Flexsteel Industries, Inc. — Form 10-Q summary
Period: The filing is for the quarter ended March 31, 2013, and reports results for the three and nine months ended on that date. This conflicts with the request metadata identifying “2011 Q3”; the filing itself identifies the period as 2013 Q3. Financial statements are unaudited. Unless otherwise noted, dollar amounts below are in millions.
Financial performance
| Metric | Three months ended Mar. 31, 2013 | Three months ended Mar. 31, 2012 | Nine months ended Mar. 31, 2013 | Nine months ended Mar. 31, 2012 |
|---|---|---|---|---|
| Net sales | $98.4 | $91.6 | $284.2 | $258.2 |
| Gross margin | $22.8; 23.2% | $22.1; 24.1% | $66.7; 23.5% | $61.5; 23.8% |
| Operating income | $4.9 | $5.1 | $13.9 | $13.4 |
| Net income | $3.1 | $3.3 | $8.9 | $8.7 |
| Diluted EPS | $0.42 | $0.48 | $1.22 | $1.24 |
| Dividends declared per share | $0.15 | $0.10 | $0.45 | $0.30 |
Quarterly sales increased 7.3%, led by residential sales, up 12.3% to $79.9 million; commercial sales fell 9.9% to $18.4 million. For the nine months, sales rose 10.1%, with residential sales up 14.0% and commercial sales down 3.8%. Management attributed residential growth primarily to improved demand for upholstered products.
Quarterly gross margin declined to 23.2% from 24.1%, mainly due to product and customer mix and, to a lesser extent, higher freight, raw-material and finished-product costs. SG&A was $18.0 million (18.3% of sales) for the quarter and $52.8 million (18.6% of sales) for nine months. Operating income and diluted EPS declined in the quarter despite sales growth; nine-month net income rose modestly while diluted EPS was lower. The filing cites a lower Domestic Manufacturing Deduction benefit among factors affecting tax rates.
Cash flow, liquidity and capital
- Nine-month operating cash flow was $6.2 million, down from $8.6 million. Investing used $6.3 million, including $5.7 million of capital expenditures; financing used $2.1 million, including $3.1 million of dividends and $1.0 million of proceeds from stock-option exercises.
- Cash was $11.7 million at March 31, 2013, compared with $14.0 million at June 30, 2012. Working capital was $109.9 million, versus $103.7 million at June 30, 2012. Receivables and inventory increased by $3.4 million and $3.3 million, respectively; management said higher inventory supported sales volume and expanded product offerings.
- Total assets were $190.6 million and shareholders’ equity was $147.5 million at March 31, 2013. The company reported no debt outstanding. Its $15.0 million working-capital facility had $2.3 million of letters of credit outstanding and $12.7 million of borrowing availability; it expires June 30, 2013. A separate unsecured $8.0 million line also had no balance outstanding.
- Management said it was pursuing renewal of the working-capital facility and expected to renew it before expiration. It considered cash and credit resources adequate for fiscal 2013 operating and capital needs. Expected capital expenditures for the remainder of fiscal 2013 were approximately $0.5 million.
Outlook, risks and unusual items
- Management expected moderate top-line growth through the end of calendar 2013, led by residential demand, existing customers and products, and expansion of the product portfolio and customer base. It expected commercial demand to remain at current levels into the second half of the calendar year. Management cautioned that economic uncertainty could weigh on consumer confidence and purchases.
- Quarterly SG&A included $0.3 million of employment inducement costs ($0.03 per share); nine-month SG&A included $1.0 million ($0.09 per share).
- Indiana groundwater-contamination litigation seeks damages, cleanup costs, medical monitoring and other relief. Plaintiffs had not specified damages, insurance coverage was in question, and the company said it could not estimate a loss range; no accrual was recorded. Related legal and other expenses were $0.6 million for the quarter and $1.7 million for nine months.
- Management identified risks including furniture-industry cyclicality, supply-chain disruption and import-related costs, tariffs, inflation and pricing pressures, raw-material and fuel costs, litigation, customer credit exposure, competition and general economic conditions. It reported no material change to the prior annual report’s risk factors and no material foreign-currency exposure.
Important facts for investors to verify
- Confirm the intended reporting period: the request metadata says 2011 Q3, while the filing covers the quarter ended March 31, 2013.
- Track whether residential demand and sales growth continue, and whether commercial sales stabilize.
- Assess gross-margin pressure from mix, freight and input costs, alongside pricing actions and employment inducement costs.
- Verify renewal and terms of the $15.0 million credit facility before its June 30, 2013 expiration.
- Monitor working-capital needs, cash conversion, inventory levels and planned capital spending.
- Follow the Indiana litigation, insurance coverage and potential exposure; the filing provides no estimable loss range.