Quaker 2Q profits decline by 20%

Don Hogsett, Staff Staff, July 23, 2001

With margins under heavy pressure from shifts in its core upholstery business, as well as rising energy and raw material costs, second-quarter profits at Quaker Fabrics Inc. fell by more than 20 percent, despite a solid uptick in overall sales.

Earnings in the period dropped off by 20.3 percent, to $3.1 million from $3.9 million last year, as upholstery fabric customers tweaked their buying patterns in a weak environment for furniture sales to keep their stockpiles in line.

Even so, given a big lift from rapidly growing yarn sales and strengthening international business, Quaker managed to boost its overall sales by 5.2 percent, to $84.6 million from $80.5 million last year.

Larry Liebenow, president and ceo, said, "The furniture sector … is witnessing strains and displacement at both the retail and manufacturing levels. Our customers have adjusted their purchasing habits … These smaller and more irregular orders have affected Quaker's operating efficiencies, putting downward pressure on our margins."

And that wasn't all, added Liebenow: "Our margin performance has also been hurt by increased energy costs compared to last year as well as the effects of the price increases we have experienced in certain raw material costs since the first of this year."

Offsetting weaker margins, Quaker continued to hack away at costs, paring its expenses by 60 basis points in the period, to 14.1 percent of sales from 14.7 percent the prior year. In a further prop to the bottom line, Quaker reduced its interest expense by 19.2 percent, to $1.0 million from $1.3 million a year ago.

Helping to lift sales, despite weakness in the domestic furniture industry, Quaker's yarn sales rebounded from earlier weakness, rising by 16.7 percent. International sales were up by almost 8 percent, said Liebenow.

Quaker Fabrics Inc.

Qtr. 6/30 (x000) 2001 2000 % CHG
Sales $84,637 $80,487 5.2
Oper. profit (EBIT) 5,863 7,234 -19.0
Net income 3,079 3,861 -20.3
Per share (diluted) 0.19 0.24 -20.8
Average gross margin 21.0% 23.7%
SG&A expenses 14.1% 14.7%
Six months
Sales 164,473 155,724 5.6
Oper. income (EBIT) 11,686 11,921 -2.0
Net income 6,152 6,083 1.1
Per share (diluted) 0.38 0.38 0.0
Average gross margin 21.3% 2.7%
SG&A expenses 14.2% 15.1%

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