U.S. factories slightly more profitable in 2009
But sales tumble 15.5%
Jay McIntosh -- Furniture Today, July 7, 2010
HIGH POINT — Profitability rose marginally last year for U.S. household furniture manufacturers and distributors despite the fourth consecutive year of declining sales volume, according to Smith Leonard.
The High Point accounting and consulting firm's annual survey of those companies indicated that their operating profit improved to 1.94% of sales from 1.47% of sales in 2008.
Shipments, however, sank another 15.5% to an estimated $18.7 billion. Since 2005, the U.S. industry's volume has declined by 31.4%, said Smith Leonard. The estimate includes all shipments through U.S. plants, including some finished imported goods not shipped directly to retailers.
Ken Smith, managing partner of Smith Leonard, said in the firm's new "Furniture Executives 2009 Comparative Annual Summary" that many of the survivors among manufacturers and distributors have been those that were able to scale back their operations to stay profitable at lower sales volumes.
"The key today is to hang on," he said. "Once the economy gets turned and consumers begin to move back to more normal times, those left standing should do well."
But when that will happen, the firm isn't predicting. And even in "more normal times" the consumer's spending habits won't rebound to what they were, Smith said. "We don't think the last decade has been normal with consumers spending whether they had the money or not. Debt was so easy to get, whether (for) homes, cars, credit cards or you name it," he said.
Upholstery manufacturers have done better in recent years than U.S. case goods companies, Smith Leonard reported. Upholstery shipments were down 11.4% in 2009 after falling 9.3% in 2008. Case goods shipments, meanwhile, plunged 25.5% last year after falling 15% in 2008.
In profitability, the picture was similar, the firm said. Upholstery companies' gross profit margin increased to 18.92% of sales in 2009 from 17.28% the previous year. In case goods, the margin declined to 18.9% from 21.07% in 2008.
Income from operations for all plants in 2009 averaged 1.94% of sales, up from 1.47% of sales in 2008. But both years were off from 2005-2007, when the figure topped 3% each year.
Upholstery companies had an average operating profit of 3.23% of sales in 2009, while case goods had an operating loss of negative 1.49%, Smith Leonard said. And profits were generally lower for smaller companies, with sales under $10 million, than for larger ones.
"The industry just really just can't operate at these margins," Smith said. He said an operating profit of less than 2% "is not sufficient to pay interest and principal as well as fund capital expenditures and provide return on investment. Even strict importers have these needs including technology."
Average return on equity improved to 3.78% last year from 0.33% in 2008, but were still well below the 10.29% of 2007, the survey indicated.
This year, the statistics have shown some improvement. Shipments were up 5% in the first four months of 2009 and orders were up 10%, according to Smith Leonard's monthly factory survey. Backlogs were up sharply, partly because of a slowdown in getting imported components and finished goods to U.S. factories.
While the volume gains are off a depressed level resulting from four years of declines, "it does appear that we may have hit bottom," Smith said.
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