Shares of materials science company
) dropped as much as around 9% after the company lowered its net
income guidance for fiscal 2014 due to industry-wide severe
shortages of produce that resulted in higher-than-expected raw
materials cost in its value-added vegetable business. Its
shares eventually closed at $11.40 in the trading session
following the announcement, losing around 8%.
The main reason behind the industry-wide shortage is an
unusual confluence of extraordinarily unfavorable weather
conditions along the East Coast, California and Mexico, the top
three growing areas for vegetables in North America. Also,
higher-than-expected costs are expected to lower gross margin in
the value-added vegetable business in the second quarter of
fiscal 2014 compared to the prior and year-ago quarters. Landec
further presumes shortages and quality issues to continue into
the third quarter.
Apio, Inc. the food business of Landec, has entered into
annual contracts with growers for produce which depends on fixed
price per delivered pound. It has also entered into contracts
with its customers which depend on a fixed price per unit. Landec
will buy produce on the open market at prices in excess of the
contracted prices from the growers so as to meet the customers'
demand. Now, as the sales prices to the customers are fixed, the
excess amount to be paid for produce above the contract at the
times of shortage will unfavorably impact Landec's earnings.
Landec now estimates its consolidated net income for fiscal
2014 to be flat to up 5% compared with the original guidance for
net income growth of roughly 20%, barring the $3.9 million earn
out adjustment in fiscal 2013. The company expects net income for
the second quarter to be 13 cents per share.
However, for fiscal 2014, Landec expects to meet or exceed its
original revenue growth forecast of roughly 6%.
Moving ahead, Landec expects demand for value-added specialty
packaged produce products to remain strong, particularly for the
new vegetable salad products.
Landec currently holds a Zacks Rank #5 (Strong Sell).
Other companies in the chemical industry worth considering
A. Schulman, Inc.
). While both Methanex and Asahi carry a Zacks Rank #1 (Strong
Buy), A. Schulman retains a Zacks Rank #2 (Buy).
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