Virco Mfg. Corporation (VIRC) today announced third quarter and YTD results for the period ended October 31, 2017, as well as the resumption of a quarterly cash dividend of $0.015 per share, payable January 10, 2018 to shareholders of record as of December 28, 2017.
For the third quarter inclusive of August, September, and October, revenue increased 1.5% to $68,794,000 from $67,795,000 the prior year. Through nine months, revenue increased 9.8% to $164,665,000 from $149,976,000 the year before.
At the beginning of the Company’s fiscal year in February 2017, Management made a strategic decision to raise prices only modestly as part of a longer-term initiative to gain market share and expand distribution channels. As a result, while Company revenue grew twice as fast as underlying school spending, which was up 4% according to a report by NASBO (The National Association of State Budget Officers—https://marketbrief.edweek.org/marketplace-k-12/state-spending-on-k-12-rises-slightly-in-2017-despite-headwinds/), operating margins declined. For the quarter, pre-tax operating income declined 28% to $4,684,000 from $6,532,000. Through nine months, operating income is down 12.3% to $9,825,000 from $11,199,000. Despite this, Management believes that underlying operating efficiencies combined with an appropriate price increase next year will correct this year’s margin slippage.
Virco Chairman and CEO Robert Virtue said: “Overall, market stability and operating efficiencies have improved enough that we feel comfortable resuming payment of a quarterly cash dividend. As with our prior practice over many decades of paying a cash dividend, the board will consider cash flows, capital investments, and likely future trends on a quarterly basis. I am very pleased to have reached this important stage in our recovery from the Great Recession.”
“As noted in the NASBO report, the Great Recession was very damaging to public school spending. Our fortunes tend to rise and fall in parallel with the health of America’s public schools, so the downturn hit us hard. Now that school funding has stabilized, and as our own market share has expanded, Virco’s cash flows have become more reliable. We are pleased to be able to share this recovery with our loyal shareholders, whose patience permitted us to execute our long-term strategy.”
Operating efficiencies continued their gradual improvement in labor, overhead, sales, and administration, declining as a percent of revenue in each area. Due to a substantial increase in full service deliveries during the busy summer season, service expenses associated with those orders increased on an absolute basis.
During the year material costs increased significantly. Management made a strategic decision to hold pricing and to gain market share at the expense of margin. While prices did not keep pace with the underlying material cost increases, Management believes that a moderate and appropriate price increase has been put in place for the coming year which will improve the company’s results.
Virco President Doug Virtue said: “We continue to work hard on operating efficiencies. We feel a dual obligation to our shareholders and to our ultimate customers—the American taxpayers and their families—to be as efficient as possible. With our U.S. factories and distribution centers staffed by experienced workers, we have a strong foundation that has allowed us to resume payment of a cash dividend. We hope a moderate price increase next year will restore operating margins to normal levels and allow us to continue this long-overdue recovery.”