Dorel Reports First Quarter Results

MONTREAL, QUEBEC--(Marketwired - May 7, 2015) - Dorel Industries Inc. (TSX:DII.B)(TSX:DII.A) today released results for the first quarter ended March 31, 2015. Total revenue increased 2.7% to US$665.5 million from US$647.7 million a year ago. Net income was US$11.6 million, or US$0.36 per diluted share, compared to US$24.8 million or US$0.77 per diluted share in the first quarter of 2014. The net negative impact of foreign exchange on Dorel's first quarter earnings equated to approximately US$0.30 per diluted share.

"As expected, Dorel's first quarter performance was significantly affected by the continued strength of the US dollar and resulted in a net negative impact on earnings in our markets outside of the U.S. where almost half of our revenue is derived. Corporate-wide, foreign exchange reduced operating profit in reported currency by approximately US$12 million. This situation is clearly not unique to Dorel and overshadows a number of first quarter's positive accomplishments," stated Dorel President & CEO, Martin Schwartz.

"The integration of the Lerado facilities, now rebranded as Dorel Juvenile China, is proceeding as planned and is a critical element in creating a cohesive and efficient supply chain across the Juvenile segment. Foreign exchange significantly reduced our earnings in the Sports and Juvenile segments. In Dorel Sports excluding the impact of foreign exchange, that segment grew both its revenue and operating profit. In both Sports and Juvenile, price increases have been implemented in certain markets to mitigate the currency issues. Other markets will see price increases beginning in the second quarter. Dorel Home Furnishings posted its best quarter in several years. We are very pleased with the stability of this segment and its contribution to the Company`s profitability," concluded Mr. Schwartz.

Summary of Financial Information
First Quarters Ended March 31
All figures in thousands of US $, except per share amounts
		2015	2014	Change%
Total revenue		665,489	647,701	2.7	%
Net income		11,632	24,800	(53.1	%)
	Per share - Basic	0.36	0.78	(53.8	%)
	Per share - Diluted	0.36	0.77	(53.2	%)
Average number of shares outstanding -
Basic weighted average		32,321,639	31,938,232
Diluted weighted average		32,513,889	32,272,300

Dorel Juvenile  

First Quarters Ended March 31
	2015			2014
	$	% of rev.		$	% of rev.		Change %
Total revenue	274,695			269,232			2.0	%
Gross profit	71,441	26.0	%	76,414	28.4	%	(6.5	%)
Operating profit	9,175	3.3	%	19,580	7.3	%	(53.1	%)

Dorel Juvenile revenue increased 2% in the first quarter to US$274.7 million from US$269.2 a year ago. Organic revenue increased approximately 3% year-over-year after removing the effect of the Dorel Juvenile China acquisition and the impact of varying exchange rates. This organic sales growth was principally in Latin America with overall local currency sales growth being over 10%. Dorel Juvenile Brazil recorded its highest sales month ever in March. In the US sales improved, while operating profit lagged behind last year due to costs associated with the recently resolved West Coast port strike.

Operating profit declined by US$10.4 million, approximately 60% of which was due to the negative impact of foreign exchange rates. Translation of results in local currency into the US dollar alone accounted for US$2.2 million, with the rest of the decline owing to higher product costs due to the stronger US dollar. The majority of this negative impact was in Europe. In the quarter, price increases to customers were put in place mainly in Latin America, with other markets to follow in the second quarter. Most of the remaining earnings shortfall in the segment was due to losses at Dorel Juvenile China and the recently created Dorel Juvenile Mexico division and to US$1.1 million of acquisition -related costs associated with the Dorel Juvenile China acquisition.

The loss at Dorel Juvenile China was expected as work has begun to improve operations in the factories. A new local management team was hired and is actively working with segment management to identify and implement process efficiencies, synergies and cost savings opportunities. Initial areas of improvement have been identified and have begun rolling out. The team is focusing on streamlining operations, leveraging our spend, enhancing product quality and rationalizing the overhead structure. The results of these initiatives will be seen in the second half of the year as these programs are cascaded throughout the organization.

Dorel Sports                 

First Quarters Ended March 31
	2015			2014
	$	% of rev.		$	% of rev.		Change %
Total revenue	228,929			240,348			(4.8	%)
Gross profit	53,460	23.4	%	60,442	25.1	%	(11.6	%)
Operating profit	11,562	5.0	%	16,311	6.8	%	(29.1	%)

First quarter Dorel Sports revenue decreased by US$11.4 million, or 4.8% to US$228.9 million compared to last year's US$240.3 million. Organic revenue increased by approximately 3% after removing the impact of varying foreign exchange rates. Organic growth at Cannondale Sports Group (CSG) led the segment with particularly strong sales at independent bike dealers (IBD) in Europe and Japan. Caloi also delivered solid organic growth due to the increased demand of its opening price point products as well as the ongoing popularity of Cannondale, Schwinn, Mongoose and GT in the Brazilian market. The success overseas was tempered by the U.S., where there has been a softer start to the year. January was slow, but sales improved throughout the quarter with March back on plan. This trend has continued into April.

Operating profit for the quarter was US$11.6 million versus US$16.3 million in the prior year, with the net negative impact of exchange rate fluctuations accounting for approximately US$7 million in lower earnings. Excluding this impact of foreign exchange, operating profit for the quarter would have increased by approximately 12%. As in Juvenile, price increases have been implemented on a selective basis to mitigate the currency issues. In Brazil, Caloi has successfully implemented increases and has announced more to go into effect in the second quarter.

Dorel Home Furnishings

First Quarters Ended March 31
	2015			2014
	$	% of rev.		$	% of rev.		Change %
Total revenue	161,865			138,121			17.2	%
Gross profit	20,674	12.8	%	18,092	13.1	%	14.3	%
Operating profit	9,550	5.9	%	8,070	5.8	%	18.3	%

Home Furnishings had an excellent quarter with revenues increasing 17.2% to US$161.9 million from US$138.1 million in the prior year. Operating profit increased by 18.3% to US$9.6 million. E-commerce sales and related drop-ship vendor programs continued to grow and accounted for over 30% of total segment revenues. Sales to brick and mortar stores also increased compared with the previous year. The growth came from sales of mattresses, beds and upholstered furniture. In the quarter the segment benefitted from increased listings at retailers with strong sell through on many items. All divisions posted improved operating profit with the exception of Cosco Home & Office due to product mix sold.

Other

A non-cash gain of US$0.4 million and an expense of US$4.0 million are included in 2015 and 2014 first quarters' finance expenses, respectively. These amounts are related to the remeasurement of the forward purchase agreement liabilities with regards to certain past business acquisitions. The diluted per share impact is positive US$0.01 and negative US$0.13 for the first quarter of 2015 and 2014, respectively.

The 2015 first quarter reported tax rate was 24.3% versus 16.8% last year. For the full year the annual tax rate is expected to be between 15% and 20%.

Quarterly dividend

Dorel's Board of Directors declared its regular quarterly dividend of US$0.30 per share on the outstanding number of the Company's Class A Multiple Voting Shares, Class B Subordinate Voting Shares, Deferred Share Units and cash-settled Performance Share Units. The dividend is payable on June 4, 2015 to shareholders of record as at the close of business on May 21, 2015.

Outlook

"As expected, the negative impact of the increased value of the US dollar against practically all of our local currencies severely depressed earnings in the first quarter of 2015. Although rates have stabilized somewhat over the past month or so, we have not seen any of the currencies in our markets significantly increase in value. As such, we expect the lower earnings in our Juvenile and Sports segments to continue into the second quarter. Now that the currencies have stabilized, price increases have been determined and implemented where relevant. We anticipate this will benefit the second quarter, but the significant benefit will be in the second half," stated Martin Schwartz, Dorel President & CEO.

"In Juvenile our U.S. business will show improved earnings for the balance of the year, but it will not be enough to offset the segment's overall currency challenges. Our European business has lost several margin points to exchange. We will continue to invest in the business as we work through this period, but results for the full year will not match those of 2014. In Latin America our teams have successfully overcome higher material costs due to exchange and we remain confident they will exceed prior year earnings. Our integration of Dorel Juvenile China is on-going and will likely decrease earnings over the course of the next two quarters."

"At Dorel Sports the second quarter should again organically beat sales and earnings compared to the same period last year, excluding the impact of foreign exchange. As stated in our year-end release, we believe the second half will be strong, and will exceed the first half. Significant new product introductions should generate incremental volume and revised pricing will boost earnings.

"In Home Furnishings the positive momentum of the first quarter is expected to continue throughout the year", concluded Mr. Schwartz.

Conference Call

Dorel Industries Inc. will hold a conference call to discuss these results today, May 7, 2015 at 11:00 A.M. Eastern Time. Interested parties can join the call by dialing 1-877-223-4471. The conference call can also be accessed via live webcast at http://www.dorel.com/eng/events. If you are unable to call in at this time, you may access a recording of the meeting by calling 1-800-585-8367 and entering the passcode 17048845 on your phone. This recording will be available on Thursday, May 7, 2015 as of 2:00 P.M. until 11:59 P.M. on Thursday, May 14, 2015.

Complete condensed consolidated interim financial statements as at March 31, 2015 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)(TSX:DII.A) is a world class juvenile products and bicycle company. The Company's safety and lifestyle leadership is pronounced in both its Juvenile and Bicycle categories with an array of trend -setting, innovative products. Dorel Juvenile's powerfully branded products include global juvenile brands Safety 1^st, Quinny, Maxi-Cosi, Bébé Confort and Tiny Love, complemented by regional brands such as Cosco and Infanti. In Dorel Sports, brands include Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and SUGOI. Dorel Home Furnishings markets a wide assortment of both domestically produced and imported furniture products, principally within North America. Dorel Industries Inc. has annual sales of US$2.7 billion and employs approximately 11,500 people in facilities located in twenty-five countries 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, or if any of them do, what benefits Dorel will derive from them. 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 Dorel's expectations expressed in or implied by the forward-looking statements include: general economic conditions; changes in product costs and supply channels; 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 there being no certainty that Dorel's current 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 Management Discussion and Analysis 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 Dorel's 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.

DOREL INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

ALL FIGURES IN THOUSANDS OF US $

(unaudited)

			as at		as at
			March 31,		December 30,
			2015			2014
ASSETS
CURRENT ASSETS
	Cash and cash equivalents	$	47,311		$	47,101
	Trade and other receivables		502,328			474,704
	Inventories		643,953			633,022
	Other financial assets		7,174			4,299
	Income taxes receivable		14,656			15,731
	Prepaid expenses		33,021			25,343
			1,248,443			1,200,200
	Assets held for sale		1,308			1,308
			1,249,751			1,201,508
NON-CURRENT ASSETS
	Property, plant and equipment		216,260			226,893
	Intangible assets		496,690			519,798
	Goodwill		518,482			544,782
	Other financial assets		23			571
	Deferred tax assets		31,818			31,009
	Other assets		4,722			5,398
			1,267,995			1,328,451
		$	2,517,746		$	2,529,959
LIABILITIES
CURRENT LIABILITIES
	Bank indebtedness	$	70,791		$	27,053
	Trade and other payables		453,531			490,527
	Other financial liabilities		3,056			1,655
	Income taxes payable		21,289			19,046
	Long-term debt		60,946			62,556
	Provisions		33,744			37,727
			643,357			638,564
NON-CURRENT LIABILITIES
	Long-term debt		539,945			490,188
	Net pension and post-retirement defined benefit liabilities		44,515			46,128
	Deferred tax liabilities		85,145			89,199
	Provisions		1,641			1,765
	Written put option and forward purchase agreement liabilities		43,208			44,640
	Other financial liabilities		2,315			2,063
	Other long-term liabilities		9,892			10,428
			726,661			684,411
EQUITY
Share capital			199,988			199,927
Contributed surplus			25,715			25,691
Accumulated other comprehensive income			(81,399	)		(20,579	)
Other equity			177			579
Retained earnings			1,003,247			1,001,366
			1,147,728			1,206,984
		$	2,517,746		$	2,529,959

 

DOREL INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS

ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS

(unaudited)

			Three Months Ended
		March 31, 2015		March 31, 2014
					Restated
Sales		$	661,394	$	643,158
Licensing and commission income			4,095		4,543
TOTAL REVENUE			665,489		647,701
Cost of sales (1)			519,914		492,753
GROSS PROFIT			145,575		154,948
Selling expenses			56,257		56,698
General and administrative expenses			56,156		48,237
Research and development expenses			8,512		8,751
Restructuring and other costs (1)			917		480
OPERATING PROFIT			23,733		40,782
Finance expenses			8,375		10,964
INCOME BEFORE INCOME TAXES			15,358		29,818
Income taxes expense			3,726		5,018
NET INCOME		$	11,632	$	24,800
EARNINGS PER SHARE
	Basic	$	0.36	$	$0.78
	Diluted	$	0.36	$	$0.77
SHARES OUTSTANDING
	Basic - weighted average		32,321,639		31,938,232
	Diluted - weighted average		32,513,889		32,272,300
(1)Restructuring and other costs charged to:
Cost of sales		$	-	$	180
Expenses			917		480
		$	917	$	660

DOREL INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

ALL FIGURES IN THOUSANDS OF US $

(unaudited)

	Three Months Ended
	March 31, 2015			March 31, 2014
NET INCOME	$	11,632		$	24,800
OTHER COMPREHENSIVE INCOME (LOSS):
Items that are or may be reclassified subsequently to net 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		(61,410	)		(332	)
Net changes in cash flow hedges:
Net change in unrealized gains (losses) on derivatives designated as cash flow hedges		3,884			131
Reclassification to income		311			290
Reclassification to the related non-financial asset		(3,596	)		484
Deferred income taxes		(98	)		(298	)
		501			607
Items that will not be reclassified to net income:
Defined benefit plans:
Remeasurements of the net pension and post-retirement defined benefit liabilities		133			-
Deferred income taxes		(44	)		-
		89			-
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)		(60,820	)		275
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(49,188	)	$	25,075

 

DOREL INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

ALL FIGURES IN THOUSANDS OF US $

(unaudited)

			Attributable to equity holders of the Company
								Accumulated other comprehensive income
			Share Capital		Contributed Surplus			Cumulative Translation Account			Cash Flow Hedges			Defined Benefit Plans			Other Equity			Retained Earnings			Total Equity
Balance as at December 30, 2013		$	190,458	$	26,994		$	75,378		$	(2,154	)	$	(5,400	)	$	-		$	1,061,484		$	1,346,760
Total comprehensive income:
	Net income		-		-			-			-			-			-			24,800			24,800
	Other comprehensive income (loss)		-		-			(332	)		607			-			-			-			275
		$	-	$	-		$	(332	)	$	607		$	-		$	-		$	24,800		$	25,075
	Issued under stock option plan		6,615		-			-			-			-			-			-			6,615
	Reclassification from contributed surplus due to exercise of stock options		1,744		(1,744	)		-			-			-			-			-			-
	Reclassification from contributed surplus due to settlement of deferred share units		122		(131	)		-			-			-			-			-			(9	)
	Share-based payments		-		314			-			-			-			-			-			314
	Dividends on common shares		-		-			-			-			-			-			(9,575	)		(9,575	)
	Dividends on deferred share units		-		47			-			-			-			-			(47	)		-
Balance as at March 31, 2014		$	198,939	$	25,480		$	75,046		$	(1,547	)	$	(5,400	)	$	-		$	1,076,662		$	1,369,180
Balance as at December 30, 2014		$	199,927	$	25,691		$	(8,842	)	$	2,180		$	(13,917	)	$	579		$	1,001,366		$	1,206,984
Total comprehensive income:
	Net income		-		-			-			-			-			-			11,632			11,632
	Other comprehensive income (loss)		-		-			(61,410	)		501			89			-			-			(60,820	)
		$	-	$	-		$	(61,410	)	$	501		$	89		$	-		$	11,632		$	(49,188	)
	Reclassification from contributed surplus due to settlement of deferred share units		61		(101	)		-			-			-			-			-			(40	)
	Share-based payments		-		71			-			-			-			-			-			71
	Remeasurement of written put option liabilities		-		-			-			-			-			(402	)		-			(402	)
	Dividends on common shares		-		-			-			-			-			-			(9,697	)		(9,697	)
	Dividends on deferred share units		-		54			-			-			-			-			(54	)		-
Balance as at March 31, 2015		$	199,988	$	25,715		$	(70,252	)	$	2,681		$	(13,828	)	$	177		$	1,003,247		$	1,147,728

 

DOREL INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

ALL FIGURES IN THOUSANDS OF US $

(unaudited)

			Three Months Ended
			March 31, 2015			March 31, 2014
						Restated
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income		$	11,632		$	24,800
Items not involving cash:
	Depreciation and amortization		14,290			15,020
	Unrealized (gains) losses arising on financial assets and financial liabilities classified as held for trading		(353	)		-
	Finance expenses		8,375			10,964
	Restructuring costs		(200	)		451
	Income taxes expense		3,726			5,018
	Share-based payments		71			314
	Defined benefit pension and post-retirement costs		825			871
	Gain on disposal of property, plant and equipment		(86	)		(23	)
			38,280			57,415
Net changes in balances related to operations:
	Trade and other receivables		(48,461	)		(43,556	)
	Inventories		(34,122	)		(14,911	)
	Other financial assets		183			(183	)
	Prepaid expenses		(9,027	)		(7,614	)
	Other assets		(31	)		(848	)
	Trade and other payables		(20,758	)		25,011
	Net pension and post-retirement defined benefit liabilities		(1,401	)		(1,604	)
	Provisions, other financial liabilities and other long-term liabilities		(3,589	)		1,365
			(117,206	)		(42,340	)
	Income taxes paid		(6,593	)		(12,609	)
	Income taxes received		2,725			5,219
	Interest paid		(3,842	)		(3,690	)
	Interest received		140			189
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES			(86,496	)		4,184
FINANCING ACTIVITIES
	Bank indebtedness		49,631			(8,257	)
	Increase of long-term debt		67,059			73,877
	Repayments of long-term debt		(3,806	)		(1,427	)
	Increase of written put option and forward purchase agreement liabilities		525			-
	Financing costs		(34	)		(391	)
	Issuance of share capital		-			6,600
	Dividends on common shares		(9,697	)		(9,575	)
CASH PROVIDED BY FINANCING ACTIVITIES			103,678			60,827
INVESTING ACTIVITIES
	Acquisition of businesses		(1,736	)		(48,161	)
	Additions to property, plant and equipment		(7,079	)		(10,030	)
	Disposals of property, plant and equipment		456			33
	Additions to intangible assets		(4,489	)		(4,706	)
CASH USED IN INVESTING ACTIVITIES			(12,848	)		(62,864	)
Effect of foreign currency exchange rate changes on cash and cash equivalents			(4,124	)		(555	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			210			1,592
Cash and cash equivalents, beginning of period			47,101			40,074
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	47,311		$	41,666

 

DOREL INDUSTRIES INC.

INDUSTRY SEGMENTED INFORMATION

FIRST QUARTERS ENDED MARCH 31

ALL FIGURES IN THOUSANDS OF US $

(unaudited)

			Total				Dorel Juvenile				Dorel Sports				Dorel Home Furnishings
			2015		2014		2015		2014		2015			2014		2015		2014
					Restated				Restated					Restated
Total revenue		$	665,489	$	647,701	$	274,695	$	269,232	$	228,929		$	240,348	$	161,865	$	138,121
Cost of sales (1)			519,914		492,753		203,254		192,818		175,469			179,906		141,191		120,029
Gross profit			145,575		154,948		71,441		76,414		53,460			60,442		20,674		18,092
Selling expenses			55,547		55,991		28,818		28,953		22,587			23,008		4,142		4,030
General and administrative expenses			50,312		45,765		26,161		21,465		18,048			19,218		6,103		5,082
Research and development expenses			8,512		8,751		6,170		6,349		1,463			1,492		879		910
Restructuring and other costs (1)			917		480		1,117		67		(200	)		413		-		-
Operating profit			30,287		43,961	$	9,175	$	19,580	$	11,562		$	16,311	$	9,550	$	8,070
Finance expenses			8,375		10,964
Corporate expenses			6,554		3,179
Income taxes			3,726		5,018
Net income		$	11,632	$	24,800
Earnings per share
	Basic		$0.36		$0.78
	Diluted		$0.36		$0.77
Depreciation and amortization included in operating profit		$	14,246	$	14,979	$	9,686	$	10,500	$	3,381		$	3,346	$	1,179	$	1,133
(1) Restructuring and other costs charged to:
Cost of sales		$	-	$	180	$	-	$	-	$	-		$	180	$	-	$	-
Expenses			917		480		1,117		67		(200	)		413		-		-
		$	917	$	660	$	1,117	$	67	$	(200	)	$	593	$	-	$	-