Earnings Chill Forces Fedders' Production Offshore
By Alan Wolf -- TWICE, 7/9/2001
LIBERTY CORNER, N.J.— Faced with slowing sales and plunging profits, Fedders said it is shutting one of its U.S. factories and has begun moving much of its domestic manufacturing to Asia.
The company, which makes room air conditioners and other air treatment products, said the strategy will result in a savings of over $20 million annually, but will come at a cost of some 800 U.S. jobs.
Fedders' sales declined 4.3 percent to $186.7 million during its fiscal third quarter ended May 31, while net income fell 59 percent from the year-ago period to $6.9 million. Gross profit margin shrunk to 17.1 percent during the quarter from 22.7 percent last year.
Fedders blamed the sales slump on decreased demand for room air following last year's cool summer, and attributed the earnings decline to increased sales of lower margin products and lower production volume at its plants.
In response, the company has begun to "significantly increase" production of room air conditioners in China, and will begin manufacturing all dehumidifiers, rotary compressors, appliance air cleaners and electronic power supplies for residential air cleaners in Asia over the course of the next year. Fedders chief financial officer Michael Giordano told TWICE that the company "will be ready for the next season" with the Chinese-made ACs.
As a result, the vendor will shut a factory in Maryland and will cut back production at its plants in Illinois, North Carolina and Tennessee, leading to the loss of about 800 positions.
The company will likely take most of an $18 million to $22 million charge in its fourth quarter ending August 31 relating to the discontinued operations, inventory write-downs and severance costs.
Besides cool weather, Fedders has also been faced with a deluge of inexpensive Asian imports. Moving production to the Far East with its lower manufacturing costs could help put the company on equal footing with its offshore competitors. A market leader in AC, Fedders has also diversified its product line into air cleaners, humidifiers, dehumidifiers and other air treatment products to reduce its dependence on room air.
