Martek earnings plunge in quarter

But profit for year increased 16%

December 13, 2006|By Tricia Bishop | Tricia Bishop,sun reporter

Columbia-based Martek Biosciences Corp. said yesterday that while it suffered a huge drop in fourth-quarter profit because of changes in its manufacturing division, the nutritional supplement maker still posted a 16 percent increase in annual income, thanks to strong sales of ingredients used in baby formula.

Income for the fiscal quarter that ended Oct. 31 was $641,000, an 87 percent fall from $4.9 million recorded during the fourth quarter of 2005. Executives blamed the decrease on a $4.7 million charge associated with restructuring of plants in Kentucky and South Carolina that led Martek to cut 100 workers -- 15 percent of its staff.

For the year, however, profit increased to $17.8 million from $15.3 million a year earlier, led by increased sales to infant formula manufacturers.

"[Our] market share is almost 90 percent in the U.S.," Chief Executive Officer Steve Dubin said during a conference call after markets closed yesterday.

But that kind of situation often spooks Wall Street analysts who wonder what the company plans to do for its second act.

Martek has spent the past couple of years working to penetrate the international formula market and develop additive deals with food makers, but has yet to make much headway. Of the $63.8 million in fourth-quarter product sales, $400,000 to $500,000 came from food products fortified with Martek's supplements.

Some egg producers and soy-milk makers add Martek's omega-3 fatty acid, called DHA, to their products. But Kellogg Co., which signed a deal with Martek last year to add DHA to food products, has yet to announce a pairing.

The substance has long been used in infant formulas because of its benefits to brain and eye health, and new studies are showing it could benefit heart health in adults as well.

Scott Van Winkle, an analyst with Canaccord Adams of British Columbia, suggested food makers may be waiting to launch products until the formula-fed babies and their parents are old enough to appreciate them or the rest of the world catches on to its health benefits.

"Today, if you've got a 3- or 4-year-old child, there's a good chance you know about DHA," Van Winkle said on the call. "It might take a little while longer before kind of the mainstream population really understands it."

In an interview after the conference call, Van Winkle said the earnings were in line with expectations, and he pointed out that the company's stock -- which closed down 64 cents to $23.36 yesterday -- gained in after- hours trading.

Martek Chief Financial Officer Peter Buzy said he expects 2007 to be a "transition year" as the company works its way into markets outside infant formula. He hinted at deal announcements and product launches to come that could "provide significant revenue growth beyond 2007."

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