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SANW: Fourth quarter results and stevia update

By Ian Gilson, PhD, CFA


The fourth quarter and year end results were announced after the close of the market on Sept. 14, 2017.
Revenue was slightly better than our estimate but the impact of a substantial decline in sales to Saudi Arabia and a small drop in Pioneer related sales had a greater effect on margins than we had anticipated. Operating expenses were also higher than expected due, in part, to severance expenses to Mr. Grewal.
The company (NASDAQ:SANW) decided to adjust, for tax purposes only, its deferred tax account and a tax adjustment of $9.6 million caused the GAAP tax expense to increase to $8.2 million whereas we had expected a tax credit in the 4Q17. This is purely a “book” entry, the NOL is still available for future use.
We have decided to use the adjustment for deferred taxes as an extra item and add back the $9.6 million. This reduces the per share loss to $0.08.
The company has announced that it expects the problems in Saudi Arabia will continue into fiscal 2018 but some the loss will be made up by increased sales in the Sudan.
The current revenue expectation for 2018 is for revenue between $75 and $80 million and adjusted EBITDA between $4.0 and $5.5 million. First quarter revenue is projected to be $9.5 to $10 million. 
Another stevia patent and the sweetener market
S&W Seed has received another plant patent that covers a new variety of stevia plants, SW 129. This variety (see table on page 7 of our full report) is aimed at the commercial production market. The company reiterated its commitment to stevia as a future market for S&W Seed.
A recent article in the trade magazine Beverage Industry (Sept. 11, 2017) outlined the changes in the sweetener market due to a number of factors. Sugar consumption was one of the major factors discussed.
The driver of sugar replacement is still taste. Stevia is the second best (after honey) product for taste.
Stevia continues to gain traction with consumers, with continued innovation taking place in stevia sweetening solutions
These factors are where S&W Seed can meet the needs of both stevia growers and beverage formulators with seeds of superior characteristics that are reproducible in the field.

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