Higher raw material prices for polyester cut deeply into profits for Unifi Inc. during its fiscal first quarter, causing the company to lower its outlook for the second quarter.
In a Nutshell: Unifi Inc. came through with its sixth consecutive quarter of revenue growth fueled by its premium value added (PVA) fiber portfolio, but a surge in raw material costs reduced earnings. Unifi said raw material-related pricing adjustments continued to take hold in the first quarter, but these adjustments were not sufficient to overcome the additional raw material cost increases experienced in the quarter, impacting the bottom line.
The manufacturer of recycled and synthetic yarns said with the current cost environment, it has revised its fiscal 2019 profitability outlook to the low end of its prior range. The company said its second-quarter gross profit will be unfavorably impacted by a surge in polyester raw material costs in September, driven by higher global demand and tighter supply for polyester feedstocks. Unifi’s expectations for net sales and capital expenditures remain unchanged.
Sales: Unifi said net sales for the first quarter of fiscal 2019 ending Sept. 30 increased 10.6 percent, to $181.6 million, compared to sales of $164.2 million for the first quarter of fiscal 2018. Revenue from PVA products rose 10.1 percent year-over-year and represented roughly 43 percent of consolidated net sales.
The company said domestic revenue growth was fueled by an additional fiscal week in the quarter, contributing approximately $8.3 million, and an increase in sales and pricing actions implemented during the second half of fiscal 2018. International revenue growth was led by PVA product sales, partially offset by unfavorable foreign currency exchange impacts.
Earnings: Net income was sliced to $1.8 million in the quarter compared to $9 million in the year-ago period, adversely impacted by comparatively higher operating expenses. Operating income fell 44 percent, to $5.7 million, from $10.2 million in the year-ago period, mainly impacted by a $3.3 million decrease in gross profit and a $1.5 million increase in sales, general and administrative (SG&A) expenses.
The gross profit margin was 11 percent in the quarter compared to 14.2 percent for the first quarter of fiscal 2018 due to higher costs, including raw materials, a less favorable sales mix in a highly competitive domestic environment and integration costs associated with the recent dyed business acquisition, the company said.
CEO’s Take: Kevin Hall, chairman and CEO of Unifi, said: “We continued to execute on our strategy of driving sales with our PVA portfolio…including the sustainable Repreve platform [that] continues to distinguish us in the global market. While we are proud of our overall sales growth, profitability fell below expectations as raw material costs rose again. Similarly, profitability for the Parkdale joint venture fell below expectations due to higher cotton costs. We saw sales benefit from our recently acquired dyed business and remain upbeat on the outlook for this venture, even though we are incurring some short-term integration costs. Unifi has and will continue to take pricing actions to counterbalance rising input costs while focusing on improving margins by delivering innovative and sustainable solutions necessary to achieve profitable long-term growth.”