Dorel Industries Inc. saw revenues for the third quarter increase 3.1% to $436.3 million from $423.3 million in the same period last year. Net earnings for the quarter were $25.1 million or 76 cents per diluted share, down 2.0% from adjusted net earnings of $25.6 million or 78 cents last year.

The Recreational/Leisure division, which is primarily Pacific Cycle, reported third quarter revenues increased 7.9% to $76.4 million from $70.8 million last year. The revenue increase in the quarter was prompted by a combination of growing sales of Schwinn gas-powered motor scooters, new customers in the IBD chain, as well as sales of other recreational products. The gas motor scooter dealer network continues to increase with further gains anticipated by year end. Shipments of the new 2007 150 cc model began in September and “response has been strong and re-orders are already being placed.”

Gross margins in the third quarter were 20.0%, down 60 basis points from 20.6% recorded in 2005. The margins decreased because Pacific Cycle is selling Stingray’s “at cost” to reduce inventories. Removing these no margin sales from the equation, gross margins would have been 20.7%. As a result of the higher sales volume, gross margin dollars earned in the quarter increased by $700,000 over last year.

However, higher SG&A costs offset this gain. Total SG&A as a percentage of sales was 11.8% compared to 11.3% last year. Higher selling costs to develop the scooter program and higher legal costs were the principal reasons for the increase. In particular, Dorel has a number of legal cases that are not part of “the normal course of business” that boosted SG&A expenses by roughly $500,000. Apart from these legal expenses, Dorel would have seen SG&A for the Recreation and Leisure division actually decline.
On the bottom line, earnings from operations for the Recreation/Leisure division were down 4.8% to $6.0 million from $6.3 million.