Johnson Outdoors Inc. net sales were $135.5 million for the fiscal third quarter ended June 30, 2006, an increase of 11% compared to $122.4 million for the prior year’s quarter. Net earnings were $6.6 million or 72 cents per diluted share compared to $6.8 million or 77 cents per diluted share in the prior year quarter.
Third quarter sales are historically the highest of the year, reflecting consumer demand during the key retail selling period of the Company’s seasonal outdoor products. Significant gains in the Marine Electronics and Watercraft business units more than offset anticipated declines in military sales and lower Diving sales. Excluding military sales in both the current and the prior year third quarter, total Company net sales would have increased $15.6 million. Key changes included:
Marine Electronics sales grew 21% driven by Humminbird® and the acquisition of the Cannon® and Bottomline® brands completed on October 3, 2005, which added a combined $3.3 million in net sales to the unit during the quarter.
Watercraft sales jumped 14% ahead of last year’s third quarter results due to strong double-digit growth in Old Town® and Ocean Kayak(TM) brands.
Diving revenues declined 2% due primarily to weakness in European and US markets and unfavorable currency exchange rates.
Outdoor Equipment revenues were 1% behind last year due entirely to a 25% decline in military sales from the prior year quarter. Consumer camping continued to benefit significantly this quarter from specialty market sales. Temporary closure of the Company’s Outdoor Equipment operations, due to flooding caused by heavy rains in the Northeast, halted shipments of finished goods during the final week of the quarter.
Total Company operating profit in the quarter increased 18% to $13.9 million compared with $11.8 million in the prior year quarter. Operating profit during the period was impacted by the following factors:
- Significant growth in Marine Electronics and Watercraft sales due to successful new product introductions.
- One-time charges totaling $1.2 million related to the temporary closure of the Company’s Outdoor Equipment operations due to flooding caused by heavy rains in the Northeast.
- Lower margins on lower sales in Diving due partly to business disruption from European restructuring.
- Investment in sales and marketing for Escape® electric boats.
- Reduced overhead costs at corporate and operational levels.
Net income was $6.6 million, or $0.72 per diluted share, for the quarter versus $6.8 million, or $0.77 per diluted share, in the prior year quarter. In addition to the same stated factors which impacted operating profit, net income was also affected by increased net interest expense due to short-term borrowings related to working capital growth, and by recognized charges of $0.9 million related to foreign tax audits.
“We had a solid quarter as investments in new businesses, new products and new systems began to drop to the bottom-line. Marine Electronics delivered another outstanding performance, and Watercraft is moving in the right direction on the strength of paddlesports brands, despite continued investment in building sales and distribution for the Escape brand. In Diving, more time and more investment is needed to complete restructuring and generate positive momentum, and I am confident we are taking the right actions to return Diving to historical levels of profitability in the future. As we look ahead to the fourth quarter, we are focused on bringing military tent production back on-line as quickly as possible, and on working to minimize the continued impact of restructuring on Diving,” observed Helen Johnson-Leipold, Chairman and Chief Executive Officer, Johnson Outdoors Inc. “Our vision is to own the outdoor adventure with innovation and passion, and by doing so, to deliver sustainable profitable growth and enhanced shareholder value. Our performance this year demonstrates we have the capability and capacity to realize our vision as we begin to set our sights on growing revenues to half a billion dollars over the next few years.”
YEAR-TO-DATE RESULTS
Net sales for the first nine months of fiscal 2006 were $315.5 million, a 4% increase over $303.6 million during the same period last year. Excluding the anticipated $10.8 million decline in military sales year-to-date, total Company net sales would have increased $22.7 million.
Key drivers in the nine-month period were:
- Cannon® and Bottomline® brands, which added $7.7 million to year-to-date sales.
- Increased sales in Humminbird®, Old Town® and Ocean Kayak(TM) brands.
- The anticipated decline in military sales and lower Diving revenues during the period.
- Unfavorable currency exchange which reduced revenues by $1.7 million year-to-date.
- Temporary closure of the Company’s Outdoor Equipment operations, due to flooding caused by heavy rains in the Northeast, which halted shipments of finished goods during the final week of the year-to-date period.
Total Company operating profit was $21.4 million during the nine-month period compared to $20.1 million during the prior year-to-date period which reflected $2.5 million in costs associated with the terminated buy-out proposal.
Key factors impacting the year-to-date results were:
- Improved results in Watercraft due to increased sales and enhanced operational efficiency in paddlesports brands.
- Company-wide cost-saving and overhead reduction programs.
- The continued, yet expected, decline in military sales versus the prior year which resulted in the unfavorable comparison in Outdoor Equipment profits versus the same period last year.
- Significant increases in commodity and freight costs which had a combined negative impact of 1.5 gross margin points.
- Lower profits in Diving due to the impact of European restructuring and weak markets.
- Net income year-to-date was $9.6 million, or $1.05 per diluted share, versus net income of $10.5 million, or $1.20 per diluted share, in the prior year nine-month period.
OTHER FINANCIAL INFORMATION
The Company’s debt to total capitalization stood at 26% at the end of the fiscal third quarter versus 23% at July 1, 2005 as a result of short-term borrowings to meet higher working capital needs. Debt, net of cash and short-term investments, increased to $20.2 million at the end of this quarter versus $11.2 million at the end of the prior year quarter. Depreciation and amortization is $6.6 million year-to-date compared to $7.1 million last year-to-date. Capital spending totaled $6.3 million year-to-date, compared with $4.7 million in the prior year first nine months. Gross margin percentage year-to-date was 41.6%, compared to 42.1% in the prior year period, with each gross margin point contributing approximately $0.19 to earnings per diluted share.
“Short-term debt has increased as we funded sales and working capital growth in our Marine Electronics and Watercraft businesses. Our balance sheet remains healthy and we expect our working capital levels to return to seasonal levels next quarter,” said David Johnson, Vice President and Chief Financial Officer.
OUTDOOR EQUIPMENT – OPERATIONAL UPDATE
On June 29, 2006 the Company announced the temporary closure of its Binghamton, New York Outdoor Equipment Group production facility and administrative offices due to flooding caused by heavy rains in the Northeast. Extensive clean-up and restoration efforts are ongoing and limited production is expected to begin by mid-August. The Company has taken a charge of $1.2 million in the third quarter; however, the full financial impact of the business interruption is not yet known. The Company will be able to make a determination near the end of the fiscal fourth quarter on the total amount of recoverable losses, and expects its insurance coverage will indemnify the balance of those losses.
MILITARY UPDATE
The Company has received eleven (11) separate orders year-to-date totaling $19.5 million awarded under the multi-vendor, multi-product military contract announced on September 7, 2005. Further orders are not expected until production capacity is restored to pre-flood levels at the Company’s Binghamton, New York operation where military tents are manufactured. As a result of the business interruption, the Company now expects fiscal 2006 military sales will be in the $30-$35 million range.
- - - FINANCIAL TABLES FOLLOW - - -
JOHNSON OUTDOORS INC.
(thousands, except per share amounts)
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Operating Results THREE MONTHS ENDED NINE MONTHS ENDED
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June 30 July 1 June 30 July 1
2006 2005 2006 2005
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Net sales $135,540 $122,445 $315,476 $303,595
Cost of sales 78,133 70,727 184,300 175,830
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Gross profit 57,407 51,718 131,176 127,765
Operating expenses 43,495 39,898 109,807 107,620
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Operating profit 13,912 11,820 21,369 20,145
Interest expense, net 1,455 996 3,575 3,114
Other (income) expense, net 167 (189) 458 (909)
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Income before income taxes 12,290 11,013 17,336 17,940
Income tax expense 5,727 4,219 7,694 7,440
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Net income $6,563 $6,794 $9,642 $10,500
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Basic earnings per common share $0.73 $0.79 $1.07 $1.22
Diluted earnings per common share $0.72 $0.77 $1.05 $1.20
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Diluted average common shares
outstanding 9,151 8,781 9,151 8,779
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Segment Results
Net sales:
Marine electronics $57,585 $47,759 $139,132 $122,751
Outdoor equipment 20,430 20,715 53,467 60,434
Watercraft 35,533 31,286 68,061 62,364
Diving 22,265 22,782 55,203 58,350
Other/eliminations (273) (97) (387) (304)
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Total $135,540 $122,445 $315,476 $303,595
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Operating profit (loss):
Marine electronics $9,852 $8,715 $20,713 $20,816
Outdoor equipment 2,476 3,001 7,094 9,469
Watercraft 3,047 1,753 (584) (2,030)
Diving 2,143 3,790 3,178 5,104
Other/eliminations (3,606) (5,439) (9,032) (13,214)
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Total $13,912 $11,820 $21,369 $20,145
