ReSound Corporation Announces First Quarter 1998 Results
08:04 a.m. Apr 22, 1998 Eastern
REDWOOD CITY, Calif.--(BW HealthWire)--April 22, 1998--ReSound
Corporation (NASDAQ/NMS:RSND) today announced net sales of $31.1 million in
the first quarter ended March 28, 1998 compared to $32.2 million in the same
quarter last year.
Excluding the adverse impact of foreign currency exchange fluctuations, ReSound's
net sales were flat in the first quarter of 1998 compared to the same quarter in
1997. The company reported net income of $1.0 million, or $0.05 per share, in the
first quarter of 1998 compared to a net loss of $0.9 million, or $0.05 per share, in
the same quarter in 1997.
"Operational cost improvements stemming from the restructuring activities initiated
in the second half of 1997 contributed significantly toward ReSound's profitability in
the first quarter," said President and CEO Russell Hays. "Sales performance,
however, was disappointing, due largely to continuing poor hearing device market
conditions in Germany, a significant shortfall in sales from our Viennatone business,
the ongoing sales mix shifts in the U.S. from behind-the-ear (BTE) devices to
custom products and from Premium Series devices to the more moderately-priced
Encore Series product line, and reduced shipments to our Japanese distributor."
Sales in Europe during the first quarter declined five percent to $13.7 million
compared to $14.4 million in the first quarter of 1997. At constant exchange rates,
sales in Europe increased by four percent despite a decline in sales from
Viennatone and slow market conditions in Germany. The German market continues
to be highly competitive and negatively impacted by adverse economic conditions,
reductions in governmental reimbursement programs, and unfavorable publicity
surrounding hearing device dispensers and ear, nose and throat doctors regarding
the distribution of hearing devices. The quarter ending March 28 was the second
consecutive quarter in which the overall German hearing device market contracted.
"The Viennatone business has faced very strong competition and unfavorable
economic and governmental reimbursement market conditions over the past year.
We have recently replaced the management team in Austria to improve the
operational focus and are taking immediate steps to increase the ability of
Viennatone to compete effectively."
Other key European markets, however, including the Netherlands, Sweden,
Switzerland and the United Kingdom experienced strong sales growth in the first
quarter versus the year earlier quarter when measured at constant exchange rates.
Sales in the United States and Canada during the first quarter increased one
percent to $16.3 million compared to $16.1 million in the same quarter of 1997.
"In the U.S., unit volume growth for custom products has dramatically increased
since the launches of the Encore Series in-the-ear (ITE) device, the IE4, in the third
quarter of 1997 and the completely-in-the-canal (CIC) device, the CC4, in the first
quarter of 1998," said Hays. "This has been somewhat offset by a decline in unit
orders for standard behind-the-ear (BTE) devices, and a decrease in product sales
from the Minnesota Mining and Manufacturing Company (3M) Hearing Health
business activity (renamed Sonar Hearing Health Corporation) as we work to
convert existing Sonar accounts into ReSound customers.
"We continue to experience a shift in our product mix as the moderately-priced
Encore Series product line outperforms the higher-priced Premium Series devices.
This had an unfavorable impact upon revenue during the first quarter, but was
largely offset by unit volume increases. In the first quarter of 1998, the combined
sales of the Encore Series and Tradition Series product lines represented more than
two-thirds of our business in the U.S., compared to approximately 25 percent in the
same quarter last year.
"With regard to the CC4, we are extremely pleased with the strong customer
response and believe it is regarded as the best performing CIC in the marketplace.
However, the higher than anticipated customer demand, coupled with a component
supplier delivery problem, resulted in a sizable backlog position as of quarter end.
We are managing this issue aggressively, and expect to have it resolved so that the
number of units in back order can be substantially reduced by the end of the second
quarter."
Sales in the Asia Pacific and Latin American markets in the first quarter decreased
32 percent to $1.1 million compared to $1.7 million in the same quarter in 1997. This
decline in sales from the Asia Pacific and Latin American markets was largely
attributable to economic uncertainty in Japan coupled with lower shipments to
ReSound's Japanese distributor in order to improve its balance of inventory levels
and in-market sales.
Gross profit was 53.6 percent of net sales for the first quarter, compared to 53.1
percent of net sales in the first quarter of 1997. The increase in gross profit resulted
primarily from lower component costs and improved manufacturing efficiencies in
the custom business, partially offset by margin erosion in the Viennatone business
due to unfavorable sales mix and pricing pressures.
Research and Development (R&D) spending during the first quarter was $4.0
million compared to $4.3 million in the first quarter of 1997. R&D spending was
largely focused on the development of new products including the company's DSP
platforms, a small, inconspicuous hearing device targeted at the mild to moderately
hearing impaired segment of the market, and human communications and hearing
health care products being developed in conjunction with the company's alliance
with Motorola.
"Our new product development strategy focuses on opportunities both inside and
outside hearing health care that leverage our technology platforms and complement
our existing business," said Hays. "This includes products that we believe will
expand and further penetrate the hearing health care market, as well as
communications products targeted at people with normal hearing."
Selling, General and Administrative (SG&A) expenses during the first quarter were
$12.1 million compared to $12.5 million in the first quarter of 1997. The ratio of
SG&A to net sales was flat at 39.0 percent when compared to the first quarter of
1997. The reduction in SG&A in absolute dollars resulted primarily from the effects
of consolidation of certain sales and marketing activities in the U.S., and improved
cost controls, partially offset by higher business system implementation costs and
one-time severance costs in Viennatone.
Net debt reflecting total cash less total debt, improved at the quarter end to a zero
net balance. This compares favorably to the $0.5 million net debt position in the
fourth quarter of 1997 and $15.3 million net debt status one year ago.
ReSound is a hearing health care company that designs, develops, manufactures
and markets technologically advanced hearing devices throughout the world.
This news release contains forward looking statements, based on current
expectations, that involve risks and uncertainties that could cause actual results to
differ materially. Many of these statements are identified by words such as
"anticipates," "expects," "intends," "believes" and the like. These risks and
uncertainties include the ability of the new Viennatone management team to
improve Viennatone's operations in a timely manner, the ability of the supplier of the
chip for the CC4 to resolve manufacturing yield problems and attain a sufficient
chip supply in a timely manner, the timely development, introduction and acceptance
of new products and related technologies in existing and new markets, the
continuance of a successful relationship with Motorola, and the other risks and
uncertainties detailed from time to time in the company's public disclosure filings
with the U.S. Securities and Exchange Commission (SEC), including the company's
Form 10-K for the fiscal year ended December 31, 1997.
TABLE-Resound Corp. <RSND.O> Q1 profit vs loss
REDWOOD CITY, Calif., April 22 (Reuters) -
Consolidated Summary of Operations
(in thousands except per share data)
Three Months Ended
Mar. 28, Mar. 31,
1998 1997
(unaudited) (unaudited)
Net sales $ 31,143 $ 32,211
Net income (loss) 974 (894)
Net income (loss) applicable to
common shareholders 974 (969)
Basic and diluted net income (loss)
per share 0.05 (0.05)
Shares used in basic net income (loss)
per share calculation 20,259 19,389
Shares used in diluted net income (loss)
per share calculation 20,744 19,389
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