Feihe Intl (NYSE:ADY)

Third Quarter 2010 Financial Highlights:

• Exceeding guidance, revenue of $61.1 million in 3Q10 vs. $72.1 million in 3Q09, up 17.1% sequentially from $52.2 million in 2Q10:
        
  • Revenue from branded milk powder products was $40.9 million in 3Q10 vs. $55.9 million in 3Q09, up 16.8% sequentially from $35.0 million in 2Q10;
  • Revenue from raw milk powder was $14.4 million in 3Q10 vs. $9.2 million in 3Q09, up 5.7% sequentially from $13.6 million in 2Q10;
    
• Gross profit of $27.3 million in 3Q10 vs. $37.0 million in 3Q09, up 47.9% sequentially from $18.5 million in 2Q10;

• Gross margin was 44.7% in 3Q10 vs. 51.3% in 3Q09, up from 35.4% in 2Q10;

• Net income of $3.6 million in 3Q10 vs. net income of $11.1 million in 3Q09, up from net loss of $(20.7) million in 2Q10; and

• EPS per diluted share was $0.16 vs. $0.52 in 3Q09, up from a loss of $(0.92) in 2Q10.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are continuing to make measurable progress with our operations across our sales and marketing to our dairy farms.  Our results of $61.1 million in revenue and $3.6 million in net income are excellent indications of our footprint in the Chinese milk powder space.  We are continuing to make improvements including strengthening our team through training of existing talent and recruitment and adjusting existing retail sales points to drive greater profitability.  We believe that we are well positioned to execute our strategic initiatives to grow sales at existing retail outlets throughout the remainder of the year and capitalize on market opportunities."  

Financial Guidance

Mr. Jonathan H. Chou, the Company's Chief Financial Officer, stated, "We are pleased to report three month revenue growth of 17.1% compared to the second quarter of 2010.  Specifically, sales of our branded milk powder products grew 16.8% to $40.9 million compared to the second quarter of 2010.  As we approach the middle of the fourth quarter of 2010, we are confident that we are taking effective measures to continue to improve our operations across all functions.  Based on cash and actual purchase orders received this quarter to date, we project our total revenue will be between $54 million to $56 million in the fourth quarter of 2010."

American Dairy got whacked Monday falling 44% to $20.88.   The stock's drop was in response to the company's second quarter financial guidance it released yesterday morning which was well below analyst estimates of $84 million.  The stock had been making a run from ~$17.00, when it recorded solid 2009 first quarter results May 13, 2009 well ahead of analyst estimates. In fairness to the company, it had warned investors not to use the first quarter results as a barometer for the remainder of the year stating that:

"The first quarter's growth rate was exceptional, and we expect the second and third quarters to trend in line with historical results, in which we deliver year over year growth."

Although estimates for the 2009 second quarter echoed this statement, the magnitude of the second quarter sequential decline was more severe than anticipated.  The company reported first quarter revenues of $113.8 million. 

Source: See Release, July 13, 2009


On the bright side, American Dairy did provide 2009 full year guidance, which at the high end could result in the third and fourth quarter earnings coming close to meeting analyst estimates.  Combined third and fourth quarter analyst revenue estimates currently stand at $226.8 million compared to the company's extrapolated 2009 second half guidance of $175 to $205 million.  American Dairy reported 2008 second half revenues of $113 million.  

Unfortunately, the company did not provide 2009 earnings per share guidance which may create a sense of uncertainty.  Due to the company's forecast for strong 2009 second half and full year revenue growth,  the GeoTeam® will keep American Dairy on the GeoBargain on the Radar list.  If the company can also achieve above average earnings per share growth, it is quite possible that the fall in the company's shares could present a future opportunity for value investors who missed the first run.

The GeoTeam® will provide updates if warranted.

^a The above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.