AUG. 3 | STEINWAY | FINANCIAL
Steinway Q2 Gross
Steinway’s second quarter revenues remained level with the second quarter of 2006, as a 5-percent increase in piano sales offset a 7-percent decline in band sales. Increased production of professional-level brass instruments and an increase in higher-margin piano sales overseas contributed to an improvement in gross margin of 600 basis points.
Operating expenses decreased 13 percent and net interest expense decreased 20 percent. The operating expense improvement reflects a $3.9 million reduction in bad debt expense versus the prior-year period.
For the quarter, which ended June 30, earnings per share improved by $0.47 as the company generated earnings of $0.37 per share compared to a loss of $0.10 per share (adjusted loss of $0.03 per share) in the prior-year period.
Sales of professional trumpets and trombones produced at the company’s Elkhart, Ind., brass plant improved significantly over the prior-year period. However, the impact of dealer consolidation coupled with inventory reductions by some key accounts led to an overall sales decline of $2.9 million, to $37.9 million. Gross margins increased to 22.7 percent from 13.3 percent on improved sales of higher-margin professional instruments, greater production at the company’s Elkhart brass plant, and lower charges for excess or obsolete inventory versus the comparable period last year.
Sales for the six-month period ended June 30 declined to $78.4 million, or 17 percent, as a result of the impact of dealer consolidation and inventory reduction, as well as the labor strike in the early part of the year. Margins improved to 21.4 percent from 18.6 percent largely due to production increases at the company’s Elkhart brass plant and lower inventory reserve charges.
Increased sales of the company’s mid-priced pianos and strong institutional sales contributed to an increase in overall piano sales to $54.4 million, an increase of $2.7 million over the prior-year period. In addition, currency translation positively impacted revenues by $1.6 million.
Year-to-date, piano revenues were up 14 percent, to $107.3 million, with worldwide unit shipments of mid-priced pianos up 87 percent and shipments of Steinway grands down 7 percent. For the six-month period, gross margins improved from 33.7 percent to 36.3 percent.
“Our overall results for the quarter were good,” said Steinway CEO Dana Messina. “We met our prior-year sales figure, significantly improved gross margins and controlled our operating expenses. As a result, operating profit and adjusted EBITDA improved dramatically for the quarter.
“We are making great progress at our Elkhart brass plant. Our new workers are making high-quality instruments and are becoming more efficient daily. As a result, unit production of professional instruments has doubled versus the first quarter of this year. Unfortunately, some of our larger band dealers have reduced purchasing in an effort to better control their inventory levels. Looking at the next six months, we expect that trend to continue.”