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SPAN-AMERICA REPORTS RESULTS FOR SECOND QUARTER OF FISCAL 2003
Declares Quarterly Dividend
GREENVILLE, S.C. (April 23, 2003) Span-America Medical Systems, Inc. (NASDAQ:SPAN) today reported results for the second quarter of fiscal 2003 ended March 29, 2003.
The Board also declared a regular quarterly dividend of $0.035 per share to be paid on June 5, 2003, to shareholders of record on May 15, 2003.
"Sales in the second quarter of fiscal 2003 were up 43%
to $10.84 million while earnings declined 51% to $226,000, or $0.09 per diluted share, compared with the second quarter of fiscal 2002," stated Jim Ferguson, president and chief executive officer of
Span-America Medical Systems. "We experienced solid growth in sales across business lines yet our earnings performance was affected by higher raw material costs, increased professional fees, and expenses
related to the introduction of the new Secure I.V. product line. Earnings in the second quarter of last year also included a $0.02 per share one-time gain on stock received from the demutualization of
Prudential Insurance Company.
"We are pleased with the strong sales growth during the second quarter, but our earnings performance was disappointing. Higher foam costs and a less profitable product
mix were the biggest factors affecting our second quarter earnings. We have increased sales prices in many areas of the business, and we expect to see the benefit of the price increases over the next several
months. In addition, we have made several improvements in our manufacturing process to lower labor costs in our custom products business. We will continue to work on manufacturing efficiency improvements to
enhance Span-America's future profitability," continued Mr. Ferguson.
Second Quarter Results
Sales increased by $3.3 million (43%) to $10.84 million in the second quarter compared with
$7.56 million in the second quarter of fiscal 2002. Within the business segments, medical sales were up 8% to $5.1 million and custom products sales were up 103% to $5.7 million compared with the same quarter
last year.
Medical sales benefited from continued demand for mattress products that grew 28% in the second quarter. The primary contributors to second quarter medical sales growth were the PressureGuard®
APM2® and Easy Air® mattresses, and to a lesser extent the Geo-Mattress® product line. Span-Aids® patient positioners were up by 3% while sales of mattress overlays and seating products were down
by 15% and 7%, respectively. The decline in overlay sales reflects a continuing trend of customers switching to replacement mattresses from mattress overlays.
"The October 2002 cut in
Medicare reimbursement has had little effect on our medical product sales," stated Mr. Ferguson. "Our mattresses deliver excellent value and clinical results at competitive prices. We believe our
medical products are well positioned to succeed in this cost conscious market environment."
Custom products sales rose 103% to $5.7 million compared with $2.8 million in the second quarter last year.
Within the segment, consumer sales increased 133% and industrial sales grew by 13%. The large increase in consumer sales came mostly from new pad and pillow business with Wal-Mart, which was sold through
Span-America's marketing partner, Louisville Bedding Company. Sales of industrial products increased by 13% during the second quarter with growth evenly divided between new business and higher sales to
existing customers.
Earnings for the quarter declined 51% to $226,000, or $0.09 a diluted share, compared with $462,000, or $0.18 a diluted share, in the same quarter last year. There were a number of
reasons for the decline in second quarter earnings compared with the prior year. Raw material costs increased during the quarter due to higher prices on foam (our largest volume raw material). Product mix for
the quarter was less profitable due to the increased sales of consumer pad and pillow business during the second quarter. Administrative expenses were unusually high in the second quarter due to higher
professional fees related to the amendment and restatement of the Company's shareholder rights plan, which was due to expire this year. Expenses associated with the plan were approximately $130,000, or $0.03 a
share after taxes. Second quarter expenses related to the launch of the new Secure I.V. product line were $118,000 ($0.03 a share after taxes). The Secure I.V. line was acquired in July 2002 and is
scheduled for introduction later this fiscal year. Finally, last year's second quarter earnings included a one-time gain of $84,000, or $0.02 a share after taxes, from stock received as a result of the
demutualization of Prudential Insurance Company.
Year-to-Date
For the first half of fiscal 2003, net sales increased 30% to $18.7 million compared with $14.4 million in the first half of
fiscal 2002. Medical sales for the year-to-date period were up 14% to $10.4 million due mostly to growth in the mattress product lines. Sales in the custom products segment jumped 56% to $8.35
million compared with $5.35 million in the same period last year. Most of the custom products sales growth came from the consumer product line and was due to higher volume of consumer bedding products sold
through Span-America's partner, Louisville Bedding Company.
Earnings for the first half of fiscal 2003 declined 32% to $559,000, or $0.21 cents a diluted share, compared with $817,000, or $0.32 a diluted
share, for the first half of fiscal 2002. The year-to-date earnings decline was due to higher raw material costs, an increase in administrative expenses related to professional fees, and a one-time gain from
Prudential stock in 2002, all as noted in the 2003 second quarter results. Expenses for the first two quarters of 2003 also included approximately $217,000, or $0.05 a share after taxes, for the development
and introduction of the Secure I.V. product line.
Future Outlook
"We expect sales in the medical and custom products segments to continue to increase during the remainder of fiscal 2003,"
continued Mr. Ferguson. "We plan to introduce a new mattress product during the third quarter, an extension to our successful PressureGuard APM2 line. We are excited about the new product and believe it will
add value to our growing medical mattress business.
"We are optimistic about the sales growth in industrial products over the past two quarters since these sales are more sensitive to economic cycles and
signal a positive trend. We are very pleased with the growth in consumer product sales and expect further gains this year, although at lower growth rates than we experienced in the second quarter.
"We
expect earnings for the remainder of the fiscal year to be lower than the same periods last year due to higher material costs as a result of foam price increases and higher expenses associated with the launch of the
Secure I.V. product line. We plan to begin selling the Secure I.V. line in the next few months but do not anticipate that 2003 sales will offset initial development and product launch costs this fiscal year,"
concluded Mr. Ferguson.
About Span-America Medical Systems, Inc.
Span-America manufactures and markets a comprehensive selection of pressure management products for the medical market,
including Geo-Matt®, PressureGuard®, Geo-Mattress®, Span+Aids®, Isch-Dish®, and Selan® products. The Company also supplies custom foam and packaging products to the consumer and
industrial markets. Span-America's stock is traded on The Nasdaq Stock Market's National Market under the symbol SPAN.
Forward-Looking Statements
The Company has made forward-looking
statements in this release, regarding management's expectations for future sales and earnings performance. Management wishes to caution the reader that these statements are only predictions. Actual events
or results may differ materially as a result of risks and uncertainties facing the Company including: (a) the loss of a major distributor of the Company's medical or custom products, (b) inability to achieve
anticipated sales volumes of medical or custom products, (c) raw material cost increases, (d) changes in relationships with large customers, (e) the inability to achieve sales and cost targets for the Secure I.V.
product line, (f) the impact of competitive products and pricing, (g) government reimbursement changes in the medical market, (h) FDA regulation of medical device manufacturing, and other risks referenced in the
Company's Securities and Exchange Commission filings. The Company disclaims any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or
otherwise. Span-America Medical Systems, Inc. is not responsible for changes made to this document by wire services or Internet services.
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