Drew Industries Inc., (DW)
Q1 2008 Earnings Call
May 5, 2008 11:00 am ET
Ryan McGrath - Lambert, Edwards & Associates
Leigh J. Abrams - President and Chief Executive Officer
Jason Lippert - President and CEO of Lippert Components
David L. Webster - President and CEO of Kinro and Director of Drew
Fredric M. Zinn - Executive Vice President and CFO of Drew
Kathryn Thompson - Avondale Partners LLC
John Diffendal - BB&T Capital Markets
John [Skemper] - Sidoti & Co.
Edward Aaron - RBC Capital Markets
Arnie Brief - Goldsmith & Harris
Previous Statements by DW
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Good morning everyone and welcome to Drew Industries 2008 First Quarter Conference Call. I’m Ryan McGrath with Lambert, Edwards & Associates, Drew’s Investor Relations firm and I have with me today members of Drew’s management team including Leigh Abrams, President and CEO and the director of Drew; David Webster, President and CEO of Kinro and Director of Drew; Jason Lippert, President and CEO of Lippert Components and a director of Drew and Fred Zinn, Executive Vice President and CFO of Drew.
We want to take a few minutes to discuss our quarterly results; however before we do so 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 that there are a number of factors, many of which are beyond the company’s control, which may cause actual results and events to differ materially than those described in the forward-looking statements.
These risk factors that are identified in our press releases and our latest Form 10-K filed with the SEC.
With that, I’d like to turn the call over to Leigh Abrams.
Thank you, Ryan. Good morning and welcome to all of you on this call and to all of those listening on the internet.
It appears that 2008 is turning out to be a very challenging year for us. The turmoil in the real estate industry and the mortgage markets and the focus on recession, all have severely impacted consumer confidence, which was recently at the lowest level than the last five years.
Generally under such conditions, purchases of discretionary big-ticket items such as RV and boats slow down; however, in spite of these conditions, we are pleased with our first quarter results. Although net income is down slightly from last year’s first quarter, we continue to make progress.
Our cash position is strong and we recently announced an agreement in principle to acquire Seating Technology, a company in the RV industry with sales of $40 million that has the potential to generate significant growth and synergies when combined with our existing operations. In addition, it will create an entire new product category for Drew. We expect to pay for the acquisition with existing cash.
The RV industry spent much of 2007 reducing inventory levels and then late in 2007, just as dealers appeared satisfied with their inventory levels, talk of recession intensified, retail traffic slowed and according dealers were compelled to reduce inventory levels even further. As a result, RV shipments of travel trailer and fifth wheel RVs to dealers, by our customers, were down 8% for the 2008 first quarter, but down more than 14% for the month of March alone.
Shipments of motor homes in the quarter were down 25%.
RV sales represent about 78% of Drew’s consolidated sales, with more than 90% of such sales being for travel trailers and fifth wheel RVs and just 3% being for motor homes, with the balance to specialty trailers.
To our pleasant surprise, shipment of manufactured homes were actually up about 2% in January and February, but were then down 11% in March, resulting in a decline of about 3% for the 2008 first quarter. This is certainly some improvement from the 18% decline in 2007 and the nearly 75% decline since 1998.
On the bright side, sales of single section manufactured homes were up 18% in the 2008 first quarter. This increase is apparently the result of traditional buyers of manufactured homes who in the past have temporarily turned to site built homes financed by readily available sub-prime mortgages, are now returning to buy affordable manufactured homes; however, shipments of multi-section homes, where our product content for multi-section homes is greater than single section homes, those were down 12% in the quarter, partially due to retirees still being unable or unwilling to sell their primary residence and thus not being in the market to purchase a manufactured home.
Continuing evidence of this is the 43% decline in 2007 of sales of manufactured homes in the three major retirement states of California, Florida, and Arizona. Shipments of manufactured homes to these states in the 2008 first quarter were down 30% despite easy comps in the last year.
Another positive note for the manufactured housing industry is the possibility of new Title I legislation that will increase the amount that the FHA will be permitted to guarantee a manufactured housing general mortgage from less than $50,000 to about $70,000. If this legislation is finally enacted, it could represent a good boost for the manufactured housing industry.
The remainder of 2008 remains a puzzle. My gut tells me that the RV total sales will be down more than 10%, which conforms to the projection by the RVIA of a 13% decline in shipments of travel trailer and fifth wheel RVs. My gut also tells me that this may be the first year that is not aided by hurricane related housing in a long time, that we will see the manufactured housing industry report flat to slightly up shipments.