Coast 3Q Sees Earnings Drop on Higher Sales
Aftermarket supplier Coast Distribution System Inc. reported mixed results for its third quarter, ended Sept. 30, showing a drop in earnings on a 9.2% increase in sales.
Morgan Hill, Calif.-based Coast reported net income of $307,000, or 7 cents per diluted share, for the third quarter of 2012, compared to net income of $612,000, or 13 cents per diluted share, in the same quarter of 2011. For the nine months ended, Coast recorded a net loss of $534,000, or 12 cents per diluted share, compared with net income of $553,000, or 12 cents per diluted share, for the first nine months of 2011. The decline in net income in this year’s third quarter and the loss for the first nine months of 2012 were primarily attributable to declines in gross profits, along with increases in selling, general and administrative expenses in both periods.
Net sales for the third quarter increased by to $34.5 million compared to $31.6 million a year ago. In the nine months, net sales increased by 3.7% to $92.8 million from $89.5 million in the same nine-month period of 2011. Those increases were primarily the result of increased sales in new distribution channels of the company’s Powerhouse generators and other RV products to large mass merchandisers, which is a new distribution channel for Coast.
“We continued to face challenging conditions in our markets throughout the year to date, but we have reason for optimism surrounding the future of our business,” said Coast CEO Jim Musbach. “Sales of our proprietary products into new distribution channels positively impacted our net sales during the quarter, and we will continue to foster this early success as we build these channels and explore new opportunities. We are also continuing to work on balancing pricing and product costs to improve our overall margins, including fostering the growth of our proprietary products.
“In looking at the broader recreational industry, recent consumer confidence surveys suggest improvement among consumers in the United States, which we should provide more favorable conditions as consumers become more comfortable with discretionary spending associated with the purchase and usage of RVs and boats.”
Third-quarter gross margin declined to 16.5% from 18.1% in the same quarter of 2011, due primarily to an 11.3% increase in costs of sales which more than offset the beneficial effect on gross margin of the increase in net sales during this year’s third quarter. In the nine months, gross profits fell by $1.2 million to $14.7 million resulting in a decline in gross margin to 15.8% from 17.8% in the same nine months of 2011. These declines in gross margin were the result of price reductions on selected products that Coast implemented in response to aggressive price competition in the market, as well as a weakening of the Canadian dollar, as compared to the U.S. dollar. In addition, the company incurred additional costs primarily attributable to quality control testing of new models of proprietary products introduced into the market place in this year’s third quarter and an increase in the warranty reserve for proprietary products as a result of increases in sales of those products.
On the balance sheet, accounts receivable increased $72,000, to $9 million at Sept. 30 from $8.9 million last year. Inventories were $30.7 million, an increase of $2.5 million compare with a year ago. The increase in inventory levels from the prior year was a result of Coast’s efforts to increase sales and its market share of the company’s proprietary products.
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