Drew Industries Reports Second Quarter 2012 Results
WHITE PLAINS, N.Y., Aug. 2, 2012 /PRNewswire/ — Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RVs) and manufactured homes, today reported net income of $11.7 million, or $0.52 per diluted share for the second quarter ended June 30, 2012, compared to net income of $11.0 million, or $0.49 per diluted share in the second quarter of 2011.
Net sales in the 2012 second quarter increased to $251 million, a record for any quarter, and 35 percent higher than in the 2011 second quarter. This sales growth was primarily the result of a 39 percent sales increase by Drew’s RV Segment, which accounted for 87 percent of Drew’s consolidated net sales. RV Segment sales growth was largely due to acquisitions, market share gains, and an 8 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, Drew’s primary RV market. In addition, sales to adjacent markets more than doubled this quarter, largely as a result of acquisitions and an increase in sales of axles to non-RV markets. Drew’s MH Segment also reported strong sales growth in the second quarter of 2012, due to an estimated 13 percent increase in industry-wide production of manufactured homes. Excluding the impact of acquisitions, consolidated sales were up 23 percent.
Drew’s sales growth continued in July 2012, during which sales reached approximately $73 million, 49 percent higher than in July 2011. Excluding the impact of acquisitions, net sales for July 2012 were up approximately 35 percent. It is estimated that industry-wide shipments of travel trailer and fifth-wheel RVs increased 20 to 25 percent in July 2012.
Drew’s operating profit margin was 7.6 percent in the second quarter of 2012 compared to 7.8 percent in the 2012 first quarter. Profit margins continue to be impacted by excess labor, overtime, and related costs, all of which reduced net income by approximately $3.0 million, or $0.13 per diluted share compared to expectations. These higher costs were the result of lower operating efficiencies due to greater-than-expected demand which caused the Company to hire, train and support 1,100 more employees than in the second quarter of 2011. Material cost as a percent of sales was also higher than in the first quarter, partly as a result of increased outsourcing costs due to capacity limitations, as well as higher scrap costs.
“As a result of higher-than-expected demand for our products throughout the second quarter of 2012, our operating margins did not improve sequentially as had been anticipated,” said Fred Zinn, Drew’s President and CEO. “In some product lines, demand exceeded our capability to efficiently produce. In order to maintain our commitments to customers for on-time delivery of quality products, we incurred substantial overtime costs and other inefficiencies. However, the increased demand for our products will ultimately benefit our long-term profitability, as we increase capacity and improve production efficiencies.”
“We continue to devote significant effort, and invest financial resources, to expand production capacity and improve production efficiencies,” said Jason Lippert, CEO of Drew’s subsidiaries, Lippert Components and Kinro. “Over the past year and a half we have added 700,000 square feet of production space, and plan to reopen some of the space we shuttered in prior years. Further, we are developing leaner manufacturing strategies, and exploring technology to improve our production capabilities. We have experienced growth surges in the past, and we have right-sized our capacity through investment in people, technology and facilities. While the full impact of such investments takes time to realize, we expect production efficiencies to improve, and we will continue to invest in order to realize our future potential.”
Recreational Vehicle (RV) Products Segment
As a result of market share gains and acquisitions, the Company’s content in travel trailers and fifth-wheel RVs reached $2,596 in the 12 months ended June 30, 2012, up from $2,188 in the prior 12 month period. On a pro forma basis, including the impact of acquisitions as if they had been completed at the beginning of the period, content per travel trailer and fifth-wheel RV was $2,650 in the 12 months ended June 30, 2012.
The factors that adversely affected Drew’s consolidated results in the second quarter of 2012 were almost entirely related to the RV Segment. Further, fixed costs were approximately $2 million higher than in the second quarter of 2011, primarily due to additional staff and facilities, as well as higher amortization, largely from acquisitions and other investments. As a result, the incremental profit margin on the increase in sales, which assumes fixed costs do not change, was lower than the Company would typically expect.
For the three months ended May 2012, retail sales of travel trailer and fifth-wheel RVs were up 9 percent from the year-earlier period, compared to the 7 percent increase in industry-wide wholesale production over the same period. Industry surveys indicate that RV dealers are cautious, but generally comfortable with their level of towable RV inventory. Future industry-wide production levels will depend largely on the strength of retail sales levels.
Manufactured Housing (MH) Products Segment
Year-over-year industry-wide production of manufactured homes was up an estimated 13 percent in the second quarter of 2012. Despite this increase in demand, production efficiencies remained favorable in this segment of the Company’s business, because the Company has the capacity to increase production levels. As a result, MH Segment operating profit increased $1.1 million compared to the second quarter of 2011, on a $3.7 million increase in net sales.
Other Items
The Company ended the second quarter with $43 million in cash, up from $7 million at the end of 2011. The Company had no debt at either June 30, 2012 or December 31, 2011.
Conference Call & Webcast
Drew will provide an online, real-time webcast of its second quarter 2012 earnings conference call on the Company’s website, www.drewindustries.com, on Thursday, August 2, 2012 at 11:00 a.m. Eastern time. The call can also be accessed at www.companyboardroom.com.
Institutional investors can access the call via the password-protected site, StreetEvents (www.streetevents.com). A replay of the call will be available by telephone by dialing (888) 286-8010 and referencing access code 77643709. A replay of the webcast 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, manufactured homes, modular housing, truck caps and buses, and trailers used to haul boats, livestock, equipment and other cargo. Currently, from 30 factories located throughout the United States, Drew serves most major national manufacturers of RVs and manufactured homes. 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 products for which we sell our components, 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 industries to which we sell our products, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the successful integration of 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 products for which we sell our components.
DREW INDUSTRIES INCORPORATED
OPERATING RESULTS
(unaudited)
Six Months Ended Three Months Ended
June 30, Last Twelve
June 30,
--------
(In thousands, except per share amounts) 2012 2011 2012 2011 Months
---- ---- ---- ---- ------
Net sales $474,566 $354,881 $251,014 $186,048 $800,851
Cost of sales 383,320 274,943 204,591 143,989 649,822
------- ------- ------- ------- -------
Gross profit 91,246 79,938 46,423 42,059 151,029
Selling, general and administrative expenses 54,905 46,485 27,455 24,149 99,593
------ ------ ------ ------ ------
Operating profit 36,341 33,453 18,968 17,910 51,436
Interest expense, net 130 119 56 61 303
--- --- --- --- ---
Income before income taxes 36,211 33,334 18,912 17,849 51,133
Provision for income taxes 13,387 12,982 7,204 6,884 18,602
------ ------ ----- ----- ------
Net income $22,824 $20,352 $11,708 $10,965 $32,531
======= ======= ======= ======= =======
Net income per common share:
Basic $1.02 $0.91 $0.52 $0.49 $1.45
===== ===== ===== ===== =====
Diluted $1.01 $0.91 $0.52 $0.49 $1.44
===== ===== ===== ===== =====
Weighted average common shares outstanding:
Basic 22,479 22,244 22,516 22,270 22,385
====== ====== ====== ====== ======
Diluted 22,686 22,417 22,731 22,458 22,579
====== ====== ====== ====== ======
Depreciation and amortization $12,361 $10,016 $5,980 $5,126 $22,867
======= ======= ====== ====== =======
Capital expenditures $13,154 $10,543 $7,470 $7,407 $26,928
======= ======= ====== ====== =======
DREW INDUSTRIES INCORPORATED
SEGMENT RESULTS
(unaudited)
Six Months Ended Three Months Ended
June 30, June 30, Last Twelve
-------- --------
(In thousands) 2012 2011 2012 2011 Months
---- ---- ---- ---- ------
Net sales:
RV Segment:
RV OEMs:
Travel Trailers and Fifth-Wheels $351,934 $269,800 $183,855 $139,148 $581,986
Motorhomes 14,192 8,940 8,240 4,316 21,080
RV Aftermarket 9,359 8,061 5,369 4,092 15,958
Adjacent Industries 38,501 16,627 20,967 9,643 62,177
------ ------ ------ ----- ------
Total RV Segment net sales 413,986 303,428 218,431 157,199 681,201
------- ------- ------- ------- -------
MH Segment:
Manufactured Housing OEMs 40,490 34,625 21,778 19,775 82,952
Manufactured Housing Aftermarket 8,740 8,439 4,471 4,449 16,485
Adjacent Industries 11,350 8,389 6,334 4,625 20,213
------ ----- ----- ----- ------
Total MH Segment net sales 60,580 51,453 32,583 28,849 119,650
------ ------ ------ ------ -------
Total net sales $474,566 $354,881 $251,014 $186,048 $800,851
======== ======== ======== ======== ========
Operating profit:
RV Segment $34,264 $32,625 $17,483 $17,324 $47,354
MH Segment 7,161 5,177 4,030 2,953 13,964
----- ----- ----- ----- ------
Total segment operating profit 41,425 37,802 21,513 20,277 61,318
Corporate (4,524) (4,043) (2,216) (1,946) (7,964)
Accretion related to contingent consideration (920) (949) (432) (474) (1,857)
Other non-segment items 360 643 103 53 (61)
--- --- --- --- ---
Total operating profit $36,341 $33,453 $18,968 $17,910 $51,436
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DREW INDUSTRIES INCORPORATED
BALANCE SHEET INFORMATION
(Unaudited)
June 30, December 31,
-------- ------------
(In
thousands,
except
ratios) 2012 2011 2011
---- ---- ----
Current
assets
Cash
and
cash
equivalents $42,514 $36,774 $6,584
Accounts
receivable,
net 50,900 44,050 22,620
Inventories 91,413 83,556 92,052
Deferred
taxes 10,125 12,143 10,125
Prepaid
expenses
and
other
current
assets 9,631 6,163 6,187
----- ----- -----
Total
current
assets 204,583 182,686 137,568
Fixed
assets,
net 99,342 85,308 95,050
Goodwill 21,177 8,600 20,499
Other
intangible
assets,
net 73,986 58,433 79,059
Deferred
taxes 14,496 15,385 14,496
Other
assets 5,618 3,969 4,411
----- ----- -----
Total
assets $419,202 $354,381 $351,083
======== ======== ========
Current
liabilities
Accounts
payable,
trade $44,372 $27,377 $15,742
Accrued
expenses
and
other
current
liabilities 48,665 39,101 36,169
------ ------ ------
Total
current
liabilities 93,037 66,478 51,911
Other
long-
term
liabilities 21,305 20,279 21,876
------ ------ ------
Total
liabilities 114,342 86,757 73,787
Total
stockholders'
equity 304,860 267,624 277,296
------- ------- -------
Total
liabilities
and
stockholders'
equity $419,202 $354,381 $351,083
======== ======== ========
DREW INDUSTRIES INCORPORATED
SUMMARY OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
--------
(In thousands) 2012
2011
----
Cash flows from operating activities:
Net income $22,824 $20,352
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization 12,361 10,016
Stock-based compensation expense 3,069 2,209
Deferred taxes - 385
Other non-cash items 1,131 162
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net (28,280) (31,160)
Inventories 1,227 (12,623)
Prepaid expenses and other assets (4,642) (1,926)
Accounts payable 28,630 16,026
Accrued expenses and other liabilities 12,241 6,965
------ -----
Net cash flows provided by operating activities 48,561 10,406
------ ------
Cash flows from investing activities:
Capital expenditures (13,154) (10,543)
Acquisitions of businesses (1,473) (7,250)
Proceeds from maturity of short-term investments - 5,000
Other investing activities 2,075 142
----- ---
Net cash flows used for investing activities (12,552) (12,651)
------- -------
Cash flows from financing activities:
Exercise of stock options and deferred stock units 1,471 504
Proceeds from line of credit borrowings 37,702 -
Repayments under line of credit borrowings (37,702) -
Payment of contingent consideration related to acquisitions (1,550) (224)
Other financing activities - (141)
--- ----
Net cash flows (used for) provided by financing activities (79) 139
--- ---
Net increase (decrease) in cash 35,930 (2,106)
Cash and cash equivalents at beginning of period 6,584 38,880
----- ------
Cash and cash equivalents at end of period $42,514 $36,774
======= =======
DREW INDUSTRIES INCORPORATED
SUPPLEMENTARY INFORMATION
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30, Last Twelve
-------- --------
2012 2011 2012 2011 Months
---- ---- ---- ---- ------
Industry Data(1)(in thousands of units):
Industry Wholesale Production:
Travel Trailer and Fifth-Wheel RVs 131.5 120.2 71.1 66.0 224.2
Motorhome RVs 14.5 14.7 7.6 7.8 24.6
Manufactured Homes 28.0(2) 23.2 15.2(2) 13.4 56.5(2)
Industry Retail Sales:
Travel Trailer and Fifth-Wheel RVs 117.2(3) 108.5 78.7(3) 75.1 206.0(3)
(1) Industry wholesale production data for travel trailer and fifth-wheel RVs and motorhome RVs provided by the Recreation Vehicle Industry Association
("RVIA"). Industry wholesale production data for manufactured homes provided by the Institute for Building Technology and Safety ("IBTS").
Industry retail sales data provided by Statistical Surveys, Inc.
(2) June wholesale data for manufactured homes has not been published yet, therefore 2012 MH wholesale data includes an estimate for June 2012 units.
(3) June retail sales data for RVs has not been published yet, therefore 2012 retail data includes an estimate for June 2012 retail units.
Twelve Months Ended
June 30,
--------
2012 2011
---- ----
Drew Content Per Industry Unit Produced:
Travel Trailer and Fifth-Wheel RV $2,596 $2,188
Motorhome RV $857 $612
Manufactured Home $1,468(1) $1,414
(1) June wholesale data for manufactured homes has not been published yet, therefore 2012 MH wholesale data includes an estimate for June 2012 units.
June 30, December 31,
-------- ------------
2012 2011 2011
---- ---- ----
Balance Sheet Data:
Current ratio 2.2 2.7 2.7
Total indebtedness to stockholders' equity - - -
Days sales in accounts receivable 19.3 21.0 17.1
Inventory turns, based on last twelve months 7.1 6.2 6.3
Estimated Full Year Data: 2012
----
Capital expenditures $ 23 - 25 million
Depreciation and amortization $ 24 - 25 million
Stock-based compensation expense $ 6 - 7 million
Annual tax rate 38%
SOURCE Drew Industries Incorporated
