Canadian Manufacturing

Dorel shares plunge to record low on dividend suspension over U.S. tariffs

The Montreal-based manufacturer produces is feeling the squeeze from U.S. tariff increases in May to 25% on many of the goods it produces

October 2, 2019  by Ross Marowits, The Associated Press

Dorel Industries Inc. saw its share price plunge to a record low Tuesday after it suspended its dividend due to U.S. tariffs on Chinese-made products.

The Montreal-based maker of bicycles, children’s car seats and home furnishings said U.S. tariff increases in May to 25 per cent on many of the goods it produces is having a much greater impact on its business than the original 10 per cent tariffs introduced a year ago.

“It is prudent to suspend the dividend until the chaotic market conditions created by tariffs are normalized,” president and CEO Martin Schwartz said in a news release.

Dorel’s class B shares dropped as low as $5.75 in early trading on the Toronto Stock Exchange. They were down $3.02 or 33.2 per cent at $6.07 in the early afternoon.

The company said a dividend of 15 cents US per share declared on Aug. 2 is not affected and will be paid on Wednesday.

Dorel slashed its quarterly dividend in half earlier this year in a move that it said would give it increased flexibility.

It said the impact of tariffs on its business was unclear at the end of the second quarter.

The company raised its prices midway through the third quarter, but there were “unintended consequences” because not all competitors or retailers followed suit. Retailers also changed their buying routines.

“New price points have caused some consumers to opt for different items creating a considerable product mix imbalance,” Schwartz said.

He added that Dorel Home’s expected gross margin improvement will be delayed to the beginning of 2020.

In addition to the tariff issue, some large U.S. customers have delayed Christmas deliveries to the beginning of the fourth quarter and a recent rise in the U.S. dollar hurt its sports and juvenile segments.

Dorel also announced that it has amended its credit facilities and term loans to ensure compliance with its financial covenants.

Analyst Sabahat Khan of RBC Capital Markets said the dividend suspension indicates that the third-quarter results to be released Nov. 8 will likely be well below expectations.

“Given the number of headwinds facing the company over the recent quarters, we are not entirely surprised by the announcement,” he wrote in a report.

 


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