Johnson Outdoors Inc. announced an increase in net sales and slightly lower net income for the fiscal quarter ended April 1, 2005. The Company benefited from another strong performance by the Marine Electronics business unit and reduced operating losses in Watercraft. Second quarter results also reflected the anticipated slow-down of military tent sales in Outdoor Equipment and the impact of soft markets and sluggish profits in Diving.
Total Company net sales in the second quarter rose 11.1% over the comparable 2004 period due solely to the addition of the Humminbird(R) brand, which was acquired in May 2004 and added $15.8 million to Marine Electronics' sales this quarter. The planned discontinuance of low-margin specialty boats resulted in the unfavorable comparison year-on-year in Watercraft revenues. Diving sales benefited from favorable currency translation ($0.6 million), however not enough to reduce the impact of soft markets worldwide. The projected decline of military tent sales accounted for the majority of the reduction in sales during the quarter in Outdoor Equipment.
Operating profit declined $0.3 million in the second quarter versus the same period last year. Humminbird(R) added $2.0 million to operating profit for the quarter, and increased efficiency in manufacturing drove the $1.1 million improvement in Watercraft operating losses. In Diving, lower sales and lower margins unfavorably impacted profits as investments in innovation and restructuring efforts have yet to take effect. Declines in military tent sales accounted for the majority of the profit shortfall in Outdoor Equipment. The Company incurred $1.0 million in costs related to the recently terminated privatization initiative compared to $0.3 million during the second quarter last year. Net income for the quarter of $4.7 million ($0.54 diluted earnings per share) compared to $4.8 million ($0.55 diluted earnings per share) in the comparable 2004 period.
“Marine Electronics continues to drive growth and, after two years of hard work, Watercraft is stronger, less complex and more competitive. Efforts to rebuild momentum in Diving amidst a struggling marketplace and to ensure better balance in performance across the Outdoor Equipment portfolio are well underway. We are committed to doing what's right to ensure Johnson Outdoors and all our businesses are sustainable, profitable and viable for the long-term,” said Helen Johnson-Leipold, Chairman and Chief Executive Officer, Johnson Outdoors Inc.
Increased net sales (14.3%) over the same six-month period last year were due almost solely to the addition of Humminbird(R), which added $24.8 million to sales and offset shortfalls in all other business units. Operating profit fell $1.7 million below the comparable 2004 period due to a sharp drop in Diving profits driven by a combination of lower sales and gross margins, new product development spending and initial restructuring costs in Europe. Operating losses improved by $1.8 million in the Company's Watercraft business unit year-to-date. Net income for the first half was $3.7 million, or $0.42 per diluted share, down from $5.0 million or $0.57 per diluted share in the year ago first half.
The Company cautions investors not to rely on financial projections for 2005 and 2006 included in its shareholder proxy dated February 15, 2005 due to current developments in the military and Diving markets.
“With the arrival of warmer weather, we shift focus from customer sell-in to consumer sell-thru. This is the time when weather and economy can have the biggest impacts – positive or negative – on our businesses,” observed Ms. Johnson-Leipold. “We have stepped up investment in innovation over the past two years to better provide a strong pipeline of new products that are designed to represent the best price/value option in the marketplace. Those investments are paying off as new product sales reflect about a third of total revenue.”
Reduced interest costs and favorable currency gains year-to-date helped reduce the operating profit shortfall from the prior year by $0.7 million, resulting in pretax profit of $6.9 million, $1.0 million below a year ago. The effective tax rate stands at 46.5% year-to-date, subject to a final determination regarding the deductibility of costs incurred related to the recently terminated privatization initiative.
The Company's debt to total capitalization stands at 23% at the end of the quarter versus 30% at April 2, 2004. Debt, net of cash, increased due to the $28 million acquisition of Humminbird(R) in May of 2004 and stands at $40.0 million versus $30.9 million at April 2, 2004. Depreciation and amortization in the quarter was $2.4 million and year-to-date was $5.0 million. Both are greater than last year's $2.1 million and $3.9 million respectively due to the impact from the acquisition of Humminbird(R). Capital spending totaled $1.8 million for the quarter and $3.5 million year-to-date compared with last year's $2.0 million and $3.4 million respectively