Nutracea: The Q3 Question

Oct.15.07 | About: RiceBran Technologies (RIBT)

It's a long time until November 14th. Yes, Q3 has ended, but the mystery surrounding it remains for a little over one month. It's hard to speculate what types of numbers will be posted on that seemingly fateful day. Take Q2's numbers, subtract out the one-time joint venture revenue, and the carry-over from Q1, and that leaves revenue of about $5.4 million for Q3, assuming all else equal.

The activity at Nutracea's (NTRZ.OB) big mill, located in Mermentau, LA, will be the deciding factor. Louisiana had an abnormally wet summer, making the rice harvest difficult at best. By the end of September, however, more than 95% of the entire state's crop had been harvested. Good news since more rice equals more bran for Nutracea. But September is right at the end of the third quarter, and the amount of rice that actually made it to the mills by then is the BIG question.

The even bigger question is how much (if any) of this bran made its way up to the Dillon plant in Montana. Being able to produce a large amount of Stage 1 product is nice, but all familiar with Nutracea know that money gets printed in Dillon. The Dillon output really depends on the contracts and prices that farmers and mills negotiated on in Louisiana. Being that all of Nutracea's Stage 1 in Q2 was contraced by other customers, for a decent showing in Q3, it is imperative that some of the Stage 1 from Louisiana migrated to Montana, got refined, and sold before the end of September. A hefty task indeed.

There have been rumors circulating about the operations at the Archer Daniels Midland (NYSE:ADM)-Arbuckle plant in California. Apparently, there have been some compatibility issues with the machinery at the plant, and the spec's aren't quite right. This is only a rumor that I have heard on the Yahoo! message board, but if there is any truth to it, it could prove to be a substantial detriment to the Q3 numbers.

In Q2, Nutracea purchased a small company in Freeport, TX called Grainnovations Inc. This company produced, among other things, pelletized rice bran products in the animal feed market. Depending how much stabilized bran comes out of Sacramento and Mermentau, this could potentially boost the numbers a bit.

Everyone wants to know what's going on with Vital Living. Last week, Nutracea and Vital both announced the completion of the asset purchase that Nutracea alluded to in the Q2 conference call. Nutracea owns all of Vital's assets at the moment, and assumed a decent portion of its debt. More importantly, any indebtedness that Vital and its affiliates accrued with Nutracea are being cancelled. Brad Edson, CEO of Nutracea, basically says that Vital had something they wanted. This something is a direct to physician/consumer market for health supplements. Vital supplied around 5,000 physicians with products that are sold directly out of their office to patients. If Nutracea wiggled into this niche somehow before the end of Q3, then there could be some substantial revenues clocked.

Nutracea has also announced recently a couple of deals that could bolster the Q3 numbers a bit. Stabilized rice bran:

  1. Is currently an ingredient in Sakata Whole Grain crackers to be sold mainly in Australia but also in other countries
  2. Will be an ingredient in Rafferty's Garden Baby Cereal (Oct. 15) to be sold in Australia and some other brand to be launched in the US
  3. Will be an ingredient in Stabilized Rice Bran Plus, to be launched by Cosway in various parts of Asia (Oct. 2007)
  4. Is marketed in Dr. Vetz Flex Boost and Nutracea has received a purchase order for the product from PetCo (Sept. 2007)

The accounting of revenues accrued here could have a positive or negative impact on the Q3 numbers.

My Revenue Predictions

  • $3.5 million from normal business operations (including Vital Living revenues)
    $1 million from additional Mermentau production
  • $500,000 from additional Stage 2 production (let's hope more)
  • $750,000 from Arbuckle facility
  • $500,000 from Grainnovations production
  • $500,000 from any of the various purhcase orders/new products that Nutracea is incorporated into from the last paragraph
  • $6.75 million in revenues for Q3. Don't even get me started on expenses...

Disclosure: Author has a long position in NTRZ.OB