Daniel Sermersheim

NutraCea Q2 Earnings Preview: Bump or Crater in the Road?

jeisen,

It is always disappointing when a company gives a revenue forecast ($50 million in this case) and then says to lower the expectations in a subsequent conference call. The company seems to have some problems with supply and it looks to be another 9 months or so until they really get to a steady flow of rice bran. This steady flow hinges on their Indonesia and Asian operations, which have two rice crops a year versus one in the U.S. The 2Q and it appears the 3Q are going to be the weak quarters while the first and fourth quarter are going to be higher due to the timing of the rice harvest in the U.S.

The company had approximately $3 million in one time expenses in the second quarter related to Vital Living acquisition, relocating headquarters, etc.... Without this the 2nd quarter earnings would have been nice, but the investors will look the other way because of the downward revision of sales guidance.

Daniel

NutraCea Q2 Earnings Preview: Bump or Crater in the Road?

This is feraldo, author of bbstockinfo.com
I have been long NTRZ since Oct 4, 2006 at 1.46 and therefore have followed the company diligently. I like your write up of NTRZ, but there is one thing I would like to add. In your article, you lump all the production together, as if all the production were the same. In reality there are three different levels of NTRZ production.

First there are the pellets. The pellets were made possible by the pelletizing equipment purchased in the second quarter. This type of product is ready to go and can be mixed in with equine feed or used stand alone.

Then there is the "Phase I" SRB. The phase I SRB is not a finished product, but is an additive to finished products made by NTRZ customers. This SRB is mixed in with other products or further processed by the NTRZ customer base. This is a lower margin, higher volume product. The Louisiana expansion from 10,000 to 40,000 annual tons was for phase I production.

The last form of NTRZ product is what the company calls phase II. The phase II product is a much higher margin product and its also lower volume. Phase II is a finished product that is used immediately by the customer, without further processing. The Dillon Montana expansion to 2,700 tons was a phase II expansion.

This supports what the company said during its first quarter conference call. "We want our customers to want, and need the product. We want them to need it made the way we make it." So the objective for the company is to produce SRB in as many forms as possible and do as much as of the processing as they can to get a larger chunk of revenue per ton of SRB.

Lastly, the seasonality of the product must be discussed. The company will not always be at full capacity, since rice bran is not always available. The company is dependent upon deliveries of rice to process product, so there will simply be some days or weeks where no new rice bran will be coming in as raw materials.

Thanks for the article
feraldo