Quaker 4Q tails off

Don Hogsett, February 24, 2003

With sales falling off by more than 8 percent, and costs and interest expense both rising higher, fourth-quarter profits at Quaker Fabric Corp. were sheared by almost two-thirds, falling by 62.3 to $1.2 million from $3.1 million last year.

Sales in the period fell by 8.6 percent, to $82.5 million from $90.3 million last year, a shortfall of $7.8 million.

Despite a lackluster closing quarter, Quaker put up double-digit gains in sales and earnings both for all of last year, driving profits up by 21.0 percent, to $11.6 million; and pushing sales up by 10.4 percent, to $365.4 million.

"Although our 2002 results were solid overall, the fourth quarter was definitely the weakest for us, with domestic fabric sales down 8.9 percent for the quarter and yarn sales off significantly," said Larry Liebenow, president and ceo.

He added, "Our backlog position at yearend was down considerably compared to yearend 2001, primarily because we were able to further our service advantage objectives by significantly reducing our delivery lead times, and also because of some weakness in our fourth-quarter order rate."

Coming off the fourth-quarter weakness, the first quarter now underway is off to a much stronger start, said Liebenow. "Demand for our products has picked up nicely since the first of the year … with our average weekly incoming order rate so far this year running approximately 20 percent ahead of the 14-week fourth quarter."

Putting earnings under pressure, in addition to the drop in sales, costs climbed sharply higher, rising by 250 basis points, or 2.5 percentage points, to 18.3 percent of sales from 15.8 percent a year ago, due in large part to the decline in sales. But even excluding the impact of the lost sales, costs climbed higher by 6.1 percent, to $15.1 million from $14.2 million last year.

And putting another dent in profits, interest expense shot up by 17.2 percent, to $1.2 million from $1.0 million last year. But the squeeze from interest expense should abate going forward, with Quaker paying down $13.3 million in debt during the fourth quarter.

Shoring up the bottom line in 2003, Quaker is reining in its capital spending, said Liebenow, paring projected outlays by almost 72 percent, to $9 million from $32 million last year.

Looking beyond the United States to build its business, Liebenow said Quaker is putting a tight focus on its export business, which grew last year by about 16 percent. "Quaker's commitment to the export market continues to be strategically important," said Liebenow, "and we intend to keep aggressively pursuing our international program."

Quaker Fabric Corp.

Qtr. 1/4 (x000) 2002 2001 % change
a-Fourth-quarter results include 21,000 in miscellaneous expenses, compared with $4,000 in miscellaneous income the prior year.
b-12-month results include $91,000 in miscellaneous expenses, compared with $10,000 the year before. Prior-year results included a restructuring charge of $800,000.
Sales $82,492 $90,256 -8.6
Oper. income (EBIT) 3,084 5,821 -47.0
Net income 1,155a 3,065a -62.3
Per share (diluted) 0.07 0.19 -63.2
Average gross margin 22.0% 22.2%
SG&A expenses 18.3% 15.8%
12 months
Sales 365,445 331,105 10.4
Oper. income (EBIT) 23,067 19,827 16.3
Net income 11,556b 9,548b 21.0
Per share (diluted) 0.69 0.58 19.0
Average gross margin 21.9% 21.2%
SG&A expenses 15.6% 15.3%

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