Synutra International, Inc. :SYUT-US: Earnings Analysis: Q3, 2017 By the Numbers : February 15, 2017

Synutra International, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Synutra International, Inc. – Mead Johnson Nutrition Company (MJN-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 109.05 million, Net Earnings of USD 4.95 million.
  • Gross margins narrowed from 50.67% to 38.95% compared to the same period last year, operating (EBITDA) margins now 8.73% from 20.99%.
  • Year-on-year change in operating cash flow of -44.39% 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 109.05 82.7 77.87 86.11 109.26
Revenue Growth (%YOY) -0.19 -5.32 -5.42 -21.84 -5.27
Earnings (mil) 4.95 2.76 0.04 0.1 12.04
Earnings Growth (%YOY) -58.92 441.65 -99.43 -99.6 -30.27
Net Margin (%) 4.53 3.33 0.06 0.11 11.02
EPS 0.09 0.05 0 0 0.21
Return on Equity (%) 14.52 8.11 0.13 0.29 38.03
Return on Assets (%) 2.44 1.37 0.02 0.05 6.42

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Market Share Versus Profits

Revenues History
Earnings History

SYUT-US‘s change in revenue this period compared to the same period last year of -0.19% 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 SYUT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 31.86% and earnings by 79.36% 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 50.67% to 38.95%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 20.99% to 8.73% in this time frame. For comparison, gross margins were 45.15% and EBITDA margins were 11.81% 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

Cash Versus Earnings – Sustainable Performance?

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

SYUT-US‘s change in operating cash flow of -44.39% 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 18.79% to 6.32% and (2) one-time items that contributed to a decrease in pretax margins from 14.73% to 6.87%

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

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Company Profile

Synutra International, Inc. engages in the production, distribution, and sale of dairy based nutritional products. The company operates through the following segments: Nutritional Food, Nutritional Supplement, and Other Business. The Nutritional Food sells powdered infant and adult formula products, with major brands including Super, My Angel, and Dutch Cow, as well as prepared foods under the brand of Huiliduo. The Nutritional Supplement includes the production and sale of nutritional supplements such as chondroitin sulfate to third parties; and microencapsulated Docosahexanoic Acid (DHA) and Arachidonic Acid (ARA) to the nutritional food segment for use in powdered formula production. The Other Business covers non-core businesses such as ancillary sales of excess or unusable ingredients and materials to industrial customers; provision of genetic diagnostic services for new born babies; and retail of cosmetics to pregnant women. The company was founded by Liang Zhang in 1997 and is headquartered in Rockville, MD.

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