Drew Industries Reports First Quarter 2012 Results

May 03, 2012, 07:30 ET from Drew Industries Incorporated

WHITE PLAINS, N.Y., May 3, 2012 /PRNewswire/ -- Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RVs) and manufactured homes, today reported net income of $11.1 million, or $0.49 per diluted share for the first quarter ended March 31, 2012, compared to net income of $9.4 million, or $0.42 per diluted share in the first quarter of 2011.

Net sales in the 2012 first quarter increased to $224 million, a record for any quarter in the Company's history, and 32 percent higher than the $169 million in the 2011 first quarter. This sales growth was primarily the result of a 34 percent sales increase by Drew's RV Segment. The RV Segment accounted for 87 percent of Drew's consolidated net sales.

Sales by Drew's RV Segment to producers of travel trailer and fifth-wheel RVs increased 29 percent in the 2012 first quarter, compared to an 11 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, which is Drew's primary RV market. This sales growth exceeded industry wholesale shipment growth primarily due to the acquisitions completed by Drew in the past 12 months.

"Over the past few months, retail demand in the RV industry has improved," said Fred Zinn, Drew's President and CEO. "Despite continued concerns about high unemployment and slower economic growth in the U.S., industry-wide retail sales of travel trailer and fifth-wheel RVs increased more than 6 percent for the three months ended February 2012, compared to the year-earlier period. Although the RV industry is sensitive to economic conditions, we are optimistic about the potential for long-term growth in retail demand for RVs."

Drew's MH Segment also reported strong sales growth in the first quarter of 2012, primarily as a result of an estimated 35 percent increase in industry-wide production of manufactured homes in the quarter. Sales by Drew's MH Segment to producers of manufactured homes increased 26 percent in the first quarter of 2012. The increase in such sales by Drew's MH Segment was less than the industry-wide increase in production partly because of a reduction in the average size of the home produced. The Company has less content in smaller homes.

"As we expected, the acquisitions we completed and the new products we introduced over the past two years added substantially to our sales growth in our core markets and adjacent markets in the first quarter of 2012," said Jason Lippert, CEO of Drew's subsidiaries, Lippert Components and Kinro. "This sales growth, combined with significant increases in industry-wide production of both RVs and manufactured homes, was a great start for the year."

Sales growth continued in April 2012, as sales reached approximately $80 million, 34 percent higher than in April 2011. Excluding the impact of acquisitions, Drew's net sales for April 2012 were up approximately 22 percent. Sales orders for May have remained strong.

As anticipated in Drew's press release for the fourth quarter of 2011, the Company's operating margin improved in the first quarter of 2012 compared to the fourth quarter of 2011, which was impacted by higher material costs, higher production costs in one product line, and start-up and integration costs. "These factors reduced our fourth quarter 2011 net income by $2.7 million, or $0.12 per diluted share," said Zinn. "The aggregate impact of these items on net income declined to about $1.2 million, or $0.05 per diluted share, in the first quarter of 2012, and we expect continued improvements in the second quarter." As a result of the greater than expected increase in demand in the 2012 first quarter, the Company incurred additional labor, overtime, and related costs, which adversely impacted net income by approximately $0.9 million or $0.04 per diluted share. These higher labor, overtime, and related costs are expected to improve during the second quarter.

"During the past two years, we have made significant investments in growth, production capacity and cost reduction opportunities," said Jason Lippert. "As recently as February 2012, we acquired, for $1.7 million, an RV entry door business with annual sales of $6 million. The full profit impact of investments like those we made during the past two years is not realized over night, but in recent months we have begun to achieve increased returns on these investments, through accelerating customer acceptance of our new products, increased production efficiencies, and fixed cost reductions. As we move forward through 2012, we expect the returns on these investments to continue to increase."

Over the past year, the Company has invested heavily in both capacity expansion and cost reduction opportunities, adding nearly 600,000 square feet of production space. "As our sales volume increases, we are planning to further increase production capacity to help ensure that we can maintain our high customer service standards," said Scott Mereness, President of Drew's subsidiaries, Lippert Components and Kinro. 

In late 2011, Drew launched an aluminum extrusion operation. Production began in the fourth quarter of 2011 with one extrusion press, the Company recently began production on its second aluminum extrusion line, and expects a third line to be in production before the end of the second quarter. "Once we have these three aluminum extrusion lines up and running, and we are producing most of our own aluminum extrusion needs in-house, we expect to realize significant cost savings," said Mereness. "With the recent addition of our RV awning product line, and the industry's focus on lighter-weight RV components, our use of extruded aluminum will likely continue to grow."

Recreational Vehicle (RV) Products Segment

Drew's RV Segment reported operating profit of $16.8 million, on net sales of $196 million in the first quarter of 2012, compared to segment operating profit of $15.3 million on net sales of $146 million in the comparable period in 2011. Compared to the fourth quarter of 2011, RV Segment operating profit for the 2012 first quarter increased by $11.4 million, on a $65 million increase in net sales.

Those short-term factors that adversely affected Drew's consolidated results in the fourth quarter of 2011 and the first quarter of 2012, as previously discussed, were almost entirely related to the RV Segment. In addition, compared to the first quarter of 2011, fixed costs in this segment increased by approximately $2 million, and non-cash amortization of intangible assets increased by $1.1 million, in the first quarter of 2012, primarily due to acquisitions and other investments. The Company expects the returns on these acquisitions and other investments to improve further during the balance of 2012.

Largely as a result of acquisitions, the Company's content per travel trailer and fifth-wheel RV reached $2,489 for the 12 months ended March 2012, compared to $2,196 for the same period in the prior year. The acquisitions completed in the last 12 months will result in additional content growth in 2012. On a proforma basis, assuming recent acquisitions had been completed at the beginning of April 2011, the Company's content per travel trailer and fifth-wheel RV would have been $2,608 for the 12 months ended March 2012. In addition, combined aftermarket sales and sales to adjacent industries by the RV Segment increased to $19 million in the first quarter of 2012, double the level of such sales in the 2011 first quarter.

"Over the past several months, industry-wide production of towable RVs has exceeded retail sales, as we've come to expect at this time of year," said Jason Lippert. "We are encouraged by these developments and the fact that industry surveys indicate that RV dealers are generally comfortable with their level of towable RV inventory. We are also encouraged that several of our key customers have expressed their optimism by announcing expansion projects to increase capacity. Of course, industry-wide production levels over the next few months will depend to a large extent on the strength of retail demand."

Manufactured Housing Products Segment

Drew's Manufactured Housing Segment reported operating profit of $3.1 million, on net sales of $28 million in the first quarter of 2012, compared to operating profit of $2.2 million on net sales of $23 million in the comparable period in 2011.

"Year-over-year industry-wide production of manufactured homes was up an estimated 40 percent for the six-month period from October 2011 to March 2012," said Mereness. "Even excluding homes purchased by FEMA, the production increase during this period exceeded 25 percent. While we do not expect production increases to remain at this level, growth of this magnitude over a six-month period is a very encouraging sign."

In addition, the Company's Manufactured Housing Segment gained market share over the last year, and its content per manufactured home for the 12 months ended March 2012 reached $1,471 compared to $1,388 for the year-earlier period. Moreover, combined aftermarket sales and sales to adjacent industries by the Manufactured Housing Segment increased to $9 million in the first quarter of 2012, 20 percent higher than such sales in the 2011 first quarter.

Balance Sheet and Other Items

"Our operating cash flow in the first quarter of 2012 was strong," said Joseph Giordano, Drew's Chief Financial Officer and Treasurer. "Despite a $15 million seasonal increase in our working capital, we had no debt and $4 million of cash. We also have substantial available credit lines, and expect continued solid cash flow, which positions us to continue to take advantage of investment opportunities that can further improve our results."

Accounts receivable at March 31, 2012 increased 33 percent compared to last March, which is consistent with the 32 percent increase in sales in the first quarter of 2012 compared to the prior year. Accounts receivable balances remained current, with 21 days sales outstanding at March 31, 2012. 

"Inventory decreased $3 million in the 2012 first quarter," added Giordano. "This decrease was largely the result of stronger than anticipated sales demand, and was in addition to the $6 million inventory reduction during the fourth quarter of 2011. Operating management has increased its focus on improving inventory turnover, which reached 6.5 for the 12 months ended March 31, 2012, an improvement on the 6.2 turns for the year ended December 31, 2011. We believe that sustainable improvements can be made to our inventory turnover."

Capital expenditures for the first quarter of 2012 were $5.7 million. Depreciation and amortization aggregated $6.4 million in the 2012 first quarter. Capital expenditures for the full year 2012 are estimated to be $18 million to $20 million, and depreciation and amortization is estimated to be $23 million for 2012.

Non-cash stock-based compensation was $1.5 million in the first quarter of 2012, and estimates are that stock-based compensation will be approximately $6 million to $7 million for the full year 2012.

The Company's 35.7 percent effective tax rate for the 2012 first quarter was lower than in the 2011 first quarter due primarily to the expiration of certain federal tax statute of limitations. The Company expects the effective tax rate for the full year 2012 to be approximately 38 percent.

Conference Call & Webcast

Drew will provide an online, real-time webcast and rebroadcast of its first quarter 2012 earnings conference call on the Company's website, www.drewindustries.com, on Thursday, May 3, 2012 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 43411161. 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 29 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 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 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 products for which we sell our components.



Three Months Ended

         March 31,        

Last Twelve

(In thousands, except per share amounts)     




Net sales     

$       223,552

$       168,833

$       735,885

Cost of sales     




            Gross profit           




Selling, general and administrative expenses     




Other (income)      




            Operating profit      




Interest expense, net      




            Income before income taxes      




Provision for income taxes      




            Net income     

$         11,116

$           9,387

$         31,788

Net income per common share:     


$             0.50

$             0.42

$             1.42


$             0.49

$             0.42

$             1.41

Weighted average common shares outstanding:









Depreciation and amortization     

$           6,381

$           4,890

$         22,013

Capital expenditures     

$           5,684

$           3,136

$         26,865


                                         DREW INDUSTRIES INCORPORATED                                      SEGMENT RESULTS                                      (unaudited)

 Three Months Ended March 31,

(In thousands)     



Net sales:

    RV Segment      

$     195,555

$       146,229

    MH Segment     



            Total net sales      

$     223,552

$       168,833

Operating profit:

    RV Segment      

$       16,781

$         15,301

    MH Segment     



            Total segment operating profit     






Accretion of acquisition earn-outs      



Other non-segment items      



            Total operating profit      

$       17,373

$         15,543


                                        DREW INDUSTRIES INCORPORATED                                       COMPOSITION OF NET SALES                                       (unaudited)

 Three Months Ended March 31,

(In thousands)     



RV Segment:

    RV OEMs:

            Travel Trailer and Fifth-Wheels      

$       170,924

$       132,223




    RV Aftermarket     






            Total RV Segment net sales     

$       195,555

$       146,229

MH Segment:

    Manufactured Housing OEMs      

$         18,712

$         14,850

    Manufactured Housing Aftermarket      






            Total MH Segment net sales     

$         27,997

$         22,604


                                       DREW INDUSTRIES INCORPORATED                                       BALANCE SHEET INFORMATION                                      (unaudited)

                 March 31,                

December 31,

  (In thousands, except ratios)     




Current assets:         

      Cash and cash equivalents     

$         3,541

$       36,728

$         6,584

      Accounts receivable, net     








      Deferred taxes     




      Prepaid expenses and other current assets     




              Total current assets     




Fixed assets, net     








Other intangible assets, net     




Deferred taxes     




Other assets      




              Total assets     

$     380,264

$     342,990

$     351,083

Current liabilities:

      Accounts payable, trade     

$       19,749

$       29,209

$       15,742

      Accrued expenses and other current liabilities     




              Total current liabilities      




Other long-term liabilities     




              Total liabilities      




              Total stockholders' equity      




              Total liabilities and stockholders' equity      

$     380,264

$     342,990

$     351,083

Current ratio     




Total indebtedness to stockholders' equity     





                                                      DREW INDUSTRIES INCORPORATED

                                                           SUMMARY OF CASH FLOWS


(In thousands)

Three Months Ended

         March 31,        



Cash flows from operating activities:

    Net income      

$   11,116

$     9,387

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

        Depreciation and amortization     



        Stock-based compensation expense     



        Other non-cash items      



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

                Accounts receivable, net      






                Prepaid expenses and other assets     



                Accounts payable     



                Accrued expenses and other liabilities      



                    Net cash flows provided by operating activities     



Cash flows from investing activities:

    Capital expenditures      



    Acquisitions of businesses     



    Proceeds from maturity of short-term investments     



    Other investing activities      



                    Net cash flows used for investing activities      



Cash flows from financing activities:

    Exercise of stock options and deferred stock units     



    Proceeds from line of credit borrowings      



    Repayments under line of credit borrowings     



    Payment of contingent consideration     



    Other financing activities     



                     Net cash flows provided by financing activities      



                     Net decrease in cash     



Cash and cash equivalents at beginning of period      



Cash and cash equivalents at end of period      

$     3,541

$   36,728



SOURCE Drew Industries Incorporated