Landec Corp.: Early Stage Growth Company

| About: Landec Corporation (LNDC)

Based in Menlo Park, California, Landec Corporation (NASDAQ:LNDC) started a materials science company in 1986 that designs, develops, manufactures, and sells innovative and patented polymer products for food packaging, agriculture crop treatments, personal care, drug delivery and specialty adhesives. It has two proprietary polymer technology platforms: Intelimer Polymers ® and Sodium Hyaluronate.


Landec commercializes its proprietary polymers through its two wholly-owned subsidiaries Apio Inc. and Lifecore Biomedical. Landec has four core lines of business: food packaging, food export, biomedical and licensing.

Apio Inc., headquartered in Guadalupe, California was founded in 1979 by five growers of celery in the Santa Maria Valley in the central coastal region of California. It was named "Apio" for "celery" in Spanish. It is the U.S. leader in processing and marketing of fresh-cut specialty vegetables. Apio sells its specialty vegetables and party tray products under the Eat Smart® brand. Apio's fresh-cut specialty vegetable products are unique in that they utilize the Landec Corporation BreatheWay® proprietary breathable packaging technology to extend the shelf life of specific produce products. BreatheWay membranes are designed to naturally extend the shelf life of virtually any fresh product that would benefit from reduced oxygen levels and managed carbon dioxide levels. The adjustable selectivity ratio and temperature switch features of the BreatheWay membrane allow the flexibility to meet the specific modified atmosphere requirements for a wide range of products throughout the total supply chain. Landec Corporation acquired Apio in 1999.

Lifecore Biomedical is a leading supplier of premium hyaluronan-based biomaterials for the medical and veterinary markets. Lifecore hyaluronan biopolymers are used in a wide and ever-growing range of therapeutic treatments, including cataract surgery, degenerative joint disease, spinal defect filling, medical device coatings, cosmetic soft tissue enhancement and equine osteoarthritis, as well as in numerous research initiatives.

Early Stage Growth Company

Landec started out as a technology developmental company in 1986. It developed ideas and reduced them to practice. Over the years, it formed partnerships to integrate their technology into the respective company's products for a licensing fee.

Landec Corporation acquired Lifecore Biomedical in May, 2010 from Warburg Pincus for $44M plus future earnouts based on 2011 and 2012 financial targets. It purchased Lifecore Biomedical to enter the medical and veterinary markets.

In 2011, it made a 20% equity investment ($15M) in Windset Farms, a leader in hydroponic farming. Windset Farms has a 174,000 sf processing facility and packaging plant and four 32 acre green houses (2 are under construction). Hydroponic farming is growing plants without soil. Instead, plants are placed in beds of clay pellets in a green house and are periodically flooded with a nutrient solution and drained. The drained solution is recycled and used again. Hydroponic farming uses 1/28 of the water used in conventional farming and can produce 10 to 20 times more food.

Apio continues to grow its core food business, purchasing GreenLine Holding Company in April 2012 for $62.9M plus earnout up to $7.0M in 2012 based on financial targets being met. Green Line Holdings is the leading processor and marketer of value-added, fresh-cut green beans in North America. GreenLine has nationwide sourcing, processing and distribution capabilities with 5 processing facilities and 7 distribution centers in the United States and a fleet of 50 trucks. At Apio, produce is prepared and packaged under the Eat Smart® and GreenLine® brands and sold to retail, club and food service customers. Apio now has a means of distributing new products to a broader range of new customers and a national distribution network. Eat Smart and or GreenLine products are in over 80% of U.S. retail grocery stores.

Apio also sells Clearly Fresh Bags® directly to consumers, where BreatheWay technology can help produce last up to 50% longer in the home. The bags can be bought online - 20 reusable bags for $10 plus shipping at

The weekly chart below shows Landec breaking out of its base in 2012 with the acquisition of GreenLine Holdings. Apio was able to integrate the Eat Smart brand with BreatheWay packaging into GreenLine's national network. The BreatheWay membrane could be a game changer if other brands licensed the technology to increase the shelf life of their products naturally. I normally avoid buying produce from the big box stores as the quality and shelf life are poor and I end up throwing rotting food away. I just bought 3 pounds of broccoli from BJs, it was the Eat Smart brand with BreatheWay packaging. There was no discoloration in the bag, the broccoli is green as it should be. Next time you go shopping, take a look at the broccoli or cauliflower, it's not uncommon to see these vegetables starting to rot on the shelf. Nobody will buy discolored produce, it will hopefully end up in a food bank, but more likely in the garbage. BreatheWay packaging can extend the shelf life of produce for 3 weeks. This would be great for the up and coming organic food revolution that does not contain preservatives or pesticides.

The chart above is from Finviz.

Intelimer Polymer Technology

Landec's Intelimer Polymers® deliver unique application-specific functionality where other polymers cannot. They are semicrystalline graft copolymers that exhibit novel, valuable properties and benefits that can be customized by adding unique property listed below:



Controlled release

Drug delivery, controlled release of pesticides in seed coatings, sprayable soil and foliar controlled release of pesticides, delivery of latent thermoset catalysts, sustained release of deodorizers, fragrances

Temperature triggered properties

Food packaging, seed coatings, oral medications with an active ingredient that can be released at a specific pH; adhesives that are thermally triggered to transition from sticky to non-sticky; rheological control additives that are activated when they reach skin temperature; catalyst that are released at a specified temperature

Sustained release

Injectable, implantable and transdermal drug delivery, Agrochemicals

Thermoplastic elastomer; viscoelastic properties

Pressure sensitive adhesives

Surface modification, interfacial property control and rheological control

Personal care, Coatings


Landec has an exclusive partnership with Air Products and Chemicals (NYSE:APD) to formulate, market and sell the Landec proprietary Intelimer polymers in a wide variety of personal care products. These materials control rheological flow properties and improve product sensory characteristics for anti-aging creams, sun screen lotions, hair styling products and over-the-counter acne medications. Intelimer polymers can currently be found in over fifty commercially available personal care products - and that number continues to grow. Landec's polymers can be found as a key ingredient in well-known brands such as L'Oreal (OTCPK:LRLCF), Lancome, Garnier, Vichy, La-Roche Posay and others. In May, 2006, Air Products entered the personal care market.

Landec has partnered with several other companies to bring differentiated new products to the market, including Monsanto (NYSE:MON) for better broccoli, Chiquita (NYSE:CQB) in food packaging technology for bananas and avocados, TransFresh Corp. (CQB subsidiary) to use BreatheWay packaging for its blueberries, Nitta Corporation in specialty adhesives for electronic parts manufacture and Windset Farms® for use with their greenhouse grown peppers, tomatoes and cucumbers.

Intellectual Property

Landec specializes in developing unique polymer technologies and capabilities to meet specific application requirements. It has 40 issued U.S. patents and 17 applications pending.

Financial Review:


On January 2, 2013, Landec Corp. reported its Q2 fiscal 2013 financial results, which beat expectations on EPS by $0.18 and beat expectations on revenue. Revenues for the second quarter of fiscal year 2013 increased by 41% to $114.7 million compared to revenues of $81.6 million for the second quarter of fiscal year 2012. Net income increased by 167% to $8.9 million, or $0.34 per share, compared to net income of $3.3 million, or $0.13 per share, during the second quarter of fiscal year 2012.


The key to the company's business is its booming fresh food business. Under the Eat Smart® and GreenLine® brands sales are going parabolic. The company has just raised its forecasts for 2013 very dramatically. Gary Steele, Chairman and CEO stated: "Our original guidance for the fiscal year 2013 was to grow revenues by approximately 30% and net income by 25% to 35% …[but now]…Landec expects revenue to grow 33% to 38% and net income to grow 60% to 70%. In addition, they expect to generate $20 million to $25 million in cash flow from operations and spend approximately $8.0 million to $9.0 million in capital expenditures, slightly higher than the $7.5 million to $8.0 million in our original guidance for fiscal year 2013."

New Products

Apio has launched several new products that deliver delicious, nutrient-dense foods (also termed "superfoods") to the consumer in convenient formats. Recently Apio launched Beneforté® Broccoli, a "Naturally Better Broccoli," and a new line of Gourmet Vegetable Salad Kits that feature a mixture of highly nutritious vegetables, toppings and dressings. Apio intends to continue to introduce a number of new products and product lines. In addition, Windset expects to launch new BreatheWay packaged products for cucumbers and peppers and they plan to make progress on new packaging for extending the shelf-life of tomatoes.

Landec also plans to expand offerings to customers of Lifecore primarily resulting from the recent clearance of customer products by the FDA. Commercial shipments have begun for several of these products. Landec recently entered into a new R&D agreement with Nitta Corporation, an existing Japanese licensing partner, in which they will be developing new applications for their adhesive technology during the second half of fiscal year 2013. This R&D development program will result in $550,000 of R&D revenues and cash payments during the second half of fiscal year 2013.


The following chart compares Landec to the industry:



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Price/Cash Flow (3 yr avg)




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The above chart is from Morningstar.

Landec Corporation is a small-cap growth stock. Its market cap is $284M. Revenue grew by 16% in 2011, 15% in 2012 and is estimated by 33% in 2013. Net income was flat in 2011, but tripled in 2012 and is expected to increase by 60% in 2013. The 2011 revenue increase resulted from the purchase of Lifecore Biomedical in 2010, incremental revenue $31M. Lifecore is a high margin business, gross margin runs @ 52% and operating margin @ 26%. Revenue will pick up in 2013 as 2 customers received FDA approval for their products. The 2012 revenue increase resulted from the equity investment in Windset Farms and food packaging using BreatheWay technology. The 2013 revenue increase is attributable to the purchase of GreenLine. GreenLine has a nationwide distribution network that Eat Smart brand will be marketed and sold to. The 2011 net income was flat due to paying Warburg Pincus the Lifecore earn out. Apio revenue increased by $42M in 2012 which drove net income up.

The forward P/E is 11 and book value is $5.87. It continues to invest about $9M in R&D to grow sales. Free cash flow was $8M in 2011, $22M in 2012 and 2013 projection is $20M to $25M. Below are the financial statements and a 2013 projection based on Gary Steele's guidance. Revenue is estimated to increase by 33% to 38% and net income by 60% to 70%.

Forecast Actuals
values in 000s / USD
Period Endg 30-May-13 27-May-12 29-May-11 30-May-10 31-May-09
Total Revenue $ 422,344 317,552 276,729 238,224 235,938
Cost of Rev 265,414 230,034 204,458 201,658
Gross Profit 52,138 46,695 33,766 34,280
GP% 16.4% 16.9% 14.2% 14.5%
Net Income $ 20,314 12,696 3,920 3,984 7,730
NI % of rev 4.8% 4.0% 1.4% 1.7% 3.3%
Outst Shrs 25,600 25,780 26,400 26,500 26,300
EPS - Basic $ 0.79 $ 0.49 $ 0.15 $ 0.15 $ 0.29
(in millions)
Revenue by Product 2012 2011 2010
Food Packaging $ 207.6 $ 175.6 $ 175.0
Food Export $ 71.5 $ 61.7 $ 54.9
Total Apio $ 279.1 $ 237.3 $ 229.9
Lifecore Bio $ 34.3 $ 32.5 $ 1.5
Licensing $ 4.2 $ 6.9 $ 6.8
Total Revenue $ 422.3 $ 317.6 $ 276.7 $ 238.2
(in millions)
BS line items 2013 2012 2011 2010 2009
Cash & ST Inv 22.2 36.3 48.2 66.0
Goodwill & Int 108.6 52.3 57.3 35.6
Total Assets 277.7 206.3 200.2 153.5
Total LT Debt 40.3 15.5 19.3 -
Total Liabilities 126.1 68.6 67.7 26.3
Net Assets 151.6 137.7 132.5 127.2
Common Shares Outst 25.8 26.4 26.5 26.3
BV per shr $ 5.87 $ 5.21 $ 5.00 $ 4.83
Cash Flow 2013 2012 2011 2010 2009
Net Change in Cash/Equiv 14.0 -19.7 -15.6 -0.9
Beg Cash 22.2 8.1 27.8 43.5 44.4
End Cash 20 to 25 22.2 8.1 27.8 43.5

The above financial statements are from Y charts.

The share price is $11.42, the industry average P/E is 20.8 and projected 2013 EPS is 79 cents, a conservative targeted price is $16.43. Based on their BreatheWay membrane that increases shelf life for fruits and vegetables, I see rapid sales growth that will drive net income. I do own the stock and will buy on pullbacks. I think the stock is cheap.

For more information about the Company, visit Landec's website at

Eat Smart® is a trademark of Apio, Inc and Beneforté® is a registered trademark of Seminis Vegetable Seeds, Inc.

Disclosure: I am long LNDC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. All content was taken from Landec's website and annual report.

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