Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported
results for the second fiscal quarter ended March 28, 2015. Net
sales for the second quarter of fiscal 2015 were up 2% to $15.0
million compared with $14.7 million in the second quarter of fiscal
2014. Net income for the second quarter of fiscal 2015 decreased by
13% to $773,000, or $0.26 per diluted share, compared with
$891,000, or $0.30 per diluted share, in the second quarter of
fiscal 2014.
“We are pleased with the excellent performance from M.C.
Healthcare’s sales in the U.S. and Canada,” stated Jim Ferguson,
president and chief executive officer of Span-America. “We also
posted solid sales growth in our custom products segment compared
with the second quarter last year. Our improved sales volume in
these areas was partly offset by lower sales of our pressure
management products during the second quarter. In addition, our
sales and earnings results were reduced somewhat by having one less
sales week in the second quarter of fiscal 2015 compared with
fiscal 2014.
“Our earnings for the second quarter did not keep pace with our
sales growth due to a less profitable sales mix in our medical and
custom products segments. We also experienced higher material and
labor costs in our custom products segment and an increase in
research and development costs in our medical segment compared with
the second quarter of last year.
“We expect our sales and earnings for the second half of fiscal
2015 to exceed those in the first half of this year,” continued
Ferguson. “Quoting activity remains solid in our medical segment,
and we expect to grow consumer bedding sales to the large retail
customer that we regained in November 2014.”
Second Quarter Results
Sales for the second quarter of fiscal 2015 rose 2% to $15.0
million compared with $14.7 million in the second quarter of fiscal
2014. The sales increase came from solid growth from our M.C.
Healthcare, consumer bedding and industrial product lines. Sales in
the medical segment decreased by 1% to $11.1 million due to lower
sales of pressure management product lines partly offset by an
increase in sales of our M.C. Healthcare products. Sales in the
custom products segment were up by 11% to $3.9 million due to
volume growth from both our consumer bedding and industrial product
lines. Sales results for the second quarter were adversely affected
by having a 12-week quarter in 2015 compared with a 13-week quarter
in the second quarter of 2014.
Medical Segment – Total
medical sales decreased by 1% to $11.1 million in the second
quarter of fiscal 2015 compared with $11.2 million in the second
quarter last year. The decline in medical sales from the prior year
was due to lower sales volume within our pressure management
product lines and one less week of sales in the second fiscal
quarter of 2015 compared with the same quarter in fiscal 2014.
Sales of M.C. Healthcare beds and related products increased by
21% to $2.6 million compared with $2.1 million in the second
quarter last year. The M.C. Healthcare sales growth was broad-based
across our main bed products. Our newest Encore® bed was a sales
leader for M.C. Healthcare in the second quarter.
Sales of Span-America’s other medical product lines decreased by
6% to $8.5 million compared with $9.0 million in the second quarter
of fiscal 2014. Sales in our largest product line, therapeutic
support surfaces, were down by 1% to $6.1 million compared with
$6.2 million in the second quarter last year. Within the
therapeutic support surface group, sales of our powered products,
including the newest PressureGuard® Custom Care® and Protocol®
products, increased by 3% while sales of our non-powered products
decreased by 8% compared with the second quarter last year. Sales
of all other pressure management products, including overlays,
positioners, Selan®, seating and fall protection products,
decreased by 15% during the second quarter to $2.4 million compared
with $2.9 million in the year-earlier quarter.
Custom Products Segment –
Total custom products sales increased by 11% in the second quarter
to $3.9 million compared with $3.5 million in the second quarter
last year. Most of the sales growth came from our consumer bedding
products, which increased by 11% to $3.0 million compared with $2.7
million in the second quarter last year. The consumer sales growth
was about evenly divided between new sales to the large retail
customer that we regained in November 2014 and consumer sales to
other new customers, partially offset by declines in sales to
existing customers.
Sales from our industrial product lines, included within the
custom products segment, rose 11% to $935,000 in the second quarter
of fiscal 2015 compared with $839,000 in the same quarter last
year. This marked our seventh consecutive quarterly increase in
industrial product line sales, which have benefited from the strong
manufacturing economy in our region. Industrial sales growth in the
second quarter came from sales to new and existing customers
primarily in the automotive and packaging markets.
Earnings – Our earnings
results for the second quarter were adversely affected by a less
profitable sales mix, resulting in lower gross margins in both the
medical and custom products segments. Total gross profit decreased
5% to $5.0 million compared with $5.3 million in the second quarter
last year, and our gross margin percentage decreased to 33.1%
compared with 35.7% in the same quarter last year. The decreases in
gross profit dollars and gross margin percentage were the result of
the changes in sales mix and higher consumer material and labor
costs.
Selling and marketing expenses were level at $2.6 million in the
second quarter this year and last year, as higher commission and
marketing expenses were offset by lower shipping costs. R&D
expenses increased by 15% to $316,000 due to new product
development projects in the medical segment. Administrative
expenses increased by 9% to $1.1 million due to higher costs for
incentive compensation, medical insurance and property/casualty
insurance.
Operating income decreased by 31% to $925,000 for the second
quarter this year compared with $1.3 million in the second quarter
last year. Non-operating income increased significantly to $172,000
in the second quarter this year compared with $16,000 in the same
quarter last year due to a realized foreign currency gain of
$127,000 and a gain on the sale of assets of $47,000 in this year’s
second quarter. Net income for the second quarter decreased by 13%
to $773,000, or $0.26 per diluted share, compared with $891,000, or
$0.30 per diluted share, in the second quarter last year. The
decreases in operating income and net income were due primarily to
the decline in gross profit level combined with slightly higher
operating expenses during the second quarter this year compared
with the same quarter last year.
Year-to-Date Results
For the first half of fiscal 2015, total sales rose 4% to $30.8
million compared with $29.6 million in the first half of last
fiscal year. The first-half sales increase benefited from higher
medical segment sales and to a lesser extent from sales of our
industrial product lines, which are part of the custom products
segment.
Total medical sales, including M.C. Healthcare, for the first
half of fiscal 2015 increased by 10% to $23.9 million compared with
$21.8 million in the first half of last fiscal year. Sales of M.C.
Healthcare products were up 33% to $6.0 million in the first half
of this year compared with $4.5 million in the same period last
year. The increase is due to broad-based growth in sales of our
beds and related products, led by higher volume of our new Encore®
bed.
Sales of pressure management product lines, which include all
medical products except M.C. Healthcare, were up 4% to $17.9
million during the first half of fiscal 2015 compared with $17.2
million in the same period of fiscal 2014. Sales of therapeutic
support surfaces rose 8% to $12.6 million compared with $11.7
million in the same period last year. Product leaders within the
therapeutic support surface group included our newest products, the
Geomattress® Ultramax® as well as our PressureGuard Custom Care and
Protocol support surfaces.
In the custom products segment, sales for the first half of
fiscal 2015 were down 13% to $6.8 million compared with $7.8
million in the first half of fiscal 2014. Consumer sales for the
first half of fiscal 2015 decreased by 20% to $4.9 million from
$6.1 million in the same period last year due primarily to the loss
of a large retail customer in February 2014 that was not regained
until November 2014. Industrial sales rose 12% to $1.9 million
during the first half of this year compared with $1.7 million in
the same period last year.
Net income for the first half of fiscal 2015 increased 12% to
$1.7 million, or $0.58 per diluted share, compared with $1.6
million, or $0.52 per diluted share, in the same period last year.
The increase in earnings for the first half of fiscal 2015 was the
result of higher sales volume in our medical segment, particularly
among our M.C. Healthcare product lines.
Future Outlook
“We are optimistic about Span-America’s sales and earnings
performance in the second half of fiscal 2015,” continued Ferguson.
“We expect sales and earnings for the remainder of this fiscal year
to be higher than in the first half of fiscal 2015 due to
anticipated sales growth of medical and custom products. We
continue to experience increased quoting opportunities for medical
products across our product lines. We also expect sales volumes to
grow in our custom products segment based on increased demand from
the large retail customer we regained as well as from other
customers for our consumer bedding products. We also expect to
report higher sales of industrial products based on the continued
health of our regional economy.
“We expect to introduce two innovative new products in our
medical segment in the second half of fiscal 2015. We believe these
products will enhance our existing product lines and increase the
potential for sales growth in our market segments. We also remain
optimistic about opportunities to grow sales by combining our M.C.
Healthcare beds with our broad line of proprietary therapeutic
support surfaces,” concluded Ferguson.
Conference Call
The company will conduct a conference call at 10:00 a.m. ET on
Friday, May 1, 2015, to review the Company’s financial and
operating results for the second quarter ended March 28, 2015. A
live broadcast of the conference call will be available online at
www.spanamerica.com under Investor Relations on the About Us 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 a loss of a key customer or distributor for our
products, (c) risks related to international operations and foreign
currency exchange associated with our Canadian subsidiary, (d) the
possibility of having material uncollectible receivables from one
or more key customers or distributors, (e) the potential for
volatile pricing conditions in the market for polyurethane foam,
(f) raw material cost increases, (g) 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, (h) the potential for lost sales due to competition from
low-cost foreign imports, (i) changes in relationships with large
customers or key suppliers, (j) the impact of competitive
products and pricing, (k) government reimbursement changes in
the medical market, (l) FDA and Health Canada regulation of medical
device manufacturing and (m) 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 Six Months Ended March 28, March
29, March 28, March 29, 2015 2014 % Chg. 2015 2014 % Chg.
Net sales $ 15,033,618 $ 14,708,529 2 % $ 30,754,293 $ 29,561,806 4
% Cost of goods sold 10,051,750 9,455,352
6 % 20,323,444 19,520,834 4 %
Gross profit 4,981,868 5,253,177 -5 % 10,430,849 10,040,972 4 %
33.1 % 35.7 % 33.9 % 34.0 % Selling and marketing expenses
2,612,904 2,603,881 0 % 5,373,139 5,090,929 6 % Research and
development expenses 316,250 274,137 15 % 595,928 562,907 6 %
General and administrative expenses 1,127,917
1,034,368 9 % 2,192,920 2,041,333
7 % 4,057,071 3,912,386 4 % 8,161,987 7,695,169 6 %
Operating income 924,797 1,340,791 -31 % 2,268,862 2,345,803 -3 %
6.2 % 9.1 % 7.4 % 7.9 % Non-operating income (expense): Interest
expense (3,125 ) (3,125 ) 0 % (6,285 ) (6,319 ) 1 % Other
174,766 19,015 819 % 244,186
28,327 762 % Net non-operating income (expense)
171,641 15,890 980 % 237,901 22,008 981 % Income before
income taxes 1,096,438 1,356,681 -19 % 2,506,763 2,367,811 6 %
Income taxes 323,000 466,000 -31
% 763,000 811,000 -6 % Net income $
773,438 $ 890,681 -13 % $ 1,743,763 $
1,556,811 12 % 5.1 % 6.1 % 5.7 % 5.3 % Net income per
common share: Basic $ 0.26 $ 0.30 -14 % $ 0.59 $ 0.53 11 % Diluted
0.26 0.30 -14 % 0.58 0.52 11 % Dividends per common share
(1) $ 0.15 $ 0.14 7 % $ 1.30 $ 0.28 364 % Weighted average
shares outstanding: Basic 2,979,097 2,945,416 1 % 2,969,895
2,936,416 1 % Diluted 3,005,951 2,991,406 0 % 3,000,877 2,984,324 1
% Supplemental data: Depreciation expense $ 212,195 $
209,597 1 % $ 423,488 $ 389,391 9 % Amortization expense 87,103
112,401 -23 % 182,591 250,842 -27 %
(1)
Dividends per share for the six months
ended March 28, 2015, include a special dividend of $1.00 per share
declared on November 12, 2014 and paid on January 7, 2015 to
shareholders of record on December 17, 2014.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Consolidated Balance Sheets March 28, Sept.
27, 2015 2014 (Unaudited) (Note)
Assets Current
assets: Cash and cash equivalents $ 4,758,488 $ 6,865,931 Accounts
receivable, net of allowances 7,917,388 5,851,822 Inventories
5,760,302 7,395,955 Deferred income taxes 272,651 271,828 Prepaid
expenses 844,151 760,967 Total current
assets 19,552,980 21,146,503 Property and equipment, net
4,523,818 4,888,096 Goodwill 4,020,342 4,291,843 Intangibles, net
2,430,674 2,860,260 Other assets 3,088,213
2,660,132 $ 33,616,027 $ 35,846,834
Liabilities and Shareholders' Equity Current liabilities:
Accounts payable $ 2,952,778 $ 2,477,198 Accrued and sundry
liabilities 2,263,105 2,051,662 Total
current liabilities 5,215,883 4,528,860 Deferred income
taxes 151,433 160,685 Deferred compensation 416,698
457,457 Total long-term liabilities 568,131
618,142 Total liabilities 5,784,014
5,147,002 Shareholders' equity:
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding shares 2,991,192 (March
28, 2015) and 2,962,007 (Sept. 27, 2014)
3,421,081 3,064,658 Additional paid-in capital 920,152 906,834
Retained earnings 25,625,819 27,735,768 Accumulated other
comprehensive loss (2,135,039 ) (1,007,428 ) Total
shareholders' equity 27,832,013 30,699,832
$ 33,616,027 $ 35,846,834
Note: The Balance Sheet at September 27,
2014 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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