Synutra Intl (NASDAQ:SYUT)

"Operationally, we remain focused on product safety. We continue to concentrate on the effectiveness of our already stringent quality control processes and continue to invest in improvements. This January, when media reports on the death of a child in Jiangxi brought product safety into the spotlight, we swiftly conducted an internal investigation while actively cooperating with local authorities in their fact-finding efforts. Two days after the story aired, we published the outcome of our own investigation to show our products were safe. Initial government findings came shortly thereafter, confirming that our products were safe and consistent with national standards. In less than seven days, final results of multiple rounds of testing by separate government authorities further confirmed what we already knew. While it is still early to determine the effect of this incident on our business, we are encouraged by the fact that no Synutra products were pulled from store shelves due to this event other than the one shop in Jiangxi where the infant's family purchased their formula.

"Looking forward, we caution that the fourth fiscal quarter's results may be more muted compared to the performance of the third fiscal quarter, considering the following impacts. First, there is the effect of the Chinese New Year holiday which shifted some January 2012 orders forward to December 2011. In addition to affecting sales performance, this will also impact margins as we provide distributors with fixed discounts each period, which is why margins vary with sales volume. Second, it is still early to quantify the impact of the Jiangxi incident. January 2012 orders were placed ahead of the incident so any impact will affect the February and March order numbers. Lastly, we are preparing to implement a distributor price increase of about 15% on April 1, 2012, to bring our prices more in line with rising costs and industry trends. We expect this supplier price adjustment will translate into a retail price increase of up to 15% on average resulting in future margin expansion and revenue growth. Overall, the coming quarter will be an exciting one in Synutra's development. We look forward to updating the market as we gain more visibility."

QINGDAO, China and ROCKVILLE, Md., Jan. 12, 2012 /PRNewswire-Asia/ -- Synutra International, Inc. (NASDAQ: SYUT), ("Synutra" or the "Company"), which owns subsidiaries in China that produce, market and sell nutritional products for infants, children and adults, today issued a statement in response to local Chinese media reports of a pair of 4-month old twins in Jiangxi province who became ill with severe intestinal symptoms. One passed away from dehydration on January 7, 2012. The other has recovered following hospitalization. Both children were reported to have been consuming Synutra powdered milk formula products for weeks before the sudden onset of their illnesses.

Mr. Liang Zhang, Chairman and CEO of Synutra, stated, "Our hearts go out to the family suffering from this tragic event. At the same time, we firmly believe this is an isolated incident unrelated to Synutra's products.  All of our products, including the lot under question, are thoroughly tested and analyzed before shipment. These products are formulated and produced under stringent safety standards to safely meet the nutritional needs of infants.  We have chosen to not recall any of our products because we are confident that they are safe. We are also not aware of any decisions to remove our products from store shelves, except in the store from which the ill infants' formula originated.

"The Company and our distributors are actively cooperating with various local and provincial authorities to investigate the source of the reported illness," continued Mr. Zhang. "The Jiangxi Bureau of Quality and Technical Supervision is in the process of testing product samples collected from the affected family.  We recognize the pain of the grieving family. However, we hope to reassure consumers that we are fully confident that our products are safe.  We believe in the quality of our products and stand by our quality assurances," Mr. Zhang concluded.

QINGDAO, China and ROCKVILLE, Md., Dec. 12, 2011 /PRNewswire-Asia/ -- Synutra International, Inc. (NASDAQ: SYUT), ("Synutra" or the "Company"), which owns subsidiaries in China that produce, market and sell nutritional products for infants, children and adults, today announced the planned relocation of the Company's R&D, customer service, call-center, and training facilities into a new corporate campus in Beijing by the end of December, 2011.

Mr. Liang Zhang, Chairman and CEO of Synutra, remarked, "Our planned move is coming amidst robust sales growth after our most recent profitable quarter ended September 30, 2011 with a net income of $8.5 million. According to the Commercial Information Center (CIC) of the Ministry of Commerce, our market share in China's infant milk formula sector improved to 5.9% for the month of October.

Mr. Weiguo Zhang, President and Interim CFO of Synutra, commented, "Although promotional activities on certain product lines may partially contribute to the apparent surge in the expected sales growth, we are pleased by our steady trend of improvement. We are particularly encouraged by the margin expansion and operating cash flow staying in positive territory since the previous reporting period. Other factors that may drive the potential sales growth include the fact that the fall season typically sees more active consumer buying and that distributors stock up ahead of time in December in anticipation of the early on-set of Chinese New Year holidays in the month of January 2012. Nevertheless, we believe

the top-line growth for the three months ending December 31, 2011 will be between 45% to 48%, which, we believe would likely result in an expected net income range of $9 to $10 million for the three months ending December 31, 2011."

"I wanted to emphasize," continued Mr. Liang Zhang, Synutra Chairman and CEO, "that the Company has moved beyond the turbulent market crises and is returning to a normalized operating environment. We will continue to focus on our day-to-day operations to produce the safest and highest quality products for our customers, and we will continue to attend to the fundamentals and work to enhance shareholder value."

GeoTeam Note: Net income guidance works out to about EPS of $0.17 vs. a $0.10 street estimate.

Second quarter of fiscal 2012

• Net sales rose to $99.1 million for the second quarter of fiscal 2012 from $43.8 million in the first quarter of fiscal 2012.
  
• Gross profit was $42.0 million in the second quarter of fiscal 2012, compared to $16.1 million in the previous quarter.
  
• Gross margin in the second quarter of fiscal 2012 was 42.4%, compared to 36.7% in the previous quarter.

 As sales volume continues to grow and selling costs decrease as a percentage of net sales, the Company expects margins to continue to strengthen but at a more gradual pace to converge towards a long term normalized range.

• Net income attributable to Synutra International, Inc. common stockholders was $8.5 million in the second quarter of fiscal year 2012, or $0.15 per diluted share, compared with a net loss of $9.6 million, or $0.17 per diluted share, in the previous quarter.

Mr. Liang Zhang, Chairman and CEO of Synutra, remarked, "We are pleased to return to profitability with net income of $8.5 million, an important milestone in the continued recovery of our powdered formula sales from the hormone allegations. We believe our sustained recovery is driven by the effectiveness of our consumer-centric marketing strategy, which has led to sales growth while controlling advertising and promotional costs. There is still room for improvement through margin expansion. However, we believe our three consecutive quarters of improvement demonstrate that our recovery is long term and sustainable. We are focused on quality, a topic that continues to grow in prominence among China's consumers, and we are differentiated by our end consumer-centric marketing, which strengthens our distribution reach. Over the long term, we are confident that these factors will help differentiate us among China's fragmented infant dairy market to strengthen our future growth momentum."

QINGDAO, China and ROCKVILLE, Md., Sept. 8, 2011 /PRNewswire-Asia/ -- Synutra International, Inc. (NASDAQ: SYUT) ("Synutra" or the "Company"), which owns subsidiaries in China that produce, market and sell nutritional products for infants, children and adults, today announced that the U.S. Court of Appeals for the Fourth Circuit ("Appellate Court") affirmed a previous ruling of the U.S. District Court for the District of Maryland ("District Court"). As announced in April 2010, the District Court had granted the Company's motion to dismiss a product liability lawsuit brought against the Company related to products allegedly sold by subsidiaries during the 2008 melamine crisis in China. The plaintiffs filed a notice of appeal thereafter. In its opinion issued on September 6, 2011 regarding the appeal, the judges of the Appellate Court affirmed the District Court's dismissal of the complaint on the grounds of forum non conveniens.

Mr. Weiguo Zhang, President and interim CFO of Synutra, commented, "We are gratified that the Appellate Court has affirmed the District Court decision that the case is dismissed. We believe this will help us to focus on our business and enhance shareholder value by removing uncertainty and alleviating investor concerns."

QINGDAO, China and ROCKVILLE, Md., August 30, 2011 /PRNewswire-Asia/ -- Synutra International, Inc. (NASDAQ: SYUT), a leading infant formula company in China and a producer, marketer and seller of nutritional products for infants, children and adults, today announced Donghao Yang has resigned from his position as Chief Financial Officer ("CFO") to pursue another professional opportunity, effective immediately. Weiguo Zhang, the Company's President and Chief Operating Officer since 2005, will serve as interim CFO as the Company conducts its search for potential CFO candidates.

• Net sales increased 79.3% to $79.3 million in the fourth quarter of fiscal 2011 from $44.2 million in the third quarter of fiscal 2011, led by growth in the Company's infant formula sales. Net sales from the Company's branded powdered formula segment were $48.3 million, or 60.9% of net sales in the quarter, compared to $20.7 million, or 46.8% of net sales, in the previous quarter. Net sales of the Company's Super series infant formula accounted for 53.9% of the volume of sales and 65.8% of the net sales of the powdered formula segment for the fourth quarter of fiscal year 2011 compared to 45.4% of the volume of sales and 57.1% of the net sales of the powdered formula segment in the third quarter of fiscal year 2011. By volume, sales of powdered formula products were 6,057 tons in the fiscal fourth quarter compared to 4,063 tons in the previous quarter.

• Gross profit was $17.5 million in the fourth quarter of fiscal 2011, compared to $5.0 million in the third quarter of fiscal year 2011. Gross margin in the fourth quarter of fiscal 2011 was 22.0%, compared to 11.4% in the third quarter of fiscal 2011. This reflects the impact of the discounts the Company provided to distributors to regain market share, which were deducted from gross sales, negatively impacting net sales and gross margin.

• Loss from operations improved substantially to $6.4 million, from the $24.1 million operating loss in the prior year period. Total operating expenses were 30.1% of revenue reflecting advertising and promotional activities in line with the Company's normalized range.

Mr. Liang Zhang, Chairman and CEO of Synutra, remarked, "Our results this quarter demonstrate that our recovery is ongoing and, we believe, sustainable. Sales of our branded powdered formula have doubled since the last quarter, led by growth of our Super series. Furthermore, we have launched a new brand, our My Angel series, to capitalize on the shifting market dynamics of China's infant dairy market. This supplementary product line will be distributed through specialty baby stores with unique formulations and is not expected to cannibalize our existing premium product lines. Looking forward, we believe our focus on premium quality brands as well as our broadening distribution reach will lead to greater consumer recognition."

Mr. Donghao Yang, Chief Financial Officer of Synutra, commented, "The fourth quarter is also significant from a channel perspective. We have begun to see signs of our distributors' inventory levels stabilizing after the destocking in the previous two quarters. Overall, we are pleased with the continued financial and operational improvements accomplished by our dedicated employees."

Mr. Yang continued, "We are pleased to note strong sequential growth in our financial performance. Operating results have shown significant improvement in the fourth quarter compared to the previous two quarters when the hormone crisis impacted results. Our powdered formula segment sales increased by 133.2% and gross margin more than doubled in the fourth quarter compared to the third quarter. Operating loss this quarter narrowed by 73.3% compared with the previous quarter. As we have observed, the destocking of channel inventory is coming to an end, which is a major contributing factor to our operating improvement. As our market share continues to recover directionally over time, distributors will adjust their inventory level upward accordingly, so we expect to see further improvement in our operating results in the coming quarters."

QINGDAO, China and ROCKVILLE, Md., Feb. 3, 2011 /PRNewswire-Asia-FirstCall/ -- Synutra International, Inc.today announced financial results for the third quarter of fiscal 2011 ended December 31, 2010.

Donghao Yang, Chief Financial Officer of Synutra, commented, "The negative media reports from early August 2010 continued to drastically impact our financial results, and our third quarter sales of $44.2 million and net loss of $20.5 million can be directly attributed to that disruptive event.  However, our sales and gross margin performance from the month of December in our powdered formula segment gives us reason to believe the worst is behind us and we have begun a sustainable recovery.  I am also pleased to report that channel inventory turnover days, which is a gauge of distributor and retail demand, improved materially from a peak of 120 days in August 2010 to 43 days in December 2010, which is in line with more normalized levels of between 40 to 45 days. We have provided these monthly metrics because this additional layer of transparency allows us to better illustrate the recovery we believe started to materialize late in the third quarter, after we took swift measures to respond to the negative media reports from August."

• Net sales increased 7.4% to $44.2 million in the third quarter of fiscal 2011 from $41.2 million in the second quarter of fiscal 2011.
• Gross profit was $5.0 million in the third quarter of fiscal 2011, compared to $8.9 million in the second quarter of fiscal year 2011. Operating loss in the December quarter was $24.1 million, slightly better than the $26.1 million operating loss in the September quarter.

Operating expenses remained elevated as a percentage of sales due to the Company's aggressive investment in advertising and promotional activities to rebuild brand equity and recover market share.  Sequentially, operating expenses decreased as the Company drew back advertising and promotional expenses to more normalized levels through the quarter from a high of $7.5 million in September to $3.4 million in December.  

Second Quarter Fiscal 2011 Financial Overview

• Net sales were $41.2 million in the second quarter of fiscal 2011, compared to $65.3 million in the second quarter of fiscal 2010.  

• Loss from operations was$26.1 millionin the second quarter of fiscal 2011, compared to a loss of $16.3 million in the prior year period.  

• For sequential comparison, in the first quarter of fiscal year 2011, operating income was $16.3 million.  

• Net loss attributable to Synutra International, Inc. common shareholders was $21.2 million, or $0.37 per diluted share in the second quarter of fiscal 2011, compared with a net loss of $14.0 million, or $0.26 per diluted share, in the prior year period.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "The second quarter of fiscal 2011 was very challenging for Synutra.  The premature development allegations, which drove a considerable decline in our market share, left a deep and lasting impact on our business.  We are proud, though, of our response to this very difficult situation.  We took the initiative to reach out to the proper authorities to verify the quality of our products and stem further consumer panic, we mobilized our sales team and call center to handle customer concerns and we have provided our distributors with more discounts and promotional activities to maintain the strength of our distribution channels.  We also directly confronted the source of these erroneous media reports, Phoenix Satellite Television, who then issued a formal public apology."

Zhang continued, "Today, we are cautiously optimistic about our ongoing recovery.  Following the melamine crisis, our management team demonstrated that they are capable of returning Synutra to profitability.  We are confident that through the dedication and commitment of this same team, Synutra will rebuild its market presence and recapture its previous long-term growth momentum."

Synutra International, Inc. (Nasdaq: SYUT),  today provided the web link to Phoenix Satellite Television Holdings Limited's ("Phoenix TV") public apology.  As announced yesterday, Synutra has received a formal public apology from Phoenix TV for promulgating false claims against Synutra. The on-air apology, delivered on the same program as were the false claims, resolves the previously reported legal actions brought by Synutra against Phoenix TV and its subsidiary, Beijing Tianying Jiuzhou Network Technology Co. Ltd, the operating company of the website ifeng.com.  

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "We never doubted the quality of our product or our commitment to our consumers, and we believe the public apology from Phoenix TV is an appropriate response, especially since it comes from the very source of the false allegations. We feel that Phoenix TV's on-air apology lays a sturdy foundation for the restoration of our brand going forward. To that end, we remain cautiously optimistic about our ongoing recovery, and we continue to monitor diligently our sales channels."

To view the video segment containing the apology, please visit the Events and Presentations page of the Company's IR website, http://www.synutra.com/. The apology begins approximately 32'10" into the show, and lasts until approximately 33'50" into the show.

 First Quarter Fiscal 2011 Financial Highlights:

• Net sales up 77.0% to $83.8 million from $47.4 million in the prior year period.
  
• Gross profit increased 136.9% to $46.4 million from $19.6 million in the prior year period.
  
• Gross margin up substantially to 55.3% from 41.4% in the prior year period.
  
• Operating income increased to $16.3 million from an operating loss of $10.6 million in the prior year period.
  
• Net income attributable to Synutra International, Inc. common shareholders increased to $10.1 million, or $0.19 per diluted share, from a net loss of $9.9 million or ($0.18) per diluted share, in the prior year period.

Mr. Liang Zhang, Chairman and CEO of Synutra stated, "Our fiscal first quarter financial results continue to demonstrate our return to growth and profitability. Last quarter marked the significant milestone of our return to profitability. This quarter, we have continued to leverage our robust information network and innovative, consumer driven marketing strategy to further improve our revenue mix and drive profitability."

SYUT also addressed product quality rumors:

Mr. Liang Zhang, Chairman and CEO of Synutra stated, "Certain parties in the media recently attempted to create a crisis by linking our products to premature development and precocity in children. These claims are highly irresponsible and based on speculation instead of scientific evidence. Certain members of the media promulgated these claims despite the fact that many different external factors have been linked to premature development in children, and, additionally, China's CDC and several leading scientists already stated publicly that there was no evidence linking our products to such symptoms.

"As a well-known and trusted provider of infant formula in China, we are completely confident that our products are safe and our quality levels are industry-leading. We do not add hormones to our products and we have invested heavily in research, quality control, formulations and ingredients. We have participated in exhaustive quality testing at all required government levels, including with the relevant state agencies and industry groups. Additionally, our upstream ingredient suppliers are also reliable and trusted around the world.

"Recently, we have worked closely with state authorities, including the Chinese Dairy Association and the Office of Food Safety, to test product samples to prove that these claims are false. We expect that the results of these tests should be made public soon, and we hope that they are published expeditiously. We firmly believe they will illustrate our unwavering product quality and commitment to consumer safety.

"We are in the process of taking legal action to protect our brand, and we intend to prosecute the parties responsible for these accusations to the furthest extent possible."

On the balance sheet, Synutra reported cash and cash equivalents of $29.58 million on June 30, 2009, compared to $37.74 million on March 31, 2009. Working capital was negative at $83.74 million, compared to negative working capital of $80.43 million three months earlier. Long-term debt at the end of June 2009 was $16.10 million, compared to $8.78 million at the end of March. The working capital deficit was caused primarily by the product recall expenses, including product replacement cost; shipping charges and inventory write-down and write-off, as well as the subsequent loss of sales. As of June 30, 2009, the Company was not in compliance with certain covenants of its loan agreement with one of its lenders, ABN AMRO Bank, N.V., Hong Kong branch, which was acquired by Royal Bank of Scotland. The Company is currently in discussions with the lenders on a waiver and is unable to predict when, or if the waiver will be granted. Also, in order to maintain sufficient funds for its operations, it has postponed the payment of certain accounts payables and has negotiated with certain suppliers to extend payment terms beyond the customary terms.

Source: Business Wire (August 11, 2009)

SYUT filed its Third quarter report with the SEC.  The company reported a significant EPS loss of $0.91 on an 82% drop in revenues to $17.66 million . 

There were two main reasons for the decreased financial results:

1.  Sales volume of powdered formula products decreased by 21.0% to 23,719tonsfor the nine months ended December 31, 2008 from 30,035 tons for the same period in the previous year. The decrease was primarily due to a slow down in sales activities in the second half of September to December 2008, following the melamine contamination incident and our shipments in the second and third fiscal quarters were mainly used for the replacement of recalled products in the quarter ended December 31, 2008, partially offset by a significant business growth experienced in the months from April to August, 2008.

2.  The average selling price of our powdered formula products for the nine months ended December 31, 2008 increased by 21.6% to $9,090 per ton from $7,475 per ton for the same period in the previous year. This increase in average selling price was a combined result of a greater proportion of higher-priced products in our product mix and a broad increase of our sales price in August 2008.

Source: SEC Form 10Q (February 9, 2009)

The GeoTeam® will monitor the company's progress as it attempts to put this chapter behind them and continue its previous growth trend.  Analyst estimates show the company returning to profitability with EPS of $0.74 ($0.61 tax adjusted).