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Press release from PR Newswire

DOREL REPORTS FIRST QUARTER RESULTS

Wednesday, May 18, 2011

DOREL REPORTS FIRST QUARTER RESULTS08:55 EDT Wednesday, May 18, 2011 Cannondale's innovative models continue to impress Inventory levels returning to normal EXCHANGES TSX: DII.B, DII.A MONTREAL, May 18 /PRNewswire-FirstCall/ - Dorel Industries Inc. (TSX: DII.B DII.A) today released results for the first quarter ended March 31, 2011. Revenue reached US$607.8 million, up 1.9% from US$596.3 million a year ago.  Net income was US$31.2 million or US$0.94 per diluted share, compared to last year's US$38.2 million or US$1.15 per diluted share. Upon transition to International Financial Reporting Standards (IFRS), previously issued earnings per diluted share for the first quarter of 2010 which was reported as US$1.12, have been restated to US$1.15. "A highlight of the first quarter results is the momentum of the Company's bicycle business, particularly in the IBD channel.  Improved earnings in that segment were offset by a challenging retail environment for our U.S. juvenile products business.  Home Furnishings revenues were stronger both year-over-year and particularly sequentially, but factors including high commodity prices and freight rates, as well as the weakening US dollar resulted in lower earnings compared to last year's first quarter.  I am pleased to report that the high 2010 year-end inventories have started to come down and this will convert into improved cash flow as we move through the year," stated Dorel CEO and President Martin Schwartz.   Summary of Financial Highlights First Quarters Ended March 31 All figures in thousands of US $, except per share amounts   2011   2010   Change % Total revenues 607,783   596,313   1.9% Net income 31,164   38,206   -18.4%   Per share - Basic 0.95   1.16   -18.1%   Per share - Diluted 0.94   1.15   -18.3% Average number of shares outstanding - diluted weighted average 33,007,150   33,241,496       Juvenile Segment             First Quarters Ended March 31   2011 2010     $ % of rev. $ % of rev. Change % Total revenues 269,620   285,793   -5.7% Gross profit 71,620 26.6% 83,099 29.1% -13.8% Operating profit 23,672 8.8% 33,131 11.6% -28.6% The first quarter revenue decrease of 5.7% was in most of the Company's Juvenile operating divisions, but was most pronounced in the United States, where consumer spending in this category continues to be down at the retail level.  In local currencies, European sales decreased by less than 2% from last year. As foreign exchange rates were relatively consistent year-over-year, revenues in local currencies were down by a similar percentage.  Sales of mid-price point Safety 1st products have been well received by consumers in Europe and car seats will be offered later this year in the opening-price point category. Earnings were affected by lower sales as well as higher input costs, a less profitable product mix at Dorel Juvenile Group USA and higher costs in Europe due to less favourable foreign exchange rates on that division's US dollar purchases. However, recent strength in the Euro will help the Juvenile segment going forward if the trend continues. The current US retail environment is making the acceptance of price increases difficult, a situation which is being closely monitored and addressed with new product introductions scheduled throughout the balance of the year. Recreational/Leisure   First Quarters Ended March 31   2011 2010     $ % of rev. $ % of rev. Change % Total revenues 200,427   181,677   10.3% Gross profit 50,995 25.4% 46,123 25.4% 10.6% Operating profit 17,771 8.9% 15,071 8.3% 17.9% The US$18.8 million or 10.3% increase in Recreational/Leisure sales was entirely organic with operating profit improving by 17.9%.  Revenue growth was above 25% in the IBD channel as the momentum created last year with the introduction of the well received 2011 new model year product line continued into this year's first quarter.  Sales growth was in all markets, but was strongest for the Cannondale and GT brands in Europe and Australia. The Cannondale dealer base continues to grow due to innovation and brand building. Sales in the segment's mass merchant category declined mid-single digits, due in part to poor weather and the late Easter holiday period. The Liquigas-Cannondale pro-cycling team is currently competing in the Giro d'Italia which runs until May 29th. The Giro is one of the world's three Grand Tours and will provide outstanding visibility for the Cannondale brand.  As announced last year, Dorel is now a Co-Title sponsor of the renamed "Liquigas-Cannondale" race team. The team came first in the 2010 Giro. Home Furnishings   First Quarters Ended March 31   2011 2010     $ % of rev. $ % of rev. Change % Total revenues 137,736   128,843   6.9% Gross profit 17,186 12.5% 19,824 15.4% -13.3% Operating profit 7,750 5.6% 10,703 8.3% -27.6% First quarter Home Furnishings revenue increased at several major customers and was led principally by increased sales of upholstered furniture and futons. On-line sales continue to grow in importance for this segment and revenues from this distribution channel nearly doubled from 2010. This segment's profit was the most affected of all Dorel businesses by increased input costs through the first three months this year, with steel and polyester experiencing the most dramatic increases. Year-over-year higher freight rates also reduced earnings as did the weakening US dollar. A delay in obtaining price increases also had an impact on operating profit. The increase in sales volume and increased factory efficiencies helped offset some of the above mentioned cost increases. Other The 2011 first quarter tax rate was 13.7% versus 21.7% in the prior year. The principal cause of the rate decrease was lower earnings within higher tax rate jurisdictions. The Company has stated that for the year it expects its annual tax rate to be between 15% and 20%, and despite the lower rate recorded in the first quarter this expectation remains. However, variations in earnings across quarters mean that this rate may vary significantly from quarter to quarter. As at the 2010 year-end the Company had experienced a significant increase in inventory levels as sales fell short of expectations in the fourth quarter of 2010 and inventories rose above normal levels. Therefore, as was expected, in the first quarter of 2011 inventories declined from US$510.1 million as at December 30, 2010 to US$493.0 million as at quarter end. The decline was as expected in Juvenile and Home Furnishings with a combined decrease of over 10%. However, partially offsetting that was an increase in Recreational / Leisure in anticipation of second quarter shipping, the strongest of the year for that segment. Though much higher than inventory levels as at March 31, 2010 which were US$373.0 million, 2011 inventories are more in line with current requirements, whereas in 2010 the Company had allowed inventories to fall to below normal levels. Quarterly dividend 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 June 15th, 2011 to shareholders of record as at the close of business on June 1st, 2011. Outlook The U.S. retail environment, particularly in Juvenile, continues to pose challenges. As evidenced by lower margins in the Juvenile and Home Furnishings segments, high input costs have not receded and the majority of these higher costs are being absorbed by the Company at this time. In Recreational/Leisure, the solid start to the year is expected to continue with an overall improved performance over 2010. Dorel has invested heavily in its bicycle brands and coupled with the enthusiastic acceptance of new models, growth is occurring in the IBD dealer network. The Company is optimistic for the balance of the year in its mass merchant channel as point-of-sales activity has improved in recent weeks. The Company remains committed to new product development and strategic brand support as the best way to ensure it continues to bring value to its customers and consumers. An illustration of this is the work being done at the new Dorel Technical Center for Child Safety which has recently developed a next generation crash force energy management technology which provides Dorel with an important edge over other car seat manufacturers. Other important research is underway and will be announced at next week's Annual Meeting of Shareholders. First quarter inventory levels were reduced as expected and will continue to come down to appropriate levels. The Company fully anticipates that cash flow will increase significantly through the year as inventory levels are reduced. "Despite the current short-term challenges we are not wavering from our commitment to new product development in all our segments. We realize that to successfully navigate an environment of rising costs and prudent consumers, we need to promote our brands and bring new exciting products to market that will create demand, allowing us to improve profitability," commented Mr. Schwartz. Conference Call Dorel Industries Inc. will hold a conference call to discuss these results today, May 18, 2011 at 1:00 P.M. Eastern Time. Interested parties can join the call by dialling 1-877-974-0445. The conference call can also be accessed via live webcast at www.dorel.com or www.newswire.ca. 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 4437451# on your phone. This tape recording will be available on Wednesday, May 18, 2011 as of 4:00 P.M. until 11:59 P.M. on Wednesday, May 25, 2011. 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 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$2.3 billion company with 4700 employees, facilities in nineteen countries, and sales worldwide. Caution Regarding Forward Looking Statements Certain statements included in this press release may constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation.  Except as may be required by Canadian securities laws, Dorel does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from Dorel's expectations expressed in or implied by such forward-looking statements and that the objectives, plans, strategic priorities and business outlook may not be achieved. As a result, Dorel cannot guarantee that any forward-looking statement will materialize. Forward-looking statements are provided in this press release for the purpose of giving information about Management's current expectations and plans and allowing investors and others to get a better understanding of Dorel's operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose. Forward-looking statements made in this press release are based on a number of assumptions that Dorel believed were reasonable on the day it made the forward-looking statements. Factors that could cause actual results to differ materially from the Company's expectations expressed in or implied by the forward-looking statements include:  general economic conditions; changes in product costs and supply channel; foreign currency fluctuations; customer and credit risk including the concentration of revenues with few customers; costs associated with product liability; changes in income tax legislation or the interpretation or application of those rules; the continued ability to develop products and support brand names; changes in the regulatory environment; continued access to capital resources and the related costs of borrowing; changes in assumptions in the valuation of goodwill and other intangible assets and subject to dividends being declared by the Board of Directors, there can be no certainty that Dorel's Dividend Policy will be maintained. These and other risk factors that could cause actual results to differ materially from expectations expressed in or implied by the forward-looking statements are discussed in Dorel's annual MD&A and Annual Information Form filed with the applicable Canadian securities regulatory authorities. The risk factors outlined in the previously mentioned documents are specifically incorporated herein by reference. Dorel cautions readers that the risks described above are not the only ones that could impact it. Additional risks and uncertainties not currently known to Dorel or that Dorel currently deems to be immaterial may also have a material adverse effect on our business, financial condition or results of operations.  Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Except as otherwise indicated, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. The financial impact of these transactions and non-recurring and other unusual items can be complex and depends on the facts particular to each of them. Dorel therefore cannot describe the expected impact in a meaningful way or in the same way Dorel presents known risks affecting the business.   DOREL INDUSTRIES INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ALL FIGURES IN THOUSANDS OF US $                         as at   as at   as at     March 31, 2011   December 30, 2010   December 31, 2009                         (unaudited)   (unaudited)   (unaudited)                     ASSETS                   CURRENT ASSETS                     Cash and cash equivalents   $ 24,693   $ 15,748   $ 19,847   Trade and other receivables     467,657     356,507     348,579   Inventories     493,045     510,068     399,866   Other financial assets     782     2,554     1,411   Income taxes receivable     12,733     14,096     16,264   Prepaid expenses     20,094     17,823     17,358       1,019,004     916,796     803,325                     NON-CURRENT ASSETS                     Property, plant and equipment     161,221     158,752     154,261   Intangible assets     402,426     396,354     401,831   Goodwill     566,734     554,528     569,824   Other financial assets     -      -      1,476   Deferred tax assets     69,109     65,690     66,002   Other assets     1,898     2,215     668       1,201,388     1,177,539     1,194,062     $ 2,220,392   $ 2,094,335   $ 1,997,387                     LIABILITIES                   CURRENT LIABILITIES                     Bank indebtedness   $ 44,283   $ 30,515   $ 1,987   Trade and other payables     344,121     323,588     291,932   Other financial liabilities     5,966     4,203     1,185   Income taxes payable     13,622     13,154     27,257   Long-term debt     10,783     10,667     322,508   Provisions     44,353     43,232     46,482       463,128     425,359     691,351                     NON-CURRENT LIABILITIES                     Long-term debt     354,006     319,281     27,075   Pension and post-retirement benefit obligations     32,185     32,056     28,622   Deferred tax liabilities     112,305     109,789     122,362   Provisions     1,985     1,780     1,726   Other financial liabilites     31,804     31,253     22,112   Other long-term liabilities     2,948     2,966     1,301       535,233     497,125     203,198                     EQUITY                   SHARE CAPITAL     178,834     178,816     174,816 CONTRIBUTED SURPLUS     24,569     23,776     20,311 ACCUMULATED OTHER COMPREHENSIVE INCOME     88,532     64,626     97,735 RETAINED EARNINGS     930,096     904,633     809,976       1,222,031     1,171,851     1,102,838     $ 2,220,392   $ 2,094,335   $ 1,997,387   DOREL INDUSTRIES INC. CONSOLIDATED INCOME STATEMENTS ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS           Three Months Ended       March 31, 2011   March 31, 2010       (unaudited)     (unaudited)               Sales   $ 604,417   $ 593,696 Licensing and commission income     3,366     2,617 TOTAL REVENUE     607,783     596,313               Cost of sales     467,982     447,267 GROSS PROFIT     139,801     149,046                             Selling expenses     44,443     41,730 General and administrative expenses      45,778     47,467 Research and development expenses     7,590     7,773 OPERATING PROFIT     41,990     52,076               Finance expenses     5,878     3,278 INCOME BEFORE INCOME TAXES     36,112     48,798               Income taxes expense     4,948     10,592 NET INCOME   $ 31,164     38,206               EARNINGS PER SHARE               Basic   $ 0.95   $ 1.16   Diluted   $ 0.94   $ 1.15               SHARES OUTSTANDING               Basic - weighted average     32,659,446     32,933,666   Diluted - weighted average     33,007,150     33,241,496                               DOREL INDUSTRIES INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ALL FIGURES IN THOUSANDS OF US $                   Three Months Ended     March 31, 2011   March 31, 2010       (unaudited)     (unaudited)               NET INCOME   $ 31,164   $ 38,206               OTHER COMPREHENSIVE INCOME:             Cumulative translation account:             Net change in unrealized foreign currency gains (losses) on translation of net investments in foreign operations, net of tax of nil     26,402     (27,780)                             Net changes in cash flow hedges:             Net change in unrealized gains (losses) on derivatives designated as cash flow hedges     (3,206)     749 Reclassification to income     (1,450)     210 Reclassification to the related non-financial asset     1,480     (372) Deferred income taxes     744     206       (2,432)     793               Defined benefit plans:             Acturial gains (losses) on defined benefit plans     (86)     (907) Deferred income taxes     22     326       (64)     (581)               TOTAL OTHER COMPREHENSIVE INCOME (LOSS)     23,906     (27,568)               TOTAL COMPREHENSIVE INCOME   $ 55,070   $ 10,638   DOREL INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ALL FIGURES IN THOUSANDS OF US $                   Attributable to equity holders of the Company   Share Capital Contributed Surplus Cumulative Translation Account* Cash Flow Hedges* Defined Benefit Plans* Retained Earnings Total Equity   (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)                 Balance as at December 31, 2009 $ 174,816 $ 20,311 $ 96,840 $ 895 $ -  $ 809,976 $ 1,102,838                 Total comprehensive income (loss) -  -  (27,780) 793 (581) 38,206 10,638 Issued under stock option plan 759 -  -  -  -  -  759 Reclassification from contributed surplus due to exercise of stock options 156 (156) -  -  -  -  -  Repurchase and cancellation of shares (272) -  -  -  -  -  (272) Premium paid on share repurchase -  -  -  -  -  (1,128) (1,128) Share-based payments -  988 -  -  -  -  988 Dividends on common shares -  -  -  -  -  (4,118) (4,118) Dividends on deferred share units -  9 -  -  -  (9) -                  Balance as at March 31, 2010 $ 175,459 $ 21,152 $ 69,060 $ 1,688 $ (581) $ 842,927 $ 1,109,705                                 Balance as at December 31, 2010 $ 178,816 $ 23,776 $ 67,970 $ (1,032) $ (2,312) $ 904,633 $ 1,171,851                 Total comprehensive income (loss) -  -  26,402 (2,432) (64) 31,164 55,070 Issued under stock option plan 182 -  -  -  -  -  182 Reclassification from contributed surplus due to exercise of stock options 34 (34) -  -  -  -  -  Repurchase and cancellation of shares (198) -  -  -  -  -  (198) Premium paid on share repurchase -  -  -  -  -  (771) (771) Share-based payments -  811 -  -  -  -  811 Dividends on common shares -  -  -  -  -  (4,914) (4,914) Dividends on deferred share units -  16 -  -  -  (16) -                  Balance as at March 31, 2011 $ 178,834 $ 24,569 $ 94,372 $ (3,464) $ (2,376) $ 930,096 $ 1,222,031                 *Accumulated other comprehensive income                 DOREL INDUSTRIES INC.     CONSOLIDATED STATEMENTS OF CASH FLOWS     ALL FIGURES IN THOUSANDS OF US $                   Three Months Ended   March 31, 2011   March 31, 2010   (unaudited)   (unaudited)             CASH PROVIDED BY (USED IN):                       OPERATING ACTIVITIES           Net income $ 31,164   $ 38,206 Items not involving cash:             Depreciation and amortization   13,184     12,752   Amortization of deferred financing costs   369     29   Accretion expense on contingent considerations   531     475   Income taxes expense   4,948     10,590   Share-based payments   811     988   Pension and post-retirement defined benefit plans   (1,305)     (854)   (Gain) Loss on disposal of property, plant and equipment   (18)     6     49,684     62,192 Net changes in non-cash balances related to operations:             Trade and other receivables   (103,657)     (85,274)   Inventories   24,048     22,436   Prepaid expenses   (2,384)     (2,557)   Trade and other payables   19,054     35,169   Provisions, other financial liabilities and other long-term liabilities   1,212     958     (61,727)     (29,268)               Income taxes paid   (5,640)     (2,479)   Income taxes received   104     2,720   Interest paid   (3,177)     (4,517)             CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES   (20,756)     28,648             FINANCING ACTIVITIES             Bank indebtedness   12,841     13,095   Increase of long-term debt   34,138     50,569   Repayments of long-term debt   -      (55,000)   Share repurchase   (969)     (1,400)   Issuance of share capital   182     759   Dividends on common shares   (4,914)     (4,118) CASH PROVIDED BY FINANCING ACTIVITIES   41,278     3,905             INVESTING ACTIVITIES           Acquisition of businesses             Additions to property, plant and equipment - net   (6,610)     (5,628)   Additions to intangible assets   (4,615)     (4,737) CASH USED IN INVESTING ACTIVITIES   (11,225)     (10,365)               Effect of exchange rate changes on cash and cash equivalents   (352)     (4,640)             NET INCREASE IN CASH AND CASH EQUIVALENTS   8,945     17,548             Cash and cash equivalents, beginning of period   15,748     19,847             CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,693   $ 37,395     DOREL INDUSTRIES INC. INDUSTRY SEGMENTED INFORMATION THREE MONTHS ENDED MARCH 31 ALL FIGURES IN THOUSANDSOF US $                           Total   Juvenile Recreational / Leisure Home Furnishings     2011 2010 2011 2010 2011 2010 2011 2010     (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Total revenue   $ 607,783 $ 596,313 $ 269,620 $ 285,793 $ 200,427 $ 181,677 $ 137,736 $ 128,843 Cost of sales   467,982 447,267 198,000 202,694 149,432 135,554 120,550 109,019 Gross profit   139,801 149,046 71,620 83,099 50,995 46,123 17,186 19,824 Selling expenses   43,879 41,154 20,727 19,948 18,967 17,406 4,185 3,800 General and administrative expenses   39,139 41,214 21,139 23,603 13,363 12,973 4,637 4,638 Research and development expenses   7,590 7,773 6,082 6,417 894 673 614 683 Operating profit   49,193 58,905 $ 23,672 $ 33,131 $ 17,771 $ 15,071 $ 7,750 $ 10,703 Finance expenses   5,878 3,278             Corporate expenses   7,203 6,829             Income taxes   4,948 10,592             Net income   $ 31,164 $ 38,206                                 Earnings per Share                     Basic   $0.95 $1.16               Diluted   $0.94 $1.15                                 Depreciation and amortization included in operating profit   $ 13,150 $ 12,717 $ 9,622 $ 9,213 $ 2,192 $ 2,122 $ 1,336 $ 1,382       SOURCE DOREL INDUSTRIES INC.For further information: <p> MaisonBrison Communications<br/> Rick Leckner<br/> (514) 731-0000 </p> <p> <br/> Dorel Industries Inc.<br/> Jeffrey Schwartz<br/> (514) 934-3034 </p>