While business bottomed out as the pandemic thrashed the global economy, Unifi has started to see signs of a rebound in Asia and a boost from low raw materials prices.
In a Nutshell: Unifi Inc., a manufacturer of recycled and synthetic yarns, reported operating results for the third quarter of fiscal 2020 that reflected continued strength and execution of strategic priorities prior to pandemic impacts, while announcing the sale of its 34 percent interest in Parkdale America to existing majority partner Parkdale Inc. for $60 million.
Unifi, based in Greensboro, N.C., said the sale of the Parkdale joint venture interest better aligns resources on core innovation and manufacturing. Proceeds of the sale have been used to reduce leverage and increase cash reserves on the balance sheet during the fourth quarter of fiscal 2020.
Due to the uncertainty of the duration and severity of the COVID-19 pandemic, the company has suspended its fiscal 2020 outlook. Capital expenditure levels have been reduced, while prioritizing safety and maintenance, and raw material pricing remains at low levels, which aids short-term working capital and liquidity, Unifi said. In addition, manufacturing operations have been strategically reduced to support critical businesses and manage working capital.
Net debt at the end of the quarter was $100.3 million compared to $105.8 million at the prior fiscal year on June 30, 2019. Cash and cash equivalents increased to $33.4 million from $22.2 million, benefiting from international cash generation.
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Sales: Net sales in the third quarter ended March 29 were down 5 percent to $171 million compared to $180 million for the third quarter of fiscal 2019, driven by lower polyester raw material prices, lower nylon volumes and unfavorable foreign currency translation. Revenues from premium value-added (PVA) products, including its Repreve line of recycled polyester and nylon, represented 52 percent of consolidated net sales.
Despite a significant shutdown during China’s coronavirus outbreak, the Asia segment was able to recover quickly and restore its continued sales growth, with a 28 percent increase in sales led by Repreve branded products.
Earnings: Unifi posted a net loss of $41.1 million in the quarter and earnings per share (EPS) of $2.23, which includes the impact of a $45.2 million impairment charge in connection with the company’s sale of its stake in Parkdale. This compares to the third quarter of fiscal 2019’s net loss of $1.5 million and EPS of 8 cents.
Gross profit increased to $15.4 million from $13.8 million, primarily attributable to a more favorable sales mix and raw material environment, along with continued sales growth in Asia. This increase was partially offset by lower nylon volumes, competitive pricing pressures and unfavorable foreign currency translation impacts in Brazil.
Operating income was $3.1 million, compared to $800,000 in the prior-year period. Gross margin was 9 percent compared to 7.7 percent in the third quarter of fiscal 2019.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which excludes the impairment charge for Parkdale, increased to $9.3 million compared to $6.8 million in the year-ago quarter.
CEO’s Take: Tom Caudle, president and chief operating officer, said: “The first 10 weeks of our fiscal third quarter were strong and consistent with our expectations, as our trade actions and overall strategy were generating significant momentum. However, the impacts of the pandemic on global demand began materializing at the end of the March 2020 quarter, which have placed pressure on many of our customers and the pipeline. This pandemic quickly changed the global dynamic, and we have responded with immediate and meaningful mitigation efforts. First, we have and will continue to prioritize the health and safety of all of our employees around the globe, which includes restricting travel, maintaining diligent sanitation and disinfection practices, and encouraging social distancing.
“We have also taken steps to significantly fortify our cash position and strengthen our balance sheet,” Caudle added. “The path ahead will be challenging, but the proactive, strategic steps we took in 2019 and 2020 have significantly improved our financial flexibility and position. Further, we have seen a positive lift from our domestic trade actions, while our Asian operations quickly resumed in March 2020. Lastly, the combination of our diverse global operations, growing asset light model, and support of many essential businesses is expected to provide a solid level of base commerce for Unifi.”