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Dorel Industries Inc. is a major supplier to U.S. and European mass merchandise giants like Wal-Mart, so when the company reported an 11 per cent increase in fourth quarter revenue on Wednesday, our interest perked up. Is this a promising sign of improved consumer spending in the world's two most important economies?
Sadly, no. While the Montreal company can boast of stellar results in general – and in particular from the ongoing turnaround of its high-end Cannondale bicycle brand, which it acquired in 2008 – and is hinting at another dividend increase this year, you have to sift through the numbers to realize the news from its U.S. and Europe business is little changed. Despite the pickup in housing, auto sales and stock prices, the consumer isn't giving investors much more reason to jump for joy.
The area of greatest focus is Dorel's juvenile segment, which sells car seats, strollers, child safety locks and other child-oriented products. The topline story looks exciting – revenues of $267.4-million (U.S.), up 11.6 per cent year over year – but much of that increase comes from Latin America, incorporating the effects of acquisitions in Chile, Colombia and Panama.
Exclude these additions and the impact of foreign exchange, and the company's organic growth – primarily from the U.S. and Europe – was just 2 per cent in the quarter. In other words, sluggish spending that has held back the division in developed markets remains an issue – only now there's growth to be had from emerging economies, which Dorel is successfully pursuing.
"It's still a difficult market we're seeing in the United States" with ongoing fiscal issues, chief financial officer Jeffrey Schwartz told analysts during a conference call to discuss results. As for Europe, "the market itself is tough," he said. "Some of our customers are having problems. So it's still a challenge there, even though we are gaining market share."
Dorel's latest results are a reminder of a larger story at play. There are countless companies that are healthy, wealthy, growing profits, increasing dividends and finding growth opportunities. And they are doing it in spite of the lingering softness in consumer spending in two markets that have provided so much of the world's economic growth in the past.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff .
Sean Silcoff