Chicago - Mobile communications product manufacturer Cobra Electronics recorded a 2.5 percent increase in sales during the third quarter, hitting $35.9 million, up from $35.1 million in the year-ago period.
However, net income for the three months, ended Sept. 30, dropped to $338 million, down from $1.4 billion in the same quarter in 2001. Gross margin in the third quarter decreased 230 basis points, to 23.4 percent, compared with 25.7 percent in the same period last year.
'The combination of a weak economic environment and the margin effect of pending Federal Communications Commission (FCC) regulations surrounding radar detectors made for a very challenging third quarter,' said Jim Bazet, president/CEO.
'Despite this, we were able to generate modest sales growth, driven by enthusiastic consumer to our new lines of two-way radios and radar detectors. Bazet also said the European market for two-way radios was a bright spot, with sales climbing 15 percent in the third quarter, compared with a year ago.
Regarding profitability, Bazet placed the third quarter decline on an FCC decision about radar detectors which forced the company to liquidate end-of-life inventories of older, non-compliant models prematurely and below cost. This was due to a tight FCC deadline concerning emissions controls. Margin was also affected by an unusually high redemption rate on a major customer's rebate program.
For the nine months, Cobra sales decreased 6.3 percent, to $93.2 million, down from $99.5 million in the same period in 2001. Net income dropped to $723,000, compared with $2.5 million in the year-ago nine months. The prior period included non-recurring expenses of about $800,000 after-tax. Gross margin for the nine months slid 160 basis points, to 24 percent.
Looking ahead, Cobra expects to strengthen margin in the fourth quarter year-on-year. 'While we expect our fourth quarter performance to be significantly improved over the third quarter, the overall economic outlook leads us to anticipate that sales and earnings for the fourth quarter will be below year-ago levels,' said Bazet. For the full year, therefore, he expects results to be well below those of last year.