Dorel Industries Inc. saw revenue for the first quarter total $455.7 million, up slightly from $451.0 million last year. Net income for the first quarter was $27.9 million or 85 cents per diluted share compared with $24.2 million or 74 cents per diluted share in 2006. As announced earlier this year, Dorel Europe is implementing significant operational changes related to its production facility in Italy and a similar initiative is in progress regarding facilities located in France. As such, first quarter 2007 results include pre-tax restructuring costs of $2.1 million. After tax, this represents $1.4 million or 4 cents per diluted share. Therefore, adjusted net income for the first quarter, excluding all restructuring costs in both years, was $29.3 million or 89 cents per diluted share, versus $24.5 million, or 75 cents per diluted share in 2006. This represents an increase in net income of 19.7%.
Included in the 2007 adjusted net income of $29.3 million, or 89 cents per diluted share, is a non-cash income tax recovery of $2.7 million or 8 cents cents per share. Based on lower tax rates expected to apply in future periods in one of the company's tax jurisdictions, the amount recovered represents the impact of this rate reduction.
“The positive first quarter at several of our divisions demonstrates that our efforts in 2006 are paying off. Dorel Europe had its best quarter ever with record sales and earnings. Ameriwood posted earnings gains over last year on similar sales levels as things are moving in the right direction. Board prices have stabilized; the domestic plants are now better run with scrap levels down, board yield up and inventories remaining stable. Pacific Cycle domestic sales increased by almost nine percent over last year, driven by both bicycle sales and related products such as bike trailers,” commented Dorel president and CEO, Martin Schwartz.
Recreational/Leisure Segment
First quarter Recreational/Leisure revenue increased 7.6% to $87.9 million compared to last year's $81.7 million. Earnings from operations were down 2.8% to $7.2 million from $7.4 million. The decline in gross margins and earnings in the quarter were the result of a decrease in international licensing income. This decline offset the additional margin dollars generated on domestic sales in the U.S.
Last year's modest decline in bicycle sales was reversed during the first quarter as Pacific's main customers experienced strong sell-through. Sales to the independent bicycle dealer network were solid, with same store sales up. The InStep brand also had a good first quarter with its trailers and strollers. First shipments of the new Schwinn electric bike were made during the quarter. The potential for this model is anticipated to be particularly strong in Europe. Playsafe swing sets continue to sell well with major retailers and the brand is picking up market share in its second year. Sales of gas-powered motor scooters were stable.
Added to Pacific's line-up this year is the electric ride-on toy business, transferred from DJG USA. With Pacific's well-entrenched recreational distribution channel and a specific team dedicated to the ride- ons, strong growth is projected. Note that the comparative quarter revenue and earnings figures have been restated to reflect the inclusion of the sales of these items that were sold by DJG USA in the prior year. As such, 2006 revenues are $4.5 million higher than previously reported and earnings have been increased by $0.4 million.
Tax rate
The company's effective tax rate in the first quarter of 2007 was 5.4% compared to 18.1% in 2006. However, 2007 includes the $2.7 million tax recovery explained above. Excluding this recovery, the company's tax rate would have been 14.4%. This rate is in line with current revised expectations for the company's annual tax rate now expected to be from 14% to 18%.
Outlook
“Product development has been a keen focus throughout Dorel's various businesses. The past several months have seen intense activity in all three segments and the benefits of these efforts will be felt as early as the third quarter. Our Quinny line, a premier lifestyle brand that has been highly successful in Europe, is being introduced in the United States over the next few months and completely redesigned and revamped Safety 1st packaging and products will be launched later this year. Dorel Europe has consistently demonstrated its innovative skills through a rigorous campaign of product launches. The revolutionary Axiss, a high quality car seat featuring a height- adjustable head-rest and a rotating mechanism to facilitate placement of the child, was introduced to the market in March. Reaction has been excellent. Pacific Cycle is widening its product platforms with additional recreational items in the fish and game and back-yard categories, as well as a new line later this year of electric assist motor products for commercial and residential applications. There has been solid progress at Ameriwood and the recently announced closure of one of our largest competitors should provide opportunities going forward,” concluded Mr. Schwartz.
DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS
Three months ended
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March 31, March 31,
2007 2006
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(unaudited) (unaudited)
Sales $ 450,159 $ 444,891
Licensing and commission income 5,510 6,133
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TOTAL REVENUE 455,669 451,024
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EXPENSES
Cost of sales 344,502 349,916
Selling, general and administrative expenses 60,819 52,450
Depreciation and amortization 9,544 8,926
Research and development costs 2,608 2,281
Restructuring costs 2,126 -
Interest on long-term debt 6,548 7,774
Other interest - 143
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426,147 421,490
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Income before income taxes 29,522 29,534
Income taxes 1,583 5,353
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NET INCOME $ 27,939 $ 24,181
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EARNINGS PER SHARE
Basic $ 0.85 $ 0.74
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Diluted $ 0.85 $ 0.74
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SHARES OUTSTANDING
Basic - weighted average 32,951,162 32,859,217
Diluted - weighted average 32,990,690 32,859,694
