Omega Protein reports historic 73% revenue increase

Omega Protein reports historic 73% revenue increase

CEO credits a strong fish catch, improved pricing and continued growth in the company's human nutrition business.

Omega Protein Corp. (NYSE: OME), a nutritional ingredient company and the nation's leading vertically integrated producer of omega-3 fish oil and specialty fish meal products, today reported financial results for the third quarter ended September 30, 2012.

Third quarter 2012 highlights

  • Revenues:$77.8 million for the quarter, the highest quarterly revenues in Company history and a 73 percent sequential increase compared to the second quarter of 2012
  • Gross profit margin:17.2 percent for the quarter, compared to 15.2 percent in the second quarter of 2012
  • U.S. Attorney investigation charge:Recorded $4.1 million for the quarter, compared to $0.1 million in the second quarter of 2012
  • Net income:$0.2 million ($0.01 per diluted share), or $4.3 million ($0.21 per diluted share) excluding the investigation charge, for the quarter, compared to $2.5 million ($0.13 per diluted share) in the second quarter of 2012, or $0.3 million ($0.02 per diluted share) excluding the net gain on disposal of assets and investigation charge
  • Adjusted EBITDA:$11.6 million for the quarter, compared to $5.2 million in the second quarter of 2012

"We are pleased to report the highest quarterly revenues in the Company's history, a result of strong fish catch, improved pricing and continued growth in our human nutrition business," commented Bret Scholtes, Omega Protein president and CEO. "Our team has achieved these results in spite of experiencing fish oil yields this season that are the poorest in recent history. Additionally, revenues for our human nutrition business are up 40 percent year-to-date."

Mr. Scholtes continued, "Despite these accomplishments, financial results for the quarter were below our expectations due to the previously disclosed accrual related to the ongoing U.S. Attorney's office investigation. We look forward to bringing this investigation to a final resolution and have taken a number of steps this year to enhance our readiness to comply with the ever-increasing regulatory requirements of our business. These actions include the development of an enhanced and more rigorous compliance program in consultation with outside experts, as well as the hiring of additional experienced personnel with maritime and environmental compliance expertise."

Third quarter 2012 results
The Company's revenues increased 73 percent from the second quarter of 2012 to $77.8 million in the third quarter. The increase in revenues was primarily due to 124 percent higher fish meal sales volumes and 6 percent higher fish oil and fish meal sales prices, partially offset by 13 percent lower fish oil volumes. The increase in fish meal sales volumes was primarily due to higher export volumes. The increases in sales prices were primarily due to sales under newer, higher-priced contracts. Fish oil sales volumes decreased as a result of lower available inventory due to the Company's low fish oil yields. The composition of revenue by nutritional product line was 75 percent fish meal, 16 percent fish oil, 6 percent specialty nutraceutical ingredients, and 3 percent fish solubles and other. Cyvex, the Company's human nutritional ingredient subsidiary, contributed $4.4 million of revenues to the third quarter of 2012 compared to $4.2 million in the previous quarter.

Third quarter of 2012 revenues increased 8 percent from $71.7 million in the same period last year. The increase in revenues was primarily due to higher sales volumes of 30 percent for the Company's fish meal and higher sales prices of 16 percent for the Company's fish oil, partially offset by lower volumes of 49 percent for the Company's fish oil. The increase in fish meal sales volumes in the third quarter of 2012 was primarily due to higher export volumes. The increase in fish oil sales prices was primarily due to an increased percentage of higher priced refined oil sales relative to lower priced crude oil sales for the same period last year. Third quarter 2012 fish oil sales volumes were negatively impacted by the lack of available inventory due to low fish oil yields. Cyvex's revenues increased 27 percent from $3.4 million in the same period last year.

The Company reported gross profit of $13.4 million, or 17.2 percent as a percentage of revenues, for the third quarter of 2012, versus gross profit of $6.8 million, or 15.2 percent as a percentage of revenues, for the second quarter of 2012. The increase in gross profit as a percentage of revenues was primarily due to higher fish oil and fish meal sales prices, partially offset by higher expected 2012 cost per unit of sales, which was largely the result of low yields. The Company's total yields were 3 percent lower than the same period in the 2011 fishing season and were 10 percent lower than the five-year average. These decreases were driven largely by fish oil yields, which were lower by 19 percent compared to those in the same period in the 2011 fishing season and were lower by 41 percent compared to the Company's five-year average. The third quarter of 2012 also included $2.0 million of gross profit from Cyvex, or 44.6 percent as a percentage of Cyvex's revenues, compared to $1.7 million of gross profit, or 40.1 percent as a percentage of Cyvex's revenues, in the second quarter of 2012.

Third quarter gross profit was consistent with the same period a year ago at $13.4 million, and declined as a percentage of revenues from 18.7 percent, primarily due to the higher expected 2012 cost per unit of sales, which was partially offset by higher fish oil sales prices. Cyvex's gross profit increased from $1.7 million, and declined from 48.4 percent as a percentage of revenues, in the third quarter of 2011.

Selling, general and administrative expenses for the third quarter increased $0.2 million to $5.6 million compared to the second quarter of 2012. Compared to the same period a year ago, selling, general and administrative expenses were consistent at $5.6 million.

The Company recorded an investigation charge of $4.1 million in the third quarter of 2012. This relates to a previously disclosed ongoing investigation by the U.S. Attorney's office. This compares to $0.1 million in the second quarter of 2012 and no charge in the third quarter of 2011.

The third quarter of 2012 effective tax rate was 90.8 percent compared to 34.0 percent in the second quarter of 2012 and 28.3 percent in the same period last year. The increase in the effective tax rate is primarily a result of the investigation charge, as such payments if made are expected to be primarily non-deductible for tax purposes.

Net income for the third quarter of 2012 was $0.2 million ($0.01 per diluted share) compared to $2.5 million ($0.13 per diluted share) for the second quarter of 2012 and $4.7 million ($0.24 per diluted share) for the same period last year. Excluding the impact of the investigation charge, net income for the third quarter of 2012 would have been $4.3 million ($0.21 per diluted share), and excluding the impact of the net gain on disposal of assets and impact of the investigation charge, net income for the second quarter of 2012 would have been $0.3 million ($0.02 per diluted share).

Adjusted EBITDA, which excludes the investigation charge and net loss/gain of disposal of assets, among other adjustments, totaled $11.6 million for the third quarter of 2012, compared to $5.2 million for the second quarter of 2012 and $11.3 million for the same period last year.

Nine month 2012 results
Revenues in the current period decreased 6 percent to $162.5 million compared to revenues of $172.4 million for the nine months ended September 30, 2011. The decrease in revenues was primarily due to lower sales prices of 7 percent and lower sales volumes of 2 percent for the Company's fish meal and lower sales volumes of 22 percent for the Company's fish oil, partially offset by higher sales prices of 8 percent for the Company's fish oil. In addition, Cyvex contributed $14.6 million of revenues to the nine months ended September 30, 2012 as compared to $10.4 million for the nine months ended September 30, 2011.

The Company recorded gross profit of $29.1 million, 17.9 percent as a percentage of revenues, for the first nine months of 2012, versus gross profit of $43.9 million, 25.4 percent as a percentage of revenues, for the first nine months of 2011. The declines were primarily due to decreases in fish meal sales prices and sales volumes of fish meal and oil as well as an increase in cost per unit of sales.

Net income for the nine months ended September 30, 2012 was $4.6 million ($0.23 per diluted share) compared to $33.6 million ($1.69 per diluted share) for the same period last year. Excluding the impact of the investigation charge and net gain on disposal of assets, net income for the nine months ended September 30, 2012 would have been $6.4 million ($0.32 per diluted share). Excluding the impact of two settlements totaling $27.0 million, the Company's net income for the nine months ended September 30, 2011 would have been approximately $16.1 million ($0.81 per diluted share).

Adjusted EBITDA, which excludes the investigation charge, net loss/gain of disposal of assets and two settlements in 2011, among other adjustments, totaled $24.0 million for nine months ended September 30, 2012, as compared to $39.0 million for the same period last year.

 

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