Martin Schwartz has long complained the consumer products giant he leads, Dorel Industries Inc., gets no respect.
On Thursday, the Montreal company, which sells popular brands such as Safety 1st strollers and car seats, Schwinn bicycles and Sugoi athletic gear but is little known among Canadian investors, tried to shake off that impression. It doubled its dividend to 30 cents (U.S.) per share per quarter, bowing to long-standing pleas from investors to improve returns.
Furthermore, Mr. Schwartz said on a conference call with analysts that Dorel – which paid its first dividend, a 12.5-cents per share payment in 2007, upping that to 15 cents in 2010 – would now consider raising dividends “on an annual basis.” He said the company had been considering a dividend increase but wanted to wait for a positive quarter first. “We thought this would be a good time to start,” he said, adding the company is also in pursuit of acquisitions overseas.
The increased dividend came as Dorel announced a surge in profits for its second quarter, perking up the company’s widely traded B shares.
The company earned $30.3-million in the second quarter ended June 30, or 95 cents per share, up 32 per cent over the same period a year earlier, while revenue increased 2.4 per cent to $634-million.
“I would expect that the dividend increase has more to do with confidence in future cash flows than trying to get the share price up,” said CIBC analyst Mark Petrie. “But either way, an increase is long overdue.”
Dorel, which is tightly controlled by the Schwartz family, had a successful run from the 1980s to early 2000s, when a string of successful acquisitions established it as a leading supplier to U.S. mass merchants such as Wal-Mart Stores Inc.
But Dorel has been a stock market laggard following a seven-year stretch of misfortunes, starting with problems in its furniture business, followed by softening sales in its mass-market bike business and the effects of a recession and rising plastic prices. The stock, which analysts have long agreed is undervalued, has traded recently in the same range as it did in 1999, while profit growth has been sluggish.
Still, the company has steadily produced steady if unspectacular results and invested in new businesses, buying the manufacturer of high-end Cannondale bicycles in 2008 and expanding into the juvenile products retail business in South America last year.
Profits in the second quarter were helped by a bounce-back in the company’s U.S. juvenile products business after a sharp increase in its costs last year, while the company’s European business remained profitable despite ongoing economic woes. Dorel’s bicycle division, driven by Cannondale’s strong sales growth at independent bike stores, continued to account for the largest share of operating profit, at $21.6-million, on $252-million in sales.
Another issue hanging over the company is ownership and succession. Analysts have suggested Dorel would be worth more if it was broken up and sold in pieces, a suggestion Mr. Schwartz rejects. But in a recent interview with Report on Business Magazine, he suggested the family would “definitely look” if “the right deal” came along, and also raised the likelihood that he and his three family members who run the company would retire en masse, with nobody in the next generation lined up