Yuhe International, Inc., a leading supplier of day-old chicken raised for meat production, or broilers, in the People's Republic of China, has published its financial results for the quarter ended 30 September 2010.

Third quarter 2010 highlights

Net revenue increased 62.4 per cent to $21.4 million year-over-year, with sales volume increased 34.2 per cent to 40.3 million birds. Gross profit increased 67.6 per cent to $8.7 million. whilst gross margin increased 130 basis points to 40.4 per cent. Operating income increased 73.9 per cent to $7.4 million, operating margin increased 230 basis points to 34.6 per cent and net income increased 75.7 per cent to $7.3 million. Diluted EPS increased 73.1 per cent to $0.45.

Yuhe purchased five breeder farms in Liaoning Province, with a total production capacity of 430,000 sets of parent breeders, and Yuhe became the largest supplier of day-old broilers in China in terms of production capacity.

Zhentao Gao, Chairman and Chief Executive Officer of Yuhe, commented: "Our strong third quarter sales growth was driven by an increase in both volume and average selling prices.

"We are particularly pleased with our gross margin performance, which benefited from higher average selling prices and our ability to optimise our input costs by locking in favourable fixed prices for external eggs when the market was not as strong as it is today. Yuhe's management team, based on its many years of experience and industry expertise, correctly forecast the current supply shortage and took action to capitalise on the opportunity.

"As a result, we are benefiting from a situation where average selling prices are rising at a faster rate than our input costs. The current average selling price of day-old broilers is approximately RMB3.4 and we expect this favorable supply/demand imbalance to persist into at least the first half of next year."

Third quarter 2010 results

Net revenue for the third quarter of 2010 increased 62.4 per cent to $21.4 million, compared to $13.2 million for the same period last year. The increase was mainly driven by a 34.2 per cent gain in sales volume of day-old broilers to 40.3 million from 30.1 million in the comparable period last year. The average selling price per broiler was RMB 3.28 in the third quarter of 2010, up 15 per cent from RMB 2.85 in the same period last year. Sales of broilers accounted for $19.5 million or 90.8 per cent of the Company's net revenue.

Gross profit increased 67.6 per cent year over year to $8.7 million, compared to $5.2 million in the same period last year. Gross margin increased 130 basis points to 40.4 per cent from 39.1 per cent in the same quarter last year. The increase in gross margin was mainly attributable to the increase in the average selling price per broiler compared to the same period last year.

Operating income increased 73.9 per cent to $7.4 million, compared to $4.3 million in the same period of 2009. Operating margin increased 230 basis points to 34.6 per cent, compared to 32.3 per cent in the same quarter of 2009. The increase was primarily due to operating leverage from higher sales.

Net income increased 75.7 per cent to $7.3 million from $4.1 million in the same period last year. Diluted earnings per share increased 73.1 per cent to $0.45 from $0.26 in the prior year period.

Nine month results

In the nine months ended 30 September 2010, Yuhe reported net revenues increased 34.5 per cent to $45.7 million, from $34.0 million in the nine months ended 30 September 2009. Gross profit grew 38.7 per cent year-over-year to $16.7 million, with a gross margin of 36.5 per cent, as compared to 35.4 per cent in the same period of 2009. Operating income rose 41.3 per cent to $13.5 million, with an operating margin of 29.6 per cent. Net income increased 45.0 per cent to $13.3 million, or $0.82 per diluted share, compared to $9.2 million, or $0.57 per diluted share, in the same period of 2009.