The Company’s North American operations reported net earnings of $2.4 million, compared to net earnings of $3.7 million reported in the first quarter of 2006.
The decline in net earnings from 2006 to 2007 resulted from the impact of:
- Lower casting unit sales volumes that reduced gross profit by $1.5 million compared with the first quarter of 2006;
- Market-driven sales price reductions and changes in product mix that in total reduced gross profit by $3.6 million;
- Lower operating performance of the manufacturing facilities due to significant production downtime as a result of severe winter weather conditions and equipment downtime;
- Lower prototype and tooling margins; and,
- Increased consulting costs related to implementing manufacturing process improvements and lean initiatives.
The impact from these factors was substantially offset by the positive benefits from:
- The reduction in costs resulting from the implementation of the Company’s foundry capacity optimization plan; specifically the closure of the Brantford foundry operations; and,
- Lower depreciation expense, specifically of the machining operations, which increased gross profit by $1.0 million compared with the first quarter of 2006.
European earnings
The Company’s European operations generated net earnings of $1.2 million during the quarter compared to net earnings of $0.2 million reported in the same period in 2006.
The significant improvement in the profitability of the European operation was due to:
- Increased casting and machining volumes which provided better absorption of fixed costs;
- Significant prototype casting margins realized during the first quarter; and,
- Increased foreign exchange gains reported compared to the first quarter of 2006.
The positive impact from the above factors was partially offset by:
- Increased consulting costs related to implementing manufacturing process improvements and lean initiatives;
- Increased depreciation expense compared to the first quarter of 2006 due to capital investments made in 2006 and 2007;
- Higher payroll and employee recruiting costs;
- Increased electricity costs due to rate increases; and,
- Higher manufacturing scrap costs.
A more detailed discussion of the consolidated results for the quarter ended April 1, 2007 is contained in the attached Management’s Discussion and Analysis which follows the interim consolidated financial statements and the notes thereto.
About Wescast
Wescast Industries Inc. is the world’s largest supplier of exhaust manifolds for passenger cars and light trucks. The Company designs, casts, machines and assembles iron exhaust system components for automotive original equipment manufacturers (“OEMs”) and Tier 1 customers for the car and light truck markets in North America, Europe and Asia.
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