Unifi, Inc. (UFI) Misses Q3 EPS by 21c, Revenues Beat; Provides FY19 Outlook

Unifi, Inc. (NYSE: UFI) reported Q3 EPS of ($0.08), $0.21 worse than the analyst estimate of $0.13. Revenue for the quarter came in at $180 million versus the consensus estimate of $170.73 million.

• Net sales increased to $180.0 million from $165.9 million for the third quarter of fiscal 2018. Revenues from premium value-added ("PVA") products grew 13.5% compared to the third quarter of fiscal 2018 and represented approximately 47% of consolidated net sales.
• Gross margin was 7.7%, compared to 10.0% for the third quarter of fiscal 2018, primarily impacted by competitive pressures, especially from low cost imports into the U.S.
• Operating income was $0.8 million, compared to $1.6 million for the third quarter of fiscal 2018, adversely impacted by lower gross profit due to competitive pressures and unfavorable foreign currency translation.
• (Loss) Earnings per share ("EPS") was ($0.08), compared to $0.01 for the third quarter of fiscal 2018, primarily driven by a significant and unfavorable effective tax rate due in large part to lower domestic earnings.

"While we continue to see positive indicators in global revenue and momentum in our sustainable and innovative PVA product portfolios, a number of headwinds and shortfalls have reduced our short-term profitability," said Tom Caudle, President & Chief Operating Officer of Unifi. "These headwinds include unfavorable foreign currency translation impacts, a surge in imports of polyester textured yarn from China following the filing of our October 2018 trade petitions, and softness in certain markets. Amid these pressures, we were pleased to see the Commerce Department's preliminary countervailing duty and critical circumstances determinations. These announcements are critical steps in advancing our efforts to better compete against the subsidized imported yarns that have flooded our market in recent years, and we will continue in our efforts to pursue these important trade actions in the coming months."

Caudle concluded, "Separate from the recent trade activity, we have transitioned our leadership team to a leaner and more agile structure with deep roots in operational excellence and a balanced focus on profitability. We also launched and are continuing to execute against a cost reduction plan, which includes a considerable step-down in our run-rate of general and administrative expenses. Our global strategy to Partner, Innovate and Build is creating opportunities for future growth while we take appropriate action to restore profitability in the Americas businesses. This includes increasing the utilization of our assets, supporting and expanding our sustainable and innovative portfolios, and optimizing the supply chain and cost structure to better deliver efficient and effective solutions to meet the demands of our customers. We remain confident in our path forward and have made calculated changes to our organization that empower our teams and strengthen our ability to remain the leader in synthetic and recycled textile solutions."

Outlook

Fiscal 2019 contains 53 fiscal weeks, with the additional week included in the first fiscal quarter. For fiscal 2019, the Company now expects:

• Mid-single-digit percentage growth from fiscal 2018 for net sales;
• Operating income between $10.0 million and $12.0 million;
• Adjusted EBITDA between $33.0 million and $35.0 million;
• Capital expenditures of approximately $25.0 million; and
• An effective tax rate and a cash-based tax rate each between 70% and 80%.

"As a result of continued headwinds and reduced third quarter performance, our prior fiscal 2019 profitability and effective tax rate guidance is out of reach, while net sales growth and capital expenditures expectations remain unchanged," said Tom Caudle. "We believe fourth quarter Adjusted EBITDA performance above $10.0 million is attainable given current demand levels and recent stabilization of the raw material cost environment."

Caudle concluded, "As we look beyond fiscal 2019, we remain optimistic. In combination with our ongoing growth efforts that drive our innovative and recycled portfolios, the considerable reduction in our overhead costs should provide meaningful improvement in our profitability, while further momentum on recent trade activity is expected to provide an additional lift to our domestic operations. By growing U.S. earnings, we would also expect to see a significant improvement in our effective tax rate."

For earnings history and earnings-related data on Unifi, Inc. (UFI) click here.

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