Dan River 'buy' rating reinforced
GDA Staff -- Gifts & Dec, June 24, 2002
Citing increased demand through the first five months of the year for Dan River products and stepped-up production in the company's plants following an inventory workdown, Wachovia Securities has reiterated its "buy" rating on Dan River bonds and increased its earnings estimate for the textiles producer.
A better-than-expected first-quarter performance, fueled by strong margin improvement and plants running at or near capacity, have improved the company's outlook and financial condition, said Jeffrey Stewart, a high-yield analyst for Wachovia and a longtime textiles stock watcher, in a research note to investors.
"Dan River has seen an increase in demand for its products through the first five months of 2002 vs. the same period in 2001. Higher demand has been fueled primarily by an increase in consumer spending and retailers replenishing inventories after the exaggerated inventory rationalization across the spectrum of retailers in 2001," Stewart noted.
"Because management prudently reduced inventory to more manageable levels during 2001, the pick-up in demand has resulted in increased production at the company's home furnishings and apparel weaving facilities. These facilities have been operating at or near capacity since the beginning of 2002 and should continue to do so for the foreseeable future, according to management," Stewart reported. "In addition, the improved production schedules should positively affect profitability by eliminating the negative operating variances experienced by the company during most of 2001."
With demand increasing, said Stewart, Dan River's home fashions and apparel fabrics plants ran at or near capacity during the first quarter, compared with 83 percent in home fashions plants a year ago and just 66 percent in the company's apparel fabrics plants.
Because of the company's "dramatically changed outlook," Stewart said he's now forecasting sales of $160 million for the second quarter, roughly unchanged from last year, and an improvement over a 3.4 percent drop in the first quarter. For all of this year, Stewart projected sales of $650 million to $670 million, about flat with last year.
Stewart said he raised his estimates after the company's first-quarter conference call with investors "to better reflect management's improved expectations."
Since then, said Stewart, Dan River bonds "have appreciated to the upper 80s," trading at almost $0.90 to the dollar, still at a discount. Now, said Stewart, "The bonds have a legitimate chance of being refinanced at par."
Looking at Dan River's balance sheet, Stewart said, "Debt at quarter-end was $320.1 million, a $5.3 million sequential decline." And by the end of the year, said Stewart, debt could be further reduced to $285 to $290 million.
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