Chicago — Cobra Electronics returned to profitability in the first quarter despite a decline in sales.
Cobra reported net income of $81,000 as compared with a net loss of $720,000 in the prior year's first quarter. The company reported improved profitability in spite of a decline in sales to $28.9 million, from $32.0 million in the first quarter of the prior year, as gross margins improved and operating expenses declined, Cobra said.
Offsetting, in part, the significant improvement in year-over-year operating income was an increase in other expenses, primarily losses in the cash surrender value of life insurance polices that fund certain deferred-compensation programs resulting from recent financial market declines.
Cobra also reported that the performance products limited (PPL) segment was profitable and accretive to earnings, as sales increased by nearly 39 percent and gross margins improved.
“We are pleased with Cobra's improved performance in the first quarter and our return to profitability,” said Jim Bazet, Cobra's president/CEO. “In particular, the performance of PPL was very strong, reflecting the broadening of their marketing and distribution channels beyond the U.K., new business opportunities and the availability of Cobra's resources to assist with product sourcing and development.”
He added, “As a result, PPL had earnings from operations in the first quarter of $596,000, as compared to $33,000 in the prior year. In the Cobra segment, earnings from operations were positive, as the mobile navigation product line generated an operating profit of $581,000, offsetting a seasonal operating loss of $568,000 in the other segment product lines. The mobile navigation operating income, which compared favorably to an operating loss of $472,000 in the prior year, was due to the timing of product returns and the sale of products at higher prices than anticipated as reserves were established in the fourth quarter of last year. The operating loss in the other product lines was somewhat greater than in the prior year, but generally in line with our normal seasonal patterns."
Mobile navigation sales in the Cobra segment accounted for approximately $470,000 of this decline, as the company implemented its strategy to focus its efforts on niche opportunities. Excluding mobile navigation from both periods results in an overall decline of approximately 14 percent in net sales for the first quarter of 2008, the company said.
In part, this reflects the effects of the overall economy, as key retailers have delayed planogram resets until the second quarter, and consumer spending, particularly among professional drivers, has been adversely affected by climbing fuel prices.
During its conference call with financial analysts today Cobra also said that travel centers are seeing a decline in sales as truckers are forced to pay more to fill up their gas tanks. This may be impacting sales of CBs and radar detectors, the latter of which dropped 13 percent for the quarter.
PPL reported a 38.6 percent increase in sales, to $4.3 million, including higher sales of mobile navigation and the sale of SD cards containing speed camera and other data for use in smartphones.
Cobra also told analysts it may start selling SD cards embedded with data on the location of traffic cameras including speed and red light cameras. These cards may be used in cellular phones. Cobra said its European-based Performance Products Limited (PPL), is selling the SD cards in Europe, which are proving popular.
Bazet commented on the second quarter by saying, “Cobra is forecasting that the company will return to profitability in 2008, although revenue is likely to decline from the prior year, as we only selectively pursue niche opportunities in mobile navigation in North America. This pattern is likely to be evident in second-quarter results, as we anticipate lower revenue but an improved bottom line relative to the prior year." — Additional reporting by Amy Gilroy