Dorel has hopes for 2010 but sees no signs yet of U.S. consumer turnaround

MONTREAL - Dorel Industries (TSX:DII.B) has high hopes for 2010 overall but has seen no sign yet that American consumers are preparing to open their wallets and return to stores.

"We're looking for another decent year," CEO Martin Schwartz said in an interview Thursday after the company reported record third-quarter results.

A turnaround in its home furnishings division contributed to US$30.2 million in profits despite lower overall revenues.

The Montreal-based company, which reports in U.S. dollars, said Thursday it earned 91 cents per share for the period ended Sept. 30, up 11.1 per cent from 82 cents a year earlier when profits totalled $27.2 million.

Revenues decreased 6.1 per cent to $518.5 million.

Analysts polled by Thomson Reuters had forecast earnings of 72 cents on revenues of $522 million.

Schwartz said Dorel has done its part by adding new listings and products but that high unemployment is dampening consumer confidence.

"Although the government says the recession is over, they haven't looked at the fact that people are not going back to shop in the numbers they used to shop," he said.

Earlier, Jeffrey Schwartz, Dorel's chief financial officer, said in a conference call that the United States is the laggard compared with other markets, with no real improvement in the fourth quarter.

"In Europe, we're starting to see less problems than we have, so the needle is starting to move," he told analysts. "And in some other countries that we've got operations in - Canada, Australia, even Brazil - it's pretty good."

Hugues Bourgeois of National Bank Financial said Dorel enjoyed a relatively strong quarter, with home furnishings earnings up fivefold on currency and cost cutting, along with a slight improvement to the European juvenile business.

Martin Schwartz, the CEO, said the company exceeded last year's earnings despite challenging economic conditions by containing costs and focusing on maximizing margins.

"We're happy. Knowing what's going on out there in the real world, I think we've done really well," he said.

"There are still places we can improve, there's still areas that didn't do as good as they normally would have, but in general the bottom line shows not too many people are growing through this type of economy."

He expects Dorel's biggest lift will come next year from the bicycle and juvenile divisions.

The company has made a series of changes in its high-margin independent bike business that it hopes will translate into higher sales and profits next year.

In juvenile, its Air Protect car seat technology is also being added to more products covering most price points.

Although home furnishings is the smallest of its three operating divisions, it was the only one which posted increased earnings from last year.

Earnings were $12.5 million, up from $1.9 million on $125.4 million of sales.

The improvements was led by domestically produced furniture and futons. Lower material costs, favourable currency and increased operational efficiencies improved gross margins by 730 basis points to 18 per cent.

The juvenile segment, which accounts for 29 per cent of Dorel's revenues, saw earnings fall 25 per cent to $26.1 million. Revenues fell 5.8 per cent to $247.9 million.

Dorel said the decline in revenues has moderated compared with the beginning of the year.

The decrease was most pronounced in Europe, with two-thirds of the decline attributable to currency. European revenues fell 10 per cent, but were down five per cent, excluding currency fluctuations.

Bike segment earnings decreased 26.8 per cent to $4.9 million as revenues dropped 11 per cent to $145.2 million.

The reduction was due primarily to a reduction in sales to mass merchants. Consumers purchased lower-priced items, which carry lower margins.

On the Toronto Stock Exchange, Dorel's shares surged 7.98 per cent, gaining $2.37 to C$32.08 in afternoon trading.