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Dorel: Foreign exchange hurts Q1 revenue

Published May 7, 2015
Organic revenue up 3 percent in bike business excluding currency issues. Growth buoyed by IBD sales in Europe, Japan and Brazil. U.S. market off to slow start.

MONTREAL (BRAIN) — While worldwide currencies have somewhat stabilized against the U.S. dollar, foreign exchange rates dealt a major blow to Dorel's first-quarter earnings across all of its business divisions, officials told analysts during a call Thursday morning. The company derives nearly half of its overall revenue from non-U.S. markets.

Also factoring into first-quarter results was the West Coast ports slowdown, which cost the company $1.5 million in added transportation and logistics cost.

In its bike division, the company reported first-quarter revenue was down $11.4 million or 4.8 percent, at $228 million, down from $240 million last year. Removing foreign exchange losses, organic growth was up 3 percent due to strong sales at independent dealers in Europe and Japan, and through Caloi in Brazil. Sales across overseas markets, especially Europe, started out strong, said Jeffrey Schwartz, Dorel's CFO.

"There was a slowdown in the U.S. because of the late spring. Although spring is out there now and we're expecting business to pick up," he said.

"On the mass side, we had a big Q4. We had inventories sold in Q4 so January was a weak start on mass side. March was good and April was good. We're not off by a lot here," Schwartz added.

The negative impact of foreign exchange rates on the sports division — which includes Cannondale, GT, Schwinn, Mongoose, Sugoi, Guru Sports, and its Pacific Cycle mass market segment — was $7 million, Schwartz said, adding that the quarter was pretty good considering this setback.

Gross profit in the bike segment was down to $53 million, from $60 million in 2014's comparable quarter, and operating profit was down to $11.5 million from $16 million.

Officials said the company has implemented price increases across all divisions to mitigate currency losses.

Dorel president and CEO Martin Schwartz said the company saw increased demand in opening price point bikes in Brazil, where Caloi is seeing success selling the CSG brands despite hiking up prices last December.

Still, Schwartz offered a somewhat positive outlook for the remainder of the year. He said Dorel is seeking to decrease costs wherever possible and expects the introduction of nine new bike platforms launched in the fourth quarter to boost Cannondale's sales and revenue. He said this is the largest new product introduction for Cannondale in the brand's history.

Schwartz didn't elaborate on what bikes Cannondale would introduce due to competitive issues, but did say that a new EVO road bike would be launched, as well as new platforms across mountain, road and casual/recreational segments.

"We've shown them to international distributors at the show in Taiwan and we were told this is the best product line Cannondale has had in years. We're really tackling a lot of different stuff," he said.

Dorel reported total company revenue — including its juvenile (car seats) and home furnishings businesses — increased 2.7 percent, reaching $665.5 million, up from $647.7 million a year earlier. Net income was $11.6 million, compared with $24.8 million a year earlier, with the net impact from foreign exchange equating to approximately 30 cents per diluted share.

Dorel is traded on the Toronto Stock Exchange under the symbols DII.B and DII.A. Its stock performance is tracked on BRAIN's Industry Stock chart.

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