Tighter Margins Impact Coast’s 2Q Net Income

The Coast Distribution System Inc., an aftermarket suppliers of replacement parts, accessories and supplies for the recreational vehicle and outdoor recreation industries, reported a drop in earnings for its second quarter and six months ended June 30, impacted by lower margins.

Morgan Hills, Calif.-based Coast reported net income of $0.5 million, or $0.11 per diluted share, for the second quarter, compared to net income of $1.0 million, or $0.21 per diluted share, in the same quarter of 2011. For the six months, Coast recorded a net loss of $800,000, or ($0.18) per diluted share, compared with a net loss of $59,000, or ($0.01) per diluted share, for the year prior.

The company said the decline in net income in this year’s second quarter and the increase in the net loss for the first six months were primarily attributable to declines in gross profits, which more than offset modest increases in net sales, in each of those periods.

Net sales for the second quarter increased by 2.7% to $34.1 million compared to net sales of $33.2 million in the second quarter of 2011. In the six months, net sales increased by 0.8% to $58.4 million from $57.9 million in the same six-month period of 2011.

Those increases were primarily the result of increased sales of the company’s Powerhouse generators to large retailers outside the RV and boating channels, which more than offset the effects on sales of RV and boating products of continued consumer uncertainty regarding the economic recovery.

Gross profits fell by $0.7 million to $5.6 million, resulting in a decrease in gross margin to 16.4% in the second quarter compared with 19% in the same quarter of 2011. In the six months ended, gross profits fell by $1.2 million, to $9.0 million, resulting in a decline in gross margin to 15.5% from 17.6% in the same six months of 2011.

These decreases 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, which increased costs for the company’s Canadian subsidiary of purchasing products from U.S. suppliers. Coast expects that the price increases it began implementing in July 2012 will contribute to improvement in gross margins in the second half of 2012.

“Although we posted modest top-line growth for the second quarter, ongoing consumer uncertainty about economic recovery and high unemployment continued to unfavorably affect our results,” said Coast’s CEO Jim Musbach. “Despite these challenges, we see reasons for optimism as we pursue our long-term strategic plan. We have made solid progress in 2012 in our sales of generators to large mass merchandisers, a new distribution channel for us. In addition, our sales to our traditional RV customers are slowly showing signs of recovery, which resulted in solid sales gains in July. As we enter the second half of the year, we continue to be optimistic about sales growth, given positive order momentum in our proprietary products where we plan to tap into existing distribution channels in addition to exploring new opportunities.”

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Coast Distribution Posts Moderate 2009 Profit

The Coast Distribution System Inc. today (March 31) reported financial results for the fourth quarter and full year ended Dec. 31, 2009, highlighted by profitability despite a decrease in net sales for the year, according to a news release.

Coast, based in Morgan Hill, Calif., and one of North America’s largest aftermarket suppliers of replacement parts, accessories and supplies for the recreational vehicle, boating and outdoor recreation industries, reported an increase in sales and a significantly reduced net loss in the fourth quarter of 2009 as compared to the same quarter of 2008. The net loss for the fourth quarter of 2009 was $1.1 million on net sales of $17.3 million. For the same period of 2008, Coast reported a net loss of $2.3 million on net sales of $16.9 million.

Gross margin as a percentage of sales increased to 13.7% in the 2009 fourth quarter, compared to 9.9% in the same quarter of 2008. The improvement was the result of reduced shipping costs as fuel prices declined, a change in product mix and improved pricing.

In addition, in the 2009 fourth quarter, Coast reduced selling, general and administrative (SG&A) expenses by $1.5 million, or 28.5%, as compared to the 2008 fourth quarter. The company attributed the decrease in SG&A to a variety of cost-cutting measures implemented throughout the year.

For the full year ended Dec. 31, 2009, Coast reported net earnings of $0.1 million on net sales of $103.2 million. This compares with a net loss of $1.8 million on net sales of $132.2 million in 2008. In 2009, gross margin as a percentage of sales improved to 18.8% from 18.6% in the prior year. SG&A expenses were reduced by $8 million, or 30.1%, which drove the turnaround in operating income and earnings generated in 2009.

Coast also reduced borrowings under its bank line of credit by $7.4 million, or 43.6% year-over-year, and reduced inventory year-over-year by $7.7 million, or 25.2%, to $23 million at Dec. 31, 2009. Coast generated $10.2 million in operating cash flow in 2009, contributing to its ending cash balance of $5.6 million, up from $1.9 million at the end of 2008.

“Given the adverse economic and industry conditions in 2009, we are pleased with our results for the quarter and full year,” said Coast CEO Jim Musbach. “Driving our return to profitability were improved operating margins, which were the result of the combined impact of an improved product mix as well as our efforts over the last year to reduce costs and create a leaner organization. Looking ahead, it is our plan to capture additional market share to offset expected declines in net sales resulting from the recessionary conditions and limited credit availability we expect will continue throughout 2010. We also believe we can achieve further improvements in gross margin by working to increase sales of higher-margin proprietary products and foreign-sourced products. In addition, we will continue to monitor SG&A expenses in response to the difficult economic climate.”

CalARVC Urges Formaldehyde-free Chemicals

The California Association of RV Parks and Campgrounds (CalARVC) is taking a bold pro-environmental stand with regard to formaldehyde in holding tank treatments  by asking three of the nation’s leading distributors of aftermarket parts and accessories, Camping World Inc., Lincolnshire, Ill., Coast Distribution System Inc., Morgan Hill, Calif., and Stag Parkway Inc.,  Atlanta, Ga., to halt shipments of chemicals containing the controversial chemical into the Golden State.

In letters to the CEOs of the three firms, Debbie Sipe, CalARVC executive  director, wrote, “Several studies have concluded that RV holding tank products that contain formaldehyde are harmful to consumers, while posing a significant threat to groundwater quality. Campground operators have also learned that while chemically based holding tank products effectively control sewage odors, they also destroy the bacteria that’s needed to break down the wastes contained in septic systems. Septic tank failures ultimately occur, costing campground operators tens of thousands of dollars in septic system repairs.”

She noted that the California Department of Toxic Substances Control (DTSC) posted a fact sheet in January alerting consumers to these risks, while encouraging them to purchase holding tank products that do not contain formaldehyde.

Given these environmental hazards, she continued, CalARVC asked the three firms to refrain from selling these products in California and instead market environmentally friendly holding tank products, as recommended by the DTSC.

Sipe urged the companies to educate their customers about the dangers of using chemically based holding tank products.

“We think (the three firms) could make a positive statement on this issue by announcing its decision to ban these products on or before April 22, when our nation celebrates Earth Day,” she said. “We look forward to receiving your thoughts on this matter at your earliest opportunity.”