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Unifi Says Global Gains Drove Q3 Sales and Income

Unifi Inc., a manufacturer of recycled and synthetic yarns, reported a strong uptick in sales and income in its third quarter.

In a Nutshell: Unifi Inc., in reporting fiscal third quarter financial results, said it expects demand levels and trends across the business to remain strong and anticipates current inflationary pressures from raw material fluctuations to be mostly offset by selling price adjustments.

The company’s outlook for the June fourth quarter expects sales volumes to increase, with net sales improving sequentially from the third quarter by approximately 1 percent to 3 percent.

Adjusted earnings before interest, taxes, depreciation and amortization is expected in the range of $12 million to $14 million. This range includes consideration for continued underlying business momentum in spite of pandemic uncertainty, in addition to an expected reduction from the recent strong performance of the Brazil segment and recent global raw material cost increases that will adversely impact gross profit due to the inherent lag in responsive to selling price adjustments.

Capital expenditures of approximately $10 million to $12 million are planned. At quarter’s end on March 28, debt principal was $89.4 million, while cash and cash equivalents were $75.6 million, resulting in net debt of $13.8 million, a reduction of 86.2 percent since March 29, 2020. The favorable cash and liquidity positions benefited from $60 million of proceeds from the April sale last year of the minority interest in PAL, as well as the company’s strong generation of operating cash flows during the Covid-19 pandemic.

Sales: Net sales for the third quarter ended March 28 increased 4.6 percent year over year to $178.9 million and rose 9.9 percent sequentially from the second quarter of fiscal 2021, bolstered by an increase in sales volumes for the Asia segment and higher selling prices for the Brazil segment.

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Revenues from Repreve recycled polyester and nylon fibers products represented 33 percent of consolidated net sales compared to 29 percent for the third quarter of fiscal 2020.

Earnings: Net income for the quarter was $4.8 million, or 25 cents of diluted earnings per share (EPS), up from a net loss of $41.1 million, or $2.23 per share, year-over-year. The prior year results included a $45.2 million impairment charge in connection with the company’s sale of its 34 percent interest in Parkdale America.

Gross profit was $25.6 million, a 66 percent increase year-over-year, while gross margin was 14.3 percent, a gain of 530 basis points year-over-year, primarily due to exceptional profitability in Brazil resulting from a strong market position and higher pricing. Additionally, sales mix and cost improvements drove gross profit benefits for the Asia segment.

Operating income for the period increased to $8.6 million, compared to $3.1 million, primarily due to the $10.2 million, or 66 percent, increase in gross profit. Operating income for the third quarter of fiscal 2021 includes $4.1 million of higher incentive compensation expense, based on recognition of the maximum annual bonus for fiscal 2021, and a $2.6 million non-cash loss on asset disposals, primarily in preparation for installing new eAFK Evo texturing machinery in the Americas.

CEO’s Take: Eddie Ingle, CEO of Unifi, said: “Third quarter fiscal 2021 results reflected our team’s ability to leverage effectively the strength of our global business model during the continued economic recovery. We have remained focused on positioning the business to take advantage of building economic momentum around the world as we return to a more normalized demand environment. Our Brazil segment outperformed expectations again, achieving exceptional profitability with a record 41.2 percent gross margin driven by strong pricing levels. Our Asia segment also benefited from an improving business climate and recaptured pre-pandemic momentum, allowing the segment to return to top-line growth.”

“We remain confident that the momentum we have generated throughout the recovery will allow us to further improve our long-term profitability,” Ingle added. “We expect that continued strong results from each of our high-performing businesses, coupled with continued interest in our Repreve-branded products, will fuel long-term growth.”