Synutra Reports First Quarter Fiscal 2013 Financial Results

QINGDAO, China and ROCKVILLE, Md., Aug. 9, 2012 /PRNewswire-Asia/ -- Synutra International, Inc. (NASDAQ: 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 first quarter of fiscal 2013 ended June 30, 2012.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "Our results were lower than anticipated in our fiscal first quarter.  With the 15% price increase implemented on April 1^st, 2012 for our infant formula products, our distributors and sub-distributors have taken advantage of purchasing products at pre-increase pricing levels, resulting in reduced levels of purchase orders during our fiscal 2013 first quarter. The weak sales orders have also been exaggerated by a seasonal sales slow-down we typically experience during the hot summer months. We believe it will take another quarter for our customers to work through their inventories before we expect higher levels of ordering activity to return in our fiscal second half.  As our sales growth accelerates in the back half of the year, we expect to see greater operating leverage related to the price increase that will have a positive impact on our financial performance." 

"We continue to make a concerted effort to enhance our direct communications with customers to expand our market position. This interaction is reinforced through our customer support call centers, store promotions activity and local and national television advertising spots.  We are also focused on enhancing the yield of our present distribution system through proper resource and incentive allocation for our top-grossing brand series as well as strengthening our sales efforts.  China's dairy industry continues to offer compelling growth characteristics and the expansion of our market position is possible over the long term by ensuring the highest product quality, raising our brand visibility and enhancing the productivity of our distribution system."

"We have solid opportunities to expand our market position in powdered milk formulas and generate strong revenue and profit growth in the second half of our fiscal year.  Building on our capabilities in dietary supplement ingredients, we are also cultivating other nutritional supplement product opportunities, including chondroitin sulfate sodium products for joint health, within the current fiscal year.  We remain confident that our high quality products and strong management capabilities will result in long-term growth for our shareholders."

Formula Sale Performance

Financial Results for the First Quarter of Fiscal 2013 versus the Fourth Quarter of Fiscal 2012

Net sales decreased to $53.6 million for the first quarter of fiscal 2013 from $85.4 million in the fourth quarter of fiscal 2012. Net sales from the Company's branded powdered formula segment were $50.5 million, or 94% of net sales in the quarter, compared to $82.5 million, or 96.7% of net sales, in the previous quarter.  The sequential decrease primarily reflects the short-term impact of the 15% price increase on infant formula products implemented on April 1^st in addition to the seasonal sales slow down of the hot summer months.  Net sales of the Company's Super series infant formula for the first quarter were 55% of the volume of sales and 71% of the net sales of the powdered formula segment compared to 65% of the volume of sales and 75% of the net sales of the powdered formula segment in the previous quarter. By volume, sales of powdered formula products decreased 40% to 4,380 tons in the first quarter from 7,301 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 $1.0 million, or 2% of net sales, in the first quarter of fiscal 2013, compared to $2.7 million, or 3% of net sales in the previous quarter.

Gross profit decreased to $17.3 million in the first quarter of fiscal 2013 from $35.6 million in the previous quarter primarily related to the decrease in quarterly sales. Gross margin in the first quarter of fiscal 2013 decreased to 32% compared to 42% in the previous quarter. Powdered formula margin decreased to 37% from 46% in the previous quarter. The decrease in powdered formula margins reflected increased free products and inventory write-down, partially offset by the increase in average selling price

Loss from operations was $9.6 million, compared to income from operations of $16.2 million in the previous quarter. Total operating expenses increase 39% to $26.9 million from $19.4 million in the previous quarter. 

Selling and distribution expenses decreased 5% to $13.1 million from $13.8 million in the previous quarter.

Advertising and promotional expenses increased 17% to $6.8 million from $5.8 million in the previous quarter, primarily due to the Company's efforts to increase promotional activities to end customers.

General and administrative expenses increased 136% to $7.9 million from $3.3 million in the previous quarter, which was mainly due to a decrease of office rental expenses caused by a modification to the lease agreement of the company's Beijing headquarters in the previous quarter.

Net loss attributable to common stockholders was $9.7 million in the first quarter of fiscal year 2013, or $(0.17) per diluted share, compared to a net income of $7.5 million, or $0.13 per diluted share, in the previous quarter.

As of June 30, 2012, the Company had cash and cash equivalents of $68.1 million and restricted cash of $53.1 million, including the current and non-current portion.

Fiscal 2013 Business Outlook

Mr. Liang Zhang concluded, "For the full year of fiscal 2013, we are adjusting our full year outlook to reflect the slower than anticipated sales in the first quarter and second quarters with stronger levels of growth and profitability expected in the fiscal 2013 second half.  We currently expect our FY2013 revenue to grow to approximately $380 million to $400 million and achieve profitability of approximately $50 to $57 million.  Although we are working through a challenging period in the fiscal first half, we continue to be encouraged with our opportunities in the second half of our fiscal year."

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

Conference Call Details

The Company will hold a conference call on Friday, August 10, 2012 at 8:00 a.m. Eastern Time to discuss the financial results. Listeners may access the call by dialing the following numbers:

The replay will be accessible through August 17, 2012 by dialing the following numbers:

A webcast of the conference call will be available through the Company's IR website at www.synutra.com.

About Synutra International, Inc.

Synutra International, Inc. (Nasdaq: 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 June 30, 2012, this network comprised over 650 independent distributors and over 800 independent sub-distributors who sell Synutra products in over 66,000 retail outlets.

Forward-looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Synutra International, Inc. and its industry. All statements other than statements of historical fact in this release are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as "anticipate," "believe," "continue," "estimate," "expect," "intend," "is/are likely to," "may," "plan," "should," "will," "aim," "potential," "continue," or other similar expressions. The forward-looking statements included in this press release relate to, among others, Synutra's goals and strategies; its future business development, financial condition and results of operations; the expected growth of the nutritional products and infant formula markets in China; market acceptance of Synutra's products; the safety and quality of Synutra's products; Synutra's expectations regarding demand for its products; Synutra's ability to stay abreast of market trends and technological advances; competition in the infant formula industry in China; PRC governmental policies and regulations relating to the nutritional products and infant formula industries, and general economic and business conditions in China. These forward-looking statements involve various risks and uncertainties. Although Synutra believes that the expectations expressed in these forward-looking statements are reasonable, these expectations may turn out to be incorrect. Synutra's actual results could be materially different from the expectations. Important risks and factors that could cause actual results to be materially different from expectations are generally set forth in Synutra's filings with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this press release. Synutra International, Inc. undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

SOURCE Synutra International, Inc.