Baby formula boom boosts Martek sales

By Clarisse Douaud

- Last updated on GMT

Related tags: Infant formula, Docosahexaenoic acid, Martek

Increased international sales from a thriving infant formula market
drove up Martek's net income by almost 85 percent in Q2, and new
deals point to positive results for the remainder of the year.

The nutritional oil ingredient manufacturer's net income for the 2006 second quarter, which ended April 30, was $6.3m, compared to $3.4m for the same period in 2005. Revenue for Q2 06 was $70.2 million, compared with $55.8 million for Q2 05.

"The future looks bright with strong interest from food companies and expanded international infant formula sales,"​ said Martek CEO Henry Linsert.

The infant formula market has been flourishing and, according to Martek, this has trickled down to benefit the company. It reported that four of their five largest infant formula licensees recently disclosed double-digit growth in their sales of infant formula for international markets.

"We believe that this international growth has been mainly driven by sales increases in Asian markets from products using Martek oils,"​ the company said in its statement.

Martek says its DHA and ARA are already in 80 percent of US infant formulas, and Mead Johnson accounts for more than 50 percent of its sales in this market. Other licensees include Wyeth, Abbott Laboratories and Nestle.

Since the end of Q2 it has announced a supply agreement with Mead Johnson Nutritionals, the largest infant formula manufacturer in the US. The deal made Martek the exclusive worldwide supplier of DHA (omega-3) and ARA(omega-6) from microalgae for Mead Johnson infant formulas.

The company said it generated record cash flows from operations of $11.9m in 06 year-to-date primarily due to strong earnings.

The omega-3 producer stands out among competitors because of the vegetarian source of its ingredient. Rather than being derived from fish oils, Martek's blend of DHA is made from algae grown in stainless steel fermentors under tightly controlled manufacturing conditions. The company maintains this process eliminates the risk of oceanic pollutants and toxins that may be present in fish or fish oils.

Martek underscored that its gross profit margin improved despite idle capacity costs in the current quarter of $1.7 million. The company has been underutilizing production capacity, biding time for deals with major food and beverage companies such as the one with Mead Johnson. Maintaining underutilized capacity at the price of fixed period costs is critical for securing long-term supply agreements, said the company.

In February 2005 it announced a 15-year licensing supply agreement with Kellogg for the use of its DHA in food products, but long product lead time and shelf life stability studies have hampered the launch date.

Until February 2006, Martek was the only source of DHA and ARA the US Food & Drug Administration approved for use in infant formula. The government agency has now expanded approval to non-vegetarian sources, such as fish oils.

However Martek denies that this new development has presented it with immediate competitors in the supply market for infant formula.

"Martek is not aware of any customer with plans to switch to DHA derived from tuna oil or any other fish oil sources for use in infant formula to be sold in the US,"​ the company said recently.

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