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S&W Seed: Fourth quarter results. Revenue was in line with our estimates. Gross profit margins improved but SG&A increases were higher than expected.

By Ian Gilson, PhD, CFA

S&W Seed (SANW) announced its fourth quarter and full fiscal year 2013 results on September 23, 2013 followed by a conference call. The numbers were driven by the results of SGI, acquired on    April 01 this year. Close to 3.9 million pounds of seed were sold in the fourth quarter at an average price of $3.26 a pound. Nearly all of this was from SGI. Prices of Central Valley, CA alfalfa seed continue to be in the range of $4.30 to $4.50 a pound with commodity seed selling at about $4.00 a pound.

Revenue was slightly above our estimate and GAAP gross margins were close to but a little below our expectations. SG&A expenses for the quarter increased significantly, due in part by higher stock based compensation.

Excludes the impact of currency changes

Both account receivable and accounts payable were higher than prior history due to the impact of SGI, which uses contract farmers to grow the seed, which is sold on a pooling basis. We would expect both numbers to be lower in the first half of fiscal 2014. Cash was $11.8 million and debt (mortgage on land owned) was $5.4 million, including the current portion.

We have adjusted our estimates to reflect the improving gross margins. SG&A should decline as a percentage of revenue, R&D increase modestly and net interest should remain low.

The contaminated acreage used to grow Stevia will not be used until the soil can be cleaned. Stevia cultivation will be charged to R&D as the company will optimize plant selection before any significant planting.

The company reiterated its intentions of increasing gross margins on a non-GAAP basis during fiscal 2014. However, the first quarter will be impacted by the recent storms in the Imperial Valley and an higher than usual level of insect infestation.

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