It was the third dismal earnings report in a row for Chattanooga-based Dixie Group on Thursday, which came up far short short of analysts’ predictions and finished as one of the biggest losers in the market by the end of the day.
Dixie Group reported third-quarter net income of $66,000, or 1 cent per share. Adjusted net income in the period was $465,000, or 3 cents a share. The average estimate of earnings for Dixie in the period had been 17 cents per share, and the carpet maker’s $108.9 million revenue in the quarter fell $7.2 million short of expectations.
Dixie stock plummeted with the news, losing nearly 25.5 percent of its value, or $2.29 per share, to close Thursday at $6.70 per share – it lowest price since last November. Dixie’s market value plunged more than $36 million in a single day of trading Thursday.
The news followed a first quarter in which the carpet maker reported $2.4 million, or 15 cent per share, losses from continuing operations, and a second quarter which produced slight gains and $500,000, or 3 cent per share, earnings from continuing operations.
Labor and quality issues have plagued Dixie longer than expected as the company has expanded its manufacturing capacity and acquired other brands, including Los Angeles-based high-end floor covering manufacturer Atlas Mills.
A worker moves a roll of carpet at the Dixie Group in this 2013 file phoroDixie recently tied up consolidations of facilities on both the west and east coasts and expanded its workforce by 50 percent.
Dan Frierson, chairman and CEO, said during a Thursday morning conference call that the hiring and training of new employees “has been more difficult and time consuming than we anticipated, and has had an adverse impact on operations.”
But he said the biggest labor challenges are now behind the company.
Meanwhile, medical costs were once again “higher than we would expect on an ongoing basis,” he said.
For the second quarter in a row, Dixie raised medical premiums for its self-insured plan and still plans to introduce new medical plans next year.
At the end of July, Jon Faulkner, chief financial officer, said increased medical expenses, “partly due to Obamacare and the changeover we’ve seen” in the restructuring process were higher than expected, spurring a premium bump.
Quality issues stemming from the recent restructuring of Dixie Group also continued to be areas of concern in the third quarter.
“As we went through our restructuring the first impact we had was on the service in terms of getting product to customers, on time and quickly,” Frierson said. “We had some issues there, we’ve overcome those issues, overcame them earlier in the year and so that is no longer an issue, whereas the quality has been an issue and I’m certain that it did impact, to some degree, our residential business.”
Although some of the quality issues may not be resolved until early next year, Frierson said he believes Dixie can outperform the industry on both the residential and commercial sides. He said the healing housing market is promising.
Contact staff writer Alex Green at agreen@timesfreepress.com or 423-757-6480.