Dorel Starts 2005 With Strong Performance
Furniture World Magazine
Driven by solid organic growth and new product introductions, Dorel Industries Inc. reported another strong quarter of revenues and earnings. Revenues for the first quarter ended March 31, 2005 rose 19% to US$465.6 million, compared to US$391.1 million posted a year ago. Earnings for the period increased 40.2% to US$27.2 million or US$0.83 per share, fully diluted compared to US$19.4 million or US$0.59 per share for the first quarter last year.
"Revenues grew in all three segments, with considerable organic increases in all sectors, particularly in juvenile which accounted for approximately one half of the overall improvement. North American juvenile revenues were the highest ever in a particular quarter. The first quarter's strong performance was achieved despite some on-going pressure on margins, mostly due to the continued high price of resin and other raw materials. Overall this has been a satisfying three months and a good start to another exciting year," commented Martin Schwartz, President and CEO.
Juvenile: Juvenile segment first quarter revenues increased 15.7% to US$238.3 million from US$205.9 million, while earnings from operations rose 53.6% to US$27.5 million from US$17.9 million a year ago. Juvenile organic revenue growth was close to 13%, with the balance of the increase coming from the conversion of Euro and Canadian dollar denominated revenue into US dollars at a higher rate of exchange in 2005. These increases were across multiple product categories. In addition, new booster seat legislation in the US is having a positive effect as a number of states begin to introduce expanded rules for the use of car seats for older infants.
In Europe, organic revenue growth was 8% with all three major operating groups posting increases. Particularly strong gains occurred in Germany and Italy, where the Loola, Buzz and Zapp travel systems, incorporating strollers and car seats, are being well received. Margins in Europe, which improved slightly over the prior year, remain higher than in North America. Improved operational performance in Holland and the stronger Euro were the principal reasons. In North America, US margins were negatively impacted by raw material prices. Resin, a major component of many juvenile products, on average, cost 50% more than at this time last year.
In the first quarter of 2004, Dorel had recorded additional operating expenses of US$6.5 million due to a dispute with one of its insurance carriers. In the first quarter of 2005 an amount of US$9.8 million was received in connection with this dispute. Offset by other product liability settlements, the net impact in the quarter was a reduction in operating expenses of US$1.8 million. As a result, the year-over-year impact was an improvement in net income of US$4.8 million after tax.
Home Furnishings: Total revenues in the Home Furnishings segment increased by 10.5% to US$145 million from US$131.2 million last year. Earnings from operations grew 21.1% to US$10.8 million from the previous year's first quarter of US$8.9 million. Combined sales of furniture by both Ameriwood and Dorel Asia accounted for 60% of the increase. Successful new product placements in several categories by Dorel Asia and good retail acceptance of newly designed futons were the principal reasons for the increases. Cosco Home & Office sales of folding furniture and other imported home furnishings accounted for the remaining 40% of the overall segment increase. Cosco Home & Office was named Wal-Mart's 2004 Vendor of the Year in the hardware department.
RTA furniture gross margins were consistent with 2004 levels as factory efficiencies remain below plan, though they are anticipated to improve in the second quarter. Raw material costs remain high and continue to pressure margins. Board prices have declined from the late fiscal 2004 levels, but are currently 5% higher than in the first quarter of last year. Improved margins on futons were offset by a greater proportion of lower margin imported items sold by both Cosco Home & Office and Dorel Asia. As a result, overall, the segment's gross margins remained similar to last year's first quarter.
Recreational/Leisure: Recreational/Leisure revenue was up 52.6% to US$82.3 million from US$53.9 million. 2005 first quarter results include three months as compared to two months in 2004, as Pacific Cycle was acquired in February of 2004. Excluding the extra month, and despite the poor spring weather experienced throughout much of the US, revenues still increased by 30% over the prior year. Earnings from operations rose 34.6% to US$8.7 million from US$6.5 million. Excluding January, traditionally the least profitable month of the year in the bicycle industry, the segment earned US$9.2 million. As a result, for the comparable two month period of February and March, earnings were up by 42%.
Commentary: "During the first quarter we continued to make gains in all three segments, with organic revenue growth of over 14%. New products are being rolled out across all our businesses and we are encouraged by the reaction of our customers to them. Home Furnishings introduced several new lines at the April High Point furniture show, including a new generation of futons and additional RTA furniture models with attractive wood fronts. We are also making some progress in RTA furniture margins. In bikes, we have introduced several new models including adult units, 3 and 5 speed versions as well as the electric Sting-Ray," concluded Mr. Schwartz.