Dorel Industries second quarter 2004 net earnings increased 11.3% to $18.1 million or 55 cents per share compared with $16.3 million or 50 cents per share earned in the second quarter a year ago. Revenues for the period were in line with expectations at $403.5 million compared to 2003 second quarter revenues of $264.7 million. Six month earnings were US$37.7 million or US$1.15 per share compared with US$35.5 million or US$1.10 per share a year ago. Year-to-date revenues were US$795.4 million, up 46.8% from last year's US$541.6 million.
As previously announced, full year earnings per share are expected to be between US$3.00 and US$3.15, an approximate 30% to 35% increase over the US$2.32 per share earned in 2003. The Company is still expecting 2004 revenues of between US$1.6 and US$1.8 billion.
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Summary of Financial Highlights
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Second quarter ended June 30
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All figures in thousands of US $
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2004 2003 Change%
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Revenue 403,527 264,741 52.4%
Net income 18,103 16,261 11.3%
Per share - Basic 0.55 0.51 7.8%
Per share - Diluted 0.55 0.50 10.0%
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Average number of shares
outstanding -
diluted weighted average 32,955,200 32,422,777
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Summary of Financial Highlights
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Six months ended June 30
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All figures in thousands of US $
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2004 2003 Change%
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Revenue 795,373 541,626 46.8%
Net income 37,706 35,510 6.2%
Per share - Basic 1.15 1.12 2.7%
Per share - Diluted 1.15 1.10 4.5%
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Average number of shares
outstanding -
diluted weighted average 32,921,590 32,317,008
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Juvenile
Juvenile revenues were up 6.9% to US$179.6 million during the second quarter compared to US$168.0 million during the corresponding period a year ago. Earnings from operations for the second quarter decreased 32.3% to US$11.9 million from US$17.5 million last year. For the first half of 2004, revenues climbed 15.7% to US$386.2 million from US$333.9 million. Earnings from operations were down 17.1% to US$30.2 million from US$36.5 million last year.
The Juvenile segment's year-to-date revenue increase was due to organic revenue growth, a stronger euro and the contribution of an extra month's revenues from Ampafrance in Europe. Revenue grew 12% in North America and was all organic. In Europe, revenues have increased 21% over last year.
Higher costs of raw materials in North America, principally in plastic resin and steel, negatively affected margins. Margins in Europe remained consistent with both the first quarter and the prior year where raw material cost increases were offset by improvements at the Company's operations in Holland and the United Kingdom.
In light of these higher costs, earnings guidance for the juvenile segment is being reduced from between 10% and 11% of revenues to between 7.5% and 8.5%. Revenues are expected to remain at between US$750 and US$800 million.
Home Furnishings second quarter revenues grew 25.8% to US$121.7 million from US$96.8 million a year ago. Earnings from operations were down 54% to US$6.4 million from last year's US$13.8 million. For the six months, revenues were up 21.8% to US$253.1 million from US$207.8 million, while earnings from operations decreased 47.7% to US$15.4 million from last year's US$29.4 million.
Revenue growth occurred in all three of the Home Furnishing divisions, Ameriwood, Cosco Home & Office and Dorel Asia. However, higher raw material costs substantially reduced earnings from the prior year. The rising cost of particle board seen in the first quarter of 2004 continued into June, reducing margins at Ameriwood, the segment's Ready-to-Assemble furniture producer. The Home Furnishings segment also experienced pricing pressure on steel, used in futons and for hardware, and on corrugated cardboard used for packaging.
Price increases have now gone into effect at certain major RTA furniture customers. Due to the lag between the initial impact of higher costs and the successful implementation of increases, the new pricing did not offset costs in the second quarter but is expected to improve earnings in the second half of the year.
Earnings from operations as a percentage of sales are now expected to be between 8.5% and 9.5% as opposed to 11% to 12%.
Recreation & Leisure Division revenues for the second quarter, the first full quarter to include Pacific Cycle results, were US$102.2 million. Pacific Cycle was acquired in February 2004. Earnings from operations were US$12.6 million. For the five months of 2004, revenues were US$156.1 million while earnings from operations were US$19.1 million.
The success of the Sting Ray bicycle introduced in 2004 is above expectations. While a lack of supply hindered sales in the first half of the year, this has been rectified and a strong second half is expected. As a result, the initial guidance of earnings from operations is being increased slightly to between 12% and 13% of sales from the prior 11.5% to 12.5%. Sales of between US$335 million and US$375 million are still anticipated for the 11 months of 2004.
The Company's year-to-date income tax rate has decreased from 29.4% in 2003 to 12.2% in 2004. The 2004 tax rate was originally expected to be in the range of 20%. However, lower than expected pre-tax earnings have had the impact of lowering the expected full year tax rate to approximately 12%. To adjust the year-to-date tax rate to that level, the tax rate booked in the second quarter is 7.2%. Should all assumptions and expected results remain the same, the tax rate for the second half of the year should remain in the 12% range.
Dorel President and CEO, Martin Schwartz, stated that the Company is continuing to command higher market share in its various divisions. Despite a soft economy in Europe, which has dampened demand, profitability at Dorel Juvenile Group Europe is expected to be better than last year's results. “We anticipate a stronger second half with new juvenile product introductions, particularly in Europe, and ramped up production of the extremely successful Sting Ray bicycle. We believe the Sting Ray will be a very popular Christmas gift item this year. Overall, we are confident of a stronger second half with margins improving throughout the balance of the year.”
