The Lenzing Group, a global leader in specialty fibers for textiles and nonwovens, is grappling with an unexpected downturn in its markets. The surge in raw material and energy costs, coupled with sluggish demand, has cast a shadow over the company's performance. In the first three quarters of 2023, Lenzing reported a 5.3% drop in revenue, landing at EUR 1.87 billion, primarily attributed to decreased fiber revenues.

The harsh market environment led to a 16.7% year-on-year decline in earnings before interest, tax, depreciation, and amortization (EBITDA), down to EUR 219.1 million. The net result after tax dipped to a deficit of EUR 96.7 million compared to a profit of EUR 74.9 million in the same period last year.

In response, Lenzing initiated a cost-cutting program in late 2022, generating a positive free cash flow of EUR 27.3 million in Q3 2023. The company aims to enhance its long-term resilience through a comprehensive performance program, including annual cost savings exceeding EUR 100 million and reductions in personnel costs.

The "Better Growth" strategy, emphasizing eco-friendly specialty fibers, remains on track. Lenzing has marked significant progress in converting production lines to meet sustainability goals. However, external factors, including pandemic repercussions, geopolitical tensions, and extreme weather events, pose challenges to future growth.

Despite these uncertainties, Lenzing remains committed to its transformation towards a circular economy model, expecting an EBITDA for 2023 between EUR 270 million and EUR 330 million, as it navigates the evolving economic landscape.

Net sales for the third quarter came in at $870 million, up 2% over the prior year.

Activewear sales were essentially flat during the quarter, while Hosiery and underwear sales were up 16%.

Gross profit was $239 million, or 27.5% of sales, down $13 million and 220 basis points, respectively, versus the prior year.

SG&A expenses were flat year over year, at 9.5% of sales.

Operating income was $155 million, or 17.8% of sales, and adjusted operating income was $157 million, or 18.1% of sales, down respectively 270 and 190 basis points compared to the prior year.

GAAP diluted EPS and adjusted diluted EPS for the quarter were $0.73 and $0.74, respectively, both down from $0.84 in the prior year.

Cash flows from operating activities in the third quarter totaled $305 million versus $66 million in the prior year.

Free cash flow was $265 million, compared to the use of $7 million of free cash flow in the prior year period.

Year-to-date Operating Results

Net sales for the nine months ended October 1, 2023, were $2,413 million, down 4% over the same period last year.

Activewear sales were down 7%, while Hosiery and underwear sales were up 10%.

Gross profit was $644 million, down $114 million versus the prior year.

SG&A expenses were $242 million, $11 million below prior year levels.

Operating income was $466 million, or 19.3% of sales.

Adjusted operating income was $398 million, or 16.5% of sales, down $105 million, or 350 basis points year over year.

GAAP diluted EPS and adjusted diluted EPS for the first nine months were $2.14 and $1.82 respectively, both down from GAAP diluted EPS and adjusted diluted EPS of $2.46, in the prior year.

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Better Cotton, the world's largest cotton sustainability initiative, has launched a first-of-its-kind traceability solution for the fashion and textile sectors. The solution will provide visibility of cotton's journey through the supply chain and enable companies to accurately trace and disclose the origin of raw materials.

Companies are increasingly expected to verify the origin of raw materials and address the potential adverse effects of their activities on human rights and the environment. Better Cotton's traceability solution will give companies confidence that they are sourcing product from a specific country and establish greater supply chain visibility.

Traceable Better Cotton is defined as the 'physical' Better Cotton within a cotton-containing product that has been tracked through the supply chain. It differs from Better Cotton's Mass Balance Chain of Custody model, which tracks the volume of cotton produced and ensures this never exceeds the volume of cotton sold.

Suppliers will log transactional information on the Better Cotton Platform to track where Better Cotton has originated from and how much is within a product. Traceability will span the cotton ginning stage right through to the retailer or brand.

Better Cotton's Chief Executive Officer, Alan McClay, commented: "Traceability at scale for cotton will drive a seismic shift within our industry's supply chains. Better Cotton's traceability solution is poised to help the industry deliver that shift. Never before has transparency been as imperative as it is now to our retail and brand members."

Katharine Beacham, Head of Materials and Sustainability at Marks & Spencer, said: "We're delighted to be part of this first-of-its-kind solution which will enable us to track our cotton at scale along the supply chain."

Better Cotton's traceability solution is a significant step forward for the cotton industry and will help to drive more sustainable and transparent supply chains.