La-Z-Boy struggling with post-hurricane foam supply

By Liz White, UT staffMonroe, Michigan-US furniture maker La-Z-Boy Inc. announced on 4 October that one of its key suppliers of polyurethane foam has put its customers, including La-Z-Boy, on notice of allocation, due to the lack of availability of TDI (toluene diisocyanate). And the firm said the disruption is likely to have a significant effect on the group's second quarter sales and earnings. "TDI is a key chemical component of the polyurethane foam which is used throughout the upholstery and bedding industry," points out La Z Boy.The recliner maker said that, coupled with a "continued soft retail environment and damage to one of its plants by a tornado spawned from Hurricane Rita," this allocation will have a significant adverse impact on its results for second quarter fiscal 2006 "and potentially beyond." Several TDI suppliers have communicated that because of the effects of Hurricanes Katrina and Rita they have had to declare Force Majeure," said Kurt Darrow, president and ceo of La-Z-Boy. As a result, they will be limiting the amount of TDI supplied, which will limit the amount of polyurethane that can be produced, the La-Z-Boy statement continued.The company has been told by "one of our significant polyurethane suppliers to the La-Z-Boy branded product of their industry-wide notice of an allocation of 50 percent of normal polyurethane supply. This situation will have a greater impact on us relative to the rest of the furniture industry given the higher percentage of upholstery in our overall product mix," La-Z-Boy continued. Darrow also noted, Polyurethane foam, because of the volume of storage space it requires, is shipped on a just in time inventory basis and therefore our inventories of this raw material are very minimal."Each of our divisions has a different mix of polyurethane suppliers and finished goods inventories," he added, saying that they will therefore be individually affected. The firm expects foam prices to increase and that it will modify production schedules at various plants according to foam availability. Darrow also said that severe structural damage to the firm's plywood parts cutting facility in Newton, Mississippi, which produces frame parts for La-Z-Boy Residential upholstery. The firm quickly shifted production to other facilities and outside suppliers, "although we are not operating at our normal levels of efficiency or cost effectiveness." Darrow concluded, Given these disruptive events and the continued softness at the retail level, we will significantly miss our estimates for sales and earnings for the second quarter, although at this point, it is not readily quantifiable. "We intend to provide an update on our second fiscal quarter guidance prior to the beginning of the International Home Furnishings Market the week of October 17, 2005, he said. "