Board of Directors Authorizes 14 Percent
Increase in Quarterly Cash Dividend from $0.07 to $0.08 Per
Share
Culp, Inc. (NYSE: CFI) today reported financial and operating
results for the second quarter and six months ended October
30, 2016.
Fiscal 2017 Second Quarter Highlights
- Net sales were $75.3 million, down 2.1
percent, with mattress fabric sales up 0.2 percent and upholstery
fabric sales down 5.4 percent, as compared with the same quarter
last year.
- Pre-tax income was $7.2 million, up
16.5 percent compared with $6.1 million in the second quarter of
fiscal 2016.
- Net income (GAAP) was $4.5 million, or
$0.36 per diluted share, compared with net income of $3.8 million,
or $0.30 per diluted share, in the prior year period.
- Adjusted net income (non-GAAP) was $5.9
million, or $0.47 per diluted share, for the current quarter,
compared with $5.2 million, or $0.41 per diluted share, for the
second quarter of fiscal 2016. (Adjusted net income is calculated
using estimated cash income tax expense. See the reconciliation to
net income on page 6).
- Cash and cash equivalents, short term
investments and long term investments held-to-maturity totaled
$47.4 million, up $5.3 million from last fiscal year end, with no
outstanding balance on the company’s line of credit as of October
30, 2016. The $47.4 million was achieved despite spending $10.6
million on capital expenditures and dividends during the first six
months of this fiscal year.
- The company announced a 14 percent
increase in its quarterly cash dividend from $0.07 to $0.08 per
share, or $0.32 per share on an annualized basis, commencing in the
third quarter of fiscal 2017.
Fiscal 2017 Year to Date Highlights
- Net sales were $156.0 million, down 0.7
percent, with mattress fabric sales up 3.0 percent and upholstery
fabric sales down 6.1 percent compared with the same period a year
ago.
- Pre-tax income was $15.7 million,
compared with $13.6 million for the same period last year,
representing a 15.9 percent increase.
- Net income (GAAP) was $9.8 million, or
$0.78 per diluted share, compared with net income of $8.5 million,
or $0.68 per diluted share, in the prior year period.
- Adjusted net income (non-GAAP) was
$12.9 million, or $1.03 per diluted share, compared with $11.4
million, or $0.92 per diluted share, for the prior year
period.
- Annualized consolidated return on
capital was 34 percent, compared with 32 percent for the same
period a year ago.
- Capital expenditures for the year to
date period totaled $6.3 million, almost all of which related to
the mattress fabrics segment, compared with $5.3 million a year
ago.
- During the first half of fiscal 2017,
the company paid $4.3 million in dividends, of which $2.5 million
was for a special dividend. Since June 2011, the company has
returned a total of $44.0 million to shareholders in the form of
regular quarterly and special dividends and share repurchases.
Financial Outlook
- The projection for third quarter fiscal
2017 is for overall sales to be flat to slightly lower than the
previous year’s third quarter. Pre-tax income for the third quarter
of fiscal 2017 is expected to be in the range of $6.7 million to
$7.3 million. Pre-tax income for the third quarter of fiscal 2016
was $7.2 million.
Overview
For the second quarter ended October 30, 2016, net sales were
$75.3 million, compared with $77.0 million a year ago. The
company reported net income of $4.5 million, or $0.36 per diluted
share, for the second quarter of fiscal 2017, compared with net
income of $3.8 million, or $0.30 per diluted share, for the second
quarter of fiscal 2016.
Given the volatility in the income tax area during fiscal 2016
and previous years, the company is reporting adjusted net income
(non-GAAP), which is calculated using estimated cash income tax
expense for its foreign subsidiaries. (A presentation of adjusted
net income and reconciliation to net income is set forth on page
6). The company currently does not incur cash income tax expense in
the U.S., nor does it expect to for two to three more years, due to
approximately $18.0 million in U.S. net operating loss
carryforwards as of the end of fiscal 2016. For the second quarter
of fiscal 2017, adjusted net income was $5.9 million, or $0.47 per
diluted share, compared with $5.2 million, or $0.41 per diluted
share, for the second quarter of fiscal 2016. On a pre-tax basis,
the company reported income of $7.2 million compared with
pre-tax income of $6.1 million for the second quarter
of fiscal 2016.
Commenting on the results, Frank Saxon, president and chief
executive officer of Culp, Inc., said, “Overall, our second quarter
sales were slightly lower than the same quarter of last year,
reflecting softness in the retail market for home furnishings.
However, in spite of lower sales, we are pleased with the strong
operating performance in both businesses, excellent free cash flow
and high returns on capital. We have continued to drive product
innovation and creativity and leverage the strength of our
efficient manufacturing platform with favorable results. We have
also realized the benefits of our recent capital improvement
projects in the mattress fabrics business. Importantly, we have the
financial strength to continue to make the strategic investments to
enhance our operations and support our growth objectives.
“We are also pleased that our financial performance and strong
balance sheet have enabled us to increase our quarterly cash
dividend by 14 percent from $0.07 to $0.08 per share, or $0.32 per
share on an annualized basis. Notably, we have consistently
increased our quarterly dividend every year since we reinstated the
dividend in June 2012 at an annualized rate of $0.12 per share.
This action is consistent with our capital allocation strategy and
confirms our commitment to generate value for our shareholders,”
added Saxon.
Mattress Fabric Segment
Mattress fabric sales for the second quarter were $45.5 million,
up slightly compared with $45.4 million for the second quarter
of fiscal 2016.
“We are pleased with our overall performance for the second
quarter, especially in light of challenging market conditions,”
said Iv Culp, president of Culp’s mattress fabrics division.
“We continued to execute our strategy in a difficult environment
and have outperformed current industry trends. Our strategic focus
on design creativity and innovation has been a key advantage in
meeting changing customer demand with a diverse product offering,
including mattress fabrics and covers, across all price points. Our
mirrored manufacturing platform, technical expertise and expanded
reactive capacity, support our strategy with outstanding customer
service and delivery performance.
“We have made excellent progress in our operating results
through the first half of fiscal 2017, demonstrating the strength
of our business model and consistent execution of our strategic
plan. These improved results reflect the benefits of our capital
investments over the past year including increased capacity via
newer, more efficient equipment, enhanced finishing capabilities
and better overall throughput. We also benefited from lower raw
material costs in the second quarter compared with a year ago. We
are near completion with the latest expansion projects in our North
Carolina facilities to enhance production capacity and
significantly improve our distribution capabilities. In addition,
we are planning further consolidation and equipment relocation to
streamline our production platform to more effectively support our
continuous improvement initiatives and long-term growth strategy.
We are also making progress with our Canadian expansion project,
including new equipment installations and enhanced finishing
capabilities. Importantly, our new Canadian distribution platform,
expected to commence operations in the fourth quarter of fiscal
2017, will allow us to ship directly to our customers in Canada.
Together, these major investments will significantly enhance our
ability to serve all of our customers and strengthen Culp’s
leadership position in North America.
“From product design to final delivery, we are executing our
diversification strategy to offer a full complement of fabrics and
sewn covers. CLASS, our mattress cover business, had a strong
performance in the second quarter, and we are excited about the
sales potential ahead to expand our business. We believe mattress
cover opportunities exist with our traditional customers, and we
are also reaching new markets, especially the fast growing Internet
bedding space.
“We are also in the final planning stages for expanding our
mattress cover capacity with another production facility in a
low-cost labor country. This new location, which is expected to
commence operations in the first half of next fiscal year, will
complement our existing production capabilities with a mirrored
platform and enhance our ability to meet customer demand while
remaining cost-competitive.
“Importantly, we believe Culp has a strong competitive position,
and we will be strategic in targeting customers who value our
innovation and compelling value proposition. We remain confident in
our ability to execute our strategy and drive our long-term
operating performance,” Culp concluded.
Upholstery Fabric Segment
Sales for this segment were $29.8 million for the second quarter
of fiscal 2017, down 5.4 percent compared with sales of
$31.5 million in the second quarter of fiscal 2016.
“Our upholstery fabric sales for the second quarter of fiscal
2017 reflected softer retail demand for residential furniture,”
noted Boyd Chumbley, president of Culp’s upholstery fabric
division. “However, in spite of the challenging sales environment,
we are pleased with our overall operating performance. We have
continued to drive innovation and creativity as we execute our
product-driven strategy. Our global platform supports this strategy
with the flexibility to meet changing customer demand trends and
provide exceptional quality and service. China produced fabrics
accounted for 93 percent of Culp’s upholstery fabric sales for the
second quarter.
“Our creative designs and innovative products continue to
distinguish the Culp brand in the marketplace. We had an excellent
showing at the recent October furniture market. We are especially
pleased with the favorable customer response to our latest
‘performance’ line of highly durable, stain-resistant fabrics. We
have recently launched a new marketing campaign to promote this
innovative product line, and we remain optimistic about the sales
opportunities for Culp,” added Chumbley.
Balance Sheet
“We have maintained a strong financial position through the
first half of fiscal 2017, even while investing $6.3 million of
capital expenditures mostly in our mattress fabrics business and
returning $4.3 million to shareholders in regular and special
dividends,” added Ken Bowling, senior vice president and chief
financial officer of Culp, Inc. “As of the end of the second
quarter, we reported $47.4 million in cash and cash equivalents,
short-term investments and long-term investments held-to-maturity,
up $5.3 million from $42.1 million at the end of last fiscal year.
We are also pleased that we paid off our outstanding line of credit
during the quarter.
“Free cash flow was $9.5 million for the first half of fiscal
2017, compared with $6.4 million for the same period in fiscal
2016. The year over year improvement in free cash flow was due
primarily to increased earnings and improved working capital
management, especially inventory management. We expect to have
another strong year of free cash flow in fiscal 2017, even with the
anticipated high level of capital expenditures and modest growth in
working capital,” added Bowling.
Dividends and Share Repurchases
The company also announced that the Board of Directors approved
a 14 percent increase in the company’s quarterly cash dividend from
$0.07 to $0.08 per share, or $0.32 per share on an annualized
basis. This payment will be made on January 17, 2017, to
shareholders of record as of January 3, 2017. Future dividend
payments are subject to Board approval and may be adjusted at the
Board’s discretion as business needs or market conditions
change.
The company did not repurchase any shares during the first half
of fiscal 2017, leaving $5.0 million available under the share
repurchase program approved by the Board in June 2016.
Since June 2011, the company has returned a total of $44.0
million to shareholders in the form of regular quarterly and
special dividends and share repurchases.
Outlook
Commenting on the outlook for the third quarter of fiscal 2017,
Saxon remarked, “We expect overall sales to be flat to slightly
lower as compared with the third quarter of last year, primarily
reflecting the timing of the Chinese New Year on our upholstery
fabrics business.
“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 slightly higher compared to a year
ago.
“In our upholstery fabrics segment, we expect both sales and
operating income to be moderately lower than the same period a year
ago. The timing of the Chinese New Year holiday will have a greater
impact on our business in the third fiscal quarter as the holiday
occurs in January this coming year as opposed to February last
year.
“Considering these factors, the company expects to report
pre-tax income for the third fiscal quarter of 2017 in the range of
$6.7 million to $7.3 million. Pre-tax income for last year’s third
quarter was $7.2 million.
“Looking at the full year, capital expenditures for fiscal 2017
are projected to be approximately $12 million, mostly related to
expansion and efficiency improvement projects for mattress fabrics.
Additionally, the company expects another strong year of free cash
flow.”
In closing, Saxon remarked, “In spite of a more challenging
retail environment for home furnishings experienced during this
quarter, we are pleased with our results to date for fiscal 2017,
with a strong operating performance for both businesses. Our
creative designs and ability to consistently innovate have
distinguished our products in the marketplace, and we have done an
excellent job in meeting the changing demands of our customers. At
the same time, we continue to identify new market opportunities and
make strategic investments in our business to enhance our
competitive position. Importantly, we have the financial strength
to support our growth strategy and, at the same time, reward our
shareholders. Looking ahead, we are cautiously optimistic about the
potential for improved demand in the home furnishings industry
given the recent uptick in consumer confidence and the improvement
in other economic indicators.”
About the Company
Culp, Inc. is one of the world's largest marketers of mattress
fabrics for bedding and upholstery fabrics for residential and
commercial furniture. The company markets a variety of fabrics to
its global customer base of leading bedding and furniture
companies, including fabrics produced at Culp’s manufacturing
facilities and fabrics sourced through other suppliers. Culp has
operations located in the United States, Canada and China.
This release contains contain “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 27A 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,
income taxes, SG&A or other expenses, pre-tax income, earnings,
cash flow, and other performance measures, as well as any
statements regarding 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. 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
the United States. Strengthening of the U.S. dollar against other
currencies could make our products less competitive on the basis of
price in markets outside the United States, and strengthening of
currencies in Canada and China can have a negative impact on our
sales of products produced in those places. Also, economic and
political instability in international areas could affect our
operations or sources of goods in those areas, as well as demand
for our products in international markets. Further information
about these factors, as well as other factors that could affect our
future operations or financial results and the matters discussed in
forward-looking statements, is included in Item 1A “Risk Factors”
in our Form 10-K filed with the Securities and Exchange Commission
on July 15, 2016, for the fiscal year ended May 1, 2016. In
addition, please note that the company is not responsible for
changes made to this release by wire services, internet services,
or other media.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
Six Months Ended
October 30,
November 1,
October 30,
November 1,
2016
2015
2016
2015
Net sales $ 75,343,000 $ 76,956,000 $ 156,026,000 $
157,141,000 Income before income taxes $ 7,159,000 $ 6,144,000 $
15,706,000 $ 13,552,000 Net income $ 4,475,000 $ 3,771,000 $
9,789,000 $ 8,471,000 Net income per share: Basic $ 0.36 $ 0.31 $
0.80 $ 0.69 Diluted $ 0.36 $ 0.30 $ 0.78 $ 0.68 Adjusted net
income $ 5,885,000 $ 5,179,000 $ 12,910,000 $ 11,424,000 Adjusted
net income per share Basic $ 0.48 $ 0.42 $ 1.05 $ 0.93 Diluted $
0.47 $ 0.41 $ 1.03 $ 0.92 Average shares outstanding: Basic
12,308,000 12,343,000 12,297,000 12,310,000 Diluted 12,507,000
12,484,000 12,495,000 12,481,000
Presentation of Adjusted Net Income and
Adjusted Income Taxes (1)
Three Months Ended
Six Months Ended
October 30,
November 1,
October 30,
November 1,
2016
2015
2016
2015
Income before income taxes $ 7,159,000 $ 6,144,000 $
15,706,000 $ 13,552,000 Adjusted income taxes (2) $ 1,274,000 $
965,000 $ 2,796,000 $ 2,128,000 Adjusted net income $ 5,885,000 $
5,179,000 $ 12,910,000 $ 11,424,000
(1)
Culp, Inc. currently does not incur cash
income tax expense in the U.S. due to its $18 million in net
operating loss carryforwards as of May 1, 2016. Therefore, adjusted
net income is calculated using only income tax expense for the
company’s subsidiaries in Canada and China.
(2)
Represents estimated cash income tax
expense for the company’s subsidiaries in Canada and China,
calculated with a consolidated adjusted effective income tax rate
of 17.8% for fiscal 2017 and 15.7% for fiscal 2016.
Consolidated Adjusted Effective Income Tax Rate,
Net Income and Earnings Per Share For the Six Months Ended
October 30, 2016, and November 1, 2015 (Unaudited)
(Amounts in Thousands)
SIX MONTHS
ENDED
Amounts
October 30, November 1,
2016 2015
Consolidated Effective GAAP Income Tax Rate (1)
37.7
% 37.5 % Non-Cash U.S. Income Tax Expense
(19.6 )% (21.5 )% Non-Cash Foreign Income Tax
Expense
(0.3 )% (0.3 )%
Consolidated Adjusted Effective Income Tax Rate (2)
17.8 % 15.7 %
THREE MONTHS ENDED As reported October 30,
2016 As reported November 1, 2015 October
30, Proforma Net November 1, Proforma Net
2016 Adjustments
of Adjustments 2015
Adjustments
of Adjustments Income before income taxes
$ 7,159 $ -
$ 7,159 $
6,144 $ 6,144 Income taxes (3)
2,684 $ (1,410 )
1,274
2,373 $ (1,408 )
965 Net income
$
4,475 $ 1,410
$ 5,885 $ 3,771 $
1,408
$ 5,179 Net income per share-basic
$ 0.36 $ 0.11
$ 0.48 $
0.31 $ 0.11
$ 0.42 Net income per
share-diluted
$ 0.36 $ 0.11
$ 0.47
$ 0.30 $ 0.11
$ 0.41 Average shares
outstanding-basic
12,308 12,308 12,308
12,343 12,343 12,343 Average shares
outstanding-diluted
12,507 12,507 12,507
12,484 12,484 12,484 SIX
MONTHS ENDED As reported October 30, 2016 As
reported November 1, 2015 October 30, Proforma
Net November 1, Proforma Net 2016
Adjustments
of Adjustments 2015 Adjustments
of
Adjustments Income before income taxes
$
15,706 $ -
$ 15,706 $ 13,552 $ -
$ 13,552 Income taxes (3)
5,917
$ (3,121 )
2,796 5,081 $ (2,953
)
2,128 Net income
$ 9,789 $ 3,121
$ 12,910 $ 8,471 $ 2,953
$
11,424 Net income per share-basic
$
0.80 $ 0.25
$ 1.05 $ 0.69 $ 0.24
$ 0.93 Net income per share-diluted
$
0.78 $ 0.25
$ 1.03 $ 0.68 $ 0.24
$ 0.92 Average shares outstanding-basic
12,297
12,297 12,297 12,310 12,310
12,310 Average shares outstanding-diluted
12,495
12,495 12,495 12,481 12,481
12,481
(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.
(3)
Proforma income taxes calculated using the
Consolidated Adjusted Effective Income Tax Rate as reflected
above.
Reconciliation of Free Cash
Flow For the Six Months Ended October 30, 2016, and November
1, 2015
(Unaudited)
(Amounts in thousands)
Six Months Ended Six Months Ended October
30, 2016 November 1, 2015 Net cash provided by
operating activities $ 16,602 $ 11,204 Minus: Capital expenditures
(6,308 ) (5,255 ) Add: Proceeds from the sale of equipment - 225
Minus: Purchase of long-term investments (Rabbi Trust) (929 ) (864
) Add: Excess tax benefits related to stock-based compensation 167
838 Effect of exchange rate changes on cash and cash equivalents
(38 ) 271 Free Cash Flow $ 9,494
$ 6,419
Reconciliation of Return on Capital For the Six Months
Ended October 30, 2016, and November 1, 2015
(Unaudited)
(Amounts in thousands)
Six Months Ended Six Months Ended October
30, 2016 November 1, 2015 Consolidated Income
from Operations $ 15,973 $ 13,760 Average Capital Employed (2)
93,019 87,372 Return on Average
Capital Employed (1) 34.3 % 31.5 % Average
Capital Employed
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 (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
November 1, 2015 August 2, 2015 May 3,
2015 Total assets $ 168,947 $ 166,880 $ 171,300 Total
liabilities (45,972 ) (48,155 ) (51,873 )
Subtotal $ 122,975 $ 118,725 $ 119,427 Less: Cash and cash
equivalents (31,176 ) (25,933 ) (29,725 ) Short-term investments
(6,320 ) (6,336 ) (10,004 ) Long-term investments - Rabbi Trust
(3,279 ) (2,893 ) (2,415 ) Income taxes receivable (75 ) (142 )
(229 ) Deferred income taxes - non-current (3,415 ) (4,406 ) (5,169
) Current maturities of long-term debt - 2,200 2,200 Income taxes
payable - current 305 392 325 Income taxes payable - long-term
3,655 3,634 3,792 Deferred income taxes - non-current 1,206 1,072
982 Deferred compensation 4,421 4,280
4,041 Total Capital Employed $ 88,297 $ 90,593
$ 83,225 Average Capital Employed (2) $
87,372
Notes:
(1)
Return on average capital employed
represents operating income for the six month period ending October
30, 2016, or November 1, 2015, 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, long-term investments - Held-To-Maturity,
long-term investments - Rabbi Trust, current maturities of
long-term debt, line of credit, noncurrent deferred income tax
assets and liabilities, income taxes receivable and payable, and
deferred compensation.
(2)
Average capital employed used for the
six months ending October 30, 2016, was computed using the three
quarterly periods ending October 30, 2016, July 31, 2016, and May
1, 2016.
Average capital employed used for the
six months ending November 1, 2015 was computed using the three
quarterly periods ending November 1, 2015, August 2, 2015, and May
3, 2015.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161201006352/en/
Culp, Inc.Investor Contact:Kenneth R. Bowling, 336-881-5630Chief
Financial OfficerorMedia Contact:Teresa A. Huffman,
336-889-5161Vice President, Human Resources
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