Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported
its results for the fourth quarter and fiscal year ended October 1,
2016. Net income for the fourth quarter of fiscal 2016 rose 10% to
$1.4 million, or $0.51 per diluted share, compared with $1.3
million, or $0.43 per diluted share, in the fourth quarter of
fiscal 2015. Net sales for the fourth quarter of fiscal 2016
declined 10% to $16.0 million compared with $17.7 million in the
fourth quarter of fiscal 2015. For the full year, fiscal 2016 net
income increased 6% to $4.2 million, or $1.54 per diluted share,
compared with $4.0 million, or $1.33 per diluted share, in fiscal
2015. Fiscal 2016 net sales were up 5% to $67.6 million compared
with $64.3 million in fiscal 2015.
“Span-America’s earnings rose in the fourth quarter on a solid
13% increase in operating income, and our earnings per share
benefited from fewer shares outstanding as a result of the stock
repurchases we made near the end of fiscal 2015,” stated Jim
Ferguson, president and chief executive officer of Span-America.
“Our growth in operating income came from a combination of higher
sales in our medical segment and improved margins in our custom
products segment. These improvements were partly offset by lower
foreign exchange gains related to our operations in Canada.
“We had modest sales growth in our medical segment during the
quarter, which came from higher sales volumes among our therapeutic
support surface product lines. Our growth in medical sales was
offset by lower sales in the custom products segment as we expected
due to the loss of a large retail customer that we announced
earlier in fiscal 2016. We expect first quarter fiscal 2017 sales
of custom products to be lower than in the first quarter of fiscal
2016 due to the loss of this customer, offset partially by sales
growth from a new customer for consumer bedding products and
continued growth in medical segment sales,” continued Ferguson.
Fourth Quarter Results
Sales for the fourth quarter of fiscal 2016 declined by 10% to
$16.0 million compared with $17.7 million in the fourth quarter of
fiscal 2015. The decline in sales was due primarily to the loss of
a large customer for our consumer products as previously reported.
Sales in the custom products segment were down by 36% to $3.5
million in the fourth quarter of this year compared with $5.5
million in the fourth quarter last year. Medical segment sales rose
2% to $12.5 million compared with $12.2 million in the fourth
quarter last year. Total company operating income was up by 13% to
$1.9 million in the fourth quarter this year compared with $1.7
million in the same quarter last year due to margin improvements in
the custom products segment combined with solid sales growth from
therapeutic support surfaces in the medical segment. Net income for
the fourth quarter of fiscal 2016 increased by 10% to $1.4 million
compared with $1.3 million in the fourth quarter last year. The
growth in net income was dampened somewhat by lower foreign
currency exchange gains from our operations in Canada compared with
last year. Earnings per diluted share increased 19% in the fourth
quarter to $0.51 compared with $0.43 in the fourth quarter last
year. The higher growth rate in earnings per share compared with
net income was the result of having fewer shares outstanding in
fiscal 2016 due to stock repurchases near the end of fiscal year
2015.
Medical Segment – Total
medical sales increased by 2% to $12.5 million in the fourth
quarter of fiscal 2016 compared with $12.2 million in the fourth
quarter last year. The increase in medical sales was due to higher
volumes from our therapeutic support surface product lines and our
Span-Canada beds compared with the fourth quarter last year.
Sales of pressure management products rose 2% to $9.7 million
compared with $9.5 million in the fourth quarter last year. Sales
of therapeutic support surfaces, our largest medical product line,
increased by 6% to $7.2 million compared with $6.8 million in the
fourth quarter last year. Sales of all other pressure management
products as a group were down 7% to $2.4 million in the fourth
quarter of fiscal 2016 compared with $2.6 million in the fourth
quarter of fiscal 2015 due to lower sales of overlays, seating and
other medical product lines, offset partially by higher sales of
patient positioners.
Sales of Span-Canada products rose 2% to $2.8 million in the
fourth quarter of fiscal 2016 compared with $2.7 million in the
same quarter of the prior year. The sales growth from Span-Canada
came from higher demand for medical beds, including several
medium-sized orders from our traditional long-term care customer
base and higher sales to rental and export accounts.
Custom Products Segment –
Total custom products sales were down by 36% to $3.5 million in the
fourth quarter of fiscal 2016 compared with $5.5 million in the
fourth quarter of fiscal 2015. Consumer bedding sales, the largest
group in the custom products segment, were down 47% to $2.4 million
in the fourth quarter of fiscal 2016 compared with $4.6 million in
the fourth quarter of fiscal 2015. The decrease in consumer sales
was due primarily to the loss of a 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 12% to $1.1 million in the fourth
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, and we are encouraged by
the solid and consistent sales growth that we have seen in the
industrial business during the last three years,” commented
Ferguson.
Earnings – Total gross
profit rose 3% to $6.0 million compared with $5.8 million in the
fourth quarter last year. The gross margin percentage increased to
37.3% compared with 32.5% in the same quarter last year. The
increases in gross profit level and margin were the result of sales
growth in the medical segment and improved margins within our
custom products segment. Our increase in gross margin percentage
was also due to a shift in sales mix toward our more profitable
medical business, as medical sales increased while custom products
sales decreased during the quarter.
Selling and marketing expenses were down by 1% to $2.7 million
in the fourth quarter of fiscal 2016, generally reflecting sales
trends during the quarter. R&D expenses increased by 11% to
$289,000 due to normal quarter-to-quarter fluctuations in our
product development costs in the medical segment. Administrative
expenses decreased by 1% to $1.1 million due primarily to income
from the cash value of corporate-owned life insurance policies.
Operating income rose 13% in the fourth quarter of fiscal 2016
to $1.9 million compared with $1.7 million in the same quarter last
year due to improved margins in the custom products segment
combined with solid sales growth from our therapeutic support
surfaces, medical beds and industrial products. Non-operating
income declined 96% to $4,000 from $106,000 in the fourth quarter
of last year due primarily to lower foreign currency gains. Net
income for the fourth quarter increased by 10% to $1.4 million
compared with $1.3 million in the fourth quarter last year.
Earnings per diluted share rose 19% to $0.51 in the fourth
quarter of fiscal 2016 compared with $0.43 in the fourth quarter of
fiscal 2015. The increase in earnings per share was the result of
sales and margin improvements combined with an 8% reduction in the
average number of shares outstanding as a result of our stock
repurchases near the end of fiscal year 2015.
Fiscal Year Results
Fiscal year 2016 net sales rose 5% to $67.6 million compared
with $64.3 million in fiscal 2015. The sales increase was due to
higher sales in the custom products segment that benefited 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 fiscal year 2016 were
up 29% to $21.3 million compared with $16.5 million in fiscal 2015.
The growth was due mainly to higher sales of consumer bedding
products. Consumer sales increased 37% in fiscal 2016 to $17.2
million compared with $12.6 million in fiscal 2015. The growth in
consumer sales came from a seasonal promotion of bedding products
in the first quarter of fiscal 2016, the addition of a new customer
for bedding products that began in May 2016, and an increase in
online sales. Sales of our industrial products, which are included
in the custom products segment, increased 3% to a near-record $4.0
million during fiscal 2016 compared with $3.9 million in fiscal
2015.
For fiscal 2016, medical segment sales were down 3% to $46.3
million compared with $47.8 million in fiscal 2015. The decrease in
medical sales came from our lines of medical beds and in-room
furnishing products, which were down by 14% to $10.3 million
compared with $12.0 million in fiscal 2015. Sales within our
pressure management product lines increased 1% to $36.0 million in
fiscal 2016 compared with $35.8 million in fiscal 2015. Sales of
our therapeutic support surfaces increased 3% in fiscal 2016
compared with fiscal 2015.
Operating income for fiscal 2016 rose 16% to $6.1 million
compared with $5.3 million in fiscal 2015. Growth in sales volume
and margin improvements within the custom products segment were the
primary drivers for the increase in fiscal 2016 operating
income.
Net non-operating income was down by 102% due to an expense of
$8,000 in fiscal 2016 compared with income of $408,000 in fiscal
2015. The decline was due to lower foreign currency exchange gains
as a result of relatively level US-Canadian dollar exchange rates
during fiscal 2016 compared with the weakening of the Canadian
dollar versus the US dollar during fiscal 2015.
Net income for fiscal 2016 rose by 6% to $4.2 million compared
with $4.0 million in fiscal 2015. Earnings per diluted share
increased by 16% to $1.54 in fiscal 2016 compared with $1.33 in
fiscal 2015. The increase in earnings for fiscal 2016 was due
primarily to strong sales growth and margin improvements within our
custom products segment.
Future Outlook
“We expect sales and earnings in the first quarter of fiscal
2017 to be down somewhat compared with the first quarter of fiscal
2016,” stated Ferguson. “However, we believe our quarterly
comparisons will be more favorable for the remainder of fiscal 2017
once we get past the first fiscal quarter. The sales shortfall in
the first quarter of fiscal 2017 compared with the same quarter in
fiscal 2016 will come from our consumer products. As we reported
earlier in fiscal 2016, our consumer sales will be down because of
the loss of the Sinomax business, and because the seasonal
promotion of consumer products that took place in the first quarter
of fiscal 2016 will not be repeated in the first quarter of fiscal
2017. On a more positive note, we expect that our medical sales
levels in the first quarter of fiscal 2017 will be higher than they
were in the first quarter of fiscal 2016, which should partly
offset the expected decrease in consumer sales.
“We believe our earnings for the first quarter of fiscal 2017
will be slightly lower than those of the first quarter of fiscal
2016,” continued Ferguson. “We expect that our sales mix during the
first quarter of fiscal 2017 will be more profitable than it was in
the first quarter of fiscal 2016, which we believe will partly
offset the decline in profitability associated with lower consumer
sales volume during the quarter,” concluded Ferguson.
Conference Call
The company will conduct a conference call at 2:00 p.m. ET on
Tuesday, November 15, 2016, to review the Company’s financial and
operating results for the fourth quarter ended October 1, 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 Fiscal Year Ended Oct. 1, Oct. 3, Oct. 1, Oct. 3, 2016
2015
% Chg 2016 2015
% Chg Net sales $ 15,974,982 $ 17,747,229 -10 %
$ 67,627,170 $ 64,314,996 5 % Cost of goods sold 10,021,738
11,982,666 -16 %
45,345,994 42,679,013 6 % Gross
profit 5,953,244 5,764,563 3 % 22,281,176 21,635,983 3 % 37.3 %
32.5 % 32.9 % 33.6 % Selling and marketing expenses
2,660,711 2,698,540 -1 % 10,504,813 10,789,150 -3 % Research and
development expenses 288,830 259,608 11 % 1,134,547 1,137,334 0 %
General and administrative expenses 1,124,264
1,136,026 -1 % 4,559,552
4,452,047 2 % 4,073,805 4,094,174 0 %
16,198,912 16,378,531 -1 % Operating income 1,879,439
1,670,389 13 % 6,082,264 5,257,452 16 % 11.8 % 9.4 % 9.0 % 8.2 %
Non-operating income (expense): Foreign currency gain 4,098 137,897
-97 % 4,508 401,000 -99 % Interest expense - - n/a (5,144 ) (6,285
) 18 % Other 74 (32,186 ) 100 %
(7,297 ) 13,231 -155 % Net
non-operating income (expense) 4,172 105,711 -96 % (7,933 ) 407,946
-102 % Income before income taxes 1,883,611 1,776,100 6 %
6,074,331 5,665,398 7 % Income taxes 472,000
489,000 -3 % 1,827,000
1,672,000 9 % Net income $ 1,411,611
$ 1,287,100 10 % $ 4,247,331
$ 3,993,398 6 % 8.8 % 7.3 % 6.3 % 6.2 %
Net income per common share: Basic $ 0.51 $ 0.43 19 % $ 1.55 $ 1.34
16 % Diluted 0.51 0.43 19 % 1.54 1.33 16 % Dividends per
common share (1) $ 0.16 $ 0.16 0 % $ 0.64 $ 1.61 -60 %
Weighted average shares outstanding: Basic 2,750,221
2,981,207 -8 % 2,734,862 2,978,107 -8 % Diluted 2,766,993 3,004,802
-8 % 2,758,119 3,006,082 -8 %
Supplemental
data: Depreciation expense $ 195,305 $ 218,667 -11 % $
854,940 $ 865,003 -1 % Amortization expense 82,705 85,567 -3 %
325,092 356,775 -9 %
(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. 1, Oct. 3, 2016
2015 (Unaudited) (Note)
Assets Current assets: Cash
and cash equivalents $ 3,752,945 $ 1,224,026 Accounts receivable,
net of allowances 8,079,500 7,813,773 Inventories 7,437,442
8,746,039 Deferred income taxes 459,159 351,452 Prepaid expenses
879,108 411,528 Total current assets
20,608,154 18,546,818 Property and equipment, net 4,116,070
4,536,104 Goodwill 3,937,676 3,930,282 Intangibles, net 1,989,899
2,214,762 Other assets 2,909,740 2,953,656
$ 33,561,539 $ 32,181,622
Liabilities and Shareholders’
Equity
Current liabilities: Accounts payable $ 2,410,376 $ 4,035,333
Accrued and sundry liabilities 3,583,457
3,120,111 Total current liabilities 5,993,833 7,155,444
Deferred income taxes 266,715 348,479 Deferred compensation
289,394 375,939 Total long-term
liabilities 556,109 724,418
Total liabilities 6,549,942 7,879,862
Shareholders’ equity:
Common stock, no par value, 20,000,000
shares authorized; issued and outstanding shares 2,755,625 at Oct.
1, 2016 and 2,737,468 at Oct. 3, 2015
373,803 - Additional paid-in capital 6,025 - Retained earnings
29,133,746 26,848,299 Accumulated other comprehensive loss
(2,501,977 ) (2,546,539 )
Total shareholders’ equity
27,011,597 24,301,760 $
33,561,539 $ 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
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