Fountain’s focus moves from growth to profits

WASHINGTON, N.C. – Boat builder Fountain Powerboat Industries, Inc. (AMEX: FPB) is expecting 2007 to be different than 2006 in a few different ways.

One, the company is implementing the Toyota Production System with the help of consultant Stan McPherson, by which it expects to boost profitability.

“We will improve the bottom line by working smarter, not harder,” the company explained in an earnings conference call yesterday.

Secondly, economic conditions have led to a slowdown in sales of Fountain’s smaller boats. But the larger, more expensive sportboats, fishboats and cruisers are doing well. As a result, Fountain expects to sell fewer, more expensive boats in 2007, resulting in flat net sales numbers.

In 2006, however, sales were anything but flat. Fountain saw an 11.3-percent increase in sales and a 218-percent jump in net income for the fiscal year ended June 30, the company reported in a recent statement.

Net sales for the year ended June 30 was $79,226,224, an increase of approximately 11.3 percent, compared to net sales of $71,182,069 for fiscal 2005. This was due in part to a 54-percent jump in international sales, in addition to new products and dealer network expansion, according to the company.

Gross profit for the year was up 20 percent to $13,073,801, with a gross profit margin of approximately 16.5 percent, versus a gross profit of $10,910,563, with a gross profit margin of 15.3 percent for fiscal 2005.

“Our gross profit margin for the year increased approximately 7.8 percent due in part to the restructuring of our manufacturing facility which improved productivity and labor efficiency,” commented Fountain Powerboats Chief Financial Officer Irving Smith.

Operating profit for the year increased 29 percent to $2,275,356, compared to operating profit of $1,766,347 for fiscal 2005.

Net income for the year increased to $2,404,912, or earnings per share of $0.50 and $0.49 on a basic and diluted basis, respectively. Net income was increased by $1,283,746 pertaining to a deferred tax benefit reserved by the company in 2002. After four years of operating profits the company has determined that it no longer has to carry the reserve and has taken a portion of the reserve as a deferred tax benefit. Before the addition of the deferred tax benefit, net income was $1,121,166.

“Our net income for the year, before the deferred tax benefit, increased 48.3 percent, a significant increase when compared to other boat manufacturers who are experiencing downturns in growth,” commented Fountain CEO and Founder Reggie Fountain. “Our goal for 2007 is to continue the trend by increasing our gross profit and net income through evaluating and reducing unnecessary costs and expenses. With the assistance of an industry consultant, every member of our management team, from the top down, is involved in organizing and streamlining our manufacturing processes and implementing best business practices throughout the company. This process requires educational programs and training classes for all employees, and we believe the time investment will allow us to better manage our sales growth and profitability now and well into the future.”

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