Dorel Industries Inc. reported net income for the third quarter rose 11.1% to U.S. $30.2 million, or 91 cents a share, from $27.2 million, or 82 cents, a year ago. Revenue was $518.5, down 6.1% from $552.2 million a year ago.
Net income for the nine months ended Sept. 30 was $83.0 million or $2.49 per diluted share, compared to last year's $93.7 million or $2.81 per diluted share. Revenue for the nine months was $1.6 billion, down 6.3% from $1.7 billion a year ago.
“The fact that we have exceeded last year's earnings for the quarter despite a difficult economic period is a tribute to the quality and value of our products and our focus on maximizing margins through cost containment, a more stable cost environment and our disciplined minimum margin requirement program,” commented Dorel President and CEO, Martin Schwartz. “Dorel's multi-national operations, diverse operating segments and broad product lines have traditionally compensated for earnings variations within the Company's various operating divisions. This is the case in 2009 as strong results within North America in the Juvenile and Home Furnishing segments are offsetting less profitable results at other divisions elsewhere within the company.”
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Summary of Financial Highlights
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Third Quarters Ended September 30
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All figures in thousands of US $, except per share amounts
2009 2008 Change %
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Revenues 518,458 552,242 -6.1%
Net income 30,230 27,208 11.1%
Per share – Basic 0.91 0.82 11.0%
Per share – Diluted 0.91 0.82 11.0%
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Average number of shares
outstanding –
diluted weighted average 33,338,597 33,399,355
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Summary of Financial Highlights
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Nine Months Ended September 30
All figures in thousands of US $, except per share amounts
2009 2008 Change %
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Revenues 1,594,811 1,702,000 -6.3%
Net income 83,023 93,688 -11.4%
Per share – Basic 2.49 2.81 -11.4%
Per share – Diluted 2.49 2.81 -11.4%
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Average number of shares
outstanding –
diluted weighted average 33,389,225 33,399,003
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Juvenile
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Third Quarters Ended September 30
2009 2008
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$ % of rev. $ % of rev. Change %
Revenues 247,860 263,155 -5.8%
Gross Profit 72,334 29.2% 81,360 30.9% -11.1%
Earnings from
operations 26,126 10.5% 34,711 13.2% -24.7%
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Nine Months Ended September 30
2009 2008
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$ % of rev. $ % of rev. Change %
Revenues 746,493 854,042 -12.6%
Gross Profit 204,637 27.4% 249,852 29.3% -18.1%
Earnings from
operations 71,571 9.6% 101,014 11.8% -29.1%
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The decline in revenues in the Juvenile segment that has been experienced
since the start of the year moderated in the third quarter with a decline of
5.8%. This decline was most pronounced in Europe, due to a combination of
existing market conditions abroad as well as the value of the US dollar versus
the prior year. Third quarter European sales declined by 10% from the
corresponding period last year, but two-thirds was due to the impact of
foreign exchange. Excluding this, organic revenue decline in Europe was
approximately 5%. For the segment as a whole, the organic revenue decline was
approximately 3%. As described in more detail below, included in the 2009
quarterly figures are mark-to-market losses on foreign exchange contracts
purchased to hedge a portion of both 2009 and 2010 purchases. The loss within
the Juvenile segment in 2009 is US$2.5 million. Conversely, in 2008 a gain of
US$3.6 million was recorded on contracts put in place to hedge a portion of
2009 purchases.
The Air Protect(TM) car seat technology, designed to protect children in side
impact collisions, was launched in July in the US and in late September in
Canada. As such, the quarter includes the initial shipments of the Safety 1st
Complete Air car seat which helped the results at Dorel Juvenile Group. It is
expected that additional retailers will be carrying the seat commencing
January. Continuing the migration of the Air Protect(TM) technology into the
new infant carrier, On Board 35 Air, is being rolled out next month as part of
a travel system. The Air Protect(TM) technology will continue to evolve and
will be available at various price points. “Dorel is focused on providing the
best solutions to keep our children safe at affordable prices,” commented Mr.
Schwartz.
Recreational/Leisure
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Third Quarters Ended September 30
2009 2008
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$ % of rev. $ % of rev. Change %
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Revenues 145,175 163,186 -11.0%
Gross Profit 33,771 23.3% 36,991 22.7% -8.7%
Earnings from
operations 4,862 3.3% 6,640 4.1% -26.8%
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Nine Months Ended September 30
2009 2008
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$ % of rev. $ % of rev. Change %
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Revenues 505,696 498,719 1.4%
Gross Profit 115,051 22.8% 117,113 23.5% -1.8%
Earnings from
operations 30,848 6.1% 38,702 7.8% -20.3%
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The third quarter revenue decline was due primarily to a reduction in sales at
mass merchants from prior year levels. Sales at Cycling Sports Group (CSG) to
Independent Bike Dealers (IBD) and specialty sporting goods customers
increased over last year's third quarter. However, consumers are purchasing
less of CSG's higher-end products and are trading down to lower priced items,
which carry lower margins. Excluding the impact of new business acquisitions
and foreign exchange variations on the segment's non-US based businesses,
Recreational/Leisure's organic revenue decline was approximately 10% for the
quarter and 6% year-to-date.
During the quarter and into early October, three business acquisitions were
concluded, including a recognized brand name in “Iron Horse”, and two
successful bicycle distributors in Australia and the United Kingdom. The UK
acquisition of Hot Wheels and Circle Bikes included the popular local “Charge”
brand which was recently awarded both “Manufacturer of the Year” and “Bike of
the Year 2009″ by two British cycling magazines. Dorel has retained the owners
of Hot Wheels who will manage the newly created Cycling Sports Group UK (CSG
UK). This subsidiary will be dedicated to the IBD channel and will drive the
future growth of the Charge, Mongoose, GT and Cannondale brands.
Last month additional initiatives were announced to further grow Dorel's
Performance Apparel Division. The Apparel Footwear Group (AFG) will
incorporate SUGOI Performance Apparel as well as the apparel lines of
Cannondale, GT, Schwinn, Iron Horse and Mongoose – in both custom and its
regular offerings. Plans include an investment in new equipment, facilities
and additional employees. An important focus of AFG will be to build the
custom apparel business, developing specific riding and running uniforms for
teams and clubs.
Home Furnishings
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Third Quarters Ended September 30
2009 2008
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$ % of rev. $ % of rev. Change %
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Revenues 125,423 125,901 -0.4%
Gross Profit 22,635 18.0% 13,509 10.7% 67.6%
Earnings from
operations 12,508 10.0% 1,924 1.5% 550.1%
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Nine Months Ended September 30
2009 2008
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$ % of rev. $ % of rev. Change %
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Revenues 342,622 349,239 -1.9%
Gross Profit 53,377 15.6% 39,393 11.3% 35.5%
Earnings from
operations 24,606 7.2% 6,425 1.8% 283.0%
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Third quarter earnings improvement in Home Furnishings was led by domestically
produced furniture and futons. Lower material costs, a favourable currency
environment, as well as increased operational efficiencies improved gross
margin by 730 basis points to 18.0% for the segment.
Reduced overheads and selling and administration expenses helped to narrow the
losses at Cosco Home & Office and the recovery plan for this division remains
on track. The import furniture businesses also improved earnings over the
prior year and continue to perform to expectation.
Other
As disclosed previously, 2009 earnings are being negatively affected by the
reversal of a US$10.5 million mark-to-market gain that was recorded on foreign
exchange contracts in 2008. The third quarter of 2009 includes a loss on this
reversal of US$1.8 million, as well as a mark-to-market loss of US$1.2 million
on foreign exchange contracts put in place in the year to hedge a portion of
2010 purchases. Of the US$10.5 million gain recorded in 2008, US$3.5 million
was in the third quarter of that year. After-tax, the amounts recorded in the
third quarter are a loss of US$2.2 million in 2009 and a gain US$2.5 million
in 2008.
The tax rate in the third quarter was 11.0% and year-to-date is 14.7%, in line
with expectations. The quarter's lower than typical rate is consistent with
the prior year which was 11.3%. For the year the Company's tax rate is
expected to be at the lower end of its previously published range of 15% to
20%.
Cash flow
During the first nine months of 2009, cash flow from operating activities more
than doubled as compared to 2008 at US$148.2 million compared to US$72.4
million in the prior year. Driven by inventory reductions, the change in
non-cash balances related to operations provided a source of funds of US$30.9
million in 2009 compared to a use of US$59.1 million in 2008. Free cash flow,
defined as cash flow from operating activities less fixed asset and intangible
additions and dividends, is US$107.1 million thus far in 2009 as compared to
US$27.8 million in 2008.
Quarterly dividend
The Board of Directors of Dorel declared its regular quarterly dividend of
US$0.125 per share on the outstanding number of the Company's Class A Multiple
Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units. The
dividend is payable on December 3, 2009 to shareholders of record as at the
close of business on November 19, 2009.
Outlook
Dorel's nine month performance in 2009 has validated the Company's
expectations for the year. Despite the recession, belief was that while not
immune to these conditions, Dorel's customer profile and the nature of the
great majority of its products would help protect the Company from dramatic
sales reductions versus 2008. Underlining this sentiment is the fact that
organic sales have declined by just over 5%.
Expectations for strong free cash flow in 2009 have also been realized. This
has allowed the Company to continue to invest in future growth through
strategic acquisitions and an on-going commitment to new product development.
Going forward, recent trends in the value of the U.S. dollar against other
currencies mean that earnings will be dampened within Home Furnishings as the
Canadian dollar has strengthened. Home Furnishings has two large manufacturing
facilities in Canada and their products are sold primarily within the US.
Conversely, the rise in value of the Canadian dollar, as well as the Euro and
several other currencies against the U.S. dollar will help earnings within the
Juvenile segment.
“We believe we are well-positioned as we head into the fourth quarter and look
forward to an encouraging 2010. Within the Recreational/Leisure segment we
have received favourable reaction to our 2010 model line-up and order levels
have increased. The Juvenile segment will benefit from Air Protect(TM) in
North America and from Maxi-Cosi's new FamilyFix in Europe which was first
shown at the September Cologne, Germany juvenile trade fair and was well
received by customers. The turnaround in Home Furnishings has materialized as
we expected, and while currency rates do pose a challenge, our belief in that
segment has been validated by its greatly improved performance,” concluded Mr.
Schwartz.
