Drew Industries Incorporated (DW)
Q2 2008 Earnings Call Transcript
July 31, 2008 11:00 am ET
Ryan McGrath – IR - Lambert, Edwards & Associates
Leigh Abrams – CEO
Fred Zinn – President
Joe Giordano – CFO and Treasurer
Jason Lippert – President and CEO, Lippert Components, Inc.
David Webster – President and CEO, Kinro, Inc.
Ed Aaron – RBC Capital Markets
Kathryn Thompson – Avondale Partners
John Diffendal – BB&T Capital Markets
Mitch O'Brien – CJS Securities
Peter Eisele – Snyder Capital
Barry Vogel – Barry Vogel & Associates
Jamie Wilen – Wilen Management
Arnold Brief – Goldsmith & Harris
Adriano Almeida – DGHM
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I would now like to turn the presentation over to our host for today's call, Mr. Ryan McGrath with Drew Industries Investor Relations. Please proceed.
Thank you. Good morning everyone and welcome to Drew Industries 2008 second quarter conference call. I'm Ryan McGrath with Lambert Edwards, Drew's Investor Relations firm. 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; 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 Joe Giordano, CFO and Treasurer of Drew.
I 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 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 than those described in the forward-looking statements.
These risk factors are identified in our press releases, our Form 10-K for the year ended 2007 and in our Form 10-Q for three months ended March 31, 2008, all filed with the SEC.
With that, I'd like to turn the call over to Leigh Abrams. Leigh?
Thank you, Ryan and good morning and welcome to all of you on this call and to all of those listening on the Internet.
As Mark Twain said in The Tale of Two Cities, “This is the best of times and the worst of times.” We all know about today's worst of times. The general economy is bad and possibly in recession. The consumer confidence is at extremely low levels. Both the RV and manufactured industries have experienced deep sales declines to some of the lowest levels in many years, and as a result, Drew sales and profits are below last year for the second quarter and six months periods.
However, for the best of times, despite all of the difficulty, we continue to report profitable results to generate strong cash flow, to reduce our debt, and to gain market share. In addition, we just completed the acquisition of Seating Technology with pre-acquisition annual 2007 sales of about $40 million and also acquired a patent to effectively stabilize parked towable RVs.
We believe that both transactions will result in positive growth for Drew. These transactions along with Drew's stock buyback of about 197,000 shares utilized about $36 million of our cash. Even though we also reduced debt during this period and had to pay much higher prices for inventory, we still have cash available.
While our sales have declined, our sales content per RV continues to increase, which confirms market share growth in our RV segment. This RV content growth has been accomplished by continued emphasis of our strategic goals, which are to gain market share, to introduce new products, to make acquisitions while keeping overhead low.
The healthy RV Industry in the longer term will work with our customers in their efforts to build RVs that address consumer concerns about higher fuel costs. Our industry along with the rest of the country will ultimately find better and more efficient sources of energy. I am confident that this country will be successful in that endeavor as we have been in most endeavors to improve our society over the last 235 years.
The RV industry continues to offer products that make it easier for its customers to travel with their families and enjoy the vast natural resources of the US. RV travel still provides a low cost way to vacation and many who have experienced an RV vacation say it's the best way to travel. In fact, the RVA [ph] just reported the results of a study showing that RV family vacations are on average 27% to 61% less expensive than other types of vacations studied and this is despite the gas increase.
As studies have also shown that people continue to use their RVs during times when fuel prices are high, but they just tend to take shorter trips or spend more time parked.
As for manufactured housing, today's manufactured home is well built, attractive, and the most affordable housing available. People will buy a good product if they know about it. I am only hopeful that the RV industry is prepared to embark upon an industry-wide advertising campaign to broaden its customer base and improve its image. Steps are currently being taken in that – along that line. We anxiously await its commencement.
We continue to expect a slight decline in manufactured housing sales for 2008. But several factors point to a recovery thereafter. These include the lack of sub prime financing for site built housing, the eventual return to the manufactured housing industry of retirees who have been unable or unwilling to sell their homes, and the Federal Housing Legislation which was signed into law yesterday by the President. That legislation will offer benefits to manufactured housing buyers.
First, it increases from about $49,000 to $70,000 the amount of chattel mortgage that can be guaranteed by the FHA. Second, it offers a tax credit of up to $7500 to first time home buyers. Both of these provisions should directly help buyers of manufactured homes. Despite the current vicarious state of the US economy, we continue to be optimistic about the future, maybe not for the next few quarters but over the longer term. We believe we are well positioned to weather this downturn, and further, we continue to prepare for and are very well positioned for the eventual recovery of both the manufactured housing and RV industries.