CONE POSTS PROFITS
Byline: Evan Clark
NEW YORK — Vaulting back into the black, Cone Mills Corp. turned a first-quarter profit of $1.4 million, or 2 cents a share, reversing a bottom-line losing streak that began in 1999.
Gary Smith, chief financial officer, declared on a conference call: “Our results almost bring tears to our eyes considering the mountains we have scaled in the past year.” However, the Greensboro, N.C.-based mill still needs to raise capital to expand its capacity in Mexico as its operations there will be taxed heavily during peak production periods over the next two quarters.
First-quarter earnings compared with year-ago losses of $2.9 million, or 15 cents. Looking only at continuing operations, year-ago losses tempered some to $902,000, or 8 cents a share. The year-ago quarter also included run-out expenses of about 2 cents a share for the closure of a Raytex plant.
Overall sales for the quarter ended March 31 fell 20.2 percent to $105.8 million from $132.7 million a year ago. Making up the majority of Cone’s revenues, denim sales slid 22.6 percent to $82.1 million, due to lower volume in January and a decrease in prices. However, that unit’s operating profits were up 14.3 percent to $5.8 million.
“Quality, efficiency and cost control exceeded plan at all operations,” said president and chief executive officer John Bakane, in a statement.
Cone’s denim plants returned to operating at full capacity in February, Bakane said, adding that the firm expects “an upward progression in earnings improvement as we move through the second and third quarters.”
But to improve long-term profitability, he observed: “We must reduce our overall cost structure by expanding denim capacity in Mexico. This expansion will require substantial capital investment as well as the successful restructuring of our balance sheet.”
The balance sheet poses “a big problem” for Cone, Bakane added on the call, “There’s a disconnect between where this company must go and where the capital markets have us stymied.”
Cone’s debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio stood at 4.3 at the end of the quarter. The capital markets, noted Smith, generally require this measure to stand at around 3.25 to 3.5.