Zacks' Bull Of The Day: Dixie Group

| About: The Dixie (DXYN)

Extreme weather conditions are currently taking a toll on the housing industry but once they improve, the industry may bounce back. Further, the upper-end residential segment of the industry remains resilient to higher mortgage rates and it is expected to maintain its positive momentum during 2014.

About the Company

The Dixie Group (NASDAQ:DXYN) is a manufacturer and of marketer of carpet and rugs to high-end residential customers through the Fabrica International, Masland Residential and Dixie Home brands. The company began its operations in 1920 and transitioned from textiles to floorcovering in the 1990s.

In 2004, it refined its focus on upper-end markets—both commercial and residential. The company is known for its innovative styling, design and colors.

Excellent Fourth Quarter Earnings

On February 19, DXYN reported its fourth quarter operating results. Sales jumped 34.7% year-over-year to $95.8 million--the highest level since the company’s reconfiguration in 2003. The company recorded growth in all areas of the business, with residential products up 30.5% and commercial products up more than 45%.

Dixie’s performance was significantly better than industry both in the commercial and residential products for both the quarter and the year. During FY 2013, 58% of the sales were derived from the residential market, while 42% were from the commercial market.

Adjusted operating income of $0.12 per share was substantially ahead of the Zacks Consensus Estimate of $0.05 per share. Dixie has delivered positive earnings surprises in all of the last four quarters—with an average quarterly surprise of 185%.

It appears that the growth initiatives adopted by the company during 2012 including continued investments in new products and processes, are finally delivering results.

Positive Earnings Estimates Revisions

After excellent fourth quarter results, analysts have revised their earnings estimates for the company in the past few days. Zacks consensus estimates for the current year and the next year now stand at $0.72 per share and $1.05 per share respectively, up from $0.67 per share and $1.01 per share, 7 days ago.

Rising estimates sent DXYN back to a Zacks Rank # 1 (Strong Buy) last week. The company was earlier featured as the “Bull of the Day” on September 4, 2013. The stock is up more than 40% since then.

Solid Industry Outlook

While rising interest rates seem to be affecting the housing market in general, the high-end segment of the market continues to be resilient. Further remodeling activity remains on the uptrend—which is positive for the carpet and floor covering segment of the home-furnishing industry.

That said, the results for the first quarter will likely suffer from weather related issues--January sales were up 2.3% and February sales were about 16% so far--but the company looks poised to pick up growth once the weather conditions improve.

Textile and home-furnishing industry currently has a Zacks Industry Rank of 10 out of 265 (top 4%).

Further, Dixie continues to stay significant ahead of the market in terms of performance. Per management, its carpet sales have grown 68% since the housing downturn in 2009, compared with just 12% growth for the industry.

The Bottom Line

DXYN is a Zacks Rank#1 (Strong Buy) stock. Further, this top Zacks Industry Rank also indicates strong chances of outperformance in the short- to medium- term.

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