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No. of Recommendations: 3
Hi all,

I think I've mentioned Landec (LNDC) on this board before. The company "designs, develops, manufactures and sells temperature-activated and other specialty polymer products for a variety of food, agricultural and licensed partner applications." Tom Gardner recommended the stock a few months back in Hidden Gems and the stock hasn't really looked back since then. Today, the company reported 2Q 2008 results and things seem to be going fine (they came up a little short on sales estimates but met EPS estimates). In after hours, the stock is down approximately 11%, and there's a very good chance that I'll pick up a few shares.

http://biz.yahoo.com/bw/080103/20080103006036.html?.v=1

I'm doing a lot of research into the company currently, but there's a big storm coming through our area and will be around for the next few days, and there's a good chance the power will go out. So, if you don't hear from me over the next few days, that's why. I'll put together some notes on the company, but so far I'm very excited about the company's potential. They have no direct competitors, have a lot of patents, and their largest customer is actually Costco. As people get more into fresher fruits and veggies, I think companies will see this as an easy, practical option. It could also take away the need for ice in truck shipments, which would help shipping costs immensely and obviously give the truckers a lot less pressure. So I see huge potential and the company seems to have a lot of things going for it. Management is very experienced (most of the executives have been with the company for 10-15 years) and the balance sheet is strong as well. The company's BreatheWay packaging technology seems very promising and as I far as I can see, as long as the economy remains in decent shape and people want higher quality fruits and veggies, Landec's technology will be in high demand.

So, just a quick little write-up on the company, hopefully the power doesn't go out so I'll be able to post some more detailed notes. Currently I'm scanning through the latest 10-Q:

http://sec.gov/Archives/edgar/data/1005286/000114420407051878/v088906_10q.htm

Any thoughts? I'll get some more notes posted soon if people are interested.

Best,

David K
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No. of Recommendations: 0
david,

would love to hear your thoughts on LNDC? they just announced earnings and look like a good company...

-P
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No. of Recommendations: 1
One thing that I don't like about LNDC is that they are beholden to their licensees like Air Products and Chiquita to use their products and they can be slow in the implementation and testing. This seems to be taking a longer time according to the CC.

Also, I haven't looked into their input costs, especially, since the costs of resin fluctuate quite a bit and have gone up. I think LNDC doesn't use petroleum based products in their breatheway technology, but in other products.

According to the CC, the CEO is on the lookout for potential acquisitions that can further deploy their technology. I much rather prefer licensing arrangements, b/c I get wary of paying too much and underdelivering on acquisitions. Although, Apio acquisition seems to be successful.

some thoughts,
-P
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No. of Recommendations: 2
Here are my notes on Landec. I like Landec at this price, they're on my watchlist, but I see no reason to put them at the top of the list.

Good luck...
you'll need it to get through this

Random musing:
Tom’s valuation
...eliminated the one-time effects associated with the sale of the seed business. ...owner earnings run rate of $17 million. The company expects to grow net income 30% to 40% in the coming year, and analysts project 20% earnings growth over the next five years. I'll stick with the 20% growth estimate, although I'm fairly optimistic that will prove to be low when royalty benefits are realized.
...market cap in excess of $1 billion by 2012. ... gains on the order of 25% over the next five years.

owner earnings run rate of $17 million discussion - http://boards.fool.com/Message.asp?mid=25949181&bid=&sort=whole#25966195
I think you are right to be sceptical of Landec and wait for a great price. Landec move very slowly, especially compared to the attention span of a Wall St analyst.
$10 has seemed like a great price to me for the last year or so and it still does. At that price I don’t see the high risk you see. I see a stable growing Ag business which should continuing providing cash and a risk free option on a licensing business with good potential.

On Tom’s valuation
20% growth estimate is no easy pickings. That assumes royalties will kick in and be substantial. Be conservative say 10% growth in Ag and no growth in royalty. What price do you come up with then?
Here’s what I quickly came up with, or should I say will as I finish my third glass of wine. Yup it’s a big night for me tonight.
Product sales 56,274
License fees 1,550
Gross profit 8,857
Operating income 3,830
Net income before taxes 4,323

So Product sales dwarfs license fees, but license fees fall to the bottom line as Monsanto pays for all the costs. So which bottom line to use? Fees are 18% of gross profit up to 40% of operating income.

Too many numbers for my wine addled brain, hard to think. When I keep the licence fees constant, which is my worst case scenario for the next five years and increase the Ag business by 10% a year I still get a valuation above $10.

I still like my old post to refer back to http://boards.fool.com/Message.asp?mid=25623369

Latest 10Q
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0001144204-08-000798&Type=HTML

Greatest risk: Alpha. Market risk. Small caps have been is favour, but traditionally they are out of favour more than they are in. While a p/e of 20 for a growing small cap may seem acceptable now, it may appear expense at some time in the future.

Dean
Investment thesis: China and India’s appetite for food follows the same the curve as commodities. Food becomes more expensive making packaging and preservation all the more important. Then they may get another deal or two, I’ll call that the Marvel put.


OFF TOPIC: Patience and Purchases
Hey Dan
Ask Warren. or Tom. or Stan. or Jim. or whatismyoption. I look forward to the day when I can be justly included by name alongside even one of those investors, but for now all I can say is thanks for the laugh.

It should go without saying all the following is in my arrogant delusional opinion, which is sometimes shortened to IMHO.

One of my favourite quotes is buy great companies at good prices and good companies at great prices. It may be simply a more detailed way of saying patience pays, but the more phrases like that which I internalise the better.
Just so there is no doubt about this let me add there is a big difference between buying after a price decline which appears to make something good value and buying at a discount to intrinsic value. Something can easily drop 20% and still be overvalued. All fundamental investors need some way of knowing how to spot a good price without reference to past price. That method can be DCF, valuation metric ranges like Tom E employs or or surely there are more , yes I know the BMW method. Humm actually that last one does reference past price quite heavily. Anyway fundies need some systematic method and falling 20% doesn’t cut it.

Anyway you know that Dan, I was sharing for others. What I wanted to share with you are these couple of posts I stumbled across:
http://boards.fool.com/Message.asp?mid=26014582
http://boards.fool.com/Message.asp?mid=26019122

I thought you might find them interesting and maybe even wish to add to them. Specifically I was wondering if you do something similar with your multiple buys or if you’re more free form.
I’ve just started using an extended thirds, i.e. 5-10 buys, approach with buying banks and plan on same with builders. I have been planning on using a date driven buying plan rather than one based on my first buy price, e.g. I plan on nibbling once a week over the coming months, but if conditions change dramatically then I would adjust the amounts.

Best
Dean

PS Dan if we aim to own all the Googles and Apples and Oranges … we are doomed to failure. How about, if we aim to own all the Googles, Apples and Oranges we’re going to buy a lot of lemons too? Hey maybe we could rework that a bit and sell it as a new slogan to Rule Breakers? Before, I’m accused of Dave bashing let me add Dave is seriously kicking Tom’s butt in Stock Advisor.



Hi MBM
Short answer is I'll start paying attention at $12 as that would be a good though not great price. Saying that long term investors should get good returns from buying now.

There is only one tool I know that gives any chance as guessing near term movement, yes the tea leaf reading art of TA.
http://stockcharts.com/charts/gallery.html?lndc
Things I note from the chart:
• 50 day MA provided support and falling price bounced off it
• Bounce was met by more selling.
• 50 day MA was penetrated and was met by a rush of sell orders.
• 200 day MA now penetrated, not a happy sign.
• The TA traders and a lot of other people will have seen these key averages penetrated and will be standing on the sidelines to see the resolution.

I agree with all that Stan said, well actually I think he was confirming what I said. There is one exception and maybe it is due to my lack of understanding of US trusts, so I just talk about Australian trusts. I have a Family Trusts, I know a lot of people with family trusts. The only one who would let the trustees make buy and sell decisions is totally disinterested in investing and has no idea about companies or the stock market. It may be possible that Gary Steele who is the unholy trinity of Chairman, CEO and President (naughty boy) is happy to let a trustee make sell decisions for him, anything is possible.

Bears To fully answer your questions. Options have a vesting and an expiration date. Vesting is when you get your hands on the options the company promised you, this is the earliest date you can sell them. I’ll let you guess what expiration means, Vesting normally occurs over 3-4 years, eg 25% of options promised each year. Expiration is normally 7-12 years.

One final thought It is hard to beat the market if you think like everyone else. Most books chant the same mantra of insider sales are meaningless, so the wise people who read these books chant the same line. (That’s not a dig at anyone here, my opinion of Stan is that he is smart and worth paying attention to.) The books are based on studies, from which the academic authors draw conclusions based on their statistical studies. History is littered with once respected academic views that have now been proven to misguided. As it happens I largely agree with the books and the wise. Most insider sales are meaningless, but sometimes as in the circumstances that surrounded the Landec insider sales it is highly probable they have meaning. This is just one example, but I have found if I can see something when everyone else is looking the other way then I more easily beat the market. I also doubt if this theory will be proven wrong anytime soon as it is such a minor point.

Dean


Hi MBM
I posted my limited thoughts on the current sales three weeks ago http://boards.fool.com/Message.asp?mid=25989510
If you wanted to sell for a short term gain that was the time to do it.
Now Landec is back to what I consider fair value though not low enough for me to buy.

There is no conspiracy
The insider sales came at a time when Landec was temporarily overvalued. Management don’t need to know anything special, that we don’t know, to know that was a good time to cash in some of their free chips. If you have a large always replenished bowl of chips, wouldn’t you sell some if someone offered you 20% more than they were worth? I really doubt there is anything sinister in the sales, just a smart move by people who are acutely aware of the volatility in their stock.

The TMF Crew normally don’t bother to comment on insider sales or small corrections (yes 20% is small for a small cap volatile stock). There are dozens of other short term events which they won’t comment on as they are immaterial to their philosophy. That is what it is.

Add Landec to your list of companies where insider selling marked the last two highs and if you’re a short term trader watch for the next time Gary Steele sells. If your valuations then confirm it is overvalued and you’re happy to sell, sell.

Best
Dean



IIRC the actual line is "What you talkin' 'bout Willis?"

I care not, but I had to look anyway http://yahoo.brand.edgar-online.com/default.aspx?cik=1005286

P.S. for poster above the real P/E is not under 20, look up the board for discussions on this or at least back out sales of seed business and then estimate earnings without drag of seed business in off quarters. Or easier yet, simply use forward P/E.



Gary Steele sold 21% of his shares at $15.75, last time Gary sold any shares of quantity was April at very close to the near term high.
Small cap stocks are volatile.
Landec have been selling at all time highs and at the top of their P/E based trading range.

Who thinks the insiders have got it wrong and this is a good time to buy?

Dean
Tompkins Nicholas sold over 60% at $15.64



I have very little tax concerns and wish to come off margin.
Thanks for the excellent return Landec.

Buy order placed at


The other directors http://www.form4oracle.com/company?cik=0001005286&ticker=lndc


Is this the Landec board? Or the mildly amusing, irreverent my lips are curling in to a smile board.

Tim, it seems you wanna go out with a big bang or at least a giggle or two as you go out the door.

I think you may have missed a few sold calls.
How about PLMD? 30% higher in a couple months.
CDIC? Sold at almost $3 and now at $0.60.

If I was to look at my own portfolio I could show you many worse decisions. Selling is hard, I think it is much harder than buying. I am sure Bill was sticking to his principles/strategy on each decision. If you want to have a go at Bill or change Bill, then there are lots of other things that obviously need to be addressed before his sell decisions ;-) However, I totally understand that someone who has so often taken pot shots at your philosophy deserves to take a few bullets themselves. After all isn’t that the basis of Christianity. Though admittedly I never did square away an eye for an eye with turning the other check.

I think Data, Spock aka NoEmotions hit the nail on the head
The truth is NO-ONE really has a lock on ANYTHING in the game. It is a DAMN complicated business be in but it IS FUN. This is a HUGE mindgame and God, I LOVE the challenge.
I let people play their own game and just ignore anyone who tells me their’s is the best and only way. Saying that though, I feel Bill does have a duty to try and show people what he considers the best path.

I’m not sure how graybell’s comment You guys think this is all just a big joke and I'm a clown here for your entertainment. fits in. It is only money. It’s not like it is love or health, family or friends, the environment, my garden, art, music, death or anything else that is really important. People who can’t laugh about it may be taking it too seriously. That’s leads to a path of emotional attachment of fear and greed of psychological mistakes. I find all my investment mistakes a bit funny and I hope Tim was just having a laugh at some of Bill’s mistakes, but I suspect not.

Dean
Just trying to avoid doing my taxes. Fortunately, here in Australia all my share and options trading and investing gets boiled down to a few boxes, short term capital gains, long term gains and dividends. Is it true that in America you have to list each trade separately?




OK fstheoh I’ll play along
Owner Earnings.
For those unfamiliar with Tom's Thumbnail approach which includes how he calculates Owners Earnings (OE), it is summarised in the Sept 2004 issue, you can read it here http://newsletters.fool.com/04/issues/2004/08/01/08.aspx
And Paul, TMFSlydo ran through an example with BWLD back here http://boards.fool.com/Message.asp?mid=24845868

Step 2: Calculate owner earnings from the cash flow statement: net income + depreciation + amortization capital expenditures. I customarily adjust tax rates on earnings to 36%, back out one-time gains or losses, and adjust capital expenditures to pinpoint the maintenance costs of running the business.

I’ll start with the Q4 2007 and multiple by 4 as I can imagine Tom or Stan thinking that is the first quarter which reflects the new company. I’m using yahoo figures.
Net Income - $4,421k
Depreciation - $718k
Capex – (829k)

That gives a total of $4,310k
Multiply that by four and you get $17,240k Lucky guess..maybe?

So without looking at their tax rate or the makeup of the capex, I’m happy to assume that Tom/Stan used Q4 2007 and multiplied by 4, but they could have used some other reasoning/analysis/magic.

If I now add in Q1 2008, which was not available at the time or the newsletter
Net Income - $3,077k
Depreciation - $716k
Capex – (236k)

Total - $3,557k

Total those quarters and multiply by 2 gives $15,734

Does any of that make sense to you?
Landec used to by highly seasonal, but with the sale of the seed business income should be a lot smoother. I’m not positive how Tom/Stan came up with $17M, but hopefully that has given you some ideas to pursue.

Cheers
Dean



Hi Brett
The price movement after the earnings release is of no consequence to a long term investment in Landec. Investing before earnings is only a gamble for short term investors.

Personally, this close to earning I'd always favour waiting for earnings and conference call to get the latest information.

If the earnings and forecasts are fantastic then the price will jump. However, despite paying a higher price you may still be getting better value or maybe not.

To me the best outcome is always a short term miss due to one-off or easily remedied problems. This often provides excellent buying opportunities in great long term investments.

To answer you question as to whether you should invest now. One of the questions I would ask myself is do I know this company well enough and am I comfortable enough with the long term growth story to buy a full position if they earnings miss and the price falls 20-30%.

Most everyone else seems to believe at least an Irish third in Landec is a sensible investment at this point. I am both invested and myopic so it is an easy decision for me not to buy more at this point. I wish you well with your decision.

Dean



Raptor, please leave the class and go straight to the principals office. In future if you have something to say please raise your hand rather than calling out. ;-) Me! Me! Call on me! It is going to take me ages to clean the Cornflakes and milk off my monitor and keyboard, I should know better than read one of your posts with a mouth full of food.

Dan, I’m starting to get a tad worried, I think us agreeing could be one of the signs of the apocalypse. So to save the world I will now disagree with you agreeing with me ;-)

I was going to say almost exactly the same thing as you. My thought was that most good stock pickers have around a 60% success rate, so any estimate you arrive at should be multiplied by 60% to see if it meets your hurdle rate. In this case 20% * 60% = 12%. However, I don’t actually do that, in reality I do exactly what you said, that is look for 30% plus returns.

Woops, I forgot I was meant to be disagreeing.
The two points that may save the world are ranges and timeframe.

Ranges
In this specific case, just as in most if not all of Tom’s recommendations, the 20% is his long term fair estimate. Or at least that is the assumption I work under. I further assume, actually I think I’ve read it, Tom will have come up with a range of valuations, perhaps within his range is that 30% we seek.

Timeframe
I see this as even more important and a key reason why more short sighted people like me with 1-3 year perspectives often disagree with Tom’s calls. While a 20% return estimate for a year is not very attractive to me, a 20% return for five years is attractive. I find numerous companies that I can see possibly returning 40% plus in one year, but I don’t think I have ever found a company that I can see returning 40% for five years. I am not sure how to reconcile the fact that the further out in time you estimate the less reliable your estimates become, perhaps that is not a fact and simply my misconception.

Phillip Fisher spoke about how most investors would be better off ignoring short term overvaluations of their good companies. While he recommended not buying at that point (are you reading this Tom G, cough BWLD cough), he believed most investors deluded themselves that they could sell and then buy the same company back later (Klingsor4? Whatismyoption?). I have had a lot of experience with this and have ended up kicking myself as much as I have felt like a stock timing deity. BWLD is one of my experiments at just holding on during periods of obvious overvaluation, it is hard for me, but I think it is a lesson I need to learn. Gee I think I may have gone off topic, oh well just thinking out loud. While BWLD’s long term prospects are fairly certain, I don’t see as much certainty with LNDC. If it runs in to overvalued land I will be selling. If there are no material changes to the company $17 would entice me to sell as I’m sure I’d have somewhere better for my money at that point.

Reading all my past notes on LNDC I wish to rescind my opening statement in this thread Personally I am surprised by the buying fervour that this recommendation appears to have engendered. I should not be surprised as that is exactly how I felt when I first checked out LNDC, I was very excited. It was only after following the company and reading their past annual filings that my enthusiasm was tempered. http://tinyurl.com/2qtuep

jvinijvini If you look at Stan’s profile you’ll get a good idea of his top 10 Gems. Following his posts should give you further insight to his favourite Gems. Stan does occasionally come out and thump the table for a buy and it is worth sitting up straight and paying close attention.

Best
Dean
Just rambling to give Stan lots of ammo :-)

I have ten minutes between picking kids up and starting dinner, so here are a couple other thoughts for everyone.

In 10 Steps to Becoming a Master Small-Cap Investor, Mr. Gardner mentions that you should try and stay within a few percentage points of the buy around price recommended by the analyst.

Why would Tom say such a thing?


Some people believe the price you pay for companies is the most important factor in determining your future returns. Some people believe it is the companies you buy that drive your future returns. I believe it is both, but am happy to concede it doesn’t really matter what you believe as following a sensible investment path in a thoughtful, patient and emotion controlled way will result in market beating returns.

”Every significant price move of any individual common stock in relation to stocks as a whole occurs because of a changed appraisal of that stock by the financial community.” Philip Fisher

Landec are trading at around 27 times current and forward earnings. That leaves very little room for an upward appraisal by the financial community, while there is room on the downside. Therefore, returns from ownership can only come from improving earnings. This means Landec must deliver on their promise and there is little margin of safety at current prices.

I do prefer to invest in companies that allow me to profit from both expanding multiples and increasing earnings. That is I like the right company at the right price. Landec was that at $10 and $11, but at $13.53 it is a Hold. I give them A for fascination, B+ for prospects and C+ for price. C being average.

Cheers
Dean

Hey Cousie Bro (New Zealand greeting, we're all related)

In that post I made no projections, I simply relayed Tom's projections. Projections which you probably had a helping hand in.

20% is indeed a deal worth investigating. Patience is a trait even more worthwhile engendering as its rewards are timeless. I followed Landec for a year before I bought. I’ve followed Landec closely as they are interesting and your original post on them interested me. Investigating doesn’t mean buying. I agree Landec is a well worth investigating, I simply think an investor could get them for a better entry point.

I must run now to pick my son up from school, so won’t get a chance to add much for you to debate. I’m gonna go way out on a limb and agree that investors could benefit from a position in Landec ;-)
Stan I would really like to hear your views on why Landec at over $13.50 is a great place for new money, you know I’m always very open to hearing your views.

I take it you’d be a happy buyer at this point and that’s great.

What has changed in the last six months to make Landec worthy of a HG place? I say the only change has been the price and that has now disappeared.

Best to you and yours, may the sun continue to shine on Northern California.

Seriously and I am late now, but I would love to discuss this with you and think everyone here could enjoy it.

Dean





Tom recommended a Buy Around price for Landec of $12. The scorecard has a cost basis of $11.25, LNDC closed Friday at $13.53, or almost 13% above the buy around price.

Personally I am surprised by the buying fervour that this recommendation appears to have engendered. Yes there is great potential in the application of their polymers or intelimers, but it is just that, potential. Things have happened very slowly at Landec over the years, I think I’ve said glacial before and I’ll stick to that. To quote from my school report cards “could do better”. They have the potential, but realising that potential is not a slam dunk, it is possible that they’ll never deliver and will simply continue as a fresh food packaging company.

If I wanted more Landec I’d embrace volatility and place a limit order at a lower price. If I didn’t have patience or thought this was the only fish in the sea I’d open a third position here.

The final sentences of Tom’s rec was Landec is a profitable company with a strong balance sheet and a revolutionary technology. Recent weakness in the share price means all that is available at a very attractive price. When Tom write that the price was around 20% lower than now. I do not see the current price as attractive.

From a share price of $11.15 Tom anticipated 25% annual growth for five years. Using his target the current price would result in 20% annual returns.

Dean


Hi All
It’s nice when one of those small annoyances in life actually works in your favour. Thanks for the pop all those who bought Landec after the rec.
I’ve been posting about Landec on the Nikita board and there has been virtually no interest, zip, nada zilch. I even posted a heads-up on the day that looks likely to be this year’s low, http://boards.fool.com/Message.asp?mid=25764678 Though of course that was just luck and market timing is not a worthwhile endeavour. Yeah right. You know what, maybe I am confused, but to me market timing and patient accumulation certainly seem like the same thing with different names. Maybe the difference is in market versus company timing. Anyway back to Landec.

Here is an earlier long post on Landec http://boards.fool.com/Message.asp?mid=25623369, which has many links to other posts.

I started following Landec after Stan posted some excellent thoughts on them, I think his post will be linked in my above one. Since following them I have become less bullish on the story, but the recent price around $10 was too attractive to pass up. There is no doubt that Landec does have the potential for excellent growth, but it is just that, potential. I think Stan and now Tom may be more bullish on the story than I, the difference could certainly be their longer term perspective.

The key to why I invested was at around $10 was it didn’t matter whether they succeeded in amazing new applications for their polymers as the price was supported by reasonably certain cash flows from existing business. At $13.32 you are also paying for possible future earnings.

Best to all, especially those new Landec holders.

Dean


Landec FY Q4 2007
I haven’t yet had the time to listen to the conference call or look at the results in any depth.
The top-line results were good, meeting revenue expectations and beating earning estimates.

For anyone who has looked at LNDC in the past or is interested in taking a position now may be a good time to add LNDC to your watchlist. I know bargains seem to be appearing all over the place at the moment and you may have your cash earmarked for you current watchlist favourites, I’m simply giving a heads-up that LNDC may be worth a spot on your watchlist.

Landec’s share price usually includes a premium for the growth from possible applications of their polymer technology. You normally pay for both the future earnings stream and a call on possible future growth. It appears the call is now worth zero and you can buy Landec for the earnings stream. The price isn’t a “table thumping, you’d be an dolt to miss this one, booyah”, but it is certainly worthy of consideration. After all just how overweight can y’all go in FMD, LOOP, VTIV or whatever you particular fancy is? Landec would provide good diversification.

Here is the link to their earnings announcement.

http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-newsArticle&ID=1030056&highlight=
“Revenues for the fourth quarter were $51.2 million versus revenues of $71.3 million for the same period a year ago. The Company reported net income for the fourth quarter of $4.4 million or $0.16 per diluted share compared to net income of $6.7 million or $0.24 per diluted share for the same period last year. The revenue and net income results in the fourth quarter of fiscal year 2007 reflect the absence of both revenues and net income from the FCD seed business which historically generated a large majority of its revenues and net income during Landec's fourth fiscal quarter when it shipped most of its hybrid seed corn to farmers.”

I am swamped with life’s minutiae at the moment, so sorry I can’t provide an in-depth look at this quarter’s results. Hopefully I’ll get / make some time next week.

For anyone interested the conference call is available here http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=65846&eventID=1594935

If anyone else has some thoughts I’d love to hear them as LNDC is on my watchlist right now.

Cheers
Dean




Landec Corporation Reports Fourth Quarter and Fiscal Year 2007 Results Achieving Record Fiscal Year Net Income
http://us.biz.yahoo.com/bw/070724/20070724006249.html
Revenues for the fourth quarter were $51.2 million versus revenues of $71.3 million for the same period a year ago. The Company reported net income for the fourth quarter of $4.4 million or $0.16 per diluted share compared to net income of $6.7 million or $0.24 per diluted share for the same period last year. The revenue and net income results in the fourth quarter of fiscal year 2007 reflect the absence of both revenues and net income from the FCD seed business which historically generated a large majority of its revenues and net income during Landec's fourth fiscal quarter when it shipped most of its hybrid seed corn to farmers.

Read more listen to conference call


http://boards.fool.com/Message.asp?mid=25711438
Landec Q4 Earnings Release AMC Tuesday 24th with conference call the next morning
http://us.biz.yahoo.com/bw/070703/20070703005664.html

Expectations
Four analysts with eps range of $0.12 – 0.16 and consensus of $0.14 and revenue range of $47.5M – 54.49M with consensus of $51.15M. 90 days ago analysts were expecting $0.13

A year ago LNDC earned $0.24 eps on $69.35M revenue. The reduced revenue is due to the sale of the seed business to Monsanto. The seed business had lumpy revenues which mainly occurred in this quarter.


Recent News
Added to the Russell 3000 Index http://us.biz.yahoo.com/bw/070626/20070626005321.html

I’ll post my thoughts on the earnings and will try to listen to the conference call.
Dean

http://boards.fool.com/Message.asp?mid=25623369
Landec Corporation sells themselves as a technology company specialising in intelligent materials. In their words they design, develop, manufacture and sell temperature-activated and other specialty polymer products for a variety of food, agricultural and licensed partner applications. Although that is true they actually derive most of their revenue from selling packaged fresh food, which doesn't sound quite so sexy does it. Consequently you'll never hear the CEO saying “we are a packaged food company who may be able to make some extra income on the side selling our polymer technology.”

Key Data
-----------
Price $12.40 with a 52wk Range of 7.96 - 15.13
Market Cap:317.28M
Enterprise Value: 257.23
Stated P/E of 10.70, my adjusted P/E is 33.5 based on backing out a major sale of a business division. If cash is backed out then P/E is 27.36. Take your pick ;-)
Forward P/E: 24.31
Price/Sales: 1.37
Price/Book: 2.98
Fiscal Year End: 28 May
Shares Outstanding :25.59M
Float: 21.46M
% Held by Insiders: 18.55%
% Held by Institutions :63.20%

History
----------
Most polymers or plastics are designed to have constant physical state. Some smart chemists went to see Arnie in Predator and came away thinking “cool maybe we can make materials that can alter their state”. OK I made that bit up, they may have said “fully sick” instead of cool. OK if you really insist on the truth, read on.
Side chain crystallisable polymers were first discovered by academic researchers in the mid-1950's. In the mid-1980's, Dr. Ray Stewart, [Landec's] founder, became interested in the idea of using the temperature-activated permeability properties of these polymers to deliver various materials such as drugs and pesticides. After forming Landec in 1986, Dr. Stewart subsequently discovered broader utility for these polymers. After several years of basic research, commercial development efforts began in the early 1990's, resulting in initial products in mid-1994.

So over time they poured $50M in to R&D and came up with polymers that change in controllable specific ways to changes in temperature. Wow, amazing they managed to do what naturally occurs all the time, think ice melting or water turning to steam. Putting my cynicism aside their technology is pretty cool and they have it covered by broad patents. That's their moat.

Now that they have this cool intelligent polymer, or Intelimer, they need to find ways of using it. The first product is Intellipac breathable membranes which extend the shelf life of fresh produce. These membranes were launched in September 1995 for fresh cut broccoli and sold to Fresh Express. In early 1997 Landec expanded the Intellipac business via an agreement with Apio's Value Added Group. In December 1999 not content to simply sell their membranes Landec acquired their main customer Apio and became a packaged food company. Not that they ever said that.

A similar story is found in their other main business. In 1995 Landec started Intellicoat, a seed coatings designed to control water uptake and seed germination as a function of time and soil temperature. In September 1997, Intellicoat completed the acquisition of Fielder's Choice, a direct marketer of hybrid seed corn to farmers.
Year pass, research continues, business grows and then we get to 2007. Landec sells the seed business now called Fielders Choice Direct (FCD)to Monsanto for $50M plus ongoing revenue of around $20M and Apio, the valued added specialty packaged fresh produce is now generating $136M annually.

Still awake, sorry I should have told you to get a coffee before reading this.

Hidden Gems History
----------------------
Flagged in the March 2007 issue. http://newsletters.fool.com/04/issues/2007/02/22/toms-watch-list.aspx
…the leader in the business of intelligent polymers for the fresh-cut fruit and vegetable market. Its patented processes create plastic bags that serve as temperature-activated switches for storing a wide range of fresh-cut produce. Salad greens have long been a staple here, but Landec's technology allows many other products to be sold as fresh-cut, playing into trends of healthy eating and convenience. Landec holds a 45% share in the fresh-cut produce business in the United States. And it is involved in licensing deals in which its materials are used to coat a range of other materials, including perfume additives, household cleaning products, and agricultural seeds

Today
--------
Landec now have two core businesses.
Apio Food and Technology Licensing which has three main divisions. The largest is the fresh cut produce business; however, this is only growing at around 10% from the current $136M. Trading Export Buy and Sell which currently brings in around $55M but provides little income and is mainly being kept alive as a foot in the door to the Asian market. Then there is Apio Tech. Management talk a lot about this, but is seems to boil down to LNDC gets to sell their packaging to Chiquita. Revenues are currently tiny at less than $2M.

The second core business is Tech. This is highly profitable, but currently small. It will try to take advantage of the $50M in R&D Landec have spent. There are many examples of use here. Dermal fillers, Medical dental, adhesives and additives for creams and lotions. The model here is to receive a license fee and on going royalties. For example they entered an agreement with Airproducts for the use of their Intelimer(R) polymer technology in a wide range of applications that include personal care products, latent catalysts, cleaning products and disposable non-woven products. Landec will receive $2.5m in licences fees over time and 40% of gross profits on products.

In May 2007 Landec expect to finish with $0 debt and $60m cash with both businesses profitable and cash flow positive going forward.

Recent Filing
----------------
Rather than going to the SEC, I start at the company's investor relations page. For Landec this is http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-sec My reason for this is they often provide the filing in multiple formats and sometimes provide excellent summaries. In Landec's case the filing are provided in Word, Excel and PDF format. They provide one of the best FAQ pages I've seen in a while
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-faq

Q3 07 Earnings Release http://tinyurl.com/yusykq
<snip>Revenues for the third quarter were $53.0 million versus revenues of $57.2 million for the same period a year ago. Net income for the quarter improved to $24.6 million or $0.92 per diluted share compared to net income of $3.5 million or $0.13 per share for the same period last year. These results reflect both the loss of revenues and the income generated from the sale of FCD to Monsanto.
"We have five primary objectives for the remainder of fiscal year 2007: (1) continue to grow our value-added specialty packaging food business, (2) expand our banana packaging technology sales to Chiquita, (3) support Air Products and Chemicals, Inc. in increasing the sales of our Intelimer(R) polymer products for personal care and latent catalyst applications, (4) begin expanding our Intellicoat seed coating initiatives with Monsanto and (5) grow overall revenues by 10% to 15%, excluding Landec Ag and Apio's commission trading business, while increasing overall net income by 65% to 75% compared to fiscal year 2006 results, after excluding the income, net of expenses and income taxes, from the sale of FCD and after excluding the results of Landec Ag from the beginning of fiscal year 2007 through the close of the sale of FCD on December 1, 2006," stated Steele. "We are currently on track to achieve all of these objectives."

The $3.4 million in license fees, when combined with the $2 million per year in deferred gain, will result in Landec recognizing revenue and operating income of $5.4 million per year over the term of the five year agreement.

Licensing
On March 14, 2006, the Company entered into an exclusive license and research and development agreement with Air Products and Chemicals, Inc. providing Air Products with the exclusive right to use Landec's Intelimer materials technology in specific fields worldwide. The license fees for this agreement will be recognized as license revenue over a three year period beginning March 2006. Landec received an upfront licensing fee of $900,000 at close and will receive up to an additional $1.6 million of license payments that will be paid in quarterly instalments of $200,000 each during the second and third years of the agreement. Additionally, in accordance with the agreement, Landec will receive 40% of the gross profits that are generated from the sale of products by Air Products that incorporate Landec's Intelimer materials beginning in the fourth quarter of fiscal year 2007. </snip>

Potential Catalysts
----------------------
Licensing their technology, increasing profits from royalties, improved margins.

Earnings
-----------
Despite good year on year earnings growth for several years Landec's earnings have been bumpy on a quarterly basis. They traditionally made the most of their earnings in the last quarter due to the seasonal nature of the seed business. Now that they have sold FDC this seasonality has been removed and earnings should be smoother.

Landec have a June – May Financial Year (FY), their 2007 fiscal year end in May. They reported their last quarter reported FY07 Q3 on March 27. Due to a one off sale the earnings number from this quarter distort the current picture and will distort trailing earnings for the coming year. In the following table I have adjusted figures to try to take in to account the major sale. There are a few other one time events of note, which I have not adjusted for, this Landec Ag operating losses of $5.8 million before the sale of FCD, Dock Resins insurance settlement for $1.5 million and Aesthetic Sciences milestone revenues of $481,000.
PERIOD	  EPS ACT.      TTM	  Adjusted	Adjust. TTM  
Q4 2007 0.14 est 1.06 0.14 est 0.27
Q3 2007 0.92 1.16 0.13 0.37
Q2 2007 0.00 0.37 0.00 0.37
Q1 2007 0.00 0.33 0.00 0.33
Q4 2006 0.24 0.31 0.24 0.31
Q3 2006 0.13 0.24 0.13 0.24
Q2 2006 -0.04 0.20 -0.04 0.20
Q1 2006 -0.02 0.21 -0.02 0.21
Q4 2005 0.17 0.20 0.17 0.20
Q3 2005 0.09 0.20 0.09 0.20
Q2 2005 -0.03 0.14 -0.03 0.14
Q1 2005 -0.03 0.09 -0.03 0.09
Q4 2004 0.17 0.09 0.17 0.09
Q3 2004 0.03 0.03 0.03
Q2 2004 -0.08 -0.08 -0.08
Q1 2004 -0.03 -0.03 -0.03

Recent Events
----------------
Apio Food Business Awarded U.S. Military Contract to Develop BreatheWay Applications for Fruits and Vegetables http://tinyurl.com/3beh9k
April 24, 2007--Landec Corporation (Nasdaq:LNDC), today announced that its food subsidiary, Apio, Inc., has been awarded a $548,000 contract with Natick Soldier Research, Development & Engineering Center, a branch of the U.S. Military, to develop commercial uses for Landec's BreatheWay(R) packaging technology.
After two years of trials with Landec's BreatheWay technology, Natick has decided to move forward with an 18-month commercialization program. The objective of this program is to further develop the BreatheWay packaging technology for use in distributing fresh fruits and vegetables to selective military deployments worldwide. Once commercial, Apio will be the exclusive provider of BreatheWay packaging technology to all U.S. Military fresh produce vendors.

Landec Sold Seed Business FDC to Monsanto http://tinyurl.com/2aknmr
The sales price for Fielder's Choice Direct (FCD) was $50 million in cash paid at the close on December 1, 2006 with a potential additional earn-out amount of up to $5 million based on FCD results for the twelve months ended May 31, 2007.
- Of the $50 the difference between book value and fair value will be recognised this quarter. The difference between fair value and the $50M will be recognised as revenue spread over 5 years.
Book value of $17.31M, Fair Value of $40M
$22.69M booked as revenue in Q3.
$10M spread as revenue over the next five years.
- In the second agreement, Landec has entered into a five-year co-exclusive technology license and polymer supply agreement with Monsanto Company for the use of Landec's Intellicoat(R) polymer seed coating technology.
- The figures for the second agreement are:
Minimum payment of $17M over 5 years if Monsanto terminates
Minimum payment of $21M over 5 years if Monsanto buyouts technology

How much of this will fall to the bottom line? As Monsanto are paying for all costs all the revenue falls straight to EBIT. Including the $10M difference of price paid minus fair value, they will book $5.4M in revenue and income before taxes a year for the next five years.

Landec Receives Additional Shares in Medical Device Company, Aesthetic Sciences Corporation (ASC), as Part of Their Series A $6 Million Funding http://tinyurl.com/2t47xw Landec now owns 19.9% of ASC after receiving an additional 800,000 shares valued at $480,000 and recorded in the second quarter of fiscal year 2007.

Valuation
------------
As the company has just gone through a major reorganisation I find it difficult to come up with valuations that I am comfortable with. I decided to take a stab by estimating revenues and income for the next five years based on known deals. First up let's look one year out.
 
2008 Earnings
P/E | 0.5 0.52 0.54 0.56
|-------------------------------
20 | 10 10.4 10.8 11.2
24 | 12 12.48 12.96 13.44
28 | 14 14.56 15.12 15.68
32 | 16 16.64 17.28 17.92
36 | 18 18.72 19.44 20.16

Return
P/E | 0.5 0.52 0.54 0.56
|-------------------------------
20 | -19% -16% -12% -9%
24 | -3% 1% 5% 9%
28 | 14% 18% 23% 27%
32 | 30% 35% 40% 45%
36 | 46% 52% 58% 64%
My best guess for a price investors will be willing to pay one year for now are in bold, i.e. a price range of $14.56 - $17.28 for a return of 18% - 40%. I project maximum downside of 19% and max upside of 64%.

For another perspective here are analyst's estimates.
             Current Qtr     Next Qtr 	Current Year 	Next Year
May-07 Aug-07 May-07 May-08

Avg. Estimate 0.14 0.11 1.06 0.51
No. Analysts 5 4 5 5
Low Estimate 0.12 0.10 1.03 0.50
High Estimate 0.16 0.12 1.08 0.52
Analysts are expecting 27.5% annual growth for the next five years.

My earnings model is way off when compared to analysts. As I said I am basing my on known licenses while analysts are anticipating growth from the tech division.
Year	                2012	2011	2010	2009	2008 
Analyst estimate 1.35 1.06 0.83 0.65 0.51
My estimates 0.73 0.66 0.61 0.55 0.62
My estimates for 2008 is based on a 20% tax rate, all other years have a 35% tax rate, hence the drop in 2009. Although I estimated $0.62 for 2008 I decided to reduce that by 10% in my first table for a maximum earnings of $0.56 for 2008.

From a technical perspective Landec has been in a very well defined upward channel since February 2006. You can see that here http://stockcharts.com/charts/gallery.html?lndc The current price is at the lower bound of that channel.

Conclusion
-------------
Bear Me: I just can't see the value here. Multiples are high and it appears to be investing in the hope that licensing will kick in big time. Reading other boards it appears some investors are being fooled by the one time events of the last year, with opinions expressed that a PEG of 0.43 is cheap for this company. Yahoo may say the PEG is 0.43, but realistically it is much higher when you back out the one time events and consider the forward estimates are little more than place holders until a clearer vision of Landec's future emerges.

Analysts' consensus five year growth estimate is 27.5%. I can see no basis for this estimate in the brave new Landec world so I am not comfortable using it in any calculations. After reading through their annual reports Landec's story has barely changed in a decade, they are only slightly further along now than they were back then. Finding new uses for their intelligent polymers seems to occurring at glacial speed.

This is a vegetable packing company with some upside, but is it worth 26x forward earnings when its main business is only growing 10% with low gross and net margins? Did I mention taxes are starting next year as the company uses up it Net Operating Losses (NOLs)
Insiders have also been heavy sellers. I don't see the sales are a major flag.

Bull Me: Marvel, http://finance.yahoo.com/q/bc?s=MVL&t=5y , comes to mind when thinking about firms that have transformed themselves into a licensing cash flow machine. If LNDC is going to reward existing shareholders it will come from licensing their technology with the associated fees and royalties. As this model provides high margins and the opportunity for home runs as well as stealing the odd base investors should continue to be prepared to pay above market multiples. If Landec and their partners manage a few home runs then happy days will be here again.

After selling FDC earnings will be smoother and the company will be consistently cash flow positive. Their cash horde will allow them to invest more heavily in R&D and look for opportunities to invest in.
Landec have delivered on their promises. They have intelligently built the business and their shrewd investments in Apio and Fielders have earnt handsome returns. They have several more pokers in the fire and now have a cash horde and consistent cash flow to enable future growth.

Summary
I don't see Landec as one of my best current ideas, but it is worth following. I know Stan has invested in Landec and perhaps he can see a clearer upside potential than I. The current price does appear to offer a technical and fundamental good time to purchase an initial piece of the Landec. I see limited downside over the next year with the potential for good returns.

Ethical Concerns
-------------------
Packaging and transportation of produce creates waste and unnecessary environmental damage through transportation. Food should be produced and sold locally without packaging. However, I recognise people are lazy and I'd prefer to see them eating fresh food that processed food so if Landec enables a better diet I'll give them a pass. Monsanto is the devil to ethical investors and Landec has provided them with more fire and brimstone.

Resources
------------
http://media.corporate-ir.net/media_files/irol/65/65846/3Q2007Results.pdf
http://www.earnings.com/company.asp?client=cb&ticker=lndc
http://stockcharts.com/charts/gallery.html?lndc
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-faq
http://wallst.net/audio/audio.asp?id=3035
http://archive.twst.com/notes/articles/agl613.html
http://findarticles.com/p/articles/mi_m0EIN/is_2006_July_24/ai_n16548392
http://money.cnn.com/2006/05/30/magazines/fsb/50smallcaps_intro_full/index.htm
http://www.airproducts.com/index.asp
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-newsArticle&ID=831949&highlight=

LNDC Archive
---------------
http://boards.fool.com/Message.asp?mid=25213069&sort=whole


Thanks for reading. I'd love to read others thoughts.
Dean

Landec Corp LNDC
Landec Corporation sells themselves as a technology company specialising in intelligent materials. In their words they design, develop, manufacture and sell temperature-activated and other specialty polymer products for a variety of food, agricultural and licensed partner applications. Although that is true they actually derive most of their revenue from selling packaged fresh food, which doesn’t sound quite so sexy does it. Consequently you’ll never hear the CEO saying “we are a packaged food company who may be able to make some extra income on the side selling our polymer technology.”

Key Data
Price $12.40 with a 52wk Range of 7.96 - 15.13
Market Cap:317.28M
Enterprise Value: 257.23
Stated P/E of 10.70, my adjusted P/E is 33.5 based on backing out a major sale of a business division. If cash is backed out then P/E is 27.36. Take your pick ;-)
Forward P/E: 24.31
Price/Sales: 1.37
Price/Book: 2.98
Fiscal Year End: 28 May
Shares Outstanding :25.59M
Float: 21.46M
% Held by Insiders: 18.55%
% Held by Institutions :63.20%

History
Most polymers or plastics are designed to have constant physical state. Some smart chemists went to see Arnie in Predator and came away thinking “cool maybe we can make materials that can alter their state”. OK I made that bit up, they may have said “fully sick” instead of cool. OK if you really insist on the truth, read on.
Side chain crystallisable polymers were first discovered by academic researchers in the mid-1950's. In the mid-1980's, Dr. Ray Stewart, [Landec’s] founder, became interested in the idea of using the temperature-activated permeability properties of these polymers to deliver various materials such as drugs and pesticides. After forming Landec in 1986, Dr. Stewart subsequently discovered broader utility for these polymers. After several years of basic research, commercial development efforts began in the early 1990's, resulting in initial products in mid-1994.

So over time they poured $50M in to R&D and came up with polymers that change in controllable specific ways to changes in temperature. Wow, amazing they managed to do what naturally occurs all the time, think ice melting or water turning to steam. Putting my cynicism aside their technology is pretty cool and they have it covered by broad patents. That’s their moat.

Now that they have this cool intelligent polymer, or Intelimer, they need to find ways of using it. The first product is Intellipac breathable membranes which extend the shelf life of fresh produce. These membranes were launched in September 1995 for fresh cut broccoli and sold to Fresh Express. In early 1997 Landec expanded the Intellipac business via an agreement with Apio’s Value Added Group. In December 1999 not content to simply sell their membranes Landec acquired their main customer Apio and became a packaged food company. Not that they ever said that.

A similar story is found in their other main business. In 1995 Landec started Intellicoat, a seed coatings designed to control water uptake and seed germination as a function of time and soil temperature. In September 1997, Intellicoat completed the acquisition of Fielder's Choice, a direct marketer of hybrid seed corn to farmers.
Year pass, research continues, business grows and then we get to 2007. Landec sells the seed business now called Fielders Choice Direct (FCD)to Monsanto for $50M plus ongoing revenue of around $20M and Apio, the valued added specialty packaged fresh produce is now generating $136M annually.

Still awake, sorry I should have told you to get a coffee before reading this.

Hidden Gems History
Flagged in the March 2007 issue. http://newsletters.fool.com/04/issues/2007/02/22/toms-watch-list.aspx
…the leader in the business of intelligent polymers for the fresh-cut fruit and vegetable market. Its patented processes create plastic bags that serve as temperature-activated switches for storing a wide range of fresh-cut produce. Salad greens have long been a staple here, but Landec's technology allows many other products to be sold as fresh-cut, playing into trends of healthy eating and convenience. Landec holds a 45% share in the fresh-cut produce business in the United States. And it is involved in licensing deals in which its materials are used to coat a range of other materials, including perfume additives, household cleaning products, and agricultural seeds

Today
Landec now have two core businesses.
Apio Food and Technology Licensing which has three main divisions. The largest is the fresh cut produce business; however, this is only growing at around 10% from the current $136M. Trading Export Buy and Sell which currently brings in around $55M but provides little income and is mainly being kept alive as a foot in the door to the Asian market. Then there is Apio Tech. Management talk a lot about this, but is seems to boil down to LNDC gets to sell their packaging to Chiquita. Revenues are currently tiny at less than $2M.

The second core business is Tech. This is highly profitable, but currently small. It will try to take advantage of the $50M in R&D Landec have spent. There are many examples of use here. Dermal fillers, Medical dental, adhesives and additives for creams and lotions. The model here is to receive a license fee and on going royalties. For example they entered an agreement with Airproducts for the use of their Intelimer(R) polymer technology in a wide range of applications that include personal care products, latent catalysts, cleaning products and disposable non-woven products. Landec will receive $2.5m in licences fees over time and 40% of gross profits on products.

In May 2007 Landec expect to finish with $0 debt and $60m cash with both businesses profitable and cash flow positive going forward.

Recent Filing
Rather than going to the SEC, I start at the company’s investor relations page. For Landec this is http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-sec My reason for this is they often provide the filing in multiple formats and sometimes provide excellent summaries. In Landec’s case the filing are provided in Word, Excel and PDF format. They provide one of the best FAQ pages I’ve seen in a while
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-faq

Q3 07 Earnings Release http://tinyurl.com/yusykq
Revenues for the third quarter were $53.0 million versus revenues of $57.2 million for the same period a year ago. Net income for the quarter improved to $24.6 million or $0.92 per diluted share compared to net income of $3.5 million or $0.13 per share for the same period last year. These results reflect both the loss of revenues and the income generated from the sale of FCD to Monsanto.
"We have five primary objectives for the remainder of fiscal year 2007: (1) continue to grow our value-added specialty packaging food business, (2) expand our banana packaging technology sales to Chiquita, (3) support Air Products and Chemicals, Inc. in increasing the sales of our Intelimer(R) polymer products for personal care and latent catalyst applications, (4) begin expanding our Intellicoat seed coating initiatives with Monsanto and (5) grow overall revenues by 10% to 15%, excluding Landec Ag and Apio's commission trading business, while increasing overall net income by 65% to 75% compared to fiscal year 2006 results, after excluding the income, net of expenses and income taxes, from the sale of FCD and after excluding the results of Landec Ag from the beginning of fiscal year 2007 through the close of the sale of FCD on December 1, 2006," stated Steele. "We are currently on track to achieve all of these objectives."
The $3.4 million in license fees, when combined with the $2 million per year in deferred gain, will result in Landec recognizing revenue and operating income of $5.4 million per year over the term of the five year agreement.
Licensing
On March 14, 2006, the Company entered into an exclusive license and research and development agreement with Air Products and Chemicals, Inc. providing Air Products with the exclusive right to use Landec's Intelimer materials technology in specific fields worldwide. The license fees for this agreement will be recognized as license revenue over a three year period beginning March 2006. Landec received an upfront licensing fee of $900,000 at close and will receive up to an additional $1.6 million of license payments that will be paid in quarterly instalments of $200,000 each during the second and third years of the agreement. Additionally, in accordance with the agreement, Landec will receive 40% of the gross profits that are generated from the sale of products by Air Products that incorporate Landec's Intelimer materials beginning in the fourth quarter of fiscal year 2007.

Potential Catalysts
Licensing their technology, increasing profits from royalties, improved margins.

Earnings
Despite good year on year earnings growth for several years Landec’s earnings have been bumpy on a quarterly basis. They traditionally made the most of their earnings in the last quarter due to the seasonal nature of the seed business. Now that they have sold FDC this seasonality has been removed and earnings should be smoother.

Landec have a June – May Financial Year (FY), their 2007 fiscal year end in May. They reported their last quarter reported FY07 Q3 on March 27. Due to a one off sale the earnings number from this quarter distort the current picture and will distort trailing earnings for the coming year. In the following table I have adjusted figures to try to take in to account the major sale. There are a few other one time events of note, which I have not adjusted for, this Landec Ag operating losses of $5.8 million before the sale of FCD, Dock Resins insurance settlement for $1.5 million and Aesthetic Sciences milestone revenues of $481,000.
   
PERIOD EPS ACT. TTM Adjusted Adjust. TTM

Q4 2007 0.14 est $1.06 0.14 est $0.27
Q3 2007 $0.92 $1.16 0.13 $0.37
Q2 2007 $0.00 $0.37 $0.00 $0.37
Q1 2007 $0.00 $0.33 $0.00 $0.33
Q4 2006 $0.24 $0.31 $0.24 $0.31
Q3 2006 $0.13 $0.24 $0.13 $0.24
Q2 2006 -$0.04 $0.20 -$0.04 $0.20
Q1 2006 -$0.02 $0.21 -$0.02 $0.21
Q4 2005 $0.17 $0.20 $0.17 $0.20
Q3 2005 $0.09 $0.20 $0.09 $0.20
Q2 2005 -$0.03 $0.14 -$0.03 $0.14
Q1 2005 -$0.03 $0.09 -$0.03 $0.09
Q4 2004 $0.17 $0.09 $0.17 $0.09
Q3 2004 $0.03 $0.03
Q2 2004 -$0.08 -$0.08
Q1 2004 -$0.03 -$0.03

Recent Events

Apio Food Business Awarded U.S. Military Contract to Develop BreatheWay Applications for Fruits and Vegetable s http://tinyurl.com/3beh9k
April 24, 2007--Landec Corporation (Nasdaq:LNDC), today announced that its food subsidiary, Apio, Inc., has been awarded a $548,000 contract with Natick Soldier Research, Development & Engineering Center, a branch of the U.S. Military, to develop commercial uses for Landec's BreatheWay(R) packaging technology.
After two years of trials with Landec's BreatheWay technology, Natick has decided to move forward with an 18-month commercialization program. The objective of this program is to further develop the BreatheWay packaging technology for use in distributing fresh fruits and vegetables to selective military deployments worldwide. Once commercial, Apio will be the exclusive provider of BreatheWay packaging technology to all U.S. Military fresh produce vendors.

Landec Sold Seed Business FDC to Monsanto http://tinyurl.com/2aknmr
The sales price for Fielder's Choice Direct (FCD) was $50 million in cash paid at the close on December 1, 2006 with a potential additional earn-out amount of up to $5 million based on FCD results for the twelve months ended May 31, 2007.
- Of the $50 the difference between book value and fair value will be recognised this quarter. The difference between fair value and the $50M will be recognised as revenue spread over 5 years.
Book value of $17.31M, Fair Value of $40M
$22.69M booked as revenue in Q3.
$10M spread as revenue over the next five years.
- In the second agreement, Landec has entered into a five-year co-exclusive technology license and polymer supply agreement with Monsanto Company for the use of Landec's Intellicoat(R) polymer seed coating technology.
- The figures for the second agreement are:
Minimum payment of $17M over 5 years if Monsanto terminates
Minimum payment of $21M over 5 years if Monsanto buyouts technology

How much of this will fall to the bottom line? As Monsanto are paying for al costs all the revenue falls straight to the bottom line as income, with the exception of tax. Including the $10M difference of price paid minus fair value, they will book $5.4M in revenue and income before taxes a year for the next five eyars.

Landec Receives Additional Shares in Medical Device Company, Aesthetic Sciences Corporation (ASC), as Part of Their Series A $6 Million Funding http://tinyurl.com/2t47xw Landec now owns 19.9% of ASC after receiving an additional 800,000 shares valued at $480,000 and recorded in the second quarter of fiscal year 2007.

Valuation
As the company has just gone through a major reorganisation I find it difficult to come up with valuations that I am comfortable with. I decided to take a stab by estimating revenues and income for the next five years based on known deals. First up let’s look one year out. <Pre>
2008 Earnings
P/E 0.5 0.52 0.54 0.56
20 10 10.4 10.8 11.2
24 12 12.48 12.96 13.44
28 14 14.56 15.12 15.68
32 16 16.64 17.28 17.92
36 18 18.72 19.44 20.16

Return 0.5 0.52 0.54 0.56
20 -19% -16% -12% -9%
24 -3% 1% 5% 9%
28 14% 18% 23% 27%
32 30% 35% 40%
45%
36 46% 52% 58% 64%


For another perspective here are analyst’s estimates. <Pre>
Earnings Est Current Qtr Next Qtr Current Year Next Year
May-07 Aug-07 May-07 May-08

Avg. Estimate 0.14 0.11 1.06 0.51
No. Analysts 5 4 5 5
Low Estimate 0.12 0.10 1.03 0.50
High Estimate 0.16 0.12 1.08 0.52
Analysts are expecting 27.5% annual growth for the next five years.

My earnings model is way off when compared to analysts. As I said I am basing my on known licenses while analysts are anticipating growth from the tech division.
Year 2012 2011 2010 2009 2008
Analyst estimate 1.35 1.06 0.83 0.65 0.51
My estimates 0.73 0.66 0.61 0.55 0.62
My estimates for 2008 is based on a 20% tax rate, all other years have a 35% tax rate, hence the drop in 2009. Although I estimated $0.62 for 2008 I decided to reduce that by 10% in my first table for a maximum earnings of $0.56 for 2008.

From a technical perspective Landec has been in a very well defined upward channel since February 2006. You can see that here http://stockcharts.com/charts/gallery.html?lndc The current price is at the lower bound of that channel.

Conclusion
Bear Me: I just can’t see the value here. Multiples are high and it appears to be investing in the hope that licensing will kick in big time. Reading other boards it appears some investors are being fooled by the one time events of the last year, with opinions expressed that a PEG of 0.43 is cheap for this company. Yahoo may say the PEG is 0.43, but realistically it is much higher when you back out the one time events and consider the forward estimates are little more than place holders until a clearer vision of Landec’s future emerges.

Analysts’ consensus five year growth estimate is 27.5%. I can see no basis for this estimate in the brave new Landec world so I am not comfortable using it in any calculations. After reading through their annual reports Landec’s story has barely changed in a decade, they are only slightly further along now than they were back then. Finding new uses for their intelligent polymers seems to occurring at glacial speed.

This is a vegetable packing company with some upside, but is it worth 26x forward earnings when its main business is only growing 10% with low gross and net margins? Did I mention taxes are starting next year as the company uses up it Net Operating Losses (NOLs)
Insiders have also been heavy sellers. I don’t see the sales are a major flag.

Bull Me: Marvel, http://finance.yahoo.com/q/bc?s=MVL&t=5y , comes to mind when thinking about firms that have transformed themselves into a licensing cash flow machine. If LNDC is going to reward existing shareholders it will come from licensing their technology with the associated fees and royalties. As this model provides high margins and the opportunity for home runs as well as stealing the odd base investors should continue to be prepared to pay above market multiples. If Landec and their partners manage a few home runs then happy days will be here again.

After selling FDC earnings will be smoother and the company will be consistently cash flow positive. Their cash horde will allow them to invest more heavily in R&D and look for opportunities to invest in.

Landec have delivered on their promises. They have intelligently built the business and their shrewd investments in Apio and Fielders have earnt handsome returns. They have several more pokers in the fire and now have a cash horde and consistent cash flow to enable future growth.

Summary
I don’t see Landec as one of my best current ideas, but it is worth following. I know Stan has invested in Landec and perhaps he can see a clearer upside potential than I. The current price does appear to offer a technical and fundamental good time to purchase an initial piece of the Landec. I see limited downside over the next year with the potential for good returns.
Ethical Concerns
Packaging and transportation of produce creates waste and unnecessary environmental damage through transportation. Food should be produced and sold locally without packaging. However, I recognise people are lazy and I’d prefer to see them eating fresh food that processed food so if Landec enables a better diet I’ll give them a pass. Monsanto is the devil to ethical investors and Landec has provided them with more fire and brimstone. 1

Resources
http://media.corporate-ir.net/media_files/irol/65/65846/3Q2007Results.pdf
http://www.earnings.com/company.asp?client=cb&ticker=lndc
http://stockcharts.com/charts/gallery.html?lndc
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-faq
http://wallst.net/audio/audio.asp?id=3035
http://archive.twst.com/notes/articles/agl613.html
http://findarticles.com/p/articles/mi_m0EIN/is_2006_July_24/ai_n16548392 ***
http://money.cnn.com/2006/05/30/magazines/fsb/50smallcaps_intro_full/index.htm
http://www.airproducts.com/index.asp
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-newsArticle&ID=831949&highlight=

LNDC Archive
http://boards.fool.com/Message.asp?mid=25213069&sort=whole


Thanks for reading. I’d love to read others thoughts.
Dean
Notes
Licensing:
Monsanto - $5.4M a year in revenue and income
Aesthetic Sciences http://tinyurl.com/yt6gsq
Adding to the stock's allure is a deal with French cosmetic king L'Oréal (LORLY ). Landec will supply L'Oréal with Intelimer for use in cosmetics. It's now used by L'Oreal for a fast-absorbing skin lotion in Asia.

While heavy sales to L'Oréal aren't expected until 2006, "long-term benefits could be huge," says Corey Baldwin of Red-Chip Research, but he declined to say how much L'Oréal may use Intelimer for lipstick and hair spray. For fiscal 2005, Baldwin expects earnings to jump to 30 cents a share on sales of $204 million, up from 7 cents on $178 million in 2004 ending May 31.
http://www.businessweek.com/magazine/content/04_12/b3875108_mz027.htm

http://www.smartmoney.com/stockscreen/index.cfm?story=20060727intro
Good write-up
Landec's sales increased 13% in fiscal 2006 and its earnings jumped 61%. Food was by far the company's strongest business. Why was that?

Landec License Intelimer Polymer Technology for Medical Applications
Landec Corporation, a developer and marketer of technology-based polymer products for food, agricultural and licensed partner applications, announced today that it has entered into an exclusive licensing agreement with a newly established medical device company. The upfront license fee received of $250,000 is for the exclusive rights to use Landec's Intelimer® materials technology in the partner's specific device field worldwide. Landec will also receive royalties on future product sales. In addition, Landec received preferred stock initially valued at $1.5 million which represents a 16.7% ownership interest in the medical device company. Landec ownership interest could increase to as high as 19.9% based on achieving certain milestones which are expected to be met within the next twelve months.
Gary Steele, Landec's President and CEO said, "Completion of this agreement formalizes the desire of both parties to utilize Landec's proprietary materials in addressing a long-time medical need. We are impressed with this partner's commitment to introducing new innovative materials that address patient needs. The partner has selected to work with Landec's Intelimer materials technology for its unique temperature-activated properties. For competitive reasons neither Landec nor its new partner want to disclose the specific field of use or the partner's corporate name at this time."
Steele continued, "This agreement is consistent with our licensing/partnering business objectives of expanding the use of our proprietary Intelimer polymers to areas outside of our core food and ag businesses."
Posted December 29th, 2005
http://www.azom.com/details.asp?newsID=4634


Landec's Breathway products, which are primarily used to wrap fruits and vegetables, sound very interesting and the prospects of this technology being used in other areas in exiting. However Landec's profit and operating margins at 3.94% and 3.57% respectively seem to be as slim as the margins of the grocery store customers it serves. The company reported first quarter results on September 26th and while the company reported a profit aided by an insurance settlement, revenue growth was an anemic 2.82% and fell short of Wall Street estimates. So for now Landec remains on the top of my watch list but did not make the cut for the October investment newsletter.
http://www.sinletter.com/blogComment.aspx?id=89


Earnings Est Current Qtr
May-07 Next Qtr
Aug-07 Current Year
May-07 Next Year
May-08
Avg. Estimate 0.14 0.11 1.06 0.51
No. of Analysts 5 4 5 5
Low Estimate 0.12 0.10 1.03 0.50
High Estimate 0.16 0.12 1.08 0.52
Year Ago EPS 0.24 0.00 0.32 1.06

Earnings History May-06 Aug-06 Nov-06 Feb-07
EPS Est 0.24 -0.02 -0.02 0.90
EPS Actual 0.24 0.00 0.00 0.92
Difference 0.00 0.02 0.02 0.02
Surprise % 0.0% 100.0% 100.0% 2.2%

Slide 19 APIO 10% revenue growth going forward http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-irhome


Overview of Company
Most polymers or plastics designed to have constant physical state. LNDC polymers change in controllable specific way to change in temperature.
Broad patent coverage.
Breathable packaging
Medical dental, adhesives, additives for creams and lotions
Seed coating
$5.4 Million for five years

Now Two Core Businesses
Apio Food and Technology Licensing
Largest market is the fresh cut produce business; however, this is only growing at around 10%
Valued added Specialty Packaged Fresh Produce $136mm
Trading Export Buy and Sell $
Tech – Bananas $1m They make a huge beat up of this, but is seems to boil down to LNDC gets to sell their packaging to Chiquita.

Tech Business
Highly profitable, but currently small
Tech licensing to take advantage of $50mm R&D
Many examples of use here. Skin Creams, Dermal fillers,
License fee and royalty
Airproducts - $2,5m in licences fees over time and 40% gross profits

2007 expect to finish with $0 debt and $60m cash

Both business to be profitable and cash flow going forward.













LNDC
I have been tracking LNDC Landec Corp, a watchlist company, since early this year. I posted on them back here and there was lots of great input from people. http://boards.fool.com/Message.asp?mid=25213069&sort=whole

Landec are once again coming down to a range where I am interested in buying.
http://stockcharts.com/charts/gallery.html?lndc

Here are my last thoughts as posted on short term board a while back and I’ll try to update my thoughts over the weekend.


Hi Sarah
I am not aware of any fundie info moving LNDC at the moment:
Earnings will be out 27 March
Analysts on average expect .90 with a range of .88 to .92
The earnings include the sale of Fielder's Choice Direct http://tinyurl.com/2aknmr , so they are inflated by the sale price.


Insiders continue to sell. The two main ones are 74 and 68, and the reasons given are charitable and diversification. So I don’t attribute any importance to their sales.

LNDC could easily have been bought for less than $13 over the last few weeks, low was $12.24. I been away and my limit order was not hit, greedy me at close to $11, so I still don’t own any LNDC.

Looking at the fundie charts I still don’t think it is a bargain http://ogres-crypt.com/php/chart-mscf.php?s=LNDC
but companies with strong disruptive technologies are seldom bargains.

I’m no chart reader, but as a believer in the trend is your friend LNDC sure looks strong. http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=lndc&time=9

Sorry I couldn’t shine more light, still recovering from jet lag. One piece of advice I can share is never ever fly Air Canada. Man they suck…it’s like 15 years ago they said let’s not spend any more money on our planes or hire any new staff.

Regards
Dean

LNDC
http://boards.fool.com/Message.asp?mid=25213069
Hi all
Anyone feel like pitching in for a quick review of LNDC, it’s up 80% for the year and a five star CAPS pick. I’ll make a start.

History
Watchlist March 2007 http://newsletters.fool.com/04/issues/2007/02/22/toms-watch-list.aspx
- The leader in the business of intelligent polymers for the fresh-cut fruit and vegetable market.
- Patented process
- holds a 45% share in the fresh-cut produce business in the United States.
- involved in licensing deals in which its materials are used to coat a range of other materials

No detailed mentions on Watchlist board.
Regular board needs resuscitation.

CAPS
http://caps.fool.com/Ticker.aspx?ticker=LNDC

I went long LNDC 21 Sept 06. It’s now embarrassing to share my pitch. “Picking a stock sure is a good incentive to do some research, in this case very quickly as earnings come up on the 27th. I may regret this crazy watch listing style” I never did do that research, but CAPS has proved to be a great watchlist. I soon LNDC drop soon after my pick, that was caused by poor Q3 2006 (CY) results. It has powered ahead since that drop which now just appears to be a small consolidation in a year long 80% climb.
It’s a five star stock, with only one All-star underperform.
The only negative commented posted is: Two insiders just sold large portions of their share in early January.. to the tune of so I’ll check that out first.

http://www.form4oracle.com/company?cik=0001005286&ticker=lndc
Two directors are selling; Frank Fred is selling and gifting a lot, I’ll look further at that, Halprin Stephen E has exercised around 14% of his holding, but this is only for $62.5k so not significant.

Latest Form 4 for Frank Fred http://tinyurl.com/2vsx92 he has 1.165M shares in a foundation and trust. Back in early Jan http://tinyurl.com/34qvnh he had 1.636M directly owned, so he has sold 470k shares.
There are other sales to including by the CEO and other senior management.

As always there can be lots of reasons, but prior to buying in it would be worthwhile looking just a little deeper in to those sales.

Positive Caps comments that would be good to verify:
- Very smart management
- looks like a cool/disruptive product
- NICK TOMPKINS sharp and honest

bilbu has a lot to say, describes business and I think they might take a hit this quarter (Q406) because of all of the recent tainted spinach and other recent produce scares. I imagine this has to hurt sales of their bagged produce. I would see that as a buying opportunity. In addition to the products described above there are several other applications for this promising technology under development any of which could be a hit. Long term I expect this to be a big winner.

What did happen this quarter?
Not out yet.
Here is recent history
Cash Flow http://finance.yahoo.com/q/cf?s=LNDC
Positive operating cash flow up to 3 quarters ago and was positive finishing last year, perhaps revenues are bumpy and majority of cash flow comes in a couple quarters, need to check that.
 
Gross Margins 15% 11% 21% 20%
Net Margins 0% 0% 9% 6%
Net Income From Continuing Ops 108 14 6,694 3,515

Yes checking earnings.com I get the following ttm backwards per quarter:
 
0.37 Q2 2007
0.33 Q1 2007
0.31 Q4 2006
0.24 Q3 2006
0.2 Q2 2006
0.21 Q1 2006
0.2 Q4 2005
0.2 Q3 2005
0.14 Q2 2005
0.09 Q1 2005
0.09 Q4 2004
-0.08 Q3 2004
-0.19 Q2 2004


Key Stats and Earnings Estimates
Yahoo Key Stats: http://finance.yahoo.com/q/ks?s=LNDC
 
Market Cap (intraday): 346.46M
Enterprise Value (24-Feb-07): 334.75M
Trailing P/E (ttm, intraday): 38.07
Forward P/E (fye 28-May-08): 25.52
PEG Ratio (5 yr expected): 0.54
Price/Sales (ttm): 1.43
Price/Book (mrq): 3.87
Total Cash (mrq): 11.75M
Close to no debt


Earnings estimates are interesting: http://finance.yahoo.com/q/ae?s=LNDC
 
Earnings Est Current Qtr Next Qtr Current Year Next Year
Feb-07 May-07 May-07 May-08
Avg. Estimate 0.75 0.12 0.860 0.54
No. of Analysts 5 5 5 5
Low Estimate 0.17 0.1 0.23 0.5
High Estimate 0.91 0.14 1.04 0.57
Year Ago EPS 0.13 0.24 0.32 0.86


5 year growth estimate of 27.5%

Quick Valuation
My PIV-ER Calculation returns:
 
Weighted IV 16.30
PIV 84.6%
ER 18.3%


It would be worth running Tim Thumbnail to see what value it arrives at.

I think this is one worth looking deeper at. Any wanna pitch in?

Dean




what's a Tim Thumbnail? you just showed us a Tim Thumbnail It's currently at the top of a rising channel. I'd wait to buy when it corrects closer to the bottom of the rising channel ... somewhere around $12.50 Ahh what a difference one vowel makes. Anyone want to do a Tom Thumbnail valuation?


M* Fundie charts
http://ogres-crypt.com/php/chart-mscf.php?s=LNDC

Big Charts
All data http://tinyurl.com/357ufc
2 Year data http://tinyurl.com/2mg65l which clearly shows the Price Channel Tim referred to. Though to my un trained eye waiting for a pull back to the bottom of the channel would have kept you out of LNDC since April 06 at around $8 ;-) Current Price $13.78

Tom S’s info is certainly interesting, it would be great to estimate how much the Monsanto deal will add to eps and the potential of the Chiquita deal.
My first thought is if the deal with Monsanto is large, this could smooth out the bumpy earnings and see LNDC have four positive quarters a year instead of two.

Yes, this does look expensive now by some metrics. Perhaps these new deals and the PEG at .54 paint another picture. Disruptive technology, expensive pps….sounds more like a baby Rule Breaker.

I’m getting a warm feeling.

Dean

Following up on the Monsanto deal from Stan’s fantastic write-up

LNDC Investors Relations
http://phx.corporate-ir.net/phoenix.zhtml?c=65846&p=irol-irhome

Here is the release from LNDC http://tinyurl.com/2aknmr
- The sales price for Fielder's Choice Direct (FCD) was $50 million in cash paid at the close on December 1, 2006 with a potential additional earn-out amount of up to $5 million based on FCD results for the twelve months ended May 31, 2007.
- Of the $50 the difference between book value and fair value will be recognised this quarter. The difference between fair value and the $50M will be recognised as revenue spread over 5 years.
E.g (all figures made up for illustrative purposes) Book value of $10M, Fair Value of $35M
$25 M booked as revenue this quarter
$15M spread as revenue over the next five years.
- In the second agreement, Landec has entered into a five-year co-exclusive technology license and polymer supply agreement with Monsanto Company for the use of Landec's Intellicoat(R) polymer seed coating technology.
- The figures for the second agreement are:
Minimum payment of $17M over 5 years if Monsanto terminates
Minimum payment of $21M over 5 years if Monsanto buyouts technology

How much of this will fall to the bottom line? Well as all they have to do is R&D, I expect a lot will fall to the bottom line. The average Total R&D spend for the last four quarters is $772k, while the minimum to be received is $850k per quarter.

These amounts plus the difference between fair value and $50M, should help LNDC to achieve positive income and cash flow from operations for every quarter.

Dean
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No. of Recommendations: 1
Latest earning transcript....

http://seekingalpha.com/article/59082-landec-f2q08-qtr-end-11-25-07-earnings-call-transcript

Looks like pretty good earnings...they are investing more in research to move beyond just food related licensing...Like the expanded foray into avocados with Chiquita...but Chiquita seems to be slow in testing due to their own restructuring....the one thing I don't like about this company is its reliance on other companies to test its new applications. It takes a lot of time and there are many delays....

LNDC seems focused on making some acquisitions this calendar year. They are ramping up their M&A activities and looking for opportunities where they control their own destiny and their product can be applied day one in commercialization.

From listening to Gary Steele, he seems to be focused on the long term management of this company and creating value through partnerships (where there might be high op expenses) and organic growth.
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No. of Recommendations: 0
I like Landec under $10. The reason it is so low is the general market decline and small caps shrinking ratios. Under $10 you get the upside licensing and sales opportunities for free, as their main business of fresh salads etc should provide cash flows to support that price.

Two main risks; shrinking small caps ratios and investors becoming impatient with the slow development of deals.

Best
Dean
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No. of Recommendations: 0
what do you mean by shrinking small cap ratios?
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No. of Recommendations: 0
what do you mean by shrinking small cap ratios?
people paying less for the same thing, less for eps, less for growth, less for sales.

small caps had been on a tear for 4.5 years and now they're not http://invest.kleinnet.com/bmw1/stats16/%5ERUT.html

i don't have a ready chart for R2K earnings, but I believe despite current market jitters they are still trending up, so the amount people are prepared to pay is falling, most of the key ratios like P/E are compressing

dean
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