SOME GAINS SEEN FOR MAKERS IN 4TH PERIOD
Byline: Diane E. Picard
NEW YORK — Textile manufacturers are expected to show minor gains in the fourth quarter and into the new year, but they still have a way to go to exhibit strength as an industry, according to Wall Street analysts.
In the third quarter, textile firms continued a trend of mixed results as they struggled to climb back to the overall profitability they posted two years ago.
“About the nicest thing you can say about this quarter is that it’s over,” said Kay Norwood, an analyst at Interstate/Johnson & Lane in Charlotte, N.C. She noted that results were mixed, with excess denim inventory plaguing the industry as a whole.
“Basic denim remains a huge problem for the companies that deal with it,” she said.
Industry analysts observed that while results showed slight improvements and should continue to improve slowly, there is still a long wait before textile firms begin to shine again.
Jack Pickler, at Prudential Securities here, said that even though results were only slightly better than the dismal figures of 1995, he was still encouraged by them.
“In most cases there were better sales and margins to consider,” Pickler said. “I see the same trend continuing in the fourth quarter.”
He noted that since holiday 1995 was disappointing, and there were strong October sales results, “the fourth quarter of 1996 should be ahead of the year-ago.”
Overall, Pickler said 1996 could be referred to as “A Tale of Two Halves.” He said that the first half was a continuation of the prior year’s weak performances, but the second half has shown slow improvement.
But he quickly added that he is optimistic for the fourth quarter and first half of 1997.
“Right now, inventories are in line and manufacturing rates are better,” he said.
A survey of 12 major textile firms showed earnings for the third quarter rose 1.5 percent, as revenues slipped 2.3 percent. However, overall results have been tempered by special items in all companies in either the latest or year-ago quarters. For the nine months, earnings slumped 51.3 percent. Revenues for the nine months were ahead 2.2 percent.
Looking ahead, Norwood said denim weakness will continue for a few more quarters, adding that problems are beginning to spread to value-added denim fabrics.
“For many companies, the areas that have had problems will continue to have problems.” Norwood said.
She noted that shifts in apparel manufacturing from the Far East to the Western Hemisphere may improve textile results in coming quarters.
“As more apparel manufacturers shift to facilities in Mexico and the Caribbean, they will switch to textile mills in the U.S., boosting the mills’ performances.”
Lorraine Miller, analyst with Robinson Humphrey in Atlanta, said that for the fourth quarter and full year most mills will have positive comparisons with the year ago.
Currently the textile industry is in an environment where pricing and raw material costs are relatively stable, she said, “but its not a strong market yet.”
Generally, the textile industry is better than it has been, but comparisons are going to get more difficult by the middle to the end of 1997, Miller noted, but that some companies will show improvements in the quarters ahead.
“Cone Mills is still having troubles with its denim inventories, which will continue into the fourth and on into the first quarters,” Miller said.”
She expects Cone to widen its operating loss to 25 cents a share from 15 cents, and show a net loss of 7 cents against earnings of 39 cents.
Norwood added that Cone’s denim problems are spreading from basic denim to its specialty denim and that the decorative fabrics business is losing money.
Burlington performed a little better than expected, with revenues “a shade better” than last year. But Prudential’s Pickler note that the fourth quarter will be a fairly difficult period for the company.
He expects the textile giant to earn 13 cents a share in the fourth quarter, versus 12 cents a year ago, and $1.20 for the full year compared to $3.71, reflecting the costs of closing the knitted fabric business.
He noted that Burlington is still plagued by weak denim results, but added that the second half of 1997 will be slightly stronger than the first half.
Norwood said she expects Galey & Lord to earn 19 cents a share, versus 2 cents a year ago, as it makes some changes to its product lines. Pickler said Galey & Lord is being pulled along by strength in its sportswear fabric and corduroy fabric sales.
Norwood said that Springs Industries strong third-quarter performance appeared flat, since the year-ago included the operations of Clark-Schwebel, its fiberglass business. Springs has made up a lot of lost revenues that had stemmed from the fiberglass unit, she added. In the December quarter, she expects it to earn $1.11 a share, compared to $1.08 in the year-ago same period.
For the full year, Norwood expects Springs to earn $3.68, versus $3.71.
Norwood expects Delta Woodside to earn 5 cents in the fourth quarter against a loss of 19 cents a year ago. For the year, she expects it to earn 30 cents against a $2.31 loss last year.
She noted that apparel and fabric backlogs are up, with the exception of its wovens segment. Delta Woodside was hurt in the past by costs related to plant modernizations.
There are increasing volumes in knit fabrics; however, the segment is still soft, Norwood said, adding that increases in Delta Woodside’s knit fabrics sales are not related to changes at Burlington.
Pickler highlighted the profitability in the company’s synthetic wovens business and strength in Delta Woodside’s Duckhead apparel unit.
Pickler said Unifi, one of the most diverse of the textile firms, is expected to earn 42 cents in the December quarter compared to 36 cents a year ago, and for the year to earn $1.70 compared to 1995. He added that its diversification makes it a good indicator of the strength of the rest of the textile industry.
Dixie Yarns latest quarter results were on track, Norwood said, meeting her estimates of 18 cents. For the full year, she expects the company to earn 35 cents a share, against a loss of 37 cents in 1995.