China Nutrifruit Group (NYSE AMEX:CNGL)

Third Quarter 2012 Results

• Net sales decreased 2.4% year-over-year to $21.6 million 
• Gross profit decreased 55.3% year-over-year to $4.6 million, with gross margin of 21.3%
• Operating earnings declined 74.9% year-over-year to $2.1 million, with operating margin of 9.7%
• Net income decreased 82.6% year-over-year to $1.1 million, or $0.03 per diluted share vs. $0.15 in prior year third quarter.

"During the third quarter of fiscal 2012, we experienced a decline in revenue, gross margin and net income largely due to significant increases in raw material prices and labor costs that occurred in our production season. However, due to our strong customer relationships, we were able to raise our average selling prices and pass on part of the increase in production costs to our customers," commented Mr. Yu Changjun, Chairman and CEO of China Nutrifruit. "We experienced strong demand for our glazed fruit and nectar products which increased 78.4% and 25.6%, respectively, year-over-year, partly offsetting loss of sales from our concentrate pulp products. Due to the continued pressure from rising production costs, we have not yet resumed cooperation with our OEM factories for the production of concentrate pulp products," added Mr. Yu.

Business Outlook

Due to the recent food safety issues in Taiwan, the PRC government has implemented a stringent application process for granting production permits. The Company has provided the necessary documentation and product samples for approval and expects that it may take approximately nine months to receive the production permits for its new fruit and vegetable powder and concentrate paste product lines.

"Over the next two quarters, we will continue with our sales activities and sell through our current inventory position before the next production season begins. We are taking measures to control other operational costs to partly offset inflationary pressures from increased raw material prices and labor costs," commented Mr. Yu. "The process of applying for production permits for our new fruit and vegetable powder facility and concentrate paste product line is taking longer than anticipated due to stringent procedures enforced by the government to ensure food safety. We are in close communication with the government agency to monitor the progress of our applications," added Mr. Yu.

In December 2011, the Company was informed by a customer that China Nutrifruit's concentrate juice and glazed fruit products contain higher than specified levels of sodium. The Company's customer has requested China Nutrifruit for a full refund for the purchased products valued at approximately RMB50 million ($7.9 million). In response to this matter, the Company is currently performing independent laboratory tests to verify the product quality claims of its customer and it expects to receive preliminary test results by the end of February 2012.

For fiscal year 2012, the Company is reasonably confident it will meet previously issued revenue guidance of approximately $74 million to $78 million. The Company's revenue guidance does not incorporate any potential refund to its customer. Due to the uncertainty surrounding the potential product refund, inflationary pressure on gross profit margins and other expenses, the Company is unable to provide net income guidance at this time.

Second Quarter 2012 Results

Fourth Quarter Fiscal Year 2011 Highlights

• Net sales increased 21.1% year-over-year to $32.0 million
• Gross profit increased 34.2% year-over-year to $15.5 million, with gross margin of 48.3%
• Operating earnings rose 44.8% year-over-year to $12.9 million, with operating margin of 40.3%
• Net income increased 42.1% year-over-year to $9.5 million, or $0.23 per diluted share vs. $0.17

"In fiscal 2011, we achieved record financial performance and reported double digit growth in revenue and net income, which increased 19.3% and 28.5%, respectively. During the year, we successfully introduced our new seabuckthorn and blackcurrant concentrate juice and glazed fruit products, which accounted for over 8% of fiscal 2011 sales. We also expanded our customer base to supply our products internationally through our new distributors, Cargill Shanghai and Doehler Rizhao," commented Mr.Changjun Yu, Chairman and CEO of China Nutrifruit. "Due to delay in beginning operations of our fruit and vegetable powder facility, we reported lower than estimated revenue for fiscal year 2011. However, as a result of enhanced margins, effective cost control measures and operating efficiency, we exceeded our net income guidance for fiscal year 2011. We expect continued strong financial performance in fiscal year 2012 largely driven by anticipated growth in demand for our products combined with launch of our new fruit and vegetable powder products and concentrate paste products."

In fiscal 2012, China Nutrifruit plans to further expand production capacity, diversify its product portfolio and increase market penetration. The Company will launch its new fruit and vegetable powder products, concentrate paste products, cherry tomato glazed fruits and golden berry dried fruits in calendar year 2011.

The Company is currently constructing a new concentrate paste production facility in Zhaoyuan, Heilongjiang Province and plans to begin trial production in July 2011. This new multi-purpose concentrate paste production facility will have an annual production capacity of 9,600 tons and will catering to the raw material requirements of the Company's new fruit and vegetable powder production facility and will also be sold to existing distributors.

China Nutrifruit is currently making technological upgrades to its glazed fruit production line in Daqing and concentrate juice production line in Mudanjiang. The Company expects to complete the upgrade process by July 2011 in advance of its production season. As part of the technological upgrade process, the Company is installing additional processing equipment at its glazed fruit production line in Daqing, which will enable production of its new golden berry dried fruit products. In addition, following technological and maintenance upgrades, the Company's concentrate juice production capacity in Mudanjiang will expand to 9,000 tons annually, up 50% from its current annual capacity of 6,000 tons per year.

For fiscal year 2012, the Company expects to generate revenue of approximately $110 million to $113 million and net income of approximately $29 million to $30 million,

"Looking into fiscal 2012, we continue to see strong demand for our high quality products backed by strong customer loyalty and an increasingly health-conscious environment," said Mr. Yu. "We are on track to commence production of our fruit and vegetable powder products in July 2011. In addition, we are excited about our strong product pipeline, including cherry tomato glazed fruit, dried fruit products and concentrate paste products, which will be supported by our capacity expansion plans. We will be leveraging our existing nationwide sales and distribution network throughout 18 provinces in China to market our new products and hold a positive outlook. With our proven business model, strong execution capability, new product initiatives, and capacity expansion, we believe we are well-positioned to achieve another year of record financial performance in fiscal 2012."

Third Quarter FY 2011 Results:

"During the third fiscal quarter, sales of our fruit based products continued to exhibit strong double-digit year-over-year growth driven by increasing number of health-conscious consumers, the high quality of our products, and our diverse product offering. We reported attractive operating and net income growth of over 34%," commented Mr. Changjun Yu, Chairman and CEO of China Nutrifruit. "Our new blackcurrant and seabuckthorn concentrate juice and glazed fruits products gained increased market share and accounted for approximately 8.5% of the total sales during the third fiscal quarter."

• Net sales for the third quarter of fiscal year 2011 increased 24.2% to $22.1 million, from $17.8 million in the same quarter of fiscal 2010. Strong sales growth during the quarter  was primarily due to solid market demand driving sales of glazed fruit and concentrate pulp products and an increase in the average sales price of crab apple concentrate juice and pear concentrate pulp.
• Net income increased 34.9% to $6.2 million, or $0.15 per diluted share vs. $0.11.
• The Company reaffirms its financial guidance for fiscal year 2011 for revenue in the range of $90 million to $95 million and net income of $22 million to $23 million.  

"The fourth fiscal quarter is typically our strongest quarter and we anticipate strong growth in sales volume driven by healthy consumer demand in the fourth quarter of fiscal 2011. We have seen a surge in orders from distributors during the Chinese New Year combined with  rise in average selling prices and therefore remain confident in our ability to meet our revenue and net income guidance for fiscal 2011," said Mr. Yu. "We recently entered into new supply contracts with Doehler Rizhao and Cargill Shanghai to supply our fruit concentrate juice products. Through Cargill Shanghai, our products will be distributed in Mongolia. We received positive feedback from these customers and remain optimistic that such small orders will lead to large scale supply contracts. Looking forward, we expect to further diversify our domestic customer base and add new international customers. Meanwhile, we are preparing to execute the final equipment installation stage of our fruit and vegetable powder product line and commence trial production in June 2011."

DAQING, China, Jan. 24, 2011 /PRNewswire-Asia-FirstCall/ -- China Nutrifruit Group Limited today announced that the Company entered into a supply contract with Doehler Food and Beverage Ingredients Co., Ltd. to supply 1,500 tons of its fruit concentrate products.

Second Quarter Fiscal Year 2011 Highlights

• Net sales increased 20.0% year-over-year to $23.2 million 
• Gross profit increased 13.1% year-over-year to $11.0 million, with gross margin of 47.2%
• Operating earnings rose 14.0% year-over-year to $9.7 million, with operating margin of 41.8%
• Net income was $7.2 million, or $0.18 per diluted share vs. $0.18
• In July 2010, the Company commenced production of four new products: seabuckthorn and blackcurrant glazed fruit and concentrate juice products

"Following strong first quarter performance, we achieved another quarter of double-digit sales and net income growth in the second quarter of fiscal year 2011. Our production season for fiscal 2011 is nearing its end and we are pleased to report an average capacity utilization of over 95% across all our production lines, including our new glazed fruit line added in December 2009," commented Mr. Changjun Yu, Chairman and CEO of China Nutrifruit. "Our new blackcurrant and seabuckthorn concentrate juice and glazed fruits products have received favorable market response contributing about 7.8% of the total sales during the quarter."

Business Outlook

China Nutrifruit recently rescheduled the production start date of its new fruit and vegetable powder production facility due to the impact of adverse weather conditions on the facility's construction schedule. The Company now expects to commence production of its new fruit and vegetable powder products in January 2011.

Management anticipates no material impact from the production delay to the Company's 2011 fiscal year financial results and reaffirms its financial guidance for fiscal year 2011 for revenue in the range of $90-$95 million and net income of $22-$23 million.    

"In the second half of fiscal year 2011, we anticipate our new fruit and vegetable powder line to contribute to our sales momentum," said Mr. Yu. "We are actively expanding our research efforts to introduce new fruit and vegetable powder products which will further diversify our product portfolio. Our growth strategy includes capacity expansion and increased market penetration to enhance our revenue growth and gain increased market share in China and in the overseas market."

China Nutrifruit Group Limited today announced that the Company has rescheduled the production start date of its new fruit and vegetable powder production facility due to the impact of adverse weather conditions on the facility's construction schedule. The Company now expects to commence production of its fruit and vegetable powder products by January 2011.

China Nutrifruit originally planned to complete construction of its new fruit and vegetable powder facility and commence production in October 2010. However, the Company's construction schedule was negatively impacted by adverse weather conditions in Daqing, which experienced more than average rainfall in comparison to recent years. The Company noted that the impact of the production delay would be immaterial to its 2011 fiscal year financial results.

Management reaffirms its financial guidance for fiscal year 2011 for revenue in the range of $90-$95 million and net income of $22-$23 million. 

DAQING, China, Aug. 5 /PRNewswire-Asia-FirstCall/ -- China Nutrifruit Group Limited  a leading producer of premium specialty fruit based products in China ("PRC"), today announced that the Company commenced its fiscal year 2011 production cycle on July 23, 2010.

China Nutrifruit's production season typically spans from mid July to mid November each year. The Company engages in selling, product distribution activities and research and development initiatives throughout the year to monitor market demand and changes in consumer tastes.

Mr. Changjun Yu, Chairman and CEO of China Nutrifruit commented "We are well prepared for our harvest and production season this year and expect to achieve optimum utilization levels for each of our existing production lines, including the newly upgraded concentrate juice lines. We are experiencing strong market demand for our products and are optimistic about the launch of our fruit and vegetable powder products in September 2010. Our new fruit and vegetable powder products along with our recently introduced blackcurrant and seabuckthorn concentrate juice products will positively contribute to our revenue growth and profitability in fiscal year 2011.

The fruit and vegetable powder industry is in its infancy with approximately 400 fruit and vegetable powder manufacturers in China, primarily targeting overseas markets. Based on production output, China is the world's largest producer of fruits and vegetables, with approximate annual production output of 570 million tons. According to Beijing Leadership Management Consulting Co. Ltd., China's fruit and vegetables production is expected to reach 700 million tons in 2010, representing a growth rate of 22.8% year over year. The Company is currently constructing a 40,000 square-meter new fruit and vegetable powder production facility in Daqing with designed annual production capacity of 10,000 tons which will begin operation in September 2010.

"Our R&D team has demonstrated immense dedication in developing a range of products for our new fruit and vegetable powder product line," said Mr. Changjun Yu, Chairman and CEO of China Nutrifruit. "A growing number of consumers are embracing healthy lifestyles and nutritious diets. This favorably influences demand for fruit and vegetable powders used as substitutes for refined sugars and artificial flavors in the production of food and confectionary products, enhancing their nutritional value, color, and taste. Based on Beijing Leadership Management Consulting Co. Ltd, in 2009, annual demand for fruit and vegetable powder recorded approximately 150,000 tons, while supply was merely about 100,000 tons. With demand likely to exceed supply, China Nutrifruit is well positioned to expand its product portfolio, leverage its production expertise and capitalize on market opportunities. We look forward to beginning production of our fruit and vegetable powder products in September 2010 and believe this segment will be a significant driver of our future revenue growth and profitability."

PRNewswire

Net income for the fiscal year ended March 31, 2010 was $19.2 million, or $0.51 per diluted share, compared to $4.5 million, or $0.14 per diluted share in fiscal 2009. Excluding the impact of the non-cash compensation expenses, non-GAAP net income for fiscal 2009 was $14.0 million, or $0.42 per diluted share. The calculation of diluted earnings per share for fiscal 2010 is based on 38.0 million weighted average shares outstanding compared to 33.5 million in fiscal 2009.

China Nutrifruit plans to begin trial production by September of 2010 at its new fruit and vegetable powder production facility in Daqing, with an annual capacity of 10,000 tons. The Company expects to ramp up to large-scale production in October 2010 based on a large number of anticipated customer orders.

China Nutrifruit is currently upgrading all of its fruit concentrate production lines at the Company's facilities in Daqing and Mu Dan Jiang, which have a total fruit concentrate annual production capacity of 9,960 tons. The upgrade will include purchase of additional equipment and implementation of advanced production techniques, resulting in more efficient use of raw materials that is expected to have a favorable impact on gross margins. The upgrades are scheduled to be completed before the production season begins in July 2010 and any improvements will be reflected in financial results for fiscal 2011.

The Company affirms previously issued fiscal 2011 guidance. For fiscal year 2011, the Company expects approximately $90-$95 million in revenue and net income of approximately $22-$23 million.

"The Chinese economy, standards of living and disposable income continue to improve, leading to greater health awareness among the population. As a result, we expect strong consumer spending to drive demand for specialty fruit products in the year ahead," said Mr. Yu. "In addition, we are very excited about our entry into the new, high growth segment for fruit and vegetable powders, as these are experiencing rising demand from a variety of downstream processed food companies who are currently largely served by more expensive foreign suppliers. This expansion leverages our installed equipment base, expertise and distribution channels and has the potential to moderate the seasonality of our business over time. Based on the market feedback from distributors and end customers, we are confident that our new fruit and vegetable powder business will make a major contribution to our financial results in the year ahead and provide an attractive return on investment."

China Nutrifruit has entered the harvest season and began fruit processing production in mid-July. The Company plans to increase its production capacity to meet the growing demand by increasing utilization of its newly added concentrate juice production line at the Mu Dan Jiang facility and adding new production line, including, a new glazed fruit and concentrate pulp production line and concentrate pulp production line. The Company also plans to produce blueberry glazed fruit to further enhance its products mix. Based on detailed market research, the China Nutrifruit believes there is significant market demand for their glazed blueberry fruit products. The Chinese government’s economic stimulus program has stimulated consumer spending and demand for China Nutrifruit’s products is expected to continue to grow in the next few quarters.

“With the revival of the economy and increase in disposable income, consumption of processed fruit products is expected to increase significantly. China's growing middle class population is increasingly heath conscious and our diverse product offering will continue to attract wide range of consumers,” concluded Mr. Shi. “Our growth strategy for 2010 is focused on achieving rapid revenue growth and net income growth as we implement our aggressive capacity expansion plan and introduce new products to increase our overall market share of the processed fruit market.”

Source: SEC Form 8K (August 14, 2009)

Guidance Report:

''During the quarter, total sales volume increased only slightly as our distributors became more cautious in building up inventory of our nectar and glazed fruit products in light of the global economic contraction. As a result of the relatively slow sales growth in one of our seasonally strongest periods of the year and our larger operating infrastructure, we experienced lower profitability in the third quarter of fiscal 2009. However, we are encouraged by the recent increase in orders in January and February as our distributors increase inventory levels to meet growing consumer demand for premium specialty fruit based products,'' commented Mr. Jinglin Shi, CEO of China Nutrifruit.

We believe the long-term outlook for premium fruit products continues to remain robust and we expect to benefit significantly due to our leading position as China's premium specialty fruit processor,'' concluded Mr. Shi. ''We expect to achieve strong top-line and bottom line growth throughout the rest of fiscal 2009 and into fiscal 2010 as we expand market penetration, increase utilization at our new facility and expand our product portfolio to meet the changing tastes of consumers.''

Source: PR Newswire (February 18, 2009)