Martek sees Q2 dip, but foreshadows improvement
the same period in 2006, but operating profits saw a slight dip as
contract manufacturing margins were down and ARA costs rose.
Revenues rose to $76.7mn in Q2 from $70.2mn in 2006. The manufacturer saw the launch of eight new food and beverage and two perinatal products containing its branded micro algae ingredient life'sDHA during the quarter. While its belt was being tightened over contract manufacturing and ARA costs, Martek has asserted this was a short term blip and that improved economies of scale for ARA production should usher in a turnaround. "So while Martek's year-to-date earnings per share are currently below prior year levels, I expect Martek's higher revenues and gross margin improvement in the second half of the year to generate full year earnings that exceed 2006 results," said Martek CEO Steve Dubin. Income from operations stood at $8,077 in Q2 2007, down from $8,962 in Q2 2006. Full year figures show a larger drop, lowering to $12,835 in 2007 from $16,977 in 2006. Year-over-year, Martek reported gross margins as being negatively affected by lower-than-expected contract manufacturing margins which stood at 4 percent in the second quarter. The Maryland company uses ARA (arachidonic acid) to fortify infant formulas. To offset its production costs, Martek undertook plant restructuring and production consolidation in October 2006. In the past, Martek has claimed to supply 80 percent of the North American infant formula market, and the company attributed a previous 24 percent spike in total revenue year over year to higher sales of its nutritional products for its infant formula licensees. Martek showed its confidence in the strategy to expand from infant formulas to functional foods for all age groups by restructuring plant operations and laying off 15 percent of its work force last year. Its Winchester production workforce was set to be reduced by approximately 100 people and a large portion of production to be transferred to its Kingstree, South Carolina, site. "We expanded our presence in the food and beverage market through agreements with Dean Foods and Breyers Yogurt and general international growth and continued to increase our penetration in the overseas infant formula market," said Dubin. The company incurred the same research and development expenses, $6.3mn, in the second quarter over the previous year. This was devoted to developing new food and beverage applications for life'sDHA, as well as expanding the scientific evidence behind the omega-3 ingredient. Martek's latest food ingredient deal was recently announced. The company is taking life'sDHA to Spanish dairy manufacturer Central Lechera Asturianal, for use in its ABC infant yogurt.
