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
June 30,


Three Months Ended

  June 30,


Last Twelve





(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

 

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



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