The Coast Distribution System Inc. this week reported a decline in profits, despite a growth in sales, for the third quarter.
Coast, one of North America's largest aftermarket suppliers of replacement parts, accessories and supplies for the boating, RV and outdoor recreation industries, reported net income of $659,000, or 14 cents a diluted share, for the quarter that ended Sept. 30, compared with net income of $902,000, or 20 cents a diluted share, for the third quarter of 2009.
Net sales increased by 9 percent, to $32.2 million, in the third quarter, compared with net sales of $29.6 million in the same quarter in 2009.
The improvement was primarily attributable to increased sales of air conditioners. Gross margins were adversely affected by a shift in revenue mix toward air conditioners, which typically yield lower margins, and by selected price reductions implemented in response to increased price competition.
Inventories at the end of the quarter were $27.2 million, an increase of $1.9 million from $25.3 million a year earlier, which was the result of the company's plan to optimize inventory levels to maximize customer fill rates and increased purchases of foreign-sourced proprietary products.
"Our financial results for the third quarter reflected the continued challenging conditions confronting our industry," CEO Jim Musbach said in a statement. "Given these conditions, it was not surprising that our revenue growth came at the cost of softer margins.
"As we work through the lingering economic conditions that have been adversely affecting consumers' purchases and use of RVs and boats, we continue to maintain tight control over operating expenses to offset the downward pressure on margins caused by these conditions," he added. "We also remain focused on our objective of providing more of our branded products to customers in order to enhance both our margins and competitive position."
Coast this week also said it has entered into an amendment to its bank credit line agreement that extends the maturity date of its revolving credit line for three years, to July 10, 2014, from the current maturity date of July 10, 2011. The amendment also increases the borrowing base formula on receivables and inventory, allowing increased capacity on the existing asset base at a lower effective interest rate, the company said.
For the nine-month period that ended Sept. 30, Coast reported net earnings of $1.9 million, or 41 cents a diluted share, on net sales of $91 million, compared with net earnings of $1.2 million, or 26 cents a diluted share, on net sales of $85.9 million during the same period in 2009.