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Dorel reports gains in Q3 revenue at its bike division

Published November 6, 2014

MONTREAL (BRAIN) — Dorel Industries posted yet another quarter of positive growth in its bike business. The Canadian parent of Cannondale Sports Group and Pacific Cycle, which includes the Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and Sugoi brands, saw revenue grow to $266.5 million, from $231.5 million a year ago. Both gross and operating profit were up, 14.5 and 4.7 percent, respectively.

For the nine months ending Sept. 30, Dorel said revenues were up 17.8 percent in the bike division, reaching $793 .1 million, up from last year's $693.2 million. Gross profit and operating profit were up 18.6 and 69.4 percent for the nine-month period compared to last year.

"We continue to be pleased with the sustained progress in our recreational and leisure segment," said Martin Schwartz, president and CEO of Dorel. "For the third consecutive quarter, segment revenue grew by double digits."

During an earnings call Thursday morning, company executives said organic revenue increased 6 percent in the quarter and 8 percent year to date, and attributed the growth to IBD sales in Europe, the UK and Japan, and mass market sales in North America.

In the IBD channel, Dorel executives said sales of e-bikes and mountain bikes were strong. In the mass, the company said it benefitted from high consumer demand for bikes and electric ride-on toys.

Asked about how U.S. business was shaping up, executives said business was "much more sluggish than in Europe and overseas markets. It's good but we're not seeing the same level of growth. It was a cautious 2014 because of what happened in 2013 so dealers are relatively cautious and we have to be cautious in our outlook as well for the U.S. market."

"Retailers at this time of year hold things close to the vest and wait for Christmas," executives added. "I think we need to get past Thanksgiving. Based on Christmas we'll have a feeling for next year. We've been cautious now for a while about retail. There's still a lot of uncertainty in the air."

After two consecutive quarters of losses for Caloi, the Brazilian brand this quarter contributed to Dorel's operating profits. Bicycle sales in Brazil are starting to benefit from the introduction of Cannondale, GT and Schwinn, leading to gains in domestic market share. Dorel expects sales in the fourth quarter—the summer high-selling season in Brazil—to pick up substantially for Caloi.

Executives also pointed to a number of one-time charges during the quarter. They include $4.5 million for the merging of its Cannondale Pro Cycling team with Slipstream Sports; a charge of $0.9 million from restructuring that started earlier this year related to the closure of its Bedford, Pennsylvania, facility; and $1 million from unfavorable currency exchange rates.

The $4.5 million team expenses included a one-time write-off of Cannondale Sport Group's equity investment in the Brixia team of $3.4 million for the quarter and an additional $1.1 million for funding that would bridge a shortfall in sponsorship as the team could not solicit adequate sponsorship during the transition period. Cannondale announced in August that it would join forces with Slipstream Sports and become part owner and sponsor of the team.

Taking into account its two other divisions—juvenile and home furnishings—Dorel reported revenues of $673 million for the quarter and $1.98 billion for the first nine months of the year, representing 10.8 and 9.7 percent increases, respectively. Net income for the quarter rose 75.4 percent, and 27.5 percent for the nine months ending Sept. 30.

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