Skystar Bio-Pharmaceutical Reports Second Quarter 2011 Results $9.1 Million Top Line; $0.21 Diluted EPS; Expanded Direct Distribution and Sales Channels
Press Release Source: Skystar Bio-Pharmaceutical On Monday August 22, 2011, 5:37 pm EDT
XI'AN, CHINA--(Marketwire -08/22/11)- Skystar Bio-Pharmaceutical Company (NASDAQ: SKBI - News) ("Skystar" or the "Company"), a China-based manufacturer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives, today reported unaudited second quarter fiscal year 2011 earnings, for the period ended June 30, 2011.
Second Quarter 2011 Highlights
Revenue increases 10% YoY to $9.1 million Veterinary vaccines totaled $0.4 million, up 1.2% YoY Veterinary medicines totaled $6.3 million, up 15% YoY Feed additives totaled $0.4 million, up 6% YoY Micro-organism products totaled $2.0 million, flat YoY Gross margin of 49% for the second quarter of fiscal 2011 as compared to 53% in the year ago period Net income of $1.5 million or $0.21 per fully diluted share, compared with net income of $2.4 million or $0.33 per fully diluted share in the year ago period 6% increase in the number of distribution agents and direct customers from 1,026 in Q1 to 2,253 in Q2
First Half 2011 Financial Highlights
First half fiscal 2011 revenue increases 23% YoY to $16.2 million Gross margin of 50% for the first half of fiscal 2011 as compared to 53% in the year ago period Net income of $3.4 million or $0.48 per fully diluted share, compared with net income of $3.5 million or $0.49 per fully diluted share in the year ago period
Management Comments Mr. Weibing Lu, Skystar Bio-Pharmaceutical's chairman and chief executive officer, commented, "Skystar is pleased with its second quarter performance in light of adverse market conditions. The Company has successfully funded product development internally and expanded its distribution footprint while still achieving revenue growth for the quarter as compared to the same period a year ago.
"The increase in research and development costs is necessary to remain competitive as the Company believes that it can no longer rely on making significant pre-payments for raw materials to protect its gross margins in the long term. We maintain a long term strategy for achieving sustained growth and profitability by periodically developing new high gross margin products according to demand and expanding manufacturing capability and distribution. In order to preserve market share and expand into new territories, we have not raised our sales prices as we believe our customers would not be able to absorb pricing increases in this environment and such an increase would erode our market share.
"During the second quarter, we made significant investments in R&D, staging initiatives to develop four new specialty high margin veterinary medication projects. We also successfully launched nine new veterinary medicines and six new feed additives and increased direct distribution channels by six percent as compared to the previous quarter. While this action has increased operating expenses for the quarter and reduced net income, we deemed the move necessary for expanding Skystar's diverse high margin product lines. Given current market conditions, we acknowledge that advanced purchases of raw materials has helped offset significantly higher raw material costs. However, in order to preserve our historical gross margins in the long term, we must continue to expand our distribution footprint and remain focused on developing and marketing our higher margin products.
"China has imposed policies to combat the effects of inflation and upwardly spiraling prices of the nation's food supply. As a result, wholesale market prices of meat became flat, negatively affecting the profits of some animal farmers. The diminished profitability has resulted in a reduction of animal farming and subsequently reduced some demand for our products. Wholesale meat prices have recently begun to increase to previous levels, and we expect farming to resume and demand for our products to return.
"Additionally, an ongoing drought in some regions of China has affected animal farming and aquaculture cultivation. The decreased supply of fresh water available for farming has adversely affected net sales of some of Skystar's products lines including pro-biotics and aquaculture.
"China's government has also started to put pressure on the animal husbandry industry to reduce its reliance on veterinary pharmaceuticals used in bringing animals to term for sale. These efforts are a commitment by China's government to increase the relative food safety for its citizens in addition to standardizing protocols of the animal husbandry industry itself.
"Due to several epidemics and concerns over food safety for China's food supply, the Ministry of Agriculture is delaying further inspections of veterinary pharmaceutical facilities. With this in mind, we believe that GMP certification of Skystar's new vaccine facility should be completed by the end of 2011.
"The fundamental challenge for Skystar is to utilize our industry expertise in staying on top of customer needs while maintaining profitability for our shareholders. China's overall market demand for animal based protein and the evolving commercial animal husbandry industry has not diminished and will drive the long term demand for our products, our growth, and our profitability for years to come.
"With this in mind, we believe that Skystar has taken the necessary measures to maintain our position as a market leader while weathering negative near term events. We value our shareholders and believe that we have positioned Skystar for long term growth in spite of a challenging operating environment and look forward to presenting our results and answering any investor questions concerning our operating environment during tomorrow's conference call," concluded Mr. Lu.
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