“This a key part of our strategy to continue moving our products to higher value markets,” said Bret Scholtes, Omega Protein CEO, in an earnings call with analysts.
“This integration will give us the opportunity to opportunity to better utilize resources, leverage unique capabilities, and further capitalize on growth opportunities. In the third quarter we grew our human nutrition revenues to nearly $8 million,” he said.
“A key contributor to these results was our specialty protein business, which accounted for 43% of the segment revenues. In addition, we have broken ground on the previously announced expansion of our Wisconsin dairy protein facility, which is expected to double the capacity and increase production capabilities,” Scholtes said.
The units that came together to form the new division are Cyvex Nutrition which supplies dietary supplement and functional food ingredients, Wisconsin Specialty Protein and InCon Prossessing, the division that processes the omega-3 oils the company derives from its menhaden fish catch.
The announcement comes on the heels of the company’s third quarter earnings statement that showed strong up ticks in revenue and earnings but once again also demonstrated the high volatility that has characterized the company’s results in recent years.
Supply volatility
Omega Protein’s business has been based on its harvest of menhaden in and near Chesapeake Bay and in the Gulf of Mexico. Sales of animal nutrition products—fish meal and fish oil—still make up the lion’s share of the business and one that has been generally profitable for the company over the years. But it’s a segment in which the company as at the mercy of external factors as far as price and supply is concerned. Omega Protein is the largest processor of fish oil based in the US, but it is a small fish in the big pond created by the Peruvian anchovy fishery, where a big chunk of the world’s supply of fish meal comes from and where the vast majority of the world’s servings of omega-3s are sourced. A sharp restriction by the Peruvian government in the amount of fish available in this fishery in the first fishing season of 2013 sent a price shock wave through the fish meal and omega-3 markets, a development which is still playing out.
“The third quarter was a challenging one throughout the Omega-3 industry due to higher raw material prices and a study questioning Omega-3’s health benefits that has been widely criticized by the scientific community but was nevertheless well publicized by the popular press,” Scholtes said.
“Peru recently set its quota for the second season at levels generally consistent with market expectations. Peru’s season will run from November through January and we will continue to closely monitor their catch and oil yields in order to assess the impact on global supply for 2014,” he said.
The company has dealt with fishing quota restrictions of its own in the Chesapeake fishery, where the company sidelined one of its boats. A new assessment of that quota is due soon, Scholtes said.
Earnings details
For the third quarter, Omega Protein notched $87.6 million in revenues compared to $84.0 million in the same period a year ago and $41.8 million in the second quarter of 2013. 33.6% for the quarter, an increase from 16.0% in the same period a year ago and 31.8% in the second quarter of 2013. Net income was $14 million in the quarter, compared to $0.2 million in the same period a year ago and $4.0 million in the second quarter of 2013, and earnings per diluted share came in at $0.66, compared to $0.01 in the same period in 2012 and $0.19 in the second quarter of 2013.