COSTS DRAG DOWN RESULTS AT 3 BIG MILLS
Byline: Vicki M. Young / Thomas J. Ryan
NEW YORK — Three major raw material suppliers reported higher sales in their most recent quarter, but a mix of higher costs, unfavorable currency translations, shifting demand and numerous special charges left all with either lower earnings or, in the case of Burlington Industries, mammoth losses.
Thumped by a previously-announced $463.2 million charge to write off goodwill, Burlington Industries Inc. logged a whopping $523.7 million loss in its fourth quarter ended Sept. 30.
The write-off was part of a massive restructuring initiative announced on Sept. 14 that included the layoffs of 1,600 workers, cutbacks at its PerformanceWear segment, as well as overhead and debt reductions. The quarter included pretax charges of $76.5 million.
Excluding the charges, Burlington lost $10.8 million compared with earnings of $3.7 million, or 7 cents a share, a year ago. Sales rose 5.2 percent to $427.2 million from $406 million.
“Our number one priority for the coming year is to improve cash flow and pay down debt,” said Douglas McGregor, president and chief operating officer, who added the company expects to pay down $100 million in debit in the next fiscal year.
McGregor noted that inventories on hand were cut to 61 days from 71 days last quarter, but the effort impacted profits because “we temporarily curtailed production as we aggressively sold some slower moving goods.” He expects losses in the first two quarters of the coming fiscal year, but sees “near break-even” results for the full year.
“The entire textile industry is operating under a challenging environment,” said Charles Peters Jr., senior vice president and chief financial officer, on a conference call. “World over-capacity in many products has led to heightened competition. A shift in apparel manufacturing outside of the U.S. has disrupted traditional business relations. And the increasing concentration of buying power among leading retailers keeps pressure on pricing.”
Other factors causing weakness include the shift to casual dressing at work, the euro’s devaluation, and costs for new Mexican plants.
By segment, the biggest sales gains came in CasualWear, rising 17.3 percent to $70.4 million from $60 million. The segment cuts its pretax loss to $400,000 from $3.9 million.
Peters said CasualWear benefited from improved volume and slightly higher prices than its June quarter although average prices are still down 10 percent from peak levels a year and a half ago. Although he described demand for denim as “good,” the performance at retail was less than expected.
“Consumer demand for denim apparel is still growing but retailers did not see the back-to-school surge they had expected,” Peters said. “We expect increased sales in the December quarter, but some customers may trim their orders due to current retail situation.”
In PerformanceWear, which includes Burlington’s wool and synthetic fabric operations, sales gained 3.8 percent to $144.9 million from $139.6 million. The division lost $7.6 million against a $5.4 million profit a year ago. Excluding restructuring charges, PerformanceWear notched a small profit, Peters said.
The biggest sale declines came in exports, which were hurt by softer demand in Europe and weakness in the euro. Strength was seen in fabrics for men’s slacks and with domestic moderate-priced women’s apparel makers. Men’s tailored apparel, mainly suit separates and blazers, “was on plan and appears to be on solid footing.” The “star” of PerformanceWear was its uniform business as Burlington is a prime supplier to all the U.S. armed forces and does a “substantial” business with fire and police departments.
In the year, the loss amounted to $527 million after the charges against a loss of $31.5 million a year ago. Sales dipped 1.9 percent to $1.62 billion from $1.65 billion.
Dan River Inc. on Thursday reported a drop in income for the third quarter over the year-ago period and said it is facing higher costs in the fourth quarter.
For the quarter ended Sept. 30, the company had $6 million in income, or 28 cents a share, versus $8.2 million, or 36 cents, in the year-ago period. The latest quarter’s results reflect a previously announced product cost adjustment, while last year’s results include a $2.9 million after-tax gain due primarily to the donation of property. The company also said that the first and second quarters will be restated to include the product cost adjustment.
Sales for the period were up 12.6 percent to $175.5 million from $155.8 million. The company said that sales of apparel fabrics were $34.3 million, down 0.2 percent from the 1999 quarter.
Joseph L. Lanier, Jr., chairman and chief executive officer, said in a statement, “As we look to the fourth quarter and beyond, our outlook is not as bullish as it once was. We see the softness in the retail environment, and we are facing higher costs due to energy, raw materials and wages.” He noted that the company is optimistic about the longer term prospects for its apparel fabrics business because of the recent passage of the Caribbean Basis Initiative legislation, but disclosed that apparel fabric orders have been “slow to materialize.”
Lanier said Dan River expects to finish the year with sales of approximately $670 million and earnings per basic share around 68 cents.
For the nine months, the company posted a 2.4 percent increase in income to $13 million, or 59 cents a diluted share, from $12.7 million, or 54 cents, in the year-ago period. Sales were up 3.8 percent to $497.6 million from $479.4 million. Sales of apparel fabrics were down 3.9 percent to $109.6 million
Dan River is a manufacturer of textiles products, and specifically a broad range of woven cotton and cotton-blend fabrics for apparel.
Impacted by seasonal softness in European operations and a provision for bad debt, Unifi on Thursday reported a 13.5 percent drop in income in its first quarter.
Income fell to $2.9 million, or 5 cents a share, for the quarter ended Sept. 24 from $3.3 million, or 6 cents, in the comparable year-ago period. The results included a $1.5 million charge for “bad debts caused by the general decline in industry conditions” and a $1.6 million charge for currency losses stemming from the “partial cancellation of a euro-based hedge originally secured to purchase machinery.”
Sales in the quarter rose 3.4 percent to $315.2 million from $304.7 in the 1999 quarter. The company said the sales increase was from strength in polyester, domestically and throughout South America.
Brian Parke, Unifi’s chief executive officer, said in a statement that domestic polyester sales were up 5.7 percent over the 1999 quarter, “a result of the anticipated improvements in pricing reflected in contracts renewed throughout the quarter and the continued movement to a richer mix of high-end products.”
The company’s European operations were impacted in part by the ongoing weakness in the Euro and continued competitive pressure from imported polyester.
As reported, Unifi and DuPont earlier this year said they formed a polyester “manufacturing alliance” where the two would jointly manage their separately owned polyester-filament-producing facilities. The alliance became effective June 1.
Under the terms of the alliance, DuPont will manage the production planning and scheduling at its partially oriented yarn plants in Kinston and Wilmington, N.C., and at Unifi’s POY plant in Yadkinville, N.C. Also — if either party ends the alliance or at any time after June 1, 2005 — Unifi has the option to buy DuPont’s U.S. polyester-filament business and DuPont in turn has the option to sell the business to Unifi. The options are exercisable by either party.
Operating profit for domestic nylon declined in the quarter due to a 9.4 percent drop in unit sales volume and a slight dip in average selling price. Unifi said it expects continued weakness in the hosiery market, but that new products — such as seamless apparel — are expected to mitigate future losses.