SunOpta Inc., today announced financial results for the third quarter ended September 30, 2008. All amounts are expressed in U.S. dollars.
For the three months ended September 30, 2008, the Company realized its 44th consecutive quarter of increased revenue growth versus the same quarter in the previous year. Revenues in the third quarter of 2008 increased by 41.2% to $287,747,000 as compared to $203,778,000 in the third quarter ("Q3") of 2007. Third quarter 2008 revenues in the SunOpta Food Group increased 41.3% to $257,833,000 versus $182,514,000 in Q3 2007, driven by internal growth of 20.7% and the impact of the acquisition of The Organic Corporation B.V. (Tradin Organics) in April 2008 which contributed revenues in the third quarter of approximately $37,649,000. Revenues in Opta Minerals Inc. increased 43.7% to $29,440,000 for the quarter and revenues in the SunOpta BioProcess Group decreased to $474,000 versus $779,000 in the third quarter of 2007. Consolidated internal revenue growth for the quarter was 21.4%.
Operating income for the third quarter was $9,434,000 as compared to $5,762,000 in Q3 2007, an increase of approximately 64%. Segment operating income(1) within the SunOpta Food Group increased 9.7% to $5,598,000 and segment operating income in Opta Minerals Inc. increased 13.4% to $2,536,000. The SunOpta BioProcess segment incurred an operating loss of $1,541,000, largely driven by an increase in project costs and legal fees related to the ongoing Abener lawsuit. The Corporate segment had increased operating income of $3,608,000 over the same period in 2007 due to net foreign exchange gains in the amount of $4,345,000, offset by incremental operating costs to support continued growth in the business.
Earnings for the quarter were $3,904,000 or $0.06 per diluted common share as compared to 2007 third quarter earnings of $3,042,000 or $0.05 per diluted common share.
Third quarter 2008 results include professional and related fees and severance costs of $1,827,000 related to the Company's investigation into the write-down in the SunOpta Fruit Group Berry Operations and resulting delay in filing Annual Report 10-K for the year ended December 31, 2007, offset by the reversal of a previously recorded severance accrual reversal of $1,812,000 related to the Company's Chief Executive Officer and Chief Financial Officer, as detailed in a separate press release issued earlier today.
Without these professional fees and the severance accrual reversal as well as a number of non-recurring start-up, operational and legal costs, adjusted earnings(2) for the quarter would have been $5,237,000, representing an increase in earnings of approximately 72% versus Q3 2007.
For the nine months ended September 30, 2008, the Company has realized revenues of $810,136,000 versus $592,656,000 in the first nine months of 2007, an increase of 36.7%. Consolidated internal growth the first nine months was 20.7%. Earnings for the nine month period in 2008 were $6,109,000 or $0.09 per diluted common share versus $7,501,000 or $0.12 per diluted common share in 2007. These results include professional and related fees and severance costs of $7,631,000 related to the Company's investigation and related activities into the write-down in the SunOpta Fruit Group Berry Operations and resulting delay in filing Annual Report 10-K for the year ended December 31, 2007. Without these professional fees as well as a number of non-recurring start-up, operational and legal costs, adjusted earnings(2) for the first nine months of 2008 would have been $13,491,000, representing an increase in earnings of approximately 80% versus the same period in 2007.
For the third quarter the SunOpta Food Group reported segment operating income of $5,598,000 versus $5,105,000 in Q3 2007, an increase of 9.7%; these results include the impact of $391,000 in increased corporate cost allocations. The improved segment operating income was driven by the SunOpta Berry Operations and SunOpta International Sourcing and Trading Groups, which realized increases of 62.4% and 209.8% respectively in segment operating income due to strong sales, improving operating margins, and the impact of the Tradin Organics acquisition. The improvement in the Berry Operations segment continues a trend that was noted in the second quarter of 2008, reflecting improved results as inventories that were written down in 2007 to net realizable value are sold through and improved pricing and reduced storage costs are realized in hand with the benefits of the new management team and improved internal processes. Offsetting these increases in operating income were lower income in the SunOpta Grains and Foods Group due to lower market prices versus the same quarter in 2007, increased input costs and certain non-recurring start-up costs of approximately $315,000, lower income in the SunOpta Ingredients Group due to increased input costs and the impact of the flooding in the mid-west that occurred in June 2008 and had an impact of approximately $525,000, and slightly lower operating income in the SunOpta Distribution Group due to the impact of the lower Canadian dollar and increased freight and logistics costs in the third quarter of 2008 relative to the third quarter of 2007.
Opta Minerals realized segment operating income in the third quarter of 2008 of $2,536,000 as compared to $2,236,000 in Q3 2007, an increase of 13.4%, driven by strong sales of abrasive products in the U.S. combined with increased sales of magnesium desulphurization products and the 2007 acquisition of Newco, the Company's industrial minerals operation located in Slovakia, as well as the July 9, 2008 acquisition of MCP Mg-Serbian SAS ("MCP") of France. MCP sells ground magnesium products to a variety of industries in Europe and further expands the Company's European operating platform.
Segment operating results in the SunOpta BioProcess Group for the third quarter recorded a loss of ($1,541,000) versus a loss of ($812,000) in 2007, reflecting the negative impact of approximately $820,000 due to higher project costs related to the commissioning of equipment that is nearing completion and increased legal fees related to the ongoing Abener lawsuit, plus continued investment and development spending as the group works on a number of projects that are expected to utilize its technology in the production of cellulosic ethanol. There continues to be a strong interest in the SunOpta BioProcess Group's technology and equipment for the pre-treatment of biomass for the production of cellulosic ethanol.
At September 30, 2008, the Company's balance sheet reflects a current working capital ratio of 1.74 to 1.00, long term debt to equity ratio of 0.45 to 1.00 and total debt to equity ratio of 0.80 to 1.00. During the third quarter of 2008 cash provided by operations was $23,704,000 versus usage of ($11,489,000) in 2007, indicative of the Company's efforts to maximize cash generation. The Company has total assets of $634,762,000 and a net book value of $3.97 per outstanding share. The Company has obtained amendments to certain covenants for the fiscal quarters ended June 30, 2008, September 30, 2008, December 31, 2008 and March 31, 2009 and is in compliance with these revised covenants at September 30, 2008.
Steve Bromley, President and Chief Executive Officer of SunOpta, commented, "The results of the third quarter reflect both the continued growth in the Company's operations plus the impact of the extensive turnaround efforts in the Berry Operations and the positive impact of the acquisition of Tradin Organics. Having said that, these are unprecedented economic times driven by slowing economies, tight credit conditions and volatile foreign exchange markets. We expect our core food operations to hold up well in these difficult market conditions, but feel our non-core operations, and specifically Opta Minerals, will be significantly impacted due to the nature of their businesses. In addition, we expect to be unfavourably impacted by the translation of foreign denominated operations into U.S. dollars for reporting purposes. Based on this we are revising our 2008 earnings guidance to a range of $0.19 to $0.23 per diluted common share. We will provide regular updates on business operations on an on going basis and intend to update our 2009 revenue and earnings guidance early in the new year."
About SunOpta Inc.
SunOpta Inc. is an operator of high-growth ethical businesses, focusing on integrated business models in the natural and organic food and natural health markets. The Company has three business units: the SunOpta Food Group, which specializes in sourcing, processing and distribution of natural and organic food products integrated from seed through packaged products; Opta Minerals Inc. (CA:OPM: news, chart, profile) (66.6% owned by SunOpta), a producer, distributor, and recycler of environmentally friendly industrial materials; and SunOpta BioProcess Inc. which engineers and markets proprietary steam explosion technology systems for the bio-fuel, pulp and food processing industries. Each of these business units has proprietary products and services that give it a solid competitive advantage in its sector.
Certain statements included in this press release may constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to the timing for filing the Company's periodic report and release of financial results. Whether actual timing will agree with expectations and predications of the Company is subject to many risks and uncertainties including, but not limited to, completion of the Company's internal and the external accounting procedures, which is partially beyond the control of the Company. Consequently all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized.
1) Segment Operating Income is defined as "Earnings Before the Following" excluding the impact of "Other expense, net."
2) Adjusted earnings is not a GAAP measure. SunOpta believes adjusted earnings (adjusted for the impact of the professional fees and severance costs incurred in relation to the investigation and related activities and the loss incurred by the SunOpta Fruit Group Berry Operations in the first and second quarters) provides useful information to understand the underlying performance of the business and as a result these items have been adjusted.