Virco Mfg. Corporation Friday announced results for its third quarter and first nine months ended October 31, 2018.
Global economic trends combined with market-specific timing generated mixed results for Virco’s third quarter ended October 31, 2018. At the global level, supply-chain uncertainties and higher transportation costs had negative impacts on the Company’s operating margins. At a more local level, continued intensification of seasonality and favorable year-over-year impacts from tax law changes resulted in higher late-season revenue and improved net earnings. On balance, results and prospects are sufficiently strong that Virco’s Board of Directors declared a fifth consecutive quarterly cash dividend of $0.015 per share payable on January 10, 2019 to shareholders of record as of December 27, 2018.
A surge of late summer orders boosted third quarter revenue 11.7% to $76,809,000 from $68,794,000. Despite healthy demand for the Company’s products, higher raw material and transportation costs neutralized these revenue gains, with operating earnings for the quarter virtually flat at $4,665,000 this year versus $4,684,000 last year. Net earnings for the quarter were favorably impacted by changes in tax law, which last year had a proportionately negative impact on reported results. As with last year, Management cautions investors to focus more on operating income as a gauge of performance because of its independence from fluctuations in tax law. Nevertheless, net income for the quarter was up 16.2% to $2,932,000 from $2,524,000.
Through nine months, revenue is up 5.8% to $174,180,000 from $164,665,000 last year. Operating income through nine months is down 13.6% due primarily to higher input and service costs. Through nine months, net income is down 9.5% to $4,835,000 from $5,341,000.
Public school operating budgets are typically finalized in early July. As purchasing patterns come to mirror this budget cycle more closely, seasonality seems likely to intensify. This places financial, operating, and customer service pressures on all suppliers to public schools, including Virco. Management continues to believe its U.S.-based manufacturing strategy offers the best flexibility in this increasingly compressed order-to-cash environment.
Furthermore, as the financial calculus of global sourcing models continues to evolve, Management believes its U.S. factories will become relatively more competitive, allowing for appropriate price increases that may return margins to more historic levels.
Here are the numbers for the third quarter and first nine months:
Virco Chairman and CEO Robert Virtue commented on this year’s performance: “I’m very proud of the way our people performed this summer. They faced many uncertainties but stayed focused on their core mission: making and delivering the best furniture and equipment for America’s public schools. As input and transportation costs increased, our people responded with even greater care and better efficiency. On balance, it was a good summer despite the challenges. As we adjust to the changes we observed this year, I’m optimistic that we can do even better next summer.”
Virco President Doug Virtue agreed: “Our operating model embraces seasonality as the key constraint in our industry. Incoming orders now peak either in June or July. Shipments peak in July. The order-to-delivery cycle is about six weeks-that’s less than the average sailing time for a container ship coming from Asia to America. While seasonality presents us with obvious challenges, we’ve been able to convert those challenges into competitive advantage.”