Fourth Quarter Sales Up 36% to $17.7
Million
Net Income Jumps 96% to $1.3 Million, or
$0.43 Per Diluted Share
Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported
growth in sales and net income for the fourth quarter and fiscal
year ended October 3, 2015. Net income for the fourth quarter of
fiscal 2015 rose 96% to $1.3 million, or $0.43 per diluted share,
compared with $656,000, or $0.22 per diluted share, in the fourth
quarter of fiscal 2014. Net sales for the fourth quarter of fiscal
2015 were up 36% to $17.7 million compared with $13.0 million in
the fourth quarter of fiscal 2014. For the full year, fiscal 2015
net income increased 54% to $4.0 million, or $1.33 per diluted
share, compared with $2.6 million, or $0.87 per diluted share, in
fiscal 2014. Fiscal 2015 net sales were up 15% to $64.3 million
compared with $55.9 million in fiscal 2014.
“Span-America had a very strong fourth quarter that benefited
from increased sales in our medical segment combined with a jump in
sales in our custom products segment,” stated Jim Ferguson,
president and chief executive officer of Span-America. “Custom
products sales doubled to $5.5 million mainly because we regained a
major retail customer that we lost to a competitor for part of last
fiscal year. We also expect to report significant growth in sales
to this customer in the first quarter of fiscal 2016 related to a
seasonal promotion that we have previously announced.
“Our medical segment continues to gain momentum with higher
sales of our proprietary therapeutic support surfaces and solid
growth from Span-Canada, our Canadian subsidiary. The new line of
medical beds from Span-Canada, the Encore® bed, has gained traction
in U.S. and Canadian markets from customers in the long-term care
business and is contributing significantly to our growth in the
medical segment.
“Our net income almost doubled this quarter compared with the
fourth quarter of last fiscal year due to our solid sales growth
across the company. We believe the company’s excellent performance
in the fourth quarter highlights our progress in adding new
customers and new products to fuel our growth,” stated
Ferguson.
Fourth Quarter Results
Sales for the fourth quarter of fiscal 2015 rose 36% to $17.7
million compared with $13.0 million in the fourth quarter of fiscal
2014. The sales increase came from strong volume growth from both
our medical and custom products business segments. Sales in the
medical segment increased 19% to $12.2 million due to solid growth
from our therapeutic support surfaces and our Span-Canada beds and
related products. Sales in the custom products segment were up 100%
to $5.5 million due to volume growth from our consumer bedding and
industrial product lines. Earnings for the fourth quarter of fiscal
2015 rose 96% to $1.3 million, or $0.43 per diluted share, compared
with $656,000, or $0.22 per diluted share, in the fourth quarter
last year. The increase in earnings was largely due to higher sales
volume from most of the major product lines in our medical and
custom products business units.
Medical Segment – Total
medical sales increased by 19% to $12.2 million in the fourth
quarter of fiscal 2015 compared with $10.3 million in the fourth
quarter last year. The increase in medical sales came from higher
volumes within our therapeutic support surface product lines as
well as our Span-Canada beds compared with the fourth quarter last
year.
Sales of beds and related products increased by 14% to $2.7
million compared with $2.4 million in the fourth quarter last year.
The Span-Canada sales growth was broad-based across our most
popular bed products. The Encore® bed, our newest entry for the
long-term care bed market, was a sales leader for Span-Canada in
the fourth quarter. “Sales of our medical beds showed excellent
growth in fiscal 2015 and benefited from the new Encore® bed line
as well as increased cross-selling opportunities with our
therapeutic support surfaces. The majority of our bed orders are
now shipping with therapeutic support surfaces, which we believe
adds value for our customers in addition to being good for Span,”
stated Ferguson.
Sales of Span-America’s other medical product lines increased by
20% to $9.5 million compared with $7.9 million in the fourth
quarter of fiscal 2014. The increase was due to strong volume
growth within our therapeutic support surface product line. Sales
of therapeutic support surfaces increased by 31% to $6.8 million
compared with $5.2 million in the fourth quarter last year. Within
the therapeutic support surface group, sales of our non-powered
Geo-Mattress® products were up by 15%, and sales of our powered
products, including the newest PressureGuard®, Custom Care® and
Protocol® products, increased by 43% compared with the fourth
quarter last year. Sales of all other pressure management products,
including overlays, positioners, seating, skin care and fall
protection products, decreased by 1% during the fourth quarter of
fiscal 2015 to $2.6 million compared with the fourth quarter of
fiscal 2014. The decline in this product group was mainly the
result of lower sales of our Risk Manager™ bedside safety mat due
to an increased number of competitive products being offered in
that market.
Custom Products Segment –
Total custom products sales increased by 100% in the fourth quarter
to $5.5 million compared with $2.8 million in the fourth quarter
last year. Our consumer bedding product line was the major
contributor to growth in custom products sales and jumped 143% to
$4.6 million compared with $1.9 million in the fourth quarter last
year. The consumer sales growth came primarily from a large retail
customer that we regained in November 2014 after previously losing
the business to a competitor in February 2014.
Sales from our industrial product lines, included within the
custom products segment, rose 10% to $982,000 in the fourth quarter
of fiscal 2015 compared with $895,000 in the same quarter last
year. This marked our ninth consecutive quarterly increase in
industrial product line sales, which have benefited from the strong
manufacturing economy in our region. Industrial sales growth in the
fourth quarter came mostly from new and existing customers in the
automotive and packaging markets.
Earnings – Our earnings
growth in the fourth quarter was driven by higher sales volumes in
the medical and custom products segments and a slightly more
profitable sales mix in the medical segment. Total gross profit
increased 31% to $5.8 million compared with $4.4 million in the
fourth quarter last year, and our gross margin percentage decreased
to 32.5% compared with 33.8% in the same quarter last year. The
increase in gross profit dollars was the result of higher sales
volume during the quarter, and the decrease in gross margin
percentage was due mainly to the large increase in consumer sales
during the quarter that shifted our overall sales mix toward the
lower-margin custom products segment.
Selling and marketing expenses increased by 9% to $2.7 million
in the fourth quarter this year due to increased activities related
to the higher sales volumes primarily in our medical segment.
R&D expenses increased by 3% to $260,000 due to new-product
development projects in the medical segment. Administrative
expenses increased by 15% to $1.1 million due mostly to a decline
in the cash value of corporate-owned life insurance.
Operating income increased by 138% to $1.7 million for the
fourth quarter this year compared with $702,000 in the fourth
quarter last year. Non-operating income increased to $106,000 in
the fourth quarter this year compared with a loss of $17,000 in the
same quarter last year due to gains on foreign currency
transactions related to our Canadian business. Net income for the
fourth quarter increased by 96% to $1.3 million, or $0.43 per
diluted share, compared with $656,000, or $0.22 per diluted share,
in the fourth quarter last year. The increase in operating income
and net income was the result of the growth in sales in the fourth
quarter this year compared with the same quarter last year.
Fiscal Year Results
Fiscal 2015 net sales rose 15% to $64.3 million compared with
$55.9 million in fiscal 2014. The growth in fiscal 2015 sales came
mostly from our medical segment, but we also had solid sales growth
from our consumer and industrial product lines, which are part of
the custom products segment.
Total medical sales for fiscal 2015 increased by 13% to a record
$47.8 million compared with $42.3 million in fiscal 2014. The $5.5
million increase in medical segment sales was about evenly divided
between our pressure management products and our Span-Canada beds
and related products. Sales in our pressure management product
lines increased by 8% during fiscal 2015 to $35.8 million compared
with $33.0 million in fiscal 2014. The growth in sales of pressure
management products came entirely from our line of therapeutic
support surfaces where sales increased by 14% to $25.3 million in
fiscal 2015 compared with $22.2 million in fiscal 2014. Sales of
Span-Canada’s beds and related products were up 30% to $12.0
million in fiscal 2015 compared with $9.3 million in fiscal
2014.
In the custom products segment, sales rose 22% to $16.5 million
in fiscal 2015 compared with $13.5 million in fiscal 2014. Consumer
sales for fiscal 2015 increased by 26% to $12.6 million from $10.0
million in fiscal 2014 due primarily to regaining the business of a
large retail customer in November 2014 that was lost to a
competitor in February 2014. Industrial sales rose 10% to $3.9
million during the 2015 fiscal year compared with $3.5 million in
fiscal 2014.
Net income for the full year increased 54% to $4.0 million, or
$1.33 per diluted share, in fiscal 2015 compared with $2.6 million,
or $0.87 per diluted share, in fiscal 2014. The increase in
earnings for fiscal 2015 was the result of strong sales growth and
margin improvements within our Span-Canada product lines, solid
sales growth from our therapeutic support surfaces and higher sales
from our consumer and industrial product lines.
Future Outlook
“We expect solid overall sales growth in the first quarter of
fiscal 2016 due mostly to an increase in sales of consumer bedding
products,” stated Ferguson. “As we previously announced, we expect
growth in first quarter sales due to shipments in November 2015 for
a seasonal promotion of consumer products. In the medical segment,
we expect sales to be similar to medical sales in the first quarter
of fiscal 2015, which was a particularly strong sales quarter in
our medical business. Since the consumer promotional products tend
to carry a lower margin than usual, we expect first quarter
earnings in fiscal 2016 to be similar to those reported in the
first quarter of fiscal 2015.
“We remain positive about our outlook for 2016 based on growth
trends in our medical and custom products segments. We continue to
invest in new product development and are gaining traction with a
number of new products that hold potential in the coming year,”
concluded Ferguson.
As we reported on October 2, 2015, the company repurchased
261,310 shares of its common stock (approximately 9% of the
outstanding shares) from former director Robert B. Johnston and his
affiliate, The Jerry Zucker Revocable Trust. The total purchase
price of $4.6 million was funded from the company’s cash on hand.
However, we expect to use our existing line of credit during the
first quarter of fiscal 2016 to fund an increase in inventory
related to the large seasonal promotion of consumer bedding
products scheduled to ship in November of 2015. We expect the
repurchase of these shares to be accretive to our fiscal 2016
earnings per share based on our outlook for the new fiscal
year.
Conference Call
The company will conduct a conference call at 10:00 a.m. ET on
Tuesday, November 10, 2015, to review the Company’s financial and
operating results for the fourth quarter ended October 3, 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) uncertainty about whether or not we
will continue to be awarded one-time seasonal promotions with major
retailers, which can have a large impact on annual revenues and
earnings, (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 Oct. 3, Sept. 27, Oct.
3, Sept. 27, 2015 2014
% Chg 2015
2014
% Chg Net sales $ 17,747,229 $
13,044,584 36 % $ 64,314,996 $ 55,857,375 15 % Cost of goods sold
11,982,666 8,639,110 39 %
42,679,013 37,067,737 15
% Gross profit 5,764,563 4,405,474 31 % 21,635,983 18,789,638 15 %
32.5 % 33.8 % 33.6 % 33.6 % Selling and marketing expenses
2,698,540 2,464,581 9 % 10,789,150 10,088,400 7 % Research and
development expenses 259,608 252,080 3 % 1,137,334 1,071,583 6 %
General and administrative expenses 1,136,026
987,040 15 % 4,452,047
4,019,075 11 % 4,094,174 3,703,701 11 %
16,378,531 15,179,058 8 % Operating income 1,670,389 701,773
138 % 5,257,452 3,610,580 46 % 9.4 % 5.4 % 8.2 % 6.5 %
Non-operating income (expense): Interest expense - (3,160 ) 100 %
(6,285 ) (12,639 ) 50 % Other 105,711
(13,711 ) 871 % 414,231
30,826 1244 % Net non-operating income (expense) 105,711
(16,871 ) 727 % 407,946 18,187 2143 % Income before income
taxes 1,776,100 684,902 159 % 5,665,398 3,628,767 56 %
Income taxes 489,000 29,000
1586 % 1,672,000
1,038,000 61 % Net income $ 1,287,100 $
655,902 96 % $ 3,993,398 $ 2,590,767
54 % 7.3 % 5.0 % 6.2 % 4.6 % Net income per common
share: Basic $ 0.43 $ 0.22 95 % $ 1.34 $ 0.88 53 % Diluted 0.43
0.22 96 % 1.33 0.87 53 % Dividends per common share (1) $
0.16 $ 0.15 7 % $ 1.61 $ 0.57 182 %
Weighted average
shares outstanding: Basic 2,981,207 2,962,007 1 % 2,978,107
2,948,992 1 % Diluted 3,004,802 2,999,958 0 % 3,006,082 2,993,333 0
%
Supplemental data: Depreciation expense $
218,667 $ 221,279 -1 % $ 865,003 $ 864,356 0 % Amortization expense
85,567 100,165 -15 % 356,775 424,169 -16 %
(1) Dividends per common share include a
special dividend of $1.00 per share paid on January 7, 2015.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Consolidated Balance Sheets
Oct. 3, Sept. 27, 2015 2014 (Unaudited) (Note)
Assets Current assets: Cash and cash equivalents $ 1,224,026
$ 6,865,931 Accounts receivable, net of allowances 7,813,773
5,851,822 Inventories 8,746,039 7,395,955 Deferred income taxes
351,452 271,828 Prepaid expenses 411,528
760,967 Total current assets 18,546,818 21,146,503
Property and equipment, net 4,536,104 4,888,096 Goodwill 3,930,282
4,291,843 Intangibles, net 2,214,762 2,860,260 Other assets
2,953,656 2,660,132 $ 32,181,622 $
35,846,834
Liabilities and Shareholders'
Equity Current liabilities: Accounts payable $ 4,035,333 $
2,477,198 Accrued and sundry liabilities 3,119,973
2,051,662 Total current liabilities 7,155,306
4,528,860 Deferred income taxes 348,479 160,685 Deferred
compensation 375,939 457,457 Total
long-term liabilities 724,418 618,142
Total liabilities 7,879,724 5,147,002 Shareholders'
equity:
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding shares 2,737,468 (2015)
and 2,962,007 (2014)
- 3,064,658 Additional paid-in capital - 906,834 Retained earnings
26,848,299 27,735,768 Accumulated other comprehensive loss
(2,546,401 ) (1,007,428 ) Total shareholders' equity
24,301,898 30,699,832 $ 32,181,622
$ 35,846,834 Note: The Balance Sheet at
September 27, 2014 has been derived from the audited financial
statements at that date.
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Span-America Medical Systems, Inc.Jim Ferguson, 864-288-8877,
ext. 6912President and Chief Executive Officer
Span America (NASDAQ:SPAN)
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