Jacuzzi Brands, Inc. announced earnings for the second quarter ended April 2, 2005. Net sales for the second quarter of fiscal 2005 increased 1.4 percent to U.S. $337.6 million from net sales of $332.9 million for the second quarter of fiscal 2004. Operating income for the fiscal 2005 second quarter increased 18.3 percent to $21.3 million from operating income of $18.0 million for the second quarter of fiscal 2004. Net earnings for the second quarter of fiscal 2005 increased 27.1 percent to $7.5 million, or $0.10 per share, from $5.9 million, or $0.08 per share, in the second quarter of fiscal 2004.
Higher consolidated net sales in the second quarter of fiscal 2005 were driven primarily by the 15.0 percent increase in Plumbing Products sales. The Plumbing Products and Bath Products segments each reported increases in operating income, which offset a slight decline in operating income at Rexair.
Sales in the Bath Products segment decreased 1.9 percent in the second quarter of fiscal 2005 from the same period in fiscal 2004. A $3.6 million foreign currency benefit was offset by lower sales in the U.K. Bath and Sink businesses caused by a decline in the U.K. market, lower domestic spa sales, and a $1.7-million decline in Eljer(R) branded sales attributable to the previously announced product rationalizations. Bath and Sink sales in the U.K. declined as the market abruptly slowed in the second half of the quarter and retailers reduced orders to address higher inventory levels. Domestic spa sales decreased primarily because of a sluggish market resulting from an unusually wet winter in a number of regions and higher energy costs. Service disruptions experienced when consolidating the customer service functions into the Dallas, TX, U.S. shared services center also contributed to the lower spa sales. Changes are being implemented to address the customer service issues.
"While we did benefit from higher product pricing that offset higher commodity costs, we are disappointed in our second-quarter Bath Products segment results," said Donald C. Devine, president and COO of Jacuzzi Brands. "We expect the U.K. markets to slowly improve throughout the remainder of the year. In early April, we realigned the management of the Jacuzzi Bath business to report directly to me, promoting a sharpened focus on sales growth, cost reduction, and margin expansion. We have reduced personnel in our U.K. Bath operations in Bradford to match the lower volume levels. The opening of our new Zhuhai Engineering and Sourcing Center will help to accelerate our margin expansion efforts and offset commodity price inflation, by broadening access to low cost suppliers of components for our products."
Sales in the Plumbing Products segment increased 15.0 percent to $82.1 million in the second quarter of fiscal 2005 compared to the same period last year. The higher sales were driven by the continued growth in all of the company's principal markets, the market's increasing conversion from copper pipe to PEX tubing in plumbing applications, and the full realization of price increases implemented during the latter half of fiscal 2004 to offset higher raw material costs.
Rexair's sales decreased 5.5 percent or $1.6 million in the second quarter of fiscal 2005 compared to the same quarter of fiscal 2004. Domestic sales continue to be challenged by the "Do Not Call" legislation, which restricts the calling of referred customers without first obtaining permission. Rexair has launched alternative strategies to replace appointments lost due to this legislation, such as setting up referral appointments while still in the home, registering people at trade shows, and door-to-door registrations.
"Although we continue to be pleased with our Plumbing Products segment results, we are disappointed in the Bath Products segment," said David H. Clarke, chairman and CEO. "As the expected increase in sales has not materialized, we have put cost reduction plans in place to improve profitability in the second half of fiscal 2005. We, like the rest of our industry, continue to monitor both commodity prices and recent consumer spending trends. We are taking the necessary steps to mitigate their impact on our operating results."
The company expects to report net earnings from continuing operations of $0.84 to $0.88 per share for fiscal 2005. Included in this amount is the after tax gain on the sale of Rexair, net of related debt retirement costs, of approximately $24 million or $0.31 per share, the $2.9 million tax benefit ($0.04 per share) and restructuring charges of $5.8 million ($0.05 per share). Excluding these amounts, net earnings from continuing operations for fiscal 2005 is expected to be in the range of $0.54 to $0.58 per share which is below prior estimates largely as a result of the sale of Rexair, the decline in the U.K. bath market and the sluggishness in the spa market.
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