Cavalier issues shock profit warning

Cavalier Corp [NZX: CAV] said 2017 earnings may fall as much as 52% as the carpet maker incurs one-time costs to consolidate its manufacturing operations.

The share price fell 23% to 60c on the news.

Normalised profit is expected to be $3-5 million in the year ending June 30, 2017, from $6.3 million a year earlier, the Auckland-based company said in a statement.

In April, Cavalier said it would consolidate its woollen yarn spinning operations in Napier and Whanganui to a single hub in Napier, and scale back its semi-worsted yarn spinning operation in Whanganui. It would also relocate its felted yarn operation from Christchurch to Whanganui and close the Christchurch plant as part of the plan to slash costs and lift profitability.

"Aligning yarn spinning capacity with demand releases considerable upside in future years," chief executive Paul Alston said today. "However, consolidating three manufacturing operations is a massive undertaking, with temporary operating inefficiencies and disruptions arising during the transition to the new model and as a result, the company is incurring additional one-off costs. We expect to complete this phase before the end of 2016."

Cavalier shares tumbled 23% to 60c, capping a 75% surge in the past 12 months.

The company had said in April that it expected a "return to acceptable levels of profitability" in the 2017 financial year.

"Key initiatives under way include a significant marketing programme and the consolidation of wool spinning, two vital elements of our long-term strategy," Mr Alston said. "We are pleased to report we are on track with both initiatives which are set to significantly improve profits in the future."

Carpet sales are ahead of this time, although the high kiwi dollar against the Australian dollar "remains a concern" given the extent of Cavalier's sales across the Tasman, the company said.

(BusinessDesk)

Jonathan Underhill
Wed, 02 Nov 2016

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Cavalier issues shock profit warning