U.S. tariffs drag down Dorel performance in third quarter
MONTREAL – The tariff regime imposed by the United States on imports from the People’s Republic of China negatively impacted both sales and earnings for Dorel Industries not just for the third quarter of 2019 but for the year to date as well, the publicly held company said last week. The drag was felt across all three of the Canadian consumer goods giant’s operating segments.
Revenue for the three months ending 30 September 2019 was US$685.7 million, up 2.3% from US$670.4 million for the same period last year.
However, Dorel reported a net loss for the period of US$4.3 million or 13 cents per diluted share, reversing the comparable net income of US$9.6 million or 29 cents per diluted share. Adjusted net income was US$2.4 million or seven cents per diluted share, down from US$11.0 million or 34 cents per diluted share a year ago.
For the nine-month period also ending 30 September 2019, revenue was US$1.98 billion, an increase of 2.3% from the US$1.94 billion for the comparable 2018 period.
The net loss year-to-date was US$9.8 million or 30 cents per diluted share, up from the US$400,000 or one cent per diluted share in 2018. Year-to-date adjusted net income was US$14.5 million or 44 cents per diluted share, compared to US$29.2 million or 89 cents per diluted share a year ago.
Although a Canadian company based here, Dorel reports in quarterly and annual financial results in U.S. dollars.
“As expected, and previously communicated, the third quarter was a difficult one primarily due to various issues related to U.S. imposed tariffs. We raised prices in the quarter, and this has had several negative consequences. Retailers altered their purchasing decisions, which resulted in a considerable product mix imbalance. In addition, some of our large U.S. customers delayed holiday orders from September to October,” Martin Schwartz, the company’s long serving president and chief executive officer, said in a statement.
“All Dorel segments have done an excellent job of holding the line on most expenses and creative product development has resulted in many new exciting introductions,” he continued, adding, “Inventory reduction across all segments is a strong focus and is on track, and new sourcing strategies are being implemented where appropriate.”
The company’s furniture segment – Dorel Home – saw third quarter revenue fall 4.1% to US$212.5 million as operating profit declined 19.7% to US$15.7 million.
“Despite the challenges in the market conditions, e-commerce sales increased to 61% of total segment gross sales, compared to 58% last year,” the company reported.
Revenue for the first nine months of 2019 were US$630.7 million, an increase of 6.0% over the same period last year. However, operating profits fell 16.1% to US$44.2 million.
Meanwhile, Dorel Sports reported revenue advances of 14.2% to US$250.3 million for the third quarter and 3.9% to US$675.9 million for the year-date-date. However, operating profit for the third quarter fell 14.8% to $6.0 million, once again thanks to the tariff barrier. For the year-to-date, they advanced six-fold to US$20.6 million.
Dorel Juvenile, the company’s remaining segment, saw a third quarter revenue decline of 2.9% to US$222.9 million. It recorded an operating loss of US$4.6 million, reversing the prior year’s operating profit of $1.0 million. For the nine months, revenue was off 2.3% to US$674.7 million although it halved its operating loss to US$9.3 million from the comparable period’s $18.8 million.
Looking ahead, Schwartz said the company expects to see continued improvement in the fourth quarter, particularly for Dorel Sports and Dorel Home but waters will continue choppy for Dorel Juvenile in markets outside of North America.
“At Dorel Home, we are expecting similar earnings for the fourth quarter as throughout 2019,” he said. “We are now seeing an easing of the pressure created by tariffs imposed in the U.S. Demand is growing again, our warehouse service levels are improving, and our inventory is being re-balanced to the right levels.”