World News: 14:30 GMT Friday 14th September 2018. [Virco Mfg. Corporation via Globe Newswire via SPi World News]
TORRANCE, Calif., Sept. 14, 2018 (GLOBE NEWSWIRE) -- Virco Mfg. Corporation (Nasdaq:VIRC) today announced results for its second quarter and first six months ended July 31, 2018.
A challenging environment of late orders, rapidly escalating raw material costs, and unexpected shifts in demand led to mixed results for the second quarter and first six months ended July 31, 2018. Despite these challenges, overall results were sufficiently positive that Virco’s Board of Directors has declared a regular quarterly dividend of $0.015 per share, payable on October 10, 2018 to shareholders of record as of September 26, 2018.
For the quarter ended July 31, 2018, net sales increased 3% to $74,802,000 from $72,636,000. Through six months, net sales were up 2% to $97,371,000 from 95,871,000. Operating margins were negatively impacted by higher steel, plastic and other raw material costs, although operating margins did show seasonal improvement as summer deliveries progressed. Management attributes this mid-season improvement to the operating efficiencies inherent with higher volume, not higher prices.
Operating income was virtually unchanged in the second quarter at $8,415,000 vs. $8,406,000 last year. As a percent of net sales, second quarter operating income declined modestly from 11.6% last year to 11.2% this year. Through six months, reflecting the more serious impacts of raw material costs in the first quarter, operating income declined to $3,827,000 from $5,141,000 last year, or, on a percentage basis, to 3.9% of net sales vs. 5.4% of net sales.
While order rates had been trending ahead of last year through spring, they spiked unexpectedly in July, and were focused on newer, more progressive designs that hadn’t previously represented the majority of the Company’s midsummer replacement sales. This late surge and change in product mix combined with a jump in raw material costs to put significant stress on all aspects of operations. Nevertheless, both operating margins and margins on incoming orders improved slightly in the second quarter vs. the first quarter of this year, reflecting what Management believes is the inherent flexibility of its U.S. factories and experienced American workforce.
As described above, order rates had been trending moderately higher through spring of this year, continuing the growth rates of the prior few years as funding for public schools stabilized following the Great Recession. Then, in July, when orders are typically focused on match-up replacements, a surge of large project orders came in. These orders often require progressive or customized configurations.
An additional challenge was the earlier start date for U.S. public schools. While Labor Day used to be the end point for “summer vacation” and Virco’s large-order deliveries, this year’s average start date of August 20 stripped two weeks from the traditional cycle. Raw material costs also spiked at the same time, leaving little room to respond with offsetting price increases.
Management is uncertain at this point whether the surge in project orders reflects changes in public school funding or headwinds in the global supply chain. Regardless, and given the compressed window for satisfactory response, factory operations were quickly redirected toward filling these orders.
The overall result was a 3% increase in shipments for the second quarter, and virtually flat operating margins. Management had hoped that the higher volumes of summer would generate sufficient efficiencies to offset the slow start to the year, which had also been impacted by higher costs for key materials like steel, plastic, and imported components.
Despite being unable to make up for the slow first quarter, Management is satisfied with the slightly improved results of the peak season. Although both quarters of this year lag the results of last year, margins are improving as of this writing and the Company’s second-half backlog is robust. As of this press release, Management’s preferred metric for forward planning—-- is up 11% as of July 31, 2018 compared to the same date last year.
At this point Management is hesitant to speculate about the possible impacts of tariffs on imports of raw materials in the second half of the year, because some of the proposed tariffs may end up offsetting or reinforcing existing ones. Strategically, the Company’s vertically integrated U.S. factories may provide advantageous control in the uncertain conditions that seem possible with respect to tariffs in the second half of 2018.
Commenting on these events, Virco Chairman and CEO Robert Virtue said: “This was a very tough summer but I’m proud of the way our company responded. We have a really experienced core of workers in all areas of operations, sales and distribution. As they have many times in the past, they rallied this summer to deliver the range of products and services demanded by progressive educators.”
Virco President Doug Virtue concurred: “While historic demand is useful for long-term planning, we always leave some capacity for last-minute summer orders that might not fit traditional patterns. Our operating strategies have been built around this need for flexibility, and this year validated that approach. We look forward to continuing the recent trend of improving performance in the second half of this year.”
Virco Mfg. Corporation (310) 533-0474Robert A. Virtue, Chairman and Chief Executive OfficerDoug Virtue, PresidentRobert Dose, Chief Financial Officer
Globe Newswire: 14:30 GMT Friday 14th September 2018
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