MONTREAL: Mega Brands is enhancing its competitive advantage by increasing the amount of toys manufactured at home, a move aimed at avoiding rising costs and transportation delays from factories in China, the Quebec-based company said.
About 30 per cent of its toys—primarily its large plastic construction blocks—are produced at a 72,000-square-metre facility in Montreal. The rest are made in Asia.
Since its recapitalization earlier this year, the company has accelerated investments in automation that makes North America production more cost effective than China.
Mega Brands said it evaluates each product to determine where it can most profitably be made.
“Recently, we have been putting some of the new products in our Montreal plant, so we’re actually seeing a pretty good increase here in terms of our Montreal facility this year,” president and CEO Marc Bertrand said during a conference call to discuss the company’s second-quarter results.
The plant includes nearly 700 production line workers. An additional 250 people work in research and development, administration and other functions at the site, which is also the company’s global headquarters.
Chief financial officer Peter Ferrante said making toys in North America has avoided double-digit cost increases in China over the past couple of years and reduces the lead time to market.
“Approximately 70 per cent of our products are sold in North America, so your lead time to a North American customer is a lot shorter from a Montreal factory than from an Asian subcontractor,” he said in an interview.
Gerrick Johnson of BMO Capital Markets said Mega Brands is one of the few North American toymakers to have North American production, which gives it a competitive advantage in light of rising Asian costs and transportation delays caused by a shortage of ocean containers.
“The reality is that some companies are forced to ship product early, some companies are going to miss some sales because they won’t be able to get some product to market on time…so I think it’s an advantage right now because they’re closer to the North American market,” he said in an interview from New York.
Mega Brands continued its slow recovery from near bankruptcy by posting a third consecutive quarter of improving financial results.
Boosted by stronger sales of franchise toys marketed to boys, the company reversed last year’s loss by earning US$1.2 million or less than a penny per share in the period ended June 30.
That compared with a loss of US$13.3 million, or 36 cents per share, for the same year-earlier period.
Mega Brands, which reports in U.S. dollars, said net sales during the seasonally slowest quarter of the year increased 12 per cent to $78.8 million, versus $70.1 million a year ago, on the continued strength in its preschooler products which include Thomas & Friends toys.
© 2010 The Canadian Press