Feihe International fourth quarter sales increase 42.1% to $87.0M

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 unaudited financial results for the fourth quarter and full year ended December 31, 2011. The Company will hold a conference call today at 8:00 am ET.

Fourth Quarter 2011 Financial Highlights:

• Sales increased 42.1% to $87.0 million from $61.2 million in 4Q 2010
  • Sales from branded milk powder products was $60.3 million, or 69.3% of total sales, in 4Q 2011 vs. $39.4 million, or 64.3% of total sales, in 4Q 2010
  • Sales of raw milk powder was $24.8 million, or 28.5% of total sales, in 4Q 2011 vs. $17.4 million, or 28.5% of total sales, in 4Q 2010
• Gross profit increased to $30.9 million from $17.8 million in 4Q 2010
• Gross margin was 35.5% in 4Q 2011 vs. 29.1% in 4Q 2010

Mr. Liu Hua, the Company's Vice Chairman and Chief Finance Officer, stated, "Our continued growth demonstrates that we are increasing our footprint in the Chinese infant formula industry.  Our results of $87.0 million for the fourth quarter with $60.3 million from branded milk products for 4Q are excellent indications of our continued growth in higher margin branded products.  In particular, sales of AstroBaby grew 890.2% and Feifan grew 110.1% compared to the fourth quarter of 2010.  Although we had a net loss in the fourth quarter, the loss was due to loss in long term tax liabilities, loss from discontinued operations, and loss from the sale of wholesale milk powder.  Sales from our branded infant formula products continue to increase quarter over quarter and we are confident that it will continue to grow in the future."  Mr. Liu continued, "2012 is the Company's 50th year anniversary and the fact that we have never had any product quality issues speaks to our strength in this industry.  We will continue to strive to be one of the leading infant formula producers and we look forward to another 50 years."

The increase in sales in the fourth quarter of 2011 compared to the fourth quarter of 2010 was primarily attributable to an increase in sales of branded milk powder, as well as the continued commitment to making improvements across all functions including effectiveness of operations. Sales in the fourth quarter of 2011 increased 15.4% sequentially from $75.4 million in the third quarter of 2011, primarily reflecting the Company's efforts to increase sales at existing retail sales points.

Gross profit was $30.9 million in the fourth quarter of 2011 compared to $17.8 million in the fourth quarter of 2010. Gross margin for the fourth quarter of 2011 was 35.5%, compared to 29.1% in the fourth quarter of 2010, which was primarily due to an increase in sales of branded milk powder with a higher margin, and also due to improvements in the Company's marketing and selling operations.

Sales and marketing expenses increased 9.6% from $22.8 million in the fourth quarter of 2010 to $25.0 million in the fourth quarter of 2011.  This decrease was primarily due to decreased advertising and salary of marketing staff. 

In the fourth quarter of 2011, the Company had an operating loss of $(3.82) million, compared to an operating loss of $(11.0) million in the fourth quarter of 2010. Reduction of operating loss in the fourth quarter of 2011 was primarily due to increase in gross profit as discussed above, and offset by a 9.6% increase of sales and marketing expenses to $25.0 million in the fourth quarter of 2011 from $22.8 million in the fourth quarter of 2010, primarily reflecting a increase in promotional fees and advertisement and the Company's efforts to improve the effectiveness of its selling expenses and sales at existing sales points.  General and administrative expenses increased 169.0% to $9.7 million in the fourth quarter of 2011 from $3.6 million in the fourth quarter of 2010, primarily reflecting increased salary, professional service fees and allowances for receivables.

The Company recognized other income of $0.7 million during the fourth quarter of 2011, compared to other income of $12.0 million during the fourth quarter of 2010. The decrease in other income was primarily driven by a reduction of government subsidy and an increase of interest and finance costs.

Net loss attributable to the Company for the fourth quarter of 2011 was $10.5 million, or diluted EPS per common share of $(0.51), a decrease from net income attributable to the Company of $0.8 million, or diluted EPS per common share of $0.10, in the fourth quarter of 2010.  Increase in net loss of $11.3 million as compared with the fourth quarter of 2010 was primarily due to a $5.1 million loss in long term tax liabilities, a $5.7 million loss from discontinued operations, and a $3.5 million loss from the sale of wholesale milk powder. 

Full Year Ended December 31, 2011 Financial Highlights:

Sales increased approximately $36.3 million, or 14.2% to $292.9 million during the year ended December 31, 2011 from $256.6 million during the year ended December 31, 2010. Contributions from branded milk powder products were approximately $217.5 million, or 74.3% of total sales during the year ended December 31, 2011, up 20.7% from $180.2 million, or 70.2% of total sales, in the corresponding period in 2010. This increase was primarily due to increased high margin infant formula sales, especially for the Company's super premium AstroBaby series and Feifan series. During the year 2011, the Company focused on marketing of its premium infant formula products and improving sales at existing sales points and, accordingly, its expansion into new market areas was less rapid. Gross profit increased approximately $13.0million, or 13.1% to $112.3 million during the year ended December 31, 2011 from $99.3 million in the same period of 2010. Gross margin for the year ended December 31, 2011 was 38.3%, compared to 38.7% during the year ended December 31, 2010, primarily attributable to increases in sales of branded milk powder. Operating income was $9.6 million in the full year ended December 31, 2011, compared to an operating loss of $(23.3) million in the corresponding period in 2010, the increase was partially attributable to an decrease in selling expense for an amount of $20.3 million and partially offset by an increase of $4.2 million in general and administrative expenses. Income from continuing operations before income tax expenses and noncontrolling interests was $14.6 million during the year ended December 31, 2011, up $18.3 million compared to a loss of $(3.7) million in the corresponding period in 2010.  Net loss attributable to the Company for the full year ended December 31, 2011 increased to $0.2 million, or diluted EPS per common share of $0.00, from a loss of $(10.7) million, or diluted EPS per common share of $(0.28), in the corresponding period in 2010.  Increase in net loss was primarily due to loss in long term tax liabilities, loss from discontinued operations, and loss from the sale of wholesale milk powder. 

As of December 31, 2011, the Company had cash and cash equivalents of $15.4 million and total current assets of $200.5 million, compared with cash and cash equivalents of $16.2 million and total current assets of $258.8 million as of December 31, 2010. The Company believes that it has sufficient cash and cash flows from operations to adequately support its business in the next operating cycle.

SOURCE Feihe International, Inc.