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Synutra International, Inc. reported a loss of 15 cents per share in the fourth quarter of 2011, lower than the Zacks Consensus Estimate of loss of 24 cents and the last quarter loss of 36 cents. However, fourth quarter earnings failed to beat the year-ago quarter earnings of 17 cents.

The results dropped on a year-over-year basis due to sluggish revenue, but improved sequentially based on robust sales of the branded powdered formula product. 

During the quarter,  net sales dipped 4% year over year to $79.3 million, but surged 79.3% sequentially as powdered formula segment sales shot up 133.3%. The company’s net sales also beat the Zacks Consensus Estimate of $63.0 million.

The company’s full-year loss per share was 71 cents versus a loss of $1.86 per share in fiscal 2010. Revenues stood at $248.5 million in fiscal 2011, representing a year-over-year drop of 14.9%.

Fourth Quarter Performance 

Net sales from the powdered formula product more than doubled from the prior quarter to $48.3 million, due to solid growth of the Super series infant formula. Net sales from Other Products were $30.8 million, up 32.2% from the third quarter of 2011.

During the quarter, gross profit plunged 55% year over year to $17.5 million as cost of sales climbed 42.2%. However, gross profit soared 250% sequentially as prior quarter profit was hurt by the discount provided to the distributors to gain market share.

Selling and distribution expenses decreased 6% year over year to $10.9 million, general and administrative expenses fell 19.0% to $7.7 million and advertising and promotion expenses were down 4.4% to $6.3 million.

Loss from operations was $6.4 million in the reported quarter, down from the operating profit of $11.8 million in the year-ago quarter, but significantly higher than a loss from operations of $24.1 million in the third quarter of 2011.

Financial Position

At the end of 2011, cash and equivalents were $48.7 million, long-term debt was $62.7 million and stockholders' equity was $75.3 million. During the quarter, inventories also increased 29.2% year over year to $67.4 million, attributable to continued recovery of the health of the distributor channel.

Our Take

The company continues to make efforts to narrow the loss and based on the fourth quarter results, we believe Synutra is succeeding in its efforts. In the last 30 days, Zacks Consensus Estimates have not budged significantly, indicating the lack of near-term catalysts. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 23 cents and 53 cents, respectively. 

One of Synutra’s primary competitors, Dean Foods Company's (DF - Analyst Report) reported first quarter 2011 adjusted earnings of 14 cents per share, well behind 23 cents recorded in the year-ago quarter but above the Zacks Consensus Estimate of 6 cents a share.

Synutra currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Underperform recommendation on the stock.

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