American Oriental Misses - Analyst Blog

American Oriental Bioengineering's (AOB) second quarter 2011 earnings per share came in at $0.05, lower than the Zacks Consensus Estimate and the year-ago earnings by $0.02 each. Earnings in the second quarter of 2011 were hurt by lower revenues.

American Oriental, based in Beijing, China, together with its wholly-owned subsidiaries, is a pharmaceutical company which develops, manufactures and commercializes both plant-based pharmaceutical and plant-based nutraceutical products.

Quarter in Details

Revenues in the reported quarter declined 30% to $54.1 million. Weakness in the manufacturing segment (down 31.8%) was responsible for the slide in revenues. Revenues were well below the Zacks Consensus Estimate of $82 million.

American Oriental earns revenue from two operating segments -- manufacturing and distribution. While the manufacturing business accounted for approximately 93.6% (50.3 million) of the company's total revenue, the distribution business – Nuo Hua generated the remaining revenues of $3.8 million.

American Oriental records manufacturing revenues from two sources -- pharmaceutical and nutraceutical products. Sales from the pharmaceutical product line declined approximately 36.2% to $40.7 million. Sales of nutraceutical products decreased 4.0% to $9.5 million in the reported quarter. The change in product mix impacted revenues.

Gross margin declined to 47.8% from 51.5% in the year ago quarter. Increased raw material prices coupled with the implementation of new taxes and surcharge brought down the margin. 

Operating expenses in the reported quarter declined approximately 36.4% to $19.6 million. Research and development (R&D) expenses were almost flat at $3.1 million. Selling, general & administrative expenses decreased 32.4% to $11.3 million.

American Oriental's cost cutting initiatives resulted in the decline. Advertising expenses plummeted 63.1% to $3.4 million due to reduced promotion of over-the-counter drugs following the company's shift in strategy.

We currently have a Neutral recommendation on American Oriental.