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Category: Stock Market and Lakeland
Date: 11 September 2019 Stock Price: $11.33 We take a look at the 2nd quarter earnings release of their 2020 fiscal year of Lakeland Industries the provider of protective clothing and accessories for industrial and public protective clothing market.
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About Lakeland Industries
We manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. Sales are made to more than 50 countries, the majority of which were into the United States, China, the European Economic Community ("EEC"), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Uruguay and Southeast Asia
Financial overview of Lakeland's latest earnings report
The numbers we are interested in (for the quarter):
- Net sales $27.472 million (up from $25.616 million from the same quarter of the previous year)
- Cost of sales: $17.053 million (up from $16.465 million for the same quarter of the previous year)
- Net income: $1.395 million (down from $1.017 million for the same quarter of the previous year)
- Diluted earnings per share: $0.17 (up from $0.12 for the same quarter of the previous year)
- PE ratio: 16.61 (based on the earnings per share for the current quarter being reported for full fiscal year)
- Diluted weighted-average shares outstanding: 8.102 million (down from 8.177 million for the same quarter of the previous year)
- Cash and cash equivalents: $9.056 million
- Cash and cash equivalents per share: $1.17
- Cash and cash equivalents makes up 10.3% of Lakeland's market capital
- Cash and cash equivalents makes up 10.04% of Lakeland's total assets
- Inventories: $49.990 million
- Inventories makes up 48.7% of the group's total assets.
- At the start of the year inventories made up 44.7% of Lakeland's total assets
- Total shareholders' equity of Lakeland's': $83.585 million
- Shareholders' equity per share: $10.31
- So Lakeland's is trading at 1.1 times the stockholders equity per share
- Shareholders' equity per share: $10.31
Lakeland's management commentary on the results and earnings guidance
RONKONKOMA, NY / ACCESSWIRE / September 9, 2019 / Lakeland Industries, Inc. (NASDAQ:LAKE) (the "Company" or "Lakeland"), a leading global manufacturer of protective clothing for industry, healthcare and to first responders on the federal, state and local levels, today announced financial results for its fiscal 2020 second quarter ended July 31, 2019.
Christopher J. Ryan, President and Chief Executive Officer of Lakeland Industries, stated, "We delivered solid financial and operating performance progress in the second quarter of fiscal 2020. Quarterly revenues reached the highest level in Company history due in large part to filling backlog orders when not including sales relating to emergency demand. Sales increased across a wide array of product groups, including disposable garments, chemical suits, fire retardant products and high visibility apparel. These products can be made from several of our manufacturing locations around world with diversified supply chains to support our low-cost production practices. On a geographic basis, there was growth in the Americas, while Europe and China were negatively impacted by currencies as reported in US dollars. The strong US dollar against certain foreign currencies reduced consolidated revenues by approximately 3% or more. Canada, China, and Europe have all provided currency headwinds to date.
"Approximately $500,000 in revenues were recorded in the second quarter of fiscal 2020 for orders that had been delayed due to our enterprise resource planning ("ERP") implementation. New bookings in the second quarter of $16.3 million increased 25% from the prior year period and by nearly 7% from the first quarter. Backlog at July 31, 2019 was $5.9 million, which increased from $5.4 million at the end of the first quarter due to increased bookings during the second quarter.
"We are experiencing a more normalized operating environment due to the confluence of two strategic imperatives which are gaining meaningful traction. The first of these relates to the ERP implementation which impacts our North American business that represents roughly half of our revenues. Products sold into this region are generally made in our manufacturing locations in Mexico, China, India, the US and, increasingly, Vietnam. The ERP system is finally beginning to get on track and we are beginning to derive benefits in key performance indicators, such as order processing and delivery, raw material management, and effective pricing and costing strategies.
"The second important operational objective was the expansion of our manufacturing facility in Vietnam. While many manufacturers around the world are contemplating a partial or complete exit from China in light of the ongoing trade negotiations with the US government, Lakeland's highly experienced management team further extended the Company's global manufacturing to include Vietnam. This was not done as a response to tariff wars but instead was a matter of vigilantly managing our cost structure. Simply put, China is far more expensive for manufacturing today as compared to 23-plus years ago when we first arrived there. We have a solid base of sales domestically in China along with both manufacturing and regional Southeast Asian sales which will be maintained and grown as appropriate. Our China operations currently has a manufacturing team of nearly 540, down from as high as 800 just a few years ago.
"Two years into executing our planned expansion into Vietnam, we now have a manufacturing team of over 750 in this location. Our manufacturing expansion into Vietnam is now essentially complete - including capital equipment purchases, investments in property and plant, and hiring of staff and related organizational expense additions - while efficiencies are improving, we are not expecting to be fully maximized until the second half of fiscal 2021. This gives us ample runway for continued growth in our largest operating market, the US, where import tariffs are not applicable, as well as other international markets.
"The aforementioned initiatives are aiding in our revenue growth and profitability. Gross margin in the fiscal 2020 second quarter was nearly 38%, an improvement sequentially from the first quarter and from the year-ago period when we have seasonally stronger sales. Efforts to drive our revenue mix toward higher margin products are favorably contributing. Elevated carrying costs from the expansion in Vietnam have only partially diluted our profit margins. As compared with the second quarter of last year, operating profit increased on a reported basis in US dollars in addition to improving as a percentage of sales. Operating income increased by 60% while our operating margin as a percentage of sales grew by 50%. We believe greater operating leverage can be achieved as we grow our global revenue base and as our manufacturing in Vietnam reaches its productivity potential.
"Half way through fiscal 2020, we are pleased with the strength of our business and the prospects for continued improvement. The diversification of our global operations and steps taken to drive efficiencies and cash flow growth are beginning to deliver their intended results."
Christopher J. Ryan, President and Chief Executive Officer of Lakeland Industries, stated, "We delivered solid financial and operating performance progress in the second quarter of fiscal 2020. Quarterly revenues reached the highest level in Company history due in large part to filling backlog orders when not including sales relating to emergency demand. Sales increased across a wide array of product groups, including disposable garments, chemical suits, fire retardant products and high visibility apparel. These products can be made from several of our manufacturing locations around world with diversified supply chains to support our low-cost production practices. On a geographic basis, there was growth in the Americas, while Europe and China were negatively impacted by currencies as reported in US dollars. The strong US dollar against certain foreign currencies reduced consolidated revenues by approximately 3% or more. Canada, China, and Europe have all provided currency headwinds to date.
"Approximately $500,000 in revenues were recorded in the second quarter of fiscal 2020 for orders that had been delayed due to our enterprise resource planning ("ERP") implementation. New bookings in the second quarter of $16.3 million increased 25% from the prior year period and by nearly 7% from the first quarter. Backlog at July 31, 2019 was $5.9 million, which increased from $5.4 million at the end of the first quarter due to increased bookings during the second quarter.
"We are experiencing a more normalized operating environment due to the confluence of two strategic imperatives which are gaining meaningful traction. The first of these relates to the ERP implementation which impacts our North American business that represents roughly half of our revenues. Products sold into this region are generally made in our manufacturing locations in Mexico, China, India, the US and, increasingly, Vietnam. The ERP system is finally beginning to get on track and we are beginning to derive benefits in key performance indicators, such as order processing and delivery, raw material management, and effective pricing and costing strategies.
"The second important operational objective was the expansion of our manufacturing facility in Vietnam. While many manufacturers around the world are contemplating a partial or complete exit from China in light of the ongoing trade negotiations with the US government, Lakeland's highly experienced management team further extended the Company's global manufacturing to include Vietnam. This was not done as a response to tariff wars but instead was a matter of vigilantly managing our cost structure. Simply put, China is far more expensive for manufacturing today as compared to 23-plus years ago when we first arrived there. We have a solid base of sales domestically in China along with both manufacturing and regional Southeast Asian sales which will be maintained and grown as appropriate. Our China operations currently has a manufacturing team of nearly 540, down from as high as 800 just a few years ago.
"Two years into executing our planned expansion into Vietnam, we now have a manufacturing team of over 750 in this location. Our manufacturing expansion into Vietnam is now essentially complete - including capital equipment purchases, investments in property and plant, and hiring of staff and related organizational expense additions - while efficiencies are improving, we are not expecting to be fully maximized until the second half of fiscal 2021. This gives us ample runway for continued growth in our largest operating market, the US, where import tariffs are not applicable, as well as other international markets.
"The aforementioned initiatives are aiding in our revenue growth and profitability. Gross margin in the fiscal 2020 second quarter was nearly 38%, an improvement sequentially from the first quarter and from the year-ago period when we have seasonally stronger sales. Efforts to drive our revenue mix toward higher margin products are favorably contributing. Elevated carrying costs from the expansion in Vietnam have only partially diluted our profit margins. As compared with the second quarter of last year, operating profit increased on a reported basis in US dollars in addition to improving as a percentage of sales. Operating income increased by 60% while our operating margin as a percentage of sales grew by 50%. We believe greater operating leverage can be achieved as we grow our global revenue base and as our manufacturing in Vietnam reaches its productivity potential.
"Half way through fiscal 2020, we are pleased with the strength of our business and the prospects for continued improvement. The diversification of our global operations and steps taken to drive efficiencies and cash flow growth are beginning to deliver their intended results."
Lakeland Industries (NASDAQ: LAKE) stock price history
The image below, obtained from Google shows the stock price history of Lakeland Industries over the last 5 years. And its been a a very volatile but overall a good time for stockholders of Lakeland Industries, with the stock trading around $6.50 five years ago, and its currently trading at $11.33. Thats a very healthy return of 74% over the last 5 years. The stock is trading at a lot closer to its 52 week low than it its to its 52 week high which is an indication that short term sentiment and momentum of Lakeland stock is negative.
Lakeland (NASDAQ: LAKE) latest stock valuation
So based on Lakeland's latest earnings report what is the group's stock worth? Our valuation models provides a target (full value) price for Lakelands of $12.40. We therefore believe the stock is slightly undervalued at its current price of $11.33. We expect the stock to trend upwards to levels closer to our target (full value) price of $12.40 in coming weeks and months.