Dixie Group Inc (DXYN) 2012 Q3 法說會逐字稿

Good morning and welcome to The Dixie Group, Incorporated, third-quarter 2012 conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Dan Frierson. Please go ahead, sir.

Thank you, Joyce, and welcome, everyone, to our third-quarter conference call. I have with me Jon Faulkner, our Chief Financial Officer. Our Safe Harbor statement is included by reference to both our website and the press release.

For the industry and Dixie, this year seems to be a replay of the past. The year began with great promise, but it has retreated as the year has progressed. Third quarter was weaker than the second, and the industry appeared to be in a wait-and-see attitude.

Despite the weaker environmental our residential business, exclusive of home centers, continued to gain market share. Our residential brands had sales increases through the retail and design channels and were up 6.5% over last year.

Our commercial business, which is about 25% of our total sales, continued to underperform the industry, with sales down 10.6%. We replaced the management team in August, and are already seeing improved results, and have developed new growth plans for the commercial business with greater emphasis on modular products.

Masland Contract has an excellent reputation with the design community and a history of style, design, and color leadership. Lee Martin is the new leader of this business, and David Hobbs is running the operations. Both have extensive commercial carpet experience and have hit the ground running.

John Faulkner now will review our third-quarter financial results, after which I will continue further to discuss Dixie and current business conditions.

Thank you, Dan. Looking at sales, our third-quarter sales were $65.8 million, down 5.4% versus last year. Without the roll bar special that we had last year, we were up 1% while the industry was up marginally.

Commercial products were down 10.6%, while the industry was up in the low single digits. Residential products were down 2.9% while the industry was flat. However, residential products without the roll bar special last year was up 6.5%.

For the quarter Fabrica, Masland Residential, and Dixie Home retail were up 6.8%, while our mass merchant business was down. Without the roll bar special of the previous year, mass merchant was down 17%.

Our commercial sector was down 6.1% versus 2011. However, we are very excited by the new Speak line of performance modular carpet tile that has been developed by our new commercial management team.

For the quarter, gross profit margin at 25.2% was 2.5% better than the same quarter a year ago. Our margin was impacted by approximately $312,000 in manufacturing realignment expense relative to moving the tufting equipment to Eton. That effort has proven successful in improving output and lowering our cost.

SG&A was 24% of sales; it's above last year, which was at 20.8%. Without the roll bar special last year, the SG&A percent would have been 22.2%.

Operating income in the quarter was $820,000, compared to operating income of $1.2 million last year. A gain of $189,000 in other operating income came from the sale of excess land.

Our interest expense at $781,000 for the quarter reflected lower interest rates as compared to $904,000 in the prior-year quarter. Our income tax for the period was a benefit of $41,000.

Tax benefit was due to a true-up with the tax rate for the year-to-date as well as reversal of state tax valuation allowances where we had net operating carry loss forwards. Our normal rate going forward at reasonable levels of profitability should be in the 35% range.

Earnings from continuing operations in the quarter was a gain of $269,000 or $0.02 per diluted share. Looking at our balance sheet, receivables increased $1.1 million during the quarter, while inventories decreased $2.2 million during the period. Capital leases and expenditures were $2.6 million for the year-to-date, while depreciation and amortization was $7.1 million for the period to date.

We anticipate capital leases and expenditures for 2012 of approximately $4 million for normal operations, as well as $5.5 million for the acquisition of the Colormaster dyeing facility.

We will be impacted in the fourth quarter by transition costs as we ramp up production at the Colormaster facility. The impact in net income we estimate will be $600,000 approximately for the quarter.

The payback starts once we move our production volumes into the plant over the next several quarters. Total investing activities are estimated at $9.5 million, while depreciation and amortization for the year should be $9.5 million.

Our debt has increased $200,000 for the quarter, and we ended the quarter with availability under our loan agreement to $20.2 million. Our updated investor presentation is on our website at www.TheDixieGroup.com. Dan?

Thank you, Jon. During the third quarter, we continued the movement of tufting machines to North Georgia from our Atmore, Alabama, facility. The cost of the move impacted our results negatively, but the climb is proving worthwhile. We already have achieved significant quality and cost improvements as we simplify and streamline our production capacity.

It has also enhanced our customer service and turnaround times. We believe these changes help drive the improvement in our gross margin for the quarter and the future.

This year we have made a significant investment in new residential products, which we feel will set the stage for further sales increases and market share gains. Our new Permaset wool products, which enable us to offer virtually unlimited color capability in wool products, is a first for the industry and we believe will help continue our double-digit growth in wool.

The Stainmaster launch of their new TruSoft fiber began hitting the marketplace in late September and is off to a great start. We are one of only two mills with product in the market and are getting good reaction to the products we have launched. We think the fiber will be the new standard for soft product in the marketplace.

The new Stainmaster SolarMax fiber is also being well received, and our products are off to a strong start. We will continue building on these products as we move into the new year.

So far in the fourth quarter, despite the impact of Sandy, our residential sales are above last year. Our financial results have been impacted by the cost of introducing a large number of new fibers and products, but we feel this is the best way for us to invest in the future and continue market share gains.

On the commercial side of the house, I have already spoken to the new momentum from our management changes. Our sales in the fourth quarter are well ahead of last year.

As we have previously stated, the Chrome Collection has been extremely well received and selling well; and the new Speak collection of high performance modular tiles is currently being introduced. From an operations perspective, the acquisition of the Colormaster continuous dyeing will enable us to further lower costs and improve inventory turns. Again, it is an investment in the future to enhance our product capability and enable us to be more competitive.

In the third quarter, we also finished our yarn mill expansion, giving us greater capacity to grow. The housing industry finally appears to have bottomed and is beginning to show signs of improvement that should lead to sustained market growth.

Units of both new homes and home resales are above year-ago levels, and pricing is moving up as well. These conditions are leading to higher forecasted sales for the housing industry, which historically means better conditions in the carpet industry at some point next year.

The fourth quarter is difficult to predict due to the storm in the East and the election, both of which have been tremendous distractions. And Sandy certainly curtailed business in the East.

Despite these unusual events our sales for the quarter to date are up in the mid single-digit area. With our continued investment in talented people, differentiated equipment, and beautiful product, we are well positioned to take advantage of any improvement in the marketplace.

At this time we would like to open the call to questions.

(Operator Instructions) It appears there are no further questions at this time.

Thank you, Joyce. We appreciate your being with us today. We look forward to our fourth quarter and next year. Goodbye.

This concludes today's conference. We thank you for your participation.