WALL ST.: WEIGHING COST FACTORS

Byline: Thomas J. Ryan

NEW YORK — Despite good demand for products, earnings at most textile mills will be under pressure in 1995 as the mills face the difficult task of passing on higher costs of raw materials to price-conscious consumers, according to Wall Street.
“The big question is who is going to eat the higher prices,” said Edward F. Johnson, at Johnson Redbook Service.
Prices have escalated for cotton, wool and polyester, as well as for such staples as cardboard and paper. Although some small price increases have stuck at retail, most analysts don’t see the tight-fisted consumer accepting price hikes to compensate for the hikes in raw materials prices.
“The reality is that raw-material costs have gone up,” said Lorraine D. Miller at The Robinson Humphrey Co., based in Atlanta, “and somebody is going to have to pay: either the apparel and textile firms, in lower margins; retailers, in lower margins, or consumers, in higher prices.”
Miller said retailers in general “have become much more powerful in dictating prices” with the increasing dominance of such retail giants as Wal-Mart Stores Inc. and Federated/R.H. Macy & Co.
Jack Pickler, at Prudential Bache Securities, observed that the change in mix to moderate-price goods and private label assortments also puts pressure on margins.
“Most mills are showing very good demand for products and operating rates are good. The only negative is the raw-material costs,” Pickler said.
The denim market is particularly strong and running at full capacity, but higher cotton costs are expected to pressure earnings at Burlington Industries, Cone Mills Corp. and Thomaston Mills. Higher costs of raw materials should affect Forstmann, Delta Woodside and Texfi Industries, but all are expected to recover somewhat from depressed earnings in 1994.
Strength in knits should help Guilford Mills and the Alamac Knits division of WestPoint Stevens to better earnings, while Galey & Lord should get a boost from strong demand for synthetic fabrics for coordinated prints and solids. Unifi is expected to benefit from its dominance of the textured polyester market.
In the fourth quarter, earnings for 16 textile firms dropped 21.2 percent, excluding heavy charges at Burlington Industries and Delta Woodside in the year-ago quarter. Sales gained 9.2 percent. In the year, profits declined 3 percent for the group, excluding heavy charges at Springs Industries, Burlington and Delta Woodside, while sales advanced 4.9 percent.
Galey & Lord’s earnings are expected to rise to $1.75 to $1.90 a share in its year ending in September from $1.57 a year earlier. Pickler said strength in synthetic fabrics and a recovery in print apparel fabric sales will offset lower sales of wrinkle-resistant fabrics.
Guilford Mills is expected to net $2.35 a share in the year ending September 1995, up from $1.81. Pickler said Guilford is “starting to get some real contribution” from its aggressive capital-spending program and is benefiting from strong demand for its knit products and higher productivity.
WestPoint Stevens should earn $1.45 to $1.50 a share in 1995 against $1.15. Pickler said most of the gains stem from cost savings, but he noted strength at Alamac in the circular knits and home textiles divisions.
Analysts estimate Unifi will earn $1.55 to $1.60 against $1.28 in the year ending in June. For the year ending in June 1996, Unifi should net $1.85 to $1.95. Dennis S. Rosenberg, at Buckingham Research Group, said demand for textured polyester has been “consistently strong for more than a year.” Miller said Unifi’s large share of the polyester/nylon market has allowed it to get some price gains.
Pickler said demand for denim is stronger domestically and overseas for Cone Mills and Burlington Industries. However, rising cotton costs are pressuring margins and outstripping price increases. Cone Mills Inc. is expected to earn $1.19 to $1.20, up from $1.16.
Burlington Industries is expected to earn $1.10 to $1.20 a share in its year ending in September, down from $1.45 in 1994. Rosenberg said higher cotton costs are hurting Burlington’s knit and denim businesses while higher wool costs are depressing its men’s business. He said the company is seeing good demand, though, for all its products and expects 1996 “to be a better year.”
Miller expects Delta Woodside to earn 60 cents a share in its year ended June 1995 against 42 cents, before special charges, a year earlier. She expects $1.05 in its year ending June 1996. Delta is expected to face higher cotton costs, weaker demand for wrinkle-resistant fabrics and continuing problems repositioning its Duck Head apparel line. Delta’s circular knits and T-shirt business are performing better.
Forstmann’s earnings fell 48 percent in the year ended Oct. 30 and the firm is expected to show a steeper loss than a year ago in the first quarter ended January 1995. Redbook’s Johnson said Forstmann has been hurt by higher wool costs, increased interest costs and slow sales of women’s coats caused by unseasonably warm winter. Johnson said results should improve in the second half and in 1996, with continued strength in men’s wear and growth in new products such as career apparel fabrics.
Forstmann should make 70 to 80 cents a share in 1995 against 60 cents in 1994.
Texfi has projected break-even results at 22 cents a share for the year ending Nov. 3, 1995, rebounding from two straight years of losses from continuing operations. The company expects to benefit from reduced operating and overhead costs and a shift in focus to its core blends, elastics and knit businesses.
Johnson expects Dixie Yarns to earn 50 cents a share in 1995, recovering from a loss of 24 cents in 1994. Continued strength in carpet and a turnaround in profitability at the textile division should help, he said.
Springs Industries is expected to net $3.45 to $3.60 a share, against $3.50, with sales hurt by higher costs of raw materials.
Fab Industries Inc. is expected to earn $2.60 a share in the year ending in November, up from $2.44 a year earlier, according to Johnson. He said demand in Fab’s knit business is improving, but its polyester business “is a little tough.” — Fairchild News Service