PARAMUS, N.J., Aug. 6 Smart Balance, Inc. (Nasdaq: SMBL) today announced its results for the second quarter ended June 30, 2009. The Company reported net sales of $58.2 million, an increase of 21.2% versus year ago, and earnings per share of $0.02, versus a loss of $0.02 per share in 2008.
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The second quarter net sales increase versus 2008 was due to a 13% volume growth in case shipments and higher pricing carried over from the prior year. The improvement in earnings per share was due to increased gross profits and lower financing-related costs, partially offset by higher operating expenses.
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The Company increased market share in its core category of spreads by 1.2 points to 14.8% in the second quarter versus the same quarter in 2008, representing the 30(th) consecutive quarter of market share growth, according to Information Resources, Inc. (IRI) data.
"In a quarter where competitive intensity increased, I am pleased with our continued share growth in our core category of spreads," said Stephen B. Hughes, Smart Balance Chairman and CEO. "Consumers have learned that Smart Balance is the company to trust to always deliver the heart healthiest, best tasting spread in the market place."
Gross profit margin for the quarter improved to 48.6% versus 41.4% for the second quarter of 2008, due to lower commodity costs and higher pricing carried over from 2008, partially offset by higher promotion expenses.
The Company paid down debt by $5.0 million during the quarter, bringing total long-term debt to $64.5 million. The Company has reduced debt by $95.5 million, or 60%, since the acquisition of GFA Brands in May, 2007, and expects to continue to pay down debt this year.
The Company expects approximately 10% volume growth in case shipments in the second half of 2009 versus 2008 with plans that include launching a Smart Balance(R) sour cream to add to the Company's presence in the dairy aisle.
"Our second half plans reflect both flexibility and prudence as we strongly support our current products, work on expanding into new categories for the future, and meet our financial commitments as we set the stage for 2010," added Hughes. "In addition to the launch of sour cream, we expect to make progress on several new initiatives by the end of the year."
2009 Second-Quarter Results
Net sales for the second quarter of 2009 increased 21.2% to $58.2 million from $48.0 million for the second quarter of 2008. The increase was primarily due to increased case shipments and higher prices, partially offset by higher promotion expenses. Selling prices for the Company's spreads, which represent approximately 75% of its net sales, were increased three times in 2008 to cover rising commodity costs, consistent with competitive actions in the industry.
The increase in cases shipped was due primarily to growth in the Company's new milk line, due to regional expansion in the Northeast and continued growth in the initial Florida market, and an increase in the core category of spreads, benefiting from timing of the Easter holiday and a favorable comparison to the prior year which had experienced a reduction in retail inventories.
Gross profit increased $8.4 million to $28.3 million for the second quarter of 2009 from $19.9 million in 2008 due to the benefit of higher pricing, the growth in case shipments and lower product input costs, partially offset by higher promotion expenses.
Operating income increased $3.0 million to $2.5 million for the second quarter of 2009 compared with a loss of $0.5 million in 2008 as the $8.4 million increase in gross margin was partially offset by a $5.4 million increase in operating expenses. The increase in operating expenses reflected continued expansion of general and administrative expenses (primarily increased staff and related costs), higher marketing investments to support growth and increased selling and distribution costs driven by higher sales.
Excluding the impact of non-cash charges, operating income increased $3.4 million to $7.7 million in 2009 from $4.3 million in 2008. See the table below for the non-cash items affecting operating income.
Net income for the second quarter of 2009 was $1.0 million compared to a loss of $1.5 million for the second quarter of 2008, an increase of $2.5 million, reflecting the gains in operating income, lower interest expenses, a one-time benefit from the resolution of a state tax position and a loss on the derivative liability related to an interest rate swap. The benefit from the tax resolution was $0.4 million. Other expense in 2009 reflects $0.1 million of accelerated amortization of deferred financing costs resulting from the prepayment of debt.
Excluding the after-tax impact of non-cash charges, net income for the second quarter of 2009 was $4.4 million versus $1.5 million in 2008. See the table below for non-cash items affecting net income (loss).
Outlook
Smart Balance's outlook for the second half of 2009 calls for percentage volume growth in case shipments of approximately 10%. The Company expects continued volume growth led by increased distribution and new products in spreads, peanut butter, cooking oil and popcorn, as well as expansion of its milk products and new products. The food industry is experiencing uncertainty in 2009 around consumer reaction to the economy and increased competitive promotional activity, potentially having the effect of delaying trial by prospective consumers of the Company's premium-priced products.
Gross profit as a percent of net sales is expected to be 45%+ in 2009 as higher promotion and introduction costs will likely partially offset improvements in product ingredient costs versus 2008. Marketing investments will increase in 2009 versus 2008 as the Company will continue to aggressively support its core user base and develop awareness among new consumers.
Forward-looking Statements
Statements made in this press release that are not historical facts, including statements about the Company's plans, strategies, beliefs and expectations, are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may include use of the words "expect", "anticipate", "plan", "intend", "project", "may", "believe" and similar expressions. Forward-looking statements speak only as of the date they are made, and, except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statement, whether to reflect actual results of operations, changes in financial condition, changes in general economic or business conditions, changes in estimates, expectations or assumptions, or circumstances or events arising after the issuance of this press release. Actual results may differ materially from such forward-looking statements for a number of reasons, including those risks and uncertainties set forth in the Company's filings with the SEC and the Company's ability to:
About Smart Balance, Inc.
Smart Balance, Inc. (Nasdaq: SMBL) is committed to providing superior tasting heart healthier alternatives in every category it enters by avoiding trans fats naturally, balancing fats and/or reducing saturated fats, total fat and cholesterol. The Company's products include Smart Balance(R) Buttery Spreads, Milk, Butter Blend Sticks, Peanut Butter, Microwave Popcorn, Cooking Oil, Mayonnaise, Non-Stick Cooking Spray and Cheese. For more information about products and the Smart Balance(TM) Food Plan, visit http://www.smartbalance.com.
Items Affecting Operating Income - Second Quarter -------------------------------------------------- $in Millions 2009 2008 ---- ---- Operating Income (Loss) 2.5 (0.5) --- ----- Non-cash charges affecting Operating Income: Stock-based Compensation Expense 4.0 3.7 Depreciation & Amortization 1.2 1.1 --- --- 5.2 4.8 --- --- Operating Income excluding non-cash charges 7.7 4.3 === ===
SOURCE Smart Balance, Inc.
