Friday, February 8, 2013

Cyanotech ( Nasdaq - CYAN ) -- Transition on Track

Cyanotch (CYAN $5.00) reported unexceptional Q3 (Dec.) results.  Sales advanced 8% to $7.24 million. Fully taxed income declined 33% to $.10 a share.  The shift from bulk shipments to branded product sales exhibited steady improvement, though.  Bulk revenues comprised 56% of the quarter's total, compared to 67% in the year ago period.  Both astaxanthin and spirulina showed 42% gains in the packaged goods segment.  The decline in bulk volume resulted mainly due to lingering spirulina production problems, which limited output.  Performance has improved but remains below full potential.  Marketing costs accelerated in the period as Cyanotech widened its retail distribution network.  Those expenses likely will remain elevated as expansion continues.  Margins are likely to improve in the March quarter as the production improvements take effect.  Sales probably will be level, though, due to seasonal growing factors (less sunlight).  We have reduced our full year earnings estimate by a nickel to $.35 a share.

Margins should keep improving next year as more business goes through the retail channel.  End user demand remains vibrant.  Better capacity utilization could lift physical output.  Packaged goods should deliver higher revenue per kilogram.  Some capacity might be switched from spirulina to astaxanthin to supply that faster growing segment.  The long term outlook remains positive.  Sales and margins could keep improving well into the decade.

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