Dixie Group Inc (DXYN) 2016 Q3 法說會逐字稿

Good day, and welcome to The Dixie Group, Incorporated Third Quarter 2016 Earnings 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.

Thank you, Gracia, and welcome and -- to 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 both through our website and press release. The third quarter was a difficult period from the top line perspective. During our call in July, we mentioned that carpet sales were down 12% for the first four weeks of the third quarter. Fortunately, business improved during the quarter, and we finished the quarter with carpet sales down 6%.

Our residential carpet sales finished the quarter 2% behind the year ago period, which we believe is significantly better than the residential market generally.

Commercial carpet sales were 13% below the previous year and well below the industry. During the quarter, David Hobbs was elevated to the position of President of Masland Contract.

Despite the drop in sales, we continued to show operational improvement. Now that our restructuring is complete, we have been able to improve on many fronts.

While housing data is somewhat mixed, single-family housing continues to be supportive of an improving carpet market. The current level of the stock market and basic demographic trends are positive for our industry going forward.

At this time, Jon will review our financial results. After which, I will have additional comments on operations and current business conditions. Jon?

Thank you, Dan. Looking at sales for the quarter, they were $100.3 million, a decrease of 7.9% compared to the third quarter of 2015.

Total carpet sales were down 6%, while the industry was down mid- to low single digits. Commercial products were down 13%, while we believe the industry was down in the low single digits. Residential products were down 2%, while again we believe the industry was down mid- to high single digits.

For the quarter, gross profit was 25.8% of net sales, an improvement from third quarter of 2015 at 25% gross profit percentage.

Percentage increase was driven by improved quality costs, reduced operating expenses, lower medical costs, offset by unabsorbed fixed cost from the lower sales volume.

Selling, general administrative for the quarter was 23.7% of net sales as compared to 23.2% for the same period in the prior year, primarily due to the lower sales volume. Our operational restructuring is now complete as compared to the year ago period, when we had $614,000 such charges.

Our operating profit for the quarter was $1.9 million. This compared to an operating profit of $1.3 million in the third quarter of 2015. Our interest expense for the quarter was $1.3 million as compared to $1.2 million in the 2015 period. The higher interest expense is due to higher rates as we have long-term interest rate swaps that carry high rates for some of the fixed portion of our debt. Our tax rate for the year-to-date was 43%, and we anticipate it to be 35% going forward.

Our diluted earnings per share from continuing operations was $0.04 for the quarter. Looking at our balance sheet for the third quarter of 2016, our receivables and inventories increased slightly. Capital equipment acquisitions, including those funded by cash and financing, was $1.4 million for the quarter. Depreciation and amortization for the quarter was $3.4 million. We anticipate capital expenditures for 2016 of approximately $6 million and depreciation and amortization of approximately $13.5 million.

Our debt stood at $115.6 million at the end of the quarter, decreasing by $2.1 million for the quarter. The accessible availability under our lines of credit at the end of the quarter was $25.3 million. Our investor presentation, including our non-GAAP information, is on our website at www.thedixiegroup.com.

Dan?

Thank you, Jon. Despite the lower volume we experienced during the quarter, our operations continued to improve. Completing the restructuring also has enabled us to bring more production into our operations, which has had a positive impact by lowering our cost structure and achieving better capacity utilization. As our newer associates have become more experienced, we have significantly reduced our quality costs. We have also improved material yields as a result of improved quality and lower waste. As a result of our medical plan changes and increased rates, we have experienced lower medical expenses. And as our associates have become more productive, we have been able to reduce staffing. Our SG&A cost decreased by $1.5 million, but as a percent of sales, we did see an increase, as Jon pointed out, from 23.2% to 23.7%.

From a market perspective, this period has been busy with Masland Contract having introduced the Calibre High Performance line of LVT Flooring. We believe this offering of wood and abstract looks for use in various markets will enhance our offering to our customers. The market targets include corporate, senior housing, multifamily, higher education, retail and hospitality. The combination of Masland Contract's Calibre LVT collection, Custom Rug capabilities, Modular & Broadloom signature styles and custom capability make Masland Contract a producer that can be a complete solution for the commercial specifier to create beautiful and high-performance interiors. Residentially, we have introduced a significant number of new products utilizing our style and design capabilities and new tufting technologies. We continue to expand our offering in the upper end to satisfy the desires of our customers. In the last year, we reduced debt by $14.7 million. And during the quarter, we refinanced our senior credit facility, extending the maturity to 2021.

The introduction of the Calibre LVT into the Masland Contract offering is in process, and we are evaluating other hard surface offerings for our residential business, which will be introduced next year.

Fourth quarter, much like the third, started off slowly. Our carpet sales for the first four weeks are down in the single -- high single digits. However, incoming orders are at a stronger rate than sales. We continue to evaluate opportunities to grow our business and opportunities to reduce our cost. At this time, we'd like to open up the call to questions.

(Operator Instructions) With no questions in the queue, I will turn the call back to Dan Frierson for any additional or closing remarks.

Thank you very much, Gracia. We appreciate you being with us on the call. We look forward to being with you again at the end of next quarter. Thank you.

Ladies and gentlemen, that will conclude today's conference. Thank you again for your participation.