Dorel Industries Inc. reported total revenue for the quarter ended June 30 was up 10.3% to $607.7 million from $551.1 million for the same quarter a year ago. Net income was $35.1 million or $1.05 per diluted share compared with $24.8 million or 74 cents per diluted share for the corresponding quarter of 2009.
Year-to-date revenue was $1.2 billion, up 11.9% from $1.08 billion last year. Net income rose to $72.5 million or $2.18 per diluted share compared to $52.8 million or $1.58 per diluted share for the first half of 2009. Organic revenue growth in both the quarter and year-to-date was approximately 9.5%.
2009 results included significant “mark-to-market” losses on foreign exchange hedging instruments in the pre-tax amount of $12.6 million in the quarter and $12.1 million for the first half of the year. After tax, these losses represented the equivalent of 27 cents per diluted share for the quarter and 25 cents per diluted share for the first six months. While earnings in 2010 do not include material mark-to-market amounts, currency rate variations versus last year have significantly reduced earnings in all three segments. For the quarter this negative impact reduced pre-tax earnings by approximately $11 million.
“We are proud of this quarter's results. Despite negative factors such as foreign exchange, high input costs and increasing ocean freight rates, our divisions performed well and succeeded in building business slowly but steadily,” said Dorel, President and Chief Executive Officer Martin Schwartz. “We maintained our pace of innovation and accelerated marketing support. Solid top-line results, in conjunction with our cost and productivity efforts, enabled us to deliver meaningful profit improvement year over year.
“We are seeing the benefits of the on-going investments in our bicycle business through improved product development, solidifying our structure and promoting our brands. Our brands are gaining wider acceptance and our bicycles are more in demand.”
Recreational/Leisure Segment
————————————————————————-
Second Quarters Ended June 30
————————————————————————-
2010 2009
————————————————————————-
$ % of rev. $ % of rev. Change %
Revenues 214,888 199,093 7.9%
Gross Profit 51,519 24.0% 44,252 22.2% 16.4%
Earnings from
Operations 17,091 8.0% 16,009 8.0% 6.8%
————————————————————————-————————————————————————-
Six Months Ended June 30
————————————————————————-
2010 2009
————————————————————————-
$ % of rev. $ % of rev. Change %
Revenues 396,565 360,521 10.0%
Gross Profit 97,642 24.6% 81,280 22.5% 20.1%
Earnings from
Operations 32,185 8.1% 25,986 7.2% 23.9%
————————————————————————-
Second quarter Recreational/Leisure revenue increased by $15.8 million, or 7.9%, to US$214.9 million. Year-to-date revenues are up 10.0% or US$36.0 million to US$396.6 million. The organic revenue increase was approximately 5% for both the quarter and year-to-date when the impact of new business acquisitions during 2009 and foreign exchange rate variations are excluded. Though less significant than Juvenile, earnings in 2010 are being negatively affected by the value of the Euro.
Cycling Sports Group (CSG) sales were up considerably over last year with exceptional demand for the division's elite racing bicycles such as the Cannondale SuperSix. As in the first quarter, demand for new model year products remains strong across all brands resulting in expansion of the dealer base and increases in multi-brand dealers.
Schwinn experienced a strong increase in POS year-over-year, due to the multi-million dollar advertising campaign launched in mid April, excellent retailer support and good early spring weather. While increasing selling, general and administration costs, the ad campaign has been effective in enhancing the Schwinn brand. Sales to the segment's mass merchant customers were hindered by a lack of supply due to the global shortage of ocean containers, a situation which is improving.
Outlook
Dorel's record results for the first six months have set the stage for a solid year. Revenues are expected to continue to exceed prior year levels. However the pace of earnings established during the first half will not be maintained in the third quarter, due principally to challenges in the Juvenile segment.
In its first quarter earnings release, the company stated that margins could be affected by rising commodity and freight costs as the year progressed. While margins in the second quarter declined from first quarter levels, the impact of these rising costs was moderate. As the company enters the third quarter, these issues, as well as the impact of foreign exchange rates will affect earnings in the third quarter. While rising commodity prices are expected to ease, it will take the current quarter to work through the existing inventory purchased at higher prices.
“We expect to see an easing of these headwinds in the fourth quarter. Juvenile will be introducing new products which will provide some pricing relief and a better mix of sales. This combined with more stable commodity costs is expected to improve margins as we move into the New Year. Our Recreational/Leisure and Home Furnishings segments are poised to perform well during the second half. Our focus is being maintained on innovative, value-added products. We will maintain our investments in this important area to ensure that retailers can consistently depend on Dorel for quality and reliability. As a leader in many of our categories, we will continue to offer consumers the products they need at popular price points,” commented Mr. Schwartz.
