SOURCE: Feihe International, Inc.

November 09, 2012 06:00 ET

Feihe International, Inc. Reports Third Quarter 2012 Financial Results

BEIJING--(Marketwire - Nov 9, 2012) - Feihe International, Inc. (NYSE: ADY) ("Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk power and soybean, rice and walnut products in China, today announced financial results for the third quarter of 2012. The Company will hold a conference call today at 6:00 am Eastern Time.

Third Quarter 2012 Financial Highlights:

  • Revenue increased approximately $2.7 million, or 4.3%, to $66.1 million in 3Q12 vs. $63.4 million in 2Q12:
    • Revenue from branded milk powder products was $62.7 million in 3Q12, up $2.0 million from $60.7 million of 2Q12 and up $7.2 million from $55.5 million of 3Q11.
    • Revenue from raw milk powder was $15,000 in 3Q12 vs. $33,000 in 2Q12 and $16.9 million in 3Q11.
  • Gross profit increased approximately $8.8 million, or 32.0%, to $36.3 million in 3Q12 from $27.5 million in 3Q11, and up $1.0 million, or 2.6%, sequentially from $35.3 million in 2Q12.
  • Gross profit margin was 54.9% in 3Q12 vs. 36.5% in 3Q11.
  • Net income attributable to common shareholders of the Company was $7.5 million in 3Q12, up approximately $7.1 million from $473,000 in 3Q11 and up approximately $1.7 million, or 29.0%, sequentially from $5.8 million in 2Q12.
  • Diluted net income from continuing operations per common share ("EPS") was $0.38 in 3Q12, up significantly from $0.11 in 3Q11, and increased from $0.29 in 2Q12.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are pleased with our third quarter results. Our improved gross profit and significantly improved net income attributable to common shareholders reflects the success of our efforts to control costs and to focus our sales on higher margin products. In particular, sales of infant milk powder were up 15% from the third quarter 2011, especially our Feifan and AstroBaby series. We plan to continue this strategy and to enhance our premium quality brand awareness."

The Company's revenue was $66.1 million for the three month period ended September 30, 2012, up $2.7 million, or 4.3%, from $63.4 million in the second quarter of 2012, and representing a decrease of $9.3 million, or 12.4% compared to $75.4 million revenue for the third quarter of 2011. This year-over-year decrease was primarily attributable to a decrease in sales of raw milk powder, a high cost and low gross profit product, of approximately $16.9 million offset by an increase in sales of branded milk powder of approximately $7.2 million. The increase in sales compared to the last quarter in 2012 was primarily attributable to an increase in sales of branded infant milk powder. Sales of milk powder, our highest margin products, increased to $62.7 million from $55.5 million in the third quarter of 2011.

The Company's gross profit was $36.3 million in the third quarter of 2012, an increase of approximately $8.8 million, or 32.0%, compared to $27.5 million in the third quarter of 2011. Our gross profit margin was 54.9% compared with 36.5% in the third quarter of 2011. The substantial growth was primarily attributable to general increases in the sales of high end milk powder and a decrease in the cost of raw milk powder.

The Company's income from operations was $5.4 million in the third quarter of 2012, an increase of approximately $2.2 million, or 69.4%, compared to $3.2 million in the third quarter of 2011. Our total operating expenses increased by approximately $6.4 million, or 25.8%, from approximately $24.8 million in the three month period ended September 30, 2011 to approximately $31.2 million in the three month period ended September 30, 2012. This increase was primarily attributable to an increase of $8.9 million, or 48.9%, in sales and marketing expenses from approximately $18.2 million for the three month period ended September 30, 2011 to $27.1 million in the three month period ended September 30, 2012, and primarily related to increases in advertisement fees, marketing promotion and transportation expenses.

Net income attributable to common shareholders of the Company for the third quarter of 2012 was $7.5 million, or diluted EPS of $0.38, a significant increase from $473,000, or diluted EPS of $0.11, in the third quarter of 2011, and an increase from $5.8 million, or diluted EPS of $0.29, in the second quarter of 2012.

Nine Months Ended September 30, 2012

Revenue was $192.4 million for the nine month period ended September 30, 2012, a decrease of approximately $13.5 million, or 6.6%, from $205.9 million for the nine month period ended September 30, 2011. This decrease was primarily attributable to a decrease in sales of raw milk power of approximately $37.2 million and a decrease in sales of soybean powder of approximately $2.9 million, offset by an increase in sales of milk powder of approximately $25.4 million and an increase in sales of other products of approximately $2.1 million. Gross profit was $105.6 million in the nine month ended September 30, 2012, up $24.2 million from $81.4 million in the same period of 2011. Gross profit margin increased from 39.5% for the nine month period ended September 30, 2011 to 54.9% for the same period of 2012. The increase was primarily attributable to general increases in the sales of high end milk powder and a decrease in the cost of raw milk powder. Income from operations was $20.3 million in the nine month period ended September 30, 2012 compared to $13.4 million in the same period of 2011. Net income attributable to the common shareholders of the Company for the nine month period ended September 30, 2012 was $21.6 million, or diluted EPS of $1.07, as compared to net income attributable to the common shareholders of the Company of $10.3 million, or diluted EPS of $0.60, in the prior year period.

As of September 30, 2012, the Company had cash and cash equivalents of $2.3 million and total current assets of $201.1 million compared to cash and cash equivalents of $15.4 million and total current assets of $200.5 million as of December 31, 2011. The Company had a working capital of approximately $31.1 million as of September 30, 2012, compared to a working capital deficiency of approximately $8.0 million as of December 31, 2011.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased with our financial results so far in 2012. We have upgraded the product mix for our sales and significantly improved our profit margins, with sales of our premium Feifan series products representing 60.8%, our super-premium AstroBaby series representing 5.3%, and our super-premium Feifan series representing 8.5%, of our infant milk powder sales this quarter. We are confident in our decision to focus on infant milk powder and decrease raw milk powder sales, and we believe that we can improve our footprint as a leading infant formula company in the PRC in the coming years."

Conference Call Details
The Company will also hold a conference call on November 9, 2012 at 6:00 a.m. Eastern Standard Time to discuss its third quarter results. Listeners may access the call by dialing the following numbers:

United States toll free:
1-888-437-9357

Hong Kong toll free:
800-968-103

Northern China toll free:
10 800 712 0046

Southern China toll free:
10 800 120 0046

International:
1-719-325-2142

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

United States toll free:
1-877-870-5176

International:
1-858-384-5517

Password:
8043064

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, as amended, 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)
    September 30, 2012   December 31, 2011
    US$   US$
Assets        
Current assets:        
  Cash and cash equivalents   2,274,955   15,353,882
  Restricted cash   6,769,629   1,056,579
  Notes and loans receivable, net of allowance for doubtful accounts of $3,350,056, as of September 30, 2012 and December 31, 2011, respectively   -   -
  Trade receivables, net of allowance for doubtful accounts of $812,090 and $810,864, as of September 30, 2012 and December 31, 2011, respectively   16,607,970   40,690,638
  Due from related parties   37,791   194,759
  Advances to suppliers   27,475,374   11,841,936
  Inventories, net   44,782,639   33,328,949
  Prepayments and other current assets   -   50,427
  Income taxes receivable   1,408,779   1,406,653
  Input value-added taxes   1,297,389   965,685
  Other receivables   17,649,157   13,742,625
  Consideration receivable- current   80,291,499   79,337,423
  Investment in mutual funds - available-for-sale   116,546   111,116
  Assets held for sale   2,387,996   2,384,391
Total current assets   201,099,724   200,465,063
         
Investments:   286,422   285,990
  Investment at cost   286,422   285,990
         
Property, plant and equipment:        
  Property, plant and equipment, net   123,683,509   128,739,637
  Construction in progress   17,137,526   14,895,512
    140,821,035   143,635,149
         
Other assets:        
  Advance to suppliers - non-current   6,382,308   3,741,454
  Long term deposit   78,336,834   46,139,913
  Consideration receivables - non-current   -   19,450,201
  Deferred tax assets - non-current   2,863,870   9,805,701
  Prepaid leases for land use rights   17,987,709   18,280,745
Total assets   447,777,902   441,804,216
         
Liabilities        
Current liabilities:        
  Short term bank loans   59,035,071   54,616,375
  Accounts payable   44,465,872   39,077,499
  Notes payable   3,182,484   -
  Accrued expenses   6,371,885   6,943,370
  Income tax payable   514,361   734,389
  Advances from customers   10,799,243   17,899,560
  Due to related parties   50,920   86,213
  Advances from employees   328,888   415,253
  Employee benefits and salary payable   8,013,360   9,777,537
  Other payables   31,150,099   39,561,388
  Current portion of long term bank loans   5,953,631   5,945,439
  Current portion of capital lease obligation   134,710   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 September 30, 2012 and December 31, 2011), respectively   -   32,696,658
Total current liabilities   170,000,524   208,437,530
         
Long term bank loans, net of current portion   2,976,293   5,943,726
Capital lease obligation, net of current portion   288,683   430,180
Other long term loan   59,222,577   32,803,289
Accrued interest   -   170,555
Unrecognized tax benefits - non-current   10,654,787   14,806,768
Deferred income   4,607,006   3,711,033
Total liabilities   247,749,870   266,303,081
         
Commitments and contingencies (see Note 23)        
         
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 September 30, 2012 and December 31, 2011, respectively)   19,784   19,714
  Additional paid-in capital   61,380,588   58,920,283
  Common stock warrants   1,774,151   1,774,151
  Statutory reserves   11,341,427   11,341,427
  Accumulated other comprehensive income   43,216,008   42,730,802
  Retained earnings   82,296,074   60,696,815
Total Feihe International, Inc. shareholders' equity   200,028,032   175,483,192
Noncontrolling interests   -   17,943
Total equity   200,028,032   175,501,135
Total liabilities and equity   447,777,902   441,804,216
         
         
         
 
FEIHE INTERNATIONAL, INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
                         
    Three months ended     Nine months ended  
September 30,     September 30,  
    2012     2011     2012     2011  
                         
Sales   66,063,396     75,372,031     192,382,797     205,920,601  
                         
Cost of goods sold   (29,810,627 )   (47,897,512 )   (86,832,560 )   (124,487,794 )
                         
Gross profit   36,252,769     27,474,519     105,550,237     81,432,807  
                         
Operating and administrative expenses:                        
  Sales and marketing   (27,084,010 )   (18,189,157 )   (70,834,189 )   (54,013,376 )
  General and administrative   (4,109,154 )   (6,620,974 )   (14,841,476 )   (17,376,737 )
Total operating expenses   (31,193,164 )   (24,810,131 )   (85,675,665 )   (71,390,113 )
                         
Other operating income, net   311,666     506,956     405,569     3,367,465  
                         
Income from operations   5,371,271     3,171,344     20,280,141     13,410,159  
                         
Other income (expenses):                        
  Interest income   14,604     20,067     55,109     65,486  
  Interest and finance costs   (635,644 )   (1,076,261 )   (2,920,757 )   (3,123,153 )
  Government subsidy   1,841,887     3,418,184     8,040,128     7,391,065  
  Gain on deregistration of subsidiaries   -     -     180,077     -  
Income from continuing operations before income tax expenses and noncontrolling interests   6,592,118     5,533,334     25,634,698     17,743,558  
                         
Income tax credit (expenses)   936,679     (2,546,209 )   (4,002,635 )   (5,178,588 )
Net income from continuing operations   7,528,797     2,987,125     21,632,063     12,564,970  
Loss from discontinued operations, net of tax   -     (1,969,820 )   -     (1,629,948 )
Net income   7,528,797     1,017,305     21,632,063     10,935,022  
  Net income attributable to noncontrolling interests   -     (544,655 )   (24,209 )   (599,442 )
  Net income attributable to common stockholders of Feihe International, Inc.   7,528,797     472,650     21,607,854     10,335,580  
                         
Net income   7,528,797     1,017,305     21,632,063     10,935,022  
Other comprehensive income, net of tax                        
  Foreign currency translation adjustments   2,920,875     3,543,477     429,029     8,995,227  
  Change in fair value of available for sale investments   (1,988 )   (16,522 )   5,430     (15,618 )
Other comprehensive income   2,918,887     3,526,955     434,459     8,979,609  
Comprehensive income   10,447,684     4,544,260     22,066,522     19,914,631  
  Comprehensive income attributable to the noncontrolling interest   -     54,065     17,943     10,692  
  Comprehensive income attributable to common stockholders of Feihe International, Inc.   10,447,684     4,598,325     22,084,465     19,925,323  
                         
Net income from continuing operations per share of common stock                        
  Basic   0.38     0.11     1.07     0.60  
  Diluted   0.38     0.11     1.07     0.60  
                         
Net income from continuing operations per share of redeemable common stock                        
  Basic   -     0.11     1.07     0.55  
  Diluted   -     0.11     1.07     0.55  
                         
Net income from discontinued operations, net of tax per share of common stock                        
  Basic   -     (0.09 )   -     (0.07 )
  Diluted   -     (0.09 )   -     (0.07 )
                         
Net income from discontinued operations, net of tax per share of redeemable common stock                        
  Basic   -     (0.09 )   -     (0.07 )
  Diluted   -     (0.09 )   -     (0.07 )
                         
Weighted average shares used in calculating net income per share of common stock                        
  Basic   19,784,291     19,694,117     19,747,247     19,678,983  
  Diluted   19,784,291     19,694,117     19,747,247     19,688,903  
                         
Weighted average shares used in calculating net income per share of redeemable common stock                        
  Basic   -     1,968,750     364,051     2,252,404  
  Diluted   -     1,968,750     364,051     2,252,404  
                           
                           
                           

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