Earnings Preview : Martek Biosciences Corp. (NASDAQ: MATK) Third Quarter 2010
Tuesday, August 31, 2021 10:23 AM

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Martek Biosciences Corp. is scheduled to report its Q3 2010 results after the market closes on September 01, 2010. For the third quarter of fiscal 2010, Martek expects infant formula revenue to be between $76.0 million and $80.0 million, non-infant formula nutritional revenue to be between $12.0 million and $14.0 million, and contract manufacturing and collaborations revenue to be between $2.5 million and $3.0 million. Consolidated gross margin in the third quarter of fiscal 2010 is expected to be between 49% and 50%.
 
Martek Biosciences Corp. develops, manufactures and sells products from microalgae. The company's products include: (1) specialty, nutritional oils for infant formula, nutritional supplements and food ingredients; (2) high value reagents and technologies to visualize molecular interactions for drug discovery and development; and (3) new, powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection.
 
As for Q2 2010, revenues were $124 million, up 34% from $92.4 million in the second quarter of fiscal 2009. GAAP net income was $12.5 million, or $0.37 per diluted share, for the second quarter of fiscal 2010, compared to $11.0 million, or $0.33 per diluted share, for the second quarter of fiscal 2009. These revenues and earnings include the results of Amerifit Brands ("Amerifit" or "branded consumer health products"), the acquisition of which was completed by Martek on February 12, 2010. Overall gross margin for the second quarter of fiscal 2010 was 46%, an increase over the 42% gross margin realized in the second quarter of fiscal 2009. This improvement was largely due to ARA cost reductions in the 2010 period and the positive impact on gross margins of branded consumer health product sales. Included in the second quarter's gross margin is the negative effect of approximately $1.7 million (gross margin impact of 1.4%) related to one-time inventory step-up costs resulting from the Amerifit acquisition. Excluding these step-up costs, gross margin would have been 48%. Research and development expenses in the second quarter of fiscal 2010 were $8.8 million (with no amounts related to Amerifit), consistent with previously stated guidance and up from $7.2 million in last year's second quarter. The increase was due to the Company's expanded clinical and pre-clinical research activities during the current quarter along with higher personnel costs. During the second quarter of fiscal 2010, selling, general and administrative expenses ("SG&A") were $17.9 million, or 14% of revenue, a slight increase compared to 13% of revenue in last year's second quarter.
 
Analysts' estimates for Q3 2010 range from a low of $0.35 to a high of $0.36, compared to a consensus estimate of $0.36, with number of estimates being 4 and a coefficient variance of 1.40. On June 3, the Company announced that it entered into a multi-year DHA and ARA agreement with Feihe Dairy, a wholly owned subsidiary of American Dairy, Inc. Under the terms of the agreement, Feihe Dairy will purchase its total requirements of DHA and ARA for its new premium infant formula and growing-up milk products sold in China. This new agreement with Feihe Dairy is another important step in Martek's effort to expand its international presence in the Chinese infant formula market which is expected to boost revenue. Martek Biosciences Corp. also announced that it plans to restructure its Winchester, Ky., manufacturing facilities in an effort to streamline operations, improve capacity utilization, and reduce manufacturing costs and operating expenses. In connection with this workforce reduction, company's expects to incur total cash charges of approximately $1.5 million in fiscal 2010 of which $0.5 million will be recognized in the third quarter and $1.0 million in the fourth quarter of fiscal 2010. The company expects that the plant restructuring will likely result in a non-cash asset impairment charge or loss upon sale of $30 million - $40 million in the third or fourth quarter of fiscal 2010. The Company is expected to continue growth in international markets and continuation of inventory stocking by infant formula customers, albeit at slower rate than experienced in 2Q10. Revenue is likely to be between $113-114 million. R&D expense as a percentage of revenue is expected to increase to high 7% range, largely due to low revenue base vs. 2Q10. SG&A expense as a percentage of revenue is expected to increase to mid-15% range, primarily due to lower revenue base in 3Q. Advertising is expected to increase to low-5% range as a percentage of revenue in 3Q10, due to timing of TV advertising for branded consumer health products. Consolidated net income will likely be between $11-12 million and diluted EPS, $0.33-0.36 on weighted average. shares outstanding of approximately 33.7 million. 3Q10 total inventory will be equal to or slightly less than levels on hand at 2Q10-end, with DSOs in low-to-mid 50s and consolidated cash flows from operations in the range of $25-30 million.
 
The stock closed at $21.50 on August 29, 2021 and most analysts' rate this stock an Overweight with an average price target of $28.
 

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