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Fedders Anticipates 29% Drop In Q2 Sales

8/12/2005 09:48:00 AM Eastern

Liberty Corner, N.J. — Air conditioner maker Fedders said as a result of increased inventory of room air conditioners in key North American markets carried over from 2004, which was caused by cooler-than-normal weather in 2004, net sales in the second quarter, ended this June 30, will decrease 29 percent to about $127 million, from $178.1 million in the second quarter of 2004.

The company said it anticipates this inventory has also caused a reduction in net sales for the six months, ended this past June, down 31 percent to about $205 million, from $297.4 million in the same period in 2004. However, the more favorable hot and humid weather in key American markets during 2005 is having the effect of clearing inventories through distribution channels and positioning the industry well going into 2006, said Fedders.

Fedders did not release firm numbers for its second quarter because the company has not yet filed its annual report, or 10-K, for 2004, or its quarterly 10-Q for the first quarter of 2005. Until those two filings are completed, the company will not be able to file its report for the second quarter and first half of 2005.

During the second quarter and six months ended in June, Fedders said it made fewer room air conditioners than in the previous year, in order to reduce inventories. Reduced production has the effect of increasing costs as a result of lower overhead absorption.

The company anticipates, despite increased costs related to lower overhead absorption and inflationary pressures on raw materials, its gross profit margin as a percentage of net sales has increased as a result of more favorable product mix and price increases initiated to offset raw materials cost increases realized during 2004.

Gross margin in the second quarter of this year is expected to increase to 20 percent, compared with 16.2 percent year-on-year, and to about 20 percent, compared with 17 percent, for the first half year-over-year.

Fedders anticipates a net loss of about $600,000 in this year’s second three months, compared with net income of $2.3 million in the second quarter of 2004.

For the six months, Fedders expects a net loss of $5.4 million, up from a net loss of $2.9 million year-on-year, which included an $8.1 million charge related to the extinguishment of debt.