Operating Income up 28% in quarter; 39% through nine months
Net income up 33% in quarter; 38% through nine months
Revenue shortfall more than offset by improved pricing, operating efficiencies
Improving order trends suggest shortfall was concentrated earlier in this year’s cycle
In the third quarter ended October 31, 2019, operating income improved 28% to $6,369,000 from $4,961,000 in the same period last year. Through nine months, operating income improved 39% to $12,951,000 from $9,348,000 in the same period last year. These improvements come despite overall declines in revenue of 13% in the quarter and 6% for the nine-months ended October 31, 2019. Management attributes the improved earnings to a combination of better-operating efficiencies and realization of a price increase effective earlier in the year. The revenue declines appear to have been due to slower-than-expected order rates early in this year’s purchasing cycle for public school furniture. Management’s preferred measure of overall business activity (actual YTD shipments + the unshipped backlog) bottomed out at nearly an 11% decline YOY in July of this year, but as of the end of November recovered to 5% below last year’s figure.
This year’s delivery season was highlighted by a number of uncertainties including the impacts of tariffs, related transportation disruptions as importers attempted to accelerate their shipments ahead of new tariffs, and shortages of temporary/casual labor due to record low unemployment levels. Management believes the Company’s domestic infrastructure and largely permanent workforce insulated it from some of these challenges, allowing better control of the order-to-cash cycle.
Here are the numbers for the third quarter and nine months ended October 31, 2019:
Commenting on these results, Virco CEO and Chairman Robert Virtue said: “We thought this would be an especially challenging delivery season and it turned out that way. Although we are disappointed in the revenue decline, we’re proud of the way we were able to respond to these numerous challenges. Our “on-time-and-complete” performance was outstanding this year. It’s a real credit to our employees that they were able to meet the opening deadlines of so many schools while also operating at very high levels of efficiency. I’m very proud of what we accomplished.”
President Doug Virtue elaborated: “There are many moving pieces in modern, turnkey, full campus deliveries. The more of those pieces we control, the better we perform. Our vertical business model and domestic infrastructure, staffed by expert employees who we believe are the very best in our industry, give us room-by-room control of complicated orders. This season illustrated the financial benefits of that control.”