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Operator
Good morning ladies and gentlemen and welcome to the Landec fourth quarter and fiscal year 2009 earnings release conference call.
(Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host for today, Mr.
Gary Steele, Chairman and CEO of Landec Corporation.
Mr.
Steele, please begin.
Gary T. Steele - President and Chief Executive Officer
Good morning and welcome to our fourth quarter and fiscal year of 2009 earnings call.
With me today is Greg Skinner, Landec's Chief Financial Officer.
This call is being webcast by Thomson CCBN and can be accessed at Landec's website at www.landec.com on the Investor Relations page.
The webcast will be available for 30 days through August 28, 2009.
A replay of the teleconference will be available for one week by calling 888-266-2081 or 703-925-2533.
The access code for the replay is 1376482.
During today's call we may make forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially.
These risks are outlined in our filings with the Securities & Exchange Commission including the company's Form 10-K for fiscal year 2008 and form 10-Q for the quarter ended March 1, 2009.
As reported in yesterday's press release, for the fiscal year 2009, Landec's revenues decreased 1% to $235.9 million compared to revenues of $238.5 million in fiscal year 2008.
Net income for fiscal year 2009 decreased to $7.7 million, or $0.29 per diluted share, compared to net income of $13.5 million, or $0.50 per diluted share, last year.
Of the $5.8 million decrease in net income, 55% is attributable to the combination of our higher tax rate and lower yields on our cash investments.
Also during the fiscal year 2009, we generated $9.4 million in cash flow from operations and achieved a record cash balance of $66 million.
For our fourth quarter, revenues were $52.2 million versus $57.3 million in the fourth quarter last year and our net income for the fourth quarter was $1.9 million, or $0.07 per diluted share, versus $3.4 million, or $0.13 per diluted share, for last year's fourth quarter.
For both the year and the fourth quarter of fiscal year 2009, Landec continued to generate net income and positive cash flow from operations.
Notably, during our fourth fiscal quarter, relative to our third fiscal quarter, we were able to improve gross profits, operating income, and net income as well as our gross margin and operating margin.
For the first time since we started commercial sales in the fresh-cut vegetable business, beginning in the year 2000, overall industry unit volume shipments for the fresh-cut category have turned negative and have stayed negative for eight straight months through June 2009.
We began witnessing the decline in the overall fresh-cut vegetable category starting in our second fiscal quarter driven by the deterioration of the US financial community, higher unemployment and corresponding slump in consumer demand.
The overall fresh-cut vegetable category declined 8% during both the fourth fiscal quarter and for all of our fiscal year 2009.
There is no doubt that the downturn in the US economy and the impact that it is having on consumers is adversely affecting purchases of fresh-cut vegetable products, but less so for Landec than the overall market.
For both the fourth quarter and all the fiscal year 2009 Landec continued to increase its market share.
While the overall industry category unit volumes declined 8% for the three- and 12 month periods ended May 31, 2009, Landec unit volumes declined more moderately, by 2% and 1% for the same periods.
Although we project that softening consumer demand in the category will continue to affect us in the short-term, we have recently seen a slowing in the rate of decline in the fresh-cut vegetable industry category, and it appears that the declines in the upcoming couple of months will be less than what the industry has experienced since November 2008.
We believe that the fresh-cut vegetable category will return to positive growth late in our fiscal year 2010 or early in our next fiscal year 2011.
Importantly, we see this as a time to further strengthen our market position in the fresh-cut vegetable category by using our strong trade brand Eat Smart, our BreatheWay packaging technology, our low-cost position, and our strong balance sheet to further grow market share.
Let me turn to Greg for details of our results.
Gregory S. Skinner - Chief Financial Officer
Thank you Gary and good morning, everyone.
As outlined in yesterday's news release, Landec reported total revenues for the fiscal year 2009 of $235.9 million versus revenues of $238.5 million for the same period a year ago.
The decrease in total revenues during the fiscal year 2009 was due to a $2.2 million or 1.3% decrease in revenues from Apio's value-added vegetable business and from a $769,000 decrease in revenues from Apio packaging, due to the expected contractual decrease in the minimums paid by Chiquita.
These decreases were partially offset by $318,000 increase in revenues from our technology licensing business, primarily due to the expected contractual increase in minimums paid by Air Products during the fiscal year 2009.
For the fiscal year 2009, the company reported net income of $7.7 million, or $0.29 per share, compared to $13.5 million, or $0.50 per share, for last fiscal year.
This decrease in net income during the fiscal year 2009 compared to the fiscal year 2008 was due to first, a $3.6 million decrease in gross profit and Apio's value-added vegetable business primarily due to decreased revenues and from increased raw material cost for produce and packaging; second, an increase in income tax expenses of $2.3 million was due to an increase in Landec's effective tax rate to 42% in fiscal year 2009 from 20% in fiscal year 2008; third, a $913,000 or 41% decrease in interest income due to the company's decision to invest only in FDI insured certificates and deposits, US government backed instruments, and AA or better rated municipal bonds, all of which have yields that are considerably lower than those the company realized from its investments in the same period last year; and fourth, an $879,000 decrease in gross profit from Apio packaging due to the decrease in minimums paid by Chiquita.
These decreases in net income were partially offset by first at $1.4 million decrease in operating cost primarily due to lower selling and marketing expenses at Apio's and lower general and administrative expenses at corporate; second, a $318,000, increase in gross profit from our technology licensing business, primarily due to the increase in minimums paid by Air Products during the fiscal years 2009; and third, $208,000 increase in gross profit for Apio's commodity trading business.
It should be noted that only $900,000 or 16% of the $5.6 million book income tax expense recorded in fiscal year 2009 is expected to be paid in cash, because of the cash tax benefit from the repurchase of subsidiary options in fiscal years 2007 and 2008.
For the fourth quarter of fiscal year 2009 Landec reported total revenues of $52.2 million versus revenues of $57.3 million for the same period a year ago.
The decrease in total revenues during the fourth quarter of fiscal year 2009 was due to first, an $874,000 or 2.1% decrease in revenues from Apio's value-added vegetable business due to the continuing decline in the fresh-cut vegetable category during the fourth quarter; second, a $621,000 decrease in revenues from Apio's packaging due to the decrease in minimums paid by Chiquita; and third, a $4 million decrease in revenues from Apio's commodity trading business due to the decrease in trading sales volumes.
These decreases were partially offset by $422,000 increase in revenues from our technology licensing business, primarily due to an increase in minimums paid by Air Products during the fourth quarter of fiscal year 2009.
For the fourth quarter of fiscal year 2009 the company reported net income of $1.9 million, or $0.07 per dilute share, compared to net income of $3.4 million, or $0.13 per diluted share, in the same period last year.
This decrease in net income during the fourth quarter of fiscal year 2009 compared to the fourth quarter of last year was due first, to a $315,000 decrease in gross profits and Apio's value-added vegetable business primarily resulting from lower revenues and higher costs for produce; second, a $670,000 decrease in gross profit from Apio packaging due to the decrease in minimums paid by Chiquita; and third, a $2.1 million increase in income tax expenses.
These decreases in net income were partially offset by a $1.3 million decrease in operating cost due to lower selling and marketing expenses at Apio and lower general and administrative expenses at corporate and by $422,000 increase in gross profit from the technology licensing business, primarily due to an increase of minimums paid by Air Products during the fourth quarter.
Turning to the balance sheet, during the fiscal year 2009, our cash and marketable security balances increased by $6.9 million to a record level of $66 million.
The increase in cash and marketable securities was primarily due to generating $9.4 million in cash flow from operations and due to a $1.9 million tax benefit from the repurchase of subsidiary options.
These increases were partially offset by $4.6 million in capital expenditures in fiscal year 2009, primarily for the purchase of property, plant, and equipment for our fresh-cut vegetable business.
Gary?
Gary T. Steele - President and Chief Executive Officer
As we look to provide guidance for our current fiscal year that started on June 1, we believe that the US faces a prolonged and deep recession that most likely will last through all of our fiscal year of 2010.
As we look to our revenue prospects, we believe a continuing weak economy will make revenue growth more difficult.
Additionally, we are scaling back our marginally profitable buy-sell business this year, which will reduce our revenues by about $4 million without much adverse effect on margins.
As we transposition from the fiscal year 2009 to our new fiscal year 2010, we will experience several contractually planned reductions in overall gross profit totaling about $1.8 million, including an expected $600,000 reduction from the ending of our license fee arrangement with Air Products, plus an expected $1.2 million annual reduction in contractual minimum payments from Chiquita and Air Products.
We are currently forecasting that these reductions in revenues in gross profits will be offset by increased in revenues in gross profit in our fresh-cut vegetable business as a result of increasing our market share.
For example, we just added a significant new customer, the entire SUPERVALU chain which includes Acme, Albertsons, Cub, Jewel, and Shaw's.
Accordingly, we projected both revenues and net income for fiscal year 2010 will be flat to slightly up compared to fiscal year 2009.
We will update our outlook if the economy recovers more quickly than we anticipate or if we obtain the business of another major grocery store chain.
But at this point, we believe it is more prudent to remain conservative in our guidance.
Looking to longer term, Landec is well-positioned to take advantage of our proprietary technology, its low cost structure and a strong balance sheet to normally whether the current recession, but also to capitalize new opportunities that are likely to emerge as under capitalized companies look for partners in large corporations who are slashing their RD budgets look for new products.
We see this as a time of opportunity.
We'll also be placing greater emphasis on consolidating our already strong position in the fresh-cut produce arena, searching for an acquisition targets in and outside the food arena and stepping up our out-licensing activities with new partners.
We are increasing our combined R&D and business development year-over-year spending by 20%, and we've hired Molly Hemmeter, as our new VP of business development in global marketing.
Additionally, we plan to increase capital expenditure investments by 30% to 40% to slightly over $6 million in fiscal year 2010.
Major capital expenditures in this fiscal year include the expansion of our value-added processing facility by 40,000 square feet in order to meet long-term projected increases in market share, but also these include investments in equipment and productivity enhancing initiatives.
We believe our future obligations to shareholders are to focus on technology, innovation, and new product development, continuing to support our collaborative partners, such as Chiquita, Monsanto, and Air Products, and ensure that our sizeable cash balances are protected in investments that are safe and available as needed to pursue and take advantage of profitable growth opportunities.
In order to successfully advance our priorities, our plan over the next couple of years includes the following initiatives: continue to generate income and positive cash flow; maintain a strong balance sheet; evaluate synergistic and accretive acquisition opportunities that utilize or compliment our technology; complete new partnership agreements where they make sense; expand the sales of our packaging technology with Chiquita and others; expand the seed coating field trials now underway with Monsanto; and start at least one new initiative in a promising area of material science outside of our food technology businesses.
Over the next 24 months, we plan to take advantage of broad applications for our unique polymer technology to grow and diversify our business and generate increased shareholder value.
In the near-term as part of advancing these goals we expect to first, see expansion of sales with L'Oreal and new initiatives with other major personal-care companies which have already begun; second, seek further progress including expanded field trials in our Monsanto program, particularly in the area of controlled release of pesticides and fungicides, and in new coatings that enhance plant vigor; third, further expand our market share in the fresh-cut vegetable category and negotiate lower input cost, particularly produce cost, with our grower suppliers and non-grower suppliers; fourth, start one of our or more research initiatives in the new applications arena for our materials science technology; and fifth, move our M&A activities and our investment activities from the broad search to a focus on one or two more specific partner candidates.
Our near-term and 24-month goals are driven by our focus on achieving our long-term objectives for revenue growth, with profitability and positive cash flow.
We believe that over the next five years our pre-tax margin mix can begin to change with the increasing contribution to sales and pre-tax margin from our non-food technology licensing business, which currently generates higher margins and which is expected to grow faster than the continuing growth in our value-added specialty packaging vegetable business.
If our partners execute in a timely way and if we continue to implement our plans well, we should see both gross margins and net margins increasing over a three to five year timeline.
We are now ready for your questions.
Operator
Thank you.
(Operator Instructions).
Our first question comes from Tony Brenner with Roth Capital Partners LLC.
Gregory S. Skinner - Chief Financial Officer
Good morning, Tony.
Tony Brenner - Analyst
Good morning.
A couple of questions, first of all, the plain decline in your buy sell business in fiscal 2010.
Will that be in your exploit business or in your domestic Wal-Mart business?
Gregory S. Skinner - Chief Financial Officer
It's in the domestic side of things.
We had a key customer ask us to help them in a very specific produce category, and we did and it -- so we gave him the help, we are done.
It's over with and it's -- with very marginally profitable for us, and so, that will reduce revenue side about $4 million without affecting the margins.
And we are just glad it's done.
So, we helped them out.
It was a key customer and that's over.
Tony Brenner - Analyst
The expansion of Apio's processing facility, the 40,000 square feet, as I recall one of your priorities had been to obtain distribution capacity and possibly processing capacity on the East Coast.
Is that no longer true?
Gregory S. Skinner - Chief Financial Officer
That's still a strategic goal of ours.
We would rather rent versus build on the East Coast and this is really just to deal with a certain segment of the market that we're not addressing today, which we call the next day delivery market.
So, this expansion in California does not in anyway diminish our interest in having a toehold on the east coast to deal with that next day delivery, and we'll talk about the steps that we'll take to deal with the East Coast situation in the next couple of quarters Tony.
So, it does not change our thinking at all.
Tony Brenner - Analyst
Okay, but you are still looking for that.
Gregory S. Skinner - Chief Financial Officer
Yes.
Tony Brenner - Analyst
Rental space so to --
Gregory S. Skinner - Chief Financial Officer
Yes.
Tony Brenner - Analyst
Okay, last question.
Could you explain why in your partnership agreements contractual minimum amounts decline rather increase over time?
Gregory S. Skinner - Chief Financial Officer
Yeah.
Tony Brenner - Analyst
Particularly as your partners have exclusive use of the technology in the respective areas.
Intuitively one would think that as an incentive and for other reasons the opposite would be true.
Gregory S. Skinner - Chief Financial Officer
We'll both address this; well let's talk about Air Products.
The minimums were kind of tied to our involvement on the R&D side.
So as we were contractually obligated to support them to a certain level, the increase in their payments or the minimums, kind of tracked with that contractual obligation, and after the third year, once the license fees were over, our obligation from R&D standpoint decreased and the minimums decreased accordingly.
Now, the time we entered into the agreement three yeas ago, we assumed that by the time we got to year four, we would be exceeding minimums, but you know, we couldn't forecast the decline in the worldwide economy.
So at this point, we are just saying for conservatism reasons, let's assume that they'll hit their minimums next year, which are half-a-million lower than it were in fiscal 2009.
As far as Chiquita, Gary.
Gary T. Steele - President and Chief Executive Officer
The thought process there and Tony when you are negotiating these things, the thought process there was to make sure that you had strong incentives for them to develop the market and to roll out products and so, we had some purely substantial minimums in the earlier years, and then the thought process was that with that momentum, you would be exceeding minimums, and so that could start to diminish somewhat overtime.
So, that was -- that's what's going on Tony.
Tony Brenner - Analyst
Okay, it's all right, thank you.
Operator
Our next question comes from Peter Black with Winfield Capital.
Peter Black - Analyst
Good morning guys, how are you doing?
Gregory S. Skinner - Chief Financial Officer
Good morning.
Peter Black - Analyst
A couple of questions.
When you were speaking about your growth initiatives for the next year, do you spoke about Monsanto and L'Oreal and M&A, but you didn't mention, I think, the program with Chiquita and their potential roll out into retail stores, which in the past was described as a growth driver.
So, to the extent that that program being indefinitely on hold becomes permanent, do you have the ability to work around Chiquita, I mean, can you partner with Dole or some other banana producers?
Gregory S. Skinner - Chief Financial Officer
There are some checkpoints in the next year, Peter, where the parties will sit down and talk about whether they want to stay in a exclusive or non-exclusive relationship.
We'll be looking at and then they will too.
I mean, you know both of us should look at this real hard and say, we're better in the exclusive situations versus the non-exclusive, and taking into those considerations at least for us would be, you know, what are our odds of being able to address the retail markets with the consumer back?
Do we feel that we would have more penetration if we're working with several partners in a non-exclusive relationship versus one?
So, all of those things have to be taken into account.
I can't tell you right now where that's going to end up but there will be an opportunity in the next twelve months to make that type of decision for both parties.
On the avocado side, which everybody is getting very excited and bullish about, I wouldn't see any reason to not -- to change anything, you know, Chiquita is investing a lot of money in getting their infrastructure in place, in their sourcing, in their processing, in their marketing and sales and we're supporting them.
So, on that one, I would say full speed ahead.
Peter Black - Analyst
Okay.
And then you talked about the dynamics of your gross margins and heal over time you know it should grow.
Just in terms of it, and you know more of a short-term look at them from the value-added packaging side, I realize that produce costs are moving up, but in terms of your oil based packaging cost, the oil have done about 50% last year and I know you are kind of working through some higher cost inventory.
Would you expect now that at least from a trend point of view the gross margins at the value-added portion of the business should be stable at these levels?
Gregory S. Skinner - Chief Financial Officer
Yeah, but let me just point out that the packaging component of our product line represents only about 10% of our cost.
Peter Black - Analyst
Okay.
Gregory S. Skinner - Chief Financial Officer
And so, and then of that, some portion of that is the film or petroleum based, I wouldn't want to, for you to think that it's bigger than it really is.
The real cost drivers in our business are the produce themselves and that's driven by land cost in California which have continued to go up for land that is irrigated and available for vegetable farming.
That part is the driver of our cost going up and that's the worry on the margin side.
Sure, you got a worry about the fertilizer cost, which has petroleum impact to it.
But at the end of the day, its land cost and it's not really so much the films in the plastics that are driving our costs.
That's the worry for us because those costs, the produce costs, have been going up at a fair clip this last year.
Peter Black - Analyst
And I'd imagine this is an environment where you can't easily raise prices to your retail customers?
Gregory S. Skinner - Chief Financial Officer
Oh, it's tough.
Peter Black - Analyst
Yes.
Gregory S. Skinner - Chief Financial Officer
I don't need to tell this group that, you know, it's tough for retailers out there.
Everybody is very cost conscious.
The consumer is, you know, very concerned about their own budgets and discretionary spending, and that's why for us, we've had more impact on our tray business than we have on our bag business.
Bag business is doing pretty well; the tray business is more discretionary and people are having less family gatherings and friends over so and that, by the way, that's a good margin business for us.
So we hope to see some relief in that area this next 12 months.
Peter Black - Analyst
Okay.
Thanks.
Gregory S. Skinner - Chief Financial Officer
Thank you.
Operator
Our next question comes from Chris Krueger with Northland.
Chris Krueger - Analyst
Hi, good morning guys.
Gregory S. Skinner - Chief Financial Officer
Good morning Chris.
Chris Krueger - Analyst
Hi.
First call I have been on here so hopefully I am not making you answer questions you've been answered before.
But you mentioned in your comments that you won business with SUPERVALU.
Is that a recent win or are you already providing to them, or is that something that has been going on for quite some time?
Gregory S. Skinner - Chief Financial Officer
Chris, we had some business with them, the Albertson division in our tray business.
But this is really a full roll out of the whole organization, 1800 stores, you know, a sizeable count and they have Acme, they have Shaw's, they have Cub, they have Jewel.
They have Albertsons.
So, this is very recent for us.
I think we are now pretty much fully rolled out in the last few weeks and --
Chris Krueger - Analyst
So, it's really in the first quarter or 2010 where you really start to feel the benefit there?
Gary T. Steele - President and Chief Executive Officer
First, we are in our first quarter right now and we are -- I'd say
Chris Krueger - Analyst
Second quarter you really started to feel the full --
Gary T. Steele - President and Chief Executive Officer
Probably the second quarter.
So you know June, July, August is our first quarter so I'd say since we have been rolling out this first quarter you'll probably see it more in the second quarter.
Chris Krueger - Analyst
Okay.
And then as far as they're gaining market share in the fresh-cut veggie, obviously you have indicated that the last several quarters or throughout the last year.
Does that come primarily from wins like that and gaining, you know, getting into more stores or is there something else that plays a role in that as well?
Gary T. Steele - President and Chief Executive Officer
Well in terms of market share, it's things like SUPERVALU, we have also expanded our one of our major customers up in Canada as an example.
But our growth drivers include market share gains, new product introductions looking at new segments such as Deli, looking internationally we have trials pulling out in South America now.
It's looking at expanding our packaging only business in our fruit segment and working on couple of activities there as well.
So there are about four to five growth drivers beyond market share that we are working on.
Chris Krueger - Analyst
Okay.
On your Air Products business, I think in your stated comments you've indicated they've stepped up their sales and marketing efforts recently.
Can you give us some examples of that or which products you are pushing or just a little more insight on that overall?
Gary T. Steele - President and Chief Executive Officer
Chris, I'd like maybe, I would like to explain a little history here and I don't know whether I have done that on the conference call.
But you know we joined forces with Air Products about two and a half years ago.
At that time, they had indicated a very strong interest into being a major supplier to the personal care cosmetics field, why?
High margins growth market.
And they were looking at getting very strong presence in that space through acquisitions and through possible investments in technology.
For a variety of reasons that act -- by the way, through the acquisition route, they would have had the ability to have worldwide marketing and sales access immediately.
The acquired company would have had that capability, would have had formulation capability.
For a variety of reasons, that acquisition has not happened and so we are all kind of in a little bit of wait mode.
When is that going to happen?
And as a result of that waiting and not seeing that come, Air Products has decided to start to build its own internal capabilities, marketing and sales, both in Europe and US, North America.
And so they have been doing that, putting a small team together people in Europe and US that call on the Estee Lauders and the Procter & Gamble's and the Avon's and the L'Oreal's and a very small formulation team.
So it's been slow go, not because of poor intent, but just because they have been frustrated in their attempts to try to get instant access to the market through acquisition.
So it's a kind of a home grown approach, and so right now we are in roughly, I believe it's somewhere between 8 - 10 products of the L'Oreal family of products.
Our ingredients in the Vichy, the [Kiels], the Lancome and the L'Oreal product lines.
And so we have additives in those materials, in those products.
So the key of course is to just to start to expand the market with other customers, and so it's about a two to three year process by the time you make a call, you have samples that start to get evaluating, they go through a safety and toxicology testing ,and then they go through what's called a coding process coding process, C-O-D-I-N-G, coding process.
And then it's got to be scaled.
So there is a lag time on that.
Fortunately, it's faster than drug development, but it's certainly a couple of years.
And that's the process we are in right now.
So there is a small team in Europe there is a small team in the US calling on customers.
There is a small formulation team.
We still support Air Products with R & D, with new product development, and our hope is that now that we have the small team in place we can start to build some momentum.
Chris Krueger - Analyst
Right.
Last.
When you talked about acquisition opportunities, I know I can't get specific on it, but do you have, I mean, I'm sure you look at dozens of companies.
But is it narrowed down to a handful of companies you are truly horning in on or potentially you could see something happening in the next few quarters?
Gary T. Steele - President and Chief Executive Officer
No.
We are seeing candidate companies that don't make sense for us.
And just to be perfectly honest with you, we are pretty picky and we have our boxes that have to be checked off, and we are seeing, we are looking at more companies.
But no we are not -- I don't want to give you the impression that we are couple of quarters away from doing something, because we are not.
And we have got the cash.
We have got the ability to do these things, but it's not burning a hole in our pocket.
But we don't feel like we have to go and spend it.
We certainly are going to spend it on R&D, business development, and increases in CapEx in meantime.
But we are not close to having that, you know that, I got you, you know, it's just not there yet.
Chris Krueger - Analyst
Okay.
That's all I got.
Thanks.
Gary T. Steele - President and Chief Executive Officer
Thank you, Chris.
Operator
Our next question comes from Nick Genova with B.Riley & Company.
Gary T. Steele - President and Chief Executive Officer
Good morning, Nick.
Nick Genova - Analyst
Good morning, guys.
First on margins within Apio value-added, the margins improved sequentially from Q3 and that was in spite of, I mean, it sounds like the raw material or the produce cost are still high.
Can you talk about besides the slight benefit that you might have got from packaging, what else was the [deep] play there?
Gary T. Steele - President and Chief Executive Officer
Well the primary cost between quarters.
It's in the third quarter we're sourcing a lot of our product from the desert area.
So not only the cost of the product greater in terms of growing standpoint, but then you have to freight it from literally the Mexican border all the way up to our plant in Guadalupe, California, and then process it and then ship it across North America.
So that significantly adds costs during the third quarter.
You'll see if you can go back for several years, the third quarters typically are lowest margin quarter for the value added business.
That plus some good operating efficiencies during the quarter, good quality produce coming out of the Santa Maria Valley, you know our primary sourcing.
That--those are the main reasons for the sequentially increasing gross margin.
Nick Genova - Analyst
Okay.
So overall looking ahead into fiscal year 2010, maybe we can build in some sort of increase there but nothing dramatic?
Gary T. Steele - President and Chief Executive Officer
Yes, you are going to continue to see the higher costs that are already in place for produce.
You know this last quarter was close to 14%, that's on an average has been about where are value-added business has been.
I don't see a dramatically increasing from that or even marginally increasing from that, given that of the higher produce costs are already locked in for the fiscal year.
Nick Genova - Analyst
Okay.
And then moving on to a couple of the higher margin opportunities.
First going back to the avocado business, is that something that -- can you compare that to banana business just in terms of potential size of the market?
Gary T. Steele - President and Chief Executive Officer
I can give you just a, you know real rough one.
I think the, given the fact that the retail opportunity for consumer package for bananas is somewhere between not now and never, I would say that Chiquita believes the avocado opportunity is bigger than the banana opportunity right now.
I know that sounds surprising, but they're already a major player in bananas, and they're a relatively small player in avocados, and they see the pathway to be a major player in avocados, which is a $1 billion a year commodity.
It's the fastest growing produce category in North America.
People are in love with avocados, and they're healthy and nutritious, so I think if Chiquita were on the line here, they'd probably say it's a bigger opportunity right now.
Unless the retail opportunity reemerges with change in the economy, I would agree with them.
Nick Genova - Analyst
Okay, and then on the Monsanto trials, those are going on, it sounds like this summer, do you guys have -- I'm sorry about that.
I was just going to say do you guys have a sense for, when those will be completed when you will get the result from that and how that will disseminated?
Gary T. Steele - President and Chief Executive Officer
Yeah, we have a general sense.
Generally, obviously it was planned in the spring.
Monsanto spends a lot of money on trial these are not trivial types of investments for them.
And we're looking at things like plant digger, we are looking at, you know the qualitative and quantitative aspects of the -- is the root structure improved, is the stem coming up and looking healthy?
But eventually, it's at the harvest where you really make your final determinations.
You start looking for yield improvement, etc., etc.
Usually, data is collected and evaluated and analyzed, and usually available in the November, December timeframe.
So I would think that that's when we are going to be learning about this.
And inevitably, if it's generally positive, you do it again, and hopefully we go down and, you know obviously be doing some things down in South America and then will come back and do it next spring.
So you need to go through a few cycles to really see enough data get the statistics working for you.
So I would think that we would start to get some hunches on how things are looking in early in October and then start to see some real data in November.
Nick Genova - Analyst
Okay, great, that's helpful thanks a lot.
Gary T. Steele - President and Chief Executive Officer
Thank you, Nick.
Operator
Our next question comes from Will Lauber with Sterling Capital.
Gary T. Steele - President and Chief Executive Officer
Good morning, Will.
Gregory S. Skinner - Chief Financial Officer
Good morning, Will.
William Lauber - Analyst
Good morning this is Bill.
Will is also here.
Gary T. Steele - President and Chief Executive Officer
Oh, hi Bill and Will, good morning.
William Lauber - Analyst
Gary, I think you probably answered this question or addressed this one way another ,but I am going to ask it anyway.
Is it fair to say that today the relationships with Air Products and Chiquita have been somewhat disappointing?
Gary T. Steele - President and Chief Executive Officer
Let me distinguish, and I am not trying to be politically correct here, but let me distinguish relationships versus results.
Relationships are good, the people are great, they are working hard in both cases.
The Air Products has been much lower then we wanted and I'd try to give it a little background as you've herd earlier about their earlier intents and the fact that they were expecting to have a much stronger worldwide presence in serving the personal care industry through acquisitions.
It did not happen and so they have to go to a kind of home grown approach.
So that explains a lot of the slowness, but you know how could we possible not be -- we would like to see things further along, we would like to see that we're in customer other than L'Oreal right now, and there was some other factors going on here with our relationship with L'Oreal that slowed us down a little bit.
So, my view is the relationship is terrific, people are great, and Air Products is a winner, I mean, that's a winning company.
On Chiquita side, I think they're as disappointed as we are that the retail side has been, we're planning to go in to trials this last fall.
The retailers pushed back, consumers are frankly not interested in new premium products.
They are interested in surviving.
On the McDonald's side, I think both Chiquita and Chiquita's work their tails off trying to get in to quick serve restaurant chains, and if you are following McDonald's, you will know that their push last year for more nutritious products just seems to have gone away.
I mean boy they are having a good time during this recession, things are going well for them and they are selling lot of quarter ponders.
So, relationship is very strong, very positive, but disappointing, disappointing in both cases.
So what do we do about it?
What we do about it is you start moving along the avocado program, which none of us had even thought about when we first got together, and boy that one looks really good.
If you can take avocados and deliver them in a ripe and ready to eat format in our packaging, that looks like a real winner.
What you do with Air Products is you say look, let's home grow it now.
Let's keep going and let's start calling another customers, which we're doing.
So, I would say, you know, we're dealing with it as best we can, but so far it's been in both cases less then what we expected.
William Lauber - Analyst
I was both, particularly referring to the result.
Well if there is three factors here that might be affecting results, and certainly the economy is one.
Two, your partnerships and for the people that you partnered up with -- companies -- and number three, Landec and the viability of the technology.
I would like to think that -- I'm not going to put words in your mouth -- can you address that?
Gary T. Steele - President and Chief Executive Officer
The three or the third one?
William Lauber - Analyst
The third one.
Gary T. Steele - President and Chief Executive Officer
There are in terms of Landec, I'd say, you know, we're never fully satisfied with our own execution.
I am trying to think what the heck we could be doing better and differently in the Chiquita relationship.
I can't come up with anything right now other than to provide them with strong support, which we have.
On the technology itself.
You know there are some practical limitations that go beyond the breathability of our films and membranes.
There is some fruit targets that we've looked at that are more challenging than perhaps we wanted them to be, because when you put them in a sealed package, mold starts to grow.
You know, we capture water in the sealed package.
It's part of respiration, and so we've got to figure out how to get that films that are more transferable in terms of moisture vapor transfer rate, those types of things.
So you just kind of knock them out as you hit those obstacles.
The technology is -- it works.
I don't think we've got SUPERVALU because we're just, you know, better looking people.
I think we earned it by results in higher quality, as well as good performance in terms of serving customers.
So, I would say, you know, for those things that we can control, Bill, I think we are executing reasonably well.
Love to always do better.
In terms of picking the partners I would still say that the selection of Chiquita was absolutely the right selection.
We were talking to some other companies, who frankly told us that they didn't like the technology, because the garbage can was their biggest customers, so we knew they weren't the right fit.
So, I'd say the partners -- we would like to see more.
We're somewhat frustrated, but we just have to keep going.
You know, let's move on, and let's find the new opportunities which is why we are stepping up R&D, that's why we are looking for other partnerships, that's why are looking in the M&A area, that's why we're investing heavily in business development, and that's why we think we are going prosper long-term.
William Lauber - Analyst
So how would you describe it in terms of the potential commercial usage of your technology maybe in and outside the food category?
You don't think -- are you as optimistic about the technology as you were say to two or three years ago in terms of developing other applications?
Gary T. Steele - President and Chief Executive Officer
Yes, I am.
And what's happened in the last two years is the recognition that we have to move beyond our food business and look outside for new innovations.
And so, that why we are investing in new coatings, new drug delivery systems.
That's why we are investing in the R&D of controlled release systems.
That's why we are stepping up R&D, that's why Molly Hemmeter has been hired, because it's time to match those R&D investments with some partnering.
So, if we weren't optimistic we wouldn't be making these investments.
William Lauber - Analyst
Okay.
Fair enough.
Thank you.
Gary T. Steele - President and Chief Executive Officer
Thank you.
Operator
Our next question comes from Morris Ajzenman with Griffin Securities.
Morris Ajzenman - Analyst
Hi guys.
Gary T. Steele - President and Chief Executive Officer
Hi Morris.
Good morning.
Morris Ajzenman - Analyst
Hi.
You gave enough sort of nuggets of information that we look at fiscal 2010, depending upon what happens in the second half of the year, revenues overall could be under pressure versus 2009 ,again depending on what happens to the actually the rate of decline moderating in the second half I guess is the key to that.
But then you talked about SUPERVALU being a large new customers being added, is that enough to have the full year revenues being up year-over-year with that client being brought on.
It's tough to get a handle on how big the client that could be, and that is totally unrelated question.
Gary T. Steele - President and Chief Executive Officer
The answer is yes.
It's enough to -- tell me what's going to happen with US economy and I will tell you exactly how to answer that.
But the uncertainty for us is what is the American consumer going to do?
Are they going to come back to fresh-cut produce?
It's a good value for them, it's nutritious, it's healthy, it's convenient all that.
But you know, right now there's why -- you tell me what you think US unemployment rate is, it's pretty ugly.
But the SUPERVALU brings in substantial incremental dollars for us both at top line and bottom line.
And that will represent year over year growth for us, if we are able to have a category, fresh-cut category, that stays flat.
But we don't know if that's going to stay to flat.
It's been declining for a number of quarters.
That's the uncertainty Morris.
But yes the SUPERVALU is a nice shot in the arm.
It really is.
Morris Ajzenman - Analyst
The other question is moving to the cash flow line.
Items for next year you have total of R&D is going to be up 20% versus 09, CapEx up 30% to 40%.
I mean, again, all the right things to do to invest into the future for the company, but cash flow for this past year on a per ship basis was $0.35 per share.
And you were talking about still generating free cash flow with these incremental investments, can we still generate free cash flow for fiscal 2010?
Gary T. Steele - President and Chief Executive Officer
Yeah absolutely.
You know, the plan is this year we did $7.7 million bottomline.
We are now fully taxed.
So you don't have the issues with, "Gee, you're going from 8% tax rate to 20% to this year 42%." It will comparable next year.
And we generated $9.4 million in operating cash this year.
And we anticipate that given our projections of being flat to slightly up on that income, that our cash flows should follow that and given the estimate of $6 million in CapEx, you are talking about generating free cash flow somewhere in the $3 million, $3.5 million range if that guidance turns out to be true.
Morris Ajzenman - Analyst
And that $9.4 million, is that operating, is that free cash flow as per CapEx, working CapEx?
Gary T. Steele - President and Chief Executive Officer
No, that's operating, the CapEx this year was $4.6 million, so you'd have to take that off.
Morris Ajzenman - Analyst
So your free cash flow was more about a --
Gary T. Steele - President and Chief Executive Officer
$8 million.
Morris Ajzenman - Analyst
Okay, less $4.6 million, okay.
Thank you.
Gary T. Steele - President and Chief Executive Officer
You're welcome.
Gregory S. Skinner - Chief Financial Officer
You're welcome.
Operator
I'm not showing any other questions at this time.
Gary T. Steele - President and Chief Executive Officer
We appreciate your being on the call, thank you very much and we look forward to keeping you posted on our progress and plans.
Many thanks.
Operator
Thank you, ladies and gentlemen, thank you for your participation in today's conference, this does conclude the conference, you may now disconnect, good day.