Drew Industries Incorporated (DW)

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Drew Industries Inc. (DW)

Q3 2008 Earnings Call

October 31, 2008 11:00 am ET

Executives

Leigh J. Abrams – Chief Executive Officer

Fredric M. Zinn – President

Joe Giordano – Chief Financial Officer

Jason Lippert, President and CEO of Lippert Components

[Ryan McGrath] – Lambert Edwards

Analysts

Arnold Ursaner – CJS Securities

[Scott Semboe] – Sidoti & Co.

Edward Aaron – RBC Capital Markets

David Wells – Avondale Partners

Jamie Wyland – Wyland Management

Peter [Usell] – Meadow Capital

Presentation

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2008 Drew Industries Inc. earnings conference call. (Operator Instructions). I would now like to turn the presentation over to your host of today's call [Mr. Ryan McGrath] of Lambert Edwards. Please proceed, sir.

[Ryan McGrath]

Welcome to Drew Industries 2008 third quarter conference call. I'm [Ryan McGrath] of Lambert Edwards, Drew's investor relations firm. And I have with me today members of Drew's management team, including Leigh Abrams, CEO and a Director of Drew, Fred Zinn, President and a Director of Drew, Jason Lippert, President and CEO of Lippert Components and a Director of Drew, and Joe Giordano, CFO and Treasurer of Drew.

We want to take a few minutes and discuss our quarterly results. However, before we do so, it is my responsibility to inform you that statements made in today's conference call regarding Drew Industries and its operations may be considered forward-looking statements under the securities laws.

As a result I must caution you that there are a number of factors, many of which beyond the company's control, which could cause actual results and events different materially than those described in the forward-looking statements.

These factors identified in the press releases are Form 10-K for the year ended 2007 and our subsequent Form 10-Qs, all filed with the SEC. Today I would like to turn the call over to Leigh Abrams.

Leigh J. Abrams

Welcome to all of you on this call and to all of those listening on the internet. Before we begin today's call, let me begin by noting the recent retirement announcement of David Webster, who has been Kinro's long time President and CEO, and a good friend of all of us.

David has been with Kinro for over 30 years, and has been with Drew since we merged with Kinro in 1980. And I can truly say that David's contribution to Drew over the years has just been totally exceptional and he is truly one of the main reasons that today Drew is respected and a profitable company. And we just can't thank David enough for his service over the years.

We're going to certainly miss David's expertise and his good humor, but we're confident with our ability to call upon David whenever his advice is needed. All I can say is publicly, thank you David.

Since everyone else in these days is focusing how bad business and the economy are, I'll begin today's call with some good news for a change. First, Drew was profitable for the third quarter and year-to-date periods. And I think in this economy that's quite an accomplishment.

Second, the RV and manufactured housing dealer network is seeing their inventories come down and getting lower. That's again a very positive sign for the industry. Thirdly, home sales both new and used, have recently shown some signs of improvement, though be it spotty around the country. And finally, gas prices at least temporarily have decreased significantly.

Rising home sales are probably the result of the lower home selling prices. But whatever the reason, there is some indication that the country's inventory of unsold homes is at least beginning to decline. I believe this process must continue before home prices and consumer confidence, which is now at a historical low, begin to recover, unless the economy as a whole and the RV industry in particular, begins to recover.

As we know the consumer confidence index has been key to the RV industry over the years, so we're really looking for that to recover, and we just don't think it's here yet. With respect to the RV and manufactured housing industries, both retail and wholesale sales are down significantly and seem to be getting worse each month.

September RV wholesale shipments were down an aggregate of 43%, with travel trailer and fifth wheel shipments down 39%, and motorhome shipments down 62%. Travel trailer and fifth wheel, again that's our primary business, and fifth wheel wholesale shipments were down 8% in the 2008 first quarter, 18% in the second quarter, 38% in the third quarter, and 21% now year-to-date.

Industry retail sales for September are not yet available but are expected to be bad. Year-to-date through August retail sales of travel trailer and fifth wheels were down 20%. When you compare this to wholesale shipments, it confirms a decline in dealer inventories.

Dealer surveys, as well as information from our customers, indicate that the RV dealers are aggressively seeking to currently further reduce inventories during the traditionally slower fall and winter seasons. Although this indicates further reductions in current reduction of RVs that use our products, we anticipate increased demand when the economy recovers and dealers re-stock their inventories.

In addition to the state of the general economy, it appears that one of the major stumbling blocks of new growth in the RV industry is tight credit, which hopefully now will improve with the recent actions by the federal government.

With respect to the manufactured housing industry, after some promising signs earlier in the year, the industry has tracked the rest of the economy and is now down 10% through August 2008 with the month of August being down 23%, but there were two less shipping days in this August than last year.

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