Name: China Green Agriculture, Inc. Q2 2017 Earnings Call
Start: 2017-02-14T21:47:22.000Z

Executive Summary

Net sales rose 3.1% year over year to $58.7M, while net income increased 29.0% to $5.5M and diluted EPS was $0.15; however, gross margin compressed to 32.6% from 39.7% due to mix shifts and higher input costs .
Consolidation of newly acquired distribution VIEs contributed ~$8.4M (14.3% of total net sales) in Q2, offsetting double-digit declines at core fertilizer units Jinong (-14.3%) and Gufeng (-10.7%) .
Q3 FY2017 guidance: revenue $72–$82M, net income $4–$7M, EPS $0.10–$0.18; FY2017 guidance reaffirmed at revenue $277–$300M and net income $20–$27M, but EPS range trimmed to $0.52–$0.70 vs prior $0.53–$0.72 .
Management highlighted continued execution of a “transformational growth strategy” leveraging wholesale acquisitions; seasonality implies stronger Q3 and Q4, positioning Q3 as the peak quarter catalyst .

What Went Well and What Went Wrong

VIE distribution acquisitions added ~$8.4M revenue (14.3% of Q2 sales) and supported growth despite core segment declines; VIE gross profit was ~$1.24M (14.7% margin) .
Net income and EPS improved year over year (NI +29% to $5.5M; EPS $0.15 vs $0.12), aided by lower interest expense and reduced amortization of deferred selling assets .
Management reaffirmed FY revenue/NI guidance and expressed confidence: “We are very pleased with our performance… Looking ahead… expect revenue of $277 to $300M; net income of $20 to $27M; EPS of $0.52 to $0.7” (Tao Li) .

Core fertilizer segments weakened: Jinong revenue down 14.3% on volume reductions, and Gufeng down 10.7% on price cuts; combined gross margin declined (Jinong 54.0% vs 57.1%; Gufeng 13.9% vs 16.4%) .
Gross margin compressed to 32.6% from 39.7%, driven by higher raw materials/packaging costs and mix shift toward lower-margin products .
Accounts receivable rose to $125.0M (net) with allowance up to $4.34M (3.0% of A/R), raising collection risk concerns even as management emphasized credit optimization and wholesale strategy integration .

Metric	Q4 2016	Q1 2017	Q2 2017
Revenue ($USD Millions)	$79.0	$61.9	$58.7
Gross Profit ($USD Millions)	$21.5	$23.4	$19.2
Operating Income ($USD Millions)	$7.0	$15.2	$7.1
Net Income ($USD Millions)	$5.0	$7.4	$5.5
Diluted EPS ($USD)	n/a	$0.20	$0.15
Gross Margin %	27.2%	37.9%	32.6%
Net Income Margin %	~6.3% (5.0/79.0)	11.9%	9.4%

Segment breakdown (Q2 FY2017):

Segment	Revenue ($USD Millions)	Operating Income ($USD Millions)	Net Income ($USD Millions)
Jinong (fertilizer)	$26.83	$5.74	$4.85
Gufeng (fertilizer)	$21.07	$1.91	$1.27
Yuxing (agri products)	$2.45	$0.33	$0.33
VIEs (distribution)	$8.40	$0.64	$0.57

KPIs (Q2 FY2017):

KPI	Q2 2016	Q2 2017
Fertilizer volume – Jinong (metric tons)	9,539	8,955
Fertilizer volume – Gufeng (metric tons)	62,775	63,167
Revenue per ton – Jinong ($USD/ton)	$3,374	$2,996
Revenue per ton – Gufeng ($USD/ton)	$367	$334

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q3 FY2017	n/a	$72–$82M	New
Net Income	Q3 FY2017	n/a	$4–$7M	New
EPS	Q3 FY2017	n/a	$0.10–$0.18	New
Revenue	FY2017	$277–$300M	$277–$300M	Maintained
Net Income	FY2017	$20–$27M	$20–$27M	Maintained
EPS	FY2017	$0.53–$0.72	$0.52–$0.70	Lowered

Topic	Previous Mentions (Q4 2016)	Previous Mentions (Q1 2017)	Current Period (Q2 2017)	Trend
Distribution platform via VIE acquisitions	Announced six acquisitions; strategic pivot to integrated platform; balanced manufacturing/wholesale vision	Reinforced VIE contributions (~$13.3M in Q1) and mix impact on margins	Eight wholesale companies in network; VIEs added ~$8.4M in Q2; further integration planned	Expanding scale/integration
Accounts receivable and credit risk	Emphasis on cash discipline; A/R elevated; planned platform to mitigate risk	A/R $116.5M at Sept 30; seasonality and stable policy	A/R net ~“120–125-ish,” allowance increased; plan to leverage credit facilities and wholesale integration	Heightened monitoring; credit channels
Seasonality	Q4 (prior FY) showed softness vs prior year	Management noted Q3/Q4 as peak periods	Q2 characterized as “slow season”; stronger Q3 expected	Normal seasonal cadence
Macro/regulatory	Strategic rationale tied to industry overcapacity and quality push; e-commerce ambitions	Mixed product/pricing dynamics	Cites central government focus on ag nutrition quality; environmental standards; shift to higher-quality inputs	Policy tailwinds for quality products
Pricing/mix	Gufeng margin declines due to lower-margin product mix	Gufeng margins impacted by mix	Gufeng lowered prices to meet demand; mix weighed on margin	Continued mix pressure

“We had successfully closed a new round of strategic acquisitions… founders of Xiangrong and Fengnong… work together to unlock the intrinsic value of our Company.” – Zhuoyu Li, President .
“Looking ahead to the Fiscal Year 2017, we expect revenue of $277 to $300 million; net income of $20 to $27 million; and EPS of $0.52 to $0.7… [We] will continue to execute the Company’s transformational growth strategy successfully.” – Tao Li, Chairman & CEO .
On Q2 seasonality and trajectory: “All our peak quarters normally are the third quarter and the fourth quarter… we expect [next quarter revenue] will go about 70 million or 75 million-ish.” – Tao Li .

Receivables: Net A/R “~120–125” million at Q2-end; policy unchanged; integrating credit facilities (including local and internet-based lenders) to optimize collection risk within growth strategy .
Seasonality: Q2 is “slow season”; peak in Q3–Q4, aligning with guidance and operational planning .
Wholesale/VIE strategy: Eight wholesale entities now integrated; ~8.4M Q2 contribution; additional entities acquired on Jan 1 to appear in Q3; use of cash and convertible notes to balance dilution and growth .

Wall Street consensus via S&P Global for Q2 FY2017 and Q3 FY2017 was unavailable for CGA at the time of review; result comparisons vs estimates cannot be presented.

Near-term setup: Q3 guidance implies sequential revenue acceleration ($72–$82M) vs Q2 ($58.7M); seasonality plus VIE consolidation are primary drivers .
Margin watch: Gross margin compressed to 32.6% (vs 37.9% in Q1 and 39.7% YoY) on mix and input costs; monitor Jinong raw materials/packaging and Gufeng pricing strategy .
Core vs acquired mix: Underlying Jinong/Gufeng sales declined double digits, masked by VIE contributions; durability hinges on execution of the wholesale platform strategy .
Working capital risk: A/R and allowances increased; management pursuing credit partnerships to de-risk collections—key for cash conversion and capital deployment .
FY guidance maintained for revenue/NI but EPS range trimmed; if mix/margins improve in peak quarters, upside to EPS may re-emerge; otherwise, EPS guide implies conservative stance .
Cash/liquidity: Cash rose to $116.6M; short-term loans modest ($4.46M); balance sheet supports continued acquisitions and distribution build-out .
Strategy execution is the stock catalyst: Evidence of channel integration (VIEs), stable pricing, and margin recovery in Q3–Q4 would be viewed positively; persistent margin/mix pressure or receivables deterioration would be negative .