Fedders Corporation, a leading global manufacturer of air treatment products, including air conditioners, furnaces, air cleaners, and humidifiers for residential, commercial and industrial markets, announced results for the third quarter of fiscal year 2006. The company reported a considerably smaller loss, due to operating improvements, compared with the fiscal 2005 third quarter, despite lower sales.
Net sales of U.S. $51.2 million in the 2006 third quarter declined 18.9 percent from $63.1 million in the third quarter of 2005. For the first 9 months of 2006, net sales declined 4.8 percent to $246.4 million compared with $258.7 million in the prior-year period. Net loss for the 2006 third quarter was reduced by 36.6 percent to $11.6 million ($0.41 per share) from $18.4 million ($0.63 per share) in the 2005 third quarter. For the 2006 9-month period, the net loss was $29.3 million ($1.06 per share) compared with $27.8 million ($1.02 per share) during the comparable 2005 period.
The company's decision to discontinue sales to The Home Depot retail stores in the U.S. in fiscal 2006 was the primary reason for the sales decline and the decision by certain customers to accelerate room air conditioner purchases to earlier in the year further affected quarterly comparisons. Partially offsetting the declines were an increase in sales of room air conditioners through other distribution channels and higher sales of commercial air conditioners. Despite these sales declines, the net loss was reduced during the third quarter as a result of increased gross margins due to an improving product and customer mix, a 25 percent reduction in SG&A expenses and lower restructuring costs. Although the net loss in the 9-month period approximated that of the prior year, the operating loss improved by 12 percent as a result of an 18 percent reduction in SG&A expense, benefits from the prior year restructuring of manufacturing operations and lower restructuring costs, despite added commodity costs incurred year-to-date of $10.5 million, which could not be passed along in higher pricing.
The company previously announced its planned sale of its IAQ business and other non-core holdings and anticipates proceeds in excess of $100 million which will be used to reduce debt, improve liquidity, and invest in its profitable core HVAC business. In line with this strategic direction and as previously announced, the company has discontinued sales to Wal-Mart.
Presented below are nine-month operating results for 2006 on a pro forma basis, taking into consideration the elimination of sales to Wal-Mart and the remaining Home Depot non-retail store business in the U.S., and in Canada, since the company has also stopped selling to these accounts. In addition, the company has discontinued the sale of dehumidifiers. The pro forma statement also excludes unfavorable manufacturing variances due to excess manufacturing capacity related to Wal-Mart and The Home Depot and adjusts SG&A expenses to current levels.
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