Galaxy shrugs off poor 2005, expects turnaround this year

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Related tags: Revenue

Galaxy Nutritional Food's full year 2005 results were impacted by
high raw materials costs and bad debt, but the company remains
optimistic that an earnings turnaround is on the cards for 2006,
especially with the divestment of its manufacturing and
distribution assets, reports Jess Halliday.

The producer and marketer of plant-based dairy alternatives reported loss from operations of $3.24 million in the 12 months ended March 31 2005, compared with $1.60 million the previous year.

The net loss to common stockholders in FY05 was $4.65 million or $0.27 per share.

A large slice of this operating loss - $1.8 million - was attributed to a bad debt provision and inventory write-off related to a single private label customer, with which the company is no longer doing business and whose client, a mass merchandiser, it plans to supply with similar product directly.

The price of casein, a key ingredient in most of the company's products, increased an average of 32 percent during the year, which Galaxy said resulted in an increase of around $2.7 million in cost of goods sold.

Despite the impact of these factors, CEO Michael Broll said: "I believe we have made tremendous progress in terms of positioning Galaxy for a return to profitability and a resumption in growth consistent with our market opportunity."

Indeed, net sales increased 23 percent to $44.5 million, compared with $36.2 million the previous year. These were attributed mainly to higher contract manufacturing sales, and increased sales of Wholesome Valley organic products.

Last week Galaxy​ announced the planned sale of its manufacturing and distribution assets for $8.7 million, and an agreement to outsource its operations in these areas to Schreiber Foods for at least the next five years.

These agreements have much to do with Broll's upbeat outlook for 2006, and he expects the outsourcing to result in "additional cost savings of several million dollars annually"​.

"Without the cost burden associated with our current production facilities and with a much-strengthened balance sheet, we can focus upon marketing and other activities that can leverage Galaxy's strong brands in the healthy foods marketplace,"​ he said.

It is a strategy that Scott Van Winkle, managing director at Adams, Harkness & Hill, indicated to NutraIngredients-USA.com last year may be wise.

"The real issue for Galaxy is that it has a large factory - built with higher sales figures in mind - and therefore large overheads. If this were scaled down, the sales figures would look good,"​ he said.

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