Byline: Scott Malone

NEW YORK — Socked by a falloff in apparel fabric sales and earnings, Guilford Mills Inc. plummeted into the red in its third quarter, reporting a $2.6 million net loss, as its stock took on big hit on the New York Stock Exchange.
Preferring to focus on its still-growing automotive, home furnishings and industrial fabrics areas, the company announced plans to downsize and move its dyeing and finishing operations, cutting at least 400 jobs in the U.S., but creating about 250 in Mexico. This led to an apparent selloff by investors, with Guilford shares falling
1 9/16 to close at 4 Thursday
The company revealed that it would cease producing commodity apparel fabrics for robes and sleepwear, focusing instead on the intimate apparel and swimwear categories.
“We are focusing ourselves on Lycra [spandex]-containing products and on the intimate apparel business, where we are such a strong supplier and we can reach out and understand the garment manufacturing strategies of our customers,” John Emrich, president and chief executive officer, said in a phone interview. “We are exiting the sleepwear and robewear businesses, and the commodity businesses that basically built Guilford, that have just absolutely gone to Asia.”
While the financial results were far below Wall Street’s official expectations — a 14-cent-a-diluted-share loss compared with the First Call consensus of an 11-cent-a-share profit — some in the investment community in recent days had quietly admitted they had started to expect a falloff. In the prior-year period, Guilford had posted a $931,000 profit, or 4 cents a diluted share.
The Greensboro, N.C.-based company said it would be closing its Fishman, N.C., circular-knit dyeing and finishing plant by the end of September. It also warned in a statement that it may cut back on knitting operations at that facility, “depending on volume levels.”
The Fishman cutbacks would eliminate about 400 positions, including 23 sales and administrative positions and 40 headquarters jobs, in addition to plant workers.
Guilford also plans to move its circular-knit dyeing and finishing operations out of its Greenberg, N.C., plant, leaving behind its warp-knit dyeing and finishing operations. The company said it has not yet determined the number of jobs that would be eliminated as a result of that shutdown.
According to Terry Geremski, executive vice president and chief financial officer, Guilford’s apparel fabrics operations today employ about 1,750 workers. Overall, Guilford’s global workforce is about 6,200.
This marks Guilford’s second round of layoffs this year. In January, the company eliminated 75 headquarters jobs.
The company plans to move its circular-knit dyeing and finishing operations into a facility it is building in Tampico, Mexico, which it expects to open by the first quarter of 2001, Emrich said.
“The dyeing and finishing is really the most important aspect of the making of these very difficult products,” he said. “We view the move to Tampico as extremely positive, because it allows us to establish a plant that is very simplified and very cost effective right next door to our customer base in Mexico.”
Emrich noted that the cohabitation of dyeing facilities for mostly natural fiber circular knits and mostly synthetic fiber warp knits in the Greenberg facility had made that an inefficient operation.
The Tampico plant is being built in a 500-acre, joint-venture industrial park Guilford and Cone Mills Corp. bought in late 1998. Earlier this week, Cone said it was seeking to refinance its bonds to allow it to begin construction on a denim mill at that site.
The company noted that its apparel fabrics operation took a $3.5 million pretax operating loss in the quarter, with a $6.9 million loss for the year to date.
For the quarter ended July 2, apparel fabrics sales were $74.3 million, off 14.2 percent from $86.5 million the prior-year quarter. The slide in apparel fabrics more than offset growth in the company’s other business segments, leaving overall revenues down 2.9 percent, to $211.7 million, compared with $217.9 million.
“Results have been negatively impacted by low-cost imports and changes in product mix,” said Emrich. “Furthermore, we have reduced production levels at some of our operations that were built for large runs, resulting in higher unit costs.”
Mills are dependent on extremely expensive machinery and typically need to run very close to full capacity to remain healthy. However, analyst Bryan Hunt at First Union Capital Markets said that it’s particularly noteworthy when less than 3 percent drop in overall sales sends a company’s earnings sliding as much as Guilford’s have.
“It’s pretty revealing of about the amount of leverage in this business, when volume and pricing declines lead to this kind of drop,” he said.
Guilford warned that the cutbacks would result in charges of $35 million to $40 million, which it will take in the fourth quarter and in 2001.
Total charges of between $22 million and $25 million to be taken during the fourth quarter, would reduce aftertax earnings by between 75 cents and 85 cents a share, the company said. Prior to the announcement, the First Call consensus for the fourth quarter had been for a 13-cent-a-share profit, with full-year earnings projected at 54 cents.
Next year, the company added, the remaining $13 million to $15 million in charges will be more than offset by expected savings, boosting earnings per share by 27 cents to 34 cents.
However, the company warned that it expects the charges to leave it out of compliance with debt covenants at the end of the year and said it was in discussion with its lenders about waivers.
Guilford also said that it has consented to the entry of a cease-and-desist order by the Securities & Exchange Commission, related to the SEC’s investigation into accounting irregularities at its Hofmann Laces division. No fines were imposed and the company said it “neither admitted nor denied the findings of the order.”

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