American Oriental Misses – Analyst Blog

American Oriental Bioengineering’s (AOB) first quarter fiscal 2010 earnings per share (EPS) came in at 4 cents, well below the Zacks Consensus Estimate of 7 cents and 10 cents reported in the year-ago period. The company reported revenues of $53.7 million, up 16.7% from the first quarter of 2009.

 

American Oriental earns revenue from two operating segments – Manufacturing and Distribution. While manufacturing accounted for more than 94% of the company’s total revenues, the Distribution business, Nuo Hua, generated $3.6 million in sales, accounting for the remaining 6%.

 

American Oriental records Manufacturing revenues from two sources – Pharmaceutical and Nutraceutical products. Both recorded an increase of 17.8% to $40.9 million and 8.5% to $9.7 million, respectively, compared with the first quarter of 2009. Revenues from prescription pharmaceutical products increased 29.3% to $20.9 million during the quarter, primarily driven by increased sales of Jinji capsule, SHL powder, Boke and CCXA prescription products. We believe prescription drug sales will continue their growth trajectory as China is aiming at reforming its health care sector to incorporate the unaddressed rural markets. Revenues of OTC pharmaceutical products increased to $19.9 million, compared with $18.5 million in the year-ago period.

 

While American Oriental recorded an increase in revenues, its gross profit margin deteriorated during the quarter. While gross profit came down marginally to $28.2 million compared with $28.4 million in the first quarter of 2009, gross margin was 52.5% compared with 61.7% in the prior-year period. A shift in revenue mix to CCXA’s generic product sales and higher raw material prices brought down the margin.

 

Research and development (R&D) expenses increased 274% to $2.8 million during the quarter. The company is investing heavily in R&D to upgrade its existing product portfolio.