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SANW: Second quarter revenue and cost of goods were spot on our estimates.

02/09/2018
By Ian Gilson, PhD, CFA

NASDAQ:SANW

S&W Seed (NASDAQ:SANW) reported its second quarter results and held a conference call on Feb. 08, 2018.
 
Revenue was $21 million, in line with our estimate of $21 million. Cost of revenue was $$16 million, as was our estimate. Operating income of $0.5 million was slightly higher than our estimate of $0.4 million. Sales to Pioneer/ Du Pont were $15.3 million. Full year 2018 revenue should include about $2 million of sorghum and sunflower revenue, double that produced in fiscal 2017. This should double again in 2019 with significant gains in 2020.
 
The N. American alfalfa crop yield was above average and the company had increased acres under production. As a result 2Q seed inventory was higher than expected. Seed does not perish so less acres will be needed over the next year.
 
On the call the company outlined is new strategy. It plans to move closer to the customer and emphasize trait differentiation in all four of its major crop areas. Building an integrated biotechnology based portfolio to meet the needs of the customer is the prime directive.
 
Australia offers the quickest avenue to meet its more immediate goals. S&W Seed already has a stable presence with customer awareness. It is a market where the company can develop and sell new varieties of sorghum and sunflower crops, as well as expanding in alfalfa.
 
Stevia will become more of a focus in the U.S.A. Currently stevia is harvested by hand in Asia which is not practical in countries with high labour costs. The near term objective is to introduce a stevia plant that can be harvested by machines currently in use for other crops. Since the flavor profile is one of the most important factors in its adoption S&W will be doing research using the most advanced analytical instruments to determine what trace molecules impact flavor.
 
Customers in N. America want a dependable supplier of stevia with consistent known levels of glycosides.
 
Revenue guidance for the 3Q18 was $19 to $20 million and for the full year revenue will probably be at the lower end of the guidance of $75 million. This implies a 4Q18 level of close to $24 million, a significant increase from 4Q17 levels.

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