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Audiovox Q2 CE Sales Double

7/12/2005 12:16:00 PM Eastern

Hauppauge, N.Y. — Higher sales of LCD flat-panel televisions helped fiscal second-quarter sales at the consumer electronics segment of Audiovox more than double, climbing 103 percent to $51.6 million from a year-ago $25.4 million.

Sales of portable DVD players declined during the same three months, due to ongoing price erosion. The CE segment accounted for 35.7 percent of net sales during the period.

The mobile electronics segment at Audiovox, which accounted for 64.3 percent of net sales in the second quarter, ended May 31, did not fare as well as CE, with sales in the period sliding 23.5 percent to $93 million, down from a year-on-year $121.5 million. The company cited lower mobile video sales for the drop. The category has been under pressure from lower SUV sales, increased OE presence and price erosion in the aftermarket, as previously reported.

Consolidated net sales were about flat for the second quarter, edging downward 1.6 percent to $144.5 million, compared with $146.9 million in the same three months in 2004.

Net income from continuing operations reached $5.8 million in the second quarter, up from last year’s $1.6 million. Including discontinued operations, net income for the period hit $5.6 million, compared with a year-on-year $3.7 million. Net income was favorably impacted by a tax benefit of $3.5 million during the second three months of 2005.

“Our second quarter sales were in line with earlier projections, and margins are beginning to trend higher as we have worked through the mobile inventory and have begun shipments of some of the new products in both our mobile and CE divisions,” said John Shalam, chairman.

Gross margin for the second quarter climbed to 15.8 percent, up from the 14.6 percent reported in the same period a year earlier. The increase primarily is due to higher margin from the Terk Technologies product line and an increase in CE margin as a result of the higher LCD television sales. Terk was acquired last January.

Audiovox said it recently started shipments of its new Mobile Video Shuttle systems, and it expects this product to improve overall mobile electronics category sales. Satellite radio sales increased during the second quarter, and the mobile electronics group all experienced additional sales from Terk.

“As we move into the second half of 2005, we continue to actively seek strategic and synergistic acquisitions that will improve our sales and profits … over the long term,” continued Shalam. “We also are well into some of the expense reductions we outlined at the end of the year and will continue the process, which should bring us to our previously announced goal of a 5 percent operating margin by the fourth quarter,” he said.

In a conference call with analysts, Shalam underscored the importance of strategic acquisitions to the future of Audiovox. “We are looking at this not just for the sake of doing this, but for the right companies and the right products. We have been in discussions with a number of companies, but there is nothing material to report at this time.”

Asked about the importance of the Chinese market and its future relationship with Audiovox, Shalam said it is the company’s intent to “develop and build” this market, where there are 300 million customers. He emphasized the tie to having a good relationship with Chinese manufacturers and consumers, and that “all options are available” with the Chinese vendors as far as partnerships or other business doings are concerned.

During the call, Patrick Lavelle, newly named president/CEO of Audiovox Corp., underscored the “soft” first half, mainly with mobile electronics products, and that the company is “adjusting to changes” in this product category as it improves margins and moves through excess inventory. He underlined the ongoing shift to CE products as mobile video has declined, citing a 29 percent second-quarter audio increase, namely Jensen car audio, as well as sales from the Terk line.

New from Audiovox in the second half, said Lavelle, will be about nine products, among which are 12-inch and 15-inch overhead all-in-one rear entertainment systems, a two-way remote start with text in security products, two plug-and-play for XM and three for Sirius shipping in the fourth quarter and a portable multimedia GPS navigation system shipping in the fourth quarter.

Audiovox will continue to pinpoint its growing LCD flat-screen TV business toward regional retailers, such as P.C. Richard and BrandsMart, where the company is competitive, has a well-respected brand and is a good value play, said Lavelle. “We have a niche and the regionals respond well,” he said. The company does not have a LCD television program with the major CE retailers such as Best Buy, Wal-Mart or Circuit City, he noted.

For the six months, consolidated net sales dropped 7.7 percent to $260.5 million from the year-ago $282.2 million. The mobile electronics segment, accounting for 64.4 percent of sales, came in at $167.6 million, a 20.4 percent drop from the $210.6 million reported in the first half of 2004. CE sales for the six months, however, rose 29.6 percent, reaching $92.9 million, up from a year-over-year $71.7 million.

Consolidated net income from continuing operations hit $5.2 million in the first half, compared with $2.3 million last year. Net income for the six months was $4.4 million, down from $5.5 million the prior year.

Gross margin for the six months decreased to 14.9 percent from a comparable 15.1 percent in 2004. Margin continues to be adversely impacted by a reduction in selling prices within the mobile video and portable DVD categories, said Audiovox. However, this trend appears to be improving, as sequential 2005 fiscal quarters showed gross margin improvements, said the company.

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