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More Business & Financial

Fiber Costs: No Sweat
August 19, 2014

Midyear Assessment
July 22, 2014

A Long Look Ahead
June 17, 2014

More Positive Numbers
May 20, 2014

A Brighter Earnings Picture
April 15, 2014

July/August 2014 July/August 2014

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Business & Financial

Profits Head Higher

Robert S. Reichard, Economics Editor

Industry earnings, which started to turn around last year, are continuing to hold up well. On the mill level, the U.S. Department of Commerce's just-released first-quarter 2013 after-tax profit estimate was still registering increases vis-à-vis a year earlier. Add in the preceding three quarters to get a more comprehensive 12-month picture, and the numbers are similarly upbeat. Ditto, when these profits are viewed in margin terms, for which the latest rate is 3.1 percent. True, this is the same as a year ago, but it marks a major improvement over the near-profitless levels of 2009 and 2010. Another ratio yardstick — profits as a percentage of stockholder equity — also suggests continuing financial improvement, with the latest quarterly return here put at 7.3 percent. This latter number is particularly important because it represents the industry's return on investment. And it's a lot higher than the industry could earn by just sitting on its money. Indeed, this pretty much explains why mill executives are now willing to spend huge new sums — more than $1 billion a year — on new plant and equipment to better compete in today's cutthroat global marketplace.

Finally, a few words on the downstream apparel market, for which the newly reported earnings gains are even more impressive. During this year's first quarter, for example, after-tax profits were running a solid 23-percent above a year earlier — with similar type increases noted for profits per dollar of sales and profits per dollar of stockholder equity. In short, the U.S. textile and apparel industries are now in a lot better financial shape than they were just a few short years ago.

BFgraph

The Next Few Years
More important, this improving picture can be expected to persist, not only through the rest of the year, but probably well into the future. Nor is Textile World alone in this assessment, with new Global Insight estimates providing the details. Using their rough-and-dirty estimate of industry earnings, they forecast more textile and apparel advances through the remainder of 2013 and into 2014. It marks a dramatic shift from 2011 numbers, when skyrocketing cotton fiber costs sent industry earnings into a tailspin. Focus on the even longer term — 2015 and 2016 — and Global Insight's profit projections are equally reassuring. Rather than falling off as many had predicted as recently as last year, totals now are expected to hold and even continue to creep up. By 2016, mill earnings are expected to run some 15- to 17-percent above this year's forecast level.

Meantime, apparel manufacturers, while not likely to do quite as well, are still expected pretty much to maintain their current levels. One factor behind all this optimism is, of course, costs, which are expected to show only a fractional increase. Another fillip could come from a leveling off in textile and apparel imports, as overseas supplier prices continue to creep up.

Macroeconomics
But probably the most important reason behind the rosy profit projections is the brightening business outlook. So far this year, gross domestic product has topped earlier estimates. By next year, the overall advance could be approaching 3 percent. A good part of this anticipated increase is based on expectations of a continuing housing recovery. A stronger Wall Street, despite a recent correction, could also be a contributing factor. So could modest employment gains, a lower jobless rate and rising household net worth. This latter number managed to recoup its pre-recession peak in the first quarter — with another increase likely for the April-June period. Still other positive signs would include easy credit, lower household debt -— mortgage totals were down $53 billion in the first quarter — and increasing consumer confidence. On the latter score, a recent New York Times/CBS poll found that nearly 40 percent of respondents felt the economy is in good shape. That's the highest percentage since the recession officially began in late 2007. In any event, all the above signs of improvement should prove to be more than enough to offset such lingering negatives as government spending cuts and the recent ending of the payroll tax holiday. Upshot: Americans should be in-creasingly willing to spend more on apparel and other consumer goods. In fact, this already seems the case, with retail sales of clothing now running an encouraging 4-percent above year-ago levels.

July/August 2013

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