Knitted mattress fabrics producer Culp Inc. has seen an increased demand for its decorative knits and is increasing capacity at its US and Canadian facilities accordingly. The New York stock exchange listed company has reported that it expects pre-tax income to be in the range of $4.0 million to $4.3 million for the fourth quarter of fiscal 2014.

Commenting on the announcement, Frank Saxon, president and chief executive officer of Culp, Inc., said: “While our overall sales for the fourth quarter were in line with our projected range, our operating profit and margins were affected by several factors, most of which related to the mattress fabrics division. The adverse weather conditions experienced in many parts of the country this winter affected our mattress fabrics locations with at least a week of lost production. The strain from these weather events forced some extraordinary operational measures to meet the ongoing sales demand.

During the quarter, we also had higher than expected demand for our premium decorative knitted mattress fabrics, which created additional pressures on our production throughput and operating efficiencies.

In order to meet the growing demand and to address efficiency challenges, we are increasing knitted fabric production at both our U.S. and Canadian facilities. In addition, we are expanding our Stokesdale, North Carolina, building in order to increase and enhance our finishing capabilities and improve our production flow. This capacity expansion is expected to be completed by the end of November 2014.

We also experienced continued growth in demand for new mattress covers, with major placements from key customers. While our margins in this business showed significant improvement compared with the fiscal third quarter, we experienced short-term production challenges due to absorbing new product placements.

Overall, we are pleased with the demand trends in our mattress fabrics business as we continue to outpace the industry, and believe we are taking the necessary steps to address our recent production-related issues.

“In our upholstery fabrics division, operating results were affected by a couple of factors. We experienced very strong shipments in the third quarter, with a 20% year over year sales increase, as our customers anticipated the Chinese New Year holiday shutdown. As a result, we had a much slower than expected start to the fourth quarter. Adverse weather conditions in the U.S. also affected our operating results early in the quarter because of weak customer demand. During the quarter, we also experienced lower than anticipated sales for our Culp Europe operation, which contributed to the division’s lower gross profit. However, we are encouraged that our sales demand and operating margins, except for Culp Europe, returned to normal levels later in the fourth quarter.

“Overall, even though our fourth quarter profitability was lower than anticipated, we expect to report another solid annual performance for Culp in fiscal 2014. Total sales for fiscal 2014 are expected to be up approximately 7% over last fiscal year, with mattress fabrics sales and upholstery fabrics sales expected to be up approximately 4% and 10%, respectively. Pre-tax income for fiscal 2014 is expected to be $19.0 million to $19.3 million, which compares to $20.3 million for fiscal 2013. While we have experienced some recent short-term production challenges, we continue to see favourable demand trends in both businesses as we head into the new fiscal year, and believe our competitive position has strengthened considerably during the year. Further, our products have been very well received at recent home furnishings markets with strong placements. We have a solid financial position to support our growth strategy, with free cash flow for the year expected to be slightly higher than the $13.1 million achieved in fiscal 2013. We expect to end fiscal 2014 with approximately $35 million in cash and cash equivalents and short-term investments, up from $30.4 million at the end of the third quarter. Given our $5 million in total debt, our net cash position is expected to be approximately $30 million. We continue to be excited about the opportunities ahead for Culp in fiscal 2015,” added Saxon.

The company expects to report financial and operating results for the fourth quarter and fiscal 2014 in mid-June 2014.

Culp, Inc. is one of the world's largest marketers of mattress fabrics for bedding and upholstery fabrics for residential and commercial furniture. The company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at Culp’s manufacturing facilities and fabrics sourced through other suppliers. Culp has operations located in the United States, Canada, China and Poland.