Conso Products Q4
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Conso Products Q4
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(FOOL CONFERENCE CALL SYNOPSIS)* Randy Befumo (MF Templar)
Conso Products Company <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CNSO)") else Response.Write("(NASDAQ: CNSO)") end if %> ALEXANDRIA, Va., August 21, 1996/FOOLWIRE/ --- CONSO PRODUCTS COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CNSO)") else Response.Write("(NASDAQ: CNSO)") end if %> reported Q4 1996 results on August 14th. The company announced net income of $6.4 million, or $1.30 per share, for the fiscal year ended June 29, 1996. These earnings represent a 39% increase over the prior fiscal year's earnings of $4.6 million or $.93 per share from regular operations. For the prior year's figures, all per share amounts have been adjusted to reflect the three-for-two stock split effective on October 6, 1995, and fiscal 1995 earnings are before a $913,000 ($.18 per share) one-time Jobs Tax Credit carry-forward received from the State of South Carolina in March 1995.
Sales for fiscal 1996 increased 18.6% to $70.7 million compared to the prior year's $59.6 million. The gross margin increased to 36% from the prior year's 34.8%, which is partially attributable to improvements in processing and other production efficiencies put into operation during the past two years at Conso's plants in both the U.S. and the U.K. For the year, sales at Conso US were $51.5 million and sales for British Trimmings were $19.6 million. For the fourth quarter, sales for Conso US were $13.5 million and sales for British Trimmings were $4.7 million.
U.S. OPERATIONS
The company continues to achieve outstanding performance. Sales for the quarter were up 28% and gross margins were 38.4%, up 2.3% from 1995. Incoming customer orders for the fourth quarter continued to be strong. The rate of increase for new orders in July was disappointing as many accounts were closed for vacation. The first eight days of August were stronger.
Customer service set new records as backorders dropped to 2.4% of overall orders. This has been a priority for the U.S. operations. Inventory declined 3% from the prior year. This decrease is particularly impressive when one considers the addition of the Claesson product line and new trimming product lines, of course offset by the discontinuance of the embroidery line. The company has enjoyed growing sales with a relatively static production force due to productivity gains.
The U.S. operations are planning two major capacity expansion projects. The first is an 86,000 square foot distribution center at their main plant. This will relieve overcrowded conditions in their current warehouse facility. They would then be able to expand manufacturing. The second project is a 33,000 square foot dye center, doubling their yarn dying capacity. Half of the equipment for this dye center would be new. About 10,000 square feet will be freed up from the current dye center.
Occupancy of the new distribution center should occur near year-end. The relocation of the dye equipment will extend into fiscal 1998. These are exciting projects and give them the capacity to aggressively expand their business in the years ahead. The ability to dye their own yarn is a critical strategic advantage and they have been paying outside companies for yarn dying to meet their demand. As they have been growing, they have been dying yarn on the outside. The savings should offset their expansion costs on the yarn side, maintaining current cash flow.
BRITISH TRIMMINGS
The last quarter showed a small, but hopefully significant increase of 2% over last year. They relocated the London operation to a new building and are consolidating production processes. The relocation has allowed them to centralize administration in the new headquarters. They are working on the extension of the data processing systems to all units. They are in the midst of preparing the 1997 catalog, with the final rationalization of the British Trimmings ranges into stock collections and the availability of a catalog with suggested retail prices. New orders in the first six weeks have been up 35% over last year.
CONSOLIDATION OF BRITISH TRIMMINGS OPERATIONS
Over the last 12-18 months, process improvement has been one of the keys to Conso's profits and gross margins. These improvements come from all levels. The company has lowered costs, built morale, and improved customer service. Initially at British Trimmings, Conso focused on administration and data processing. Now they are implementing process improvements that should result in gross margin improvement at British Trimmings. They will consolidate all manufacturing processes at one location and should be ready to start by September 16th. They have reorganized management and improved morale. They are sending Conso US people over to assist with this project. Current gross margins at British Trimmings are below 30%. Their target just under 33% for next year and they could exceed this. A 34% plus gross margin is perfectly achievable.
EXPORT SALES & DECORATIVE SUPPLIES
Export sales increased to $6.6 million, up 26%. Export sales represented 9.2% of total sales compared to 8.8% last year. Conso closed the Bangkok office in conjunction with setting up an exclusive distribution arrangement with Conso Australia. If it appears they need an additional office, they will do it in Singapore in 1997.
They have been integrating the Claesson products and are getting good response. Decorative accessories are currently 2.5-3.0% of sales. This is a very fast grower coming from a fairly small base.
FINANCIAL INFORMATION
Profits were $11.1 million, or an 18% increase in the year. This is all primarily attributable to Conso US's growth of 20%. British Trimmings incoming orders for the first six weeks of the prior period were in excess of 30%. Conso is optimistic about this unit. Company gross margin was 36.0%, up from 34.8%, with the improvement coming from Conso US. Prior quarters have been adjusted now that BT is on the full standard Conso US systems. They are encouraged by the process improvements that will be taking place at British Trimmings over the coming year.
Operating margins were 14.0% compared to 12.9% last year. Sales, general and administrative expenses increased in dollars but ended flat as a percentage of sales. Borrowings for British Trimmings are done in native currency, helping reduce the impact of currency changes. They continue to anticipate jobs tax credits for Conso US's South Carolina operations. Without the tax credits, their tax rate would be 33% for British Trimmings, 37.4% for Conso U.S. for a consolidated tax rate of 36%, for the people who want to make conservative tax assumptions. Excluding one-time credits, earnings were up 39% and $1.30 EPS from $0.93 EPS.
The Balance Sheet at the end of the quarter was strong. Accounts receivable grew less than sales. Inventories were flat. The operating cash-flow improved and the debt-to-equity ratio continued to trend down. The current ratio increased to 2.4 and working capital improved $4.7 million to $19.5 million during the year.
PLANS FOR 1997
They are optimistic for continued sales increases in the US and a turnaround in British Trimmings. Expansion should bring short- and long-term benefits. The consolidation of operations at British Trimmings should improve gross margins there. The company is always evaluating strategic acquisitions in the decorative accessories industry. The long-term goal on the cost side is continued growth in sales without a concommitant increase in general and administrative expenses. They are looking for further gross margin improvement in Conso US with the goal being 40% and the expectations that they will certainly hit 39%. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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