- Email: [email protected]
H2O Innovation, Canada
July 2003
Filtration Industry Analyst
Fedders Corp, USA
H2O Innovation, Canada
Key Figures (US$ million) First quarter ended 31.5
Key Figures (C$ million) Third quarter ended 31.3 2002
Net Sales
194.2
170.7
Cost of Sales
2003
2002
Sales
1.7
0.9
149.1
129.8
Cost of Sales
1.1
0.8
Operating Income
27.7
24.4
Gross Margin
0.6
0.1
Income before Income Taxes
23.6
20.2
R&D Expenses
0.07
0.1
Net Income
15.9
13.6
Loss before Exceptional Items
(0.05)
(0.6)
Net Loss
(0.03)
(0.8)
Nine months ended 31.5 2003
2002
Net Sales
304.8
281.9
Cost of Sales
237.0
217.5
21.2
Operating Income
Nine months ended 31.3 2003
2002
Sales
4.4
2.8
17.1
Cost of Sales
2.9
2.0
Income before Income Taxes
7.6
3.7
Gross Margin
1.6
0.8
Net Income
5.1
2.5
R&D Expenses
0.3
0.1
Loss before Exceptional Items
(0.5)
(1.2)
Net Loss
(0.4)
(1.4)
COMMENT
COMMENT Fedders enjoyed a 13.8% increase in net sales for the third quarter of 2003 compared with a year earlier, with the total reaching US$194.2 million. Heating, ventilation, air conditioning and refrigeration (HVACR) sales were US$183.7 million for the quarter, up 15.0% compared with 2002, primarily due to strong pre-season demand for air conditioners both in North America and internationally. Sales in the engineered products segment declined 3.8% year-on-year for the quarter, to US$10.5 million, reflecting continuing weak demand in the capital equipment market for commercial and industrial air filtration products. Fedders’ gross margin for the quarter was 23.2% compared with 24.0% a year earlier. The decline is attributed to
a greater mix of air conditioner sales, which typically carry a lower margin than sales of engineered products, and start-up costs associated with the transfer of production to Asia. The company’s operating income in the third quarter of fiscal 2003 was US$27.7 million versus US$24.4 million in the prior-year period, reflecting the increased sales activity for the period. For the first nine months of fiscal 2003, Fedders sales have totalled US$304.8 million, an 8.1% increase from a year ago. HVACR sales have totalled US$274.7 million for the period, up from US$250.8 million in 2002. Gross profit for the nine months declined to 22.3% from 22.8% in the prior-year period, again due to its sales mix and Asian production set-up costs. ■
H2O Innovation continued to make steady progress in the first quarter of 2003 with its sales of C$1.7 million up 81% on a year earlier. The company’s sales in the municipal sector were hampered by a delay in obtaining standardization certification for its membrane filtration products for surface water treatment. The company expects to receive these certifications within the next two quarters. Among the contracts that the membrane filtration division earned during the quarter was a C$419 000 contract to the indigenous community of Pakua Shipi. Indeed, H2O Innovation aims to develop its sales to indigenous communities, where it has already achieved a number of contracts. This strategy is underpinned by the granting of C$600 million by Canada’s
Federal Ministry of Native Affairs to more than 600 communities to upgrade water treatment facilities. As part of these developments, H2O Innovation has retained, on an exclusive basis, a consultant who specializes in the environmental developments within native communities. H2O Innovation’s maple division achieved its sales target for the quarter, while the development of a promotion of membrane products for this market is expected to increase sales moving forward. The company is also planning to increase its distributors in this area for the next season. H2O Innovation has also completed a reorganization of its biological processes division, with the centralization of activities in Quebec City. The changes are expected to realize cost savings of C$300 000 per year. ■
7
COMPANY WATCH
2003
Filtration Industry Analyst
Fedders Corp, USA
H2O Innovation, Canada
Key Figures (US$ million) First quarter ended 31.5
Key Figures (C$ million) Third quarter ended 31.3 2002
Net Sales
194.2
170.7
Cost of Sales
2003
2002
Sales
1.7
0.9
149.1
129.8
Cost of Sales
1.1
0.8
Operating Income
27.7
24.4
Gross Margin
0.6
0.1
Income before Income Taxes
23.6
20.2
R&D Expenses
0.07
0.1
Net Income
15.9
13.6
Loss before Exceptional Items
(0.05)
(0.6)
Net Loss
(0.03)
(0.8)
Nine months ended 31.5 2003
2002
Net Sales
304.8
281.9
Cost of Sales
237.0
217.5
21.2
Operating Income
Nine months ended 31.3 2003
2002
Sales
4.4
2.8
17.1
Cost of Sales
2.9
2.0
Income before Income Taxes
7.6
3.7
Gross Margin
1.6
0.8
Net Income
5.1
2.5
R&D Expenses
0.3
0.1
Loss before Exceptional Items
(0.5)
(1.2)
Net Loss
(0.4)
(1.4)
COMMENT
COMMENT Fedders enjoyed a 13.8% increase in net sales for the third quarter of 2003 compared with a year earlier, with the total reaching US$194.2 million. Heating, ventilation, air conditioning and refrigeration (HVACR) sales were US$183.7 million for the quarter, up 15.0% compared with 2002, primarily due to strong pre-season demand for air conditioners both in North America and internationally. Sales in the engineered products segment declined 3.8% year-on-year for the quarter, to US$10.5 million, reflecting continuing weak demand in the capital equipment market for commercial and industrial air filtration products. Fedders’ gross margin for the quarter was 23.2% compared with 24.0% a year earlier. The decline is attributed to
a greater mix of air conditioner sales, which typically carry a lower margin than sales of engineered products, and start-up costs associated with the transfer of production to Asia. The company’s operating income in the third quarter of fiscal 2003 was US$27.7 million versus US$24.4 million in the prior-year period, reflecting the increased sales activity for the period. For the first nine months of fiscal 2003, Fedders sales have totalled US$304.8 million, an 8.1% increase from a year ago. HVACR sales have totalled US$274.7 million for the period, up from US$250.8 million in 2002. Gross profit for the nine months declined to 22.3% from 22.8% in the prior-year period, again due to its sales mix and Asian production set-up costs. ■
H2O Innovation continued to make steady progress in the first quarter of 2003 with its sales of C$1.7 million up 81% on a year earlier. The company’s sales in the municipal sector were hampered by a delay in obtaining standardization certification for its membrane filtration products for surface water treatment. The company expects to receive these certifications within the next two quarters. Among the contracts that the membrane filtration division earned during the quarter was a C$419 000 contract to the indigenous community of Pakua Shipi. Indeed, H2O Innovation aims to develop its sales to indigenous communities, where it has already achieved a number of contracts. This strategy is underpinned by the granting of C$600 million by Canada’s
Federal Ministry of Native Affairs to more than 600 communities to upgrade water treatment facilities. As part of these developments, H2O Innovation has retained, on an exclusive basis, a consultant who specializes in the environmental developments within native communities. H2O Innovation’s maple division achieved its sales target for the quarter, while the development of a promotion of membrane products for this market is expected to increase sales moving forward. The company is also planning to increase its distributors in this area for the next season. H2O Innovation has also completed a reorganization of its biological processes division, with the centralization of activities in Quebec City. The changes are expected to realize cost savings of C$300 000 per year. ■
7
COMPANY WATCH
2003