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China Green Agriculture, Inc. (CGA)·Q1 2018 Earnings Summary

Executive Summary

  • Q1 FY2018 delivered net sales of $62.8M, gross profit of $19.1M, net income of $5.1M, and diluted EPS of $0.13; management said the quarter “finished a solid first quarter” and confirmed full-year guidance .
  • Revenue grew 1.4% year over year, but margins compressed (gross margin 30.4% vs. 37.9% YoY) and net income fell 30.7% YoY; higher G&A and a loss in the sales VIEs weighed on profitability .
  • Liquidity and working capital improved: operating cash flow rose 135% YoY and accounts receivable fell $37.7M sequentially, supporting cash balance of $133.9M .
  • Guidance: Q1 release introduced Q2 FY2018 guidance ($58–$65M revenue; $4.7–$6.0M net income; $0.12–$0.16 EPS), confirmed FY2018 revenue ($263–$301M) and net income ($21–$30M); Q2 release later raised FY2018 net income to $23–$32M and EPS to $0.60–$0.83 .
  • No Q1 FY2018 earnings call transcript was available; prior Q4 FY2017 call emphasized wholesale expansion, potential shareholder return actions, and a website overhaul timeline .

What Went Well and What Went Wrong

  • What Went Well
    • Revenue +1.4% YoY to $62.8M; Gufeng segment revenue +15.3% YoY and tonnage +19.9%, evidencing demand resiliency .
    • Operating cash flow +135% YoY; accounts receivable declined $37.7M QoQ (26.6%), improving balance sheet quality and cash conversion .
    • Management confidence: “delivered robust results” and confirmed FY2018 guidance; strategy to leverage manufacturing plus wholesale for optimization .
  • What Went Wrong
    • Margin compression: gross margin 30.4% (vs. 37.9% YoY) on product mix and cost inflation; net income margin down to 8.1% (vs. 11.9% YoY) .
    • General & administrative expenses +115.8% YoY; sales VIEs posted a $2.1M net loss, pressuring consolidated profitability .
    • Effective tax rate higher (~25% vs. ~15% prior year), amplifying the decline in net income despite stable pre-tax contributions from core segments .

Financial Results

MetricQ2 FY2017Q3 FY2017Q4 FY2017Q1 FY2018
Revenue ($USD Millions)$59.0 $81.3 $83.3 $62.8
Gross Profit ($USD Millions)$19.18 $21.35 $19.7 $19.07
Net Income ($USD Millions)$5.51 $8.19 $4.10 $5.09
Diluted EPS ($USD)$0.15 $0.21 $0.10 $0.13
MarginsQ2 FY2017Q3 FY2017Q1 FY2018
Gross Profit Margin %32.6% 26.3% 30.4%
Net Income Margin %9.4% 10.1% 8.1%

Segment breakdown (Q1 FY2018):

SegmentRevenue ($USD)Net Income ($USD)
Jinong (fertilizer)$26,773,760 $5,741,090
Gufeng (fertilizer)$18,222,066 $1,489,067
Yuxing (agri products)$1,792,643 $175,622
Sales VIEs (wholesale)$15,980,034 $(2,112,934)

KPIs (Q1 FY2018):

KPIValue
Fertilizer tonnage (Jinong)14,525 metric tons
Fertilizer tonnage (Gufeng)54,608 metric tons
Revenue per ton (Jinong)$1,980
Revenue per ton (Gufeng)$374
Distributors (Jinong)1,121
Distributors (Gufeng)312
Top provinces share of fertilizer revenueHebei 19.1%, Shaanxi 10.9%, Heilongjiang 8.7%, Liaoning 7.5%, Inner Mongolia 5.4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ1 FY2018$58–$67M Actual $62.8M (met range) N/A (reported vs. guide)
Net IncomeQ1 FY2018$5–$7M Actual $5.1M (met range) N/A (reported vs. guide)
EPS (Diluted)Q1 FY2018$0.13–$0.17 Actual $0.13 N/A (reported vs. guide)
RevenueQ2 FY2018—$58–$65M New
Net IncomeQ2 FY2018—$4.7–$6.0M New
EPS (Diluted)Q2 FY2018—$0.12–$0.16 New
RevenueQ3 FY2018—$68–$78M New (post-Q1)
Net IncomeQ3 FY2018—$6–$8M New (post-Q1)
EPS (Diluted)Q3 FY2018—$0.15–$0.20 New (post-Q1)
RevenueFY2018$262–$301M $263–$301M (confirmed) Maintained
Net IncomeFY2018$21–$30M $21–$30M (confirmed) Maintained
Net IncomeFY2018$21–$30M (prior) $23–$32M (raised post-Q1) Raised
EPS (Diluted)FY2018$0.54–$0.77 (prior) $0.60–$0.83 (raised post-Q1) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY2017 and Q3 FY2017)Current Period (Q1 FY2018)Trend
Wholesale expansion & acquisitionsAdded wholesalers in Jan 2017; VIE structure to expand distribution; tonnage supported by VIEs Wholesale segment now contributes 25.5% of revenue; introduced Q2 guidance; management expects optimization with manufacturing + wholesale Execution continuing; integration costs visible (VIE loss)
Shareholder value actions (dividends/buybacks/listings)Discussed potential dividends and exchange listings on Q4 FY2017 call; acknowledged investor communication gaps No Q1 call transcript available; press releases remain primary updates Watch for actions; communications improving per commitments
Compliance & governanceLate 10-K filing notice resolved; regained NYSE compliance Q1 10-Q filed; controls and procedures assessed effective Stable compliance posture
Product and regional trendsMix shift and pricing pressure at Gufeng noted; top provinces drive majority of fertilizer revenue Tonnage growth at Jinong and Gufeng; province concentration persists Demand stable; margins pressured
R&D/technology & websiteCommitment to overhaul HTML5 website within a year; investor communications plan Not updated in Q1 filings; continued reference to website in press releases Pending delivery

Management Commentary

  • “We had finished a solid first quarter in a new fiscal year… fundamentals continue to improve… potential for a great fiscal year 2018.” — Tao Li, Chairman & CEO .
  • “Results continue to validate the strength of our market positions… development of the wholesale segment… key to the future of our company.” — Zhuoyu Li, Chairman & CEO (Q2 release, strategic continuity) .
  • “We are currently overhauling [the] website… HTML5 based… transparent upload of Investor Relations information… within a year.” — CFO Ken Ren (Q4 FY2017 call) .
  • “We are exploring all possibilities… including… listings… and dividends… we will disclose the strategy… within the next two months.” — President Zhuoyu Li (Q4 FY2017 call) .

Q&A Highlights

  • Investors pressed for improved communications, website modernization, and shareholder returns (dividend/buyback/listing). Management committed to an HTML5 website within a year and pledged to bring shareholder feedback to the board with updates within two months .
  • Clarifications on acquisition financing: convertible notes structured with protective conversion caps and penalties to mitigate downside if targets underperform (e.g., conversion at higher of $5.00 or 75% of market; penalties for default) .
  • No Q1 FY2018 call transcript available; prior Q4 call tone was constructive, focused on governance and investor dialogue .

Estimates Context

  • Wall Street consensus estimates from S&P Global for Q1 FY2018 were unavailable for CGA due to missing Capital IQ mapping; as a result, consensus comparisons could not be performed. Company guidance and actuals are used instead .
  • Where estimates are needed going forward, we will reference S&P Global once mapping becomes available; currently unavailable.

Key Takeaways for Investors

  • Near-term: Q1 met guidance, but margin compression and sales VIE losses suggest cautious stance until integration costs subside; monitor Q2 results against $58–$65M revenue and $4.7–$6.0M net income guidance for momentum signals .
  • Liquidity strength and improved cash conversion (OCF +135% YoY; AR down $37.7M QoQ) reduce balance sheet risk and provide flexibility for execution and potential shareholder actions .
  • Wholesale strategy is scaling (25.5% of revenue) but currently dilutive to earnings; track VIE segment profitability improvement to validate the distribution-led growth thesis .
  • Watch for full-year guidance revisions: FY2018 net income was later raised to $23–$32M (EPS $0.60–$0.83); delivery against raised ranges could catalyze sentiment .
  • Operational KPIs (tonnage growth and distributor footprint) remain solid; continued demand should support volumes even as margins fluctuate with mix and input costs .
  • Governance/IR initiatives (website overhaul, enhanced communication) may improve investor perception; monitor for announced dividend/buyback or listing actions per management’s Q4 commentary .

Safe Harbor and Other Relevant Items:

  • NYSE late filing notice was resolved; company returned to compliance after 10-K filing .
  • Q1 10-Q reported effective disclosure controls and no material changes in internal control over financial reporting .