Feihe International first quarter revenue decreases to $62.9M

Feihe International, Inc. (NYSE: ADY; "Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in China, today announced financial results for the first quarter of 2012.  

First Quarter 2012 Financial Highlights:

• Revenue of $62.9 million in 1Q 2012 vs. $67.7 million in 1Q 2011:
  • Revenue from branded milk powder products was $59.4 million, or 94.4% of total sales, in 1Q 2012 vs. $47.9 million, or 70.8% of total sales, in 1Q 2011
  • Revenue from raw milk powder was $0.9 million, or 1.4% of total sales, in 1Q 2012 vs. $16.1 million, or 23.8% of total sales, in 1Q 2011, and $24.8 million, or 28.5% of total sales in 4Q 2011
• Gross profit increased to $34.0 million, or 39.3%, in 1Q 2012 vs. $24.4 million in 1Q 2011, and up from $30.9 million in 4Q 2011
• Gross margin was 54.0% in 1Q 2012 vs. 36.0% in 1Q 2011, up from 35.5% in 4Q 2011
• Income from operations was $9.7 million in 1Q 2012 vs. $5.0 million in 1Q 2011, and up significantly from a loss of $3.8 million in 4Q 2011
• Net income was $8.3 million in 1Q 2012 vs. $4.7 million in 1Q 2011, and up significantly from a loss of $10.5 million in 4Q 2011
• Diluted net income (loss) from continuing operations per common share ("EPS") was $0.40 in 1Q 2012 vs. $0.23 in 1Q 2011, and up significantly from $(0.31) in 4Q 2011

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased with our first quarter results. Our high margin and strongly improved net income demonstrated the effectiveness of our decision to concentrate on the sales of our premium branded infant formula products.  In particular, sales of AstroBaby grew 203.2% and Feifan grew 74.6% compared to the first quarter of 2011.  Net income improved 179.0% in the first quarter of 2012 compared with the fourth quarter of 2011.  We will remain focused and committed to expanding sales of our premium infant formula."

The Company's revenue of $62.9 million in the first quarter of 2012 represents a decrease of $4.8 million compared to the first quarter of 2011.  This decrease was primarily attributable to a $15.2 million decrease in sales of raw milk powder and a $1.5 million decrease in sales of soybean powder, offset in part by sales of milk powder of $11.5 million.  This decrease more broadly reflects the Company's decision to decrease the production of raw milk powder, which generated a negative margin during the first quarter of 2012. 

The Company's gross profit was $34.0 million in the first quarter of 2012, up 39.3% from $24.4 million in the first quarter of 2011, and up 10.0% sequentially from $30.9 million in the fourth quarter of 2011.  Gross margin for the first quarter of 2012 was 54.0%, compared to 36.0% in the first quarter of 2011, up from 35.5% in the fourth quarter of 2011.  The increase in the Company's gross profit for the first quarter of 2012 was primarily due to increased sales of premium and super-premium milk powder and decreased cost of raw milk powder.

The Company's income from operations increased to $9.7 million in the first quarter of 2012, up from $5.0 million in the first quarter of 2011, and up significantly from a loss of $3.8 million in the fourth quarter of 2011. Sales and marketing expenses increased $2.8 million, or 18.2%, to $18.8 million in the first quarter of 2012 from $15.9 million in the first quarter of 2011, and decreased 24.8% compared to $25.0 million in the fourth quarter of 2011.  General and administrative expenses decreased to $5.6 million in the first quarter of 2012 from $5.7 million in the first quarter of 2011, and decreased $4.1 million, or 42.3%, compared to $9.7 million in the fourth quarter of 2011.

The Company's net income attributable to the Company for the first quarter of 2012 was $8.3 million, or diluted EPS of $0.40, an increase from $4.7 million, or diluted EPS of $0.23, in the first quarter in 2011, and a significant increase from the net loss attributable to the Company of $10.5 million, or diluted EPS of $(0.31), in the fourth quarter of 2011.

As of March 31, 2012, the Company had cash and cash equivalents of $9.8 million and total current assets of $194.8 million, compared to cash and cash equivalents of $15.4 million and total current assets of $200.5 million as of December 31, 2011.  The Company had working capital of $18.6 million as of March 31, 2012. 

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased to report our first quarter 2012 financial results today.  Given our strong growth, we are very confident in our business going forward.  In addition, we completed the redemption of all of Sequoia's redeemable common stock in April 2012.  We are continuing our plan of focusing on sales of premium products and look forward to bringing value to consumers and our shareholders."