Executive Summary

Q3 FY2017 results were mixed: revenue rose 3.4% YoY to $81.3M on newly consolidated VIE distribution sales, while gross margin contracted 520 bps to 26.3% on lower pricing/mix and higher raw material/packaging costs .
EPS of $0.21 and net income of $8.2M were essentially flat YoY; importantly, management highlighted an internal beat vs its prior Q3 guidance (EPS +$0.03, NI +$1.2M) and raised full-year revenue, net income, and EPS guidance ranges .
Underlying core production weakness persisted: excluding VIEs, net sales fell ~24% YoY; Gufeng revenue declined 29.5% and Jinong declined 16.7% YoY, offset by VIE contribution (~26% of total) .
Key watch items: steep increase in selling expenses at Jinong (64% of sales) and higher accounts receivable; positives include strong cash balance and sizable inventory normalization; catalysts include raised FY guide and ongoing channel expansion via VIE acquisitions .

What Went Well and What Went Wrong

What Went Well

Raised FY2017 guidance: revenue to $281–$301M (from $277–$300M), net income to $25–$29M (from $20–$27M), EPS to $0.65–$0.75 (from $0.52–$0.70) on 38.6M diluted shares; Q4 guidance set at revenue $80–$100M, NI $4–$8M, EPS $0.10–$0.21 .
VIE-driven expansion: VIEs contributed ~$21.3M (26.3% of Q3 revenue) and supported total sales growth despite declines at core production units; management emphasized acquisitions in Heilongjiang and Anhui to build a national platform: “penetrating the six market areas… building one of the key production and distribution platforms in rural China” .
Liquidity: cash and equivalents increased to $118.26M (+14.9% vs Jun-16), providing flexibility for working capital and M&A .

What Went Wrong

Margin compression: gross margin fell to 26.3% (from 31.5% YoY) due to lower-margin product mix (especially at Gufeng), pricing, and higher raw material/packaging costs; Jinong GM 53.9% (from 57.7%); Gufeng mix tilted to lower-margin products .
Selling expense surge: total selling expenses rose 78% YoY; Jinong’s selling expenses ballooned to 64.2% of segment sales (from 10.2%), reflecting intensified marketing and shipping, partially offset by a sharp reduction in amortization of deferred assets .
Receivables risk: accounts receivable grew meaningfully with allowance increases; management leaned on channel/credit initiatives to mitigate collection risk; AR dynamics were a focal Q&A topic in prior calls .

Financial Results

Consolidated performance vs prior quarters

Metric	Q1 FY2017	Q2 FY2017	Q3 FY2017
Revenue ($M)	$61.9	$58.7	$81.3
Gross Margin (%)	37.9%	32.6%	26.3%
Net Income ($M)	$7.4	$5.5	$8.2
Diluted EPS ($)	$0.20	$0.15	$0.21
Net Income Margin (%)	11.9%	9.4%	10.1%

Q3 YoY comparison

Metric	Q3 FY2016	Q3 FY2017	YoY Change
Revenue ($M)	$78.6	$81.3	+3.4%
Gross Profit ($M)	$24.7	$21.4	(13.7%)
Gross Margin (%)	31.5%	26.3%	(520) bps
Net Income ($M)	$8.3	$8.2	(0.7%)
Diluted EPS ($)	$0.22	$0.21	(4.7%)

Segment revenue and profitability (Q3 FY2017 vs Q3 FY2016)

Segment	Revenue Q3 FY2016 ($M)	Revenue Q3 FY2017 ($M)	Operating Income Q3 FY2017 ($M)
Jinong (fertilizer)	$31.6	$26.3	$6.0
Gufeng (fertilizer)	$43.8	$30.9	$2.5
Yuxing (agri products)	$3.3	$2.8	$0.2
VIE distribution	n/a	$21.3	$1.2
Consolidated	$78.6	$81.3	$9.7

KPIs (volume and pricing)

KPI	Q3 FY2016	Q3 FY2017
Jinong fertilizer volume (metric tons)	8,932	14,455
Jinong revenue per ton ($/ton)	$3,538	$1,821
Gufeng fertilizer volume (metric tons)	121,668	90,235
Gufeng revenue per ton ($/ton)	$360	$342

Notes: VIEs contributed $2.09M gross profit at ~9.8% GM in Q3; Gufeng’s product mix skewed to lower-margin SKUs; Jinong’s higher raw and packaging costs compressed GM .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q4 FY2017	n/a	$80M–$100M	New
Net Income	Q4 FY2017	n/a	$4M–$8M	New
EPS (diluted)	Q4 FY2017	n/a	$0.10–$0.21 (38.6M sh)	New
Revenue	FY2017	$277M–$300M	$281M–$301M	Raised
Net Income	FY2017	$20M–$27M	$25M–$29M	Raised
EPS (diluted)	FY2017	$0.52–$0.70 (38.5M sh)	$0.65–$0.75 (38.6M sh)	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q3)	Trend
Seasonality	Peak quarters are Q3 and Q4 (Jan–Jun); Q2 is slow season .	Q3 revenue up sequentially vs Q2 (to $81.3M), consistent with seasonality .	Seasonal strength confirmed
Distribution/VIE strategy	Eight wholesale/VIE companies integrated to balance production with wholesale; cash + convertible notes consideration; expanding by province .	VIEs contributed ~$21.3M (26.3% of revenue) in Q3; Jan-1-2017 acquisitions in Heilongjiang/Anhui cited as growth drivers .	Expansion continuing
Pricing/mix & margins	Gufeng lowering prices to meet demand; mix shift to lower-margin products .	Gross margin compressed to 26.3% on mix and cost inflation; Jinong GM down; Gufeng mix still lower-margin .	Margin pressure persists
Receivables/collections	AR levels discussed; leveraging credit facilities and VIE integration to mitigate collection risk .	AR balances and allowance higher YoY; AR net $154.95M; allowance up to $6.86M; continued focus needed .	Credit risk elevated
Regulatory/macro	Government focus on upgrading ag inputs and food quality; policy push toward higher-quality fertilizers .	Product strategy aligns with quality and environmental goals; no incremental Q3 policy-specific update .	Supportive medium-term backdrop

Management Commentary

“On January 1, 2017, Jinong completed the strategic acquisition of two companies… We are now penetrating the six market areas… moving quickly towards our goal of building one of the key production and distribution platforms in rural China.” — Zhuoyu Li, President .
“Our performance… improved, generating $8.2 million net income in the third quarter… Looking ahead to the 2017 Fiscal Year, we expect revenue of $281 to $301 million; net income of $25 to $29 million; and EPS of $0.65 to $0.75, based on 38.6 million fully diluted shares.” — Tao Li, Chairman & CEO .
Prior call framing: “Peak quarters normally are the third quarter and the fourth quarter… we acquired… wholesale companies… integrating them… wholesale segment will grow very rapidly… balance business portfolio with one hand on production, the other hand on wholesale.” — Tao Li (Q2 call) .

Q&A Highlights

Note: The Q3 FY2017 call transcript could not be retrieved; themes below reflect Q2/Q1 calls most relevant to Q3 results.

Accounts receivable and collections: Management emphasized no change in collection policy and highlighted integration of wholesale/VIEs and external credit facilities to mitigate default risk while supporting growth .
Seasonality: Management reiterated Q3/Q4 as peak quarters, aligning with the observed sequential revenue lift into Q3 .
Strategy and M&A: Management detailed the rationale, structure, and expected benefits of VIE acquisitions (cash + convertible notes; geographic coverage; rapid expansion of wholesale channel) .
Governance/procedures: Shareholder-meeting access protocols discussed in Q1 call Q&A context, indicating adherence to internal security procedures (non-financial, but noted by analysts) .

Estimates Context

Wall Street consensus (S&P Global) for Q3 FY2017 revenue/EPS was unavailable for CGA at the time of analysis; therefore, estimate comparisons could not be provided. We anchor to company-issued guidance and reported results instead (consensus unavailable via S&P Global).
Q3 results vs company guidance (from Q2 release): revenue landed at the top end of the $72–$82M range; net income ($8.2M) and EPS ($0.21) exceeded the $4–$7M and $0.10–$0.18 guidance, respectively .

Key Takeaways for Investors

VIE distribution strategy is working to offset core production declines, driving total sales growth and prompting a raised FY guide; sustainability depends on integration quality and margin control .
Margin pressure remains the principal risk: mix/pricing and input costs compressed GM; watch Gufeng mix and Jinong input costs into Q4 seasonally strong quarter .
Elevated selling expenses at Jinong (marketing push) bear monitoring; while amortization of deferred assets declined sharply, the underlying cash cost of sales/marketing rose materially .
Receivables management is critical: AR and allowances rose; collection discipline, channel financing, and customer quality are key to preserving cash conversion .
Balance sheet is strong (cash $118M) and inventory normalization reduces working-capital drag ahead of Q4; provides runway for selective M&A and operations .
Near-term setup: Q4 guide implies sustained seasonal strength; execution on mix/pricing and expense control will determine whether raised FY targets are met or exceeded .
Medium-term thesis: Platform-building via VIEs and policy tailwinds toward higher-quality ag inputs are positives; core production competitiveness and governance transparency remain areas to assess continuously .

China Green Agriculture, Inc. (CGA)·Q3 2017 Earnings Summary