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Tianli Agritech, Inc. (NASDAQ:OINK)

Q2 2013 Results - Earnings Call Transcript

August 14, 2013 8:00 AM ET

Executives

Tina Xiao - Weitian Group

Hanying Li - Chairwoman and Chief Executive Officer

Guofu Zhang - Chief Financial Officer

Analysts

Operator

Hello and welcome to the Tianli second quarter 2013 conference call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note that this event is being recorded. Now I would now like to turn the conference over to Tina Xiao, Weitian Group. Please go ahead.

Tina Xiao

Thank you, Amy and good morning everyone. Joining us today from Tianli Agritech are the company’s Chairwoman and CEO, Ms. Hanying Li; and the company's Chief Financial Officer, Mr. Guofu Zhang. I'll provide translation to Ms. Li's opening remarks and behalf of the management team, a 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 contains forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements to your response to your questions. Therefore, the company claims the protection of 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 and 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. [Foreign Language].

Hanying Li

[Foreign Language]

Thank you, Tina and thank you everyone for joining Tianli’s second quarter earnings conference call today. Despite continued weakness in pork demand and pork prices, our revenue increased by 7% year-over-year to $6.8 million in the second quarter. As a number of hogs sold grew by 30% to a record level of 36,464 hogs which more than offset then 18% decline in average selling price per hog.

[Foreign Language]

Our black hog programs continue to progress well during the second quarter of 2013. We sold a total number of 4,203 black hogs, which include 3,988 black hogs generating 0.81 million in revenues. And additional 217 black hogs through retail generating $52,000 revenue during the second quarter of 2013.

In April, we resumed our retail operations in Wuhan City and started to sell our branded black hog made products at retail outlets and supermarket chains such as LAO NONG MIN, NEWSTAR and Xiduhei. On July 1, we also signed corporation agreement with SIBIMG a leading marketing company in Shenzhen, Guangdong Province to translate a direct sales program for Tianli’s branded black hog meat in Guangdong Province.

As we continue to expand our retail network, we expect continued sales increase in our black hog programs in coming quarters.

[Foreign Language]

Thank you again for your support and attention. Next Tina, we will summarize our second quarter financial result on behalf of 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 second quarter of 2013 and half year 2013 respectively. For the second quarter that ended in June 30, revenue grew 7% to $6.84 million from $6.39 million for the same period of last year.

As a result of increased sales in both breeder and market hogs, more than offsets the decline in hog selling prices. Total hog sale was 36,464 for the quarter, an increase of 30% from 28,034 for the same period of last year, where average selling price for our hogs sold declined 18% to $188 hog from $228 per hog for the second quarter of 2012.

Breeder hog revenue decreased 7% to $1.95 million with total numbers of breeder hogs sold increased 12% to 7,780 hogs from from 6,883 hogs for the second quarter of last year and average selling price down 18% to $253 per hog from $307 per hog for the second quarter of last year.

Market hog revenue increased 13% to $4.84 million for the second quarter in 2013 from $4.28 million for the same period of 2012. With number of market hog sold increasing 35% to 28,531 hogs from 21,151 hogs for the second quarter of 2012. And average selling price for market hogs declined 16% to $169 per hog from $202 per hog for the same period last year. We also sold 215 black hogs to retail.

As Ms. Li just mentioned, we resumed our retail operations team in Wuhan City in April. Please note our black hog sales numbers were included in the market hog category.

During the second quarter, we sold a total number of 4,203 black hogs and generated revenue of $0.86 million.

Gross profit for the second quarter of 2013 was negative $0.28 million compared to gross income of $0.8 million for the same period of last year. Gross margin for the second quarter of 2013 was negative 4% compared to 12.5% for the same period last year. The combination of increased feed cost and lower hog selling price contributed to deterioration in gross margin. The gross margins for breeder hogs and market hogs were 24% and negative 15% respectively for the second quarter of 2013 versus 34% and 2% respectively for the same period last year.

SG&A expenses were $0.71 million for the second quarter of 2013, at $0.79 million during the second quarter of 2012. The increase was mainly related to our black hog program. As a result, operating margin was negative 14.4% for the second quarter of 2013 compared to positive 5.9% for the same period last year. Excluding net income attributable to non-controlling interest, net loss attributable to our common shareholders was $1 million, a loss per share of negative $0.09 per diluted share for the June quarter. This compared to net income attributable to common shareholder of $0.32 million or $0.03 per diluted share for the same period last year.

Now shift gear to year-to-date financial results. Revenue for the six months ended June 30, 2013 grew 9% to $14.23 million from $13.1 million for the same period of last year. As was said more breeder and market hogs which more than offset a decline in hog selling prices. We sold a total number of 68,977 during the first half of 2013, an increase of 25% from 55,129 for the same period last year, while average selling declined 13% to $206 per hog for the first half of this year, from $238 per hog for the same period of last year.

Breeder hogs revenue decrease 1% to $4.09 million with 15,408 breeder hog shows in the first half of 2013, up 13% the same period of last year, an average selling price down 12% to $265 per breeder hog from $302 per breeder hogs for the same period of last year. Market hog revenue increased 13% to $10.09 million from the same period of 2012, with 53,354 market hogs sold during the first half of 2013, up 29% from 41,480 for the same period of last year, an average selling price declined 13% to $189 per market hog from $216 per market hog for the same period of last year.

The decline in average selling price of both breeder and market hogs were mainly due to the market fluctuations. During the first half of 2013, the company sold 6,028 black hogs, which generated $1.3 million in revenue. Gross profit for the six months ended June 30, 2013 was $0.53 million compared to $2.1 million for the same period last year. Gross margin was 4% and 16% for the six months ended June 30, 2013 and 2012 respectively.

The impact of increased feed cost and reduced hog prices cost us significant decrease in gross margin. SG&A expenses for the six months ended June 30, 2013 were 1.65 million up $0.59 million from the same period last year. The increase was mainly related to our black hog program which generated an additional $0.51 million in administrative expenses. As a result, operating margin for the six months ended June 30, 2013 was negative 7.9% compared to a positive 8% for the same period last year.

Net loss from continuing operations for the six months ended June 30, 2013 was $1.32 million compared to net income of $0.98 million for the same period of 2012. The decrease was primarily the result of the deterioration in gross margin and increase in SG&A expenses as explained above. After allocating net loss attributable to non-controlling interest, net loss attributable to common shares for the six months ended June 30, 2013 was $1.11 million or a loss of $0.10 per diluted share. This compared to net income attributable to common shareholders $1.02 million or $0.10 per diluted share for the same period of last year.

Now for a quick summary of our balance sheet and cash flow; as of June 30, 2013 we had approximately $6.24 million cash and cash equivalent compared to $7.48 million as of December 31, 2012. Working capital at June 30, 2013 was $8.62 million as compared to $8.98 million at December 31, 2012. Cash flow from operations was negative $0.21 million and $4.02 million for the six months ended June 30, 2013 and 2012 respectively.

Now I would like to turn the discussions over the operator for any questions, thank you.

Question-and-Answer Session

Operator

(Operator Instructions) our first question comes from Joshua Hartman, Private Investor.

Unidentified Analyst

Can you please talk about the loans you have, the interest rate and the due dates you have, I didn’t see an update on that?

Hanying Li

[Foreign Language]

Hi Jeff, what kind of the loan you said.

Unidentified Analyst

I was interested in the short term loan, I was wondering if I could get an update on the interest rate you have and due dates for those loans. I saw based on your 10-K that there are several loans due. Recently I was wondering if you had additional financing and when those loans would be due, and if that would be causing any kind of problems in cash position in the coming quarters?

Hanying Li

Okay. Jeff according to Ms. Li's response there is no new short term loan this year, but we have R&D [48,000] short term loan last year.

Operator

Our next question comes from Mark Griffin, [MPG Investments].

Unidentified Analyst

You guys are doing great job growing revenue this year even with the decline in prices. Can you describe how the pricing outlook you can stabilize? Is there any chance that it goes up, food prices etcetera and then also you have a new CFO and wanted to see if there is anything she knows about of the last CFO resigning and how this new guys are working now?

Tina Xiao

[Foreign Language]

Hanying Li

[Foreign Language]

Okay. Let me answer your first question about revenue and the overall market situation, as pork price remain depressed over the quarter, but it becomes recovery as well as the pork prices and the management thinks it will get a recovery during the second half year. Because there are traditional or Chinese factors made up and they national state occurred in the second half so the price will be better.

Tina Xiao

[Foreign Language]

Hanying Li

(inaudible) mutual explain for the CFO’s question, the former CFO resigned only because of the personal reasons and the new CFO have worked the company for more than one year. And he is capable for the position especially for (inaudible) with other financial work and financial system for Tianli, so he will be in the good position for the company. Thank you.

Unidentified Analyst

Great, thank you.

Operator

The next question comes from [Albert Guam], private investor.

Unidentified Analyst

[Foreign Language] therefore investors, number 1, that your stock (Inaudible) traded under the $1 for long time. [Foreign Language] stock, for less than $1 based on the expect the minimum requirement. So reverse play, what is the buyback this year, what's step do we have, that's the first question.

Unidentified Company Representative

[Foreign Language]

Operator

Okay the next question is from [Albert Howe], and next question is, what is the plan for the company to every regain the confidence with the minimum bid price on NASDAQ and according to Ms. Li's answer there were aspects that company can do.

The first the company will try to gather the profits from the operation. The second one is that company will continue to increase their operations through the traditional bank loans in China.

And the third, the management committee to the US capital market and will evaluate all the other options to regain full compliance before the deadline of February 2014, either through reversed sublet or share buyback.

For the three ways to get to regain the NASDAQ rule, the company was full of confidence and will be full of confidence to rate to regain it and stay in a NASDAQ. Thank you.

Operator

Our next question comes from Ivan.

Unidentified Company Representative

Also sorry and either there is another question from Anderson.

[Foreign Language]

Unidentified Company Representative

Okay, the second question, also from Albert Howe. He wants an amendment to update the information for black hogs. According to Ms. Li's answer, we can get information that our target is for the national China, not only Beijing market.

So now we're trying to expand our target to the other province, for Guangzhou, Hunan, Hubei. And the price for those markets is for the black hog is premier is 10% to 13% than the market hogs and that is the price for the black hogs nowadays. Thank you.

Operator

Next question comes from [Ivan Dahl], private investor.

Unidentified Analyst

I have a question. On July 1, the company announced the cooperative agreement with Shenzhen-based marketing company for direct-to-sales program and I'm wondering how is the program doing now and do you think that still you can bring 50,000 families on to the program and generating sales of equivalent of 75,000 black hogs by the end of January next year.

[Foreign Language]

Tina Xiao

According to Ms. Li's answer we would like to note that the way we are selling in Shenzhen market is not through the market is not through the outlet just we send the pork directly to the client’s house.

[Foreign Language]

Hanying Li

[Foreign Language]

And we are still in the process of the operating sales. For example we developed new customer resources, we organized our working teams and we are training our employees and we are making all kinds of sales programs.

Okay. According to Ms. Li’s answers we now in cooperation with [Shenzhen] companies doing very well and they are starting for the information and collecting all the information for black hogs from the company and the 50,000 target is for Shenzhen’s company for themselves. And if they get the 58,000 families and to program at the end of January 2014, clearly we will give them the sales of all over the year, all over the country to the Shenzhen Company.

If the Shenzhen company achieved the 58,000 target and the Tianli will give them the direct sales agent in China and we calculated that by the end of the quarter just started sales measurement believe their run rates of [75,000] at the end of the year. Thank you.

After the research in Shenzhen area, we believe to achieve the 50,000 run rates of target will be, it's not difficult for the Shenzhen company. Thank you.

Unidentified Analyst

Okay. Thanks.

Operator

Our next question comes from [Joshua Hartman], Private Investor.

Unidentified Analyst

Hi, thanks for taking my question again. I was wondering if you could talk about the costs and margins involved in the black hog program a little bit more, specifically what are the margins involved in the products like the feed and supply that you sell to black hog farmers. And also what prices do you buy the black hogs back in the farmers for?

Hanying Li

[Foreign Language]

The purchase price for black hogs are just from farmers is $0.01 from the farmers and the margin for the black hogs is premier 50% than the market hog. Thank you.

Operator

(Operator Instructions) We have another question from (inaudible) Private Investor.

Unidentified Analyst

[Foreign Language]

Okay that question, I am translating the question from (inaudible). He asked the price with the free cost?

Hanying Li

[Foreign Language]

And probably we cannot estimate the free cost in the coming quarters. If we have the information we will let you know. Thank you.

Operator

This concludes our question-and-answer session. Would you like to make any closing remarks?

Hanying Li

[Foreign Language]

Thank you for everybody joining Tianli Agritech’s second quarter conference call again. If there is no question, then this will be the end of the conference call. Again, thank you everyone for your support and [program with] attending together. Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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