Laura, Dorel's third quarter earnings are excellent, indeed -- certainly above my expectations. The link to their Q3 report is:
fin-info.com
(the last part of this URL got cut off and should be: &_time=19971022100009)
They report Q3 EPS of 55 cents (54 cents fully diluted) and 9 month EPS of $1.47 ($1.43 fully diluted). Unless the fourth quarter slows significantly for Dorel, this would appear to put full-year earnings clearly beyond the $1.85 to $1.90 estimate that three analysts have made (see my earlier posting for details).
Earnings have been growing significantly faster than revenues, which have been no slouch in themself. Dorel also recently signed an exclusive license with Sealy to manufacture and distribute high-quality futons under the Sealy brand name; the link for this is:
192.139.81.46
This move is yet another step in Dorel's ongoing astute expansions, which make the company a true growth company albeit in somewhat cyclical consumer products sectors.
Dorel's decision to issue 1 million new class B shares will greatly strengthen their balance sheet, cutting long-term debt by more than half. As the company states in its report, this will "facilitate Dorel's ability to finance possible future expansions and acquisitions." Given that the company has over 12 million shares (class A and B) outstanding, the dilution of share earnings will be quite modest. Other things equal, as a shareholder I of course would prefer that they waited until the shares were still higher (say $45 or even $50) to reduce the dilution still further, but the shares have had a tremendous run already, and this may be a prudent time for new equity injection to the company (I'm sure glad they didn't do this just six months ago, when the shares were trading at just half of their current prices). With a stronger balance sheet, the market could well accord Dorel a better PE ratio, closer to the market multiple, which the company has surely earned over the past several years. If that occurs, share prices could well react favourably to the share issuance. This should be regarded as an intermediate to longer term event (6 to 18 months) rather than a short-term trading event, though. |
