Dixie Group Inc (DXYN) 2014 Q1 法說會逐字稿

Good day and welcome to The Dixie Group, Inc. first-quarter 2014 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 Chairman and Chief Executive Officer, Dan Frierson. Please go ahead, sir.

Thank you, Travis, and welcome, everyone, to our first-quarter conference call. I have with me Jon Faulkner, our Vice President and Chief Financial Officer.

Our Safe Harbor statement is included by reference both to our website and our press release.

In the first quarter we continued to outperform the industry on the top line, but it was a difficult quarter operationally. This was due to the weather-related issues which we all experienced and also due to our internal operations not performing up to expectations.

The January/February timeframe was especially impacted. Our order entry during this period was only up 6.8% and sales up 8.7%, remembering that last year we grew sales approximately 30% with a strong finish in the fourth quarter. The weather-related issues and the slow startup of our Colormaster dye line caused numerous operational issues. We simply did not perform as well as needed to contain costs during this volatile time.

We have worked at identifying the specific issues and have taken actions to increase profitability through improved operational performance and tighter cost control.

Looking at the entire quarter, our sales, exclusive of Atlas were up 10.9% with strength in the commercial as well as the residential markets. We believe that the industry sales were down slightly during this period.

Jon Faulkner will review our first-quarter financial results. After his comments I will speak to current conditions and our thoughts about the future. Jon.

Thank you, Dan. Looking at sales for the quarter, they were $85.3 million, up 13.1% on a fiscal-period basis versus last year. Total sales without Atlas were 10.9% while the industry, we estimate, was down a few percentage points. Commercial products were up 18% while commercial products without Atlas were up 9.6% while we estimate the industry to be flat.

Our residential products were up 9.4% while the industry was down in the mid-single digits.

Sales were much stronger later in the quarter after a slow start due to poor weather in much of the country. For the quarter, gross profit as a percent of sales was weak at 21.1% as compared to 24.4% a year ago. We estimate the direct cost of weather increased our costs by approximately $1.1 million is we had our seven East Coast facilities impacted by unexpected closures several times in the first six weeks of the quarter. In addition, the upgrade of our Colormaster dryer took longer than expected and we estimate it impacted our costs by approximately $445,000.

SG&A for the first quarter of 2014 was 23.7% as compared with 22.4% for the same quarter in 2013. The higher expense ratio was partially due to approximately $455,000 legal and other expenses related to the acquisition of Atlas Carpet Mills and the start up of our Desso-Masland hospitality joint venture.

Further, we had over $600,000 in costs related to rebranding of our Robertex product line and other marketing initiatives. Operating income was a loss of $2.5 million for the quarter compared to income of $1.7 million a year ago.

We completed the acquisition of Atlas Carpet Mills on March 19. We announced a $1.5 million facility consolidation plan primarily to merge the Atlas dye house into our Susan Street facility. We have listed the Atlas dye house under assets held for sale on the balance sheet. Dye house should be shut in May and the entire process substantially complete by the end of the year. In addition, the provisional fair value of the assets acquired was higher than the purchase price, resulting in a one-time gain of $8.7 million.

In May we began the consolidation plan for our East Coast distribution network. This project will impact costs approximately $2.4 million over a one-year timeframe with approximately $1.4 million in 2014 and the balance in the first half of 2015. Overall project will increase warehouse capacity by over 30%, speed deliveries, and reduce waste.

Our interest expense for the quarter at $1 million was slightly above the amount we had during the same time period last year. Our effective income tax rate for the quarter was 37%. Our normal rate going forward at reasonable levels of profitability should be more in the 35% range.

Diluted income from continuing operations for the first quarter of 2014 was $0.24 per share compared to $0.05 per share in the first quarter of 2013.

Looking at our balance sheet, our receivables increased $6 million during the quarter for which the Atlas acquisition represented $4.3 million. Inventories increased $13.6 million with Atlas purchase representing $11.5 million.

Capital expenditures and leases were $4.3 million as compared to depreciation and amortization of $3.0 million. We anticipate, including the Atlas acquisition, capital expenditures for 2014 of approximately $18 million and depreciation and amortization approximately $12.5 million.

Our debt stood at $132.6 million at the end of the period, up $24.6 million for the quarter. We ended the quarter with availability under our loan agreements of $20.6 million.

Our investor presentation, including our non-GAAP information, is on our website at www.TheDixieGroup.com. Dan.

Thank you, Jon.

The last several years we have been building the infrastructure to accommodate growth. As we entered this year we upgraded our continuous dying operation which will enable us to continue this growth pattern. Although this took longer than anticipated, it is now functioning at the expected levels.

We have a number of other initiatives which will fuel growth and improve operations. We are continuing the assimilation of the Robertex wool line into our Masland residential business.

During the quarter we reached an agreement with Desso on a joint venture of our hospitality businesses and a distribution agreement for their modular tile products in this country.

In March we acquired Atlas Carpet Mills, which is a well-known brand in the upper end of the commercial carpet business. We have begun implementation, as Jon indicated, of a facility consolidation plan which will integrate the Atlas dye plant into our existing Susan Street facility in Santa Ana, California. Atlas is a leader in the industry in piece-dyed commercial products.

The remaining piece of our growth and consolidation plan is the combining of our residential distribution facilities into one distribution center in Adairsville, Georgia. This will take place over the next year and reduce redundant costs.

Order entry of carpet products for the second quarter to date are ahead of the same quarter of last year by over 15%, excluding Atlas. Sales of carpet products are ahead of the prior year by over 13%, excluding Atlas, and over 25% including Atlas. Our current sales rate is more in line with our expectations and, therefore, our cost structure.

Our emphasis continues to be on developing and marketing beautiful, differentiated products. We still believe the upper end of the market will continue to outperform the market in general and that creative product helps us maintain a strong position with the design community.

In the residential market, the new Stainmaster products such as PetProtect and TruSoft resonate with the consumers. We also continue to experience increased demand for well-styled wool products, particularly our piece-dyed wool collections.

On the commercial side, we, like the industry, are experiencing strong growth of modular tile products and our new products have been exceptionally well received.

In summary, operationally we did not perform up to expectations. The bad weather early in the quarter impacted operations. The slow start up of our Colormaster upgrade increased our costs. We had one-time costs associated with the acquisition and joint venture. We did not perform as well operationally and, therefore, had excess costs.

We have implemented stricter cost controls and plans to address each of the issues that arose in the first quarter. We have moved yarn production in house to run our facility full. We have moved more tufting production brought in house to lower fixed overhead. More products are routed through our continuous dying range. And we have moved skein-dye products to lower-costs, continuous yarn dyeing. We have also implemented tighter procedures to improve waste and material yields.

All of these actions along with improving volume are designed to significantly improve our operating results.

At this time, we would like to open up the call for any questions.

(Operator Instructions). Les Sulewski, Sidoti & Company.

Thank you for taking my questions. Just two; just by my calculations, it looks like it is $1.5 million left in expenses allocated for the facility consolidation for the remainder of the year. Is that correct?

The $1.5 million relative to the Atlas dye house consolidation will be occurring both in 2014 and 2015 and I would estimate that it would be roughly half and half.

Okay. And then anything left in costs as far as rebranding from Robertex?

Well, we know we have continued to -- will do that rebranding throughout the rest of the year. And we have probably over $1 million left throughout the rest of the year to complete that project.

Okay. And then just looking at your commercial side for the first quarter, was it about 34%? Is that the percentage from commercial? Am I correct on that?

No, commercial -- in terms of sales growth?

No, not growth. In terms of percentage of sales.

No, our commercial products were about 26%. Now, remember, that commercial products only included 10 days worth of Atlas.

Correct.

Right. [If you had] included Atlas on a pro forma basis, you are right, it's closer to that 34% rate -- percentage.

I see. And then where are you seeing most [activity] in commercial? Is it office space? Hospitals? If you can give me some color on that it would be helpful.

Les, We are really seeing it across the board in the markets we serve. Certainly hospitality has grown for us. Retail planning is growing. Our end-user business is up. And obviously, a fair amount of that would be in the corporate sector.

Okay, thank you. I think that will do it for me. Thank you.

(Operator Instructions).

At this time, it appears there are no further questions in the queue.

Travis, thank you very much. We appreciate everybody being with us this quarter. Again, we're working hard to improve our operations in order to take advantage of the increased business level activity. Thank you very much.

That concludes today's presentation. Thank you for your participation.