Charlotte, July 2--Earnings for the largest U.S. residential furniture companies declined in the most recent quarter from a year earlier as manufacturers took downtime in the face of weak orders.
In some cases, companies logged expenses or special charges for a new wave of plant closings as U.S. companies continued eliminating domestic production in favor of increased offshore manufacturing.
While the quarter, which for most companies was the second, may have been a bad time to be a furniture worker, it was a pretty good time to be a furniture investor.
Stocks in the group rallied off March lows beginning in early June after some furniture retailers said Memorial Day weekend sales were stronger than expected. Ethan Allen Interiors Inc. (ETH) boosted its quarterly dividend, and Furniture Brands International Inc. (FBN) announced it could initiate a dividend within a year.
This week U.S. retailers are gearing up for big promotional pushes for the July 4 holiday, hoping a three-day weekend will generate a pickup, industry analyst Jerry Epperson said. Some retailers are planning to boost spending on Independence Day promotions by as much as 35% this year, said Epperson, an analyst for Ferris Baker Watts Inc. and a partner in the Richmond, Va., investment banking firm of Mann, Armistead & Epperson.
"They're hitting this hot, and a lot of them are saying the last couple of weeks they've had more traffic and more sales," Epperson said.
But any recent improvement in sales has come too late to help results in the most recent quarter, especially for manufacturers, he said.
Hooker Furniture Inc.'s (HOFT) announcement June 23 that incoming orders aren't strong enough to run four of its plants full time this summer is a common theme in the furniture industry, SunTrust Robinson Humphrey analyst Keith Hughes said in a recent research note. Hooker and other companies have said incoming orders remain weak. The company reported second-quarter earnings on June 20.
Shipping costs were higher in the quarter, too. Epperson said costs for containers used to import components and finished furniture rose as much as 60% in some cases, compared with his expectation for an increase of around 35%.
"In general, I think we will see some (companies) come in on the low end of the guidance or below," he said.
The largest U.S. residential-furniture producer, Furniture Brands International, has said it expects second-quarter net income of between 42 cents and 45 cents a share, compared with 57 cents a year earlier. The St. Louis company lowered its earnings range by 5 cents in June, saying business remained very soft especially at brands Thomasville, Drexel Heritage, Henredon and Maitland-Smith, which produce high-end furniture.
Speaking at an investor conference last week, Chairman and Chief Executive Mickey Holliman said that with one week remaining in the reporting period, orders were down 4.5% in the second quarter. Furniture Brands reports results on July 23.
Wall Street has settled on a mean forecast of 43 cents a share, according to Thomson First Call's survey of 11 analysts. The five analysts providing quarterly revenue estimates to First Call forecast a 6% drop in the company's revenue from $604.5 million a year earlier.
Reported earnings will include at least some of the effects of two plant closings announced in the quarter, company executives have said. Furniture Brands doesn't intend to take charges against earnings for shutting down the plants, which together employ 900. But it did incur severance costs beginning in the second quarter, and overhead costs were unlikely to be absorbed as efficiently as the plants began winding down production.
La-Z-Boy Inc. (LZB), too, announced plans this quarter to reduce its U.S. manufacturing. The Monroe, Mich., company said it is closing three plants and eliminating 405 jobs in a realignment of its casegoods group.