BUSINESS

Dorel expects higher U.S. dollar will strain profits for months to come

03/16/2015 02:58 EDT | Updated 05/16/2015 05:59 EDT
MONTREAL - Dorel Industries expects the surging U.S. dollar will strain the bicycle and child care-seat maker's profits for at least half of the year.

While the long-term fundamentals of its business remain sound, the Montreal-based company said it is feeling pressure because most of its profits now come from outside North America.

"It's going to be a little painful getting through this period like I'm sure it is for a lot of consumer product multinational consumer product companies. We're all-in the same boat," chief financial officer Jeffrey Schwartz said Monday during a conference call to discuss the company's fourth-quarter results.

Dorel (TSX:DII.B) swung to an US$80.7-million loss in the quarter from an US$11-million profit a year earlier as it refocused its operations and took a currency hit.

The stronger U.S. dollar reduced results in Latin America, Europe and Asia that are converted back into U.S. dollars. However, the lower loonie should help the home furnishings segment because it has two facilities in Canada that produce products mainly destined for the United States.

Chile and Europe have been particularly hurt by currency fluctuations. Dramatic currency devaluations in Russia, South America and Ukraine will likely lead to lower bike sales, the company warned.

But it said U.S. sales of lower priced bikes and juvenile products are picking up as the economy improves.

The company bought Hong-Kong-based Lerado Group, one of China's largest manufacturers of car seats and strollers with three factories that make products for Dorel and other manufacturers. Lerado is not expected to contribute earnings in the first year, but margins should improve as product is eventually directly shipped from factory to a customer's warehouse.

As a result of changes at Dorel's juvenile operations, the company recorded nearly US$83 million in impairment losses in the fourth quarter on the assumption of weaker future earnings and cash flow growth will come from new Asian-based operations.

It also said it will focus its children's business on its Maxi-Cosi and Quinny brands in Europe. The move resulted in a US$43.1-million charge before tax due to a change in the future profitability for its Bebe Confort, Monbebe, Babideal and Baby Relax brands.

Excluding one-time items, Dorel which reports in U.S. dollars earned an adjusted profit of $11 million or 34 cents per diluted share, down from $12.1 million or 38 cents per diluted share in the fourth quarter of 2013. Net revenues grew 10.6 per cent to $701 million.

For the full year, Dorel lost $21.3 million on $2.68 billion in revenue. That compared with a profit of $57.7 million on $2.44 billion in revenue in 2013.

On an adjusted basis, the company earned $84 million or $2.59 per diluted share for the year, up from $70.6 million or $2.19 per diluted share in 2013.