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Culp Inc. Trades on 7 Times EPS Despite 23% Growth

June 20, 2011 | About:

Culp Inc, the North Carolina-based company that manufactures and sources mattress and upholstery fabrics, reported on Friday that full year net income had increased 22.7% to $16.2 million in the 12 months to May 1, 2011, as sales increased 5% to $216.8 million. The company also disclosed that its board of directors had authorized the expenditure of up to $5.0 million for the repurchase of shares of the company's common stock. Based on the current market value of the common stock, this will allow the company to repurchase approximately 5% of the 13.3 million shares outstanding.

The stock rose sharply following the release and closed up 11.2% on Friday at $8.54 representing a 7 times multiple of $1.22 EPS.

Commenting on the results for the fourth quarter of fiscal 2011, Frank Saxon, chief executive officer of Culp said, "These results are especially noteworthy in light of the economic headwinds and significant raw material cost and selling price pressures we faced during the year. Although our operating margins are slightly down for the fiscal year due to these factors, we are encouraged that both our mattress fabrics and upholstery fabrics divisions increased sales and we reported higher pre-tax income as compared with the previous year."

Saxon warned that, even though he expected first quarter sales to increase by up to 5%, he expected first quarter operating income to be somewhat lower than last year due primarily to higher raw material costs. He forecasts pre-tax income for the first fiscal quarter of 2012 in the range of $3.5 to $4.0 million compared to $4.28 million in August 2010. However, on a more positive note, Saxon added, “Culp is well positioned for further profitable growth as the home furnishings industry eventually recovers and our international sales opportunities develop.”

The company also reported that its balance sheet had strengthened considerably with $30.9 million in cash and short-term investments compared to total debt of $11.5 million. Additionally, it noted that shareholders equity had grown to $80.3 million at the end of fiscal 2011, up 67% from $48.0 million just two years ago. Saxon added that, “Our strong financial position provides us with a competitive advantage, especially in this uncertain economy, as well as sufficient capital and flexibility to support our growth strategy in fiscal 2012.”

About the author: ABN focuses on the earnings results of small-cap companies, companies trading on lower P/E or P/BV ratios and companies with above-average earnings or sustained growth. To visit ABN’s website clickhere.

Disclosure: The author has no long or short positions in Culp Inc.

Forward-Looking Statements: Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially.

Rating: 3.5/5 (8 votes)


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