Continuing its move toward human nutrition markets has helped Omega Protein deal with a fluctuating supply situation which has seen a lower than average fish catch this year.
The company says it is on track to double the sales of its Omega Active high concentrate omega-3 fish oil that is sold into the supplements market. And the company has announced plans to double the capacity of its recently acquired Wisconsin Specialty Protein division, which produces whey protein.
Repositioning fish protein
Also, through its Cyvex Nutrition arm, Omega Protein is looking at ways to develop the protein it harvests from its fish catch for the human nutrition market. That stream currently goes into the fish meal sold to aquaculture customers.
“If there is a market for fish protein sold to humans, we definitely want to be in the middle of it. But right now, we’re mainly trying to understand exactly what type of product would work best in that market and also understand how big that market is. The protein space is growing quickly, and there’s a lot of proteins that do not have the amino acid profile or some of the nutritional profiles of a fish,” Bret Scholtes, Omega Protein CEO told analysts during a conference call discussing the company’s second quarter 2013 results.
Difficult fishing season
Omega Protein, the largest processor of fish oil and fish meal for human and animal nutrition based in the US, has seen the catch of menhaden decline compared to the same time last year. Part of this was self inflicted; as a way to deal with a lower quota for menhaden in the Atlantic and Chesapeake Bay portion of its fishery (the other is in the Gulf of Mexico), the company chose to start fishing a month later than usual in an effort to maximize the oil yield of the fish it was allowed to catch.
But the average daily catch per vessel in both areas is down, too, Scholtes said. The company has seen its menhaden catch decline 40% over the same period in 2012, and 27% below the five-year average.
But Scholtes said the strategy of waiting to try to catch the short-lived fish a little later in their life cycle has paid off.
“Through last Friday, our total yield was 21% above last year’s levels and 10% above the five-year average. This increase was driven by our fish oil yield, which was 135% above last year’s level and 43% above the five-year average,” he said.
Scholtes cautioned against reading too much into the fluctuations, which are common to any natural resource extraction business. But such fluctuations are one of the reasons that the company is moving increasingly toward the higher value human nutrition segments, to make the most of its fish oil supply and to invest in sectors independent of the fishing business. To that end, the company recorded $7.3 in sales in the human nutrition segment in the quarter, a 47% year-over-year increase.
“We are focused on building a larger, stronger nutrition business, and that starts by selecting the right sectors in which to compete and then producing products that add value for our customers. Our team is particularly focused on the omega-3 and specialty protein sectors within the nutrition industries due to their size, growth rates, abundant science, and strong awareness,” Scholtes said.
Revenues for the quarter $41.8 million, a decline from $48.9 million in the first quarter and $47.5 million in the 2012 second quarter. Gross profit margin improved, though, hitting 31.8% for the quarter, an increase from 24.7% in the first quarter and 14.4% in the 2012 second quarter. Net income reflected this, coming in at $4 million for the quarter, compared to $2.8 million in the first quarter and $2.5 million in the 2012 second quarter.