Lower AV Distribution Product Sales Are Drag on Nortek’s Q1 Tech Segment

Nortek’s Q1 loss narrowed to $8.6 million from $15.1 million in the year-ago quarter on sales of $550 million, up from $519 million, the company said on an earnings call Tuesday. Main contributors to the operating loss were $3 million of higher product development costs, a $2.5 million increase in depreciation and amortization expense related to the acquisition of 2Gig last year, a drop in sales of AV distribution products and “inefficiencies experienced during the transition of certain logistic activities to a third-party logistics provider,” said Chief Financial Officer Al Hall. A “significant amount of orders” from a major security and home automation customer scheduled for Q1 was pushed to Q2, he said.

In the Technology Solutions segment, which includes Linear, 2Gig, Core Brands, tvOne, GTO and Gefen, Nortek had an operating loss of $3.6 million for Q1 compared with operating profit of $2.8 million in the year-ago quarter, it said. Nortek expects Q2 sales of the security and access control categories to be “favorable” over 2013 results, and in Q1 those categories represented roughly 70 percent of the segment’s net sales, Hall said. He said AV distribution products, down by $6.9 million in revenue in Q1, was a drag on the segment. “We continue to be challenged with these product categories, but we are making progress,” Hall said. Nortek said last month it’s undergoing a relaunch of the Gefen brand, including universal pricing policies and authorized partner programs in an effort to boost profit (CED April 16 p3). Sales in the Tech segment grew to $121 million in Q1 from $110 million in the year-ago quarter, largely on the purchase of 2Gig, the company said.

Nortek has combined operations of certain subsidiaries within Tech “to improve operational efficiencies, reduce costs, and provide potential for greater revenue growth,” the company said in a 10-Q filed Monday at the SEC. Costs of the consolidation -- expected to range from $13.4 million to $13.6 million -- include one-time termination benefits of about $3.6 million, another $3.4 million “to reduce inventory values for certain products to their expected net realizable amount,” and $6.4 million in facility shutdowns and other costs, it said. Nortek expects costs associated with the consolidation of warehousing and distribution centers to run through the end of Q3, it said. The company has incurred “cumulative severance” and other costs of roughly $2.5 million, of which about $2 million and $500,000 were recorded in the Tech and Display Mount Solution (DMS) segments, it said.

DMS segment Q1 revenue, meanwhile, were $7.5 million, up from $5.9 million in the year-ago quarter, with operating earnings up 1 percent, or $600,000 to $61.6 million, Nortek said. The results reflected $5.5 million of higher sales of Ergotron-branded products, offset by $2.6 million and $2.3 million of lower sales to OEM and retail customers. Nortek had said previously it is withdrawing from low-margin business in the display mount category. Shares closed 3.6 percent lower Tuesday at $79.38.