SunOpta Q3 dips on sunflower crop blip

The Canadian food group SunOpta announced a drop in Q3 operating profits over the same quarter last year due to losses from its sunflower division, but reports its food division's operating profits increased over 50 percent on a on a year to date basis.

Operating earnings over the entire company for the third quarter were $3,547,000, or 2.4 percent of revenues, compared to $3,862,000, or 3.4 percent of revenues in the previous year. In September, the group acquired supplier Purity Life Health Products to expand its distribution network, but problems with the company's sunflower crops still had a $2.1m impact on gross margin losses.

SunOpta's model for its food business has been diversification and the strategy seems to be working as it increases supply of ingredients such as acai, oat and soy fiber products.

Revenues in the third quarter increased by 26.5 percent to $145,463,000 as compared to $114,950,000 in the third of 2005. Of this, acquisitions such as Purity Life, represent 10.7 percent.

The company has three business units. The SunOpta Food Group sources, processes and distributes natural products. The Opta Minerals Group recycles environmentally friendly industrial materials and the SunOpta BioProcess Group engineers and markets proprietary steam explosion technology systems for the pulp, bio-fuel and food processing industries.

On a year to date basis, the SunOpta Food Group reported increased revenues and operating earnings, as compared to 2005.

The company reported that the Food Group's sunflower division suffered losses this year due to poor genetic selection in its crop, combined with drought weather conditions. As a result the kernel of the sunflower was below size standard and created additional processing costs.

The new sunflower crop is currently being harvested, which will be utilized in the last quarter of 2006 and in 2007. The company says it has reverted to known genetics and substantially expanded its irrigated growing areas.

SunOpta said it expects the sunflower business to return to profitability in the next quarter with the harvest of the new crop. "The company expects a $4m operating earnings improvement in its sunflower business over the next 12 months," it issued in its release.

In the third quarter the SunOpta Food Group's revenues increased 21.6 percent while operating earnings decreased 17.5 percent. While on a year to date basis revenues increased 39.4 percent and operating earnings increased 52.2 percent.

The company attributed these improved operating earnings over the first three quarters to stronggrowth in packaged products, the rebound in sales of oat fiber and addition of soy fiber, growth in organic private label fruit and tomato based products, growth in private label packaged products, revenue and cost improvements in the Canadian distribution operations and the full year effect of acquisitions completed during 2005.

SunOpta claims the acquisition of Purity Life will add revenues of approximately $50mn to its group.