Chicago — Cobra Electronics reported a double-digit sales increase, but lower earnings for its fourth quarter, ended Dec. 31, 2006.
Cobra reported a 14.3 percent increase in sales, to $53.3 million, for the fourth quarter compared with $46.6 million in the fourth quarter of 2005.
This increase included $2.7 million in sales from its recent acquisition of Performance Products, Limited (PPL) as well as a 62.4 percent increase in the sale of mobile navigation products domestically. Also contributing to the increase in sales was continued strong demand for the company’s radar detection products, resulting in a 27.1 percent increase in the sales of this product line, the company said.
Cobra also reported fourth-quarter net earnings of $1.8 million, compared with net earnings in the prior year, including non-recurring events, of $3.7 million. Net earnings were adversely impacted by a net loss of about $500,000 at PPL, as non-cash charges of $733,000, including amortization of intangible assets written up in connection with the acquisition and foreign exchange losses associated with the strengthening of the pound sterling against the U.S. dollar, eroded this subsidiary’s operating profit.
“Cobra turned in a solid quarter as we continued to recover from the losses earlier this year,” said Jim Bazet, Cobra’s president/CEO. “We were particularly pleased by the increase in sales of mobile navigation products, led by our newest entry in this market, the NAV ONE 2500. This product was featured on one of the home shopping cable channels during the recent holiday shopping season and sold more than 23,000 units in a 24-hour period. This strong consumer acceptance of our newest generation of mobile navigation products is highly promising for the platform that will drive the growth of this business in the future.”
Radar detection products also turned in a strong performance in the fourth quarter. Cobra’s cutting-edge technology and eye-catching designs continue to attract both retailers and consumers, leading to increased placement and higher market share.
Bazet commented, “Cobra’s innovation in this category has established our company as the clear market leader. We are very excited by the new radar detection products introduced last month at the International Consumer Electronics Show and anticipate not only increasing our market share in 2007 but also driving category growth. These new products also will demonstrate the first synergies between Cobra and PPL, as we use PPL’s experience and database skills to develop the first GPS-enabled speed and red light camera detection system in the United States.”
Gross margins for the fourth quarter were 25.8 percent, as compared with 28.0 percent in the fourth quarter of 2005. In part, the decline in gross margin is due to the non-recurring benefit of approximately 1.6 points received in the fourth quarter of last year from the termination of the development agreement with Horizon Navigation. Additionally, margins continue to reflect incremental airfreight expenses and product costs for two-way radios, as the effects of the vendor difficulties experienced earlier this year continue to ripple through the system due to the strong retail sell-through of the lithium-ion battery-powered radios.
Finally, the impact of lower selling prices for current, fully featured mobile navigation products on prices attainable for older models has been taken into account, as Cobra has identified channels for these older products but is required to reflect anticipated selling prices in the current period. The impact of these factors on gross margin was offset, in part, by a 47.9 percent gross margin at PPL.
For the year, Cobra reported a 15.5 percent increase in sales, to $153.7 million, from $133.1 million in 2005. Cobra reported a net loss for the year of $1.6 million as compared with net earnings in the prior year of $12.0 million. Cobra’s loss in 2006 included impairment charges on intangible assets and losses on inventory pertaining to first-generation GPS and mobile navigation products of $5 million.
Cobra’s earnings in 2005 included gains of $10.2 million pertaining to several non-recurring events, including a gain on life insurance paid upon the death of the company’s former CEO, a gain on the sale of vacant property adjacent to the company’s headquarters and a gain on the termination of the company’s agreement with Horizon Navigation.