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Directed Electronics Q3 Net Income Up

11/06/2008 09:49:00 AM Eastern

Vista, Calif. — While Directed Electronics announced it would exit the satellite radio business, it also reported its third-quarter results.

Directed, a wholly owned subsidiary of DEI Holdings, reported net income was $1.1 million for the quarter, ended Sept. 30, compared with a loss of $1.3 million in last year’s third quarter. Operating income increased 48 percent from $5.2 million last year to $7.7 million in this year’s third quarter.

Pro forma net sales of $76.7 million were down 9 percent from $84.5 million while GAAP net sales were $61.8 million for the quarter, compared with $84.5 million in last year’s third quarter.

Gross margin improved by 12 percentage points, from 35 percent, to 47 percent, for this year’s third quarter. Operating expenses for the quarter decreased $3 million, from $24.3 million last year, to $21.3 million for the quarter, a 12 percent improvement.

Operating income increased 48 percent from $5.2 million last year to $7.7 million in this year’s third quarter.

“We are pleased with our overall financial performance during the third quarter as we continued to make improvements in many controllable aspects of our business," commented Jim. Minarik, DEI Holdings' president/CEO. “Even though our top-line performance was negatively impacted by the challenging consumer environment, our improved operating efficiencies and financial discipline enabled us to achieve higher operating income and profitability compared to this period last year.”

Kevin Duffy, DEI Holdings' chief financial officer, said that for the fourth quarter and into 2009, “We anticipate that purchases of consumer electronics products will continue to decline significantly. As a result, we are taking every practical action to optimize our sales while preserving our margins. In addition, considering the realities of selling into this uncertain market, as well as our planned exit from the satellite radio receiver business next year, we plan to continue rightsizing our facilities and other overhead in all divisions of the company. Combined with the restructuring initiatives we have already implemented, we are confident that we are as well-positioned as possible from an operational perspective to weather the current environment."

In the third quarter by product category, security and entertainment product sales, net of rebates, decreased $7.2 million, or 11 percent, to $58.8 million compared with $66.0 million in last year’s third quarter.

Strong sales of Polk Audio products to Best Buy were more than offset by overall consumer weakness in many regions of the U.S., Directed said.

Gross profit margin on security and entertainment products increased to 44.9 percent in the quarter compared with 43.7 percent in last year’s third quarter due to lower warranty-returns costs and strategic price increases during 2008.

Satellite radio pro forma product sales, net of rebates and sales returns for the third quarter of 2008 totaled $17.1 million, a 2.3 percent decrease compared with $17.5 million in last year’s third quarter.

Satellite radio pro forma gross product sales decreased 34 percent during the third quarter compared with the third quarter of last year. GAAP satellite radio sales, net of $14.9 million in direct costs, totaled $2.3 million for the third quarter of 2008. On a pro forma basis, gross profit margin on satellite radio sales increased from 2.2 percent in last year’s third quarter to 13.2 percent 2008’s third quarter.