Unifi Announces Third Quarter Fiscal 2018 Results
Third Quarter Fiscal 2018 Overview
- Net sales increased
$5.0 million , or 3.1%, to$165.9 million , compared to$160.9 million for the third quarter of fiscal 2017, and increased$4.6 million , or 2.9%, when excluding the impact of foreign currency translation;
- Revenues from premium value-added ("PVA") products grew 17% compared to the third quarter of fiscal 2017, and represented approximately 44% of consolidated net sales;
- Gross margin of 10.0%, compared to 13.1% for the third quarter of fiscal 2017, impacted by elevated raw material costs and volume and sales mix challenges;
- Operating income of
$1.6 million , compared to$9.1 million for the third quarter of fiscal 2017, impacted by a decline in gross profit, an increase in selling, general and administrative expenses, and foreign currency losses;
- Diluted EPS of
$0.01 , compared to$0.50 for the third quarter of fiscal 2017; and
- Fiscal 2018 profitability outlook lowered to account for third quarter results and expected continuation into the fourth quarter of raw material cost and domestic yarn demand challenges.
"As we previously announced, our performance during the third quarter was below our expectations," said
Hall continued, "We remain committed in our efforts to expand our commercial capabilities as cost effectively as possible, while continuing to secure our position as the sustainability partner of choice, with a constant focus on recycling and innovation. We are focused on driving both top-line and bottom-line growth over the long-term, which will help us deliver on our goal of maximizing long-term shareholder value."
Third Quarter Fiscal 2018 Operational Review
Net sales were
Operating income declined
Net income was
Adjusted EBITDA was
Net debt (debt principal less cash and cash equivalents) was
First Nine Months of Fiscal 2018 Operational Review
Net sales were
Net income was
Adjusted EPS does not include separate consideration for the impact of the federal tax reform legislation signed into law in
Revised Fiscal 2018 Outlook
Based on the Company's most recent results and the ongoing presence of elevated raw material costs, the Company has updated its fiscal 2018 outlook. The Company continues to expect sales volume growth driving revenue growth in the low-to-mid single digit percentage range for the year. However, many of the challenges that impacted the third quarter's profitability remain ongoing. Thus, while fourth quarter profitability is expected to improve over third quarter results, the Company expects fiscal 2018 Operating income and Adjusted EBITDA to be well below fiscal 2017 results. Capital expenditures are expected to total
Third Quarter Fiscal 2018 Earnings Conference Call
The Company will provide additional commentary regarding its third quarter fiscal 2018 results and other developments during its earnings conference call on
About
Financial Statements, Business Segment Information and Reconciliations to Adjusted Results to Follow
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) |
||||||||
March 25, 2018 |
June 25, 2017 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ |
40,576 |
$ |
35,425 |
||||
Receivables, net |
87,427 |
81,121 |
||||||
Inventories |
121,293 |
111,405 |
||||||
Other current assets |
17,823 |
15,686 |
||||||
Total current assets |
267,119 |
243,637 |
||||||
Property, plant and equipment, net |
203,713 |
203,388 |
||||||
Investments in unconsolidated affiliates |
112,249 |
119,513 |
||||||
Other non-current assets |
7,811 |
4,965 |
||||||
Total assets |
$ |
590,892 |
$ |
571,503 |
||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Accounts payable and other current liabilities |
$ |
59,423 |
$ |
58,994 |
||||
Current portion of long-term debt |
17,076 |
17,060 |
||||||
Total current liabilities |
76,499 |
76,054 |
||||||
Long-term debt |
108,558 |
111,382 |
||||||
Other long-term liabilities |
15,754 |
23,261 |
||||||
Total liabilities |
200,811 |
210,697 |
||||||
Total Unifi, Inc. shareholders' equity |
390,081 |
360,806 |
||||||
Non-controlling interest |
— |
— |
||||||
Total shareholders' equity |
390,081 |
360,806 |
||||||
Total liabilities and shareholders' equity |
$ |
590,892 |
$ |
571,503 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) |
||||||||||||||||
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
March 25, 2018 |
March 26, 2017 |
March 25, 2018 |
March 26, 2017 |
|||||||||||||
Net sales |
$ |
165,867 |
$ |
160,896 |
$ |
497,587 |
$ |
476,020 |
||||||||
Cost of sales |
149,311 |
139,766 |
435,063 |
409,213 |
||||||||||||
Gross profit |
16,556 |
21,130 |
62,524 |
66,807 |
||||||||||||
Selling, general and administrative expenses |
13,846 |
13,000 |
41,335 |
37,278 |
||||||||||||
Provision (benefit) for bad debts |
27 |
(92) |
(104) |
(554) |
||||||||||||
Other operating expense (income), net |
1,100 |
(885) |
1,763 |
(636) |
||||||||||||
Operating income |
1,583 |
9,107 |
19,530 |
30,719 |
||||||||||||
Interest income |
(182) |
(126) |
(444) |
(455) |
||||||||||||
Interest expense |
1,187 |
825 |
3,562 |
2,431 |
||||||||||||
Loss on sale of business |
— |
— |
— |
1,662 |
||||||||||||
Equity in earnings of unconsolidated affiliates |
(544) |
(1,600) |
(3,842) |
(2,073) |
||||||||||||
Income before income taxes |
1,122 |
10,008 |
20,254 |
29,154 |
||||||||||||
Provision (benefit) for income taxes |
946 |
831 |
(684) |
6,481 |
||||||||||||
Net income including non-controlling interest |
176 |
9,177 |
20,938 |
22,673 |
||||||||||||
Less: net loss attributable to non-controlling interest |
— |
— |
— |
(498) |
||||||||||||
Net income attributable to Unifi, Inc. |
$ |
176 |
$ |
9,177 |
$ |
20,938 |
$ |
23,171 |
||||||||
Net income attributable to Unifi, Inc. per common share: |
||||||||||||||||
Basic |
$ |
0.01 |
$ |
0.50 |
$ |
1.15 |
$ |
1.28 |
||||||||
Diluted |
$ |
0.01 |
$ |
0.50 |
$ |
1.12 |
$ |
1.26 |
||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
18,309 |
18,210 |
18,275 |
18,105 |
||||||||||||
Diluted |
18,701 |
18,493 |
18,617 |
18,420 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) |
||||||||
For the Nine Months Ended |
||||||||
March 25, 2018 |
March 26, 2017 |
|||||||
Cash and cash equivalents at beginning of year |
$ |
35,425 |
$ |
16,646 |
||||
Operating activities: |
||||||||
Net income including non-controlling interest |
20,938 |
22,673 |
||||||
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: |
||||||||
Equity in earnings of unconsolidated affiliates |
(3,842) |
(2,073) |
||||||
Distributions received from unconsolidated affiliates |
11,226 |
1,500 |
||||||
Depreciation and amortization expense |
16,844 |
14,887 |
||||||
Loss on sale of business |
— |
1,662 |
||||||
Deferred income taxes |
(8,441) |
6,305 |
||||||
Other, net |
4,698 |
325 |
||||||
Changes in assets and liabilities |
(16,434) |
(15,993) |
||||||
Net cash provided by operating activities |
24,989 |
29,286 |
||||||
Investing activities: |
||||||||
Capital expenditures |
(17,091) |
(27,875) |
||||||
Other, net |
- |
(179) |
||||||
Net cash used in investing activities |
(17,091) |
(28,054) |
||||||
Financing activities: |
||||||||
Proceeds from long-term debt |
80,200 |
107,500 |
||||||
Payments on long-term debt |
(83,286) |
(98,568) |
||||||
Other, net |
(378) |
3,356 |
||||||
Net cash (used in) provided by financing activities |
(3,464) |
12,288 |
||||||
Effect of exchange rate changes on cash and cash equivalents |
717 |
65 |
||||||
Net increase in cash and cash equivalents |
5,151 |
13,585 |
||||||
Cash and cash equivalents at end of period |
$ |
40,576 |
$ |
30,231 |
BUSINESS SEGMENT INFORMATION (Unaudited) (Dollars in thousands) |
||||||||||||||||
Changes in net sales for each reportable segment of the Company are as follows: |
||||||||||||||||
For the Three Months Ended |
||||||||||||||||
March 25, 2018 |
March 26, 2017 |
Change ($) |
Change (%) |
|||||||||||||
Polyester |
$ |
88,763 |
$ |
90,267 |
$ |
(1,504) |
-1.7 |
% |
||||||||
Nylon |
24,036 |
26,987 |
(2,951) |
-10.9 |
% |
|||||||||||
International |
51,989 |
42,345 |
9,644 |
22.8 |
% |
|||||||||||
All Other |
1,079 |
1,297 |
(218) |
-16.8 |
% |
|||||||||||
Consolidated |
$ |
165,867 |
$ |
160,896 |
4,971 |
3.1 |
% |
|||||||||
For the Nine Months Ended |
||||||||||||||||
March 25, 2018 |
March 26, 2017 |
Change ($) |
Change (%) |
|||||||||||||
Polyester |
$ |
266,817 |
$ |
261,623 |
$ |
5,194 |
2.0 |
% |
||||||||
Nylon |
75,966 |
83,784 |
(7,818) |
-9.3 |
% |
|||||||||||
International |
151,694 |
126,557 |
25,137 |
19.9 |
% |
|||||||||||
All Other |
3,110 |
4,056 |
(946) |
-23.3 |
% |
|||||||||||
Consolidated |
$ |
497,587 |
$ |
476,020 |
21,567 |
4.5 |
% |
|||||||||
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 attributable to Unifi, Inc. to EBITDA and Adjusted EBITDA are as follows: |
|||||||||||||||||
For the Three Months Ended |
For the Nine Months Ended |
||||||||||||||||
March 25, 2018 |
March 26, 2017 |
March 25, 2018 |
March 26, 2017 |
||||||||||||||
Net income attributable to Unifi, Inc. |
$ |
176 |
$ |
9,177 |
$ |
20,938 |
$ |
23,171 |
|||||||||
Interest expense, net |
1,005 |
699 |
3,118 |
1,945 |
|||||||||||||
Provision (benefit) for income taxes |
946 |
831 |
(684) |
6,481 |
|||||||||||||
Depreciation and amortization expense |
5,617 |
5,067 |
16,566 |
14,463 |
|||||||||||||
EBITDA |
7,744 |
15,774 |
39,938 |
46,060 |
|||||||||||||
Equity in earnings of PAL |
(479) |
(1,345) |
(2,957) |
(914) |
|||||||||||||
EBITDA excluding PAL |
7,265 |
14,429 |
36,981 |
45,146 |
|||||||||||||
Loss on sale of business (1) |
— |
— |
— |
1,662 |
|||||||||||||
Adjusted EBITDA |
$ |
7,265 |
$ |
14,429 |
$ |
36,981 |
$ |
46,808 |
(1) |
For the nine months ended March 26, 2017, the Company incurred a loss on the sale of its historical investment in Repreve |
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. |
Adjusted Net Income and Adjusted EPS |
||||||||||||||||||||||||||||||||
In fiscal 2018, the Company discontinued calculating current period and historical Adjusted EPS using basic weighted average common shares outstanding and began calculating Adjusted EPS using diluted weighted average common shares outstanding. |
||||||||||||||||||||||||||||||||
The tables below set forth reconciliations of (i) Income before income taxes ("Pre-tax Income"), Provision (benefit) for income taxes ("Tax Impact") and Net income attributable to Unifi, Inc. ("Net Income") to Adjusted Net Income and (ii) Diluted Earnings Per Share ("Diluted EPS") to Adjusted EPS. There are no reconciliation adjustments applicable to the three month periods ended March 25, 2018 and March 26, 2017. |
||||||||||||||||||||||||||||||||
For the Nine Months Ended March 25, 2018 |
For the Nine Months Ended March 26, 2017 |
|||||||||||||||||||||||||||||||
Pre-tax Income |
Tax Impact |
Net Income |
Diluted EPS |
Pre-tax Income |
Tax Impact |
Net Income |
Diluted EPS |
|||||||||||||||||||||||||
GAAP results |
$ |
20,254 |
$ |
684 |
$ |
20,938 |
$ |
1.12 |
$ |
29,154 |
$ |
(6,481) |
$ |
23,171 |
$ |
1.26 |
||||||||||||||||
Certain tax valuation allowance |
— |
(3,807) |
(3,807) |
(0.20) |
— |
— |
— |
— |
||||||||||||||||||||||||
Loss on sale of business (2) |
— |
— |
— |
— |
1,662 |
— |
1,662 |
0.09 |
||||||||||||||||||||||||
Adjusted results |
$ |
20,254 |
$ |
(3,123) |
$ |
17,131 |
$ |
0.92 |
$ |
30,816 |
$ |
(6,481) |
$ |
24,833 |
$ |
1.35 |
||||||||||||||||
Diluted weighted average common shares outstanding |
18,617 |
18,420 |
(1) |
For the nine months ended March 25, 2018, UNIFI reversed a $3,807 valuation allowance on certain historical net operating losses in |
(2) |
For the nine months ended March 26, 2017, UNIFI incurred a loss on the sale of its historical investment in Repreve Renewables, LLC of |
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"), Adjusted EBITDA, Adjusted Net Income and Adjusted EPS (collectively, the "non-GAAP financial measures").
- EBITDA represents Net income attributable to
Unifi, Inc. 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 .
- Adjusted Net Income represents Net income attributable to
Unifi, Inc. calculated under GAAP, adjusted to exclude the approximate after-tax impact of certain income or expense items (as well as specific impacts to the provision for income taxes) necessary to understand and compare the underlying results ofUNIFI . Adjusted Net Income excludes certain amounts which management believes do not reflect the ongoing operations and performance ofUNIFI .
- Adjusted EPS represents Adjusted Net Income divided by
UNIFI's diluted weighted average common shares outstanding.
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 earnings do not reflect our operating performance.
Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.
Historically, the non-GAAP financial measures aimed to exclude the impact of the non-controlling interest in
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