Culp Announces Results for Second Quarter Fiscal 2018
Board of Directors Authorizes Increase in Quarterly Cash Dividend
from
Fiscal 2018 Second Quarter Highlights
-
Net sales were
$80.7 million , up 7.1 percent, with mattress fabrics sales up 6.8 percent and upholstery fabrics sales up 7.7 percent, as compared with the same quarter last year. -
Pre-tax income was
$6.2 million , compared with$7.2 million in the second quarter of fiscal 2017. The$6.2 million included approximately$400,000 of non-recurring legal and other professional expenses. -
Net income was
$4.0 million , or$0.32 per diluted share, compared with net income of$4.5 million , or$0.36 per diluted share, in the prior year period. -
The company’s financial position reflected total cash and investments
of
$49.1 million and no outstanding debt. (See summary of cash and investments table on page 5.) The$49.1 million was achieved despite spending$7.5 million in capital expenditures, which includes vendor financed payments, and$4.6 million on dividend payments during the first six months of this fiscal year. -
The company announced a 12.5 percent increase in its quarterly cash
dividend from
$0.08 to $0.09 per share, or$0.36 per share on an annualized basis, commencing in the third quarter of fiscal 2018.
Fiscal 2018 Year to Date Highlights
-
Net sales were
$160.2 million , up 2.7 percent, with mattress fabrics sales up 1.0 percent and upholstery fabrics sales up 5.4 percent compared with the same period a year ago. -
Pre-tax income was
$12.9 million , compared with$15.7 million for the same period last year. -
Net income was
$9.0 million , or$0.71 per diluted share, compared with net income of$9.8 million , or$0.78 per diluted share, in the prior year period. - Annualized consolidated return on capital was 25 percent, compared with 34 percent for the same period a year ago.
-
During the first half of fiscal 2018, the company paid
$4.6 million in dividends, of which$2.6 million was for a special dividend. SinceJune 2011 , the company has returned a total of$51.0 million to shareholders in the form of regular quarterly and special dividends and share repurchases.
Financial Outlook
-
The projection for third quarter fiscal 2018 is for overall sales to
be slightly higher than the previous year’s third quarter. Pre-tax
income for the third quarter of fiscal 2018 is expected to be in the
range of
$6.8 million to $7.4 million . Pre-tax income for the third quarter of fiscal 2017 was$7 .0 million. - The company’s performance for the second half of fiscal 2018 is currently expected to be somewhat better than the results achieved during the second half of last fiscal year, excluding any impact from potential acquisitions.
Overview
For the second quarter ended
Commenting on the results,
“We are also pleased that our board has approved an increase in our
quarterly cash dividend from
Mattress Fabrics Segment
Mattress fabrics sales for the second quarter were
“We are pleased with the solid growth in mattress fabrics sales for the
second quarter,” said Iv Culp, president of Culp’s mattress fabrics
division. “Notably, we continued to execute our strategy in an uncertain
market environment, and
“We have made excellent progress in enhancing our platform and
production capabilities as we have recently completed a period of major
transformation across our North American manufacturing operations. As
expected, we experienced some disruptions to our production through the
second quarter, as well as higher expenses associated with product
roll-outs; however, we expect to realize greater operating efficiencies
going forward. All of our knitting and other fabric forming equipment
has been placed into service in our expanded
“From product design to final delivery, we are executing our
diversification strategy to offer a full complement of fabrics and sewn
covers. We are excited about the increasing sales contribution from
CLASS, our mattress cover business, as we have expanded our business
with traditional customers and made impressive strides in reaching new
customer markets, especially the fast growing boxed bedding space.
Additionally, our newest joint venture mattress cover production
facility in
“Looking ahead,
Upholstery Fabrics Segment
Sales for this segment were
“We are pleased with the solid growth in our upholstery fabric sales for
the second quarter, as we benefitted from the success of our various
growth initiatives,” noted
“We have continued to drive innovation and creativity and execute our product-driven strategy and reach new market segments. Our results for the second quarter reflect the success of this strategy, highlighted by expanded sales of LiveSmart®, our popular ‘performance’ line of highly durable, stain-resistant fabric. We have also seen continued solid growth in sales of fabrics designed for the hospitality market, and we are excited about the opportunities to reach a more diverse customer base. We are exploring potential acquisitions in the hospitality market that will complement our upholstery fabrics business, which is principally in the residential market.
“We had an excellent showing at the recent October furniture market, and
our creative designs and innovative products continue to distinguish the
Culp brand. We are especially pleased with the favorable customer
response to LiveSmart®, as many manufacturers are featuring this fabric
in their showrooms. We have recently launched a new website specifically
for this innovative product line along with a more aggressive marketing
campaign, and we remain optimistic about the sales opportunities for
“Looking ahead, we are encouraged by a more favorable market outlook as
consumer spending for home furnishings is starting to pick up. We
believe
Balance Sheet
“We have maintained a strong financial position through the first half
of fiscal 2018, even while spending
Dividends and Share Repurchases
The company also announced that its Board of Directors approved a 12.5
percent increase in the company’s quarterly cash dividend from
The company did not repurchase any shares during the first half of
fiscal 2018, leaving
Since
Financial Outlook
Commenting on the outlook for the third quarter of fiscal 2018, Bowling remarked, “We expect overall sales to be slightly higher as compared with the third quarter of last year.
“Mattress fabrics sales are expected to be slightly higher than the same period a year ago. Operating income and margins in this segment are expected to be somewhat higher as compared to a year ago.
“In our upholstery fabrics segment, we expect sales to be slightly
higher than the same period a year ago. Operating income and margins in
this segment are expected to be slightly lower as compared to last year,
as we expect to face higher shipment costs out of
“Considering these factors, the company expects to report pre-tax income
for the third fiscal quarter of 2018 in the range of
“With respect to the full year, capital expenditures for fiscal 2018, including vendor financed payments, are currently expected to be comparable to the previous year and mostly related to additional improvement projects for mattress fabrics. Additionally, the company expects another good year of cash flow, even with the expected level of capital expenditures and modest growth in working capital,” added Bowling.
About the Company
This press release contains “forward-looking statements” within the
meaning of the federal securities laws, including the Private Securities
Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933
and Section 21E of the Securities and Exchange Act of 1934).Such
statements are inherently subject to risks and uncertainties.Further,
forward looking statements are intended to speak only as of the date on
which they are made, and we disclaim any duty to update such statements.Forward-looking statements are statements that include projections,
expectations or beliefs about future events or results or otherwise are
not statements of historical fact.Such statements are often but
not always characterized by qualifying words such as “expect,”
“believe,” “estimate,” “plan” and “project” and their derivatives, and
include but are not limited to statements about expectations for our
future operations, production levels, sales, profit margins,
profitability, operating income, capital expenditures, working capital
levels, income taxes, SG&A or other expenses, pre-tax income, earnings,
cash flow, and other performance measures, as well as any statements
regarding potential acquisitions, future economic or industry trends or
future developments. Factors that could influence the matters discussed
in such statements include the level of housing starts and sales of
existing homes, consumer confidence, trends in disposable income, and
general economic conditions, as well as our success in finalizing
acquisition negotiations.Decreases in these economic indicators
could have a negative effect on our business and prospects.Likewise,
increases in interest rates, particularly home mortgage rates, and
increases in consumer debt or the general rate of inflation, could
affect us adversely. Changes in consumer tastes or preferences toward
products not produced by us could erode demand for our products. Changes
in the value of the U.S. dollar versus other currencies could affect our
financial results because a significant portion of our operations are
located outside
CULP, INC. |
||||||||||||
Condensed Financial Highlights |
||||||||||||
(Unaudited) |
||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||
October 29, |
October 30, |
October 29, |
October 30, |
|||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||
Net sales | $ | 80,698,000 | $ | 75,343,000 | $ | 160,230,000 | $ | 156,026,000 | ||||
Income before income taxes | $ | 6,159,000 | $ | 7,159,000 | $ | 12,900,000 | $ | 15,706,000 | ||||
Net income | $ | 3,976,000 | $ | 4,475,000 | $ | 8,959,000 | $ | 9,789,000 | ||||
Net income per share: | ||||||||||||
Basic | $ | 0.32 | $ | 0.36 | $ | 0.72 | $ | 0.80 | ||||
Diluted | $ | 0.32 | $ | 0.36 | $ | 0.71 | $ | 0.78 | ||||
Average shares outstanding: | ||||||||||||
Basic | 12,440,000 | 12,308,000 | 12,420,000 | 12,297,000 | ||||||||
Diluted | 12,580,000 | 12,507,000 | 12,613,000 | 12,495,000 | ||||||||
Summary of Cash and Investments | ||||||||||||||
October 29, 2017, October 30, 2016 and April 30, 2017 | ||||||||||||||
(Unaudited) |
||||||||||||||
(Amounts in thousands) |
||||||||||||||
Amounts | ||||||||||||||
October 29, | October 30, | April 30, | ||||||||||||
2017 | 2016 | 2017* | ||||||||||||
Cash and cash equivalents | $ | 15,739 | $ | 13,910 | $ | 20,795 | ||||||||
Short-term investments - Available for Sale | 2,478 | 2,430 | 2,443 | |||||||||||
Short-term investments - Held-To-Maturity | 4,015 | - | - | |||||||||||
Long-term investments - Held-To-Maturity | 26,853 | 31,050 | 30,945 | |||||||||||
Total cash and investments | $ | 49,085 | $ | 47,390 | $ | 54,183 | ||||||||
* Derived from audited financial statements. | ||||||||||||||
Consolidated Adjusted Effective Income Tax Rate, | ||||||||||||
For the Six Months Ended October 29, 2017 and October 30, 2016 |
||||||||||||
(Unaudited) |
||||||||||||
(Amounts in Thousands) |
||||||||||||
SIX MONTHS ENDED | ||||||||||||
Amounts | ||||||||||||
October 29, | October 30, | |||||||||||
2017 | 2016 | |||||||||||
Consolidated Effective GAAP Income Tax Rate | (1) | 29.1 | % | 37.7 | % | |||||||
Non-Cash U.S. Income Tax Expense | (19.1 | )% | (19.6 | )% | ||||||||
Excess Income Tax Benefits Related To Stock-Based Compensation |
4.3 | % | - | |||||||||
Other Non-Cash Foreign Income Tax Expense | (0.1 | )% | (0.3 | )% | ||||||||
Consolidated Adjusted Effective Income Tax Rate | (2) | 14.2 | % | 17.8 | % | |||||||
(1) |
Calculated by dividing consolidated income tax expense by consolidated income before income taxes. |
|||||||||||
(2) |
Represents estimated cash income tax expense for our subsidiaries located in Canada and China divided by consolidated income before income taxes. |
|||||||||||
Reconciliation of Free Cash Flow | ||||||||
For the Six Months Ended October 29, 2017 and October 30, 2016 | ||||||||
(Unaudited) |
||||||||
(Amounts in thousands) |
||||||||
Six Months Ended | Six Months Ended | |||||||
October 29, 2017 | October 30, 2016 | |||||||
Net cash provided by operating activities | $ | 10,178 | $ | 17,049 | ||||
Minus: Capital Expenditures | (4,978 | ) | (6,308 | ) | ||||
Minus: Investment in unconsolidated joint venture | (609 | ) | - | |||||
Plus: Proceeds from the sale of equipment | 6 | - | ||||||
Minus: Payments on vendor-financed capital expenditures | (2,500 | ) | - | |||||
Plus: Proceeds from the sale of long-term investments (Rabbi Trust) | 54 | - | ||||||
Minus: Purchase of long-term investments (Rabbi Trust) | (1,457 | ) | (929 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 19 | (38 | ) | |||||
Free Cash Flow | $ | 713 | $ | 9,774 | ||||
Reconciliation of Return on Capital | |||||||||||||
For the Six Months Ended October 29, 2017 and October 30, 2016 | |||||||||||||
(Unaudited) |
|||||||||||||
(Amounts in thousands) |
|||||||||||||
Six Months Ended | Six Months Ended | ||||||||||||
October 29, 2017 | October 30, 2016 | ||||||||||||
Consolidated Income from Operations | $ | 13,352 | $ | 15,973 | |||||||||
Average Capital Employed (2) | 105,341 | 93,019 | |||||||||||
Return on Average Capital Employed (1) | 25.3 | % | 34.3 | % | |||||||||
Average Capital Employed | |||||||||||||
October 29, 2017 | July 30, 2017 | April 30, 2017 | |||||||||||
Total assets | $ | 201,043 | $ | 207,904 | $ | 205,634 | |||||||
Total liabilities | (47,963 | ) | (58,227 | ) | (57,004 | ) | |||||||
Subtotal | $ | 153,080 | $ | 149,677 | $ | 148,630 | |||||||
Less: | |||||||||||||
Cash and cash equivalents | (15,739 | ) | (18,322 | ) | (20,795 | ) | |||||||
Short-term investments - Available for Sale | (2,478 | ) | (2,469 | ) | (2,443 | ) | |||||||
Short-term investments - Held-to-Maturity | (4,015 | ) | - | - | |||||||||
Long-term investments - Held-to-Maturity | (26,853 | ) | (30,907 | ) | (30,945 | ) | |||||||
Long-term investments - Rabbi Trust | (6,921 | ) | (6,714 | ) | (5,466 | ) | |||||||
Deferred income taxes - non-current | (491 | ) | (436 | ) | (419 | ) | |||||||
Income taxes payable - current | 692 | 884 | 287 | ||||||||||
Income taxes payable - long-term | 487 | 487 | 467 | ||||||||||
Deferred income taxes - non-current | 4,641 | 4,253 | 3,593 | ||||||||||
Line of credit | - | 5,000 | - | ||||||||||
Deferred compensation | 6,970 | 6,769 | 5,520 | ||||||||||
Total Capital Employed | $ | 109,373 | $ | 108,222 | $ | 98,429 | |||||||
Average Capital Employed (2) | $ | 105,341 | |||||||||||
October 30, 2016 | July 31, 2016 | May 1, 2016 | |||||||||||
Total assets | $ | 179,127 | $ | 183,360 | $ | 175,142 | |||||||
Total liabilities | (43,178 | ) | (51,925 | ) | (46,330 | ) | |||||||
Subtotal | $ | 135,949 | $ | 131,435 | $ | 128,812 | |||||||
Less: | |||||||||||||
Cash and cash equivalents | (13,910 | ) | (45,549 | ) | (37,787 | ) | |||||||
Short-term investments - Available for Sale | (2,430 | ) | (2,434 | ) | (4,359 | ) | |||||||
Long-term investments - Held-To-Maturity | (31,050 | ) | - | - | |||||||||
Long-term investments - Rabbi Trust | (4,994 | ) | (4,611 | ) | (4,025 | ) | |||||||
Income taxes receivable | - | - | (155 | ) | |||||||||
Deferred income taxes - non-current | (581 | ) | (1,942 | ) | (2,319 | ) | |||||||
Income taxes payable - current | 513 | 358 | 180 | ||||||||||
Income taxes payable - long-term | 3,734 | 3,779 | 3,841 | ||||||||||
Deferred income taxes - non-current | 1,699 | 1,532 | 1,483 | ||||||||||
Line of credit | - | 7,000 | - | ||||||||||
Deferred compensation | 5,171 | 5,031 | 4,686 | ||||||||||
Total Capital Employed | $ | 94,101 | $ | 94,599 | $ | 90,357 | |||||||
Average Capital Employed (2) | $ | 93,019 | |||||||||||
Notes: | |||||||||||||
(1) |
Return on average capital employed represents operating income for the six month periods ending October 29, 2017 and October 30, 2016 times two quarters to arrive at an annualized value then divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term investments - Available for Sale, short-term investments - Held-To-Maturity, long-term investments (Held-To-Maturity), long-term investments (Rabbi Trust), noncurrent deferred income tax assets and liabilities, income taxes receivable and payable, line of credit, and deferred compensation. |
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(2) |
Average capital employed used for six months ending October 29, 2017 was computed using the three quarterly periods ending October 29, 2017, July 30, 2017 and April 30, 2017. |
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Average capital employed used for six months ending October 30, 2016 was computed using the three quarterly periods ending October 30, 2016, July 31, 2016 and May 1, 2016. |
View source version on businesswire.com: http://www.businesswire.com/news/home/20171130006065/en/
Source:
Culp, Inc.
Investor Contact:
Kenneth R. Bowling, 336-881-5630
Chief
Financial Officer
or
Media Contact:
Teresa A. Huffman,
336-889-5161
Vice President, Human Resources