Virco Mfg. Corporation announced improved results today for its third quarter and first nine months ended October 31, 2015.
For the third quarter consisting of August, September and October revenue increased 4% from $62.3 million last year to $65.0 million this year. The combined effects of stable raw material costs, slightly higher prices, and better manufacturing and freight efficiencies boosted operating margins to 10%. Overall operating income was up 36%, from $4.8 million to $6.5 million.
Through nine months, revenue increased 8% from $138.7 million to $149.1 million. The same positive synergies of stable raw material costs relative to realized prices, lower overhead expense, and better freight efficiencies raised YTD operating margins to 8%. Operating income through nine months is $11.6 million, a 60% improvement from last year’s $7.3 million.
Commenting on these improvements, Virco President and COO Doug Virtue said: “Over the last six years we have effectively lowered our break-even point without giving up any critical assets, including our established brands, our direct customer relationships, and, most importantly, our highly efficient U.S. factories and distribution infrastructure. As funding for public schools continues to improve, we believe our streamlined platform will continue to generate improved operating leverage.”
Heading into the seasonally slow fourth quarter of November through January, business activity did appear to be slowing compared to rates through the first part of the year. Through nine months, ‘shipments plus backlog’ -- management’s preferred metric for overall business activity -- was up 3% compared to the prior year. This represents a moderate decrease from the rate through six months, which was up 6% compared to the prior year. Management is uncertain whether this slowdown represents developing weakness in the public school furniture market or simply increased seasonality—a larger and longer term pattern for school capital purchases that seems to have become the norm since the end of the recession.
Virco Chairman and CEO Robert A. Virtue offered the following observations on this year’s improved performance: “As we’ve reported all year, better school funding combined with stable raw material costs and enhancements to our own efficiencies have returned operating margins to reasonable levels. Although order rates appear to have slowed heading into the fourth quarter, underlying funding for public schools seems stable and we are preparing for a traditionally busy summer delivery season in 2016. I’m pleased that our measured response to the recession has left us with sufficient capacity to capitalize on this recovery in school funding. I’m also pleased that we’ve been able to scale operating expenses to achieve historically high operating margins even at lower levels of revenue than before the recession.”
Virco President and COO Doug Virtue noted that the company’s focus on domestic manufacturing and domestic customers provided a degree of predictability to operations: “Our long and direct relationship with America’s public schools gives us the ability to concentrate our efforts where they’re most needed. Although we’re seeing some pockets of slowing as we approach the holidays, other regions of the country are doing quite well. This domestic diversification coupled with detailed customer history has allowed us to adjust output to keep pace with the changes. We believe we can further improve operating efficiencies as our own financial condition continues to improve, especially compared to other suppliers with extended multi-partner supply chains. The seasonality of our market has always presented operating challenges, but in the context of current global developments, we’re coming to see it as a differentiating advantage for our domestic infrastructure and a barrier to entry for potential competitors.”