Shermag 3Q revenues up, earnings down
Michael Knell -- Furniture Today, February 11, 2005
SHERBROOKE, Quebec -- The strengthening Canadian dollar continued to pummel full-line producer Shermag's bottom line in its third quarter, although revenues saw double-digit growth. The third-largest Canadian manufacturer sells about 70% of its volume in the United States.
Net revenues in the quarter ended Dec. 31 were C$63.5 million, up 12.5% from C$56.5 million in last year's comparable quarter. But net earnings sank 32.1% to C$2.3 million from C$3.5 million last year.
In the nine months, net revenues came to C$157.5 million, down 4.4% from the prior year's C$164.8 million. Net earnings plummeted 70.5% to C$3.8 million, compared with C$12.8 million in the year-earlier period.
In addition to currency exchange challenges, Shermag said it still hasn't recovered completely from last summer's labor disputes. The company also cited under-performance in its juvenile division, including a recall of a new glider rocker model, and said Asian-made goods continue to exert considerable pressure on price points and margins.
"There is strong demand for both our formal dining room (which is made in Asia) and our casual dining (which is made in Quebec)," said President and CEO Jeff Casselman in a conference call with analysts yesterday. "Our domestic case goods business performed very well but our upholstery business was flat; profits are down because of the Canadian dollar, and competition from Asia is affecting price points in that category."
Export sales, almost all to U.S. retailers, were C$46.8 million in the third quarter, up 10.5% from the previous year's C$42.3 million. The company's U.S. dollar revenues rose 25.7% to reach $35.7 million, compared with $28.4 million in the same period last year.
Meanwhile, third-quarter sales to Canadian retailers rose 19.6% from C$17.3 million to C$20.7 million.
"During the third quarter, we were able to significantly reduce the order backlogs created by the second-quarter shipping delays caused by labor disruptions at certain plants," Casselman said. "Notwithstanding this improvement, results were affected by … the Disraeli (plant) strike, which was resolved during the quarter.
"The increase in revenue was achieved despite significantly reduced protection from the company's exchange rate hedging program," he continued, adding the most recent quarterly results are based on an average exchange rate of 76 U.S. cents to one Canadian dollar, a 13.4% strengthening of the Canadian dollar against the U.S. greenback from a year ago.
Shermag estimated the exchange rate's impact on third quarter net earnings at C$4.5 million.
The strike-bound plants are now fully operational, Casselman said. Asia-sourced product now accounts for about 20% of Shermag's shipments, he said.
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Canadian dollar hits Shermag
Mar 6, 2005
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