DOREL COMPLETES RECORD YEAR
• Revenues increase 8%
• Pre-tax earnings improve by 10%
Montreal, March 10, 2011 — Dorel Industries Inc. (TSX: DII.B DII.A) today announced results for the fourth quarter and year ended December 30, 2010.
Revenue for the fourth quarter decreased 1.1% to US$539.5 million from US$545.3 million a year ago. Net income rose 4.2% to US$25.2million, or US$0.76 per diluted share, from US$24.2 million, or US$0.73 per diluted share last year.
Revenue for the full year rose 8.1% to US$2.3 billion as compared to US$2.1 billion in 2009. Net income was up 19.2% to US$127.9 million, or US$3.85 per diluted share from US$107.2 million or US$3.21 per diluted share last year. Excluding the impact of business acquisitions and year-over-year foreign exchange rate variations, mainly in the Juvenile Segment, organic sales growth in 2010 exceeded 7%.
“The fourth quarter was difficult, but we are pleased with Dorel’s full year performance. Our divisions effectively managed challenging economic conditions with value-oriented product offerings, a strong commitment to new product development and strategic brand support. In an environment of reduced consumer discretionary spending and rising input costs, Dorel was able to deliver revenue growth of over 8% and improved earnings over the prior year. If there was ever a test of the acceptance of Dorel’s brands and products, the past two years have provided it. The fact that we have done well through this period speaks volumes to our strong position in the many global markets in which we operate,” commented Dorel CEO and President, Martin Schwartz.
“Despite this success, we were not satisfied with the performance of certain of our U.S. businesses that service mass market customers. Point-of-sale levels at these customers slowed in the second half and as a result the retailers reacted by not only reducing replenishment orders, but also by aiming to further cut their own in-store inventory levels. This left us with a lot of inventory at year end that we had anticipated selling in the fourth quarter. We also had to contend with higher container freight rates and raw material costs that impacted earnings. As we enter 2011 we will work through the extra inventory and we are expecting new products in 2011 to drive improvements in the months ahead.”
Net income in 2010 was positively impacted by a lower tax rate as compared to 2009. A significant reason for the rate decrease was the recognition of incremental tax benefits of US$9.7 million pertaining to the resolution of several prior years’ estimated tax positions. This non-cash amount, which represents US$0.29 per diluted share, was not recognized for accounting purposes in prior years and was only recorded in the fourth quarter of 2010 when the relevant tax authorities confirmed the recognition of these benefits.
Juvenile revenue decreased 5% from the fourth quarter last year. However, excluding the impact of foreign exchange, the organic sales decline was less than 2%, due principally to a slowdown at retail in the U.S. The decline in the U.S. was also the principal driver of decreased earnings in the quarter. While sales in the segment’s other markets increased, the gains did not fully offset the U.S. decline. Driven by car seat sales, European sales increased by 5% in local currency but declined 3.5% in U.S. dollars. In Canada, sales increased over last year and though less than 10% of total segment revenue, Brazil and Australia both posted increased fourth quarter sales.
2010 revenues grew by US$35.2 million or 3.5% compared to 2009. The segment’s organic revenue increase was just above 4%, excluding the impact of foreign exchange. Growth was in all markets with the exception of the U.S. which encountered a difficult retail environment, particularly during the second half. Europe rebounded in 2010 and in Euros, recorded sales gains of almost 9%. When translated to U.S. dollars, the improvement was approximately 4%. The strength in Europe was in most markets with the exception of Spain where the economic recovery continued to lag behind the rest of the continent. Children’s car seats remain Europe’s core product and were the principal driver of the increased revenues.
In Canada, sales grew organically. Results were further boosted when converted to U.S. dollars due to the stronger Canadian dollar. In Australia, sales were helped by the stronger U.S. dollar, but in local currency were down as the retail market there was challenging. 2010 was the first year of full operations for Dorel Brazil and it was an excellent year as sales benefited from new car seat legislation that was enforced locally. Sales in Brazil were approximately US$27 million.
Prior year earnings were negatively impacted by out of period foreign exchange losses totaling US$12.6 million. As such, excluding these prior year losses, earnings year over year declined. While 2010 did not include such amounts, Dorel Europe did experience less favourable rates of exchange versus the Euro although this situation eased in the second half of the year. Earnings for the segment were also affected by higher year-over-year costs for certain raw materials, principally resin, and higher container freight rates.
As a result of recalls in the crib industry and new legislation banning drop-side cribs, Dorel has elected to cease the importation of cribs until the impact of these new regulations has been fully assessed. Though less than 2% of segment sales over the past two years, the negative impact of the crib business on earnings in 2010 was approximately US$5 million.
As such, as the Company enters 2011 these costs will have much less of an impact.
Recreational/Leisure revenues increased by US$30.2 million or 17.2%. Organic sales were higher by almost 19% when the impact of varying rates of exchange rates relative to the U.S. dollar is excluded. Sales increased in the mass market category by almost 20%, supported by the successful Schwinn brand marketing campaign initiated earlier in the year and repeated in November to coincide with the holiday shopping period. Sales to IBD customers also grew by approximately 20% as successful new model introductions have been met with enthusiasm in both Europe and North America. Importantly, the gains are in the majority of the brands sold to IBD customers and are not limited only to Cannondale.
Earnings improved from last year based on increased sales and higher margins, but results at the Apparel Footwear Group (“AFG”) were disappointing and were a drag on the segment’s earnings. Despite its small size relative to the total segment, quarter-over-quarter earnings decreased by over US$2 million at AFG. Going into 2011, renewed focus on this business and earnings improvement initiatives are expected to help the segment’s performance in 2011.Full year
Revenues were up 13.7% to US$775.0 million, compared to US$681.4 million a year ago. Organic sales growth was approximately 11%. All divisions contributed to the increase, with the exception of AFG whose sales were flat. There were several reasons for the improvement. In North America, the successful Schwinn advertising campaign increased sales, particularly at mass merchants, contributing to single digit sales growth. The advertising spent for this initiative exceeded US$5 million for the year. Sales to large customers in Canada were up over 25% from the prior year and have more than doubled since 2008. Cycling Sports Group (CSG) sales to IBD customers in both the U.S. and Europe increased by over 20% with new product innovation driving sales of new models introduced in the year. Sell through at retail was strong and market penetration increased.
Earnings in the segment for the year increased by 31.3%, as many of the positive elements influencing the fourth quarter were prevalent throughout the year. The business model put in place soon after the Cannondale / Sugoi acquisition in 2008, began to pay dividends in 2010. A renewed focus on supporting the segment’s many known brands and a clearer direction on new product development paid dividends in the form of improved earnings.
SOURCE: Dorel Industries
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