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Menlo Park, California
August 30, 2001
Landec Corporation (Nasdaq: LNDC), a developer and marketer
of technology-based polymer products for food, agricultural and
licensed partner applications, today announced its plan to
restructure its food business to focus on its specialty-packaged
technology products and on its marketing and sales of whole
produce. These initiatives will result in a decrease in
operating profits in the Company's third and fourth quarters of
fiscal 2001.
"Our direction and goals are focused on (1) achieving
profitability in our food business for fiscal 2002 and beyond by
becoming a technology leader in extending the shelf life of
pre-cut and whole fruits and vegetables for rapidly growing
segments of the U.S. and export markets, and (2) launching our
banana packaging technology early next year," said Gary Steele,
CEO of Landec.
"Our restructuring plans involve Landec's Apio food subsidiary
headquartered in Guadalupe, California. With the growth of
Apio's products using our proprietary Intellipac specialty
packaging, we project that over 40% of Apio's revenues this year
will be derived from technology-based products up from 30% last
year. Our goal is to continue to grow Apio's value-added
technology-based products, which are less influenced by
commodity market fluctuations, while working with our current
and new grower partners to expand and grow our 'fee-for-service'
produce marketing and sales business based on a more focused,
lower cost structure."
Apio is currently implementing a restructuring plan that should
lead to overall higher margins, lower cash needs and greater
predictability in its food business operations. The plan has
five strategic thrusts:
- Increase R&D investments for
new products using the Company's proprietary Intellipac(TM)
packaging for pre-cut produce products as well as for whole
fruits and vegetables for domestic and export consumption,
- Increase spending for the
pre-commercial manufacturing scale-up and marketing of
Intellipac packaging designed to extend the shelf life of
bananas,
- Continue to implement the new
J.D. Edwards Business System that will bring state-of-the-art
business information beginning in the Company's first quarter
of fiscal 2002,
- Discontinue selected Apio
operations such as carton yard operations and field harvesting
and packing operations that can be more cost effectively
operated by third parties, and
- Significantly reduce
"fee-for-service" operating expenses.
Nick Tompkins, Apio's CEO stated,
"These combined initiatives position Landec's food business for
continued rapid growth in sales of technology-based products,
higher gross margins for Apio and lower costs for our growe
partners and suppliers, enhancing each party's profitability.
These steps also provide Apio with a stronger balance sheet and
with greater operating predictability going forward. We began
implementing the first phase of the plan during our third fiscal
quarter by entering into two separate strategic agreements. The
first is with Georgia Pacific who will be administering our
carton yard operations. This arrangement will free up
approximately $4 million of working capital that is currently
being carried on the books as inventory. In the future, Georgia
Pacific will be supplying our carton needs on a 'just-in-time'
basis. The second agreement is with our grower partners in the
desert areas of California and Arizona for this coming winter
season. This agreement will reduce our investment in crops in
the desert by approximately 80% compared to last year, while
maintaining our produce sourcing requirements during the winter
season."
Regarding the restructuring, Mr. Tompkins continued, "Apio's
business consists of
(1) value-added pre-cut produce packaged in Landec's proprietary
technology packaging,
(2) value-added whole fruits and vegetables packaged in Landec's
proprietary technology packaging,
(3) export of value-added and non value-added whole fruits and
vegetables and
(4) 'fee for service' selling and marketing of whole produce.
This restructuring will primarily impact our 'fee-for-service'
business. Exiting the labor and equipment-intensive field
harvesting and packing portion of the 'fee-for-service' business
and focusing exclusively on selling and marketing of value-added
whole produce will result in considerably higher margins per
dollar of revenue. The transition of our 'fee-for-service'
business, however, will substantially decrease our service
revenues in the short-term. Annual revenues from the
'fee-for-service' business for fiscal 2002 are projected to
decrease to a range of $13 million to $16 million from an
estimated $50 million in fiscal 2001. However, gross margins as
a percent of revenues for the 'fee-for-service' business are
projected to increase to between 35% to 40% from the current
average margin of 7%. The restructuring is expected to increase
overall gross margin
dollars. The primary driver for this margin increase is
substantially lower operating costs for both Apio and our grower
partners, and because the 'fee-for-service' produce marketing
and sales business can grow rapidly without significant
increases in expenses. We view this as a very attractive
business going forward."
Greg Skinner, Landec's Chief Financial Officer said, "Many of
these changes will result in a reduction of operating profits
during the third and fourth quarters of fiscal 2001 of
approximately $3.0 million to $3.5 million or the equivalent of
approximately $0.18 to $0.21 per share. The reduction is
primarily comprised of a temporary decrease in 'fee-for-service'
produce volumes as Apio implements its new plan and focuses on
its core growers as well as from the write-down of
'fee-for-service' related assets. Based on the completion of a
detailed restructuring plan, we expect to recognize these
charges primarily during the third and fourth quarters of fiscal
2001. The Company does not expect these charges to adversely
impact its cash position in the short term, and beginning in
fiscal 2002, we anticipate that cash flow will improve
significantly due to lower investments in crops and inventories
and lower operating expenses. Early in the current fiscal year,
we reported that our goal was to make a small profit for fiscal
2001. As a result of this restructuring, we are now forecasting
a loss of between $0.20 to $0.25 per share for the year. The
restructuring initiatives are also going to have a short-term
impact on revenues as we transition Apio's 'fee-for-service'
produce business. We expect that Landec's fiscal 2001 revenues
will be approximately equivalent to fiscal 2000. Looking
forward, we are currently projecting that Landec's revenues will
be flat or decrease slightly in fiscal 2002, as the growth in
Apio's technology-based value added and export businesses is
expected to substantially offset the short-term decline in the
'fee-for-service' business, and because Landec's agricultural
seed and licensing businesses are projected to grow. After
fiscal 2002, we foresee returning to 20-25% top line growth. We
believe these initiatives make sense for our shareholders and,
by taking these charges this fiscal year, we will be well
positioned to meet earnings expectations for fiscal 2002."
Commenting on the financial condition of Landec, Steele added,
"Our priorities are to focus on the operating results from our
food and agricultural businesses while strengthening our cash
position by selling non-strategic assets, entering into
selective license agreements with upfront cash payments,
increasing our cash flow from operations and selectively using
bank lines for seasonal
swings in volume. We expect these liquidity actions to take the
next 12 months to be fully implemented, and to result in
approximately $15-$20 million in new cash resources."
Apio also announced as part of its restructuring plan the hiring
of Leonard Batti as Senior Vice President of Operations. Batti
joins Apio having served 23 years in senior management positions
at Tanimura & Antle, Fresh Express and Dole. Bruce Knobeloch,
Apio's Chief Operating Officer stated, "Leonard Batti brings to
us significant experience in overall produce operations
including, procurement, quality management and plant operations
that will strengthen our capabilities for growth while
increasing our operating efficiencies and thus our overall
margins."
Landec acquired Apio twenty months ago in order to combine the
Company's proprietary specialty packaging Intellipac
applications with synergistic operations of a leading,
established food company. At the time of the acquisition, the
majority of Apio's business was oriented toward traditional
commodity produce sales and service. Since the acquisition,
Apio's growth has
been driven by its line of specialty packaged products that
utilize Landec's proprietary Intellipac technology, which has
nearly doubled to over a $70 million per year business in less
than two years. This restructuring allows Apio to continue to
grow its technology based value-added business, while
establishing an infrastructure that will drive operating costs
down in the "fee-for-service" produce business which, in turn,
will benefit both Apio and its grower partners. This reduced
cost structure will also allow the "fee-for-service" produce
marketing and sales business to grow in tandem with Apio's
value-added business. A similar strategy and change in business
structure was implemented last year in Apio's fruit business.
After exiting the processing of fruit, Apio continued to market
and sell whole fruit. The results from that restructuring have
been very successful as Apio has been able to dramatically
decrease its costs and increase gross margins.
Landec will be releasing its third quarter results after the
market closes on September 11, 2001. The following morning,
September 12th a teleconference webcast will be held at 8:00
a.m. Pacific Daylight Time for all interested parties. A press
release will be issued tomorrow that will give the details
concerning access to the teleconference and webcast.
Landec Corporation designs, develops, manufactures and sells
temperature-activated and other specialty polymer products for a
variety of food, agricultural and licensed partner applications.
The Company's temperature-activated polymer products are based
on its proprietary Intelimer(R) polymers which differ from other
polymers in that they can be customized to abruptly change their
physical characteristics when heated or cooled through a pre-set
temperature switch.
Company news release
N3766
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