Revenues for the third quarter ended September 30, 2012 increased by $37.5 million, or 6.5%, to $613.3 million. This compares to $575.8 million posted a year ago. The total operating profit of the Company’s three industry segments was $35.2 million in the quarter versus $21.7 million in the prior year, an improvement of $13.5 million or 62.4%. The majority of the improvement was in the Juvenile segment which increased its operating profit by $12.0 million. Net income was $20.0 million, compared to $23.1 million recorded in the prior year and diluted earnings per share were $0.63 in 2012 compared to $0.71 in 2011. The main reason for this decrease in net income despite the increase in operating profit was that the third quarter of 2011 included a significant tax recovery of $8.3 million, or $0.25 cents per diluted share, that did not re-occur in 2012.
For the nine months ended September 30, 2012 revenues increased by $65.5 million, or 3.6%, to $1.868 billion from $1.803 billion the year before. The total year-to-date operating profit of the Company’s three industry segments was $128.5 million in 2012 versus $113.3 million in the prior year, an improvement of $15.2 million or 13.4%. Year-to-date, net income increased by 2.9% to $79.5 million from $77.2 in 2011. Diluted earnings per share were $2.48 in 2012 compared to $2.36 in 2011. After removing the impact of varying exchange rates and new businesses acquired, the organic revenue increase in the quarter was approximately 5% whereas for the year-to-date results it was approximately 2.5%.
In the third quarter of 2012, gross margins improved by 320 basis points to 22.8%, as compared to the 19.6% recorded in the prior year. Year-to-date gross margins have increased by 170 basis points to 23.4% from 21.7% in the prior year. The majority of the margin improvement was in the Juvenile segment which benefitted from a more stable cost environment, a better sales mix and the contribution of higher margin sales at Dorel Chile. In the quarter, the Company’s selling expenses increased by $7.3 million to 9.1% of revenues. This compares to 8.4% in 2011. Of the dollar increase, the majority is due to the acquisition of Dorel Chile at the end of 2011. The Company’s year-to-date selling expenses have increased by $24.2 million, or 17.2%. Two-thirds was due to the inclusion of Dorel Chile with the majority of the other increases being higher promotional costs in the Recreational / Leisure segment. As a percentage of revenues, this is 8.8% in 2012 versus 7.8% in the prior year.
As a percentage of revenues, general and administrative expenses for the quarter increased to 7.9% of revenues as compared to 6.7% of revenues in the prior year. There are three major components of the increase. Firstly, Dorel Chile is included in 2012 results but not in 2011 due to its November 2011 acquisition date. Secondly, the Recreational / Leisure segment has a higher run rate of general and administrative costs to support its growing business. Finally, corporate expenses include an increase of foreign exchange losses on certain monetary financial assets and liabilities of $3.2 million in the quarter and $3.1 million year-to-date. As these losses have no tax benefit this equates to $0.10 cents per diluted share for the quarter and year-to-date.
For the quarter, the Company’s finance expenses were $3.9 million in 2012 compared to $4.7 million in the prior year. Year-to-date these figures are $13.5 million for the current year versus $16.2 million in 2011. The year-to-date interest rate on its long-term borrowings was approximately 4.0%, as compared to an average of 4.5% in 2011. Included in these amounts is a year-to-date amount of $0.7 million (2011 - $0.7 million) in connection with the Company’s use of interest rate swaps used to reduce its exposure to the variability of interest rates, as well as $2.1 million (2011 - $1.6 million) related to interest recorded on the Company’s contingent consideration and put option liabilities.
The Company’s tax rate is governed by current domestic tax laws in the countries in which the Company operates and by the application of income tax treaties between various countries. The tax rate in the current year’s quarter was 18.0%, which was in line with expectations. In the third quarter of 2011, the Company had an income tax recovery of $8.7 million which was mainly due to the realization of a significant tax benefit of $6.2 million in the Netherlands where the Juvenile segment’s new product research and development (R & D) program qualified for the Dutch government’s “Innovation Box” program. In addition to this benefit, in the third quarter of 2011 the Company also recognized a net benefit of $2.1 million pertaining to the adjustment of tax balances upon the filing of final tax returns in several of its operating jurisdictions and due to the reversal of a valuation allowance on operating loss carryforwards.
Source: Dorel Industries Inc.
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