Despite declines, Fountain remains optimistic

WASHINGTON, N.C. – Like many of its competitors, Fountain Powerboat Industries, Inc. (AMEX:FPB), a manufacturer of sport boats, fish boats and express cruisers, saw its sales and profits take a hit during the quarter ended Dec. 31.

“The good news is that sales of larger powerboats are expected to show stabilized growth trends, as the economic uncertainties have less impact on our target market,” commented Fountain Powerboats CEO Reggie Fountain in a statement earlier this week. “But we are finding, along with our peer companies, that it now takes significantly more effort to reach this market. With the upcoming regional and international boat shows, including the Miami International Boat Show later this month, we expect to finish the year with around $66 million in sales.”

He added that while “we, and peer companies in the marine industry, are currently experiencing a decline in dealer orders in our fiscal second quarter due in part to the seasonality of the industry and dealer reluctance to increase inventories due to perceived uncertainties within the industry,” “we feel confident that stabilized gasoline prices and interest rates, along with a healthy economy, will boost consumer and dealer confidence in the third and fourth quarters.”

Sales and profits down

Net sales for the second quarter of fiscal 2007 were $13,032,786, a decrease of approximately $5,177,306, when compared to net sales of $18,210,092 for the comparable quarter of fiscal 2006, the company reported.

Gross profit for the quarter was $1,209,408, with a gross profit margin of approximately 9 percent, versus a gross profit of $2,897,702 and a gross profit margin of 15.9 percent for the second quarter of fiscal 2006.

Operating loss for the quarter was $1,929,831, compared to an operating profit of $537,229 for the second quarter of fiscal 2006.

Net loss for the quarter, after tax benefit, was $1,410,008, or net loss per share of $0.29 on a basic and diluted basis, versus net income of $319, 296, or net earnings per share of $0.07 on a basic and diluted basis for the second quarter of fiscal 2006, according to the company.

Net sales for the first six months of fiscal 2007 were $32,446,638, compared to net sales of $37,367,828 for the first six months of fiscal 2006.

Gross profit was $4,126,025, with a gross profit margin of approximately 12.6 percent, versus a gross profit of $6,573,816, with a gross profit margin of 17.6 percent, for the first six months of fiscal 2006.

Operating loss was $1,927,636, compared to an operating profit of $1,875,653 for the first six months of fiscal 2006.

Net loss, after tax benefit, was $1,565,978, or a loss per share of $0.32 on a basic and diluted basis, compared to net income of $1,016,354, or earnings per share of $0.21 on a basic and diluted basis, for the first six months of fiscal 2006, the company reported.

Better results ahead?

“The decrease in sales, coupled with increases in property insurance, material costs and selling expenses, along with fixed manufacturing costs, contributed to our losses for the first six months of fiscal 2007,” said Fountain CFO Irving Smith. “We expect to see a reduction in our sales and marketing costs for the remainder of fiscal 2007 and improved efficiencies in the manufacture of our products through the continuing implementation of the Lean Manufacturing program.”

Smith continued, “The Lean Manufacturing pilot program initiated in the final assembly department for one of our product lines has reduced final assembly hours by 51 percent. The implementation of the program in our mating department (basic assembly and attaching the hull to the deck) has resulted in a 35 percent reduction of production hours and the elimination of overtime. ”

Fountain President David Knight added that the company expects to see “an improved bottom line for the third and fourth quarter.”

“While attendance, including the New York boat show has been down, sales for Fountain’s boats at the shows were up significantly on a year-over-year comparison,” he stated. “For the upcoming Miami International Boat Show, the most important show of the year for our industry, we are planning a focused advertising and publicity effort that spans all media. Fountain will have a large presence from which we expect to generate a significant return on our investment.”

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