Drew Industries Reports Second Quarter 2013 Results

ELKHART, Ind., Aug. 6, 2013 /PRNewswire/ -- Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RVs) and manufactured homes, today reported net income of $15.9 million, or $0.67 per diluted share, for the second quarter ended June 30, 2013, net of a previously announced after-tax charge of $0.4 million related to executive succession. Excluding this charge, net income in the second quarter of 2013 would have been $16.3 million, or $0.69 per diluted share, an increase of 39 percent compared to net income of $11.7 million, or $0.52 per diluted share, in the second quarter of 2012.

"Our operating profit margins improved sequentially in the second quarter of 2013 primarily due to efficiency improvements implemented by management, as well as the benefits of spreading fixed costs over a seasonally larger sales base and seasonally lower payroll taxes," said Jason Lippert, Drew's Chief Executive Officer. "This sequential margin gain was greater than originally expected, as many of the improvements implemented by management resulted in efficiency gains sooner than anticipated. We were confident that the steps we had taken to meet anticipated customer demand and improve profitability were correct, and it was reassuring to see the results of these efforts in the 2013 second quarter."

Net sales in the second quarter of 2013 increased to a record $287 million, 14 percent higher than the same period last year. The increase in Drew's second quarter net sales was a result of a 16 percent sales increase by Drew's RV Segment, which accounted for 88 percent of consolidated net sales this quarter. RV Segment sales growth was largely due to a 12 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, Drew's primary RV market. Sales of recently introduced components for towable and motorhome RVs also contributed to the revenue increase, as did sales to adjacent industries and the aftermarket.

The Company's content per travel trailer and fifth-wheel RV and motorhome RV for the twelve months ended June 2013 increased 5 percent and 23 percent, respectively, from the year-earlier period as a result of recent product introductions, product improvements and market share gains. The Company's content per manufactured home for the twelve months ended June 2013 declined 3 percent from the year-earlier period primarily due to customer mix. The change in content per RV and manufactured home is a measure of the change in Drew's overall market share across its existing product lines.

Retail demand for towable RVs increased 10 percent in the first five months of 2013, following an 8 percent increase in retail demand for the full year 2012. June 2013 retail data is not yet available. Most industry analysts report that dealer inventories of towable RVs are in line with anticipated retail demand. Future RV industry-wide production levels will depend on the strength of future retail sales.

"Our labor efficiencies continued to improve, with labor costs as a percent of sales declining in the second quarter of 2013," continued Jason Lippert. "This improvement followed a sequential reduction of labor as a percent of sales of more than 1 percent in the first quarter of 2013. These reductions during the first two quarters of 2013 were primarily due to improved production processes, as well as expected declines in the costs of implementing facility consolidations and realignments. Nonetheless, we are continuing to implement additional efficiency improvements as we identify them. However, the benefits of such improvements on our operating margins in the latter half of 2013 will likely be offset by the spreading of fixed costs over a seasonally smaller sales base."

In July 2013, Drew's consolidated net sales reached approximately $83 million – 13 percent higher than in July 2012 – as a result of continued solid growth in the Company's RV Segment. Drew estimates that industry-wide wholesale shipments of travel trailer and fifth-wheel RVs increased 7 percent in July 2013 compared to July 2012. Drew also estimates that July 2013 industry-wide production of manufactured homes increased 5 to 10 percent compared to July 2012.

"Since the end of 2011, we have achieved significant growth, with our net sales for the twelve months ended June 30, 2013 increasing over $285 million, or 42 percent," said Scott Mereness, Drew's President. "In response to this sales growth, and in anticipation of future growth, we added significant resources, investing in personnel and facilities to expand and improve production capacity, as well as to improve customer service. Many of the benefits and efficiencies of these initiatives were realized in the 2013 second quarter. Having just completed the peak seasonal period, we are now evaluating our human resource and facility requirements for the balance of 2013 and beyond."

Jason Lippert added, "We will continue to invest in resources to strategically grow the business, especially in research and development, to provide creative and unique products. Staying ahead of the market through innovation has been important to our success, and will be even more important to maintaining our position as a leading supplier to the industries we serve. In addition, we will invest in areas where we believe additional savings can be realized, such as purchasing, automation and human resources. While some of these initiatives and related fixed costs may have a negative impact on operating margins in the short term, we believe they will benefit the long-term growth of the Company."

"As previously announced, Fred Zinn retired as President and CEO in May 2013," said Leigh Abrams, Chairman of Drew's Board of Directors. "Jason Lippert became Drew's CEO, and Scott Mereness became Drew's President. Jason and Scott have been vital to our sales growth and operational success for many years and are highly respected throughout the industries we serve. As expected, this executive succession transition was very smooth, and we are confident that Jason, Scott and their team are ready to lead Drew for many years to come."

As a result of the Company's executive succession and corporate relocation from New York to Indiana, a pre-tax charge of $0.7 million was recorded in the second quarter of 2013 related to contractual obligations for severance and the acceleration of equity awards held by certain employees whose employment terminated. No other related charges are expected. Once the transition and corporate office relocation are completed during the latter half of 2013, the Company expects to save approximately $2 million annually.

"Our operating cash flow in the second quarter of 2013 remained strong," said Joe Giordano, Drew's Chief Financial Officer and Treasurer. "At the end of the quarter, we had no debt, $32 million of cash and substantial available credit lines, and we expect continued solid cash flow. We are well positioned to take advantage of attractive investment opportunities that can further improve our results."

Conference Call & Webcast
Drew will provide an online, real-time webcast of its second quarter 2013 earnings conference call on the Company's website, www.drewindustries.com, on Tuesday, August 6, 2013, 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 dialing (888) 286-8010 and referencing access code 18767066. A replay of the webcast will also be available on Drew's website.

About Drew Industries
From 31 factories located throughout the United States, Drew Industries, through its wholly-owned subsidiaries, Kinro and Lippert Components, supplies a full line of components for the leading manufacturers of recreational vehicles and manufactured homes. In addition, Drew manufactures components for adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; truck caps; modular housing; and factory-built mobile office units. Drew's products include steel chassis; vinyl and aluminum windows and screens; slide-out mechanisms and solutions; axles and suspension solutions; furniture and mattresses; thermoformed bath, kitchen and other products; manual, electric and hydraulic stabilizer and lifting systems; chassis components; entry, baggage, patio and ramp doors; entry steps; awnings; electronics; aluminum extrusions; and other accessories. 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 such 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 under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012, and in our subsequent filings with the Securities and Exchange Commission (the "SEC").

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 products for which we sell our components, changes in zoning regulations for manufactured homes, seasonality and cyclicality 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, realization of efficiency improvements, the successful entry into new markets, interest rates, oil and gasoline prices, and the successful implementation of management succession. 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,


June 30,


Last Twelve

(In thousands, except per share amounts)


2013


2012


2013


2012


Months












Net sales


$     539,778


$     474,566


$     287,192


$     251,014


$     966,335

Cost of sales


430,754


383,320


225,759


204,591


779,898

Gross profit


109,024


91,246


61,433


46,423


186,437

Selling, general and administrative expenses


67,852


54,905


34,992


27,455


122,018

Executive succession


1,876


-


733


-


3,332

Operating profit


39,296


36,341


25,708


18,968


61,087

Interest expense, net


203


130


85


56


403

Income before income taxes


39,093


36,211


25,623


18,912


60,684

Provision for income taxes


14,856


13,387


9,758


7,204


21,931

Net income


$       24,237


$       22,824


$       15,865


$       11,708


$       38,753












Net income per common share:











Basic


$          1.05


$          1.02


$          0.68


$          0.52


$          1.69

Diluted


$          1.03


$          1.01


$          0.67


$          0.52


$          1.67












Weighted average common shares outstanding:











Basic


23,139


22,479


23,261


22,516


22,889

Diluted


23,553


22,686


23,650


22,731


23,262












Depreciation and amortization


$       13,453


$       12,361


$         6,901


$         5,980


$       26,757

Capital expenditures


$       17,545


$       13,154


$         8,607


$         7,470


$       36,417




DREW INDUSTRIES INCORPORATED

SEGMENT RESULTS

(unaudited)














Six Months Ended


Three Months Ended





June 30,


June 30,


Last Twelve

(In thousands)


2013


2012


2013


2012


Months












Net sales:(1)











RV Segment:











RV original equipment manufacturers:











Travel trailers and fifth-wheels


$     394,512


$     350,348


$     209,013


$     183,013


$     700,081

Motorhomes


21,275


15,502


11,025


8,930


38,470

RV aftermarket


12,881


9,359


7,152


5,369


22,641

Adjacent industries


48,401


38,777


25,876


21,119


82,816

Total RV Segment net sales


477,069


413,986


253,066


218,431


844,008












MH Segment:











Manufactured housing original equipment manufacturers

40,370


40,490


22,591


21,778


80,273

Manufactured housing aftermarket


7,239


7,188


3,587


3,576


13,161

Adjacent industries


15,100


12,902


7,948


7,229


28,893

Total MH Segment net sales


62,709


60,580


34,126


32,583


122,327












Total net sales


$     539,778


$     474,566


$     287,192


$     251,014


$     966,335












Operating Profit:(2)











RV Segment


$       34,864


$       29,349


$       22,600


$       14,819


$       52,687

MH Segment


6,308


6,992


3,841


4,149


11,732

Total segment operating profit


41,172


36,341


26,441


18,968


64,419

Executive succession


(1,876)


-


(733)


-


(3,332)

Total operating profit


$       39,296


$       36,341


$       25,708


$       18,968


$       61,087


(1) In the second quarter of 2013, the Company refined the various sales categories within the RV Segment and MH Segment. This refinement had no impact on

total RV Segment and MH Segment net sales or trends. Prior periods have been reclassified to conform to this presentation.


(2) Effective with the second quarter of 2013, in connection with the management succession and relocation of the corporate office from New York to Indiana,

corporate expenses, accretion related to contingent consideration and other non-segment items, which were previously reported on separate lines, have been

included as part of segment operating profit. Corporate expenses are allocated between the segments based upon net sales.  Accretion related to contingent

consideration and other non-segment items are included in the segment to which they relate. The segment disclosures from prior years have been reclassified

to conform to the current year presentation.




DREW INDUSTRIES INCORPORATED

BALANCE SHEET INFORMATION

(unaudited)










June 30


December 31,

(In thousands)


2013


2012


2012








Current Assets







Cash and cash equivalents


$       31,877


$       42,514


$          9,939

Accounts receivable, net


59,515


50,900


21,846

Inventories


99,777


91,413


97,367

Deferred taxes


10,073


10,125


10,073

Prepaid expenses and other current assets


10,844


9,631


14,798

Total current assets


212,086


204,583


154,023

Fixed assets, net


117,419


99,342


107,936

Goodwill


21,552


21,177


21,177

Other intangible assets, net


64,307


73,986


69,218

Deferred taxes


14,993


14,496


14,993

Other assets


7,392


5,618


6,521

Total assets


$     437,749


$     419,202


$       373,868








Current liabilities







Accounts payable, trade


$       33,463


$       44,372


$         21,725

Accrued expenses and other current liabilities


57,405


48,665


48,055

Total current liabilities


90,868


93,037


69,780

Other long-term liabilities


21,734


21,305


19,843

Total liabilities


112,602


114,342


89,623

Total stockholders' equity


325,147


304,860


284,245

Total liabilities and stockholders' equity


$     437,749


$     419,202


$       373,868




DREW INDUSTRIES INCORPORATED

SUMMARY OF CASH FLOWS

(unaudited)








Six Months Ended



June 30,

(In thousands)


2013


2012






Cash flows from operating activities:





  Net income


$       24,237


$       22,824

  Adjustments to reconcile net income to cash flows provided by operating activities:




Depreciation and amortization


13,453


12,361

Stock-based compensation expense


5,844


3,069

Other non-cash items


1,624


1,131

Changes in assets and liabilities, net of acquisitions of businesses:





Accounts receivable, net


(37,520)


(28,280)

Inventories


(2,367)


1,227

Prepaid expenses and other assets


3,573


(4,642)

Accounts payable


11,696


28,630

Accrued expenses and other liabilities


12,499


12,241

Net cash flows provided by operating activities


33,039


48,561






Cash flows from investing activities:





  Capital expenditures


(17,545)


(13,154)

  Acquisitions of businesses


(1,451)


(1,473)

  Proceeds from sales of fixed assets


70


2,123

  Other investing activities


(48)


(48)

Net cash flows used for investing activities


(18,974)


(12,552)






Cash flows from financing activities:





  Proceeds from exercise of stock options


10,686


1,471

  Proceeds from line of credit borrowings


135,452


37,702

  Repayments under line of credit borrowings


(135,452)


(37,702)

  Payment of contingent consideration related to acquisitions


(2,813)


(1,550)

Net cash flows provided by (used for) financing activities


7,873


(79)






Net increase in cash


21,938


35,930






Cash and cash equivalents at beginning of period


9,939


6,584

Cash and cash equivalents at end of period


$       31,877


$       42,514




DREW INDUSTRIES INCORPORATED

SUPPLEMENTARY INFORMATION

(unaudited)















Six Months Ended


Three Months Ended






June 30,


June 30,


Last Twelve




2013


2012


2013


2012


Months


Industry Data(1)(in thousands of units):












Industry Wholesale Production:












Travel trailer and fifth-wheel RVs


146.6


131.5


79.9


71.1


258.0


Motorhome RVs


19.5


14.5


11.0


7.6


33.2


Manufactured homes


29.1


27.7


16.3


14.9


56.3


Industry Retail Sales:












Travel trailer and fifth-wheel RVs


135.4

(2)

123.1


92.9

(2)

84.0


235.3

(2)

Impact on dealer inventories


11.2

(2)

8.4


(13.0)

(2)

(12.9)


22.7

(2)































Twelve Months Ended










June 30,










2013


2012




Drew Content Per Industry Unit Produced:












Travel trailer and fifth-wheel RV


$         2,713

(3)

$         2,584

(3)



Motorhome RV


$         1,159

(3)

$            941

(3)



Manufactured home


$         1,426


$         1,476


































June 30,


December 31,








2013


2012


2012


Balance Sheet Data:












Current ratio


2.3


2.2


2.2


Total indebtedness to stockholders' equity


-


-


-


Days sales in accounts receivable


20.1


19.3


14.3


Inventory turns, based on last twelve months


7.8


7.1


7.8
































2013




Estimated Full Year Data:












Capital expenditures


$ 30 - $ 34 million




Depreciation and amortization


$ 26 - $ 28 million




Stock-based compensation expense


$ 10 - $ 11 million




Annual tax rate


37% - 38%




























(1) Industry wholesale production data for travel trailer and fifth-wheel RVs and motorhome RVs provided by the Recreation Vehicle Industry Association.  Industry wholesale production data for manufactured homes provided by the Institute for Building Technology and Safety.  Industry retail sales data provided by Statistical Surveys, Inc.

(2) June retail sales data for RVs has not been published yet, therefore 2013 retail data for RVs includes an estimate for June 2013 retail units.

(3) In the second quarter of 2013, the Company refined the calculation of RV content per unit. This refinement had no impact on total RV Segment net sales or trends of content per unit. Prior periods have been reclassified to conform to this presentation.

        

       

DREW INDUSTRIES INCORPORATED

RECLASSIFIED SEGMENT RESULTS

(unaudited)


Effective with the second quarter of 2013, in connection with the management succession and relocation of the corporate office from New York to Indiana, corporate expenses, accretion related to contingent consideration and other non-segment items, which were previously reported on separate lines, have been included as part of segment operating profit. Corporate expenses are allocated between the segments based upon net sales. Accretion related to contingent consideration and other non-segment items are included in the segment to which they relate. The segment disclosures from prior years have been reclassified to conform to the current year presentation.


Reclassified information relating to segments follows for the (in thousands):












Six Months



Three Months Ended






Ended



March 31,


June 30,






June 30,



2013


2013






2013

Net sales:











     RV Segment


$     224,003


$     253,066






$     477,069

     MH Segment


28,583


34,126






62,709

Total net sales


$     252,586


$     287,192






$     539,778












Operating Profit:











     RV Segment


$       12,264


$       22,600






$       34,864

     MH Segment


2,467


3,841






6,308

Total segment operating profit


14,731


26,441






41,172

Executive succession


(1,143)


(733)






(1,876)

Total operating profit


$       13,588


$       25,708






$       39,296

























Three Months Ended


Year Ended



March 31,


June 30,


September 30,


December 31,


December 31,



2012


2012


2012


2012


2012

Net sales:











     RV Segment


$     195,555


$     218,431


$     194,957


$     171,982


$     780,925

     MH Segment


27,997


32,583


31,366


28,252


120,198

Total net sales


$     223,552


$     251,014


$     226,323


$     200,234


$     901,123












Operating Profit:











     RV Segment


$       14,530


$       14,819


$       11,587


$         6,236


$       47,172

     MH Segment


2,843


4,149


3,361


2,063


12,416

Total segment operating profit


17,373


18,968


14,948


8,299


59,588

Executive succession


-


-


-


(1,456)


(1,456)

Total operating profit


$       17,373


$       18,968


$       14,948


$         6,843


$       58,132

























Three Months Ended


Year Ended



March 31,


June 30,


September 30,


December 31,


December 31,



2011


2011


2011


2011


2011

Net sales:











     RV Segment


$     146,229


$     157,199


$     136,228


$     130,987


$     570,643

     MH Segment


22,604


28,849


30,461


28,609


110,523

Total net sales


$     168,833


$     186,048


$     166,689


$     159,596


$     681,166












Operating Profit:











     RV Segment


$       13,601


$       15,286


$         5,653


$         3,175


$       37,715

     MH Segment


1,942


2,624


3,550


2,717


10,833

Total operating profit


$       15,543


$       17,910


$         9,203


$         5,892


$       48,548

 

 

              

DREW INDUSTRIES INCORPORATED

RECLASSIFIED RV CONTENT PER UNIT

(unaudited)


In the second quarter of 2013, the Company refined the calculation of RV content per unit. This refinement had no impact on total RV Segment net sales or trends of content per unit. Prior periods have been reclassified to conform to this presentation.


The trend in the Company's average product content per RV produced is an indicator of the Company's overall market share of components for new RVs. The Company's average product content per type of RV, calculated based upon the Company's net sales of components to RV OEMs for the different types of RVs produced for the respective twelve month period, divided by the industry-wide wholesale shipments of the different types of RVs for the same period, was:




Twelve Months Ended



March 31,


June 30,


September 30,


December 31,

Content per (2013):









Travel trailer and fifth-wheel RV


$         2,705


$         2,713





Motorhome RV


$         1,221


$         1,159














Content per (2012):









Travel trailer and fifth-wheel RV


$        2,441


$        2,584


$         2,673


$         2,700

Motorhome RV


$           771


$           941


$         1,092


$         1,160










Content per (2011):









Travel trailer and fifth-wheel RV


$        2,177


$        2,182


$        2,235


$        2,337

Motorhome RV


$           660


$           646


$           666


$           705

 

SOURCE Drew Industries Incorporated



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