CONE SEES RETURN TO PROFITABILITY
Byline: Brenda Lloyd
GREENSBORO, N.C. — Cone Mills Corp. now projects a profitable second quarter after a year of restructuring and cost reductions in what John Bakane, president and chief executive officer, called a “vicious industry downturn.”
Speaking at the company’s annual stockholders meeting here last week, Bakane pointed out to stockholders the overdyed black Levi’s 501 jeans he was wearing, made of fabric from Cone, and said Cone is seeing “marked improvements in our denim markets,” as well in other soft goods areas. He noted that capacity utilization was in the 70 percent range in the fourth quarter, but plants are operating at full capacity now. Plants started moving to capacity as recently as February and March, he said.
Although 4 cents per share better than analysts’ estimates, Cone posted a 4 cents per share loss for the first quarter. Weak denim pricing affected sales and earnings in the first quarter, but Bakane said that pricing is improving somewhat. “We had to decrease prices as an industry to meet prices from dumping [from overseas], but now the Asian mills are supplying more of their domestic demand,” he said. “So we’re seeing gradual improvement in business here. Pricing is coming up a little.”
Business has improved substantially in Cone’s khaki fabrics, Bakane added. “We see a maturation of basic khaki business and more interest in upgrading. For example, our ProSpin business has been a big winner for us,” he said.
Most of Cone’s first-quarter improvement came from the stiff measures the company took last year to survive in a difficult market. Bakane told stockholders that 1999 efforts were concentrated in three areas: extensive restructuring, reorganization and reduction of costs; survival management in the downturn; and continuation of a strategic denim expansion plan in Mexico. Last year Cone exited the yarn-dyed shirting business and ring spinning in its Rutherford County plant, and downsized and restructured its textile products group and corporate administrative functions.
“We took out everything not necessary to run this business,” Bakane said. That included a 30 percent reduction in Cone’s work force. However, he said, “We believe that $40 million of annual benefits to the company are being delivered as a result of these efforts.”
As for the past two years, he said that the textile industry had not seen back-to-back annual industry declines since the 1990-91 U.S. recession. “The U.S. denim industry specifically was hit even harder by our estimates of a 3 to 5 percent decline in unit consumption, a 10 percent contraction in pipeline inventories and a resultant 14 percent decline in mill shipments,” he said.
He reminded stockholders that Cone has publicly committed to a $50 million earnings before taxation, depreciation and amortization goal this year and has tied compensation to that goal. When Cone first announced its target figure, Bakane said, analysts “acknowledged our lofty goals but stuck to their $38 million forecasts.” However, analysts recently have begun to take the plan seriously. “The $50 million target no longer is a stretch goal to them,” he said.
Cone’s stock, which traded as low as 3 1/4 on Feb. 9, closed Monday at 5 3/4, up 1/16 on the New York Stock Exchange.
Cone’s Parras/Cone venture in Mexico also is going well, he continued, noting that year-to-date sourcing trends confirm a continuation of a 30 percent-plus growth rate in basic jeans sourcing out of Mexico, compared with a 4 percent rate of growth of sourcing from Asia. Cone will begin construction of a new denim facility in Tamaulipas, Mexico, late this year, which is scheduled to be completed in early 2002.