Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Lisa Gill - J.P. Morgan.
Lisa Gill - J.P. Morgan
I was just wondering if perhaps you can just comment on the fact that you had $0.2% organic growth rate. You’re looking at 10% + overall, but most of that came from acquisitions. Can you just give us a little bit more color as to what you’re seeing out there? You talked a little bit on the production side, but what are you seeing on the companion side?
Secondly, last quarter we were all waiting for you to renew your agreement with Pfizer or the largest manufacturer. Maybe you can just give us some updated thoughts around what that new relationship looks like now that it’s been signed.
Then lastly, when you talked about your inventory, are you carrying additional inventory because of the acquisitions or are you carrying additional inventory because there’s some purchasing opportunities?
Jim Robison
I’m going to comment on organic growth rates both in the production and companion animal markets and then the agreements with our key vendors, then Bill will comment on inventory.
In the production animal market, we saw corn prices and beef prices generally go to record highs during the quarter and what this causes our customers to do is to purge inventories. I think with releases from companies like Tyson over the last couple of weeks, we’ve seen losses and we’ve seen plans to reduce output.
When this happens, it pushes protein prices down. We saw that occur in the beef market, the poultry market, and the swine market during the quarter. That ultimately ends up in a reduction in supply and it’s a relatively short term phenomenon, given the high amount of input costs associated with feed, our customers also contract their use of animal health products.
So, with grain prices, feed prices, being 20% to 30% higher than we anticipated during the quarter, we had anticipated corn would be in the high $4.00 to $5.00 range and it actually was over $6.00 for the quarter. Our customers get very skittish about their businesses and they start to contract inputs wherever they can. So, the production animal market was weak.
Wheat was at historical highs at around $12.00 a bushel and people that grow winter wheat historically have used that wheat to feed calves. A lot of them chose not to use the wheat to feed calves, so they didn’t turn animals out to wheat. When they do this we generally get a sales revenue estimated to be in the $5 to $10 million range; we lost that market as well. It was just a generally tough late winter, early spring for us and the production animal market was the most impacted.
- To read the full transcript on Seeking Alpha, click here »
