Second quarter results affected by lower volume sales and exceptional charges forced Galaxy Foods, the Orlando, Fla.-based producer of plant-based dairy alternatives to revise its forecasts for the full year.
In the three months to September 30, the company recorded net losses of $228,145, compared to net income of $732,245 for the previous year. Operating income for the quarter was $41,927 compared to $1.7 million for 2002.
Then company said that the results were impacted by a one-off $128,258 charge compared to a one-time gain of $1.4 million a year earlier. Excluding this, net profits were some $515,957 higher, helped by a sharp fall in interest expense as the company reduced its debts.
Sales were also lower in the quarter, falling 7 per cent to $9.3 million as a result of the company's decision to stop making lower margin private label and sandwich slice products in order to focus its limited funds on higher margin branded products.
Galaxy said that while this had caused sales to decline compared to the previous year, it had allowed it to lift gross profit to improve by 2 per cent during the period.
Galaxy has recently completed a major financial restructuring, freeing up more cash for investment in the business and allowing it to seek potential new private label partners.
In addition to the financial factors, Galaxy said it had identified a number of other elements which had affected its business during the quarter. "First, consumers eating habits are changing with the recent trend toward low-carbohydrate meal preparation during all meals (breakfast, lunch, snack, and dinner). This has put downward pressure on consumption of items such as bread and complimentary products such as cheese slices," said Christopher J. New, Galaxy's CEO.
"Secondly, the number of consumers shopping in the retail grocery stores is down versus the prior year due to the further emergence and presence of Wal-Mart. The company's product selection is growing but still limited at WalMart. Therefore, the company's sales growth with this account has not been able to fully counter the decline in retail grocery trends."
New said that the company was responding to the growing importance of 'stack it high, sell it cheap' retailers like Kmart, Target, and WalMart by redesigning its products and packaging formats to specifically this kind of outlet.
The slide in second quarter figures came as something of a disappointment for Galaxy, which appeared to have turned the corner earlier this year when it reported a strong improvement in its financial position in fiscal 2003 (which ended in March).
This in turn prompted the company to predict that sales for the current year would be as much as 10 per cent higher than in fiscal 2003, but the poor second quarter showing has forced it to make a more realistic assessment.
New said that the decision to revise the growth target downwards reflected recent changes in consumers eating and shopping behaviour, slower than expected timing for securing private label opportunities, and the slower than expected placement of additional points of distribution of the company's branded items.
"We are still on the right course and will continue implementation of our strategy to achieve greater availability and visibility of our higher margin branded products. Additionally, now that the company has sufficient resources, management will also focus its efforts toward generating consumer awareness, product trials, and generating more repeat purchases for its brands.
"Finally, we are actively redeveloping relationships with strategic private-label customers, which will enable the company to better utilize some of its excess production capacity. These efforts should result in greater operating cash flow and a higher return on invested capital," New said.
Galaxy Nutritional Foods makes a range of products catering for consumers unable of unwilling to eat dairy products. These soy, rice and oat-based products are said to be low in fat and cholesterol and contain more calcium, vitamins and minerals than conventional dairy products. The company's brands include Veggie, Soyco, Soymage, Wholesome Valley, formagg, and Lite Bakery.