After beginning a comprehensive cost-reduction plan in December of 2008 that which included an aggressive $20 million cost savings target, lower capital spending and significant reduction in peak working capital, Johnson Outdoors is reporting higher earnings on lower net sales for its third fiscal quarter ended July 3, 2009.
Total net sales for the quarter declined by over $26 million during the quarter to $114.9 million compared to $141.2 million same quarter of the previous year. The decline in sales was primarily due to lower sales in all key markets due to weak economic conditions and unfavorable currency translation of 3.4%.
In the companys largest division, Marine Electronics, revenues were 15.8% below last years Q3 due primarily to continued weakness in domestic and international boat markets. Operating income declined, but at a rate slower than the sales decline. As a percentage of sales, operating profit increased 60 basis points to 12.9% of sales.
In the Outdoor Equipment division, which includes the Eureka and Tech4O brands, sales fell 24.9% due primarily to a decrease in military tent orders and commercial tent market weakness. This division also saw a decline in operating profit, but at a rate considerably slower than the sales decline. As a percentage of sales, operating profit increased 140 basis points to 15.5% of sales compared to 14.1% for the corresponding period last year.
The Johnson Outdoors Watercraft division continues to struggle with declining sales and profits. Sales were 26.4% below the prior year due to lower customer reorders, unfavorable currency translation of 3.4% and continued scaling back of distribution in non-core channels. In June 2009, Johnson Outdoors decided to consolidate all domestic Watercraft production and business and customer support services in Old Town, Maine and close its Ferndale, Washington facility. While this initiative is expected to “significantly reduce costs and complexity, optimize synergies and assets, strengthen competitiveness and improve profitability for the future,” the divisions profits and profit margins declined in the third quarter. Operating income as a percentage of sales fell 420 basis points to 6.1% of sales compared to 10.3% for the same period last year.
The Watercraft consolidation is anticipated to result in annual cost-savings of more than $4 million going forward. Costs and charges associated with the action are estimated to have a negative impact on earnings per diluted share of between 16 cents and 20 cents in the fourth fiscal quarter of 2009.
Diving revenues were down 11.3% due to weak economies in key markets and unfavorable currency translation of 6.7%. This division also saw a decline in operating profit, but at a rate considerably slower than the sales decline. As a percentage of sales, operating profit increased 100 basis points to 10.0% of sales compared to 9.0% for the corresponding period last year.
State income tax credits related to recent expansion of Humminbird operations in Alabama added $1.4 million to net income for the current quarter. A deferred tax valuation allowance benefit of $2.2 million also favorably impacted net income this quarter. This helped improve net income by 14.0% to $9.0 million and boosted diluted EPS to 98 cents compared to 84 cents in the corresponding quarter last year. Johnson Outdoors management declined to provide guidance for the next quarter or fiscal year.
