Virco Mfg. Corporation (NASDAQ: VIRC) today announced financial results for the fourth quarter and year-ended January 31, 2019:
Despite solid organic growth of 8% for the fourth quarter and 6% for the full fiscal year ended January 31, 2019, sudden increases in the cost of raw materials and other key inputs negatively impacted operating margins. Revenue for the fourth quarter grew 8% to $26,536,000 from $24,622,000 in the fourth quarter of the prior year. Revenue for the full year was up 6% to $200,716,000 this year from $189,287,000 last year. Operating loss for the seasonally light fourth quarter increased 26% to $(7,017,000) this year from $(5,555,000) last year. Operating income for the full year declined 55% to $2,331,000 this year from $5,140,000 last year.
The volatile environment for raw materials appears to have been triggered by the uncertainty associated with global trade tensions. Even though the Company sources most of its materials domestically, major inputs such as steel and plastic resin felt the ripple effects of international tariffs.
To compensate for the increases in raw materials, the Company has implemented a corrective price increase across all product lines and service categories. In addition, the Board has suspended payment of a cash dividend for the current quarter and will consider resuming dividends in future quarters subject to loan covenants and when the positive impact of the price increase is recorded.
Management believes the price increases are proportionate and competitively appropriate within the broader market for institutional and public school furniture. Furthermore, Management believes that business activity is sufficiently elastic to absorb higher prices with only minimal impacts to overall revenue.
Severe winter weather affected schools in many regions of the country. Historic flooding in the Midwest resulted in outright school closures, delays in construction, and related delays in the order cycle for classroom furniture. Similar delays appear to have occurred in other regions of the country. Management believes the cumulative impact of winter weather has slowed the annual order cycle by approximately 4-6 weeks. As of this report, order activity has finally returned to typical mid-spring levels after a notably slow start to the year.
Here are the numbers for the three and twelve months ended January 31, 2019 and 2018:
Commenting on the fourth quarter and the full year, Virco Chairman and CEO Robert Virtue said: “While we’re disappointed in how the year finished up, the resilience of our vertical business model and U.S. factories insulated us from even harsher impacts. As we execute this year’s plan within a rebalanced pricing regime, we hope to return to normal profit levels allowing us to reinstate our dividend. We take several of our obligations very seriously: to provide America’s public schools with the safest, highest quality, highest value furniture available; and to provide a proportionate and reliable return, including a quarterly cash dividend when feasible, to our shareholders who support us in this important work.”
President Doug Virtue reiterated this point: “Many industries were affected by last year’s spike in raw material costs. We’re addressing those impacts with a price increase that’s fair to our customers, who are ultimately the American taxpayers and bond holders, while also being accountable to our shareholders. While the appropriate short-term response to last year’s results is to suspend our dividend, we are committed to improved operating profits that allow us to reinstate the dividend as soon as possible.”