financial Highlights:

  • Revenue increased $0.5 million, or 0.8%, to $63.4 million in 2Q12 vs. $62.9 million in 2Q11:
    • Revenue from branded milk powder products was $60.7 million in 2Q12, up $6.6 million, or 12.2%, from $54.1 million in 2Q11, and up $1.3 million, or 2.2%, sequentially from $59.4 million in 1Q12
    • Revenue from raw milk powder was $30,000 in 2Q12, compared to $5.2 million in 2Q11 and $0.9 million in 1Q12
  • Gross profit increased $5.8 million, or 19.7%, to $35.3 million in 2Q12 vs. $29.5 million in 2Q11, and up $1.3 million, or 3.8%, sequentially from $34.0 million in 1Q12
  • Gross margin was 55.7% in 2Q12 vs. 47.0% in 2Q11, up from 54.0% in 1Q12
  • Net income attributable to the common shareholders of the Company increased $0.6 million, or 11.5%, to $5.8 million in 2Q12 vs. $5.2 million in 2Q11
  • Diluted net income from continuing operations per common share ("EPS") was $0.29 in 2Q11 vs. $0.25 in 2Q10.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased with our second quarter results. Our sales of branded milk powder products increased 12.2% compared to the previous quarter, and this continues to be an area of strategic focus for us. We will continue our efforts to expand our sales of higher margin products and strengthen our premium quality brand awareness, while improving the efficiency of our distribution network."

The Company's revenue of $63.4 million in the second quarter of 2012 represented an increase of $0.5 million, or 0.8% compared to the second quarter of 2011. This increase was primarily attributable to an increase in sales of milk powder of $6.6 million, offset by a decrease in sales of raw milk powder of approximately $5.2 million and a decrease in sales of soybean powder of approximately $1.1 million. The decrease in sales of raw milk powder reflects the Company's decision to decrease production of raw milk powder, which generated a negative margin in recent periods.

Gross profit was $35.3 million in the second quarter of 2012, up $5.8 million, or 19.7%, from $29.5 million in the second quarter of 2011, and up $1.3 million, or 3.8%, sequentially from $34.0 million in the first quarter of 2012. Gross margin for the second quarter of 2012 was 55.7%, compared to 47.0% in the second quarter of 2011 and 54.0% in the first quarter of 2012. The increase in gross profit and gross margin were primarily due to general increases in sales of high end milk powder and a decrease in the cost of raw milk powder. 

Sales and marketing expenses increased approximately $5.1 million, or 25.6%, to $25.0 million in the second quarter of 2012 from $19.9 million in the second quarter of 2011. The increase was primarily due to an increase in advertisement fees of approximately $1.8 million and of marketing promotion of $5.3 million, offset in part by a decrease in other sales and marketing expenses of approximately $0.6 million. General and administrative expenses approximately increased $0.1 million, or 2.0%, to $5.1 million in the second quarter of 2012 from $5.0 million in the second quarter of 2011.

As a result of the foregoing, income from operations was approximately $5.2 million in the second quarter of 2012, representing a slight decrease of approximately $30,000 in the second quarter of 2011. 

Net income attributable to common shareholders of the Company for the second quarter of 2012 was $5.8 million, or diluted EPS of $0.29, as compared to net income attributable to common shareholders of the Company of $5.2 million, or diluted EPS of $0.25, in the second quarter in 2011.

First Half of 2012 Financial Highlights

Revenue decreased $4.2 million, or 3.2%, to $126.3 million in the six months ended June 30, 2012 from $130.5 million in the same period of 2011. Contributions from milk powder products were approximately $120.1 million in the six months ended June 30, 2012, up approximately $18.1 million, or 17.7%, from $102.0 million in the same period of 2011. This decrease in revenue was mainly due to a decrease in sales of raw milk powder of approximately $20.4 million and a decrease in sales of soybean powder of approximately $2.6 million, offset by an increase in sales of milk powder of approximately $18.2 million and an increase in sales of other products of approximately $1.3 million. The decrease in sales primarily reflected our strategic efforts to improve the sales of our high margin infant formula milk powder, particularly our premium Feifan series and super premium AstroBaby series. Gross profit increased approximately $15.3 million, or 28.3%, to $69.3 million in the six months ended June 30, 2012 from $54.0 million in the same period of 2011, primarily attributable to an increase in sales of branded milk powder with a higher margin, a decrease in sales of raw milk powder with a lower margin, and decreased costs of raw milk powder to $1.2 million for the six months ended June 30, 2012 from $22.4 million in the same period of 2011. Gross margin increased from 41.3% for the six months ended June 30, 2011 to 54.9% for the six months ended June 30, 2012. Operating expenses increased by $7.9 million, or 17.0%, to $54.5 million in the six month period ended June 30, 2012 from $46.6 million in same period of 2011, primarily due to an $8.0 million, or 22.3%, increase in sales and marketing expenses. Income from operations increased approximately $4.7 million, or 46.1%, to $14.9 million in the six months ended June 30, 2012, compared to $10.2 million in the prior year period. Net income attributable to common shareholders of the Company for the first six months of 2012 was $14.1 million, or diluted EPS of $0.69, as compared to net income attributable to common shareholders of the Company of $9.9 million, or diluted EPS of $0.48, in the prior year period.

As of June 30, 2012, the Company had cash and cash equivalents of $2.6 million and a working capital of approximately $20.8 million, compared to a working capital deficiency of approximately $8.0 million as of December 31, 2011. The Company has significant cash commitments in the upcoming year, including maturity of short-term bank loans of $46.7 million and the current portion of long term bank loans of $5.9 million. However, the Company believes that will be able to refinance much of its short-term bank loans when they become due and intends to do so.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased to report our second quarter 2012 financial results today. The Company's financial performance has significantly improved since last quarter in terms of total sales, gross profit, net income and EPS. We are very confident in our business and will continue focus on sales of premium products. We will maintain quality and safety first and look forward to bringing value to consumers and our shareholders."

Conference Call Details

The Company will hold a conference call on August 9, 2012 at 8:00 am Eastern Time to discuss its results. Listeners may access the call by dialing the following numbers:

United States toll free: 1-888-397-5362
Hong Kong toll free: 800-968-835
Northern China toll free: 10-800-712-0046
Southern China toll free: 10-800-120-0046
International: 1-719-325-2108

The replay will be accessible through August 16, 2012 by dialing the following numbers:

United States toll free: 1-877-870-5176
International: 1-858-384-5517
Password: 2996349

About Feihe International, Inc.

Feihe International, 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. Feihe International 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, Gannan, Longjiang, Shanxi, and Langfang. Using proprietary processing techniques, Feihe International makes products that are specially formulated for particular ages, dietary needs and health concerns. Feihe International has over 200 company-owned milk collection stations, six production facilities with an aggregate milk powder production capacity of approximately 2,020 tons per day and an extensive distribution network that reaches over 80,000 retail outlets throughout China. For more information about Feihe International, Inc., please visit http://ady.feihe.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, 2011 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.

 
 
FEIHE INTERNATIONAL, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
    June 30, 2012   December 31, 2011
    US$   US$
Assets        
Current assets:        
  Cash and cash equivalents   2,586,713   15,353,882
  Restricted cash   2,272,790   1,056,579
  Notes and loans receivable, net of allowance for doubtful accounts of $3,350,056, as of June 30, 2012 and December 31, 2011   -   -
  Trade receivables, net of allowance for doubtful accounts of $802,799 and $810,864, as of June 30, 2012 and December 31, 2011, respectively   14,617,647   40,690,638
  Due from related parties   33,886   194,759
  Advances to suppliers   21,936,585   11,841,936
  Inventories, net   39,567,572   33,328,949
  Prepayments and other current assets   -   50,427
  Income taxes receivable   2,053,603   1,406,653
  Input value-added taxes   2,226,351   965,685
  Other receivables   14,160,865   13,742,625
  Consideration receivable - current   79,649,378   79,337,423
  Investment in mutual funds - available-for-sale   118,534   111,116
  Assets held for sale   2,362,061   2,384,391
Total current assets   181,585,985   200,465,063
         
Investments:   283,312   285,990
  Investment at cost   283,312   285,990
         
Property, plant and equipment:        
  Property, plant and equipment, net   124,202,480   128,739,637
  Construction in progress   15,374,883   14,895,512
    139,577,363   143,635,149
         
Other assets:        
  Advance to suppliers - non-current   5,091,746   3,741,454
  Long term deposits   77,486,070   46,139,913
  Consideration receivable - non-current   -   19,450,201
  Deferred tax assets - non-current   9,805,701   9,805,701
  Prepaid leases for land use rights   17,890,781   18,280,745
Total assets   431,720,958   441,804,216
         
Liabilities        
  Current liabilities:        
  Short term bank loans   46,746,624   54,616,375
  Accounts payable   45,051,264   39,077,499
  Accrued expenses   7,130,063   6,943,370
  Income tax payable   5,142,662   734,389
  Advances from customers   12,244,205   17,899,560
  Due to related parties   103,205   86,213
  Advances from employees   326,456   415,253
  Employee benefits and salary payable   7,679,626   9,777,537
  Other payables   30,322,310   39,561,388
  Current portion of long term bank loans   5,888,973   5,945,439
  Current portion of capital lease obligation   131,204   288,066
  Accrued interest   -   395,783
  Redeemable common stock (US$0.001 par value, nil and 1,312,500 shares issued and outstanding as of June 30, 2012 and December 31, 2011)   -   32,696,658
Total current liabilities   160,766,592   208,437,530
         
Long term bank loans, net of current portion   2,943,969   5,943,726
Capital lease obligation, net of current portion   280,235   430,180
Other long term loan   59,222,577   32,803,289
Accrued interest   -   170,555
Unrecognized tax benefits - non-current   14,914,231   14,806,768
Deferred income   4,817,198   3,711,033
Total liabilities   242,944,802   266,303,081
         
Commitments and contingencies        
         
Equity        
Feihe International, Inc. shareholders' equity:        
  Common stock (US$0.001 par value, 50,000,000 shares authorized; 19,784,291 and 19,714,291 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively)   19,784   19,714
  Additional paid-in capital   60,576,396   58,920,283
  Common stock warrants   1,774,151   1,774,151
  Statutory reserves   11,341,427   11,341,427
  Accumulated other comprehensive income   40,297,121   42,730,802
  Retained earnings   74,767,277   60,696,815
Total Feihe International, Inc. shareholders' equity   188,776,156   175,483,192
Noncontrolling interests   -   17,943
Total equity   188,776,156   175,501,135
Total liabilities and equity   431,720,958   441,804,216
         
         
         
FEIHE INTERNATIONAL, INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
                         
    Three months ended     Six months ended  
June 30,     June 30,  
    2012     2011     2012     2011  
    US$     US$     US$     US$  
Sales   63,383,324     62,870,057     126,319,401     130,548,570  
                         
Cost of goods sold   (28,064,460 )   (33,348,301 )   (57,021,933 )   (76,590,243 )
                         
Gross profit   35,318,864     29,521,756     69,297,468     53,958,327  
                         
Operating and administrative expenses:                        
  Sales and marketing   (24,982,001 )   (19,879,882 )   (43,750,179 )   (35,824,218 )
  General and administrative   (5,142,087 )   (5,034,635 )   (10,732,322 )   (10,754,868 )
Total operating expenses   (30,124,088 )   (24,914,517 )   (54,482,501 )   (46,579,086 )
                         
Other operating income, net   3,449     618,807     93,903     2,839,258  
                         
Income from operations   5,198,225     5,226,046     14,908,870     10,218,499  
                         
Other income (expenses):                        
  Interest income   17,032     24,514     40,505     45,418  
  Interest and finance costs   (1,139,160 )   (1,029,167 )   (2,285,113 )   (2,046,892 )
  Government subsidy   4,636,893     2,473,983     6,198,241     3,994,133  
  Gain on deregistration of subsidiaries   180,077     -     180,077     -  
Income from continuing operations before income tax expenses and noncontrolling interests   8,893,067     6,695,376     19,042,580     12,211,158  
                         
Income tax expenses   (3,056,413 )   (1,290,696 )   (4,939,314 )   (2,632,379 )
Net income from continuing operations   5,836,654     5,404,680     14,103,266     9,578,779  
(Loss) Income from discontinuing operations, net of tax   -     (219,441 )   -     346,003  
Net income   5,836,654     5,185,239     14,103,266     9,924,782  
  Net income attributable to noncontrolling interests   -     (18,942 )   (24,209 )   (61,809 )
  Net income attributable to common shareholders of Feihe International, Inc.   5,836,654     5,166,297     14,079,057     9,862,973  
                         
                         
Net income   5,836,654     5,185,239     14,103,266     9,924,782  
Other comprehensive income, net of tax                        
    Foreign currency translation adjustments   (2,361,407 )   3,141,609     (2,491,846 )   5,441,060  
    Change in fair value of available for sale investments   4,757     2,254     7,418     904  
Other comprehensive (loss) income   (2,356,650 )   3,143,863     (2,484,428 )   5,441,964  
Comprehensive income   3,480,004     8,329,102     11,618,838     15,366,746  
    Comprehensive income (loss) attributable to the noncontrolling interest   42,159     (18,941 )   17,943     (43,373 )
Comprehensive income attributable to common shareholders of Feihe International, Inc.   3,522,163     8,310,161     11,636,781     15,323,373  
                         
Net income from continuing operations per share of common stock                        
  Basic   0.29     0.25     0.69     0.48  
  Diluted   0.29     0.25     0.69     0.48  
                         
Net income from continuing operations per share of redeemable common stock                        
  Basic   0.29     0.25     0.69     0.43  
  Diluted   0.29     0.25     0.69     0.43  
                         
Net (loss) income from discontinued operations, net of tax per share of common stock                        
  Basic   -     (0.01 )   -     0.02  
  Diluted   -     (0.01 )   -     0.02  
                         
Net (loss) income from discontinued operations, net of tax per share of redeemable common stock                        
  Basic   -     (0.01 )   -     0.02  
  Diluted   -     (0.01 )   -     0.02  
                         
Weighted average shares used in calculating net income per share of common stock                        
  Basic   19,742,753     19,671,291     19,728,522     19,671,291  
  Diluted   19,742,753     19,685,851     19,728,522     19,687,893  
                         
Weighted average shares used in calculating net income per share of redeemable common stock                        
  Basic   216,346     2,170,673     548,077     2,396,581  
  Diluted   216,346     2,170,673     548,077     2,396,581  

Contact Information