EXCHANGES TSX: DII.B, DII.A
- Inventory levels reduced by US$90 million since year-end
- Home Furnishings experiences best quarter since Q4 2007
MONTREAL, May 7 /CNW Telbec/ - Dorel Industries Inc. (TSX: DII.B DII.A) today released results for the first quarter ended March 31, 2009. Revenues for the period were US$525.2 million, down 5.5% from last year's US$556.0 million. Net income was US$28.0 million or US$0.84 per diluted share, compared to US$35.1 million or US$1.05 per diluted share for the first quarter of 2008. Dorel CEO and President Martin Schwartz stated that Dorel put in a solid first quarter performance considering the economic environment.
"We reached and surpassed several important internal objectives which had been established for the quarter. Our earnings are ahead of plan and we have reduced our record level of inventory by US$90 million, exceeding our expectations as we made significant progress in reducing these high levels created by retailers drastically cutting their in-stock levels last year. This will translate into a much improved cash flow as we move through 2009. We are building on the progress made in our Home Furnishings businesses in the past year and expect the earnings seen thus far to continue to improve. In addition, we will take further costs out of operations throughout the organization. In light of the reality of the current economic situation, we are pleased where point-of-sale (POS) levels are at our major North American customers as consumers recognize the value of many of our various product lines," commented Mr. Schwartz.
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Summary of Financial Highlights
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First Quarters Ended March 31
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All figures in thousands of US $, except per share amounts
2009 2008 Change %
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Revenues 525,230 556,034 -5.5%
Net income 28,029 35,133 -20.2%
Per share - Basic 0.84 1.05 -20.0%
Per share - Diluted 0.84 1.05 -20.0%
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Average number of shares outstanding
- diluted weighted average 33,419,225 33,397,803
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Juvenile Segment
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First Quarters Ended March 31
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2009 2008
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$ % of rev. $ % of rev. Change%
Revenues 253,961 308,684 -17.7%
Gross Profit 72,710 28.6% 91,018 29.5% -20.1%
Earnings from
operations 28,720 11.3% 36,732 11.9% -21.8%
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The Juvenile revenue decrease of 17.7% occurred in both North America and Europe, but was most acute in Europe. If the impact of foreign exchange is excluded, for the segment as a whole, the revenue decline was approximately 9%. Sales outside of the US make up more than half of the segment's total, therefore the strength of the US dollar has a significant effect on both revenues and earnings. European sales declined by 26% from last year, but more than half of that decline was due to the impact of foreign exchange. Excluding this factor, the true organic revenue decline in Europe was approximately 12%.
Contributing to the first quarter's drop in sales was the fact that retailers continued to hold back orders through most of January. Stock replenishment improved later in the quarter in North America but has remained soft in Europe, particularly in export markets. The gross margin decline of 90 basis points was the result of lower margins in Canada, due to the stronger US dollar, and the higher proportion of North American sales as opposed to Europe. On a standalone basis, gross margins were actually higher in both Europe and the US, however the lower proportion of high margin European sales had the effect of reducing margins for the segment as a whole.
Results at DJG in the US in the first quarter were particularly strong. Their earnings exceeded plan and order levels on hand heading into the second quarter are strong. DJG has secured new placements and they are expected to continue the solid start to the year. In Canada there are challenges around the strength of the US dollar, but business itself is looking more positive going forward.
Recreational/Leisure
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First Quarters Ended March 31
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2009 2008
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$ % of rev. $ % of rev. Change%
Revenues 161,428 140,459 14.9%
Gross Profit 37,028 22.9% 34,498 24.6% 7.3%
Earnings from
operations 9,977 6.2% 14,810 10.5% -32.6%
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Total Recreational/Leisure revenue was up 14.9% for the first quarter while earnings from operations decreased 32.6%. Organic revenue experienced a decline, but was concentrated at mass merchant customers which were slower to replenish their inventory levels in bikes as compared to the other segments. Sales through the IBD channel and SUGOI experienced organic growth of 8% and 9% respectively. Gross margins decreased by 170 basis points due principally to a less profitable product mix as consumers shifted to lower price point product. Expenses increased considerably as the segment continued to invest in its infrastructure and in product innovation, however given the environment we are keenly aware of the importance of cutting costs wherever possible and are actively reducing spending as needed.
As part of that program, last month, Dorel announced a multi-faceted Worldwide Centres of Excellence program in a continuation of its strategy to become the global innovation leader in the recreation and leisure markets. A major component of the plan is the expansion of the Bethel, CT facility into a world-class innovation center. All North American product development, marketing and business management for the Cannondale, Schwinn, GT and Mongoose brands sold to the IBD channel is being consolidated at Bethel. The centre for the development of bicycles for the mass market remains in Madison, Wisconsin.
Home Furnishings
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First Quarters Ended March 31
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2009 2008
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$ % of rev. $ % of rev. Change%
Revenues 109,841 106,891 2.8%
Gross Profit 13,472 12.3% 11,537 10.8% 16.8%
Earnings from
operations 4,385 4.0% 940 0.9% 366.5%
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Home Furnishings experienced its best quarter since the fourth quarter of 2007. The revenue increase was due to higher sales of Ameriwood's ready-to-assemble (RTA) furniture. RTA demand remained strong as consumers seek value-added products, and was driven by increases at certain mass merchant customers and do-it-yourself (DIY) retailers. The majority of the earnings improvement was also attributable to Ameriwood as the gross margin improvement of 150 basis points for the segment as a whole was due primarily to them benefiting from the lower value of the Canadian dollar versus the US dollar, as well as improved manufacturing productivity.
Efforts to improve Cosco Home & Office's performance are bringing results. Operations and product offerings are more focused and several new important listings have been garnered. While the division still expects to lose money in 2009, plans are well on track for a return to profitability next year.
Going forward, the Home Furnishings segment is expected to continue its strong start to the year. As an example, several divisions have commitments from various retailers for significant "back to college" programs that will lead to incremental sales.
Other - As retailers began to replenish their stock levels in the first quarter of 2009, orders that were delayed in the fourth quarter of 2008 were filled. As a result, in the first quarter of 2009 inventories declined US$89.8 million. As of March 31 inventories are US$419.7 million compared to US$509.5 million as at December 30, 2008. The benefit of the inventory reduction will be seen through the balance of the year and will be a major contributor to the Company's expected cash flow target of at least $150 million for the year. - Based on an analysis of how to best grow the Schwinn brand within the Power Sports category, the decision has been made to re-focus efforts on the motor scooter business and license the brand to a recognized leader. As such, in April the Company signed a licensing agreement with Tomberlin PowerGroup International, of Augusta, GA, to become the exclusive US distributor of Schwinn Motor Scooters and related products. Tomberlin PowerGroup offers a full line of both on and off road vehicles that include Tomberlin ATV's and Utility Vehicles. It was determined that an agreement with a proven industry leader such as Tomberlin was the best long term strategy and will assure the growth of Schwinn as one America's best known brands within the category. - The Board of Directors of Dorel declared its regular quarterly dividend of US$0.125 per share on the outstanding number of the Company's Class A Multiple Voting Shares, Class B Subordinate Voting Shares and Deferred Share Units. The dividend is payable on June 4, 2009 to shareholders of record as at the close of business on May 21, 2009.
Outlook
"The year has started off well for us and all of our management teams are extremely focused on performance. The positive results of our efforts are apparent in the first quarter figures. Given the context of the economic situation, we are more than satisfied with the start to the year. Consumers have again demonstrated their preference for our value-added product lines in the opening and mid-price point categories, where we generate the majority of our revenue. Juvenile remains an excellent, profitable business as parents consistently put their families first. We are seeing recovery in North American juvenile markets, with POS levels remaining relatively steady and where we are picking up listings from competitors. The slowdown started later in Europe and, as such, it appears recovery there will lag the US. We are quite optimistic for the balance of 2009 in Juvenile and have a number of innovative new products in the pipeline. As stated in our year-end results release issued in March, non-cash unrealized gains on foreign exchange contracts in the amount of US$10.5 million pre-tax or US$7.4 million after tax were recognized in 2008 that pertain to 2009. While this is still expected to negatively affect the current year, the impact was not material in the first quarter, but will impact the balance of the year," stated Mr. Schwartz.
"The situation in bikes remains unpredictable as consumer buying patterns have been inconsistent. Meanwhile we have made important investments in this segment for the future, while at the same time being highly prudent with expenses. One exception, however, is in product development, particularly with Recreation/Leisure's new Worldwide Centres of Excellence strategy. In Home Furnishings, indications point to a good 2009 led by Ameriwood which is now a solid money maker. The expertise that turned around that operation is now being focused on Cosco Home & Office.
"Even after considering all of the issues in 2009, our full year outlook remains unchanged. We are committed to reducing expenses and to building cash flow, which we anticipate will be at least US$150 million this year. We also expect input costs will remain stable through 2009," concluded Mr. Schwartz.
Conference Call
Dorel Industries Inc. will hold a conference call to discuss these results today, May 7, 2009 at 1:00 P.M. Eastern Time. Interested parties can join the call by dialling 1-800-814-4860. The conference call can also be accessed via live webcast at www.dorel.com , www.newswire.ca or www.q1234.com. If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-877-289-8525 and entering the passcode 21304925(number sign) on your phone. This tape recording will be available on Thursday, May 7, 2009 as of 3:30 P.M. until 11:59 P.M. on Thursday, May 14, 2009.
Complete financial statements will be available on the Company's website,
www.dorel.com, and will be available through the SEDAR website.
Profile
Dorel Industries Inc. (TSX: DII.B, DII.A) is a world class juvenile products and bicycle company. Established in 1962, Dorel creates style and excitement in equal measure to safety, quality and value. The Company's lifestyle leadership position is pronounced in both its Juvenile and Bicycle categories with an array of trend-setting products. Dorel's powerfully branded products include Safety 1st, Quinny, Cosco, Maxi-Cosi and Bebe Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose and SUGOI in Recreational/Leisure. Dorel's Home Furnishings segment markets a wide assortment of furniture products, both domestically produced and imported. Dorel is a US$2.2 billion company with 4700 employees, facilities in eighteen countries, and sales worldwide.
Caution Concerning Forward-Looking Statements
Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of Dorel Industries Inc. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. The business of the Company and these forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ from expected results. Important factors which could cause such differences may include, without excluding other considerations, increases in raw material costs, particularly for key input factors such as particle board and resins; increases in ocean freight container costs; failure of new products to meet demand expectations; changes to the Company's effective income tax rate as a result of changes in the anticipated geographic mix of revenues; the impact of price pressures exerted by competitors, and settlements for product liability cases which exceed the Company's insurance coverage limits. A description of the above mentioned items and certain additional risk factors are discussed in the Company's Annual MD&A and Annual Information Form, filed with the securities regulatory authorities. The risk factors outlined in the previously mentioned documents are specifically incorporated herein by reference. The Company's business, financial condition, or operating results could be materially adversely affected if any of these risks and uncertainties were to materialize. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
DOREL INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
ALL FIGURES IN THOUSANDS OF US $
as at as at
March 31, December 30,
2009 2008
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(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22,490 $ 16,966
Accounts receivable 377,877 316,267
Income taxes receivable 17,150 19,798
Inventories 419,661 509,467
Prepaid expenses 19,028 16,236
Future income taxes 38,499 37,342
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894,705 916,076
PROPERTY, PLANT AND EQUIPMENT 151,876 158,895
INTANGIBLE ASSETS 387,792 395,742
GOODWILL 532,309 540,187
OTHER ASSETS 18,811 19,573
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$ 1,985,493 $ 2,030,473
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 8,623 $ 4,398
Accounts payable and accrued liabilities 319,955 380,915
Income taxes payable 28,158 30,164
Future income taxes 1,295 2,713
Current portion of long-term debt 63,833 8,879
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421,864 427,069
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LONG-TERM DEBT 419,792 450,704
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PENSION & POST-RETIREMENT BENEFIT OBLIGATIONS 19,568 20,072
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FUTURE INCOME TAXES 109,442 111,874
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OTHER LONG-TERM LIABILITIES 5,107 6,010
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SHAREHOLDERS' EQUITY
CAPITAL STOCK 177,403 177,422
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CONTRIBUTED SURPLUS 16,676 16,070
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RETAINED EARNINGS 759,819 738,113
ACCUMULATED OTHER COMPREHENSIVE INCOME 55,822 83,139
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815,641 821,252
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1,009,720 1,014,744
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$ 1,985,493 $ 2,030,473
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DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS
Three Months Ended
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March 31, March 31,
2009 2008
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(unaudited) (unaudited)
Sales $ 521,415 $ 551,033
Licensing and commission income 3,815 5,001
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TOTAL REVENUE 525,230 556,034
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EXPENSES
Cost of sales 402,020 418,981
Selling, general and administrative
expenses 77,224 80,429
Depreciation and amortization 5,679 6,018
Research and development costs 2,475 2,713
Restructuring costs 2 823
Interest on long-term debt 4,059 4,705
Other interest 193 (97)
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491,652 513,572
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Income before income taxes 33,578 42,462
Income taxes 5,549 7,329
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NET INCOME $ 28,029 $ 35,133
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EARNINGS PER SHARE
Basic $ 0.84 $ 1.05
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Diluted $ 0.84 $ 1.05
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SHARES OUTSTANDING
Basic - weighted average 33,401,744 33,397,192
Diluted - weighted average 33,419,225 33,397,803
DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ALL FIGURES IN THOUSANDS OF US $
Three Months Ended
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March 31, March 31,
2009 2008
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(unaudited) (unaudited)
NET INCOME $ 28,029 $ 35,133
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OTHER COMPREHENSIVE INCOME:
Cumulative translation adjustment:
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Net change in unrealized foreign currency
(losses) gains on translation of net
investments in self-sustaining foreign
operations, net of tax of nil (27,128) 30,063
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Net changes in cash flow hedges:
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Net losses on derivatives designated as
cash flow hedges, net of tax of $342 (189) -
Reclassification to income - -
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(189) -
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TOTAL OTHER COMPREHENSIVE INCOME (27,317) 30,063
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TOTAL COMPREHENSIVE INCOME $ 712 $ 65,196
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DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ALL FIGURES IN THOUSANDS OF US $
Three Months Ended
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March 31, March 31,
2009 2008
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(unaudited) (unaudited)
CAPITAL STOCK
Balance, beginning of period $ 177,422 $ 177,271
Repurchase and cancellation of shares (19) -
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Balance, end of period 177,403 177,271
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CONTRIBUTED SURPLUS
Balance, beginning of period 16,070 11,623
Stock-based compensation 606 1,481
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Balance, end of period 16,676 13,104
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RETAINED EARNINGS
Balance, beginning of period 738,113 641,981
Net income 28,029 35,133
Adjustment to opening retained earnings
from adopting a new accounting standard
for inventories, net of tax of $1,415 (2,096) -
Premium paid on share repurchase (23) -
Dividends on common shares (4,199) (4,179)
Dividends on deferred share units (5) (3)
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Balance, end of period 759,819 672,932
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ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period 83,139 106,871
Total other comprehensive income (27,317) 30,063
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Balance, end of period 55,822 136,934
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TOTAL SHAREHOLDERS' EQUITY $ 1,009,720 $ 1,000,241
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DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALL FIGURES IN THOUSANDS OF US $
Three Months Ended
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March 31, March 31,
2009 2008
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(unaudited) (unaudited)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income $ 28,029 $ 35,133
Items not involving cash:
Depreciation and amortization 10,468 11,086
Amortization of deferred financing costs 50 59
Future income taxes (2,025) (3,671)
Stock based compensation 606 1,481
Pension and post-retirement defined
benefit plans 686 31
Restructuring activities (87) (684)
Loss on disposal of property, plant and
equipment 6 20
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37,733 43,455
Net changes in non-cash balances related to
operations:
Accounts receivable (66,561) (69,540)
Inventories 84,074 16,673
Prepaid expenses (3,065) 763
Accounts payable, accruals and other
liabilities (55,489) 15,810
Income taxes 1,229 3,217
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(39,812) (33,077)
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CASH (USED BY) PROVIDED BY OPERATING
ACTIVITIES (2,079) 10,378
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FINANCING ACTIVITIES
Bank indebtedness 3,784 (1,010)
Increase of long-term debt 54,893 252,175
Repayments of long-term debt (31,065) (55,156)
Share repurchase (42) -
Dividends on common shares (4,199) (4,179)
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CASH PROVIDED BY FINANCING ACTIVITIES 23,371 191,830
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INVESTING ACTIVITIES
Acquisition of subsidiary companies (6,488) (186,812)
Additions to property, plant and equipment
- net (1,341) (5,281)
Intangible assets (4,841) (4,634)
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CASH USED IN INVESTING ACTIVITIES (12,670) (196,727)
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Effect of exchange rate changes on cash
and cash equivalents (3,098) 1,584
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NET INCREASE IN CASH AND CASH EQUIVALENTS 5,524 7,065
Cash and cash equivalents, beginning of
period 16,966 22,513
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,490 $ 29,578
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DOREL INDUSTRIES INC.
INDUSTRY SEGMENTED INFORMATION
FOR THE FIRST QUARTERS ENDED MARCH 31
ALL FIGURES IN THOUSANDS OF US $
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Total Juvenile
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2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
Total revenue $ 525,230 $ 556,034 $ 253,961 $ 308,684
Cost of sales 402,020 418,981 181,251 217,666
Selling, general and
administrative 71,996 75,037 38,158 47,140
Depreciation and
amortization 5,655 5,998 3,991 4,405
Research and development
costs 2,475 2,713 1,839 1,966
Restructuring costs 2 823 2 775
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Earnings from operations 43,082 52,482 $ 28,720 $ 36,732
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Interest 4,252 4,608
Corporate expenses 5,252 5,412
Income taxes 5,549 7,329
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Net income $ 28,029 $ 35,133
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Earnings per Share
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Basic $ 0.84 $ 1.05
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Diluted $ 0.84 $ 1.05
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Recreational / Leisure Home Furnishings
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2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
Total revenue $ 161,428 $ 140,459 $ 109,841 $ 106,891
Cost of sales 124,400 105,961 96,369 95,354
Selling, general and
administrative 25,734 18,586 8,104 9,311
Depreciation and
amortization 1,317 1,102 347 491
Research and development
costs - - 636 747
Restructuring costs - - - 48
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Earnings from operations $ 9,977 $ 14,810 $ 4,385 $ 940
Interest -----------------------------------------------
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