HanesBrands Inc., the parent of Champion, Hanes and Gear for Sports, reported earnings in the third quarter rose 7.2 percent to $173.9 million, or 46 cents a share. Third-quarter growth for net sales, operating profit and diluted earnings per share (EPS) were consistent with company expectations.

The company also said it delivered a record for cash flow in a quarter – $337 million.

With one quarter remaining in the fiscal year, Hanes updated its full-year 2016 guidance, which continues to call for record cash flow from operations, net sales growth in the high single digits and double-digit growth for operating profit and EPS.

For the third quarter ended October 1, 2016, net sales increased 11 percent to $1.76 billion, driven by core organic Innerwear growth and strong acquisition-related International growth. That growth was partially offset by declines in the Activewear and Direct-to-Consumer segments.

On a GAAP basis, operating profit of $228 million increased 10 percent and earnings per diluted share for continuing operations of 45 cents increased 13 percent. When excluding pretax charges related to acquisitions and integrations, adjusted operating profit of $271 million increased 8 percent, and adjusted EPS for continuing operations of 56 cents increased 12 percent.

All adjusted consolidated measures and comparisons reflect continuing operations and exclude approximately $43 million of pretax charges taken in both the third quarter of 2016 and 2015 related to acquisitions and other actions.

“As forecasted, we delivered strong growth in the third quarter, and we are generating record cash flow,” said CEO Gerald W. Evans Jr. “Our sales initiatives have re-accelerated organic growth in several core categories, including 2 percent growth in the quarter for the Innerwear segment. Our acquisitions, both past and present, are performing extremely well. Our inventory level is declining, and cash flow from operations is already $300 million ahead of last year. Our business is unfolding as expected this year, and we remain confident in our ability to deliver on our full-year guidance.”

The key callouts for HanesBrands’ third-quarter 2016 financial results are outlined below.

Growth In Net Sales, Operating Profit And Margin For Innerwear Segment
Innerwear sales increased 2 percent, driven by a successful focus-on-the-core initiative that saw high-single-digit growth combined for men’s, women’s and children’s underwear. The initial shipments of the company’s core products featuring FreshIQ odor control technology began late in the quarter. Segment operating profit increased 6 percent, and the operating profit margin increased 90 basis points to 22 percent.

Acquisitions Drive International Segment Growth
Acquisitions of Pacific Brands of Australia, Champion Europe and Champion Japan, as well as organic growth in Asia, drove 59-percent growth in International sales. Acquisitions contributed approximately $180 million in sales in the quarter. Operating profit growth of 79 percent was driven by widespread strength in Europe, Latin America and Asia, as well as acquisitions. The segment operating profit margin increased 140 basis points to 12.8 percent.

Challenges In Activewear And Direct-To-Consumer Segments
Activewear segment sales decreased 2 percent as a result of bankruptcies of certain sporting goods retailers. Champion at mass, Hanes Activewear and college bookstore sports apparel all increased sales. Total segment operating profit decreased 22 percent, affected by lower volume and the mix of products sold.

The Direct-to-Consumer segment, which is undergoing a transition to a growth-oriented brand strategy, had an 11-percent decrease in sales and a 52-percent decrease in operating profit. Results were affected by the segment’s exit from its legacy catalog business and noncore offerings to a more focused branded-product store and Internet strategy.

Record Cash Flow Driven By Inventory Management
Hanes generated $337 million in net cash from operations, a record for cash flow in a quarter following last quarter’s record for a second quarter. The company’s inventory decreased $124 million from the end of the second quarter, excluding inventory related to acquisitions of $51 million and $173 million in the second and third quarters, respectively.

2016 Financial Guidance
Hanes has narrowed its 2016 full-year guidance to reflect year-to-date performance and expectations for the fourth quarter.

The company expects 2016 net sales of $6.15 billion to $6.18 billion, GAAP operating profit of $807 million to $822 million, adjusted operating profit excluding actions of $940 million to $955 million, GAAP EPS for continuing operations of $1.45 to $1.49, adjusted EPS excluding actions for continuing operations of $1.89 to $1.92, and record net cash from operations of $750 million to $800 million.

The updated guidance compares with previous guidance for net sales of $6.15 billion to $6.25 billion, GAAP operating profit of $760 million to $795 million, adjusted operating profit of $940 million to $975 million, GAAP EPS for continuing operations of $1.44 to $1.54, adjusted EPS for continuing operations of $1.89 to $1.95 and net cash from operations of $750 million to $850 million.

The midpoint of the updated guidance represents growth over 2015 of 8 percent for net sales, 37 percent for GAAP operating profit, 10 percent for adjusted operating profit, 39 percent for GAAP EPS, 15 percent for adjusted EPS and 241 percent for net cash from operations.

Based on year-to-date performance, the updated full-year guidance implies fourth-quarter 2016 guidance for net sales of $1.70 billion to $1.73 billion, GAAP operating profit of $235 million to $250 million, adjusted operating profit of $276 million to $291 million, GAAP EPS for continuing operations of 46 cents to 50 cents, adjusted EPS for continuing operations of 57 cents to 60 cents and net cash from operations of $542 million to $592 million.

Net sales guidance includes expected sales from acquisitions of approximately $460 million for the full year, of which $250 million is expected in the fourth quarter.

The company’s expectations for the pretax charges, capital expenditures and income tax rate remain unchanged from previous guidance.

Full-year guidance for adjusted operating profit and adjusted EPS excludes an estimated $180 million of pretax charges for debt refinancing and acquisition, integration and other actions related to Hanes Europe Innerwear, Knights Apparel, Champion Japan, Champion Europe and Pacific Brands. Approximately $40 million of pretax charges are expected in the fourth quarter.

The company expects capital expenditures of approximately $90 million. Hanes expects interest expense and other expenses to be approximately $158 million combined, up from previous guidance of approximately $150 million. The expectation for the 2016 full-year tax rate percentage remains in the high single digits.

Full-year guidance also reflects the tax-rate effect of the new FASB Accounting Standards Update related to accounting for stock compensation and excludes non-core Pacific Brands businesses that will be divested and reported on a discontinued-operations basis.

Change In Segment Reporting
As a result of a shift in management responsibilities, the company decided in the first quarter of 2016 to move its wholesale e-commerce business, which sells products directly to retailers, from the Direct-to-Consumer segment to the respective Innerwear and Activewear segments. In addition, revisions were made to the manner in which certain selling, general and administrative expenses are allocated. Prior-year segment sales and operating profit results have been revised to conform to the current-year presentation.

The company’s brands include  Hanes, Champion, Playtex, DIM, Bali, Maidenform, Bonds, JMS/Just My Size, L’eggs, Wonderbra, Nur Die/Nur Der, Lovable, Berlei and Gear for Sports.