( Click on Table to Enlarge )
Wednesday, February 27, 2013
Cyanotech ( Nasdaq - CYAN ) -- Production Miscue Intensifies
Cyanotech (CYAN $4.25) has been battling poor Spirulina yields over the past year. That's the company's legacy product. Overall growth is being generated by the high potential Astaxanthin line, despite the setbacks in Spirulina output. That segment continues to gain momentum, both in terms of consumer demand and better than expected production volume. Cyanotech thought it had the Spirulina issue fixed during the December quarter. Harvests improved in response to some modifications in growing cycles, returning nearly to previous levels. Spirulina recently took a new turn for the worse, though. Sufficient material is being produced to keep up with packaged goods demand. But the excess that Cyanotech customarily sells in bulk to other packaged goods producers has been lost, at least temporarily. That's relatively low margin business so the impact on financial performance is likely to be modest. But the fact the problem has not been resolved creates uncertainty about Spirulina's future. Draining those production areas and starting over would be expensive. Converting them to Astaxanthin also would incur expenses. Cyanotech has been building up retail demand for Spirulina, hoping to fill the pipeline with multiple products, not just Astaxanthin. Our estimates are unchanged for the moment. But they could could down if the issue is not resolved in a timely fashion, and with a high degree of confidence.