Higher sales in the plumbing products segment were driven by the continued growth in all of the company's principal markets, the market's increasing conversion from copper pipe to PEX tubing in plumbing applications, and the full realization of price increases implemented during the latter half of fiscal 2004 to offset higher raw material costs. Strong sales volume and favorable pricing continue to offset higher scrap iron and steel costs leading to the improved margins, the company said.
Sales in the bath products segment decreased 1.9% in the second quarter vs. the same period in fiscal 2004. A $3.6 million foreign currency benefit was offset by lower sales in the bath and sink businesses in the United Kingdom, caused by a decline in the U.K. market, lower domestic spa sales and a $1.7 million decline in Eljer® branded sales attributable to the previously announced product rationalizations. Bath and sink sales in the United Kingdom declined as the market abruptly slowed in the second half of the quarter and retailers reduced orders to address higher inventory levels. Domestic spa sales decreased primarily because of a sluggish market resulting from an unusually wet winter in a number of regions and higher energy costs. Service disruptions experienced when consolidating the customer service functions into the Dallas shared services center also contributed to the lower spa sales. Changes are being implemented to address the customer service issues.
Operating income increased to $5 million in the second quarter, double what it was for this period last year. Earnings were impacted by $1.2 million of restructuring charges, $2.1 million less than the restructuring charges in the quarter last year. In addition, Jacuzzi settled a dispute with the previous owners of the Sundance Spas business regarding the payment of pre-acquisition warranty costs for $3.5 million, resulting in a $2.2 million reduction in warranty costs in the second quarter of fiscal 2005. Results for the second quarter of fiscal 2004 included a $4.1 million increase in bad debt reserves associated with financial difficulties encountered by several Brazilian distributors.
Operating income in the second quarter was negatively impacted by the year over year decline in sales and higher selling, general and administrative costs associated with the company's global branding, marketing and product development initiatives. Operating results also included costs for the expansion of the Malta stainless steel sink plant, the separation of the president of the company's Jacuzzi business unit, and the opening of the Zhuhai, China Engineering and Sourcing Center. Product price increases benefited the quarter and offset higher commodity prices.
Capital expenditures increased during the second quarter of fiscal 2005 as the company continued to invest in new products and upgrades in point-of-sale materials and merchandising.
Donald C. Devine, president and chief operating officer of Jacuzzi Brands, said he expects the U.K. markets to slowly improve throughout the remainder of the year.
“In early April, we realigned the management of the Jacuzzi Bath business to report directly to me, promoting a sharpened focus on sales growth, cost reduction and margin expansion,” he said in a statement. “We have reduced personnel in our U.K. Bath operations in Bradford to match the lower volume levels. The opening of our new Zhuhai Engineering and Sourcing Center will help to accelerate our margin expansion efforts and offset commodity price inflation, by broadening access to low cost suppliers of components for our products.”