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February 5, 2019

Raw material costs continue to weigh on Unifi

By Beth Wright

US yarn manufacturer Unifi  has delivered its seventh consecutive quarter of sales growth, albeit at a slower rate as rising raw material costs continue to take a toll.

Net sales for the second-quarter ended 30 December increased to US$167.7m, compared to $167.5m for the same period last year. Excluding the impact of foreign currency translation, sales were up by $5.5m, or 3.3%. Revenues from premium value-added (PVA) products represented about 47% of consolidated net sales.

Net income, meanwhile, tumbled to US$1.2m in the period, compared to $11.8m a year earlier. Unifi said earnings were impacted by a comparably higher effective tax rate, partially offset by $1.1m greater pre-tax earnings from PAL due to improved costs and operating leverage.

Gross margin narrowed to 8.4%, compared to 13.5% for the second quarter of fiscal 2018, due to lower regional yarn volumes driving weaker fixed cost absorption, higher polyester raw material costs and a weaker sales mix.

“As previously announced, the spike in polyester raw material costs in September and October of 2018 and the resulting demand disruption created an even more challenging environment for our regional business, and our performance missed expectations,” said CEO Kevin Hall. 

“External pressures in the regional business included elevated raw material costs and suppressed demand for certain textured and covered yarns. The volatile nature of these external pressures made navigating the regional environment even more difficult. Internal pressures included the implementation of selling price increases that left us less competitive, elevated inventory levels, and the result of weaker leverage of our cost structure. The combination of these external and internal pressures caused weaker fixed cost absorption and lower operating margins.”

Hall added that while the ongoing expansion of the firm’s PVA portfolio remains paramount, it is “imperative” Unifi competes more aggressively in its regional commodity business to maintain its market position.

“By synchronising our efforts to strengthen our core yarn portfolio alongside pursuing our PVA growth engine, we will remain the innovative and sustainable solutions partner of choice,” he said.

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