Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported
its results for the fourth quarter and fiscal year ended September
27, 2014. Net income for the fourth quarter of fiscal 2014 was
$656,000, or $0.22 per diluted share, compared with
$1.2 million, or $0.42 per diluted share, in the fourth
quarter of fiscal 2013. Net sales for the fourth quarter of fiscal
2014 were $13.0 million compared with $16.9 million in the fourth
quarter of fiscal 2013. For the full year, fiscal 2014 net income
was $2.6 million, or $0.87 per diluted share, compared with $5.1
million, or $1.69 per diluted share, in fiscal 2013. Fiscal 2014
net sales were $55.9 million compared with $73.8 million in fiscal
2013.
“Total sales and net income were down for the fourth quarter and
fiscal year primarily due to the loss of a major retail customer
for consumer bedding products that reduced sales by approximately
$12.2 million in fiscal 2014 compared with the prior year,” stated
Jim Ferguson, president and chief executive officer of
Span-America. “We believe Span-America’s fiscal 2015 sales and
earnings will improve based on new business expected from the major
retailer, as we previously announced, along with increased demand
for M.C. Healthcare products and sales growth from our therapeutic
support surfaces in the coming year.”
Fourth Quarter Results
Sales for the fourth quarter of fiscal 2014 were down 23% to
$13.0 million compared with $16.9 million in the prior-year period.
The sales decline was due to lower volumes from our medical and
custom products segments. Medical sales were down primarily within
our therapeutic support surface product lines and were partially
offset by strong sales of our M.C. Healthcare products, which rose
48% compared with the fourth quarter last year. We also experienced
lower sales of consumer products, as expected, due to the loss of a
large retail customer as previously announced. We expect to resume
sales of consumer bedding products to this customer in the first
quarter of fiscal 2015 and expect this account to generate a modest
increase in sales of consumer products in the new fiscal year.
Earnings for the fourth quarter of fiscal 2014 were down 47% to
$656,000, or $0.22 per diluted share, compared with $1.2 million,
or $0.42 per diluted share, in the fourth quarter last year. The
decline in fourth quarter earnings was due to lower sales volume
during the quarter.
Medical Segment – Total
medical sales in the fourth quarter of fiscal 2014 were down 8% to
$10.3 million compared with $11.2 million in the fourth
quarter of fiscal 2013. The decrease in medical sales was due
primarily to a 23% decline in therapeutic support surface product
lines to $5.2 million in the fourth quarter of fiscal 2014 compared
with $6.8 million in the prior-year period. The decrease in
therapeutic support surface sales was the result of a variety of
market-related factors, including industry consolidation,
uncertainty about the effect of the Affordable Care Act and concern
about Medicare reimbursement changes.
Sales of M.C. Healthcare products increased 48% to $2.4 million
for the fourth quarter of fiscal 2014 compared with $1.6 million in
the prior-year period. A majority of the M.C. Healthcare growth
came from higher sales of our new Encore™ bed, which was introduced
in the fourth quarter of fiscal 2013. The Encore™ bed, with
GlideAlign™, Smart Stop™ and other features, has been well-received
by our customers, and we expect continued growth from this
best-in-class new product.
Risk Manager™ product line sales rose 7%, while sales of our
other medical product lines were down compared with the fourth
quarter of fiscal 2013 due to sluggish demand within their
respective segments of the medical market. Sales of our Selan® skin
care products were down by 12%, and mattress overlays and seating
products sales were each down by 7% compared with the fourth
quarter of fiscal 2013. Sales of patient positioners decreased by
6% during the quarter due to slight declines in both branded and
private-label sales volume.
Custom Products Segment –
Total custom products sales decreased by 52% to $2.8 million in the
fourth quarter of fiscal 2014 compared with $5.7 million in the
fourth quarter of fiscal 2013. The decline in custom products sales
came exclusively from our consumer bedding product lines. Consumer
sales were down 62% to $1.9 million compared with $5.0 million in
the fourth quarter of fiscal 2013, primarily due to the loss of a
major retail customer, which was previously announced. Our sales to
this customer ended in February 2014, as we expected. Sales of new
consumer products to new customers totaled approximately $649,000
in the fourth quarter of fiscal 2014 but did not fully offset sales
declines from existing consumer customers.
Sales of industrial products, also part of our custom products
segment, increased 23% to $895,000 in the fourth quarter of fiscal
2014 compared with $726,000 in the fourth quarter of fiscal 2013.
The growth in industrial sales came from our existing automotive
customers as well as from new industrial customers in several
market areas. Business conditions continue to be strong for most of
our industrial customers, which fuels solid demand in this part of
our business.
“We expect renewed growth in our custom products segment next
fiscal year. We will begin shipments of consumer bedding products
to the major retailer in the first quarter of fiscal 2015. We also
view the solid growth from our industrial customer base as a
leading indicator of the health of our regional manufacturing
economy,” continued Ferguson.
Earnings – Gross profit
decreased by 19% to $4.4 million in the fourth quarter of fiscal
2014 compared with $5.4 million in the fourth quarter last year due
primarily to the decrease in sales volume during the quarter.
Span-America’s gross margin percentage improved to 33.8% in the
fourth quarter of fiscal 2014 compared with 32.0% in the same
quarter last year. The improvement in gross margin percentage was
the result of a more profitable overall sales mix and higher M.C.
Healthcare sales volume in the fourth quarter of fiscal 2014
compared with the prior-year period. Medical sales, which are
generally more profitable than custom products sales, accounted for
79% of total sales during the fourth quarter of fiscal 2014
compared with 66% in the prior-year period.
Selling and marketing expenses were down by 4% due to lower
sales volume. R&D expenses increased by 3%, which was the
result of new-product development projects for our medical
business. Administrative expenses declined by 4% primarily because
of reductions in expenses for uncollectible accounts and
amortization expenses at M.C. Healthcare. In total, SG&A
expenses were down 3% to $3.7 million in the fourth quarter of
fiscal 2014 compared with $3.8 million in the fourth quarter of
fiscal 2013.
Operating income for the fourth quarter of fiscal 2014 declined
56% to $702,000 compared with $1.6 million in the fourth quarter of
fiscal 2013. Net income for the fourth quarter declined 47% to
$656,000, or $0.22 per diluted share, compared with $1.2 million,
or $0.42 per diluted share, in the fourth quarter of fiscal 2013.
The declines in operating income and net income were due to the
lower sales volume compared with the fourth quarter of last
year.
Year-to-Date Results
Fiscal 2014 net sales decreased 24% to $55.9 million compared
with $73.8 million in fiscal 2013. The sales decline was
attributable primarily to the consumer part of the custom products
segment, which experienced the loss of a seasonal promotion for
consumer bedding products in the first quarter of fiscal 2014 as
well as the loss of sales for everyday consumer bedding products to
the same customer in the second quarter of fiscal 2014, as
previously disclosed. Total custom products sales for fiscal 2014
decreased by 49% to $13.5 million compared with $26.3 million in
fiscal 2013. The sales decrease in the custom products segment was
comprised of a $13.3 million, or 57%, decrease in sales of consumer
bedding products partially offset by a $544,000, or 18%, increase
in sales of industrial products.
In the medical segment, sales for fiscal 2014 were down 11%, or
$5.2 million, to $42.3 million compared with $47.5 million in
fiscal 2013. The majority of the decrease in medical sales in
fiscal 2014 compared with fiscal 2013 was the result of two
non-recurring orders, including one from a Canadian government
customer and a large order for therapeutic support surfaces from a
U.S. long-term care customer in fiscal 2013 that were not repeated
in fiscal 2014. The two orders accounted for approximately 60% of
the decline in total medical sales in fiscal 2014. The remaining
40% of the sales decline was due to lower demand for other medical
product lines, primarily during the last two quarters of fiscal
2014.
Operating income for fiscal 2014 declined 51% to $3.6 million
compared with $7.3 million in fiscal 2013. Likewise, net income for
fiscal 2014 decreased by 49% to $2.6 million, or $0.87 per diluted
share, compared with $5.1 million, or $1.69 per diluted share, in
fiscal 2013. The decrease in earnings during fiscal 2014 was due
primarily to lower sales volumes of consumer bedding and medical
products, as previously mentioned.
Future Outlook
“We believe sales and earnings for the first quarter of fiscal
2015 will be higher than they were in the first quarter of fiscal
2014,” continued Ferguson. “Our pipeline of orders for M.C.
Healthcare products remains strong, and we expect modest growth in
sales of our pressure management products during the first quarter
of fiscal 2015 compared with the first quarter of fiscal 2014. We
also expect modest growth from our consumer product lines as we
resume shipments of consumer bedding products to the major retailer
described above. Our outlook for higher sales of industrial
products in the first quarter of fiscal 2015 is also positive based
on continued strong demand from the industrial market.
“For fiscal year 2015, we expect to report higher sales and
earnings than in fiscal 2014 due to expected sales growth in both
our medical and custom products segments. Based on current activity
in our medical markets, we expect healthy demand for our M.C.
Healthcare products during fiscal 2015. In addition, we expect
demand for our therapeutic support surfaces to improve compared
with the last two quarters of fiscal 2014 based on recent customer
and quoting activity. If these trends continue, we expect to report
higher sales during fiscal 2015 for therapeutic support surfaces,
our largest medical product line.
“We expect the new consumer bedding products to begin shipping
in our first quarter of fiscal 2015. Based on preliminary
information from our customer, we believe the annualized sales
volume for this project will be approximately $4.0 million, with
opportunities for future growth,” concluded Ferguson.
Conference Call
The company will conduct a conference call at 10:00 a.m. ET on
Friday, November 7, 2014, to review the Company’s financial and
operating results for the fourth quarter ended September 27, 2014.
A live broadcast of the conference call will be available online at
www.spanamerica.com under investor relations on the Company tab.
The online replay will follow immediately and continue for 30
days.
About Span-America Medical Systems, Inc.
Span-America manufactures and markets a comprehensive selection
of pressure management products for the medical market, including
Geo-Matt®, PressureGuard®, Geo-Mattress®, Custom Care®, Span+Aids®,
Isch-Dish®, Risk Manager™ and Selan® products. We also supply
custom foam and packaging products to the consumer
and industrial markets. Through our
wholly-owned subsidiary Span Medical Products Canada Inc., we
manufacture and market the M.C. Healthcare Products
brands of Encore™, Maxxum, Advantage and Rexx bed frames as
well as related case goods, tables and seating products for the
long-term care market. Span-America’s stock is traded on The
NASDAQ Global Market under the symbol “SPAN.” For more
information, visit www.spanamerica.com and
www.mchealthcare.com.
Forward-Looking Statements
We have made forward-looking statements in this release
regarding, among other things, our expectations for future sales
and earnings performance. We wish to caution the reader that these
statements are only predictions. These forward-looking statements
may be generally identified by the use of forward-looking words and
phrases such as “will,” “intends,” “may,” “believes,”
“anticipates,” “should” and “expects,” and are based on the
company’s current expectations or beliefs concerning future events
that involve risks and uncertainties. Actual events or results may
differ materially as a result of risks and uncertainties facing the
company, including: (a) the inability to achieve anticipated sales
growth in the medical and custom products segments, (b) the
possibility of disruptions in our consumer products business
related to the transfer of our exclusive distribution agreement
from Louisville Bedding Company to Hollander Home Fashions in May
2013 as a result of the sale of Louisville Bedding’s utility
bedding retail business to Hollander, (c) the possibility of a loss
of a key customer or distributor for our products, (d) risks
related to international operations and foreign exchange associated
with our Canadian subsidiary, (e) the possibility of having
material uncollectible receivables from one or more key customers
or distributors, (f) the potential for volatile pricing
conditions in the market for polyurethane foam, (g) raw material
cost increases, (h) the possibility that some or all of our medical
products could be determined to be subject to the 2.3% medical
device excise tax imposed by the Affordable Care Act, (i) the
potential for lost sales due to competition from low-cost foreign
imports, (j) changes in relationships with large customers or key
suppliers, (k) the impact of competitive products and pricing,
(l) government reimbursement changes in the medical market,
(m) FDA and Health Canada regulation of medical device
manufacturing and (n) other risks referenced from time to time
in our Securities and Exchange Commission filings. We disclaim any
obligation to update publicly any forward-looking statement,
whether as a result of new information, future events or otherwise.
We are not responsible for changes made to this document by wire
services or Internet services.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Consolidated Statements of Income (Unaudited)
Three Months Ended
Fiscal Year Ended Sept. 27, Sept. 28,
Sept. 27, Sept. 28, 2014 2013
%
Chg 2014 2013
% Chg Net
sales $ 13,044,584 $ 16,928,922 -23 % $ 55,857,375 $ 73,833,549 -24
% Cost of goods sold 8,639,110
11,509,655 -25 % 37,067,737
50,269,657 -26 % Gross profit 4,405,474 5,419,267 -19
% 18,789,638 23,563,892 -20 % 33.8 % 32.0 % 33.6 % 31.9 %
Selling and marketing expenses 2,464,581 2,556,568 -4 % 10,088,400
10,722,770 -6 % Research and development expenses 252,080 245,397 3
% 1,071,583 1,224,174 -12 % General and administrative expenses
987,040 1,027,186 -4 %
4,019,075 4,322,509 -7 %
3,703,701 3,829,151 -3 % 15,179,058 16,269,453 -7 %
Operating income 701,773 1,590,116 -56 % 3,610,580 7,294,439 -51 %
5.4 % 9.4 % 6.5 % 9.9 % Non-operating income (expense): Interest
expense (3,160 ) (3,195 ) 1 % (12,639 ) (15,196 ) 17 % Other
(13,711 ) 34,166 -140 % 30,826
6,174 399 % Net non-operating
income (expense) (16,871 ) 30,971 -154 % 18,187 (9,022 ) 302 %
Income before income taxes 684,902 1,621,087 -58 % 3,628,767
7,285,417 -50 % Income taxes 29,000
374,000 -92 % 1,038,000
2,218,000 -53 % Net income $ 655,902
$ 1,247,087 -47 % $ 2,590,767
$ 5,067,417 -49 % 5.0 % 7.4 % 4.6 % 6.9 % Net
income per common share: Basic $ 0.22 $ 0.42 -48 % $ 0.88 $ 1.72
-49 % Diluted 0.22 0.42 -47 % 0.87 1.69 -49 % Dividends per
common share (1) $ 0.15 $ 0.14 7 % $ 0.57 $ 1.515 -62 %
Weighted average shares outstanding: Basic 2,962,007
2,941,564 1 % 2,948,992 2,939,684 0 % Diluted 2,999,958 2,997,005 0
% 2,993,333 2,994,239 0 %
Supplemental data:
Depreciation expense $ 221,279 $ 217,853 2 % $ 864,356 $ 775,767 11
% Amortization expense 100,165 112,816 -11 % 424,169 509,247 -17 %
(1) Dividends per common share include a
special dividend of $1.00 per share paid on December 4, 2012.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Consolidated Balance Sheets Sept. 27,
Sept. 28, 2014 2013 (Unaudited) (Note)
Assets Current assets: Cash and cash equivalents $ 6,865,931
$ 5,424,521 Accounts receivable, net of allowances 5,851,822
7,787,837 Inventories 7,395,955 6,445,950 Deferred income taxes
271,828 348,950 Prepaid expenses 760,967
698,003 Total current assets 21,146,503 20,705,261
Property and equipment, net 4,888,096 5,136,535 Goodwill 4,291,843
4,487,546 Intangibles, net 2,860,260 3,430,349 Other assets
2,660,132 2,616,937 $ 35,846,834 $
36,376,628
Liabilities and Shareholders'
Equity Current liabilities: Accounts payable $ 2,477,198 $
2,658,125 Accrued and sundry liabilities 2,051,662
2,875,600 Total current liabilities 4,528,860
5,533,725 Deferred income taxes 160,685 194,883 Deferred
compensation 457,457 534,239 Total
long-term liabilities 618,142 729,122
Total liabilities 5,147,002 6,262,847 Shareholders'
equity:
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding shares 2,962,007 (Sept.
27, 2014) and 2,927,416 (Sept. 28, 2013)
3,064,658 2,626,526 Additional paid-in capital 906,834 872,494
Retained earnings 27,735,768 26,828,012 Accumulated other
comprehensive loss (1,007,428 ) (213,251 ) Total
shareholders' equity 30,699,832 30,113,781
$ 35,846,834 $ 36,376,628
Note: The Balance Sheet at September 28, 2013 has been derived from
the audited financial statements at that date.
Span-America Medical Systems, Inc.Jim Ferguson, 864-288-8877,
ext. 6912President and Chief Executive Officer
Span America (NASDAQ:SPAN)
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