Dorel Industries Inc. today announced strong results for the second quarter ended June 30, 2010. Total revenue for the period was up 10.3% to US$607.7 million from US$551.1 million for the same quarter a year ago. Net income was US$35.1 million or US$1.05 per diluted share compared with US$24.8 million or US$0.74 per diluted share for the corresponding quarter of 2009.
Year-to-date revenue was US$1.2 billion, up 11.9% from US$1.08 billion last year. Net income rose to US$72.5 million or US$2.18 per diluted share compared to US$52.8 million or US$1.58 per diluted share for the first half of 2009. Organic revenue growth in both the quarter and year-to-date was approximately 9.5%.
2009 results included significant "mark-to-market" losses on foreign exchange hedging instruments in the pre-tax amount of US$12.6 million in the quarter and US$12.1 million for the first half of the year. After tax, these losses represented the equivalent of US$0.27 per diluted share for the quarter and US$0.25 per diluted share for the first six months. While earnings in 2010 do not include material mark-to-market amounts, currency rate variations versus last year have significantly reduced earnings in all three segments. For the quarter this negative impact reduced pre-tax earnings by approximately US$11 million.
"We are proud of this quarter's results. Despite negative factors such as foreign exchange, high input costs and increasing ocean freight rates, our divisions performed well and succeeded in building business slowly but steadily," said Dorel, President and Chief Executive Officer Martin Schwartz. "We maintained our pace of innovation and accelerated marketing support. Solid top-line results, in conjunction with our cost and productivity efforts, enabled us to deliver meaningful profit improvement year over year.
"We are seeing the benefits of the on-going investments in our bicycle business through improved product development, solidifying our structure and promoting our brands. Our brands are gaining wider acceptance and our bicycles are more in demand. As we continue to capitalize on our strong business model in Home Furnishings, that segment was again a significant contributor to profits as consumers recognize the value of our products, particularly during these uncertain times."
Second quarter Juvenile revenue increased 6.2%, or US$15.1 million, to US$259.8 million. Organic revenue growth was approximately 8% in the quarter. This is consistent with strong first quarter organic revenue growth of just over 7%. Nearly two-thirds of the second quarter increase was in North America where Dorel Juvenile Group has maintained a steady pipeline of new products and has distinguished itself as a reliable "go to" supplier for its customers. Dorel Brazil, benefitting from a substantial demand in car seats due to new government legislation, had an excellent quarter and accounted for one-third of the improvement. Confirming the first half's improved retail climate in Europe, in Euro terms, revenues increased by approximately 8% over 2009.
Earnings in 2009 were reduced by mark-to-market losses on foreign exchange contracts and if these losses are excluded, earnings from operations in the 2009 quarter were US$29.4 million compared to 2010 earnings of US$25.6 million. Earnings in 2010 are being adversely affected by the decline in value of the Euro versus last year. While partially offset by a stronger Canadian dollar, as a whole, the negative impact on the segment in the second quarter of 2010 was around US$6 million pre-tax versus the prior year. Year-to-date this negative impact was also approximately US$6 million.
Second quarter Recreational/Leisure revenue increased by US$15.8 million, or 7.9%, to US$214.9 million. Year-to-date revenues are up 10.0% or US$36.0 million to US$396.6 million. The organic revenue increase was approximately 5% for both the quarter and year-to-date when the impact of new business acquisitions during 2009 and foreign exchange rate variations are excluded. Though less significant than Juvenile, earnings in 2010 are being negatively affected by the value of the Euro.
Cycling Sports Group (CSG) sales were up considerably over last year with exceptional demand for the division's elite racing bicycles such as the Cannondale SuperSix. As in the first quarter, demand for new model year products remains strong across all brands resulting in expansion of the dealer base and increases in multi-brand dealers.
Schwinn experienced a strong increase in POS year-over-year, due to the multi-million dollar advertising campaign launched in mid April, excellent retailer support and good early spring weather. While increasing selling, general and administration costs, the ad campaign has been effective in enhancing the Schwinn brand. Sales to the segment's mass merchant customers were hindered by a lack of supply due to the global shortage of ocean containers, a situation which is improving.
Home Furnishings Segment
Home Furnishings revenues increased 23.9% to US$133.0 million and by 20.6% to US$261.9 million for the second quarter and first half respectively. The increase was at the majority of the segment's divisions as its value-oriented furniture products continued to sustain good POS levels. Earnings for the quarter were improved at US$11.3 million in 2010, an increase of 46.4% from the prior year. Year-to-date earnings have increased 82.0%.
These gains were led by the turnaround at Cosco Home & Office which has produced solid earnings improvement. The progress was achieved despite a higher cost environment and a much stronger Canadian dollar which reduces the segment's earnings as two of its plants are located in Canada and the majority of their production is shipped to the US.
The tax rate in the second quarter was 19.9% and year-to-date is 21.5%, in line with expectations. This compares to 16.9% for the quarter and 16.7% year-to-date in 2009. The increase is due to variations in the jurisdictions in which the Company generated its income year over year. The Company maintains its expectation that the 2010 tax rate will be in the range of 18% to 22%.
The Board of Directors of Dorel declared its regular quarterly dividend of US$0.15 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 September 2, 2010 to shareholders of record as at the close of business on August 19, 2010.
Dorel's record results for the first six months have set the stage for a solid year. Revenues are expected to continue to exceed prior year levels. However the pace of earnings established during the first half will not be maintained in the third quarter, due principally to challenges in the Juvenile segment.
In its first quarter earnings release, the Company stated that margins could be affected by rising commodity and freight costs as the year progressed. While margins in the second quarter declined from first quarter levels, the impact of these rising costs was moderate. As the Company enters the third quarter, these issues, as well as the impact of foreign exchange rates will affect earnings in the third quarter. While rising commodity prices are expected to ease, it will take the current quarter to work through the existing inventory purchased at higher prices.
"We expect to see an easing of these headwinds in the fourth quarter. Juvenile will be introducing new products which will provide some pricing relief and a better mix of sales. This combined with more stable commodity costs is expected to improve margins as we move into the New Year. Our Recreational/Leisure and Home Furnishings segments are poised to perform well during the second half. Our focus is being maintained on innovative, value-added products. We will maintain our investments in this important area to ensure that retailers can consistently depend on Dorel for quality and reliability. As a leader in many of our categories, we will continue to offer consumers the products they need at popular price points," commented Mr. Schwartz.
Dorel Industries Inc. will hold a conference call to discuss these results today, August 5, 2010 at 1:00 P.M. Eastern Time. Interested parties can join the call by dialling 1-888-231-8191. The conference call can also be accessed via live webcast. If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-800-642-1687 and entering the passcode 87309516 on your phone. This tape recording will be available on Thursday, August 5, 2010 as of 3:00 P.M. until 11:59 P.M. on Thursday, August 12, 2010.
Complete financial statements will be available on the Company's website, and will be available through the SEDAR websites.
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 Bébé Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose, IronHorse 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 billion company with 4500 employees, facilities in nineteen countries, and sales worldwide.
Source: Dorel Industries Inc.
Have something to say? Share your thoughts with us in the comments below.