WHITE PLAINS, N.Y., April 30 /PRNewswire-FirstCall/ -- Drew Industries Incorporated today reported its operating results for the first quarter ended March 31, 2007.
Drew, a leading supplier of components for recreational vehicles (RV) and manufactured homes, reported net income of $9.6 million, or $0.44 per diluted share, for the 2007 first quarter, a 6 percent decrease from net income of $10.2 million, or $0.47 per diluted share, for the 2006 first quarter.
Net sales in the first quarter of 2007 declined 17 percent to $173 million from net sales of $208 million in last year's first quarter. The decline in net sales is the result of the absence of $20 million of hurricane-related sales that occurred in the 2006 first quarter (which accounted for approximately $0.09 per diluted share), and a downturn in both the RV and manufactured housing markets. Excluding the impact of the 2006 hurricane- related business, recent acquisitions and price increases, Drew's first quarter year-over-year organic sales decline was $31 million, or 17 percent.
"Despite the current industry weakness and the resulting decline in our 2007 first quarter operating results, we believe our long-term strategy of organic growth, new product introductions, acquisitions and operational efficiencies will yield positive results and permit us to continue to outperform the industries we serve," said Leigh J. Abrams, Drew's President and CEO.
Drew's results in the first quarter of 2007 benefited from savings related to the previously announced cost-cutting program. "In addition to the cost- cutting measures, our operating management has implemented improvements in both production and importing," said Abrams. "Our success at increasing efficiencies and cutting costs is an affirmation of our ability to operate profitably in either up or down markets. This is borne out by the continued profitability of our manufactured housing segment over the past eight years throughout the 70 percent decline in industry production."
Abrams also noted, "We continue to face profit pressure as raw material costs remain highly volatile. After a brief reprieve late last year, costs of raw materials, such as steel and aluminum, have resumed their upward direction, increasing throughout the first quarter of 2007, which will impact cost of sales over the coming quarters. We are currently attempting to obtain price increases from customers, albeit without margin, to help offset these cost increases."
Because of the seasonality of the RV and manufactured housing industries, the Company's results in the first and fourth quarters are usually the weakest, while second and third quarter results are traditionally stronger. Hurricane-related sales during the 2006 first quarter offset a large part of this traditional seasonality.
Recreational Vehicle Products Segment
Drew's RV segment supplies windows, doors, chassis, slide-out mechanisms and power units, axles, bed lifts, bath products, electric stabilizer jacks, and suspension systems for RVs, as well as specialty trailers for hauling equipment, boats, personal watercraft and snowmobiles.
Approximately 90 percent of Drew's RV segment sales are components for towable RVs. In the first quarter of 2007, Drew's RV segment represented 75 percent of consolidated net sales, and 85 percent of total segment operating profit.
"Retail sales of towable RVs began to decline in the summer of 2006, caused by a combination of factors, including rapidly increasing fuel prices, higher interest rates and continued conflict in the Middle East which threatened fuel supplies," said Abrams. "In response to reduced retail demand and the resulting high dealer inventory levels, dealers reduced their orders for new RVs.
"Consequently retail sales over the last eight months, while below prior year levels, have significantly exceeded wholesale shipments to dealers. For the 2007 first quarter, the RVIA reported that industry-wide wholesale shipments of travel trailers and fifth wheel RVs had declined 18 percent, while retail shipments declined approximately 8 percent through February 2007, the last month for which information is available.
"As a result, recent dealer surveys indicate inventories of towable RVs, although still higher than dealers prefer, have declined. With fewer towable RVs on their lots, dealers should be in a better position to increase their orders in response to any improvement in retail demand, which we hope to see in the coming weeks as the spring selling season continues."
Drew's RV segment reported sales of $129 million in the 2007 first quarter, a decrease of 14 percent from the $149 million of sales reported in the comparable period in 2006. The 2006 first quarter included approximately $17 million of hurricane-related sales, accounting for most of the quarterly sales decline in this segment in the 2007 first quarter.
Despite the decline in sales, Drew's RV segment operating profit for the quarter increased 17 percent to $15.9 million, or 12.3 percent of segment sales, compared to the 9.1 percent operating margin reported in the first quarter of 2006. First quarter 2007 results of this segment benefited from the previously noted cost-cutting measures and production and importing improvements.
Through acquisitions, market share gains and new product introductions, Drew has consistently been able to outperform the RV industry. New product introductions since 2004, as well as recent accretive acquisitions, have expanded Drew's product line by adding slide-out mechanisms and leveling devices for motorhomes, axles for towable RVs and specialty trailers, and entry steps, bed lifts, bath products, exterior parts and suspension systems, primarily for towable RVs. Drew estimates the market potential of these products exceeds $700 million.
Despite the slow-down in the RV industry, Drew's sales of these new products were running at an annualized sales rate of more than $110 million in the first quarter of 2007, a 29 percent increase compared to the same period last year. However, Drew's initial profitability on certain of these new products is lower than for its more established products.
"While our operating management has been able to improve margins on these new products through better production efficiencies and lower component costs this year, the margins on some new products are not yet satisfactory," said Abrams. "We will continue to take steps to further improve these margins in 2007."
Drew's June 2006 acquisition of Happijac, a manufacturer of bed lifts for toy hauler RVs, as well as other RV products, and its January 2007 acquisition of Trailair and Equa-Flex, which manufacture primarily RV suspension systems, have been accretive to earnings.
"We have been extremely pleased with the results of these acquisitions," said Jason Lippert, the President and CEO of Lippert Components. "These new products have been great additions to our product lines, and very well accepted in the marketplace. Despite the RV industry slow down, sales of these products have increased significantly since we made these acquisitions."
Manufactured Housing Products Segment
Drew supplies vinyl and aluminum windows and screens, chassis, chassis parts, and bath and shower units to the manufactured housing industry. Drew's manufactured housing segment accounted for approximately 25 percent of consolidated net sales and 15 percent of total segment operating profit in the first quarter of 2007.
The decline in industry production of manufactured homes accelerated in the second half of 2006 and continued into early 2007, with industry production down 38 percent for January and February 2007. A small portion of this decline was due to the lack of hurricane-related production compared to early 2006.
"Recent industry reports indicate manufactured housing lenders have experienced an increase in mortgage applications," said David L. Webster, President and CEO of Drew's Kinro subsidiary. "At this point it is unclear whether the increase in mortgage applications will turn into increased sales of manufactured homes. We therefore remain cautious until we see how consumer demand develops over the next few months."
Drew reported sales of $44 million for its manufactured housing segment in the first quarter of 2007, a 26 percent decline from $59 million in sales reported in the comparable period in 2006. The 2006 first quarter included approximately $3 million of hurricane-related business.
"While the decline in sales by our manufactured housing segment was less than the 38 percent decline in industry-wide production of manufactured homes, the impact on segment operating profits was significant, as factory utilization rates continued to decline," said Fred Zinn, Drew's Executive VP and CFO. "As a result, the operating profit margin of this segment fell to 6.4 percent from the 10.0 percent achieved in the first quarter of 2006. We continue to work toward increasing profit margins in this segment by improving production efficiencies and controlling costs wherever feasible."
Balance Sheet and Other Items
"Special items did not have a significant impact on first quarter results in either 2006 or 2007," said Zinn. "We did record a net charge of approximately $600,000 in the first quarter of 2007 to reflect the estimated current market value of closed factories, but this was offset by a gain of nearly $700,000 resulting from collections on a previously reserved note receivable.
"Similarly, our results for the 2006 first quarter included an operating loss of about $800,000 at the Midwest specialty trailer operation we closed last September. However, this was largely offset by a gain of nearly $600,000 from collections on the same note receivable."
A concerted effort by Drew's operating management reduced inventories by more than $18 million to $84 million as of March 31, 2007, compared to inventories of $102 million as of the same date in 2006. Drew's operating management continues to evaluate inventory needs to determine if further reductions are feasible.
Accounts receivable declined to $40 million as of March 31, 2007 from $46 million at the same date in 2006, because of a decline in sales in March 2007. Receivables remain current, with only 20 days sales outstanding at the end of the quarter.
Goodwill and other intangible assets increased $28 million due to the acquisitions of Happijac in June 2006, and Trailair and Equa-Flex in January 2007.
At June 30, 2006, after the acquisition of Happijac, Drew's debt aggregated $99 million. At the end of the first quarter of 2007, debt, net of invested cash, declined to approximately $41 million.
Capital expenditures aggregated less than $3 million in the first quarter of 2007, compared to nearly $10 million in the 2006 first quarter. Capital expenditures are expected to be approximately $15 million in 2007, compared to more than $22 million in 2006 and $26 million in 2005.
Recent Developments
Drew reported its sales in April 2007 were running about 5 percent below last April, although April 2007 included an extra shipping day. Neither April 2007 nor April 2006 results included any significant hurricane-related business.
"April 2007, as would be expected, showed some modest signs of improvement in the RV industry primarily due to seasonality," said Abrams. "On the manufactured housing side, one publicly-owned producer of manufactured homes recently announced their manufactured housing backlog had increased since February 2007, though it was still lower than last year."
"Nevertheless, the near-term prospects of both industries are uncertain, and, accordingly, we remain cautious. Adding to our caution is the fact the Federal Emergency Management Agency has begun to resell some of the used RVs which previously housed victims of the 2005 Gulf Coast hurricanes."
"The real driver in both industries is underlying consumer demand. The prime selling season for RVs and manufactured homes has just begun, and we will soon learn whether consumer demand has strengthened. However, we anticipate that our continued cost-cutting measures and market share growth will partially offset the slow-down in these industries, if it should continue," said Abrams.
Conference Call
Drew will provide an online, real-time webcast and rebroadcast of its first quarter 2007 earnings conference call on the Company's website, www.drewindustries.com on Tuesday, May 1, 2007 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 66173093. 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. Drew's products include vinyl and aluminum windows and screens, doors, chassis, chassis parts, RV slide-out mechanisms and power units, leveling devices, bath and shower units, axles, bed lifts, steps, electric stabilizer jacks, and suspension systems, as well as trailers for hauling equipment, boats, personal watercraft and snowmobiles, and chassis and windows for modular homes and offices. Currently, from 42 factories located throughout the United States and one factory in Canada, 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
The press release may contain 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, plans and objectives of management, markets for the Company's common stock and other matters. Statements in the press release that are not historical facts are "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Forward-looking statements, including, without limitation, those relating to the Company's future business prospects, revenues and income are necessarily estimates reflecting the best judgment of the Company's 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. Forward-looking statements, therefore, should be considered in light of various important factors.
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 pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel and related components, vinyl, aluminum, glass and ABS resin), availability of retail and wholesale financing for manufactured homes, availability and costs of labor, inventory levels of retailers and manufacturers, levels of repossessed manufactured homes, the disposition by FEMA of RVs or manufactured homes purchased by FEMA in connection with natural disasters, changes in zoning regulations for manufactured homes, the decline in the manufactured housing industry, the financial condition of our customers, retention of significant customers, interest rates, oil and gasoline prices, the outcome of litigation, and adverse weather conditions impacting retail sales. In addition, national and regional economic conditions and consumer confidence may affect the retail sale of recreational vehicles and manufactured homes.
DREW INDUSTRIES INCORPORATED
OPERATING RESULTS
(Unaudited)
Three Months Ended
March 31, Last Twelve
(In thousands, except per share amounts) 2007 2006 Months
Net sales $172,944 $208,461 $693,715
Cost of sales 133,772 164,760 544,168
Gross profit 39,172 43,701 149,547
Selling, general and administrative
expenses 23,274 26,573 96,120
Other income 656 574 720
Operating profit 16,554 17,702 54,147
Interest expense, net 912 1,119 4,394
Income before income taxes 15,642 16,583 49,753
Provision for income taxes 6,053 6,378 19,346
Net income $9,589 $10,205 $30,407
Net income per common share:
Basic $.44 $.47 $1.40
Diluted $.44 $.47 $1.39
Weighted average common shares outstanding:
Basic 21,781 21,567 21,673
Diluted 21,958 21,898 21,882
Depreciation and amortization $4,465 $3,531 $16,603
Capital expenditures $2,555 $9,674 $15,131
DREW INDUSTRIES INCORPORATED
SEGMENT RESULTS
(Unaudited)
Three Months Ended March 31,
(In thousands) 2007 2006
Net sales
RV Segment $129,132 $149,416
MH Segment 43,812 59,045
Total $172,944 $208,461
Operating Profit
RV Segment $15,866 $13,544
MH Segment 2,8005,921
Total segment operating profit 18,666 19,465
Amortization of intangibles (881) (430)
Corporate and other (1,887) (1,907)
Other income 656 574
Operating profit $16,554 $17,702
DREW INDUSTRIES INCORPORATED
BALANCE SHEET INFORMATION
(Unaudited)
March 31, December 31,
(In thousands, except ratios) 2007 2006 2006
Current assets
Cash and cash equivalents $12,024 $9,174 $6,785
Accounts receivable, trade, less
allowances 40,331 46,406 17,828
Inventories 83,882 102,245 83,076
Prepaid expenses and other current
assets 9,688 9,977 13,351
Total current assets 145,925 167,802 121,040
Fixed assets, net 121,211 123,465 124,558
Goodwill 36,250 24,713 34,344
Other intangible assets 26,977 10,769 24,801
Other assets 6,573 6,724 6,533
Total assets $336,936 $333,473 $311,276
Current liabilities
Notes payable, including current
maturities of long-term indebtedness $9,971 $10,948 $9,714
Accounts payable, accrued expenses
and other current liabilities 64,756 70,682 49,347
Total current liabilities 74,727 81,630 59,061
Long-term indebtedness 42,510 69,750 45,966
Other long-term obligations 3,654 2,444 1,361
Total liabilities 120,891 153,824 106,388
Total stockholders' equity 216,045 179,649 204,888
Total liabilities and stockholders'
equity $336,936 $333,473 $311,276
Current ratio 2.0 2.1 2.0
Total indebtedness to stockholders' equity 0.2 0.4 0.3
DREW INDUSTRIES INCORPORATED
SUMMARY OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
2007 2006
Cash flows from operating activities:
Net income $9,589 $10,205
Adjustments to reconcile net income to
cash flows provided by operating activities:
Depreciation and amortization 4,465 3,531
Deferred taxes (262) 1,050
Loss on disposal of fixed assets 684 246
Stock-based compensation expense 625 656
Changes in assets and liabilities, net of
business acquisitions:
Accounts receivable, net (22,195) (12,386)
Inventories (200) (988)
Prepaid expenses and other assets 901 1,182
Accounts payable, accrued expenses
and other liabilities 17,926 6,023Net cash flows provided by operating
activities 11,533 9,519
Cash flows from investing activities:
Capital expenditures (2,555) (9,674)
Acquisition of businesses (3,472) (4,264)
Proceeds from sales of fixed assets 1,936 14
Other investments (11) -
Net cash flows used for investing
activities (4,102) (13,924)
Cash flows from financing activities:
Proceeds from line of credit and other
borrowings 22,613 61,425
Repayments under line of credit and other
borrowings (25,812) (53,960)
Exercise of stock options 1,007 1,039
Other - (10)
Net cash flows (used for) provided
by financing activities (2,192) 8,494
Net increase in cash 5,239 4,089
Cash and cash equivalents at beginning of period 6,785 5,085
Cash and cash equivalents at end of period $12,024 $9,174
Drew Industries Incorporated