Gross Profit Margin of 48.6 Percent BEIJING, May 15
/PRNewswire-FirstCall/ -- American Dairy, Inc. (NYSE: ADY), one of
the leading producers and distributors of milk powder and soybean
products in China, today announced its first quarter 2007 financial
results. Key Highlights from the First Quarter of 2007 include: -
First quarter net margin of 16.5% exceeds net margin target -
Revenue up 39% year over year to $36.0 million from $25.9 million -
Gross margin of 48.6% up from 46.0% in the prior year period and up
from 40.0% sequentially - Operating income increased 33% year over
year to $6.5 million from $4.9 million - Net income increased 24%
to $5.9 million, or $0.33 per diluted share, from $4.8 million, or
$0.29 per diluted share in the first quarter of 2006 - Diluted
sharecount of 19.4 million shares Leng You Bin, Chief Executive
Officer of American Dairy, Inc. stated, "We reported stronger than
expected financial results in the first quarter of 2007 despite the
holiday-related slowness traditionally experienced in the first
quarter. We spent approximately $4.7 million on branding and
advertising during the quarter and we continue to see increased
demand for our Feihe premium infant formula products. We believe
these efforts are starting to benefit our financial results,
especially in our product mix shift to higher margin products such
as our CPP infant formula series and our Nucleotide products. This
allowed us to materially improve our gross margin to 48.6% from
46.0% in the first quarter of last year and from 40.0% in the
fourth quarter of 2006." "In the past two years, we completed
several rounds of fundraising and we continue to evaluate our
fundraising options. These efforts are integral to our capacity
expansion and we expect to more than double our daily production
capacity from 720 tons to 1,700 tons of liquid milk per day by the
end of 2009. We are optimistic about these efforts because they
allow us to meet increasing demand for premium infant formula
products in China over the next several years and, with time, we
anticipate significant top and bottom line growth due to these
reinvestments in our business. Despite the near-term headwind of
dilution these efforts cause, we are pleased to report a 24%
increase in net income in the first quarter of 2007 and we
reiterate our focus on creating value for shareholders over the
next several years," concluded Leng You Bin. Revenue for the first
quarter was $36.0 million, up 39% from $25.9 million in the first
quarter of 2006. The increased popularity of the Feihe brand in
China continued to drive revenue growth in the first quarter.
Importantly, revenue performance in the first quarter of 2007
reflects a product mix shift toward higher margin products such as
the Company's CPP infant formula series and the milk powder with
Nucleotide series. Product sales by volume increased 20% to 7.5
million kilograms in the first quarter of 2007, up from 6.3 million
kilograms in the prior year period, driven by increased sales
quantities of major products. Specifically, sales volume for the
Company's CPP infant formula series increased 20% to 2.2 million
kilograms and the milk powder with Nucleotide series increased 61%
to 1.2 million kilograms. Combined, these two products generated
70% of total revenue in the first quarter of 2007, up from 64% of
total revenue in the first quarter of 2006. Gross profit increased
47% to $17.5 million from $11.9 million in the first quarter of
2006. Gross profit margin of 48.6% is substantially higher than
46.0% in the prior year's period and 40.0% sequentially, and
reflects the product mix shift toward higher margin products such
as CPP infant formula series and Nucleotide products. Income from
operations increased 33% to $6.5 million from $4.9 million in the
first quarter of 2006, despite significant increases in
distribution and general and administrative expenses. The Company's
distribution expenses increased 52% to $9.0 million, which is in
line with higher revenues and reflects a larger sales force and
advertising and promotional expenditure. General and administration
expenses, which increased 81% to $1.9 million during the first
quarter of 2007 compared to the prior year's period, reflects
higher salaries at the senior management level as well as $646,000
of stock compensation expensed during the quarter. Interest and
finance costs were $701,000 during the first quarter of 2007 and
includes amortization of the discount on outstanding convertible
debt. Interest and finance costs were $224,000 in the first quarter
of 2006. Net income increased 24% to $5.9 million in the first
quarter of 2007 from $4.8 million in the first quarter of 2006.
Note that according to GAAP, approximately $446,000 of interest
expense is added back to net income for the diluted earnings per
share calculation. As such, income per diluted share available to
Common shareholders was $6.4 million, or $0.33 per diluted share in
the first quarter of 2007, compared to $4.9 million, or $0.29 per
diluted share, in the first quarter of 2006. Balance Sheet As of
March 31, 2007, the Company had $37.8 million of cash, compared to
$39.5 million at December 31, 2006 and $11.6 million at March 31,
2006. American Dairy had working capital of approximately $33.5
million at March 31, 2007. The Company had long term debt of $17.1
million as of March 31, 2007. Financial Outlook American Dairy is
currently evaluating its fundraising needs and will do so with an
emphasis on what is best for the Company and for shareholders. Due
to this process, management is refraining from giving financial
guidance at this time. "While at this time, we have decided to
refrain from giving financial guidance, we remain optimistic about
American Dairy's financial health and growth opportunities for the
rest of the year," stated Roger Liu, Chief Financial Officer of
American Dairy. Note that the Company continues to expect the
following during 2007: - Cost of Goods Sold: The Company
anticipates increased utility costs as new production facilities
come online, which may not be immediately offset by revenue
generation. This could affect the Company's near- term gross
margins in 2007. - Advertising and Marketing Expenses: The Company
is actively investing in the long-term growth of the Feihe brand
and anticipates continued expenditure related to these efforts. It
is likely that advertising and marketing expenses will be roughly
10% of total revenue in 2007. - VAT Tax: The Company expects to
continue to receive VAT rebates at certain times throughout the
year. About American Dairy, Inc. American Dairy, Inc. conducts
operations in the People's Republic of China ("China") through its
wholly owned subsidiary, Feihe Dairy. Founded in 1962, Feihe Dairy
is one of the leading producers and distributors of milk powder and
soybean products in China. Feihe Dairy is located in Kedong County,
China, and has been in operation since 2001. American Dairy also
has a milk powder processing plant, Baiuan Feihe Dairy in Kedong
County, and also has a milk powder processing plant in the city of
Qiqihaer, Heilongjiang Province. http://www.feihe.com/ Certain of
the statements made herein constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements typically involve risks and uncertainties
and may include financial projections or information regarding our
future plans, objectives or performance. Actual results could
differ materially from the expectations reflected in such
forward-looking statements as a result of a variety of factors,
including the risks associated with the effect of changing economic
conditions in The People's Republic of China, variations in cash
flow, reliance on collaborative retail partners and on new product
development, variations in new product development, risks
associated with rapid technological change, and the potential of
introduced or undetected flaws and defects in products, and other
risk factors detailed in reports filed with the Securities and
Exchange Commission from time to time. AMERICAN DAIRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three
Months Ended March, 31 2007 2006 SALES $36,007,370 $25,893,218 COST
OF GOODS SOLD 18,502,726 13,985,222 Gross Profit 17,504,644
11,907,996 OPERATING AND ADMINISTRATIVE EXPENSES: Distribution
expenses 9,010,777 5,935,447 General and administrative expenses
1,929,544 1,068,001 Depreciation 95,193 50,651 11,035,514 7,054,099
Income from operations 6,469,130 4,853,897 OTHER INCOME (EXPENSE):
Refunds of VAT taxes 159,518 124,069 Other income 514 7,324
Interest and finance costs (701,332) (223,592) (541,300) (92,199)
MINORITY INTEREST - 2,801 INCOME BEFORE INCOME TAXES 5,927,830
4,764,499 (PROVISION FOR) BENEFIT FROM INCOME TAXES - - NET INCOME
5,927,830 4,764,499 Other comprehensive income: Foreign currency
translation adjustment 942,521 534,960 TOTAL COMPREHENSIVE INCOME
$6,870,351 $5,299,459 BASIC NET INCOME PER COMMON SHARE $0.37 $0.34
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING 15,849,470 14,164,280
DILUTED NET INCOME PER COMMON SHARE $0.33 $0.29 WEIGHTED AVERAGE
DILUTED SHARES OUTSTANDING 19,412,856 17,068,052 See accompanying
notes to financial statements. AMERICAN DAIRY, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS MARCH 31, 2007 AND DECEMBER 31, 2006
ASSETS March 31, December 31, 2007 2006 (unaudited) Current assets:
Cash $37,799,383 $39,473,910 Accounts receivable Trade-net of
allowance for bad debts of $322,520 and $322,520, respectively
3,576,564 5,459,760 Employees 1,167,843 433,121 Other 838,938
452,728 Notes receivable 1,033,592 230,179 Inventories 15,223,229
13,913,766 Prepaid expenses 4,878,330 664,530 Advances to suppliers
3,133,252 1,301,935 Other tax refundable 858,009 1,365,214 Total
current assets 68,509,140 63,295,143 Property and equipment: Fixed
assets, net of accumulated depreciation 36,515,973 36,981,569
Construction in progress 12,706,726 9,433,148 49,222,699 46,414,717
Other assets: Goodwill 1,634,467 1,460,695 1,634,467 1,460,695
Total assets $119,366,306 $111,170,555 LIABILITIES AND
STOCKHOLDERS' EQUITY March 31, December 31, 2007 2006 (unaudited)
Current liabilities: Accounts payable and accrued expenses
$13,334,390 $13,263,315 Current portion of long term debt 5,103,489
5,103,197 Advances from related parties 116,528 119,911 Advances
from employees 594,186 735,294 Deferred income 4,596,012 2,145,325
Short-term notes and loans payable 11,272,061 13,122,868 Total
current liabilities 35,016,666 34,489,910 Long term debt, net of
current portion shown above, net of discount of $1,559,883 and
$1,715,871, respectively 17,089,298 16,936,654 Stockholders'
equity: Common stock, $.001 par value; 50,000,000 shares
authorized; 15,861,320 and 15,831,820 shares issued and outstanding
at March 31, 2007 and December 31, 2006, respectively 15,861 15,832
Additional paid-in capital 18,480,400 17,834,429 Retained earnings
46,104,904 40,177,074 Accumulated other comprehensive income
2,659,177 1,716,656 Total stockholders' equity 67,260,342
59,743,991 Total liabilities and stockholders' equity $119,366,306
$111,170,555 See accompanying notes to financial statements.
DATASOURCE: American Dairy, Inc. CONTACT: Investor Relations,
Ashley Ammon MacFarlane of Integrated Corporate Relations, Inc.,
+1- 203-682-8200 Web site: http://www.americandairyinc.com/
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