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Origin Agritech Earnings Analysis


Origin Agritech Ltd. (NASDAQ:SEED) reports preliminary financial results for the quarter ended December 31, 2014.

This earnings release follows the earnings announcements from the following peers of Origin Agritech Ltd. – Monsanto Company (NYSE:MON), E. I. du Pont de Nemours and Company (NYSE:DD), Archer-Daniels-Midland Company (NYSE:ADM), Andersons, Inc. (NASDAQ:ANDE) and Ingredion Incorporated (NYSE:INGR).

Highlights

  • Summary numbers: Revenues of USD 2.54 million, net earnings of USD -4.80 million, and earnings per share (EPS) of USD -0.21.
  • Gross margins widened from 49.35% to 50.04% compared to the same quarter last year, operating (EBITDA) margins now -173.30% from -132.32%.
  • Earnings rose compared to same quarter last year, despite a decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2013-12-312014-03-312014-06-302014-09-302014-12-31
Relevant Numbers (Quarterly)
Revenues (mil)3.340.7714.9148.162.54
Revenue Growth (%YOY)-7.94-82.7-28.48-2.68-24.17
Earnings (mil)-5.09-7.27-2.3513.06-4.8
Earnings Growth (%YOY)-38.33-62.49-336.5453.255.79
Net Margin (%)-152.34-949.85-15.7927.12-189.24
EPS-0.22-0.32-0.10.57-0.21
Return on Equity (%)-40.61-66.32-24.49119.1-39.99
Return on Assets (%)-9.76-13.18-4.4727.39-10.47

Market Share Versus Profits

Companies sometimes focus on market share at the expense of profits or earnings growth.

SEED-US’s change in revenue compared to the same period last year of -24.17% lagged its change in earnings which was 5.79%. The company’s performance this period suggests an effort to boost profitability. While this is good to a point, the fact that the company’s revenue performance is lower than the average of the results announced to date by its peers does not bode well from a long-term market share perspective. Also, for comparison purposes, revenues changed by -94.73% and earnings by -136.75% compared to the immediate last quarter.

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 49.35% to 50.04%. However, the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

Company Profile

Origin Agritech Ltd. engages in the research and development, production, and sale and distribution of hybrid agricultural crop seeds. The company operates its business through the Hybrid Corn, Rice, and Cotton Seeds segment. It engages in the seed breeding, genetic improvement, and the production, processing, distribution of seeds as well as related technical services. The company was founded by Gengchen Han in 1997 and is headquartered in Beijing, China.

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