Yarn maker Unifi Inc. said stronger-than-expected performance and focused execution drove its best quarterly profitability in a decade.
In a Nutshell: Unifi Inc., a manufacturer of recycled and synthetic yarns, said based on the continued global economic impact and uncertainty associated with the Covid-19 pandemic, its outlook for the balance its fiscal year is for net sales trends to continue to improve sequentially, including sales of Repreve fiber, with net sales returning to the pre-pandemic level of the March 2020 quarter.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to improve by a low double-digit percentage from the pre-pandemic level by maintaining the underlying business momentum that has occurred in fiscal 2021. This is based on a forecast of continued strong performance in Brazil, unfavorable seasonal domestic shutdown impacts to gross profit for the polyester and nylon segments, unfavorable impact of the Chinese New Year holiday for the Asia segment and raw material cost pressures due to recent increases in petroleum prices.
For full year fiscal 2021 through June, Unifi expects $22 million to $24 million of capital expenditures, excluding acquisition-related expenses.
Unifi, based in Greensboro, N.C., noted that following antidumping and countervailing duties applied to imports of polyester textured yarn from China and India in January 2020, similar imports from Indonesia, Malaysia, Thailand and Vietnam surged in calendar 2020, replacing the subject imports from China and India. In December, the United States International Trade Commission (USITC) determined that there was a reasonable indication of material injury from imports of polyester textured yarn from Indonesia, Malaysia, Thailand, and Vietnam, which were allegedly sold in the U.S. at less than fair value.
As a result of the USITC’s affirmative determinations, the U.S. Department of Commerce will continue its investigations of imports of polyester textured yarn from Indonesia, Malaysia, Thailand, and Vietnam, with its preliminary antidumping duty determinations expected in the second quarter of calendar 2021.
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On the liquidity front, operating cash flows were $11.8 million, improving sequentially from $7.9 million generated in the first quarter of fiscal 2021. At the end of the quarter on Dec. 27, debt principal was $92.9 million, while cash and cash equivalents were $83.3 million, resulting in net debt of $9.6 million, the lowest level for the company in more than 20 years.
After the close of the fiscal second quarter, the company completed a strategic acquisition of the nylon assets of Fiber and Yarn Products Inc. to enhance and expand the company’s existing nylon yarn portfolio. Financial terms were not disclosed and did not impact second quarter fiscal 2021.
Sales: Net sales for the fiscal second quarter ended Dec. 27 dipped 4 percent year over year to $162.8 million, but increased 15 percent sequentially from the first quarter of fiscal 2021. Unifi said the year-to-year net sales decline resulted from lower selling prices in connection with lower raw material costs and unfavorable foreign currency translation.
Revenues from Unifi’s franchise Repreve Fiber recycled products represented 37 percent of consolidated net sales, a new quarterly record.
Earnings: Net income for the period was $7.5 million, or 40 cents of diluted earnings per share (EPS), and reflected the best quarterly earnings performance since June 2018, up from net income of $400,000 and EPS of 2 cents year-over-year, the company reported.
Gross profit was $25.9 million, a 66 percent year-over-year gain, primarily due to an improvement in sales mix, raw material and pricing stability, and recent manufacturing efficiency gains. Gross margin was 15.9 percent of net sales, an increase of 670 basis points year to year, despite the year-over-year decline in sales, influenced by the strong performance from the Brazil segment.
Adjusted EBITDA was $19.2 million, the highest quarterly achievement since June 2016 and the best fiscal second quarter in more than 10 years.
Operating income for the quarter was $13.1 million, compared to $2.6 million a year earlier, primarily due to the $10.2 million, or 65.6 percent, increase in gross profit. Operating income was boosted by raw material and pricing stability and lack of discretionary spending due to continued travel restrictions and limitations.
CEO’s Take: Eddie Ingle, CEO of Unifi, said: “Second quarter fiscal 2021 results reflected stronger than expected performance across each of our key geographies and reinforced the resilience of our global business model. We delivered significant sequential net sales improvement in each of our segments. Most impressive is the year-over-year improvement in our gross margin, especially with the record set by the Brazil segment.”
“The team has been diligently positioning our business to capitalize on industry recovery as we near normal demand levels,” Ingle added. “Additionally, we have been able to sustain many of the efficiencies implemented during the beginning of the pandemic, which have begun to positively impact our long-term profitability and inventory levels as sales volumes returned. The demand for sustainable solutions continues to grow, and we remain intently focused on leveraging our strong global operations and solid financial position to drive momentum for sustainable, long-term growth.”