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Deer Consumer Products, Inc. Announces Record Second Quarter 2011 Financial Results, Declares 3rd Quarter Dividend of $0.05 per Share, Affirms 2011 Financial Guidance


News provided by

Deer Consumer Products, Inc.

Aug 09, 2011, 06:55 ET

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NEW YORK, Aug. 9, 2011 /PRNewswire/ --

  • Q2/2011 revenue of $45.1 million, an increase of 31% from Q2/2010
  • Q2/2011 net income of $7.3 million, an increase of 22% from Q2/2010
  • Fully diluted earnings per share of $0.22, an EPS increase of 22% from Q2/2010
  • Anticipates favorable Chinese domestic consumer market environment for continued growth in 2011
  • Board of Directors declares $0.05 per share quarterly dividend for the 3rd quarter  
  • Affirms and potentially exceeds the current 2011 financial guidance

Deer Consumer Products, Inc.(Nasdaq: DEER) (website: http://www.deerinc.com/), a leading provider of "DEER" branded household consumer products to Chinese consumers and a leading vertically integrated manufacturer of small household and kitchen appliances for global customers, announces today record financial results for the second quarter ended June 30, 2011.

Q2/2011 REVENUE

Second quarter revenue was $45.1 million, an increase of $10.7 million or 31% from $34.5 million for the three months ended June 30, 2010. Approximately 65% of the sales in the second quarter were generated from China's domestic markets while approximately 35% were from export markets. The increase in revenues was a result of our expansion of sales in the China domestic market. We were also able to raise the average selling prices of our products during the quarter and maintained healthy profit margins across our product lines.

Q2/2011 GROSS PROFIT MARGIN

Our gross profit margin was approximately 29% for the three months ended June 30, 2011, which reflects blended profit margins between our higher margin China domestic sales and generally lower margins from export sales. Our gross profit margin is higher in the China domestic markets than export markets because products are generally sold at much higher prices on both the retail and wholesale levels in our industry in China. In addition, we continue to improve manufacturing efficiency through in-house production of key components of our products, thereby benefiting further from economies of scale as we also capture manufacture margins.

Q2/2011 OPERATING EXPENSES

SG&A expenses for the quarter were approximately $3.9 million, an increase of $1 million or 36% from $2.9 million for the same period of 2010, as expected, due to the hiring of additional direct sales staff and in-store product promoters to further our revenue growth in China. Our advertising costs remained minimal during the second quarter of 2011, as expected, because we use factory representatives and in-store promoters to promote our products directly to consumers at retail locations, which is a standard marketing practice in the small household appliances industry in China. The in-store promotion approach is highly effective in marketing products directly to consumers in the unique Chinese retail environment as compared to traditional mass media advertising channels that may incur significant advertising expenses without enhancing sales. According to a survey in the 2010 China Small Electronics Market Research Report, approximately 60% of Chinese consumers surveyed purchased small household appliances as a result of direct product introduction from in-store product promoters. Like other established domestic brands in China, our in-store promoters market our products exclusively and directly to in-store customer traffic.

Q2/2011 NET INCOME

Second quarter net income was $7.3 million, an increase of 22% from Q2/2010. Fully diluted earnings per share were $0.22, an EPS increase of 22% from Q2/2010.

$4.68 PER SHARE IN NET ASSETS, STRONG BALANCE SHEET, NO LONG-TERM DEBTS

Deer's shareholders' equity increased to approximately $157 million, or $4.68 per share in net assets. Deer had more than $22 million in cash and cash equivalents at the end of the second quarter without any long-term debts. Deer has sufficient cash on hand and has no plan to dilute our shareholders.

MANAGEMENT COMMENTS ON Q2/2011 FINANCIAL RESULTS

Bill He, Chairman & CEO of Deer commented: "Deer is pleased to report record second quarter financial results. In 2010, Deer entered China's domestic markets with a strong push by putting our 'DEER' branded products on the shelves of approximately 3,000 retail locations across China. 'DEER' branded products did especially well in the Guandong Province, Sichuan Province, Shaanxi Province, Zhejiang Province and Shandong Province. In 2011, Deer plans to continue to expand such store presence across China while adding in-store promotional staff to further enhance sales and sell-through. During the second quarter, we experienced strong customer product re-ordering from existing and new customers, as well as various levels of product sell-through. In certain product lines and during Chinese holidays, some of our products sold out completely. We made great efforts to replenish empty shelf space in some markets."

"China remains the world's largest and fastest growing consumer retail market and the most profitable marketplace in the world for small household appliances. There are approximately 35,000 retail locations across China that Deer could potentially penetrate. Deer has significant growth potentials in China for years to come."

"Deer anticipates significant revenue and net income growth for the remainder of 2011. We are comfortable with meeting and potentially exceeding our earnings guidance for 2011."

CHINA DOMESTIC MARKET EXPANSION STRATEGIES

"Due to the unique retail environment in China where more than 60% of consumers purchase small household products as a result of direct marketing push by in-store promotional staff, we target having about 1,000 in-store promotional staff in 2011 and significantly more in 2012 that will exclusively market 'DEER' branded products directly to end user customers. Deer's strategic focus is revenue growth in the high margin China domestic markets through the expansion of a growing 'DEER' branded product distribution network."  

"Chinese consumers have experienced relatively strong positive real income growth in the past 12 months, which is expected to accelerate over the course of the year. We believe the rising standards of living will result in increased demand for quality consumer goods, such as small appliances. We plan to fully take advantage of this market opportunity by targeting our high quality products to these growing middle income Chinese consumers and providing exceptional customer service."

"We anticipate higher gross margins over time due to an anticipated greater percentage of our overall blended revenue being derived from the higher margin China domestic markets. We also anticipate higher SG&A expenses over time primarily due to adding additional in-store product promotional staff. We believe that we will be able to manage SG&A growth along with significant revenue growth in order to maintain and enhance net profit margins."

"Deer's growth model is similar to that of Joyoung, China's market leader in the small household appliances industry. Joyoung has a large number of in-store promotional staff across China. Joyoung has built a strong consumer brand over time, maintains 37% gross profit margins on average and generates almost $1 billion in annual revenue with virtually all of its sales coming from China's domestic markets. Like Joyoung, Deer is pursuing a 'DEER' branding strategy and we constantly enhance our product offerings and adjust our market positions."

EXPORT SALES

"Our export sales declined in the 2nd quarter because of our deliberate decision to turn away customers that offered low profit margins. Manufacturing costs are currently rising in China due to a steady increase in wages and production costs. As international market prices are unable to match the increases in manufacturing costs in China, we have decided to focus on the China domestic market. If current economic trends continue, our OEM orders will decline. However, we plan to expand our export sales of our branded products to emerging markets such as the Middle East."

COMPANY STRATEGY

"In the short-term we plan to build the reputation of our 'DEER' branded products to be the number one food preparation appliances brand by 2013. We also plan to focus sales of our high margin products, including our dehumidifier, vacuum cleaner, water filters and air purifier, to Chinese first and second tier cities that are experiencing strong economic growth."

"Over the course of the next five years, we plan to also expand our 'DEER' brand in China to include complete integrated household appliance systems for the kitchen and bathroom. By 2016, we aim to be one of the top three manufacturers of integrated household appliances."

"By positioning ourselves as a high end innovative brand, we believe we can take advantage of the growing demand for household appliances by China's rapidly expanding middle class over the next ten years. We also plan to push our 'DEER' brand products in international markets across Asia and the Middle East."

3RD QUARTER DIVIDEND APPROVED BY THE BOARD OF DIRECTORS

Deer's Board of Directors approved a $0.05 per share quarterly cash dividend for the third quarter from future earnings. The dividend will be paid on October 14, 2011, to shareholders of record at the close of business on September 30, 2011. Declaration and payment of future quarterly dividends will be made at the discretion of the Board of Directors.

AFFIRMS 2011 FINANCIAL GUIDANCE

In 2011, Deer anticipates revenues from the high margin China domestic sales to surpass export sales. Deer provides 2011 revenue guidance of between $200 and $220 million, net income guidance of between $35 million and $37 million, and targets EPS (Earnings per Share) between $1.08 and $1.12.

3-YEAR INSIDER SHARE LOCKUP, TOTAL MANAGEMENT COMMITMENT

As disclosed previously, Deer's entire management team has voluntarily entered into 3-year share lockup agreements, which prohibit them from selling any shares to the general public through at least 2013. The lockup agreements represent approximately 47% of Deer's entire outstanding shares. Deer management's vested interests are aligned with those of Deer's public shareholders. Deer has been led by its original founders since the inception of its operating business 17 years ago.

INVESTOR CONFERENCE CALL

Title:  Deer Consumer Products, Inc. 2011 Second Quarter Earnings Call

Date and time: August 9, 2011, 8:30 AM, US Eastern Daylight Time

International direct: +1 617 614.4070

US Toll free: 1 800 688.0796

Passcode: 829 752 74

About Deer Consumer Products, Inc.

Deer Consumer Products, Inc. is a NASDAQ Global Select Market listed U.S. company with its primary operations in China. Deer has a 17-year operating business as well as a strong balance sheet. Operated by Deer's founders and supported by more than 100 patents, trademarks, copyrights and approximately 2,000 staff, Deer is a leading provider of "DEER" branded consumer products to Chinese consumers and a leading vertically integrated manufacturer of small home and kitchen appliances for global customers. DEER's product lines include series of small household and kitchen appliances as well as personal care products designed to make modern lifestyles easier and healthier.

Safe Harbor Statement

All statements in this press release that are not historical are forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect Deer's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in Deer's filings with the Securities and Exchange Commission.

Contact Information:
Corporate Contact:
Ms. Helen Wang, President
Deer Consumer Products, Inc.
Tel: 011-86-755-86028300
Email: [email protected]

DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS






JUNE 30, 2011


DECEMBER 31, 2010

ASSETS

(UNAUDITED)







CURRENT ASSETS




    Cash & equivalents

$                          22,305,057


$                          33,956,591

    Restricted cash

6,603,895


1,347,385

    Accounts receivable

52,268,056


52,686,494

    Advances to suppliers

1,614,631


3,018,531

    Other receivables

282,933


125,580

    VAT receivable

5,405,713


2,839,718

    Prepaid expenses

-


159,583

    Deposits

813,709


445,740

    Inventories

33,863,410


23,015,850





       Total current assets

123,157,404


117,595,472





NON-CURRENT ASSETS




    Property and equipment, net

20,722,837


20,453,404

    Prepayment for land use rights

-


3,367,207

    Intangible assets, net

36,126,275


38,308,468

    Construction in progress

11,514,354


8,913,181

    Other assets

-


4,570





      Total noncurrent assets

68,363,466


71,046,830





TOTAL ASSETS

$                        191,520,870


$                        188,642,302





LIABILITIES AND STOCKHOLDERS' EQUITY








CURRENT LIABILITIES




    Accounts payable

$                          16,741,175


$                          26,247,453

    Advance from customers

3,403,110


1,759,792

    Income tax payable

5,284,657


5,536,646

    Other payables and accrued expenses

2,331,610


3,001,716

    Dividend payable

1,679,628


-

    Notes payable

5,031,637


8,361,698





        Total current liabilities

34,471,817


44,907,305





COMMITMENTS AND CONTINGENCIES








STOCKHOLDERS' EQUITY




    Common Stock, $0.001 par value; 75,000,000 shares    
      authorized; 33,592,562 shares issued and
      outstanding as of June 30, 2011 and
      December 31, 2010, respectively  
     

33,593


33,593

    Paid-in capital

91,136,274


91,084,958

    Statutory reserve

7,577,047


6,127,639

    Development fund

3,788,523


3,063,819

    Accumulated other comprehensive income

9,797,344


6,315,475

    Retained earnings

44,716,272


37,109,513





        Total stockholders' equity

157,049,053


143,734,997





TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY

$                        191,520,870


$                        188,642,302

DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)








Six Months Ended June 30,


Three Months Ended June 30,


2011

2010


2011

2010













Revenue

$                     79,803,830

$                  58,353,144


$                  45,127,684

$                  34,450,687

Cost of revenue

56,697,985

41,593,643


31,978,784

24,569,034







Gross profit

23,105,845

16,759,501


13,148,900

9,881,653







Operating expenses






    Selling

5,529,852

3,248,420


2,912,415

1,820,456

    General and administrative

2,274,687

1,764,689


1,034,061

1,089,623







    Total operating expenses

7,804,539

5,013,109


3,946,476

2,910,079







Income from operations

15,301,306

11,746,392


9,202,424

6,971,574







Non-operating income (expenses)






    Interest income

108,700

331,060


46,165

239,139

    Interest expense

-

(49,461)


-

(19,755)

    Exchange loss

(266,855)

(125,810)


(150,732)

(92,676)

    Subsidy income

1,007,192

-


7,960

-

    Other

(81,767)

8,223


(43,469)

22,824







    Total non-operating income (expenses), net

767,270

164,012


(140,076)

149,532







Income before income tax

16,068,576

11,910,404


9,062,348

7,121,106

Income tax expense

2,928,099

1,852,841


1,715,817

1,100,566







Net income

13,140,477

10,057,563


7,346,531

6,020,540







Other comprehensive item






    Foreign currency translation

3,481,869

398,436


2,005,459

363,071







Comprehensive Income

$                     16,622,346

$                  10,455,999


$                    9,351,990

$                    6,383,611







Basic weighted average shares outstanding

33,592,562

32,826,777


33,592,562

33,019,662







Diluted weighted average shares outstanding

33,592,562

33,729,852


33,592,562

33,703,876







Basic earnings per share

$                                0.39

$                             0.31


$                             0.22

$                             0.18







Diluted earnings per share

$                                0.39

$                             0.30


$                             0.22

$                             0.18

DEER CONSUMER PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(UNAUDITED)




2011

2010




CASH FLOWS FROM OPERATING ACTIVITIES:



           Net income

$                                 13,140,477

$                                 10,057,563

           Adjustments to reconcile net income



           to net cash used in operating activities:



           Depreciation and amortization

1,438,861

716,576

           Stock-based compensation

51,314

166,695

                        (Increase) decrease in current assets:



                                  Accounts receivable

1,631,055

(5,742,579)

                                  Advances to suppliers

1,458,712

(130,127)

                                  Other receivables, prepayments, and deposits

(346,960)

(178,052)

                                  Other assets

4,628

(84,155)

                                  Inventories

(10,200,635)

(4,445,193)

                        Increase (decrease) in current liabilities:



                                  Accounts payable

(9,998,292)

888,735

                                  Advance from customers

1,617,080

(687,059)

                                  Taxes payable

(2,847,344)

(296,630)

                                  Notes payable

(3,487,834)

-

                                  Other payables and accrued expenses

(742,220)

(271,367)




           Net cash used in operating activities

(8,281,158)

(5,592)




CASH FLOWS FROM INVESTING ACTIVITIES:



                                  Changes in restricted cash

(5,169,534)

(1,786,204)

                                  Acquisition of property & equipment

(889,945)

(686,066)

                                  Acquisition of intangible asset

(4,270,594)

(379,267)

                                  Refund of deposit on land use right

10,380,731

-

                                  Construction in progress

(2,367,640)

(2,008,746)




           Net cash used in investing activities

(2,316,982)

(4,860,283)




CASH FLOWS FROM FINANCING ACTIVITIES:



                                  Dividend paid

(1,679,978)

-

                                  Proceeds from exercise of warrants

-

6,951,527

                                  Purchase of treasury shares

-

(6,945,950)

                                  Offering costs paid

-

(320,000)




           Net cash used in financing activities

(1,679,978)

(314,423)




EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS

626,584

143,413




NET DECREASE IN CASH & EQUIVALENTS

(11,651,534)

(5,036,885)




CASH & EQUIVALENTS, BEGINNING OF PERIOD

33,956,591

79,333,729




CASH & EQUIVALENTS, END OF PERIOD

$                                 22,305,057

$                                 74,296,844




Supplemental Cash flow data:



  Income tax paid

$                                   3,213,565

$                                   1,251,617

  Interest paid

$                                                 -

$                                                 -

SOURCE Deer Consumer Products, Inc.

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