Martek Announces Second Quarter 2007 Financial Results

COLUMBIA, Md., June 6, 2007 /PRNewswire-FirstCall via COMTEX/ -- Martek Biosciences Corporation (MATK) today announced its financial results for the second quarter of fiscal 2007, which ended April 30, 2007. Revenues for the second quarter were $76.7 million, up 9% from $70.2 million in the second quarter of fiscal 2006. Net income was $4.9 million, or $0.15 per diluted share, compared with $5.5 million, or $0.17 per diluted share, in last year's second quarter.

Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Martek delivered another solid quarter of broad-based sales growth. We expanded our presence in the food and beverage market through agreements with Dean Foods and Breyers Yogurt and general international growth and continued to increase our penetration in the overseas infant formula market. During the quarter, eight new food and beverage and two new perinatal products containing Martek's life'sDHA(TM) were launched and several new studies addressing the benefits of DHA were published. Financially, our gross margins increased for the second consecutive quarter and I expect this trend to continue for the remainder of fiscal 2007. So while Martek's year-to-date earnings per share are currently below prior year levels, I expect Martek's higher revenues and gross margin improvement in the second half of the year to generate full year earnings that exceed 2006 results."

Second Quarter and Year-to-Date Revenue Summary
Product sales in the second quarter increased 11% to $72.3 million and contract manufacturing sales totaled $4.4 million. This compares with $65.2 million in product sales and $5.0 million in contract manufacturing sales a year ago. Year-to-date product sales also increased 11% to $139.0 million and year-to-date contract manufacturing sales were $7.9 million.
A breakdown of product sales by market for the second quarter and year-to- date periods are as follows (in thousands):

Three months ended Six months ended
April 30, April 30,
2007 2006 2007 2006

Infant formula market $ 65,929 $ 61,850 $ 126,781 $ 118,761
Food and beverage market 1,147 235 1,868 536
Pregnancy and nursing,
nutritional supplements and
animal feeds 4,176 2,159 8,149 4,581
Other non-nutritionals 1,084 966 2,250 1,829
Total product sales $ 72,336 $ 65,210 $ 139,048 $ 125,707

The increase in product sales reflects continued strong demand from Martek's U.S. and international infant formula customers, the launch of new and growth of existing food and beverage products containing life'sDHA(TM) and the Company's increased penetration into the pregnancy and nursing and nutritional supplements markets.

New products launched during the second quarter co-branded with the Martek life'sDHA(TM) logo include:

Food and Beverage Products
- WhiteWave Foods' Silk(R) Plus Omega-3 DHA Soymilk with life'sDHA(TM)
- Odwalla's Soy Smart(TM) beverage with Martek's life'sDHA(TM) (new
flavors launched)
- ZenSoy's Soy on the Go Soymilk with life'sDHA(TM)
- FoodTech International's Veggie Patch(TM) All Natural California Veggie
Burgers with life'sDHA(TM)
- NuGo Nutrition's NuGo Organic(TM) snack bars featuring life'sDHA(TM)
(new flavors launched)
- Fuji Food Products' Fujisan sushi products containing life'sDHA(TM)
- Parmalat Australia's Vaalia My First Yoghurt with life'sDHA(TM)
- Danone S.A.'s Danonino Petit Genio children's drinkable yogurt with

Pregnancy and Nursing Products
- Everett Laboratories' Vitafol(R) -OB+DHA with life'sDHA(TM)
- Mission Pharmacal's Citracal(R) Prenatal 90 + DHA with life'sDHA(TM)

Gross Margin and Operating Expenses
Martek's gross margin for the second quarter of fiscal 2007 was 34.8%, which represents the second straight quarter of margin improvement, up from 33.7% for the fourth quarter of fiscal 2006 and 34.0% for the first quarter of fiscal 2007. The gross margin in last year's second quarter was 36.9%. The gross margin percentage for the second quarter of fiscal 2007, as well as for all prior periods noted, includes the impact of the Company's previously announced revision to its accounting policy surrounding depreciation on assets held for future use.

On a year-over-year basis, gross margins were negatively affected by lower-than-expected contract manufacturing margins (4% in the second quarter) and ARA cost increases in 2006 which impacted margins in the second quarter of fiscal 2007 due to the Company's "first-in first-out" accounting for inventory. On a sequential quarter basis, gross margins improved as Martek began realizing the benefits of the 2007 ARA cost reduction while continuing to benefit from the economies of scale and margin gains derived from the October 2006 plant restructuring and production consolidation. As discussed below, the Company expects the reduction in ARA purchase costs to generate further improvement to gross margins in the second half of fiscal 2007.

Research and development expenses in the second quarter were $6.3 million, unchanged from the prior year. The Company's research and development efforts continue to focus on developing new food and beverage applications for life'sDHA(TM), broadening the scientific evidence supporting the benefits of life'sDHA(TM) throughout life, improving manufacturing processes and developing new products to expand market offerings.

Selling, general and administrative expenses increased to $11.6 million in the second quarter of fiscal 2007 compared to $10.3 million in last year's second quarter. The increase was primarily attributable to costs associated with the Company's efforts to accelerate its penetration into non-infant formula markets by expanding its sales force and increasing investments in marketing and public relations.

For the six months ended April 30, 2007, the Company generated $7.8 million of cash from operating activities with the second quarter contributing nearly $13 million to this six month net total. The second quarter's cash generation resulted mainly from the Company's earnings as well as a $2 million reduction in inventories held during the quarter. Martek expects its inventory levels to drop slightly over the last six months of fiscal 2007. Based on projected sales and inventory levels, the Company expects that by year-end 2007, "days sales in inventory" will have declined by greater than 10% as compared to year-end 2006.
At the end of the quarter, Martek had $20.1 million in cash and had $104 million available under its long-term revolving credit facility. The outstanding balance on the Company's credit facility was $31 million at quarter-end, a reduction of $5 million since the beginning of the fiscal 2007.
Other Highlights

- New Food and Beverage License and Supply Agreements

-- In March 2007, Martek entered into a new multi-year agreement with
Dean Foods Company (Dean) under which Dean and all of its
subsidiaries, including WhiteWave Foods Company (WhiteWave), have
agreed to purchase, subject to certain limited exceptions, all of
their DHA omega-3 needs from Martek for their products in the United
States and other designated territories. Under the new agreement,
WhiteWave expects to launch Horizon Organic(R) milk and Rachel's(R)
natural yogurt containing life'sDHA(TM) in the third quarter of this
-- In April 2007, Martek entered a multi-year agreement with Breyers
Yogurt Company (Breyers), a wholly-owned subsidiary of Healthy Food
Holdings, under which Breyers has agreed to purchase, subject to
certain limited exceptions, all of its DHA omega-3 needs from Martek
for products in the United States and other designated territories.

- New Infant Formula License and Supply Agreements

-- In March 2007, Arla Foods, Europe's second largest dairy company,
signed a license and supply agreement for use of Martek's DHA and
ARA oils in infant formula products in certain markets.
-- In March 2007, Martek entered into an agreement with Murray Goulburn
Co-Operative Co. Limited, Australia's largest processor of milk and
exporter of processed food, under which Martek will be the exclusive
ARA supplier for all Murray Goulburn infant formula products sold in

- New European ARA Infant Formula Patent - In April 2007, the European
Patent Office (EPO) granted another patent to Martek for arachidonic
acid (ARA) oil made from Martek's microbial source for use in infant
formula. The newly granted divisional patent strengthens Martek's
intellectual property position by providing commercially significant
protection through January 22, 2012. In light of this newly granted
divisional patent, the Company withdrew the appeal it had previously
filed related to its original European ARA patent for infant formula
that was upheld with narrowed claims by the EPO in April 2005.

- New Data Published on Benefits of DHA - Several studies using Martek's
DHA and discussing the benefits of DHA supplementation were recently
published, including:

-- An independent study published in The Journal of Nutrition
(April 2007) assessed the effects of low-dose DHA on blood pressure
in healthy men and women from the United Kingdom. Compared with
placebo, supplementation with Martek's life'sDHA(TM) (0.7 g/day for
3 months) significantly reduced diastolic blood pressure by
3.3 mm Hg.
-- A study published in The Journal of Neuroscience (April 2007) used a
transgenic mouse model of Alzheimer's disease to show that
supplementation with DHA reduced the accumulation of both amyloid-
beta and tau, two indicators of the disease in humans. This study
used Martek's DHA oils and funding for the study was provided by
-- The results of a study, which were presented in March 2007 at the
American College of Cardiology 56th Annual Scientific Session,
showed that supplementation with 2g of Martek DHA for six weeks
reduced triglycerides by nearly 20%, reduced pulse rate by 5 beats
per minute and reduced diastolic blood pressure by 4 mm Hg. The
study was conducted in men and women with hypertriglyceridemia who
were already taking statin medications for the reduction of
cholesterol. This study used Martek oils and funding for this study
was provided by Martek.

Management Outlook
For the third quarter of fiscal 2007, Martek expects total revenues to be between $77 million and $80 million, which includes projected non-infant formula nutritional revenue of between $6.0 million and $7.0 million (an approximate 20% increase over second quarter amounts). Net income is expected to be between $5.7 million and $6.7 million, and diluted earnings per share are projected to be between $0.18 and $0.21.
Third quarter gross margin is expected to be between 35.5% and 37% with this improvement from the second quarter due largely to the sale of lower cost ARA. The lower cost ARA is expected to further benefit the Company's fourth quarter gross margin, which is projected to be approximately 38%.
The Company is reaffirming its previous guidance that fiscal 2007 non- infant formula nutritional sales are expected to be between $22 million and $26 million, up significantly from $12 million in fiscal 2006. Including this non-infant formula nutritional revenue, the Company expects total fiscal 2007 revenue of between $301 million and $306 million. Revenue for the fourth quarter is forecasted to be near third quarter projected levels. Consistent with prior years, these fourth quarter revenues reflect expected periodic fluctuations in ordering by the Company's large infant formula customers believed to be the result of the timing of production campaigns, plant maintenance shutdowns and other matters. Based on projected revenues and the anticipated gross margin improvement described above, the Company expects to achieve improvement in overall profitability in fiscal 2007 as compared with fiscal 2006. Specifically, Martek expects net income for fiscal 2007 to be between $20 million and $21.5 million and diluted earnings per share to be between $0.62 and $0.66.

Sections of this release contain forward-looking statements concerning, among other things: (1) Martek's expectations regarding future revenue growth in and customer demand from the infant formula, pregnancy and nursing, nutritional supplements and food and beverage markets; (2) its expectations regarding cash flows from operations and changes in inventory levels during fiscal 2007; (3) its statements regarding specific revenue, gross margin and income expectations for the third quarter of fiscal 2007 and the full fiscal year; (4) its expectations regarding 2007 ARA purchase costs; (5) its expectations regarding the effect of ARA costs and the plant restructuring on gross profit margins in fiscal 2007; and (6) its expectations regarding launches by customers of products containing Martek's life'sDHA(TM). Furthermore, although the Company anticipates growth in annual sales and profitability, Martek's operating results are subject to quarter-to-quarter fluctuations, some of which may be significant. The forward-looking statements noted above are based upon numerous assumptions which Martek cannot control and involve risks and uncertainties that could cause actual results to differ. These statements should be understood in light of the risk factors and cautionary statements set forth herein and in the Company's filings with the Securities and Exchange Commission, including, but not limited to, Part I, Item 1A of the Company's Form 10-K/A for the fiscal year ended October 31, 2006 and other filed reports on Form 10-K, Form 10-Q, Form 10-Q/A and Form 8-K.

About Martek
Martek Biosciences Corporation (MATK) is a leader in the innovation and development of omega-3 DHA products that promote health and wellness through every stage of life. The Company produces life'sDHA(TM), a vegetarian source of the omega-3 fatty acid DHA (docosahexaenoic acid), for use in foods, infant formula and supplements, and life'sARA(TM) (arachidonic acid), an omega-6 fatty acid, for use in infant formula. For more information on Martek Biosciences, visit

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