ANALYSTS SEE IMPROVED SECOND HALF

Byline: Diane E. Picard

NEW YORK — The downward spiral in the textile industry continued for the quarter ended Dec. 31. Most mills had low earnings, and the first half of this year is expected to bring more of the same, according to Wall Street analysts.
The analysts see some improvement down the road, but they disagree about exactly when.
Josie Esquivel, textile analyst at Morgan Stanley & Co., said in a research report that business is expected to remain difficult in 1996, especially for sportswear fabrics.
Esquivel noted high cotton costs will keep pressure on margins, although probably not to the extent they did in 1995.
But Jay J. Meltzer of Johnson Redbook Service said there is some indication the industry has hit bottom. “It is a generally poor first quarter, but I see a positive comparison going forward.”
Kay Norwood at Interstate/Johnson Lane expects a weak first half, but improvement in the second half.
She noted in a research report the recent weakness at retail, in apparel and home fashions, is likely to hurt sales and operating rates for the usually soft March quarter.
Some companies say business is starting to pick up, despite the weak retailing environment in January and February, Norwood said. “But uncertainties about the government, the election and the economy are still keeping the industry slow.”
The current year should be a mirror image of last year, with a weaker first half and stronger performances later in the year, Norwood added.
In the fourth quarter, earnings for a group of 18 textile firms sank 61.6 percent. The results include heavy special charges at several firms in 1995 and 1994. Sales for the group inched ahead 1 percent.
For the full year, profits for the group were off 12 percent. Again, special charges played a significant role, as firms wrote off losses for discontinued operations, costs of reorganizations and other moves. Sales were ahead 6.4 percent.
Carol Pope, a textile analyst at J.P. Morgan Inc., said the current quarter shows a minimal pickup, but no significant improvement yet. “Some of the companies appear to have navigated the rough environment very well, while others have fared worse.”
Meltzer said, the market generally is stronger, and the effects of consolidation and cost-cutting are beginning to be felt. “The guys who can achieve that, and be flexible, will survive,” he said.
Overall, raw materials costs are not expected to be much higher than in the year-ago period. “They’re not expected to be much lower, either,” Norwood said. “The problem is that the companies cannot pass higher materials costs on to their customers, and that squeezes margins.”
Jack Pickler, at Prudential Securities, said in a research report that cotton prices for 1996 will be largely unchanged from 1995. “A splurge in exports has driven up cotton futures prices for the 1995-1996 crop, but we still believe there is a downward pressure on prices.” He said polyester prices should be lower, too.
Interstate’s Norwood said fiber supply should rise in the second half as additional polyester capacity comes on line and more cotton is planted. Prices of both fibers could decrease significantly in the second half, she noted.
Picker said Burlington Industries’ latest quarter was in line with estimates. Although denim remained strong and operated at capacity during the quarter, apparel segment sales declined 4.3 percent. Despite continuing losses in knits, the company expects the division to become profitable in the latter part of the year, as it gets away from the prepared-for-print market.
Norwood added that she expects Burlington to earn less than 30 cents a share in the latest quarter against 34 cents a year ago. For the full year, earnings should be down to 96 cents from $1.05, she added. Cone expects a first-quarter gain of more than 10 cents a share from the sale of its Olympic Products Division to British Vita PLC.
Norwood said, “Cone Mills had a terrible fourth quarter, but some of that is linked to high raw materials costs.” She noted that per-share earnings for 1996 should be up 42.8 percent to 60 cents. J.P. Morgan’s Pope said Cone Mills’ denim business was good in 1995, pricing was high and 1996 is expected to be a good year for denim overall.
She’s more optimistic than Norwood about Cone and projects 1996 earnings at $1.08 a share, including the 10 cents from the sale of assets. In 1997, Pope projects $1.45 a share.
Pickler said in the report that Cone Mills’ 15 cent operating loss was greater than expected. Revenues were up 6.9 percent, but still $6 million short of projections. Strength in denim sales was dampened by declines in specialty sportswear fabrics, he said.
Morgan Stanley’s Esquivel estimates earnings at Galey & Lord of 90 cents a share in 1996 against 69 cents last year. The company recently dropped out of a merger with Graniteville Co. She noted that in fiscal 1996, corduroy fabric sales should increase, while synthetics and uniform sales will be flat or down slightly. Sportswear is expected to continue to be weak. Norwood said Guilford Mills’ March quarter should be down slightly at 65 cents, compared with 67 cents a year ago.
Johnson Redbook’s Meltzer said Dixie Yarns should realize more than $50 million from the sale of its Threads USA division to American & Efrid. But the sale will result in a substantial loss and, along with other one-time charges, will bring a loss of 44 cents a share for the year in 1996. After the sale, Dixie’s business will be one-third yarn textile products and two-thirds floor coverings. At Springs Industries, the current quarter is expected to be the weakest, as sluggish retail trends are expected to continue, according to Esquivel’s report. But the second and third fiscal quarters should be better, as the company has commitments for raw materials at better prices than in 1995, Esquivel said.
Meltzer noted Springs plans to sell its Clark-Schwebel glass fiber subsidiary for $155 million cash, plus preferred stock with a liquidating value of about $30 million. The sale eventually should help the company by freeing it from a specialized business, but short-term, it probably will dilute results; Meltzer reduced his 1996 estimate by 20 cents to $3.70 a share. In 1995, Springs earned $3.71.
Throughout 1995, WestPoint Stevens met analysts’ expectations, boosted by modest sales gains in its home fabrics business, said Pope at J.P. Morgan. The Alamac Knits subsidiary suffered, but now appears to have stabilized, she added.
Unifi is performing well in the current environment because its manufacturing costs and overhead are low relative to the competition, according to Prudential’s Pickler. The company is showing sales increases in textured polyester, textured nylon and spun yarns. “Long term, Unifi should produce top-line growth,” Pickler said in his report. “But the spun yarn business has created a challenge for them in terms of higher cotton costs, without the ability to raise prices. He added that the company has “the strongest financials of any textile company.”
In a research report, Meltzer said sales of Texfi blended fabrics were up 30 percent, but were diluted by a sales drop of 22 percent in narrow elastics sales and 13 percent in knitted apparel in the January quarter. He expects similar conditions in the April quarter will result in operating earnings of 5 cents a share. This will still be an improvement over last year’s 1 cent. For the full year, Meltzer projects earnings of 30 cents against 7 cents.
Texfi seems on the verge of restructuring its debt and factoring advances, which would permit repayment over 30 months and reduce interest costs about $500,000 to $750,000 annually, or 6 to 9 cents pretax, Meltzer noted.
At Dyersburg Corp., Prudential’s Pickler noted sales were sluggish during the December quarter and margins were pressured by downtime. Dyersburg’s major competitor in outerwear fleece, Malden Mills, had a fire in December that destroyed most its Lawrence, Mass., facility. While Malden has said it will not miss any of its shipments, Dyersburg is expected to double its production capacity for outerwear fleece, according to Pickler.
— Fairchild News Service

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