Tianli Agritech ("Tianli" or the "Company"), a leading producer of breeder hogs, market hogs and black hogs headquartered in Wuhan City, China, today announced its financial results for the first quarter 2014 ended March 31, 2014.
Mr. Ping Wang, Chairman and Chief Executive Officer of Tianli commented, "We are pleased to deliver another solid quarter, achieving 32% top-line growth and $0.03 EPS for the three months ended March 31, 2014. Our black hog program and retail operations are showing strength, positioning us well for future growth. Looking ahead, despite near-term challenges facing the hog industry- slowing economic growth momentum, tightened credit environment, and the government's crackdown on corruption and extravagant spending, we are confident about the long-term growth prospects of the Chinese hog industry and Tianli's market position."
Revenue for the first quarter of 2014 increased $2.33 million, or approximately 32%, to $9.72 million from $7.39 million for the same period of 2013. This increase was primarily attributable to sales of black hogs raised by farmers participating in our black hog program as well as revenue contributed from our retail sales of specialty black hog products which resumed in April 2013. The Company sold a total of 41,352 breeder hogs, regular market hogs and black hogs with a blended average selling price of $223 per hog during the first quarter of 2014, compared to 32,513 hogs sold and a blended average selling price of $227 per hog for the same period of 2013. Revenue for the first quarter of 2014 from breeder hog sales decreased by 7% to $1.99 million while the number of breeder hogs sold decreased 8% to 7,069 hogs and the average selling price of breeder hogs increased 1% to $281 per hog. The decline in breeder hogs sold was primarily due to weakness in market demand for breeder hogs as farmers are not looking to expand their herds. Revenue for the first quarter of 2014 from regular market hog sales increased 1% to $4.58 million as the number of regular market hogs sold grew 4% to 22,583 hogs and the average selling price of regular market hogs decreased 3% to $203 per hog.
For the first quarter of 2014, we generated $3.15 million in revenue through the sale of black hogs and black hog specialty pork products. We sold 11,700 black hogs as breeder and market hogs with an average selling price of $228 per hog, generating revenue of $2.67 million. We also sold 89,483 kilograms of specialty black hog products through retail that generated $0.48 million in revenue during the first quarter of 2014. Our black hog specialty pork product portfolio includes fresh pork meat sold through supermarkets and to restaurants, hotels and other retailers, and vacuumed pork meats sold in gift boxes or portable thermo coolers.
Cost of goods sold increased $1.67 million, or 25%, to $8.25 million for the first quarter of 2014. Cost of goods sold related to the hog farming segment was $8.01 million for the first quarter of 2014 as compared to $6.58 million for the same period of 2013. Cost of goods sold for the retail segment was $0.25 million for the first quarter of 2014. Gross profit for the first quarter of 2014 was $1.46 million, compared to $0.81 million for the same period of last year. Gross margin for the first quarter of 2014 was 15.0%, compared to 10.9% for the same period of 2013. This increase in gross margin reflected improvement in the gross margin from the sale of breeder hogs and black hogs and the impact of our higher margin specialty black hog meat products. The gross margins for breeder hogs, regular market hogs, black hogs, and retail sales were 36%, 6%, 9% and 48% respectively, for the first quarter of 2014. As a comparison, gross margins for breeder hogs, regular market hogs, and black hogs were 30%, 11%, and 4%, respectively, for the same period of last year.
Selling, general and administrative expenses increased $0.12 million, or 13%, to $1.06 million for the first quarter of 2014. The increase was primarily the result of a loss in inventory of $0.09 million and marketing expenses of $0.25 million related to our black hog program, partially offset by a reduction of $0.22 million in administrative expenses.
Net Income for the first quarter of 2014 was $0.30 million, compared to a net loss of $0.18 million for the same period of 2013. The combination of an increase in revenue and a decrease in selling, general, and administrative expenses led to the return to profitability. The turnaround from a net loss to net profit was primarily the result of: 1) stable hog feed costs, which helped us control our cost of goods sold and 2) improved margins contributed by sales of breeder hogs, black hogs and black hog specialty pork products.
After allocating net income attributable to non-controlling interest, net income attributable to common shareholders for the first quarter of 2014 was $0.43 million, or $0.03 per diluted share. This compared to net loss attributable to common shareholders of $0.11 million, or net loss of $0.01 per diluted share for the first quarter of 2013.
Financial Position
As of March 31, 2014, the Company had cash and cash equivalents of $19.53 million, compared to $10.09 million at the end of 2013. Working capital as of March 31, 2014 was $21.03 million as compared to $14.95 million at December 31, 2013. Cash flow from operations was $3.02 million and $0.93 million for the three months ended March 31, 2014 and 2013, respectively.
Recent Developments
On April 18, 2014, the Company announced that its wholly owned VIE subsidiary, Wuhan Fengze Agricultural Science and Technology Development Co., Ltd. ("Fengze"), completed an equity interest transfer with Xiamen Ruijin Fund LLP ("XMRJ") that allowed Fengze to regain full control of Hubei Tianzhili Breeder Hog Co., Ltd. ("Tianzhili"). Total consideration for the transaction is RMB 6,666,700, or approximately $1,050,000, which equals the advances received from XMRJ as of April 18, 2014 in connection with XMRJ's acquisition of the 40% equity interest in Tianzhili in November 2012. As a result of the transaction, Tianzhili became a wholly owned subsidiary of Fengze and the Company regained full control of its Black Hog Program in Enshi Prefecture.
On April 11, 2014, the Company announced that it had entered into an agreement to sell $5.72 million shares of its common stock (the "Offering") to Mr. Ping Wang, the Company's Chairman and CEO. Pursuant to a Subscription Agreement executed on April 10, 2014, once regulatory issues are resolved, which is anticipated to happen shortly, the Company will issue 2.6 million shares of its common stock to Mr. Wang for an aggregate consideration of $5.72 million, or $2.20 per share. The offering price represents an approximately 20.9% premium over the closing price of $1.82 on April 9, 2014. As a condition of the sale, Mr. Wang agreed not to sell the Shares for 18 months and thereafter at not less than $2.20 per share.
On April 8, 2014, Mr. Ping Wang and the Company's Nominating Committee recommended, and the Board of Directors approved, the appointment of Mr. Tong Zhao as a Director of the Board. Mr. Zhao, 39, currently serves as Executive President of Aoxin Holding Co., Ltd. ("Aoxin"), where Mr. Wang also serves as Chairperson.
On March 31, 2014, the Company announced that, due to personal health-related reasons, Mrs. Hanying Li has resigned as Chairwoman and Chief Executive Officer, effective March 27, 2014. Mrs. Li will remain with Tianli as a member of the Board of Directors. On March 28, 2014, the Nominating Committee recommended, and the Board of Directors approved, the appointment of Mr. Ping Wang as a Director, the Chairman of the Board, and Chief Executive Officer of Tianli.
On March 27, 2014, the Company announced that it had completed a $6 million private placement of its common stock to Mr. Ping Wang, a citizen of the PRC. Pursuant to a Subscription Agreement executed on March 24, 2014, the Company issued and sold 3 million shares of its common stock (the "Shares") to Mr. Wang for an aggregate consideration of $6 million, or $2.00 per share. The offering price represents an approximately 13% premium over the closing price of $1.77 on March 21, 2014. As a condition of the sale, Mr. Wang agreed not to sell the Shares for 18 months and thereafter at not less than $2.00 per share.
