Unifi Announces Fourth Quarter and Fiscal 2019 Results and Provides Update on Recent Trade Developments
Fourth Quarter Fiscal 2019 Highlights
- Achieved expected sales volume growth of 6% from the fourth quarter of fiscal 2018, despite continued pressure from low-cost imports into
the United States . - Revenues from premium value-added ("PVA") products grew 13.4% compared to the fourth quarter of fiscal 2018 and represented approximately 51% of consolidated net sales.
- Generated
$8.8 million of positive operating cash flows. - Reset selling, general and administrative expenses ("SG&A") to a prospective annual run-rate of approximately
$51.0 million via previously communicated cost reduction efforts. - Secured exclusivity on proprietary design of new texturing equipment in the
Americas , with installation commencing in calendar 2020, demonstrating the Company's commitment to its leading manufacturing position. These additions are expected to be completed with no significant change to the Company's annual capital expenditure run-rate of$25 million .
Fourth Quarter Fiscal 2019 Financial Summary
- Low-cost import inventories in
the United States remained elevated during the quarter, prolonging competitive pressures on the Company's domestic operations, driving lower fixed cost absorption and a weaker sales mix. - Net sales decreased to
$179.5 million from$181.3 million for the fourth quarter of fiscal 2018, but increased$2.3 million , or 1.3%, when excluding the impact of foreign currency translation. - Gross margin was 10.2%, compared to 13.2% for the fourth quarter of fiscal 2018.
- Operating income was
$5.3 million , compared to$9.3 million for the fourth quarter of fiscal 2018. - Diluted earnings per share ("EPS") was
$0.05 , compared to$0.58 for the fourth quarter of fiscal 2018, primarily driven by lower earnings from both domestic operations andParkdale America, LLC ("PAL") and a corresponding unfavorable effective tax rate, while the fourth quarter of fiscal 2018 included a$0.19 benefit to EPS from the reversal of an uncertain tax position.
"Despite the persistent headwinds we faced throughout fiscal 2019, we achieved our fourth quarter volume and profitability expectations, made progress towards revitalizing our position in the
Update on Recent Trade Developments
- Imports of polyester textured yarn from
China andIndia – which increased approximately 79% from calendar years 2013 to 2017 and continued to grow during calendar year 2018 – placed considerable pressure on margins inthe United States during fiscal 2019. - On
June 26, 2019 , theU.S. Department of Commerce (the "Commerce Department ") announced affirmative preliminary antidumping duty determinations on imports of polyester textured yarn from (i)China at rates of 65% or more and (ii)India at rates of 10% or more. In addition, due to the "critical circumstances" resulting from a significant spike in Chinese imports in the months immediately following the filing of the Company'sOctober 2018 trade petitions, antidumping duties are applied retroactively for subject imports fromChina , beginning 90 days prior to the date that the duties go into effect. - As previously announced on
April 29, 2019 , theCommerce Department established affirmative preliminary countervailing duty determinations on unfairly subsidized imports of polyester textured yarn from (i)China at rates of 32% or more and (ii)India at rates of 7% or more, and countervailing duties are applied retroactively for subject imports fromChina , beginning 90 days prior to the date that the duties went into effect. - U.S. importers of the subject yarns are currently required to post cash deposits to cover the antidumping and countervailing duties issued under the preliminary determinations.
- Final determinations of dumping, subsidization and injury are expected by the end of calendar 2019.
Fourth Quarter Fiscal 2019 Compared to Fourth Quarter Fiscal 2018
Sales volumes grew 6%, led by PVA product sales in
Net income was
Adjusted EBITDA was
Fiscal 2019 Compared to Fiscal 2018
Fiscal 2019 consisted of 53 weeks for the Company's domestic operations, compared to 52 weeks in fiscal 2018. Sales volumes increased 7% from fiscal 2018, led by PVA product sales in
Net debt (debt principal less cash and cash equivalents) was
Outlook
For fiscal 2020, the Company expects the following, assuming no significant volatility in raw material costs:
- High-single-digit percentage growth from fiscal 2019 for sales volumes;
- Mid-single-digit percentage growth from fiscal 2019 for net sales;
- Operating income between
$22.0 million and $27.0 million , over 100% growth from fiscal 2019; - Adjusted EBITDA between
$47.0 million and $52.0 million , over 25% growth from fiscal 2019; - Capital expenditures of approximately
$25.0 million ; and - An effective tax rate in the mid-20% range.
Caudle concluded, "As we look to fiscal 2020, we remain optimistic. The combination of our ongoing growth efforts to drive our innovative and recycled portfolios globally and the deliberate and considerable reduction of our SG&A cost structure should provide meaningful improvement in our profitability, while further momentum on recent trade activity is expected to lift our domestic operations. Assuming a stable raw material cost environment for fiscal 2020, we are projecting continued top-line expansion, a doubling of operating income, substantial improvement in our effective tax rate and a significant increase in net income and Adjusted EBITDA."
Business Segment Update
In the fourth quarter of fiscal 2019, the Company increased its reportable segments from three to four, primarily in connection with the growth of sales for the Company's subsidiaries in
Fourth Quarter Fiscal 2019 Earnings Conference Call
The Company will provide additional commentary regarding its fourth quarter and fiscal 2019 results and other developments during its earnings conference call on
About
Financial Statements, Business Segment Information and Reconciliations of Reported Results to Adjusted Results to Follow |
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) |
||||||||
June 30, 2019 |
June 24, 2018 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ |
22,228 |
$ |
44,890 |
||||
Receivables, net |
88,884 |
86,273 |
||||||
Inventories |
133,781 |
126,311 |
||||||
Other current assets |
20,729 |
16,820 |
||||||
Total current assets |
265,622 |
274,294 |
||||||
Property, plant and equipment, net |
206,787 |
205,516 |
||||||
Investments in unconsolidated affiliates |
114,320 |
112,639 |
||||||
Other non-current assets |
5,422 |
9,358 |
||||||
Total assets |
$ |
592,151 |
$ |
601,807 |
||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Accounts payable and other current liabilities |
$ |
59,214 |
$ |
68,007 |
||||
Current portion of long-term debt |
15,519 |
16,996 |
||||||
Total current liabilities |
74,733 |
85,003 |
||||||
Long-term debt |
111,541 |
113,553 |
||||||
Other long-term liabilities |
13,032 |
13,470 |
||||||
Total liabilities |
199,306 |
212,026 |
||||||
Total shareholders'equity |
392,845 |
389,781 |
||||||
Total liabilities and shareholders'equity |
$ |
592,151 |
$ |
601,807 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) |
||||||||||||||||
For the Three Months Ended |
For the Fiscal Year Ended |
|||||||||||||||
June 30, 2019 |
June 24, 2018 |
June 30, 2019 |
June 24, 2018 |
|||||||||||||
Net sales |
$ |
179,493 |
$ |
181,325 |
$ |
708,804 |
$ |
678,912 |
||||||||
Cost of sales |
161,151 |
157,421 |
642,496 |
592,484 |
||||||||||||
Gross profit |
18,342 |
23,904 |
66,308 |
86,428 |
||||||||||||
Selling, general and administrative expenses |
12,018 |
14,742 |
52,690 |
56,077 |
||||||||||||
(Benefit) provision for bad debts |
(73) |
66 |
308 |
(38) |
||||||||||||
Other operating expense (income), net |
1,132 |
(173) |
2,350 |
1,590 |
||||||||||||
Operating income |
5,265 |
9,269 |
10,960 |
28,799 |
||||||||||||
Interest income |
(180) |
(116) |
(628) |
(560) |
||||||||||||
Interest expense |
1,336 |
1,373 |
5,414 |
4,935 |
||||||||||||
Loss on extinguishment of debt |
— |
— |
131 |
— |
||||||||||||
Equity in earnings of unconsolidated affiliates |
(842) |
(1,945) |
(3,968) |
(5,787) |
||||||||||||
Income before income taxes |
4,951 |
9,957 |
10,011 |
30,211 |
||||||||||||
Provision (benefit) for income taxes |
3,949 |
(807) |
7,555 |
(1,491) |
||||||||||||
Net income |
$ |
1,002 |
$ |
10,764 |
$ |
2,456 |
$ |
31,702 |
||||||||
Net income per common share: |
||||||||||||||||
Basic |
$ |
0.05 |
$ |
0.59 |
$ |
0.13 |
$ |
1.73 |
||||||||
Diluted |
$ |
0.05 |
$ |
0.58 |
$ |
0.13 |
$ |
1.70 |
||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
18,439 |
18,340 |
18,395 |
18,294 |
||||||||||||
Diluted |
18,705 |
18,701 |
18,695 |
18,637 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) |
||||||||
For the Fiscal Year Ended |
||||||||
June 30, 2019 |
June 24, 2018 |
|||||||
Cash and cash equivalents at beginning of year |
$ |
44,890 |
$ |
35,425 |
||||
Operating activities: |
||||||||
Net income |
2,456 |
31,702 |
||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Equity in earnings of unconsolidated affiliates |
(3,968) |
(5,787) |
||||||
Distributions received from unconsolidated affiliates |
2,647 |
12,236 |
||||||
Depreciation and amortization expense |
23,003 |
22,585 |
||||||
Non-cash compensation expense |
3,258 |
5,823 |
||||||
Deferred income taxes |
423 |
(5,797) |
||||||
Other, net |
(560) |
(277) |
||||||
Changes in assets and liabilities |
(19,975) |
(23,150) |
||||||
Net cash provided by operating activities |
7,284 |
37,335 |
||||||
Investing activities: |
||||||||
Capital expenditures |
(24,871) |
(25,029) |
||||||
Other, net |
(65) |
(1,846) |
||||||
Net cash used in investing activities |
(24,936) |
(26,875) |
||||||
Financing activities: |
||||||||
Proceeds from long-term debt |
128,100 |
120,500 |
||||||
Payments on long-term debt |
(131,319) |
(118,760) |
||||||
Other, net |
(1,407) |
(437) |
||||||
Net cash (used in) provided by financing activities |
(4,626) |
1,303 |
||||||
Effect of exchange rate changes on cash and cash equivalents |
(384) |
(2,298) |
||||||
Net (decrease) increase in cash and cash equivalents |
(22,662) |
9,465 |
||||||
Cash and cash equivalents at end of year |
$ |
22,228 |
$ |
44,890 |
BUSINESS SEGMENT INFORMATION (Unaudited) (In thousands) |
||||||||||||||||
Net sales details for each reportable segment of the Company are as follows: |
||||||||||||||||
For the Three Months Ended |
||||||||||||||||
June 30, 2019 |
June 24, 2018 |
Change ($) |
Change (%) |
|||||||||||||
Polyester |
$ |
89,105 |
$ |
97,352 |
$ |
(8,247) |
-8.5 |
% |
||||||||
Nylon |
21,968 |
26,673 |
(4,705) |
-17.6 |
% |
|||||||||||
Brazil |
26,620 |
27,827 |
(1,207) |
-4.3 |
% |
|||||||||||
Asia |
40,852 |
28,363 |
12,489 |
44.0 |
% |
|||||||||||
All Other |
948 |
1,110 |
(162) |
-14.6 |
% |
|||||||||||
Consolidated net sales |
$ |
179,493 |
$ |
181,325 |
(1,832) |
-1.0 |
% |
|||||||||
For the Fiscal Year Ended |
||||||||||||||||
June 30, 2019 |
June 24, 2018 |
Change ($) |
Change (%) |
|||||||||||||
Polyester |
$ |
370,770 |
$ |
364,169 |
$ |
6,601 |
1.8 |
% |
||||||||
Nylon |
98,127 |
102,639 |
(4,512) |
-4.4 |
% |
|||||||||||
Brazil |
102,877 |
110,587 |
(7,710) |
-7.0 |
% |
|||||||||||
Asia |
132,866 |
97,297 |
35,569 |
36.6 |
% |
|||||||||||
All Other |
4,164 |
4,220 |
(56) |
-1.3 |
% |
|||||||||||
Consolidated net sales |
$ |
708,804 |
$ |
678,912 |
29,892 |
4.4 |
% |
|||||||||
Gross profit details for each reportable segment of the Company are presented below. Segment profitability has been updated to align with an intercompany agreement established in fiscal 2019 wherein the Polyester Segment has granted rights to the use of certain manufacturing know-how, processes, and product technical information and design ("technologies") to the Asia Segment. Cost of sales for the Polyester Segment includes an intersegment technologies credit, while cost of sales for the Asia Segment includes a corresponding intersegment technologies expense. The technologies credit (expense) reflected in the corresponding segments were $1,513 and $1,058 for the three months ended June 30, 2019 and June 24, 2018, respectively, and $5,209 and $2,103 for fiscal 2019 and 2018, respectively. Current and prior year amounts reflect such changes, while consolidated gross profit is not impacted. |
||||||||||||||||
For the Three Months Ended |
||||||||||||||||
June 30, 2019 |
June 24, 2018 |
Change ($) |
Change (%) |
|||||||||||||
Polyester |
$ |
7,902 |
$ |
9,845 |
$ |
(1,943) |
-19.7 |
% |
||||||||
Nylon |
1,408 |
3,081 |
(1,673) |
-54.3 |
% |
|||||||||||
Brazil |
4,976 |
6,432 |
(1,456) |
-22.6 |
% |
|||||||||||
Asia |
4,003 |
4,450 |
(447) |
-10.0 |
% |
|||||||||||
All Other |
53 |
96 |
(43) |
-44.8 |
% |
|||||||||||
Consolidated gross profit |
$ |
18,342 |
$ |
23,904 |
(5,562) |
-23.3 |
% |
|||||||||
For the Fiscal Year Ended |
||||||||||||||||
June 30, 2019 |
June 24, 2018 |
Change ($) |
Change (%) |
|||||||||||||
Polyester |
$ |
23,819 |
$ |
33,194 |
$ |
(9,375) |
-28.2 |
% |
||||||||
Nylon |
7,896 |
10,484 |
(2,588) |
-24.7 |
% |
|||||||||||
Brazil |
18,579 |
25,861 |
(7,282) |
-28.2 |
% |
|||||||||||
Asia |
15,700 |
16,620 |
(920) |
-5.5 |
% |
|||||||||||
All Other |
314 |
269 |
45 |
16.7 |
% |
|||||||||||
Consolidated gross profit |
$ |
66,308 |
$ |
86,428 |
(20,120) |
-23.3 |
% |
RECONCILIATIONS OF REPORTED RESULTS TO ADJUSTED RESULTS (Unaudited) (In thousands) |
||||||||||||||||
EBITDA and Adjusted EBITDA |
||||||||||||||||
The reconciliations of the amounts reported under U.S. generally accepted accounting principles ("GAAP") for Net income to EBITDA and Adjusted EBITDA are as follows: |
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For the Three Months Ended |
For the Fiscal Year Ended |
|||||||||||||||
June 30, 2019 |
June 24, 2018 |
June 30, 2019 |
June 24, 2018 |
|||||||||||||
Net income |
$ |
1,002 |
$ |
10,764 |
$ |
2,456 |
$ |
31,702 |
||||||||
Interest expense, net |
1,156 |
1,257 |
4,786 |
4,375 |
||||||||||||
Provision (benefit) for income taxes |
3,949 |
(807) |
7,555 |
(1,491) |
||||||||||||
Depreciation and amortization expense |
5,698 |
5,652 |
22,713 |
22,218 |
||||||||||||
EBITDA |
11,805 |
16,866 |
37,510 |
56,804 |
||||||||||||
Equity in earnings of PAL |
(407) |
(1,576) |
(2,561) |
(4,533) |
||||||||||||
EBITDA excluding PAL |
11,398 |
15,290 |
34,949 |
52,271 |
||||||||||||
Severance (1) |
1,351 |
— |
1,351 |
— |
||||||||||||
Adjusted EBITDA |
$ |
12,749 |
$ |
15,290 |
$ |
36,300 |
$ |
52,271 |
(1) |
For the three months and fiscal year ended June 30, 2019, the Company incurred certain severance costs of $1,351 in connection with overall cost reduction efforts. |
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Note: Amounts presented in the reconciliations above may not be consistent with amounts included in the Company's condensed consolidated financial statements. Any such inconsistencies are insignificant and are integral to the reconciliations. |
Non-GAAP Financial Measures
Certain non-GAAP financial measures included herein are designed to complement the financial information presented in accordance with GAAP. These non-GAAP financial measures include Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA (together, the "non-GAAP financial measures").
- EBITDA represents Net income before net interest expense, income tax expense, and depreciation and amortization expense.
- Adjusted EBITDA represents EBITDA adjusted to exclude equity in earnings of PAL and, from time to time, certain other adjustments necessary to understand and compare the underlying results of
Unifi .
The non-GAAP financial measures are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management's belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management's discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures.
We believe that these non-GAAP financial measures better reflect
Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity, because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio. Equity in earnings of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.
In evaluating non-GAAP financial measures, investors should be aware that, in the future, we may incur expenses similar to the adjustments included herein. Our presentation of non-GAAP financial measures should not be construed as indicating that our future results will be unaffected by unusual or non-recurring items. Each of our non-GAAP financial measures has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results or liquidity measures as reported under GAAP. Some of these limitations are (i) it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; (ii) it does not reflect the impact of earnings or charges resulting from matters we consider not indicative of our ongoing operations; (iii) it does not reflect changes in, or cash requirements for, our working capital needs; (iv) it does not reflect the cash requirements necessary to make payments on our debt; (v) it does not reflect our future requirements for capital expenditures or contractual commitments; (vi) it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and (vii) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, these non-GAAP financial measures should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations, including those under our outstanding debt obligations. You should compensate for these limitations by relying primarily on our GAAP results and using these measures only as supplemental information.
Cautionary Statement on Forward-Looking Statements
Certain statements included herein contain forward-looking statements within the meaning of federal securities laws about the financial condition and results of operations of
Factors that could contribute to such differences include, but are not limited to: the competitive nature of the textile industry and the impact of global competition; changes in the trade regulatory environment and governmental policies and legislation; the availability, sourcing and pricing of raw materials; general domestic and international economic and industry conditions in markets where
All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on Unifi. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities laws. The above and other risks and uncertainties are described in
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SOURCE
Alpha IR Group, 312-445-2870, UFI@alpha-ir.com