Investment in Latin America, China will drive long-term growth for Montreal bike maker

MONTREAL—Dorel Industries Inc. says heavy investments to expand production and distribution capabilities in Latin America and China will generate long-term returns and give the company more control.

“We are making very strategic investments, which we know are in the best interest of our shareholders,” CEO Martin Schwartz said in discussing the company’s second-quarter results.

The Montreal-based maker of bicycles, child car seats and ready-to-make furniture is spending US$120 million to buy one of China’s largest manufacturers of infant and juvenile products, bought a Brazilian bicycle manufacturer that runs the largest factory outside Southeast Asia and has recently started distribution in Mexico.

Schwartz said the acquisition of Hong Kong-based Lerado Group Holding Co., Ltd. will provide the company with its first manufacturing in juvenile products, such as child car seats and strollers, to improve growth in Asia and make it more competitive in the American market.

The purchase of Caloi in Brazil is already helping Dorel’s revenues and profits and is allowing the bike manufacturer to produce its brands locally.

“The reception from retailers in Brazil has been very good, and allows us to better reach the middle-class consumer, the fastest growing segment in Brazil,” he told analysts.

Continued momentum in its bicycle division is expected to drive Dorel’s results through the fourth quarter when sales traditionally pickup during Christmas and the summer season in the southern hemisphere.

It expects double-digit earnings growth in the juvenile division in the second half of the year, even after excluding a product liability settlement in the United States related to a 2008 accident in which a child travelling in one of its car seats was seriously injured.

Dorel was ordered by a Mississippi jury to pay half of a US$52-million judgment to the family of a child injured in the crash.

Most of Dorel’s liability was covered by insurance.

Strong growth in the recreation and leisure division contributed to a nearly 15 per cent boost in profits in the second quarter.

Dorel earned US$15.2 million or 47 cents per share for the three months ended June 30.

That compared to US$13.2 million or 41 cents per share a year ago.

Excluding restructuring costs, adjusted earnings equalled 51 cents per share, well below the 67 cents forecast by analysts.

Revenue for the company, which reports in U.S. dollars, grew 9.2 per cent to US$655.8 million from US$600.4 million.

The recreation and leisure division’s operating profit more than tripled to US$15.2 million from US$3.7 million on a 20 per cent boost in sales to US$286.2 million.

Organic revenues at the bicycle business grew about 11 per cent in the quarter and by 15 per cent in the first six months of the fiscal year from both independent bike dealers and North American mass merchants.

Dorel said the results were also helped by improved weather and a continued rebound in most global bike markets.

The juvenile division’s operating profit increased 2.2 per cent to US$16.2 million on US$251.3 million in revenues, led by the performance in Europe and Brazil.

The division benefited from 10 per cent organic growth in the quarter and 16 per cent year-to-date in Latin America, which was largely offset by a weaker currency especially in Chile.

Home furnishing profits were US$5.2 million, down 27 per cent from US$7.2 million a year ago, as revenues slipped to US$118.3 million despite continued growth of Internet sales.

The company manufactures a number of children’s products under the Safety 1st, Quinny, Cosco, Maxi-Cosi and Bebe Confort brands, while its bikes and related products include brands such as Cannondale, Schwinn, GT, Mongoose, IronHorse and Sugoi.

It has annual sales of US$2.6 billion and employs 6,300 people in 24 countries.