Dixie Group 2Q Earnings Off
Chattanooga, TN, August 1, 2006--The Dixie Group, Inc., in the second quarter reported net income of $944,000, or $0.07 per diluted share, for the second quarter of 2006, compared with net income of $3.5 million, or $0.27 per diluted share, for the second quarter of 2005.
For the first six months of 2006, net income was $18 million or $0.14 per diluted share, compared with net income of $5.8 million, or $0.45 per diluted share, in the 2005 period.
Analysts had forecast EPS of $0.23 during the second quarter.
Sales for the second quarter of 2006 were $88 million, up 7% from sales of $82.1 million in the year-earlier quarter.
For the first six months of fiscal 2006, income from continuing operations was $3.8 million, or $0.30 per diluted share. Sales for the first perios were $167.2 million, up 9% from sales of $154.1 million in the prior-year period.
Commenting on the results, Daniel K. Frierson, chairman and chief executive officer, said, "Our sales continued to grow much faster than the carpet industry. Driven by strong demand for our Dixie Home and Masland commercial products, sales of carpet increased 8% in the second quarter and 10% for the first half of the year. Unit sales of broadloom carpet rose 20% in the second quarter and 16% for the first half of 2006, well above the industry's growth. Our sales in dollars increased at a slower rate than units sold due to the significant growth of our Dixie Home and Masland commercial products, which have lower average selling prices than our Masland and Fabrica residential brands, and unusually high levels of sales of products at promotional prices during the second quarter.
"Despite our strong sales growth and significant improvement in operating profit, compared with the first quarter of this year, we were disappointed that gross margins and operating profits were below the same periods in 2005," Frierson continued. "Compared with the prior-year periods, operating results were affected by a less profitable product mix, settlement expenses to terminate the defined benefit retirement plan that was frozen as to new benefits in 1993, start-up costs for our new tufting and carpet tile operations, and higher levels of off-quality production. Selling and administrative expenses significantly improved as a percentage of sales this year due to the higher sales volume and lower sample expenses during the second quarter.
"The expenses associated with termination of the defined benefit retirement plan and start-up costs of our North Georgia tufting operation are now behind us. The North Georgia tufting operation was running at full capacity during the month of June, with excellent quality and low manufacturing costs. We terminated the defined benefit plan in June of this year. The level of off-quality production generated by our operations (largely affected by outsourcing) was higher than in the previous year, but we addressed this problem and have made significant progress in this area. Product quality improved throughout the second quarter, and we have seen this progress continue into July. Our suppliers increased their prices for raw materials in early July, and we have implemented selling price increases to recover this higher cost.
"Sales during the first four weeks of July are running significantly above the levels in July a year ago," Frierson added. "The increase in the average price per unit sold in July gives us confidence that the sales within our business units have returned to a more historical product mix. We now expect our total sales to grow in the 9% to 14% range for the full year in 2006. The introduction of our new carpet tile products in June was well received, and sales of these products will begin to cover some of this operation's start-up costs in the third quarter. Although third quarter results will be affected by a time lag between higher raw material costs and our ability to pass such costs along, we are optimistic that higher sales and the operating and quality improvements we have made will lead to improved operating margins and results in the last half of this year."
Results of discontinued operations reflected a loss of $1,960,000 or $0.15 per diluted share, for the second quarter of 2006, compared with a loss of $95,000, or $0.01 per diluted share, for the second quarter of 2005.
For the first six months of 2006, the loss from discontinued operations was $2,050,000, or $0.16 per diluted share, compared with income of $327,000, or $0.02 per diluted share, in the year-earlier period.
Related Topics:RD Weis, Masland Carpets & Rugs, The Dixie Group
