CNGL China Nutrifruit Grp. Limited

DAQING, China, Feb. 13, 2012 /PRNewswire-Asia-FirstCall/ -- China Nutrifruit Group Limited (NYSE Amex: CNGL) ("China Nutrifruit" or "the Company"), a leading producer of premium specialty fruit based products in China ("PRC"), today announced its financial results for the third fiscal quarter ended December 31, 2011.

Third Quarter Fiscal Year 2012 Highlights and Recent Events

• Net sales decreased 2.4% year-over-year to $21.6 million
• Gross profit decreased 55.3% year-over-year to $4.6 million, with gross margin of 21.3%
• Operating earnings declined 74.9% year-over-year to $2.1 million, with operating margin of 9.7%
• Net income decreased 82.6% year-over-year to $1.1 million, or $0.03 per diluted share

"During the third quarter of fiscal 2012, we experienced a decline in revenue, gross margin and net income largely due to significant increases in raw material prices and labor costs that occurred in our production season. However, due to our strong customer relationships, we were able to raise our average selling prices and pass on part of the increase in production costs to our customers," commented Mr. Yu Changjun, Chairman and CEO of China Nutrifruit. "We experienced strong demand for our glazed fruit and nectar products which increased 78.4% and 25.6%, respectively, year-over-year, partly offsetting loss of sales from our concentrate pulp products. Due to the continued pressure from rising production costs, we have not yet resumed cooperation with our OEM factories for the production of concentrate pulp products," added Mr. Yu.

Third Quarter Fiscal Year 2012 Results

Net sales for the third quarter of fiscal year 2012 decreased 2.4% to $21.6 million, from $22.1 million in the same quarter of fiscal 2011. The year-over-year decline in net sales was mainly attributable to suspended production of its concentrate pulp products, which was partly offset by increase in sales volume and average selling prices of glazed fruit and nectar products.   

In the third quarter of fiscal year 2012, net sales from concentrate juice products, which accounted for 42.4% of total net sales, were $9.17 million, relatively unchanged from $9.16 million, or 41.4% of total net sales, in the same quarter of fiscal year 2011. Net sales from glazed fruit products were $10.8 million, contributing 49.9% of net sales, up 78.4% as compared to $6.0 million, or 27.3% of total net sales, in the same period last year. In the second quarter of fiscal year 2012, the Company suspended cooperation with two OEM factories due to an increase in production costs. As a result, there were no sales from concentrate pulp products in the third quarter of fiscal 2012 compared to sales of $4.9 million from concentrate pulp products, or 22.0% of total net sales, in the same period of fiscal year 2011. Sales from nectar were $1.6 million, or 7.5% of total net sales, up 25.6% from $1.3 million, or 5.9% of total net sales in the third quarter of fiscal 2011. Sales from fresh fruit were $0.04 million, or 0.2% of total net sales, down 95.4% from $0.8 million, or 3.4% of total net sales, in the third quarter of fiscal 2011.

Gross profit for the third quarter of fiscal year 2012 decreased 55.3% to $4.6 million from $10.3 million for the same period a year ago. Gross margin was 21.3% for the third quarter of fiscal year 2012, down from 46.4% in the year ago period. The decline in gross margin was mainly attributable to significant increases in raw material prices and direct labor costs. The year-over-year increase in average selling prices of the Company's products partly offset the rise in production costs. However, the Company was unable to pass on all price increases to its customers. As a result, the gross margins for glazed fruit, nectar and concentrate juice products for the three months ended December 31, 2011 were approximately 22.2%, 41.1% and 16.9%, as compared to approximately 54.2%, 67.7% and 41.1% in the same period last fiscal year, respectively.

In the third quarter of fiscal year 2012, selling, general, and administrative expenses were $2.5 million, up 30.4% from $1.9 million in the third quarter of fiscal 2011. Selling expenses were $0.7 million, or 3.1% of net sales, down 39.8% compared to $1.1 million, or 5.0% of net sales, in the third quarter of fiscal year 2011. The decline in selling expenses was largely due to lower sales volume in the third quarter of fiscal 2012.

General and administrative expenses were $1.8 million, or 8.5% of net sales, up 127.0% from $0.8 million, or 3.6% of net sales a year ago. Such significant increase was mainly attributable to expenses associated with the Company's new fruit and vegetable powder production facility in Daqing and its new concentrate paste production line in Zhaoyuan. In addition, the increase in payroll expenses also contributed to the overall increase in general and administrative expenses in the third quarter of fiscal 2012.

Operating earnings were $2.1 million in the third quarter of fiscal year 2012 compared to $8.4 million in the comparable period last fiscal year. Operating margin for the quarter declined to 9.7% from 37.8 % a year ago.

Provision for income taxes for the quarter was $0.7 million compared to $2.1 million a year ago. The Company's effective tax rate was 39.7% for the third quarter fiscal year 2012 compared to 25.5% for the same period last year.

In the third quarter of fiscal year 2012, net income was $1.1 million, or $0.03 per diluted share, compared to $6.2 million, or $0.15 per diluted share in the same period last fiscal year. The calculation of diluted earnings per share for the third quarter of fiscal 2012 is based on 40.2 million weighted average shares outstanding compared to 40.4 million in the same quarter of fiscal 2011.

Nine Months Fiscal Year 2012 Results

For the nine months ended December 31, 2011, net sales were $51.7 million, down 5.9% from $55.0 million in the nine months ended December 31, 2010. Net sales from concentrate juice products, which accounted for 49.0% of total net sales in the first nine months of fiscal 2012, were $25.3 million, down 4.9% from $26.7 million during the comparable period a year ago. Net sales from glazed fruit, which accounted for 34.8% of net sales, were $18.0 million, up 54.5% from $11.6 million in the same period a year ago. Sales of concentrate pulp and nectar, which accounted for 1.9% and 10.3%, were $1.0 million and $5.3 million, down 8.4% and up 5.1% from $9.4 million and $11.6 million in the same period a year ago, respectively. Fresh fruit sales were $2.1 million, down 7.8% from $2.2 million in the nine months ended December 31, 2010.

Gross profit decreased 43.5% to $14.3 million from $25.4 million a year ago. Gross margin was 27.7% in the first nine months of fiscal year 2012 compared to 46.1% in the comparable period a year ago. Income from operations was $7.6 million, down 62.7% from $20.5 million last year. Net income for the nine months ended December 31, 2011 was $4.8 million, or $0.12 per diluted share, compared to $15.2 million, or $0.38 per diluted share in the same period of fiscal 2011. The calculation of diluted earnings per share for the first nine months of fiscal 2012 is based on 40.2 million weighted average shares outstanding compared to 40.4 million in the comparable period of fiscal 2011.  

Financial Condition

As of December 31, 2011, China Nutrifruit had $13.3 million in cash and equivalents, $27.4 million in current liabilities, $1.3 million in long-term debt and working capital of $48.6 million. Shareholders' equity was $100.3 million as of December 31, 2011, up from $93.3 million as of March 31, 2011.

For the nine months ended December 31, 2011, the Company used $37.7 million cash in operating activities, compared to $3.8 million in the same period last year, mainly attributable to inventory built up of approximately $36.5 million in the production season in fiscal 2012. The Company used $15.9 million to purchase property and equipment to upgrade its glazed fruit and concentrate juice production lines and to construct its new concentrate paste facility in Zhaoyuan.

Business Outlook

Due to the recent food safety issues in Taiwan, the PRC government has implemented a stringent application process for granting production permits. The Company has provided the necessary documentation and product samples for approval and expects that it may take approximately nine months to receive the production permits for its new fruit and vegetable powder and concentrate paste product lines.

"Over the next two quarters, we will continue with our sales activities and sell through our current inventory position before the next production season begins. We are taking measures to control other operational costs to partly offset inflationary pressures from increased raw material prices and labor costs," commented Mr. Yu. "The process of applying for production permits for our new fruit and vegetable powder facility and concentrate paste product line is taking longer than anticipated due to stringent procedures enforced by the government to ensure food safety. We are in close communication with the government agency to monitor the progress of our applications," added Mr. Yu.

In December 2011, the Company was informed by a customer that China Nutrifruit's concentrate juice and glazed fruit products contain higher than specified levels of sodium. The Company's customer has requested China Nutrifruit for a full refund for the purchased products valued at approximately RMB50 million ($7.9 million). In response to this matter, the Company is currently performing independent laboratory tests to verify the product quality claims of its customer and it expects to receive preliminary test results by the end of February 2012.

For fiscal year 2012, the Company is reasonably confident it will meet previously issued revenue guidance of approximately $74 million to $78 million. The Company's revenue guidance does not incorporate any potential refund to its customer. Due to the uncertainty surrounding the potential product refund, inflationary pressure on gross profit margins and other expenses, the Company is unable to provide net income guidance at this time. 

Conference Call Information

Management will conduct a conference call at 9:00 a.m. Eastern Time on Monday, February 13, 2012, to discuss financial results for the third quarter fiscal year 2012, ended December 31, 2011.

To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (866) 759 2078. International callers should dial +1 706 643 0585. The conference ID number for the call is 50558985.

If you are unable to participate in the call at this time, a replay will be available for fourteen days starting from Monday, February 13, 2012 at 10:00 am Eastern Time. To access the replay, dial (855) 859 2056. International callers should dial +1 404 537 3406. The conference ID number for the replay is 50558985.

About China Nutrifruit Group Limited

Through its subsidiaries Daqing Longheda Food Company Limited and Daqing Senyang Fruit and Vegetable Food Technology Company Limited, China Nutrifruit, is engaged in developing, processing, marketing and distributing a variety of food products processed primarily from premium specialty fruits grown in Northeast China, including golden berry, crab apple, blueberry, seabuckthorn, blackcurrant and raspberry. Its processing facility possesses ISO9001 and HACCP series qualifications. Currently, the Company has established an extensive nationwide sales and distribution network throughout 18 provinces in China. For more information, please visit http://www.chinanutrifruit.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act""). Such statements include, among others, those concerning our expected financial performance in fiscal year 2012, expected capital expenditure, production schedule for our new products and related government approval, technical update and capacity expansion, and its expected impact on the Company's business and financial performance, our expectations regarding the market for our existing products and new products, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to our inability to mitigate the impact of increased raw material and direct production costs, inability to obtain production permits and other government approval for our new and existing products; inability to meet any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China;; any of the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended March 31, 2011, and other risks and uncertainties mentioned in our other reports filed with the Securities and Exchange Commission. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

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SOURCE China Nutrifruit Group Limited