Spectra Premium Reports Slight Decline in Sales

Spectra Premium Industries Inc., manufacturer of automobile, light-truck and heavy-duty truck aftermarket parts, has announced that its sales in the third quarter ended October 31, 2003, declined slightly, mainly due to currency fluctuations.
During the third quarter, consolidated sales stood at $57.9 million, a 4% decline over $60.2 million for the same period a year earlier, but if the company excludes the impact of the exchange rate variations, sales rose close to 3.7% for the third quarter.
Operating income remained stable at $3,179,000, compared to $3,121,000 a year earlier. Rationalization costs of $768,000 were incurred in the third quarter, compared to $219,000 a year earlier. These costs result from the termination of manufacturing activities in certain plants, on which the corporation continues to support fixed costs related to buildings, the reorganization of the distribution centers at the Boucherville, Que. and Stratford, Ont. plants, severance packages paid in relation to the rationalization program, and to the closure of regional distribution centers in the United States and in Canada.
For the third quarter, net income amounted to $1,480,000, compared to $1,529,000 a year earlier, and earnings per share were comparable to a year earlier at $0.05. For the first nine months of fiscal 2003-2004, consolidated sales stood at $182.2 million, a 2.3% decline over the $186.5 million generated the previous fiscal year.
If one excludes the impact of the exchange rate variations, sales rose close to 3.5% for the first nine months of the fiscal year. Net income for the first three quarters amounted to $4,893,000, or $0.15 per share, compared to $6,853,000, or $0.22 per share for the same period a year earlier. These results take into account rationalization costs of $2,498,000 for the first nine months of the fiscal year, compared to $722,000 for the same period a year earlier.
"Results of the third quarter are encouraging, as for the first time in the course of the past six quarters, we have successfully improved our operating income by 18%, if we exclude rationalization costs. These results were achieved despite difficult market conditions in the aftermarket, particularly for radiator sales, where competition remains intense and inventory levels in the different distribution networks are high, as a result of the sluggish summer season encountered in this industry in 2003.
"We are beginning to benefit from the pursuit of our integration and rationalization program, as our operating income margin increased by more than 1% during the quarter, if we exclude rationalization costs. Despite a very competitive environment, we continue to gain market share, as overall unit sales rose 5% on our main product lines this year," said Jacques Mombleau, president and chief executive officer of Spectra Premium.
The corporation refers to operating income before rationalization costs internally as a means to evaluate the financial and operational performance of its different business segments. Although this indicator is not a recognized measure to evaluate results, in accordance with Canadian generally accepted accounting principles, the corporation considers this indicator to be very useful to evaluate profitability of its activities.
The manufacturing division generated $38.7 million in sales, a 4.5% decline over the previous year. Excluding the impact of the exchange rate variations, this division generated a sales growth of close to 2% compared to a year earlier, as a result of OEM sales totalling $2.7 million during the quarter, compared to $340,000 for the same period a year earlier.
Operating income stood at $2,472,000, compared to $2,904,000 for the same period a year earlier. Rationalization costs of $665,000 were incurred in this division for the quarter, compared to $34,000 for the same period a year earlier. The pursuit of the integration and cost reduction program not only offset pricing pressure in the aftermarket and high manufacturing costs in the start-up of our OEM operations, but also enabled a 1.7% increase in the gross margin in this division for the third quarter.
This distribution division, which includes U.S. warehouse and European operations, generated $28.5 million in sales, compared to $31.8 million the previous year.
This shortfall is attributable to a drop in the conversion rate of U.S. sales and in Europe, as a result of a stronger Canadian dollar. In the U.S. warehouses, sales in U.S. dollars rose 5%, despite pricing pressure on the majority of product lines.
This sales growth in the U.S. market is attributable to an increase in fuel tank unit sales. Sales in the European operations declined by 9%, excluding the impact of the exchange rate variations, as a result of a drop in demand for the majority of product lines. Operating income reached $707,000 in this division, compared to $217,000 a year earlier. An increase in sales and a drop in selling, distribution and administrative expenses of close to $400,000 U.S. in the U.S. warehouses contributed to increased profitability in this division.
Rationalization costs of $103,000 were incurred during the quarter in this division, as a result of warehouse closures, compared to $185,000 a year earlier.