Cavalier first-half earnings plunge 99%, sees pick-up in second half

Cavalier Corp [NZX: CAV], the carpet-maker that cut annual earnings guidance three times last year, reported a 99 percent slump in first-half profit as a strong currency, increased wool prices and low wool grease prices eroded restructuring gains, but anticipates things will improve in the second half of the year.

Net profit dropped to $32,000 in the six months ended Dec. 31, from $3.4 million a year earlier, even as revenue gained 2 percent to $103.7 million, the Auckland-based company said in a statement. The company affirmed annual earnings guidance for normalised profit of between $1 million and $4 million on volume gains in its broadloom business, new business on both sides of the Tasman, and price increases in Australia helping offset the strength of the kiwi dollar.

"The board and executive are acutely aware that current profitability is unacceptable, but remain confident their strategies are appropriate and will return the company to acceptable profitability in time," Cavalier said. "We are expecting a lift in second-half results as the ongoing implementation of our business improvement plan begins to lift profits."

The shares rose 2.1 percent to 48 cents, and have dropped 23 percent this year. The stock is rated an average 'hold' based on two analyst recommendations compiled by Reuters, with a median price target of 56 cents.

The board didn't declare a dividend and said it would be unlikely to pay a final dividend either due to the full-year forecast.

"Company profitability needs to lift and the financial position has to improve before dividend payments can resume," Cavalier said. "The board will revisit its decision to suspend dividend payments at the appropriate time."

Cavalier's operating cash flow shrank to $12,000 from $3.5 million a year earlier, and the company had cash and equivalents of $2.5 million as at Dec. 31.

Net debt was $59.1 million, and Cavalier's debt-to-equity ratio was at 39 percent.

"The board and executive acknowledge, given the decline in earnings, that debt level is too high and have introduced a debt reduction programme that would see bank debt reduce to more acceptable levels," it said.

Cavalier's carpets segment increased revenue 2.1 percent to $88.8 million, while operating earnings sank about 61 percent to $2.2 million. The wool acquisition segment's sales increased 2.3 percent to $13.3 million while earnings dropped 37 percent to $351,000.

(BusinessDesk)