Johnson Outdoors Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2017. Amounts are in thousands of dollars, except per-share data. Comparisons are with the three and nine months ended July 1, 2016.
Financial performance
| Metric | Three months 2017 | Three months 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net sales | $155,274 | $139,300 | $398,810 | $358,790 |
| Gross profit | $70,630 | $59,283 | $172,108 | $147,577 |
| Gross margin | 45.5% | 42.6% | 43.2% | 41.1% |
| Operating profit | $24,737 | $13,583 | $45,667 | $27,821 |
| Net income | $16,553 | $6,841 | $34,568 | $15,628 |
| Diluted EPS, Class A and B | $1.65 | $0.68 | $3.45 | $1.56 |
Quarterly sales increased 11% and operating profit increased 82%; nine-month sales rose 11% and operating profit rose about 64%. Management attributed margin improvement mainly to favorable product mix, volume-driven overhead efficiencies and modest price increases. Quarterly operating margin was approximately 15.9% versus 9.8%; nine-month operating margin was approximately 11.5% versus 7.8%.
Segments and material changes
- Fishing: Quarterly sales rose 18% to $103,974; nine-month sales rose 16% to $276,469. New trolling motors, i-Pilot systems and HELIX fish finders were key drivers. Operating profit was $24,293 for the quarter and $54,324 year to date.
- Camping: Quarterly sales fell 8% to $12,129; nine-month sales fell 6% to $29,239. A soft retail market and bankruptcies at key accounts weighed on results; quarterly operating profit was $1,452.
- Watercraft Recreation: Quarterly sales declined 10% to $17,290 and nine-month sales declined 4% to $38,594, reflecting a weaker recreational kayak market and bankruptcies at key accounts. Quarterly operating profit was $2,417.
- Diving: Quarterly sales increased 17% to $21,984 and nine-month sales increased 9% to $54,903, helped by product launches and improved computer sales. Quarterly operating profit was $1,218, compared with a $6,204 loss in the prior-year quarter, which included a $6,197 goodwill impairment. Nine-month operating profit was $468 versus a prior-year loss of $8,782.
Administrative, selling and other operating expenses were higher year over year, including increased sales-related, incentive compensation, administrative and legal costs. The prior-year impairment charge makes comparisons of reported expenses and Diving profitability less directly comparable.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $25,886, versus $26,933 in the prior-year period. Higher earnings were more than offset by changes in receivables.
- Investing cash outflow was $47,942, including a $40,000 purchase of short-term investments; capital expenditures were $8,147. Financing cash outflow was $10,706.
- Cash and cash equivalents were $53,741 at June 30, 2017; short-term investments were $40,000, for combined cash and investments of $93,741. Cash alone was $75,602 at July 1, 2016.
- Total debt was zero at June 30, 2017, down from $7,447 at July 1, 2016. The company repaid its $7,068 term loans in October 2016, incurring a 3% prepayment penalty. Its revolving facility, expiring September 2018, had a stated borrowing limit of $90,000, subject to a $60,000 seasonal limit; no revolver balance was outstanding.
- Current assets were $243,767 and current liabilities $86,889 at June 30, 2017. Receivables rose to $79,292, principally reflecting seasonal sales and higher Fishing sales; inventory was $68,239.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management cautions that results are seasonal and the nine-month results are not necessarily indicative of full-year performance; the third quarter is within the primary selling season.
- The nine-month effective tax rate was 27.0%, compared with 44.2% a year earlier. A roughly $4,200 foreign tax credit benefit was generated by repatriation of approximately $22,000 in the first quarter. The company says it does not intend or foresee a need to repatriate remaining undistributed foreign earnings.
- Risks identified include discretionary consumer spending, weather, foreign exchange, commodity and raw-material costs, supply-chain disruption, customer creditworthiness and bankruptcies, execution of growth and acquisition plans, and potential goodwill or long-lived-asset impairments. About 16% of nine-month revenue was denominated in foreign currencies; no currency forward contracts were outstanding.
- Contractual obligations included $23,595 of operating lease commitments and $68,825 of open purchase orders, primarily due within one year. The company anticipated $47 of pension contributions for the remainder of fiscal 2017.
- Management said pending litigation was not expected to have a material adverse effect. The company was undergoing an income tax examination in Italy; management disclosed uncertain tax positions and projected related fiscal-year tax expense and interest. No material changes to the previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether Fishing’s strong new-product-driven growth is sustainable and whether weaker Camping and Watercraft markets, including key-account bankruptcies, persist.
- How much of reported earnings growth reflects operating improvement versus the prior-year Diving impairment and the current-year tax credit benefit.
- Seasonal working-capital and cash-flow needs, collection of the increased receivables, and the terms and covenant capacity of the revolving facility.
- Potential impacts from foreign exchange, raw-material costs, tax examinations and uncertain tax positions, and any renewed indicators of impairment in Diving or other reporting units.