Edelbrock Corp. Reports Strong Improvement in Sales for Fiscal 1999 Q3
5 May 1999
Edelbrock Corp. Reports Strong Improvement in Sales for Fiscal 1999 Third Quarter and Nine Months
TORRANCE, Calif.--May 5, 1999--Edelbrock Corp. Wednesday reported that surging demand for three product lines -- aluminum automotive manifolds and cylinder heads and the company's Performer Series carburetors -- led to significantly improved sales performance in its fiscal 1999 third quarter and nine months ended March 25, 1999.For the third quarter of fiscal 1999, revenues rose 18.1 percent to $27.0 million from $22.8 million in the comparable quarter a year ago. Net income for the fiscal 1999 quarter, which reflected a shift in sales mix toward lower-margin third-party products, was $1.8 million, or 34 cents per diluted share, compared with $1.8 million, or 33 cents per diluted share, a year ago.
Net income for the 1999 quarter also included Edelbrock's offer of payment of $190,000 to settle remaining legal issues relating to alleged preference payments associated with the Chapter 11 Bankruptcy of Super Shops Inc. The after-tax effect of the settlement expense amounted to 2 cents per diluted share in the current fiscal quarter.
The settlement offer is currently pending bankruptcy court approval. Excluding that expense, net income for the fiscal 1999 quarter would have been reported as $1.9 million, or 36 cents per diluted share.
For the first nine months of fiscal 1999, revenues increased 13.8 percent to $75.2 million from $66.1 million in the comparable period of fiscal 1998. Net income for the fiscal 1999 period improved to $4.6 million, or 86 cents per diluted share, from net income of $3.4 million, or 63 cents per diluted share, in the first nine months of fiscal 1998.
Net income for the 1998 period was affected by a $1.9 million pre-tax charge taken against earnings in the second quarter for the write-off of unsecured receivables with Super Shops. The after-tax effect of the receivables charge was 23 cents per diluted share.
The fiscal 1999 period was affected by the aforementioned Super Shops settlement in the third quarter and a pre-tax write-off for uncollectible receivables of $400,000 in the second quarter related to the Chapter 7 Bankruptcy of Champion Auto Stores Inc. The after-tax effect of the Champion receivables write-off was 5 cents per diluted share.
The strong 18.1 percent improvement in quarterly sales was driven by a strong increase in demand for Edelbrock's highly regarded aluminum automotive cylinder heads and intake manifolds and Performer Series automotive carburetors, sales of which rose 62.6 percent, 14.4 percent and 18.7 percent, respectively, over the third quarter of fiscal 1998.
The company attributed these increases to aggressive advertising that capitalized on the nation's growing interest in motorsports and resulting expansion of the market; its ability to rapidly expand its product application base to address those opportunities; and its success in positioning Edelbrock as the premier brand of aftermarket product in a growing number of categories.
As a percentage of sales, selling, general and administrative (SG&A) expenses for the third quarter of fiscal 1999 remained unchanged from the year-ago period at 25 percent. Overall, SG&A expenses increased 18.1 percent, or $1.0 million, to $6.7 million, from the fiscal 1998 quarter. For the first nine months of fiscal 1999, SG&A expenses increased 15.7 percent over fiscal 1998 to 25.8 percent of sales from 25.4 percent a year ago.
The increase in SG&A expenses for the third quarter of fiscal 1999 resulted primarily from increased sales commissions associated with increased sales and increases in advertising expenditures.
For the nine months of fiscal 1999, the increases resulted from costs associated with the installation of a new database system, companywide implementation of the QS 9000 quality standard, and advertising and promotional activities to support the company's expanded base of products and vehicle applications.
Research and development (R&D) expenses for the third quarter of fiscal 1999 increased 26.4 percent to $746,000, or 2.8 percent of sales, from the $590,000, or 2.6 percent of sales, recorded in the same period of last year, as Edelbrock moved aggressively to capitalize on emerging market opportunities with a range of new product applications.
The after-tax effect of the company's R&D expenses was 9 cents per diluted share in the current quarter, compared with 7 cents for the same period of fiscal 1998. R&D expenses for the first nine months of fiscal 1999, mirroring that trend, rose 23.9 percent over fiscal 1998.
As a percent of sales, R&D expenses increased to 2.9 percent for the current nine-month period, as compared with 2.7 percent for the same period of 1998. For the first nine months of fiscal 1999, the after-tax effect of R&D expenses increased to 26 cents per diluted share from 21 cents per diluted share for the same period of fiscal 1998.
Commenting on the company's results, Edelbrock Chairman and Chief Executive Officer Vic Edelbrock said, "The vibrant health of Edelbrock products in the automotive performance aftermarket and Edelbrock's solid positioning within that market were clearly evident in our sales performance for both the third quarter and first nine months of this year.
"The popularity of our major product lines -- carburetors, manifolds and cylinder heads -- continues to grow, as does the demand for lines like shock absorbers, water pumps, air cleaners, exhaust system products and fuel injection systems, all of which achieved very good double-digit increases for the quarter," he said.
"Right now, in fact, demand for our cylinder heads is so strong we're working at near-peak capacity to satisfy it," Edelbrock added. "The new state-of-the-art automated distribution center we are now constructing, which is on schedule to open in September 1999, and the addition of new capital equipment at our manufacturing facility in Torrance, should together have a very positive effect on our output for later fiscal 2000.
"We have the R&D, manufacturing, distribution and brand awareness necessary to capitalize on the tremendous opportunities before us, and we will be working aggressively to take full advantage of those dynamics in the fourth quarter."
Founded in 1938, Torrance-based Edelbrock is recognized as one of the nation's premier designers, manufacturers and distributors of performance replacement parts for the automotive and motorcycle aftermarkets. In addition to three production facilities in Torrance, the company owns and operates a state-of-the-art aluminum foundry and its QwikSilver Division for motorcycle aftermarket parts in San Jacinto, Calif., at which it manufactures many of its quality products.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include such factors as the financial strength and competitive pricing environment of the automotive and motorcycle aftermarket industries; product demand; market acceptance; manufacturing efficiencies; new product development; the success of planned advertising, marketing and promotional campaigns; the success of the company's, its vendors' and its suppliers' year 2000 compliance programs; and other risks identified in documents filed by the company with the Securities and Exchange Commission.
EDELBROCK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
March 25, March 25,
1999 1998 1999 1998
Revenues $26,973,000 $22,837,000 $75,170,000 $66,080,000
Cost of sales 16,480,000 13,697,000 45,814,000 40,305,000
Gross profit 10,493,000 9,140,000 29,356,000 25,775,000
Operating expenses
Selling,
general and
administrative 6,733,000 5,699,000 19,408,000 16,771,000
Research and
development 746,000 590,000 2,187,000 1,765,000
Write-off of
uncollectible
receivable -- -- 400,000 1,878,000
Settlement expense
(Note 3) 190,000 -- 190,000 --
Total operating
expenses 7,669,000 6,289,000 22,185,000 20,414,000
Operating income 2,824,000 2,851,000 7,171,000 5,361,000
Interest expense 50,000 68,000 152,000 206,000
Interest income 56,000 29,000 228,000 221,000
Income before taxes
on income 2,830,000 2,812,000 7,247,000 5,376,000
Taxes on income 1,046,000 1,040,000 2,681,000 1,989,000
Net income $ 1,784,000 $ 1,772,000 $ 4,566,000 $ 3,387,000
Basic net income
per share $ 0.34 $ 0.34 $ 0.87 $ 0.65
Diluted net income
per share $ 0.34 $ 0.33 $ 0.86 $ 0.63
Basic weighted
average number
of shares
outstanding 5,257,000 5,253,000 5,255,000 5,251,000
Effect of diluted
stock options
and warrants 49,000 145,000 55,000 147,000
Diluted weighted
average number of
shares outstanding 5,306,000 5,398,000 5,310,000 5,398,000
EDELBROCK CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 25, June 30,
1999 1998
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 4,217,000 $ 8,370,000
Accounts receivable, net 28,792,000 21,222,000
Inventories 16,348,000 16,776,000
Prepaid expenses and other 1,448,000 1,288,000
Total current assets 50,805,000 47,656,000
Property, plant and equipment, net 35,529,000 35,676,000
Other 1,349,000 1,643,000
Total assets $87,683,000 $84,975,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $12,848,000 $14,724,000
Accrued expenses 3,555,000 3,610,000
Current portion of long-term debt 67,000 62,000
Total current liabilities 16,470,000 18,396,000
Long-term debt 2,072,000 2,123,000
Deferred income taxes 2,832,000 2,725,000
Shareholders' equity 66,309,000 61,731,000
Total liabilities and shareholders' equity $87,683,000 $84,975,000