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S&W Seed: Excellent second quarter showed gross margin improvement and good control of operating expenses.

by Ian Gilson, PhD, CFA

On November 14, 2013 S&W Seed (SANW) reported its first fiscal 2014 quarterly results, followed by a conference call.

Although we were very close on our estimate of pounds of seed sold we were too high on the ASP.  Consequently revenue was below our estimate. However, operating expenses were below our forecast so net income was close to our estimate.

Despite the dire news on the weather in the Imperial valley revenue for IVS increased slightly Y/Y and was the largest contributor to revenue at $4.8 million. Next was SGI at $4.6 million and S&W Seed generated $3.0 million. Since IVS has the lowest selling prices the average ASP declined from year ago levels.

World-wide inventory for alfalfa seeds is at a low level, especially for non-proprietary seeds. Farmers may be forced to pay up for seeds over the next few months and price quotes are being given with very short time periods. S&W Seed is prepared to hold seed back from the market over the winter to capture higher prices in the second half of fiscal 2014. The company has 11 million pounds of seed in inventory, at an average cost of $2.56. With an average ASP approximately $1 higher there is room for margin expansion over the rest of the year.

The company guided revenue forecasts for the second quarter of $11 million to $13 million and $50 million to $65 million for the year. We are assuming the third and fourth quarters are approximately the same at $20 each quarter for a total of $66 million. However, at this time there is no established seasonal pattern so we would not be surprised if revenue is not close to our estimates.

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 S&W Seed Report

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