RC2 reports solid Q3 results

RC2 announces results and increases its 2009 outlook.
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Net profit for Q3 2009 was $13.6 million, or 66 cents per share, as compared with $11.1 million, or 64 cents per diluted share, for the same period in 2008.

Net sales for the period decreased by 4.8 per cent to $126.5 million compared with net sales of $132.9 million for the third quarter a year ago.

Curt Stoelting, CEO of RC2 commented: “We are encouraged by the increase in our third quarter net income.

"Gross margins improved in the third quarter as compared with the first half of 2009 due to benefits from both lower product and freight costs, seasonal mix shift to play products, improved operating leverage and improved international margins due to favourable currency fluctuations.”

The firm’s operating costs were over $4 million lower than in the third quarter of 2008, primarily due to an operating cost reduction plan and lower variable costs.

In addition to cost reductions, RC2 has benefited from working capital improvements, which when coupled with the increased profit, have generated over $40 million of cash in the first nine months of 2009.

Net income for the nine months ended September 30th, was $18.7 million, or $1.01 per diluted share, as compared with $6.7 million, or 38 cents per share, for the nine months ended September 30th, 2008.

Net sales for the nine months decreased by 4.9 per cent to $299.8 million compared with net sales of $315.3 million for the nine months ended September 30, 2008.

Unfavorable fluctuations in foreign currency exchange rates reduced the 2009 third quarter and nine months consolidated net sales by approximately three per cent and five per cent respectively.

Stoeling continued: “As expected, third quarter sales comparisons were challenging with North American sales showing a small increase which was offset by softness in International sales.

“Net sales trends in our pre-school, youth and adult products category improved in the third quarter compared with the first half of 2009, declining five per cent in the 2009 third quarter compared with the prior year third quarter versus a decline of 15 per cent in the first half of 2009 compared with the first half of 2008. 

“We continue to see sales declines across most product lines with the exception of Thomas & Friends Wooden Railway, which has achieved positive sales comparisons both quarterly and year-to-date.

"Sales of our new Super Why product line continue to increase. We have significant new product launches planned in 2010 for new pre-school properties including Chuggington and Dinosaur Train as well as launching a number of new products across our existing product lines. “

Stoelting concluded, “We continue to anticipate a challenging holiday season in 2009 and remain concerned about the economic environment for 2010. However, we are encouraged by recent trends and remain focused on our long-term strategic goals, which include both organic growth and growth through acquisition.”

The company now expects full year 2009 net income will be higher than the $23.5 million reflected in its previous guidance and will range from $25 to $27 million or $1.30 to $1.40 per fully diluted share.

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