Landec Corp. :LNDC-US: Earnings Analysis: Q4, 2017 By the Numbers : August 14, 2017

Landec Corp. reports financial results for the quarter ended May 31, 2017.

We analyze the earnings along side the following peers of Landec Corp. – E. I. du Pont de Nemours and Company, PolyOne Corporation, Westlake Chemical Corporation, Huntsman Corporation, Pinnacle Foods, Inc., Kraft Heinz Company, General Mills, Inc. and Air Products and Chemicals, Inc. (DD-US, POL-US, WLK-US, HUN-US, PF-US, KHC-US, GIS-US and APD-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 127.43 million, Net Earnings of USD 2.45 million.
  • Gross margins narrowed from 16.84% to 15.43% compared to the same period last year, operating (EBITDA) margins now 4.00% from 7.39%.
  • Year-on-year change in operating cash flow of -59.02% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-05-31 2017-02-28 2016-11-30 2016-08-31 2016-05-31
Relevant Numbers (Quarterly)
Revenues (mil) 127.43 136.57 135.87 132.39 135.31
Revenue Growth (%YOY) -5.83 5.06 -3.26 -2.19 0.64
Earnings (mil) 2.45 3.5 1.33 3.31 4.73
Earnings Growth (%YOY) -48.15 116.52 -29.01 12.2 12.7
Net Margin (%) 1.92 2.56 0.98 2.5 3.49
EPS 0.09 0.13 0.05 0.12 0.17
Return on Equity (%) 1.08 1.58 0.61 1.54 2.26
Return on Assets (%) 2.75 4.07 1.55 3.82 5.57

Access our Ratings and Scores for Landec Corp.

Market Share Versus Profits

Revenues History
Earnings History

LNDC-US‘s change in revenue this period compared to the same period last year of -5.83% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that LNDC-US is holding onto its market share. Also, for comparison purposes, revenues changed by -6.69% and earnings by -29.94% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 16.84% to 15.43%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 7.39% to 4.00% in this time frame. For comparison, gross margins were 17.16% and EBITDA margins were 6.68% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

LNDC-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 24.72 days, compared to last year’s level of 22.70 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

LNDC-US‘s change in operating cash flow of -59.02% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 5.24% to 1.92% and (2) one-time items that contributed to a decrease in pretax margins from 5.28% to 2.09%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Landec Corp.

Company Profile

Landec Corp. engages in designing, developing, manufacturing, and selling of products for food and biomaterials markets and license technology applications. It operates through the following segments: Packaged Fresh Vegetables, Food Export, and Biomaterials. The Packaged Fresh Vegetables segment includes marketing and packing specialty packaged whole and fresh-cut fruit and vegetables. The Food Export segment consists of sale of whole commodity fruit and vegetable product. The Biomaterials segment sells products utilizing hyaluronan, a naturally occurring polysaccharide that is distributed in the extracellular matrix of connective tissues in both animals and humans. The company was founded by Ray Stewart on October 31, 1986 and is headquartered in Menlo Park, CA.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of LNDC-US.