Earnings Per Share Up 6% to $0.34 Per
Diluted Share
Span-America Medical Systems, Inc. (NASDAQ: SPAN) today reported
its results for the third fiscal quarter ended July 2, 2016.
Earnings per diluted share rose 6% to $0.34 in the third quarter of
fiscal 2016 compared with $0.32 in the third quarter of fiscal
2015. Net income for the third quarter of fiscal 2016 was down 3%
to $935,000 compared with $963,000 in the third quarter of fiscal
2015 due primarily to foreign currency losses in this year’s third
quarter compared with gains in the same quarter last year. Net
sales for the third quarter of fiscal 2016 were down 3% to $15.3
million compared with $15.8 million in the third quarter of fiscal
2015.
“Span-America’s earnings per diluted share for the third quarter
rose 6% to $0.34 and benefited from fewer shares outstanding as a
result of the stock repurchase we made near the end of fiscal
2015,” stated Jim Ferguson, president and chief executive officer
of Span-America. “We also reported a solid 13% increase in
operating profit due mostly to improved margins in our custom
products segment. These improvements were partly offset by foreign
exchange losses related to our operations in Canada due to the
strengthening of the Canadian dollar since last year.
“Sales for the third quarter were mixed with higher sales of
therapeutic support surfaces, our largest product line, offset by
lower demand for medical beds. We also reported lower sales from
our custom products segment due primarily to the loss of a large
retail customer, as previously announced, offset partially by sales
growth from a new customer for consumer bedding products. Our
outlook for the fourth quarter is for sales and earnings to be
similar to last year’s fourth quarter. We expect stronger sales in
our medical segment to be partly offset by an expected decrease in
consumer sales in our custom products segment. The expected decline
in custom products sales is due to the loss of the large customer
for consumer bedding products as previously announced.”
Third Quarter Results
Sales for the third quarter of fiscal 2016 were $15.3 million
compared with $15.8 million in the third quarter of fiscal 2015.
The decline in sales came primarily from our custom products
segment and was due mostly to the loss of the large customer for
our consumer products as previously reported. Sales in the custom
products segment were down by 8% to $3.8 million in the third
quarter of this year compared with $4.1 million in the third
quarter last year. In the medical segment, sales decreased 1% to
$11.5 million compared with $11.7 million in the third quarter last
year. Total company operating income was up by 13% to $1.5 million
in the third quarter this year compared with $1.3 million in the
same quarter last year due to margin improvements in the custom
products segment combined with solid sales growth from medical
pressure management products. Net income for the third quarter of
fiscal 2016 decreased by 3% to $935,000 compared with $963,000 in
the third quarter of last year. The decrease in net income was due
primarily to foreign currency exchange losses from our operations
in Canada. Earnings per share increased 6% in the third quarter to
$0.34 per diluted share compared with $0.32 per diluted share in
the third quarter last year. The increase in earnings per share was
the result of fewer shares outstanding due to stock repurchases
near the end of fiscal year 2015.
Medical Segment – Total
medical sales were $11.5 million in the third quarter of fiscal
2016, a 1% decrease compared with $11.7 million in the third
quarter last year. The decline in medical sales was due to lower
sales volumes of medical beds and in-room furnishing products made
in Canada. Span-Canada sales were down 21% to $2.6 million in the
third quarter of fiscal 2016 compared with $3.3 million in the same
quarter last year due to a general weakness in demand for beds
during the quarter. The reduced demand was due in part to a
relatively high level of ownership changes among facilities in the
U.S. long-term care market, which has caused some customers to
delay capital purchases.
Sales of pressure management products were up by 7% to $8.9
million compared with $8.4 million in the third quarter last year.
Sales of therapeutic support surfaces, our largest medical product
line, increased by 8% to $6.3 million compared with $5.9 million in
the third quarter last year. Sales of all other pressure management
products as a group were up 4% at $2.6 million in the third quarter
of fiscal 2016 compared with $2.5 million in the third quarter of
fiscal 2015.
Custom Products Segment –
Total custom products sales were down by 8% to $3.8 million in the
third quarter of fiscal 2016 compared with $4.1 million in the
third quarter of fiscal 2015. Consumer bedding sales make up the
largest part of the custom products segment and were down by 12% to
$2.8 million in the third quarter of fiscal 2016 compared with $3.1
million in the third quarter of fiscal 2015. The decrease in
consumer sales was due primarily to the loss of the large customer
referenced above and was partly offset by sales to a new retail
customer that began in May 2016.
Sales from our industrial product lines, included within the
custom products segment, rose 6% to $1.1 million in the third
quarter of fiscal 2016 compared with $1.0 million in the same
quarter last year. This was a near-record quarterly sales
performance for our industrial business during the third quarter
this year.
Earnings – Total gross
profit rose 4% to $5.7 million compared with $5.4 million in the
third quarter last year. The gross margin percentage increased to
36.8% compared with 34.4% in the same quarter last year. The
increases in gross profit level and margin were the result of
improved margins within our custom products business.
Selling and marketing expenses were down by 1% to $2.7 million
in the third quarter of fiscal 2016, generally reflecting sales
trends during the quarter. R&D expenses decreased by 2% to
$277,000 due to normal quarter-to-quarter fluctuations in our
product development costs in the medical segment. Administrative
expenses increased by 6% to $1.2 million due primarily to higher
incentive compensation and a building maintenance project.
Operating income rose 13% in the third quarter of fiscal 2016 to
$1.5 million compared with $1.3 million in the same quarter last
year due to improved margins in the custom products segment and
sales growth from our medical pressure management product lines.
Net income for the third quarter decreased by 3% to $935,000
compared with $963,000 in the third quarter last year. The decrease
in net income was due primarily to foreign exchange losses from
operations in Canada.
Earnings per diluted share rose 6% to $0.34 in the third quarter
of fiscal 2016 compared with $0.32 in the third quarter of fiscal
2015. The increase in earnings per share benefited from fewer
shares outstanding as a result of our stock repurchases near the
end of fiscal year 2015.
Year-to-Date Results
For the first nine months of fiscal 2016, total sales rose 11%
to $51.7 million compared with $46.6 million in fiscal 2015. The
sales increase was due to higher custom products segment sales that
came mostly from a seasonal promotion of consumer bedding products
that took place in the first quarter of fiscal 2016.
In the custom products segment, sales for the first nine months
of fiscal 2016 were up 62% to $17.8 million compared with $11.0
million in the first nine months of fiscal 2015. The growth was due
entirely to higher sales of consumer bedding products. Consumer
sales increased 85% in the first nine months of fiscal 2016 to
$14.8 million compared with $8.0 million in the same period of
fiscal 2015. The increase in consumer sales came primarily from a
seasonal promotion of bedding products in the first quarter of
fiscal 2016, along with new customer business that began in May
2016 and an increase in online sales. Sales of our industrial
products, included in the custom products segment, were level at
$2.9 million in the first nine months of fiscal 2016 and 2015.
Fiscal 2016 year-to-date sales in the medical segment decreased
5% to $33.9 million compared with $35.6 million for the same period
in fiscal 2015. The decrease in medical sales came from our lines
of medical beds and in-room furnishing products, which were down by
19% to $7.6 million compared with $9.3 million in the first nine
months of fiscal 2015 due to relatively sluggish demand this year
compared with last year. Sales within our pressure management
product lines were level at $26.3 million during the first nine
months of fiscal 2016 and 2015.
Operating income for the first nine months of fiscal 2016 rose
17% to $4.2 million compared with $3.6 million in the first nine
months of fiscal 2015. The increase was the result of higher sales
volumes and improved margins in the custom products segment and
lower overall operating expenses.
Net non-operating income was down by 104% due to a loss of
$12,000 in the first nine months of fiscal 2016 compared with
income of $302,000 in the first nine months of fiscal 2015. The
decline was due to foreign currency exchange losses as the Canadian
dollar strengthened versus the U.S. dollar during the first nine
months of fiscal 2016. In addition, the first nine months of fiscal
2015 included a $46,000 net gain on the sale of assets, which was
not repeated in the first nine months of fiscal 2016.
Net income for the first nine months of fiscal 2016 rose by 5%
to $2.8 million compared with $2.7 million in the same period of
fiscal 2015. Earnings per share increased by 14% to $1.03 per
diluted share in the first nine months of fiscal 2016 compared with
$0.90 per diluted share during the same period last year. The
increase in earnings for the first nine months of fiscal 2016 was
primarily the result of strong sales growth and margin improvements
within our custom products segment.
Future Outlook
“We expect total sales and earnings in the fourth quarter of
fiscal 2016 to be similar to those of the fourth quarter of fiscal
2015. We believe medical sales will improve slightly over last
year’s fourth quarter based on recent trends and current orders in
house. Consumer sales are expected to be lower in the fourth
quarter of fiscal 2016 compared with last year’s fourth quarter due
to the loss of the large consumer account that we announced in
April 2016,” concluded Ferguson.
Conference Call
The company will conduct a conference call at 10:00 a.m. ET on
Friday, August 5, 2016, to review the company’s financial and
operating results for the third fiscal quarter ended July 2, 2016.
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®, Advantage and Rexx beds as well as related
in-room furnishing 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,” “would,” “estimates,”
“continues,” “may,” “believes,” “anticipates,” “should,”
“optimistic,” 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 segment, (b) the possibility that anticipated declines
in sales of consumer bedding products could be greater than
expected, (c) the possibility of a loss of a key customer or
distributor for our products, (d) risks related to international
operations and foreign currency 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) 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,
(l) the impact of competitive products and pricing,
(m) government reimbursement changes in the medical market,
(n) FDA and Health Canada regulation of medical device
manufacturing and (o) 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 Nine Months
Ended July 2, June 27, July 2,
June 27, 2016 2015
% Chg. 2016 2015 % Chg. Net
sales $ 15,347,377 $ 15,813,474 -3 % $ 51,652,188 $ 46,567,766 11 %
Cost of goods sold 9,693,582
10,372,903 -7 % 35,324,256
30,696,346 15 % Gross profit 5,653,795 5,440,571 4 %
16,327,932 15,871,420 3 % 36.8 % 34.4 % 31.6 % 34.1 %
Selling and marketing expenses 2,697,970 2,717,470 -1 % 7,844,102
8,090,610 -3 % Research and development expenses 276,553 281,798 -2
% 845,717 877,726 -4 % General and administrative expenses
1,193,092 1,123,101 6 %
3,435,288 3,316,021 4 %
4,167,615 4,122,369 1 % 12,125,107 12,284,357 -1 % Operating
income 1,486,180 1,318,202 13 % 4,202,825 3,587,063 17 % 9.7 % 8.3
% 8.1 % 7.7 % Non-operating income (expense): Foreign currency
(loss) gain (67,025 ) 65,154 -203 % 410 263,103 -100 % Interest
expense - - n/a (5,144 ) (6,285 ) 18 % Other 64
(821 ) 108 % (7,371 )
45,417 -116 % Net non-operating income (expense)
(66,961 ) 64,333 -204 % (12,105 ) 302,235 -104 % Income
before income taxes 1,419,219 1,382,535 3 % 4,190,720 3,889,298 8 %
Income taxes 484,000
420,000 15 % 1,355,000
1,183,000 15 % Net income $ 935,219 $
962,535 -3 % $ 2,835,720 $ 2,706,298
5 % 6.1 % 6.1 % 5.5 % 5.8 % Net income per common
share: Basic $ 0.34 $ 0.32 6 % $ 1.04 $ 0.91 14 % Diluted 0.34 0.32
6 % 1.03 0.90 14 % Dividends per common share (1) $ 0.16 $
0.15 7 % $ 0.48 $ 1.45 -67 % Weighted average shares
outstanding: Basic 2,734,468 2,991,192 -9 % 2,729,743 2,976,994 -8
% Diluted 2,758,503 3,017,536 -9 % 2,755,161 3,006,430 -8 %
Supplemental data: Depreciation expense $ 231,945 $ 222,848 4 % $
659,634 $ 646,336 2 % Amortization expense 83,653 88,616 -6 %
242,387 271,208 -11 %
(1) Dividends per common share for the
nine months ended June 27, 2015 include a special dividend of $1.00
per share paid on January 7, 2015.
SPAN-AMERICA MEDICAL SYSTEMS, INC.
Consolidated Balance Sheets July
2, Oct. 3, 2016 2015 (Unaudited) (Note)
Assets Current assets: Cash and cash equivalents $ 3,231,435
$ 1,224,026 Accounts receivable, net of allowances 5,926,248
7,813,773 Inventories 8,108,632 8,746,039 Deferred income taxes
351,000 351,452 Prepaid expenses 975,408
411,528 Total current assets 18,592,723 18,546,818
Property and equipment, net 4,272,230 4,536,104 Goodwill 3,968,841
3,930,282 Intangibles, net 2,064,138 2,214,762 Other assets
2,745,968 2,953,656 $ 31,643,900 $
32,181,622
Liabilities and Shareholders'
Equity Current liabilities: Accounts payable $ 2,318,840 $
4,035,333 Accrued and sundry liabilities 2,680,649
3,120,111 Total current liabilities 4,999,489
7,155,444 Deferred income taxes 349,969 348,479 Deferred
compensation 311,282 375,939 Total
long-term liabilities 661,251 724,418
Total liabilities 5,660,740 7,879,862 Shareholders'
equity:
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding shares 2,734,468 at July
2, 2016 and 2,737,468 at Oct. 3, 2015
169,380 - Additional paid-in capital - - Retained earnings
28,163,034 26,848,299 Accumulated other comprehensive loss
(2,349,254 ) (2,546,539 ) Total shareholders' equity
25,983,160 24,301,760 $ 31,643,900
$ 32,181,622 Note: The Balance Sheet at
October 3, 2015 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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