Dorel Industries reported that its recreational/leisure segment, which includes Cannondale, Schwinn, GT, Mongoose, Caloi, IronHorse and Sugoi, posted an increase of 8.3 percent in fourth-quarter revenues to US$245.4 million, but excluding Caloi's acquisition in Brazil, the organic sales increase was limited to 1 percent in the quarter.
Restructuring costs and difficult markets, combined with product discounting and late deliveries incurred during the quarter, led to a drop in the gross margin of 3.9 percentage points to 21.1 percent and an operating loss of US$5.4 million, as compared to an operating profit of US$16.5 million in the fourth quarter of 2012. Operating income was down in all of the segment's divisions except for Caloi, acquired in August last year.
Excluding restructuring charges, the leisure and recreation segment posted an operating profit of $8.1 million. Dorel incurred $13.5 million in restructuring costs associated with the closure of an assembly and testing facility in Bedford, Pennsylvania, during the quarter.
The company attributed its lower profitability in the segment to a global slowdown in the bike market, a sluggish start to the holiday season in the U.S. and an unfavorable product mix. The Canadian group also blamed discounting that continued through the quarter, with more 2013 model year bikes sold at a lower margin than anticipated.
For the full 2013 financial year, Dorel's bike division posted $918.7 million in revenues, down from $928.4 million. The gross margin was off by 2 percentage points to 23.1 percent and operating profit was down by 70 percent to $22 million.
Companywide, Dorel's revenues for the quarter reached $633.5 million, up 1.8 percent from a year ago. Net income fell to $11.0 million from $29.1 million in 2012. For the full year, the company reported $2.4 billion in revenues, down from $2.5 billion in 2012.
In the future, Dorel will try to significantly reduce development and supply chain lead times with its global partners, improve cost structures and operating margins. This plan is expected to result in higher levels of service for its customers and improved profit through 2014 and 2015.
With restructuring and cost-cutting initiatives underway that should result in annual savings of at least $6 million, and with bike markets expected to recover worldwide, the company maintains a positive outlook for the year ahead. Earnings for the first quarter are expected to improve by at least 20 percent to 25 percent as compared to last year, the company said.
Meanwhile, the Montreal-based company continues to interview candidates for a new head of its recreational and leisure segment.
