Drew Industries Incorporated (DW)

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Drew Industries Incorporated (DW)

Q1 2010 Earnings Call

May 3, 2010 11:00 am ET

Executives

Jeff Tryka – Lambert Edwards

Fred Zinn – President & CEO

Leigh Abrams – Chairman

Joe Giordano – CFO & Treasurer

Jason Lippert – President & CEO Lippert Components & Kinro

Analysts

Scott Stember – Sidoti & Company

Kathryn Thompson – Thompson Research Group

Bret Jordan – Avondale Partners

Liam Burke – Janney Montgomery Scott

DeForest Hinman – Walthausen and Company

Arnold Brief – Goldsmith & Harris

Barry Kaplan – Maple Tree Capital


Presentation

Operator

Good day and welcome to the first quarter 2010 Drew Industries Incorporated earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host of today's conference, Mr. Jeff Tryka from Lambert, Edwards; please proceed.

Jeff Tryka

Good morning everyone, and welcome to Drew Industries 2010 first quarter conference call. I'm Jeff Tryka with Lambert, Edwards, Drew's Investor Relations firm. And I have with me members of Drew's management team, including Leigh Abrams, Chairman of the Board of Drew; Fred Zinn, President and CEO and a Director of Drew; Jason Lippert, President and CEO of Lippert Components and Kinro and a Director of Drew; and Joe Giordano, CFO and Treasurer of Drew.

We want to take a few minutes to discuss our quarterly results. However, before we do so, it is my responsibility to inform you that certain 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 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 are identified in our press releases, our Form 10-K for the year ended 2009 and in our subsequent Form 10-Qs, all as filed with the SEC.

With that, I would like to turn the call over to Fred Zinn.

Fred Zinn

Thank you Jeff, and thank all of you for joining us on the call and on the webcast. We’re really very gratified that our results this quarter benefited from our efforts and investments over the past several years. While much of the improvement in our first quarter results was due to the 99% increase in industry production of travel trailers and fifth-wheel RVs, Drew’s growth this quarter substantially outpaced the industries we serve.

And that’s clearly reflected in the increase in our content per travel trailer and fifth-wheel RV to about $2200 in the 12 months ended March 31, 2010, and that’s compared to about $1900 last March. In fact since 2001, our content per total RV has increased by about $1500. Now if the RVIA projection of 182,000 travel trailer and fifth-wheel RVs this year holds true, the cumulative increase in our content will have added approximately $275 million to our 2010 sales, compared to what it would have been if our content had not grown.

So with our focus on new product introductions, acquisitions and market share growth without that we’d be only about half of our current size. So clearly our strategy has worked over this past decade. Over the last several quarters, we’ve continued to invest in new products, both through acquisitions like the new patent pending wall slide and the new patent pending high end leveling device for fifth-wheel RVs, as well as those we’ve developed internally like the new RV entry door, the sleek new window designs, and other new products.

All of that should help Drew continue to grow. Further our efforts to expand in our manufactured housing product line have now begun to pay off. Despite a 1% decline in industry shipments in manufactured homes this quarter, and I should point out that our press release says 3%, but just about an hour ago the shipment numbers for March for manufactured housing came out a little bit better than we expected, largely in smaller homes, but despite that small increase in industry shipments in the first quarter our segment sales in manufactured housing increased by 17% year over year.

That’s the first such increase in sales in nearly four years. The sales increase was primarily due to the addition of entry doors to our manufactured housing product line, market share gains in our window product line, and growth in our sales of after market replacement products.

In a few minutes Joe will give you some details on our recent growth in those markets. While this was still a down quarter slightly for the manufactured housing industry, the rate of decline slowed substantially and our segment sales increased, which of course is good news.

Our sales growth in the future will likely include new product areas, such as components for mid sized busses, and components for various types of specialty trailers. In the last few months our sales of those products, while still not a significant part of Drew, have increased as we expanded our efforts in those markets.

On the cost side of our business the continued improvements in our production efficiencies offset a portion of the impact of higher raw material costs last quarter. However as the higher cost of steel, aluminum, thermoplastics, and other raw materials flow through our income statement over the coming quarters, the impact on our cost of sales will increase.

I should point out I want to clarify that the $25 to $30 million increase in raw material costs that we spoke about in the press release is an annualized basis based on the raw material prices that we currently know. Historically as most of you are aware we’ve been able to pass on much of the raw material cost increases to our customers through sales price increases and we certainly hope to accomplish that this year as well.

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