Tianli Agritech's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May.14.13 | About: Tianli Agritech, (OINK)

Tianli Agritech, Inc. (NASDAQ:OINK)

Q1 2013 Earnings Call

May 14, 2013 8:00 AM ET

Executives

Tina Xiao - Investor Relations, Weitian Group

Hanying Li - Chairwoman and Chief Executive Officer

Guofu Zhang - Chief Financial Officer

Joyce Shen - Board Secretary

Analysts

Operator

Good morning and welcome to Tianli Agritech first quarter financial results. (Operator Instructions) I would now like to turn the conference over to Tina Xiao of Weitian. Please go ahead, ma'am.

Tina Xiao

Good morning, everyone. Joining us today from Tianli Agritech are the company's Chairwoman and CEO, Ms. Hanying Li; the company's Chief Financial Officer, Mr. Guofu Zhang; and Ms. Joyce Shen, Board Secretary.

I will provide translation to Ms. Li's opening remarks and on behalf of management team, review and comment on the reporting period for Tianli Agritech, then management will respond to your questions during the Q&A session, after management's prepared remarks.

I would like to remind our listeners, who are on this call, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties. And management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Security and Litigation Reform Act of 1995. Tianli is under no obligation to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

At this time, I would like to introduce Ms. Hanying Li, Chairwoman and CEO of Tianli Agritech. I will provide English translation for Ms. Li.

Hanying Li

Thank you, Tina, and thank you everyone for joining our call today. The hog industry continued to face headwinds during the first quarter of 2013.

Retail pork prices remained depressed and did not recover from the low level of the fourth quarter of 2012, as we previously anticipated. The recent outbreak of H7N9 bird flu in certain regions in China also adversely affected consumer confidence and caused a temporary shift in consumer preference away from pork, putting further pressure on pork demand and pork prices.

As a result, the average selling prices for both breeder and market hogs remained at the low level of the fourth quarter of 2012, and declined 7% and 8% respectively from the same period of last year. Despite these challenges, our revenue grew 10% year-over-year to $7.4 million, as we sold more breeder hogs and market hogs, which more than offset the decline in hog prices.

Our black hog program in Enshi Prefecture continue to process well. By the end of the first quarter 2013, Tianli had provided more than $12 million in funding and participating farmers, and we completed with the construction of additional 120 farms during the first quarter of 2013, bringing our total count of farms to 765 in Enshi Prefecture.

Since the third quarter of 2012, we have sold 4,585 black hogs, generating over $1.1 million in revenue. With our recent entry into the Beijing and Wuhan markets and our planned expansion in our sales network, we are excited about the prospect of our black hog program and expect to sell 30,000 to 50,000 black hogs in 2013.

Thank you, again, for the support and attention. Next, Tina, will summarize our first quarter financial results on behalf of the management team. Thanks.

Tina Xiao

Thank you, Ms. Li, and good morning, everyone. Next, on behalf of the management team, I will summarize some key financial results for the first quarter of 2013.

For the first quarter of this year, revenue grew 10% from $6.7 million for the same period of last year to $7.4 million, as a result of increased sales in both breeder and market hogs, which more than offset the decline in hog selling prices. Total hog sales was 32,513 for the March quarter, an increase of 20% from the same period of last year, with average selling price for our hogs sold declined 8% to $227 per hog.

Breeder hog sales increased 6% to $2.2 million with 7,690 breeder hogs sold during the quarter, up 14% from the same period of last year and average selling price down 7% from $298 to $277 per breeder hog. Market hog sales increased 12% to $4.7 million from the same period of 2012, with 24,823 market hogs sold during the March quarter, up 22% from the same period of last year and average selling price decreased 8% from $231 to $212 per market hog. The decline in average selling price of both breeder and market hogs was mainly due to computation from market fluctuations.

As Ms. Li mentioned in the opening remarks, the recent outbreak of H7N9 bird flu in some areas of China also adversely affected pork demand and price. During the first quarter of 2013, the company sold 1,825 black hogs to retailers in the Beijing market and generated $450,000 in revenue.

Gross profit for the first quarter of 2013 was $810,000, down 38% from the same period of last year. Gross margin for the first quarter of 2013 was 10.9% compared to 19.4% for the same period last year. Higher feed cost and lower hog selling prices contributed the deteriorations in gross margin. The gross margins for breeder hogs and market hogs were 30% and 3% respectively, for the first quarter of 2013 versus 31% and 15% respectively for the same period of last year.

SG&A expenses were $940,000 up to $310,000 from the first quarter of 2012. The increase was mainly related to our black hog program. As a result, operating margin was negative 1.8% for the first quarter of 2013 compared to positive 10% for the same period of last year.

Excluding net income attributable to non-controlling interest, net loss attributable to common shareholders for the first quarter of 2013 was $110,000, a loss per share of $0.01. This compared to net income attributable to common shares of $710,000 or $0.07 per diluted share for the same period of last year.

Now for a quick summary of our balance sheet and cash flows. As of March 31, 2013, we have approximately $8 million cash and cash equivalent, a $500,000 increase from the end of 2012. Operating cash flow was $930,000 for the first quarter of 2013, down from the $2 million for the same period of last year.

Before we take your questions, I would like to highlight some recent development of our black hog programs. On May 6, 2013, the company began to sell Tianli-Xiduhei black hog products through Newstar Supermarket as well as three Lao Nong Min retail stores in Wuhan City, Hubei province.

On January 28, 2013, our Tianli-Xiduhei branded black hog pork meat made its official debut in the Beijing market at Hua Lian and Yong Hui Supermarket. During the first quarter of 2013, we sold a total of 1,825 black hogs and generated $450,000 in revenue.

That concludes our prepared comments. And at this point, I would like to turn the discussion over to the operator for any questions.

Question-and-Answer Session

Operator

(Operators Instructions) We have a question from (Paul Busick), he's a Private Investor.

Unidentified Analyst

What are your plans for complying with NASDAQ? Are there any plans for reverse split to increase the price over $1 et cetera?

Hanying Li

The management is committed to the U.S. capital market and will evaluate all options to regain full compliance of NASDAQ before the August 5 deadline.

Operator

(Operator Instructions) We have another question from (Paul Busick), he's a Private Investor.

Unidentified Analyst

I noticed in your news release that there I think was 33 black hog farms going to be developed in the second quarter, that's a considerable decrease from the previous quarters. What accounts for the decrease and what are your future plans? And any specific numbers that you might have for the rest of the year and the year's to follow?

Guofu Zhang

So far we cannot supply 765 farms, so in the second quarter we expect to establish 33 farms.

Unidentified Analyst

Li, you mentioned on the last call that you'd be able to give guidance for the full year, is that why we were just discussing with the farms?

Hanying Li

Pork prices remain depressed over the close of the first quarter for this year and continued into this quarter, driven by the market forces as well as their recent outbreak bird flu. Management feel they are not ready to give guidance at this moment. Management will continue to improve the communications with investors going forward. And we still believe that the price of the pork will recover soon in this year.

Operator

(Operator Instructions) We have another question from (Paul Busick) from a Private Investor.

Unidentified Analyst

Yes, I had a little follow-up. The way I understand my previous question, there are going to be 33 black hog farms developed this quarter, the second quarter. But I'm not sure what the answer was, something about not able to supply, but only over 700 black hog farms. There is some problem and not being able to supply. Could you please clarify and add some more information? Thank you very much.

Guofu Zhang

Annual capacity now is 20,000 per year and the breeder hogs is 7,000 per year. And we need to provide every farmer six breeder hogs, if we continue increase to establish the farms, but we cannot provides the enough breeder hogs to the farmers. So we can not just setup more farms and we need to provide enough breeder hogs to them. At this point, we cannot establish more farms in the second quarter.

Operator

I'm showing no further questions at this time. So I'd like to go ahead and turn the call back over to management for closing remarks. Would management like to make some closing remarks or would like to go ahead and close the call for today.

Hanying Li

Thank you for joining our call today. Although, the market condition is not very good now, but we still be full of confidence that management will continue to improve communications with investors going forward and publicly disclose information's either through PR Newswire press release or SEC filings. We do hope we will grow up together with the investors. And thank you again for joining our call. This is the end of the call. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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