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Article Excerpt
OPERATOR: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cobra Electronics Corporations Third Quarter 2008 Conference Call. During today's presentation all parties will be in a listen only mode. Following the presentation, the conference will be opened for questions.
(Operating Instructions)
This conference is being recorded today, Wednesday, October 29, 2008. I would now like to turn the conference to Jim Bazet, Chairman and Chief Executive Officer of Cobra Electronics Corporation. Please go ahead, sir.
JIM BAZET, PRESIDENT, CEO, COBRA ELECTRONICS CORPORATION: Thank you very much, and welcome to our Third Quarter 2008 Investor Conference Call. This morning with me is our Senior Vice President and CFO, Michael Smith, and our Senior Vice President in charge of Marketing and Sales, Tony Mirabelli.
Before we begin, I would like Michael to read the Safe Harbor statement.
MICHAEL SMITH, SVP, CFO, COBRA ELECTRONICS CORPORATION: Good morning. Before we begin please keep in mind that our call today will include certain forward-looking statements and that actual results could differ materially from the results projected in the forward-looking statements. We refer you to our Forms 10-K and 10-Q, especially the risk factors for information that could cause actual results to differ materially from the results projected in the forward-looking statements.
Please also keep in mind that this conference call is being simultaneously broadcast over the internet and a replay will be available on the Cobra website for thirty days.
Now, I'd like to turn the call back to Jim Bazet to cover our highlights from our third quarter, and share his thoughts on the strategic context for our performance.
JIM BAZET: Thanks, Michael. This morning we were pleased to report to our shareholders profitable results for the third consecutive quarter offering continued support for the success of the strategic repositioning that was initiated late last year.
Cobra had net earnings in the third quarter of $142,000, or $0.02 per share. Net earnings reflect the adverse impact that the broad based decline in the financial markets had on the cash surrender value of life insurance that the Company carries to recover the cost of deferred compensation programs made available to certain current and former officers. This loss of $318,000 is equivalent to a decline of $0.03 in earnings per share at the statutory tax rate.
On a year-to-date basis, Cobra has far exceeded last year's performance with net earnings of $1.9 million, or $0.30 per share, as compared to a loss for the first three quarters of 2007 of $750,000, or $0.12 per share. It should be recognized that these earnings also reflect a decline in the cash surrender value of life insurance.
In this case, the year-to-date number is $780,000 for the first nine months of 2008, or the equivalent of $0.07 per share at the statutory tax rate. It is very likely that these values will be restored over time as the financial markets recover and that these declines do not affect Cobra's ability to meet its obligations to the executives or to ultimately recover the cost of these programs.
Cobra was profitable in the third quarter in spite of a nearly 15.5% decline in sales as compared to one year earlier, as gross margins improved and operating expenses declined. The consolidated gross margin increased to more than 29% as compared to less than 25% last year, and operating expenses declined by more than 8%. As a result, operating income increased to $793,000 for the quarter as compared to $17,000 last year.
Although Michael will provide further details regarding our results shortly, allow me to highlight some key elements. We are disappointed by the broad decline in sales which touched many of our product lines. A key factor in our sales decline was Mobile Navigation which accounted for 20% of the decline in consolidated net sales and reflected the change in Mobile Navigation's strategy announced at the end of last year.
However, we also observed declines in sales of two-way radios, radar detectors, and Citizens Band radios reflecting both the highly competitive environment and the slowing economy represented by declining store traffic. Cobra also is taking necessary steps to shield the company from the financial difficulties of certain customers which also adversely affects sales results.
Sales for the PPL segment also declined as the economy in the UK experiences many of the same challenges we are facing here in the US. Later in this call, Tony will discuss some of our product and promotional initiatives that address these shortfalls and the current economic climate to the extent possible.
We are encouraged by an improvement in gross margins in the third quarter with an increase on a consolidated basis to 29.2% from 27% for the third quarter of last year. Margin improvements were achieved across the board, both at PPL and Cobra. PPL's gross margin increased to nearly 53% from less than 41% last year as highly profitable sales of the Company's exclusive database of speed camera locations accounted for a higher percentage of sales.
Cobra's margin improved -- improvement reflected, in part, the decline in unprofitable Mobile Navigation sales and an improvement in margins on the remaining sales. However, we also saw improved margins in two-way radios, marine radios as inventory was managed well reducing air freight and reducing excess inventory that leads to low margin sales.
SG&A expenses declined by more than 8% in this quarter as compared to last year. In addition to the decline in variable selling expenses that accompanied the decline in sales, management has made concerted efforts to contain fixed selling and marketing, and general and administrative expenses and these efforts will continue through the year.
The containment of fixed expenses in this quarter reflects, in part, the elimination of certain positions as we have evaluated our needs in light of current conditions. In addition, where possible, we have curtailed outside professional fees.
As I noted a moment ago,...
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