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Business & Financial
Robert S. Reichard, Economics Editor

Mills Remain Profitable

Robert S. Reichard, Economics Editor

T extile mills — despite continuing demand, price and import problems — are still managing to stay in the black, at least as far as overall industry totals are concerned. New Census Bureau data suggest mills turned a profit (albeit a very small one) in each quarter of last year — with after-tax earnings for the year put at $923 million. That’s a far cry from the $2 billion-plus peak hit in 1998; and mill earnings still remain far under those of most other US industries. Nevertheless, these latest textile numbers do represent a modicum of improvement over the loss recorded in 2000 and the $184 million- and $408 million-plus figures of 2001 and 2002, respectively.

Similar trends are noted for margins. Thus, mill profits per dollar of sales averaged near 2 percent in 2003 — a bit better than the previous few years, but again under the 3.2-percent high hit in 1998. And the same cautiously optimistic picture is seen for profits per dollar of stockholder equity. For example, last year’s 6.9-percent reading here is considerably above the 1.3-percent and 2.9-percent figures of 2001 and 2002, respectively.

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A Look At 2004 And Beyond

Returns for 2004 also may not turn out to be all that bad. Thus, analysts at Global Insight, using a somewhat different earnings concept (gross operating profits), see a sizable 19-percent earnings jump for primary mills in 2004. Their actual projections: $7.6 billion in profits versus last year’s $6.4 billion.

A somewhat less impressive increase is projected for textile mill products. But that’s primarily due to the fact that profits in this sector have been holding up a lot better than in the primary mills area. Indeed, small increases in earnings totals were actually reported here for both 2002 and 2003.

Looking further ahead into the 2005-2008 period, Global Insight analysts anticipate a relatively flat pattern — no profit declines, but no appreciable advances either.

Bottom line: The profit erosion of recent years is over. But there’s still precious little evidence to suggest a bounce back to anything even remotely resembling the peaks of the late 1990s.

Behind The Cautious Optimism

One factor behind this changing textile scenario: a feeling that big losses in production and shipments are behind us. First-quarter 2004 commerce department data show demand holding firm at late-2003 levels. And a new, relatively upbeat report from the Institute of Supply Management suggests pretty much the same for the second quarter. Looking further ahead, Global Insight is now predicting a steady trend in revenues over the next few years.

One factor contributing to today’s somewhat more optimistic outlook: the current generally trim industry inventory position. Also pointing to better days ahead on the sales and profits front are still-rising mill productivity; a flattening out in import gains; increases in the number of new and improved products; and the continuing trend toward consolidations, reorganizations and changing strategies — all aimed at developing a more efficient and more globally oriented world-class industry.

An Improving Economy Helps, Too

Today’s brighter business climate also can be expected to help buoy up textile mill performance. Some of the big gross domestic product gains of recent quarters may slacken off a bit, but there are enough positive forces operating to ensure 3- to 4-percent economic growth through the remainder of the year, and probably into early 2005 as well. These would include: high consumer confidence levels; rising employment and consumer incomes; relatively tame inflation; record-low (though about to creep up) interest rates; and the continuing huge federal deficit, which continues to pump much more money into the economy than taxes remove.

All the above, barring any further deterioration in the international situation, would seem to ensure additional increases in consumer purchasing power, and hence continuing good demand for textile and apparel products. A weakening dollar also can help the industry, raising the price of imports enough to limit any further foreign market penetration.

June 2004



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