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Shermag to revamp Nadeau

By Michael J. Knell -- Furniture Today, February 1, 2004

SHERBROOKE, Quebec — No. 3 Canadian furniture maker Shermag will restructure its Nadeau division and make other moves to improve efficiency after reporting that profits in its latest quarter will be less than expected.

"We are still a very profitable company," said President and CEO Jeff Casselman, attributing the weaker earnings to a strengthening Canadian dollar and the weaker-than-anticipated performance of Nadeau, which primarily produces bedroom furniture.

Shermag will retool its plant in Edmundston, New Brunswick, and transfer its management from Nadeau to its Bédard division, providing more capacity for its growing casual dining and glider rocker businesses.

"Over the next six months, the production of casual dining will increase in Edmundston and bedroom manufacturing will decrease," Casselman said. Nadeau's operations will be concentrated at its plant in nearby Saint-François-de-Madawaska, New Brunswick.

Shermag expects earnings in its third quarter ended Jan. 2 will be in the range of 22 to 28 Canadian cents per share, down from 32 cents per share in the same period last year.

"The declining protection afforded by our foreign exchange contracts during the quarter almost completely offset growth in units sold in the core Shermag business," Casselman said, "causing revenues to be flat in dollar terms when compared to the same period of the preceding fiscal year. This also has created pressure on margins. The company has chosen not to increase prices in order to protect our share of what is a very competitive market."

He said the full-line producer has launched several initiatives to improve efficiencies and reduce selling and administrative expenses, including cuts in management salaries and bonuses and reorganization of its administrative services.

"The margin improvements we have seen over the past couple of years have been the result of finding efficiencies," Casselman said, adding that with over 2,300 employees and 15 factories, improving efficiency is a "matter of evolution, not revolution."

"While we have posted several consecutive quarters of improving results, we have been consistently cautious in our outlook," he said. "The strong Canadian dollar is catching up with many export-oriented industries and we must face this situation head-on. Our challenge is to accelerate our operational improvement plans … and evaluate each product and expense, eliminating those that do not add value."

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