Landec Reports Results for Third Quarter and First Nine Months of Fiscal Year 2013

Landec Reports Results for Third Quarter and First Nine Months of Fiscal Year
2013

MENLO PARK, Calif., March 26, 2013 (GLOBE NEWSWIRE) -- Landec Corporation
(Nasdaq:LNDC), today reported results for the third quarter and first nine
months of fiscal year 2013. Revenues for the third quarter of fiscal year 2013
increased by 47% to $117.9 million compared to revenues of $80.1 million for
the third quarter of fiscal year 2012. Net income for the third quarter of
fiscal year 2013 was equal to the net income for the third quarter of last
year at $4.8 million, or $0.18 per diluted share. Revenues for the first nine
months of fiscal year 2013 increased by $99.7 million, or 42%, to $334.6
million compared to revenues of $234.9 million for the same period a year ago.
Net income for the first nine months increased by 82% to $18.1 million or
$0.68 per diluted share compared to net income of $9.9 million or $0.38 per
diluted share for the same period last year.

Revenues and net income for the third quarter and the first nine months of
fiscal year 2013 reflect strong operating results in our biomedical materials
subsidiary, Lifecore Biomedical, Inc. and in our fresh-cut specialty packaged
food subsidiary, Apio, Inc.'s value-added business which includes GreenLine
Holding Company ("GreenLine"), acquired in April 2012, and Apio's export
business. In addition to the strong operating results, the Company concluded
at the end of the second quarter of fiscal year 2013 that the required revenue
target to meet the minimum earn-out payment to the former GreenLine owners was
not met.As a result, the $3.9 million earn-out liability recorded at the
close of the GreenLine acquisition was reversed as of November 25, 2012 and
the corresponding increase in operating income, which equals $0.15 per share,
is reflected on the Consolidated Condensed Statement of Income under the
caption "Change in value of contingent considerations" for the nine months
ended February 24, 2013.

Gary Steele, Landec's Chairman and CEO, commented, "We had a good third
quarter despite the significant weather-related produce sourcing issues in
California which reduced gross profit for Apio by $3.0 million.For the
quarter we achieved revenue growth of 47% and flat net income growth compared
to the third quarter of last year.For the first nine months of fiscal year
2013, revenues grew 42% and net income grew 43%, before including the $3.9
million non-recurring earn-out adjustment recorded during the second quarter
of fiscal year 2013.The third quarter and first nine months of fiscal year
2013 operating highlights include: (1) growing Lifecore's revenues 57% and
20%, respectively, and its net income by 98% and 16%, respectively, (2)
increasing revenues in our non-green bean Apio food business by 8% and 12%,
respectively, despite produce sourcing issues in California during the third
quarter, (3) increasing Apio's export revenues by 8% and 15%, respectively,
while increasing margins, (4) exceeding GreenLine's earnings expectations for
the quarter and first nine months of fiscal year 2013, (5) launching a family
of new superfood products with significant initial nationwide demand, and (6)
benefiting from our partner Windset advancing its construction of an
additional 64 acres of hydroponic greenhouses in Santa Maria, California which
is scheduled to be completed later this calendar year and which will double
Windset's capacity in California to six million square feet of greenhouse
operations.In spite of some produce sourcing issues, we had a good third
quarter and for all of fiscal year 2013 we are on track to achieve the best
operating results in Landec's history."

Guidance for the Fourth Quarter and Fiscal Year 2013

For the fourth quarter of fiscal year 2013, we expect revenues of $101 million
to $105 million and net income of $4.0 million to $4.5 million.These
projections reflect the seasonal transition in produce sourcing for non-green
bean produce from the Imperial Valley of California to the Central Coast of
California and for green bean sourcing from Southern Florida to points north,
as well as the impact from freezes in Florida in March which has significantly
reduced the supply of green beans during the month.The financial impact from
these freezes during the fourth quarter could reduce pre-tax income by
approximately $2.0 million which is reflected in our fourth quarter guidance.

For all of fiscal year 2013, the favorable produce sourcing in California
during the first six months of this fiscal year and the favorable sourcing of
green beans during the third quarter roughly offsets the combined $5.0 million
impact from the unfavorable sourcing in California during the third quarter
and from the estimated green bean sourcing issues in March affecting the
fourth quarter. For fiscal year 2013 compared to fiscal year 2012, we expect
revenues to grow 37% to 38%, compared to prior guidance of 33% to 38%, and we
expect net income to grow 70% to 75%, which includes the additional $3.9
million, or $0.15 per share, from the non-recurring earn-out adjustment,
compared to prior guidance of 60% to 70%, which also included the earn-out
adjustment.In addition, we expect to generate $20 million to $25 million in
cash flow from operations and to spend approximately $8.0 million to $9.0
million in capital expenditures.

Third Quarter Results

Revenue growth of $37.8 million during the third quarter of fiscal year 2013
compared to the third quarter of last year was due to (1) $26.0 million of
revenues from GreenLine, (2) a $4.3 million increase in revenues in Apio's
non-GreenLine value-added businesses, which includes Apio Cooling and Apio
Packaging, (3) a $1.0 million increase in Apio's export revenues due to a 6%
increase in export unit volume sales and favorable pricing, and (4) a $6.3
million increase in revenues for Lifecore due primarily to product shipments
planned for the second quarter being delayed and shipped during the third
quarter this year.The third quarter growth of $4.3 million in Apio's
non-GreenLine value-added businesses resulted primarily from a year-over-year
increase in new product offerings, unit volume sales and a favorable mix
change to higher priced products.

For the third quarter of fiscal year 2013, the net income of $4.8 million was
primarily comprised of: (1) a $3.9 million increase in pre-tax income for
Lifecore, (2) $2.2 million from GreenLine, and (3) a $381,000 decrease in the
loss at Corporate primarily due to a $234,000 increase in gross profit and a
$166,000 decrease in the Company's income tax expense.These increases were
offset by: (1) a $3.5 million decrease in pre-tax income in Apio's
non-GreenLine value-added businesses primarily due to weather-related sourcing
issues during the quarter, (2) a $2.5 million lower increase in the change of
the fair market value of Windset during the third quarter of fiscal year 2013
compared to the fair market value change in the third quarter last year, and
(3) $566,000 of interest and amortization expenses associated with the
acquisition of GreenLine.

Nine Months Results

Revenue growth of $99.7 million during the first nine months of fiscal year
2013 compared to the same period last year was due to (1) $70.3 million of
revenues from GreenLine, (2) a $17.1 million increase in revenues in Apio's
non-GreenLine value-added businesses, (3) an $8.9 million increase in Apio's
export revenues due to a 4% increase in export unit volume sales and very
favorable pricing, and (4) a $5.6 million increase in revenues from Lifecore
due primarily to new product introductions and increased sales to existing
customers.The growth in the first nine months of fiscal year 2013 of $17.1
million in Apio's non-GreenLine value-added businesses resulted primarily from
a year-over-year 14% increase in unit volume sales of fresh-cut specialty
packaged products due to new product offerings, new distribution gains and
overall growth in the fresh-cut vegetable category.These increases in revenue
were partially offset by a $2.3 million decrease in Corporate revenues
primarily due to the termination of the Monsanto license agreement at the end
of the second quarter of fiscal year 2012.

For the first nine months of fiscal year 2013, net income increased $8.2
million, or 82% compared to the same period last year, primarily due to an
$11.1 million increase in Apio's pre-tax income and a $1.2 million increase in
Lifecore's pre-tax income as a result of increased revenues.The increases in
Apio's pre-tax income were comprised of: (1) the $3.9 million non-recurring
reversal of the GreenLine earn-out liability at the end of the second quarter,
(2) $8.6 million from GreenLine, and (3) a $1.6 million increase in the fair
market value of our Windset investment compared to the increase in Windset's
fair market value during the first nine months of last year.These increases
in Apio's pre-tax income were partially offset by: (1) a $1.3 million decrease
in pre-tax income in Apio's non-GreenLine value-added businesses primarily due
to weather-related sourcing issues during the third quarter and (2) $1.7
million of interest and amortization expenses associated with the acquisition
of GreenLine. The $12.3 million net increase in the pre-tax income for Apio
and Lifecore was partially offset by: (1) a $2.3 million reduction in
Corporate license fees primarily due to the termination of the Monsanto
license agreement and (2) a $2.2 million increase in income tax expense.

Landec ended the third quarter of fiscal year 2013 with $13.7 million in cash
and marketable securities.During the first nine months of fiscal year 2013,
cash and marketable securities decreased by $8.4 million due primarily to (1)
capital expenditures of $4.5 million for property, plant and equipment, (2)
principal debt payments of $12.1 million and (3) the full earn-out payment of
$10 million related to the acquisition of Lifecore.These decreases were
partially offset by (1) $13.5 million in cash flow from operations, (2) a $2.7
million tax benefit from stock based compensation and (3) $1.4 million in cash
from employees exercising stock options.At February 24, 2013, the Company had
$26.0 million available to borrow under its lines of credit.

Landec Third Quarter 2013 Earnings Conference Call

A conference call will follow this release at 8:00 a.m. Pacific Time on
Wednesday, March 27, 2013 during which senior management of Landec will
present an overview of results for the third quarter and first nine months of
fiscal year 2013.Interested parties have the opportunity to listen to the
conference call live on the Internet on Landec's web site at
www.Landec.com/earningscall. A replay of the webcast will be available for 30
days.Additionally, investors can listen to the call by dialing (866) 206-7202
or (703) 639-1112 at least 5 minutes prior to the start.A replay of the call
will be available through Wednesday, April 3, 2013 by calling (888) 266-2081
or(703) 925-2533, code #1607492.

Landec Corporation is a materials science company that leverages its
proprietary polymer technologies, application development and innovation
capabilities to develop and commercialize new products in food and
biomaterials markets. Landec's subsidiary, Apio, has become the leader in US
fresh-cut specialty packaged vegetables sold in North America, based on
combining Landec's proprietary food packaging technology and the strength of
two major national brands, Eat Smart and GreenLine, with the capabilities of a
large national food supplier, processor and distributor. Through its
subsidiary, Lifecore Biomedical, Landec is a premium supplier of
hyaluronan-based materials and medical products to ophthalmic, orthopedic and
veterinary markets worldwide.In addition, Landec will periodically work with
market-leading companies to develop and commercialize differentiated
polymer-based products.For more information about the Company, visit Landec's
website at www.landec.com.

Except for the historical information contained herein, the matters discussed
in this news release are forward-looking statements that involve certain risks
and uncertainties that could cause actual results to differ materially,
including such factors among others, as the timing and expenses associated
with operations, the ability to achieve acceptance of the Company's new
products in the market place, the ability to integrate GreenLine's operations
into the Company, weather conditions that can affect the supply and price of
produce, the amount and timing of research and development funding and license
fees from the Company's collaborative partners, the timing of regulatory
approvals, the mix between domestic and international sales, and the risk
factors listed in the Company's Form 10-K for the fiscal year ended May 27,
2012 (See item 1A: Risk Factors) which may be updated in Part II.Item 1A Risk
Factors in the Company's Quarterly Reports on Form 10-Q.As a result of these
and other factors, the Company expects to continue to experience significant
fluctuations in quarterly operating results and there can be no assurance that
the Company will remain consistently profitable.The Company undertakes no
obligation to update or revise any forward-looking statements whether as a
result of new developments or otherwise.

                         --Tables and Q&A to Follow--

LANDEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
                                                                
                                                                
                                               February 24, 2013 May 27, 2012
                                               (unaudited)      
ASSETS                                                           
Current Assets:                                                  
Cash, cash equivalents and marketable           $13,733           $22,177
securities
Accounts receivable, net                        37,579            32,321
Inventories, net                                22,385            22,011
Prepaid expenses and other current assets       8,290             4,654
Total Current Assets                            81,987            81,163
                                                                
Property and equipment, net                     63,056            63,495
Intangible assets, net                          107,875           108,605
Investments in non-public companies             28,593            22,293
Other assets                                    1,484             2,136
Total Assets                                    $282,995          $277,692
                                                                
LIABILITIES AND STOCKHOLDERS' EQUITY                             
Current Liabilities:                                             
Accounts payable                                $27,931           $23,420
Accrued compensation                            5,913             5,782
Other accrued liabilities                       2,452             18,642
Deferred revenue                                931               162
Lines of credit                                 4,000             11,666
Current portion of long-term debt               7,047             7,012
Total Current Liabilities                       48,274            66,684
                                                                
Long-term debt                                  35,794            40,305
Deferred taxes                                  22,283            18,037
Other non-current liabilities                   1,965             1,108
                                                                
Stockholders' Equity                                             
Common stock                                    26                26
Additional paid-in capital                      125,108           119,894
Retained earnings                               47,890            29,822
Total Stockholders' Equity                      173,024           149,742
Non controlling interest                        1,655             1,816
Total Equity                                    174,679           151,558
Total Liabilities and Stockholders' Equity      $282,995          $277,692


LANDEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per-share data)
(unaudited)
                                                                 
                                     Three Months Ended Nine Months Ended
                                     February  February February February
                                      24,       26,      24,      26,
                                     2013       2012      2013      2012
Revenues:                                                       
Product sales                       $117,584   $79,519   $332,977  $232,605
Services revenues                   283        545       1,618     2,330
Total revenues                      117,867    80,064    334,595   234,935
                                                                 
Cost of revenue:                                                
Cost of product sales               100,090    66,432    283,461   195,596
Cost of services revenues           269        460       1,404     1,907
Total cost of revenue               100,359    66,892    284,865   197,503
                                                                 
Gross profit                        17,508     13,172    49,730    37,432
                                                                 
Operating costs and expenses:                                   
Research and development            2,325      2,473     6,642     7,142
Selling, general and administrative 8,524      6,664     26,266    19,172
Change in value of contingent        —          —         (3,933)   —
considerations
Total operating costs and expenses  10,849     9,137     28,975    26,314
Operating income                     6,659      4,035     20,755    11,118
                                                                 
Dividend income                      281        281       844       844
Interest income                      46         63        104       219
Interest expense                    (487)      (153)     (1,526)   (492)
Other income                         1,047      3,508     6,288     4,595
Net income before taxes              7,546      7,734     26,465    16,284
Income taxes                         (2,754)    (2,920)   (8,238)   (6,079)
Consolidated net income              4,792      4,814     18,227    10,205
Non controlling interest            (3)        (49)      (159)     (288)
Net income available to common       $4,789     $4,765    $18,068   $9,917
stockholders
                                                                 
Diluted net income per share         $0.18      $0.18     $0.68     $0.38
                                                                 
Shares used in diluted per share     26,667     25,825    26,492    26,205
computations

                              LANDEC CORPORATION
                    THIRD QUARTER ENDED FEBRUARY 24, 2013
                            QUESTIONS AND ANSWERS

1)With the addition of GreenLine, why was Apio's overall gross margin lower
in the third quarter of fiscal year 2013 compared to the third quarter last
year?

Apio's gross margin for the third quarter of fiscal year 2013 was lower than
the third quarter of last year due to weather-related produce sourcing issues
in California which reduced gross profit by $3.0 million this quarter (see
Question 5 below). In addition, in GreenLine's business, the normal and
expected sourcing pattern for green beans during the third quarter winter
months, when green beans are almost exclusively grown in southern Florida,
historically result in the lowest gross margin for the year and low to
negative profitability for those months depending on the supply and market
prices of green beans. During this year's third quarter winter months,
although the sourcing of green beans for GreenLine was more favorable than
normal, the realized gross margin for GreenLine further lowered Apio's overall
gross margin during the quarter.

2) Is the fresh-cut produce category continuing to grow?

For the twelve months ended December 2012, the fresh-cut produce category grew
by 8.4% according to A.C. Nielsen, compared to Apio's unit volume growth of
24% for the same period. 

3)How is the integration of GreenLine into Apio progressing?

The integration is going well and is ahead of our original plan.We now have a
single integrated ERP system in place that will result in significant
efficiencies in the upcoming quarters.After a pause during the busy holiday
season, we have resumed further integration efforts with the primary focus on
cross selling efforts since our new integrated ERP system now allows us to
offer "one stop shopping" to our customers. We expect the new system
capabilities to lead to new sales of Eat Smart® products to GreenLine
customers and new sales of GreenLine products to Eat Smart customers.

4) Regarding the recent acquisition of GreenLine, what are the future annual
savings from already realized operating synergies?What are potential other
future savings for operating synergies?

We have already realized approximately $1.5 million of operating synergies on
an annual basis as a result of general and administrative and purchasing cost
savings.Going forward, we see additional cost savings from operating
synergies by (a) installing new equipment, implementing additional automation
and changing plant layout to improve production efficiencies, (b) utilizing
GreenLine's logistical distribution capabilities for Eat Smart products, and
(c) taking advantage of GreenLine's East Coast operations to process Eat Smart
products.We also expect to reduce packaging and other manufacturing costs by
using the combined economies of scale of the two market leaders in fresh-cut
packaged vegetables and fresh-cut packaged green beans.

5) How has the weather been in California and Florida this winter?

For the non-green bean business, during December and January we experienced
weather-related produce sourcing issues in California.These weather-related
produce sourcing issues resulted in a reduction in gross profit of
approximately $3.0 million during the third quarter due to: (1) poor harvest
and production yields, (2) purchases on the open market considerably above
contracted prices, (3) lost revenues and gross profit due to not being able to
fully meet customer demand, (4) increased handling costs to sort poor quality
produce, and (5) losses on sourcing arrangements with produce growers.

As mentioned above, for the GreenLine green bean business we have experienced
significant cost increases during the month of March as a result of the
freezes in southern Florida at the beginning of the month.These cost
increases, coupled with a shortage of green beans, could result in a reduction
of pre-tax income of up to $2.0 million during the fourth quarter of fiscal
year 2013 which is reflected in our guidance.

6) Other than possible weather-related produce sourcing issues, what are other
key financials risk areas for Landec?

As with all companies, we are subject to global economic risks like those we
experienced during the recent severe recession. Specific to Landec, the
primary risk at Apio aside from weather-related produce sourcing risks, would
be the loss of a key customer at the time of a contract renewal.This loss
would typically be due to pricing pressure that can result in margins that are
not acceptable to Landec, leading the Company to make a conscious decision to
walk away from that business, which we have done in the past.

Regarding Lifecore, the greatest risk is generally associated with the timing
of the regulatory approval process for new opportunities, and secondarily,
maintaining the existing contractual supply relationships. Any regulatory risk
is accounted for in the financial projections and the supply risk is mitigated
by longstanding, long-term, renewable supply contracts.

7) What is the status of Windset's new Santa Maria, California operation?

Windset has been in full production with its first 64 acres of greenhouses in
Santa Maria since December of 2011 with different varieties of
tomatoes.Production performance has been exceeding Windset's original
expectations, and in September 2012 they completed their second planting of
tomatoes for all 64 acres.Late last fall Windset started the construction on
the next 64 acres of greenhouses on their Santa Maria property adjacent to the
first 64 acres.The additional 64 acres of greenhouses will utilize the same
packaging and processing facilities as the first 64 acres thus reducing the
overall construction costs for this expansion.

During the first nine months of fiscal year 2013, we have recognized a total
of $7.1 million in pre-tax income from our investment in Windset which
included $6.3 million from our portion of the increase in Windset's fair
market value and $844,000 of dividend income from our Windset preferred stock.

For the fourth quarter of fiscal year 2013, we currently expect to recognize
approximately $1.0 million from our portion of the increase in Windset's fair
market value and $281,000 of dividend income from our Windset preferred stock.

Since February 15, 2011, the date of our original $15 million investment in
Windset, we have recognized $15.1 million of pre-tax income, equal to our
original investment.We are very pleased with our 20% ownership and investment
in Windset and with the future prospects for Windset.

8)What new products and/or programs does the Company plan to introduce during
fiscal year 2013?

We intend to introduce a number of new products and product lines at
Apio.Most recently, we introduced a new line of Vegetable Salad Kits to
address a growing demand from consumers for packaged foods that are highly
nutritious and taste great. The first product in this new line is Sweet Kale
Salad which was launched in November 2012. This new product has been well
received by consumers and we are scaling operations to meet increasing
demand.The Sweet Kale Salad will be followed by additional Vegetable Salad
Kits over the next several months to create a full product line.

We expect our partner Windset to launch new BreatheWay® packaged products for
cucumbers and peppers, as our testing has demonstrated a significant increase
in shelf life for these products using Landec's technology and we are in the
process of testing our packaging technology for the shelf life extension of
tomatoes.

At Lifecore, we plan to expand product offerings to our customers as a result
of the recent clearance by the FDA of several of our new products.Commercial
shipments have begun for all of these products.

9)What are Landec's top priorities for the next 12 to 24 months?

Our top priorities are as follows: (1) continue integrating GreenLine into
Apio's operations, (2) grow Apio's business by launching new products and
gaining new customers through cross-selling opportunities utilizing our two
leading fresh-cut produce brands, Eat Smart and GreenLine®, while maintaining
or improving Apio's margins and (3) grow Lifecore's business by expanding
services and products with existing customers, as well as utilizing its
manufacturing capabilities to expand into new partnerships.

10) How do the results by line of business for the three and nine months ended
February 24, 2013 compare with the same periods last year?

The results are as follows (unaudited and in thousands):
                                                             
                   Three months    Three months   Nine months   Nine months
                    ended 2/24/13   ended 2/26/12  ended 2/24/13 ended 2/26/12
Revenues:                                                     
Apio Value Added(a) $86,707         $56,456        $233,931      $146,512
Apio Export        13,381          12,388         66,854        57,972
Total Apio          100,088         68,844         300,785       204,484
Lifecore            17,331          11,066         33,043        27,422
Corporate (b)       448             154            767           3,029
Total Revenues     117,867         80,064         334,595       234,935
                                                             
Gross Profit:                                                 
Apio Value Added   5,846           5,478          28,891        16,068
Apio Export         1,031           917            4,407         3,733
Total Apio          6,877           6,395          33,298        19,801
Lifecore            10,243          6,623          15,725        14,602
Corporate           388             154            707           3,029
Total Gross Profit 17,508          13,172         49,730        37,432
                                                             
R&D:                                                          
Apio                236             279            838           792
Lifecore            1,258           1,232          3,625         3,475
Corporate           831             962            2,179         2,875
Total R&D          2,325           2,473          6,642         7,142
                                                             
S,G&A and other:                                              
Apio               5,614           3,722          13,435        10,758
Lifecore            1,093           1,268          3,488         3,381
Corporate           1,817           1,674          5,410         5,033
Total S,G&A        8,524           6,664          22,333        19,172
                                                             
Other (c):                                                    
Apio                909             3,796          5,694         5,324
Lifecore            (25)            (153)          (143)         (476)
Corporate           (2,754)         (2,913)        (8,238)       (6,049)
Total Other        (1,870)         730            (2,687)       (1,201)
                                                             
Net Income (Loss):                                            
Apio                1,936           6,190          24,719        13,575
Lifecore            7,867           3,970          8,469         7,270
Corporate           (5,014)         (5,395)        (15,120)      (10,928)
Net Income         $4,789          $4,765         $18,068       $9,917
                                                             
a) Apio's Value-Added business includes revenues and gross profit from Apio
Cooling LP. and Apio Packaging.
b) Included in Corporate are the non-Apio license and R&D fee revenues and
gross profit.
c) Included in Other is net interest income/(expense), dividend income, change
in the FMV of Windset, non-operating income/(expense) and income tax expense.

CONTACT: At the Company:
         Gregory S. Skinner
         Vice President Finance and CFO
         (650) 261-3677

company logo
 
Press spacebar to pause and continue. Press esc to stop.