Drew Industries, Inc. : Drew Industries Reports 2011 Third Quarter Results
11/02/2011| 06:35am US/Eastern
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WHITE PLAINS, N.Y., Nov. 2, 2011 /PRNewswire/ -- Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RV) and manufactured homes, today reported net income for the third quarter ended September 30, 2011 of $5.6 million ($0.25 per diluted share), compared to net income of $8.0 million ($0.36 per diluted share) reported in the third quarter of 2010.
Net sales in the 2011 third quarter increased 14 percent to $167 million, from $147 million in the third quarter of 2010, as a result of a 12 percent increase in Drew's RV Segment sales, and a 23 percent increase in Drew's Manufactured Housing Segment sales. These sales gains were achieved despite a 2 percent decrease in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, and no significant change in industry-wide production of manufactured homes.
As a result of market share gains and acquisitions completed in 2011, Drew's October 2011 net sales increased more than 55 percent compared to last October, to $62 million. Excluding the impact of sales price increases and 2011 acquisitions, sales for October 2011 were up more than 30 percent, exceeding our estimate of growth in industry-wide production of RVs and manufactured homes.
"Third quarter 2011 net income was reduced by approximately $0.05 per diluted share due to higher raw material costs flowing through our P&L," said Fred Zinn, Drew's President and CEO. "While the sales price increases we implemented did not fully offset peak raw material costs, based on recent cost trends we expect the impact of high raw material costs to decline over the coming months. In addition, net income was reduced by approximately $0.05 per diluted share as a result of higher than usual production costs for one of our product lines, in part related to increased demand. We have taken corrective action to help ensure that these production costs improve over the next few quarters."
Results for the third quarter of 2011 also included start-up costs of $0.03 per diluted share related to recently completed acquisitions, new product introductions, and other projects. On the other hand, results for the prior year third quarter benefitted from an after-tax gain of $0.03 per diluted share, related to an adjustment to previously estimated future earn-out payments on acquisitions.
"We recognize that one of our most important responsibilities is to maintain our focus on the long-term, and in the third quarter we invested significant resources - both financial and human - to increase our long-term profit potential," said Zinn.
"During the third quarter we completed three acquisitions at a cost of $42 million, which add more than $75 million of annual sales, and represent significant profit potential," said Jason Lippert, CEO of Drew's subsidiaries, Lippert Components and Kinro. "We also invested in a new aluminum extrusion operation, as well as several new product lines, key among them our new RV awnings which has a market potential in excess of $100 million. As a result of our reputation for providing outstanding customer service and product quality, we are confident in our ability to gain market share in these new product lines."
The three operations acquired by Drew during the 2011 third quarter were:
-- A manufacturer of components for RVs and mobile office units,
with annual sales of approximately $12 million, which expands Drew's
product offerings;
-- A manufacturer of towable RV chassis and slide-out mechanisms with
annual sales of more than $40 million. These acquired operations were
consolidated into Drew's existing facilities in the third quarter of
2011, which is expected to minimize fixed costs and improve production
efficiencies; and
-- Starquest Products, a growing manufacturer of windows for truck caps,
horse trailers, and certain types of buses, with annual sales of
approximately $22 million. The new markets and customers of this
business provide Drew with the opportunity to expand sales of its
existing products.
"These acquisitions, as well as the awning and aluminum extrusion projects, fit right into our strategic plan to utilize our extensive financial and human resources, along with our manufacturing and distribution capabilities, and reputation, to grow profitably both within the RV and manufactured housing industries and in similar markets," said Jason Lippert. "We have made significant progress toward the integration of the acquired businesses and the completion of our other key projects. Over the next few quarters we will continue our efforts to take full advantage of these opportunities."
"Our operating management team was further strengthened this quarter with the addition of a number of experienced and highly capable people we gained through our acquisitions and product startups," said Scott Mereness, President of Lippert Components and Kinro. "Dedicated people have always been key to our success."
"Drew's results over the next few quarters will depend in part on the course of the economy," said Zinn. "However, we continue to be optimistic about RV industry growth prospects over the long-term, and we remain confident in our ability to add new products and gain market share so that we can continue to exceed RV and manufactured housing industry growth rates. In addition, we see significant opportunities in adjacent markets, such as buses and truck caps, as well as horse, cargo and utility trailers. The acquisition of Starquest, along with the increased focus provided by our new specialty markets sales team, should accelerate our growth in these adjacent markets."
Because of the seasonality of the RV and manufactured housing industries, historically, Drew's operating results in the first and fourth quarters have been the weakest, while the second and third quarters are traditionally stronger. However, because of fluctuations in RV dealer inventories and volatile economic conditions, current seasonal industry trends may be different than in prior years.
Recreational Vehicle (RV) Products Segment
Drew's RV Segment represented 82 percent of consolidated sales in the 2011 third quarter. Approximately 90 percent of the Company's RV Segment net sales were components for travel trailer and fifth-wheel RVs, with the balance primarily comprised of components for motorhomes, buses, truck caps, and various types of cargo and utility trailers. The Company has recently expanded its line of products for motorhome RVs. Further, as a result of the Starquest acquisition, the Company expanded its line of products for buses, horse trailers and truck caps.
RV Segment net sales in the third quarter of 2011 reached $136 million, 12 percent above third quarter 2010 net sales. This compares to the 2 percent decrease in industry-wide wholesale shipments of towable RVs. Largely as a result of the acquisitions, the Company's content per travel trailer and fifth- wheel RV for the 12 months ended September 2011 reached $2,289, compared to $2,179 for the 12 months ended September 2010. Excluding acquisitions and sales price increases, Drew's RV Segment sales grew 5 percent in the twelve months ended September 30, 2011 as compared to the comparable period in the prior year.
Drew's RV Segment reported operating profit of $7.7 million in the third quarter of 2011, down from $11.1 million in the 2010 third quarter. The short-term factors which adversely affected Drew's consolidated results, as previously discussed, were largely related to the RV Segment.
"In the first quarter of 2011 industry-wide dealer inventories of towable RVs increased by nearly 21,000 units, raising some concerns that inventories were not in line with expected retail demand," said Joseph Giordano, Drew's Chief Financial Officer and Treasurer. "However, dealers responded quickly to slowing retail sales growth by decreasing orders thereby reducing inventories by 17,000 units from April through August 2011. Some industry analysts believe that RV dealers are likely to remain cautious in these uncertain economic times, but may take advantage of recently announced special financing promotions for deliveries this Fall, to accelerate orders."
Manufactured Housing Products Segment
Drew reported third quarter 2011 net sales of $30 million for its Manufactured Housing Segment, up 23 percent from the comparable period in 2010, even though estimated industry-wide production of manufactured homes for the quarter was about flat with the third quarter of 2010.
The manufactured housing industry produced approximately 300 homes for FEMA during the third quarter of 2011, representing approximately 2 percent of estimated industry-wide production. It is expected that an additional 1,200 to 1,500 homes will be manufactured for FEMA in the fourth quarter. The manufactured housing industry continues to be adversely impacted by difficult credit conditions, and weakness in the broader housing market.
In the third quarter of 2011 Drew achieved significant market share gains in its door and chassis product lines, resulting in an increase in its content in the average manufactured home produced in the 12 months ended September 2011 to an estimated $1,535, compared to $1,370 for the 12 months ended September 2010. Sales in this segment also increased as a result of sales of products for mobile office units, which resulted from an acquisition this quarter.
Segment operating profit increased to $3.8 million in the third quarter of 2011, from $3.0 million in the 2010 third quarter, primarily due to the increase in sales, partially offset by increased raw material costs.
Balance Sheet and Other Items
At September 30, 2011, the Company had net debt of $7 million, as compared to net cash of $44 million at December 31, 2010. "In the first nine months of 2011, we completed four acquisitions for an aggregate purchase price of $49 million," said Giordano. "Further, our strong operating cash flow in the nine months ended September 2011 funded the $35 million increase in non-cash working capital, which was in part due to the seasonal nature of our business, and nearly $18 million in capital expenditures."
Accounts receivable balances remain current, with 23 days sales outstanding at September 30, 2011. Excluding the $8 million of inventory acquired through the 2011 acquisitions, inventories increased $21 million since December 2010, due to both higher raw material costs and increased inventory quantities. Inventory turnover was 6.0 for the last 12 months. "The increased inventory quantities were in part to ensure uninterrupted supply during the integration of the acquired operations," added Giordano. "However, our present inventory levels are higher than needed on an on-going basis, based on current RV and manufactured housing industry demand, and we are working to improve inventory turns on a sustainable basis."
Capital expenditures were $7.2 million in the 2011 third quarter, while depreciation and amortization aggregated $5.1 million. Capital expenditures are expected to be $25 million for the full 2011 year. This includes $4 million for four new facilities the Company purchased, three of which the Company had previously been leasing, and $11 million for the Company's new aluminum extrusion operation. Depreciation and amortization is expected to be approximately $20 million for the full year 2011.
Non-cash stock-based compensation was $1.1 million in the third quarter of 2011, and is expected to be $5 million to $6 million for the full year 2011.
Goodwill and other intangible assets increased by $13 million and $23 million, respectively, since December 31, 2010, primarily as a result of the four acquisitions completed this year, partially offset by normal amortization.
Conference Call & Webcast
Drew will provide a real-time audio webcast of its third quarter 2011 earnings conference call on the Company's website, www.drewindustries.com on Wednesday, November 2, 2011 at 11:00 a.m. Eastern time. Individual investors can also listen to the call at www.companyboardroom.com.
Institutional investors can access the call via the password-protected event management site, StreetEvents (www.streetevents.com). A replay of the conference call will be available by telephone by dialing (888) 286-8010 and referencing access code 37346753. A replay will also be available on Drew's website.
About Drew
Drew, through its wholly-owned subsidiaries, Kinro and Lippert Components, supplies a broad array of components for RVs and manufactured homes, including windows, doors, chassis, chassis parts, bath and shower units, axles, and upholstered furniture, and slide-out mechanisms for RVs. In addition, Drew manufactures components for modular housing, truck caps and buses, as well as for trailers used to haul boats, livestock, equipment and other cargo. Currently, from 31 factories located throughout the United States, Drew serves most major national manufacturers of RVs and manufactured homes in an efficient and cost-effective manner. Additional information about Drew and its products can be found at www.drewindustries.com.
Forward-Looking Statements
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, acquisitions, plans and objectives of management, markets for the Company's Common Stock and other matters. Statements in this press release that are not historical facts are "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 27A of the Securities Act of 1933 (the "Securities Act").
Forward-looking statements, including, without limitation, those relating to our future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this press release are necessarily estimates reflecting the best judgment of our senior management at the time such statements were made, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by forward-looking statements. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider forward-looking statements, therefore, in light of various important factors, including those set forth in this press release, and in our subsequent filings with the Securities and Exchange Commission.
There are a number of factors, many of which are beyond the Company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this press release, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel, steel-based components, and aluminum) and other components, availability of credit for financing the retail and wholesale purchase of manufactured homes and recreational vehicles ("RVs"), availability and costs of labor, inventory levels of retail dealers and manufacturers, levels of repossessed manufactured homes and RVs, changes in zoning regulations for manufactured homes, sales declines in the RV or manufactured housing industries, the financial condition of our customers, the financial condition of retail dealers of RVs and manufactured homes, retention and concentration of significant customers, the successful integration of recent acquisitions, interest rates, oil and gasoline prices, and the outcome of litigation. In addition, international, national and regional economic conditions and consumer confidence affect the retail sale of RVs and manufactured homes.
DREW INDUSTRIES INCORPORATED
OPERATING RESULTS
(unaudited)
Nine Months Ended Three Months Ended
Last
September 30, September 30, Twelve
------------- -------------
(In
thousands,
except
per
share
amounts) 2011 2010 2011 2010 Months
---- ---- ---- ---- ------
Net
sales $521,570 $466,552 $166,689 $146,833 $627,773
Cost
of
sales 409,631 363,467 134,688 114,965 492,749
------- ------- ------- ------- -------
Gross
profit 111,939 103,085 32,001 31,868 135,024
Selling,
general
and
administrative
expenses 69,362 62,337 22,877 19,248 87,846
Other
(income) (79) (79) (79) (79) (79)
--- --- --- --- ---
Operating
profit 42,656 40,827 9,203 12,699 47,257
Interest
expense,
net 197 168 78 28 247
--- --- --- --- ---
Income
before
income
taxes 42,459 40,659 9,125 12,671 47,010
Provision
for
income
taxes 16,488 15,757 3,506 4,689 17,907
------ ------ ----- ----- ------
Net
income $25,971 $24,902 $5,619 $7,982 $29,103
======= ======= ====== ====== =======
Net income
per
common
share:
Basic $1.17 $1.13 $0.25 $0.36 $1.31
===== ===== ===== ===== =====
Diluted $1.16 $1.12 $0.25 $0.36 $1.30
===== ===== ===== ===== =====
22,254 22,118 22,273 22,129 22,225
Weighted
average
common
shares
outstanding: ----- ----- ---- ----- ----
Basic
Diluted 22,427 22,262 22,447 22,262 22,389
----- ----- ---- ----- ----
$15,069 $12,726 $5,053 $4,269 $19,430
Depreciation
and
amortization ======= ======= ====== ====== =======
Capital
expenditures $17,721 $7,706 $7,178 $3,235 $20,163
======= ====== ====== ====== =======
DREW INDUSTRIES INCORPORATED
SEGMENT RESULTS
(unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
(In thousands) 2011 2010 2011 2010
-- -- --
Net sales:
RV Segment $439,656 $390,678 $136,228 $122,052
MH Segment 81,914 75,874 30,461 24,781
---- ---- - ----
Total net sales. $521,570 $466,552 $166,689 $146,833
======== ======== ======== ========
Operating profit:
RV Segment $40,370 $37,997 $7,745 $11,104
MH Segment 8,963 8,241 3,786 2,939
--- --- ---
Total segment
operating profit 49,333 46,238 11,531 14,043
Corporate (5,846) (5,814) (1,803) (1,870)
Other non-segment
items (831) 403 (525) 526
---- --- ---- ---
Total operating
profit $42,656 $40,827 $9,203 $12,699
======= ======= ====== =======
DREW INDUSTRIES INCORPORATED
BALANCE SHEET INFORMATION
(Unaudited)
September 30, December 31,
------------- ------------
(In thousands, except ratios) 2011 2010 2010
---- ---- ----
Current assets
Cash and cash equivalents $1,472 $41,213 $38,880
Short-term investments - 15,993 4,999
Accounts receivable, trade,
less allowances 41,965 31,329 12,890
Inventories 97,765 74,121 69,328
Deferred taxes 12,142 9,879 12,142
Prepaid expenses and other
current assets 6,960 6,151 4,626
----- ----- -----
Total current assets 160,304 178,686 142,865
Fixed assets, net 90,884 80,215 79,848
Goodwill 20,137 7,497 7,497
Other intangible assets, net 80,746 59,171 57,419
Deferred taxes 15,744 16,532 15,770
Other assets 3,544 3,456 3,382
---- --- ---
Total assets $371,359 $345,557 $306,781
======== ======== ========
Current liabilities
Accounts payable, trade $30,106 $20,715 $11,351
Accrued expenses and other
current liabilities 39,413 36,743 33,723
------ ------ ------
Total current liabilities 69,519 57,458 45,074
Long-term indebtedness 8,075 - -
Other long-term liabilities 20,005 16,569 18,248
----- ---- ----
Total liabilities 97,599 74,027 63,322
Total stockholders' equity 273,760 271,530 243,459
------ ----- -----
Total liabilities and
stockholders' equity $371,359 $345,557 $306,781
======== ======== ========
Current ratio 2.3 3.1 3.2
Total indebtedness to
stockholders' equity - - -
DREW INDUSTRIES INCORPORATED
SUMMARY OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
-------------
(In thousands) 2011 2010
---- ----
Cash flows from operating
activities:
Net income $25,971 $24,902
Adjustments to reconcile net income
to cash flows provided by operating
activities:
Depreciation and amortization 15,069 12,726
Stock-based compensation expense 3,352 2,787
Deferred taxes 26
Other non-cash items 751 (971)
Changes in assets and liabilities,
net of business acquisitions:
Accounts receivable, net (24,440) (18,780)
Inventories (20,581) (16,650)
Prepaid expenses and other assets (1,996) (2,431)
Accounts payable, accrued expenses
and other liabilities 18,127 18,835
------ ------
Net cash flows provided by operating
activities 16,279 20,418
------ ------
Cash flows from investing
activities:
Capital expenditures (17,721) (7,706)
Acquisitions of businesses. (49,340) (21,900)
Purchase of short-term investments (20,985)
Proceeds from maturity of short-
term investments 5,000 18,000
Other investing activities 810 1,300
- --
Net cash flows used for investing
activities (61,251) (31,291)
------- -------
Cash flows from financing
activities:
Exercise of stock options and
deferred stock units 504 190
Purchase of treasury stock (626) (464)
Proceeds from line of credit
borrowings 48,675 -
Repayments under line of credit (40,600) -
Other financing activities (389) (5)
----
Net cash flows provided by (used
for) financing activities 7,564 (279)
----- ----
Net decrease in cash (37,408) (11,152)
Cash and cash equivalents at
beginning of period 38,880 52,365
------ ------
Cash and cash equivalents at end of
period $1,472 $41,213
====== =======
SOURCE Drew Industries Incorporated
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