Leading up to Jarden Inc.s expected acquisition of K2, Inc. later this
month, the company reported some strong results in its Outdoor
Solutions segment, which includes Coleman and Pure Fishing. Most of
Jarden's reported year-over-year Q2 net sales growth came from the Pure
Fishing acquisition, with specialty and international sales also
growing, offset by declines in some of the companys mass channel
retail partners.
Overall, Jarden sales for the quarter increased 9.1% to $1.05 billion
with roughly $80 million of the top-line growth coming from Pure
Fishing. Excluding this acquisition, sales would have only increased
0.8%. Overall gross margin improved 350 basis points from 24.1%. Net
income was $16.7 million, or 23 cents per share, compared to $13.3
million, or 20 cents per share last year.
The Outdoor Solutions segment reported strong top-line growth and
expanding EBITDA margins. Toward the end of Q2, Jarden saw some major
customers start to aggressively manage inventory down against their
prior forecasts. Management believes that the tougher domestic
non-specialty retail market may continue for the rest of the year.
Jarden CEO Martin Franklin said that part of this is driven by
macro-economic trends in the housing market, which are drying up the
home equity “checkbook” many consumers have been using for disposable
income. However, the other part of this, according to Franklin, is the
specialty retailers are doing a better job of selling and merchandising
outdoor products, and more importantly, the outdoor lifestyle.
The Outdoor Solutions segment grew 25.6% to $417.1 million versus
$331.9 million last year due primarily to the strategic acquisition of
Pure Fishing during the quarter. Without the acquisition, organic
growth would have been 1.6%. Organic growth in the quarter came
primarily from the specialty and international businesses. Pure Fishing
performed “in line” with expectations. However, it also saw softness in
consumer discretionary spending, particularly at mass. Outdoor Segment
earnings increased 43.8% to $68.9 million. Operating margins grew 210
basis points from 14.4% in 2006 to 16.5% in 2007.
Jarden management also gave analysts a peek into what the company will
look like following the K2 acquisition. After the deal closes, no one
customer will be over 20% of annualized sales and JAHs second-largest
customer will be 5% or less of sales. In the back half, management said
that the business outlook remains consistent with K2 management's
previously provided public guidance for 2007 net sales in the range of
$1.46 billion to $1.51 billion. Jarden management is somewhat concerned
about the debt market leading up to the transaction, but the company
has secured financing from Lehman Brothers and, according to Franklin,
“the variable is going to be how much it is going to cost, not whether
we're going to be able to do it.”
It appears that K2 shareholders are responding positively to the buyout
offer. As of the end of last week, approximately 43% of votes were cast
and over 99% were in favor of the transaction. Management pointed to
the strength of K2's brands in the marine and fishing markets combined
with Coleman and Pure Fishing as a natural combination. They also
mentioned a positive impact on cash flow seasonality from K2s winter
sports business.
The company has also begun to formalize many of its environmental
efforts and initiatives. Jarden has named Fred Eng to the newly-created
position of chief sustainability officer. This will be in addition to
his responsibilities as senior VP of operations. In this role, he will
be in charge of coordinating global Jarden responsibility for green
initiatives such as energy reduction, package innovation, and new
product development in support of the conservation of our environment,
while also ensuring internal programs coordinate with other
sustainability initiatives launched by Jardens major customers. These
initiatives will not only be in the Outdoor segment, but also in
Jardens Branded Consumables, Consumer Solutions, and Process Solutions
segments.
