Unifi Inc., the producer of recycled and synthetic yarns, reported operating earnings improved in the second quarter ended December 29 as sales increased 1.1 percent.
Second Quarter Fiscal 2020 Overview
- Net sales of $169.5 million increased 1.1 percent from the second quarter of fiscal 2019 net sales of $167.7 million.
- Revenues from premium value-added products represented 57 percent of consolidated net sales.
- Selling, general and administrative expenses (SG&A) decreased $2.3 million compared to the second quarter of fiscal 2019, demonstrating results from previously communicated cost reduction efforts.
- Operating income was $2.6 million, compared to an operating loss of $0.8 million in the second quarter of fiscal 2019.
- Net income of $0.4 million and diluted earnings per share (“EPS”) of $0.02 were negatively impacted by $1.6 million of lower pre-tax earnings from Parkdale America, LLC (“PAL”); comparable amounts from the second quarter of fiscal 2019 were net income of $1.2 million and EPS of $0.06.
- Operating cash flows for the six months ended December 29, 2019, improved to $28.6 million, continuing the positive momentum from the first quarter of fiscal 2020.
“We ended the second quarter with important news from the U.S. International Trade Commission, as antidumping and countervailing duty rates were recently finalized and published, setting the stage for a more balanced U.S. market for polyester textured yarn,” said Tom Caudle, president and chief operating officer of Unifi.
“We achieved significant improvement in operating results over the prior-year period. Results were impacted by softer-than-expected U.S. demand in certain categories, along with global market pricing pressures. We are pleased with our ability to generate operating cash flows with a leaner cost structure. We now look forward to growing market share, driving innovation across our product portfolio, and leveraging our unmatched supply chain for further global growth.”
Second Quarter Fiscal 2020 Compared to Second Quarter Fiscal 2019
Net sales in the second quarter of fiscal 2020 were $169.5 million, compared to $167.7 million, driven by an 18 percent increase in sales volumes led by Repreve-branded products primarily in Asia, but partially offset by Nylon declines. The sales volume increase in Asia was largely offset by a decline in average selling prices and by Nylon volume declines resulting from customer plant closure announcements and soft demand across all Nylon end markets.
Gross profit increased to $15.7 million, from $14.2 million, primarily attributable to a more favorable raw material cost environment in the U.S. This increase was partially offset by competitive pricing pressures, especially in Brazil, and lower Nylon sales volumes.
Operating income (loss) for the second quarter of fiscal 2020 was $2.6 million, compared to ($0.8) million for the second quarter of fiscal 2019, and benefited from an expected decrease in SG&A, but was negatively impacted by $0.8 million from an unfavorable foreign currency environment and $0.4 million of shutdown costs for the Company’s subsidiary in Sri Lanka.
Net income was $0.4 million, compared to $1.2 million, and EPS was $0.02, compared to $0.06. Pre-tax PAL results were $1.6 million lower in the second quarter of fiscal 2020 and, for the second quarter of fiscal 2019, net income benefited by $2.0 million from tax credits related to prior fiscal years.
Adjusted EBITDA was $8.9 million, compared to $4.9 million. Adjusted EBITDA is a non-GAAP financial measure. The schedules included in this press release reconcile Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.
Net debt was $92.1 million at December 29, 2019, compared to $105.8 million at June 30, 2019, and benefited from $10.4 million in distributions received from PAL during the first quarter of fiscal 2020, which were used to reduce leverage. Net debt is a non-GAAP financial measure. The schedules included in this press release reconcile net debt. Cash and cash equivalents increased to $37.2 million at December 29, 2019, from $22.2 million at June 30, 2019, benefiting from international cash generation.
First Six Months of Fiscal 2020 Overview
The first six months of fiscal 2020 consisted of 26 weeks of domestic operations, compared to 27 weeks of domestic operations in the first six months of fiscal 2019. Net sales were $349.5 million for the first six months of fiscal 2020, compared to $349.3 million. Sales volumes grew 17 percent, led by Asia. Gross margin was 9.5 percent for the first six months of fiscal 2020, compared to 9.8 percent for the first six months of fiscal 2019. Operating income was $8.9 million for the first six months of fiscal 2020, compared to $4.9 million for the first six months of fiscal 2019. Net income was $4.1 million for the first six months of fiscal 2020, compared to $3.0 million for the first six months of fiscal 2019.
Fiscal 2020 Outlook
For fiscal 2020, the Company has revised its guidance to reflect a softer-than-expected recovery. The company now expects:
- Sales volumes to grow between 10 percent and 13 percent from fiscal 2019 levels;
- Net sales between $700.0 million and $715.0 million;
- Operating income between $20.0 million and $23.0 million;
- Adjusted EBITDA between $44.0 million and $47.0 million;
- Capital expenditures of approximately $23.0 million; and
- An effective tax rate not to exceed 23 percent.
Previously, Unifi expected:
- 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 percent growth from fiscal 2019;
- Adjusted EBITDA between $47.0 million and $52.0 million, over 25 percent growth from fiscal 2019;
- Capital expenditures of approximately $25.0 million; and
- An effective tax rate not to exceed 25%.
Caudle concluded, “Our international operations have faced some significant pricing pressures in fiscal 2020, and global competition remains aggressive. While we are confident in our ability to generate significant improvement over fiscal 2019, including sequential gross profit improvement, recapture market share in the U.S., and drive strong cash flows, our full-year fiscal 2020 guidance has been updated to reflect global competitive pricing pressures and lower revenue expectations for Nylon. Nevertheless, our outlook continues to project substantial improvement from fiscal 2019 for operating income, net income, and Adjusted EBITDA.”
Photo courtesy Unifi