Dorel Industries Inc. said revenues in its Recreational Leisure Segment , which includes the Cannondale, Schwinn, GT, Mongoose, IronHorse and Sugoi brands, climbed 17.2% in the fourth quarter, to $205.9 million. Operating earnings in the segment grew 18.0% to $10.6 million.
Revenues for the Montreal-based company were reported in U.S. dollars.
Overall, revenue for the fourth quarter decreased 1.1% to $539.5 million from $545.3 million a year ago. Net income rose 4.2% to $25.2 million, or 76 cents per share, from $24.2 million, or 73 cents per share last year.
Revenue for the full year rose 8.1% to $2.3 billion as compared to $2.1 billion in 2009. Net income was up 19.2% to $127.9 million, or $3.85 per diluted share from $107.2 million or $3.21 per diluted share last year. Excluding the impact of business acquisitions and year-over-year foreign exchange rate variations, mainly in the Juvenile Segment, organic sales growth in 2010 exceeded 7%.
“The fourth quarter was difficult, but we are pleased with Dorel's full year performance. Our divisions effectively managed challenging economic conditions with value-oriented product offerings, a strong commitment to new product development and strategic brand support. In an environment of reduced consumer discretionary spending and rising input costs, Dorel was able to deliver revenue growth of over 8% and improved earnings over the prior year. If there was ever a test of the acceptance of Dorel's brands and products, the past two years have provided it. The fact that we have done well through this period speaks volumes to our strong position in the many global markets in which we operate,” commented Dorel CEO and President, Martin Schwartz.
“Despite this success, we were not satisfied with the performance of certain of our U.S. businesses that service mass market customers. Point-of-sale levels at these customers slowed in the second half and as a result the retailers reacted by not only reducing replenishment orders, but also by aiming to further cut their own in-store inventory levels. This left us with a lot of inventory at year end that we had anticipated selling in the fourth quarter. We also had to contend with higher container freight rates and raw material costs that impacted earnings. As we enter 2011 we will work through the extra inventory and we are expecting new products in 2011 to drive improvements in the months ahead.”
Net income in 2010 was positively impacted by a lower tax rate as compared to 2009. A significant reason for the rate decrease was the recognition of incremental tax benefits of $9.7 million pertaining to the resolution of several prior years' estimated tax positions. This non-cash amount, which represents $0.29 per diluted share, was not recognized for accounting purposes in prior years and was only recorded in the fourth quarter of 2010 when the relevant tax authorities confirmed the recognition of these benefits.
Recreational / Leisure Segment
Fourth Quarter
Recreational/Leisure revenues increased by $30.2 million or 17.2%. Organic sales were higher by almost 19% when the impact of varying rates of exchange rates relative to the U.S. dollar is excluded. Sales increased in the mass market category by almost 20%, supported by the successful Schwinn brand marketing campaign initiated earlier in the year and repeated in November to coincide with the holiday shopping period. Sales to IBD customers also grew by approximately 20% as successful new model introductions have been met with enthusiasm in both Europe and North America. Importantly, the gains are in the majority of the brands sold to IBD customers and are not limited only to Cannondale.
Earnings improved from last year based on increased sales and higher margins, but results at the Apparel Footwear Group (“AFG”) were disappointing and were a drag on the segment's earnings. Despite its small size relative to the total segment, quarter-over-quarter earnings decreased by over $2 million at AFG. Going into 2011, renewed focus on this business and earnings improvement initiatives are expected to help the segment's performance in 2011.
Full year
Revenues were up 13.7% to $775.0 million, compared to $681.4 million a year ago. Organic sales growth was approximately 11%. All divisions contributed to the increase, with the exception of AFG whose sales were flat. There were several reasons for the improvement. In North America, the successful Schwinn advertising campaign increased sales, particularly at mass merchants, contributing to single digit sales growth. The advertising spent for this initiative exceeded US$5 million for the year. Sales to large customers in Canada were up over 25% from the prior year and have more than doubled since 2008. Cycling Sports Group (CSG) sales to IBD customers in both the U.S. and Europe increased by over 20% with new product innovation driving sales of new models introduced in the year. Sell through at retail was strong and market penetration increased.
Earnings in the segment for the year increased by 31.3%, as many of the positive elements influencing the fourth quarter were prevalent throughout the year. The business model put in place soon after the Cannondale / Sugoi acquisition in 2008, began to pay dividends in 2010. A renewed focus on supporting the segment's many known brands and a clearer direction on new product development paid dividends in the form of improved earnings.
Outlook
In 2011, sales and earnings from operations in all three segments are expected to exceed 2010 levels. Additionally, the higher earnings and anticipated improved working capital position will provide for a positive free-cash flow in the year.
“Our bicycle business did well in 2010 and we foresee continued growth through 2011. The Recreational / Leisure Segment has had a good start to the year and are on track to improve their year-over-year performance. While a small part of the Recreational/Leisure Segment, we are focused on correcting issues at the Apparel Footwear Group. Juvenile operations in Europe and Canada have also started off well this year, while the U.S. remains sluggish. We anticipate a better second half overall in the segment, as there are several scheduled new juvenile product introductions that are expected to translate into increased sales. In Home Furnishings, the negative trend of the past several months was reversed in February, marking the best month since last year's second quarter. We are hopeful that Home Furnishings' full year will be solidly profitable,” commented Mr. Schwartz.
“The higher input costs experienced in 2010 are not easing as we begin 2011. Upward pressure on commodities such as steel, resin, cotton and oil will force us to seek price increases. As experienced in the past, this can negatively affect margins until pricing is properly aligned with costs, and until new products incorporating the current higher input costs are available in the marketplace.”
“First quarter inventory levels have already started to decrease, particularly in the Juvenile and Home Furnishings segments where they were highest. The situation mirrors that of year-end 2008 when inventory was at record high levels but was subsequently reduced during the first quarter of 2009. We have every confidence of an improvement again this year and that cash flow will be stronger as inventory levels are reduced.”
DOREL INDUSTRIES INC. | |||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS | |||||||||||||
Fourth Quarters Ended | Twelve Months Ended | ||||||||||||
December 30, 2010 | December 30, 2009 | December 30, 2010 | December 30, 2009 | ||||||||||
Sales | $ | 536,194 | $ | 542,137 | $ | 2,301,393 | $ | 2,125,459 | |||||
Licensing and commission income | 3,329 | 3,166 | 11,593 | 14,655 | |||||||||
TOTAL REVENUE | 539,523 | 545,303 | 2,312,986 | 2,140,114 | |||||||||
EXPENSES | |||||||||||||
Cost of sales | 418,301 | 412,824 | 1,780,204 | 1,634,570 | |||||||||
Selling, general and administrative expenses | 83,323 | 83,208 | 328,138 | 316,272 | |||||||||
Depreciation and amortization | 8,584 | 8,044 | 31,373 | 27,366 | |||||||||
Research and development costs | 3,660 | 6,362 | 13,626 | 17,184 | |||||||||
Interest | 5,881 | 3,860 | 18,927 | 16,375 | |||||||||
519,749 | 514,298 | 2,172,268 | 2,011,767 | ||||||||||
Income before income taxes | 19,774 | 31,005 | 140,718 | 128,347 | |||||||||
Income taxes | (5,462) | 6,794 | 12,865 | 21,113 | |||||||||
NET INCOME | $ | 25,236 | $ | 24,211 | $ | 127,853 | $ | 107,234 | |||||
EARNINGS PER SHARE | |||||||||||||
Basic | $0.77 | $0.73 | $3.89 | $3.23 | |||||||||
Diluted | $0.76 | $0.73 | $3.85 | $3.21 | |||||||||
SHARES OUTSTANDING | |||||||||||||
Basic – weighted average | 32,701,316 | 33,037,554 | 32,855,191 | 33,232,606 | |||||||||
Diluted – weighted average | 33,038,961 | 33,303,402 | 33,218,267 | 33,400,540 |