Posted by Editoress on 11/2/18
On Friday, Dorel Industries Inc. (TSX:DII.B) (TSX:DII.A) announced results for the third quarter and nine months ended September 30, 2018. Third quarter revenue was US$670.4 million, up 4.3% from US$642.6 million. Reported net income was US$9.6 million or US$0.29 per diluted share, compared to US$13.3 million or US$0.41 per diluted share last year. Adjusted net income was US$11.0 million or US$0.34 per diluted share, compared to US$14.5 million or US$0.44 per diluted share a year ago.
For the nine months, revenue was US$1.94 billion, an increase of 1.9% compared to US$1.90 billion last year. Reported net loss year-to-date was US$0.4 million or US$0.01 per diluted share, compared to a reported net income of US$33.6 million or US$1.03 per diluted share in 2017. Year-to-date adjusted net income was US$29.2 million or US$0.89 per diluted share, compared to US$49.7 million or US$1.52 per diluted share a year ago. Removing the impact of the 2018 first quarter impairment loss on trade accounts receivable from Toys"R"Us U.S. of US$9.4 million after tax, the year-to-date adjusted net income was US$38.6 million or US$1.18 per diluted share, compared to US$49.7 million or US$1.52 per diluted share a year ago.
"While we were pleased with the significant progress at Dorel Sports and the top line success at Dorel Home, Dorel Juvenile had a disappointing quarter. The combination of new model bicycles and strict cost containment resulted in substantial gains at Dorel Sports. With the sale of SUGOI [to Louis Garneau], the segment was able to focus solely on the bicycle business. Dorel Home's e-commerce business continued to account for a growing share of revenues, more than compensating for lost brick and mortar sales. Several factors caused lower gross margins at Dorel Juvenile, which significantly affected earnings and steps are underway to correct this situation. Our new product pipeline for our major markets, both launched and in progress, is the best it has been in recent memory and is expected to reverse the negative trend of the past two quarters.
"A substantial number of our imports from China into the U.S. are now subject to new 10% U.S. tariffs, which primarily affect our Dorel Home and Dorel Sports segments. We have informed our customers of the impending price increase necessitated by these tariffs. The rate of imposition is currently scheduled to increase to 25% on January 1, 2019 and at that level, these increases could impact consumer demand in the longer term," stated Dorel President & CEO, Martin Schwartz.
The Company is presenting adjusted financial information, excluding impairment loss on intangible assets, restructuring and other costs, remeasurement of forward purchase agreement liabilities and loss on early extinguishment of long-term debt, as it believes this provides a more meaningful comparison of its core business performance between the periods presented. These announced items are detailed in the attached tables of this press release. Contained within this press release are reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
Dorel Sports posted a strong quarter with revenue up US$13.6 million, or 6.6%, to US$219.1 million from US$205.5 million. Nine-month revenue was up US$21.7 million, or 3.5%, to US$650.3 million compared to US$628.6 million a year ago. Organic revenue grew approximately 11.8% for the quarter and 3.9% year-to-date, after excluding the impact of varying foreign exchange rates year-over-year and the divestment of the performance apparel line of business (SUGOI) in the second quarter of 2018.
Cycling Sports Group [primarily Cannondale] delivered improved year-over-year results, due to several factors. The U.S. independent bike dealers channel had a solid third quarter finish on the heels of strong momentum created at the annual August sales meeting as dealers responded positively to the brand strategy outlined. As well, the divestiture of SUGOI, other cost cutting measures across all regions and previous restructuring efforts markedly reduced operating expenses.
Pacific Cycle experienced a third quarter double-digit revenue increase as customers built inventory in advance of the busy holiday season. Other drivers included improved parts and accessories shipments, continued growth in Mongoose scooter sales and strong sales of battery powered ride-ons including the new innovative interactive Rideamals. Additional ride-ons introductions offset the earlier loss of the Toys"R"Us U.S. business.
Caloi posted strong organic revenue growth in the quarter versus prior year, although declined in reported currency due to unfavourable foreign exchange. Organic revenue growth was driven by price increases implemented to offset rising inflationary costs and new product innovation. Brand mix and price points improved significantly versus prior year, however unfavourable foreign exchange and higher costs related to Caloi's brand support resulted in a modest drop in operating profit.
As a result of the segment improvements outlined above, third quarter operating profit increased to US$7.0 million, up US$6.8 million, from US$0.2 million a year ago. Adjusted operating profit rose to US$7.5 million, up US$7.0 million. For the nine months, operating profit decreased to US$2.9 million, down US$12.3 million, from US$15.2 million a year ago mainly due to the restructuring costs related to the divestment of the performance apparel line of business. Excluding restructuring and other costs, nine-month adjusted operating profit was US$14.7 million compared to US$15.7 million in 2017. When excluding the US$6.6 million impairment loss on trade accounts receivable from Toys"R"Us U.S. recorded in the first quarter of 2018, year-to-date adjusted operating profit increased to US$21.3 million, up US$5.6 million, from US$15.7 million in 2017, mainly explained by higher revenue and reduced general and administrative expenses offset by the 90 basis points decrease in adjusted gross profit.
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