LCI Industries (LCII) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter One 2005 Drew Industries' Earnings Conference Call. My name is John, and I'll be your coordinator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press "*" followed by "0"; and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr. Jeff Lambert. Please proceed, sir.

Thank you, good morning, everyone, and welcome to the Drew's first quarter conference call. I'm Jeff Lambert with Drew's Investor Relations from Lambert, Edwards. And I have with me, today, members of the Drew management team. They include Leigh Abrams, President, CEO and the Director of Drew; David Webster, President and CEO of Kinro and Director of Drew; Douglas Lippert, Chairman of Lippert Components and a Director of Drew; and Jason Lippert, President and CEO of Lippert Components and Fred Zinn, Executive Vice President and CFO of Drew.

We want to take a few minutes this morning to discuss the results for the quarter. However, before we do, it is my responsibility to inform you that certain predictions and projections, made in today's conference call, regarding Drew Industries and its operations may be considered forward-looking statements by the Securities Laws. As a result, I must caution you that as with any prediction or projection, there are a number of factors that could cause results to differ materially. These risk factors are identified in our press release and in our Forms 10-Q and 10-K, filed with the SEC.

With that, I'll turn the call over to Leigh Abrams, Leigh?

Thank you Jeff. Good morning and welcome to all of you on this call as well as those who are seeing on the internet. We are again extremely proud to report that another quarter of record sales which were up 43% this quarter to a $155 million. Our first quarter of 2005 net income and net income per share would also have been a recorded if it were not for the 2.6 million of expenses related to litigation; that reduced our earnings by 12 cents per share. Net income per share was 55 cents this quarter compared to 57 cents of last year’s first quarter and I should point that comparisons with last year’s first quarter were also affected by last year’s 3 cents per share income from the sale of certain intellectual property.

During 2004, as I think we have mentioned on a number of these calls we were adversely affected by a huge steel cost increases ranging from 100% to 200% and I really believe that our management team this expended terrific amount of effort to pass along these increases without any markup to our customers. As with the first quarter of 2005, we now believe that the price increases have been received from customers in that, they have substantially offset any raw material cost increases that we have received to date. Steel costs have apparently now stabilized and we are really hopeful that will continue to do so, during the balance of 2005. Sales by our RV in manufactured housing segments, both out paced industry growth rates during the first quarter, as they did during the 2004, and we expect that they will continue to do so for at least the balance of 2005 and that’s primarily because of our market share gains, our new product introductions, and the effect of last year's May 2004 acquisition of Zieman Manufacturing.

I should mention by the way that, the operation of Zieman which was acquired in May '04, achieved solid profit improvement in the first quarter of 2005, as various production efficiencies that we have recently implemented are beginning to have a positive effect. Also during 2005, the RV industry has experienced mixed results. Motorhome sales by manufacturers have been softer due to an inventory over supply, but ravel trailers and fifth wheel sales have remained strong with 2005 first quarter wholesale sales increasing over 12% over 2004. And as a reminder approximately 95% of Drew’s RV sales are of fifth wheel an travel trailers where sales have remained strong. It appears that retail sales of RV continued strong, but are not increasing at the rate they did in 2004, if you recall last year, sales increased at the rate of probably close to 20%. There is no doubt that some of these sales were generated by discounting by the manufacturers and the dealers. However the problem seems to be that the manufacturers continue to produce at very high levels, particularly for motorhomes which caused excess inventory to accumulate.

It appears that this situation may now have improved with production levels coming more into line with retail sales. The RVIA which is the industry organization is projecting are basically flat year for 2005 as compared to 2004. However I should point out that 2004 was the best year for the RV industry and over 25 years, so in any event Drew should out perform the industry primarily because of opportunities that we have with our new products and the fact that travel trailer sales appear to be stronger than motorhome sales.

During the last several months we have been introduced a variety of new products of about travel trailers and motorhomes and the potential markets for these products is about $250 million and although several of these products are just now being introduced to our customers our sales have already reached an annualized basis of more than 20 million and I hope that on the next call we will report a much larger number than that.

As with any new products, startup cost will always effect the initial profitability of these products but over time they should greatly benefit our operations. Is our opinion as it has been for quite a while now that the long term RV industry trends appear to be very strong as the demographics for the industry are favorable, the economy seems to be good and it appears that the general public continues to prefer the RV lifestyle as well as domestic over foreign travel. With respect to our manufactured housing segment we continue to hear from many industry sources that repossessions of manufactured homes for 2005 were expected to again be down from the approximately 100,000 homes reposed in 2003 and the 80,000 to 85,000 repossessed in 2004. Although the repossession rate is still very high the trend is definitely in the right direction.

Further it appears that dealer inventories are low and most importantly the availability of manufactured financing seems to be improving, particularly with more emphasis on homeland sales and on the old chattel type mortgage sales.

Finally, with respect to the Florida hurricanes that occurred last September, it obviously put us a terrible strain on the South-East United States, but the rebuilding processes have begun and we believe that many of the new homes that will be built would be both modular and manufactured housing which should spur some added manufactured housing growth in 2005. And as a result, due to these factors several analysts and several of our logic customers are predicting that the industry will shift between a 140 and a 150,000 new homes in 2005 compared to the 131,000 new homes that we shift during 2004. I should point out that our projections are slightly lower than the industry but for the first time in several years we've projected an increase in sales. In fact to boast to this belief the manufactured housing industry production was up 8% in the 2005 first quarter. And that’s a little misleading because January and February production was up 13% but March production was flat with last year and we are anxiously waiting to see what happens during April.

As I've said in earlier conference calls because of our product content per home, Drew would expect to realize sales increases of about $14.5 million $15 million with every 10,000 home increases in 2005 production over 2004, and I should point out that probably would be at decent margins. Another opportunity that we think could help the industry is in manufactured housing public relations campaign and advertising program. We pushed for this for years, we think an advertising campaign similar to the very successful go RV campaign instituted and paid for by the RV industry, would have our opinion significantly help the manufactured housing industry, and this industry makes a great house, and I don’t think people know about it. As we pointed out in the past, the manufactured housing industry requested a study, received the results of the study, and is now studying that study to determine what the public perception of manufactured housing is, and what the industry should do about it. You know, we're really proud of today’s manufactured house. You know, it's large, it's often has great floor plans, and it has many optional features. But I think best of all, today’s home represents a great value to the buyer of the home, all of which should make a great impression on consumers. So, I think, one of the clear validations of the post-1995 manufactured home is, its quality, I should point out, as a viable housing option was their ability to withstand the hurricanes that destroyed, you know, a big part of areas in Florida, and certainly the industry has found that many other homes were destroyed, both cycled and manufactured homes. But, that the homes, the manufactured homes that were put in place after 1995, did not experience a higher incidence of damage than did the cycled home. I think, that’s a great testimony to the industry.

And finally, as I've said in every conference call, I believe that our success is attributable directly to our extraordinary operating management team. Headed by David Webster, and Jason Lippert. There is just no other way to explain the continued market share gains and our new product successes, it's both [inaudible] and Lippert. As always, a good management team is the key to a successful business, and I believe that we have the best. Over the last several years, both of our subsidiaries have continually gained market share, continually introduced new products, and have made several successful acquisitions. And most importantly have done this while simultaneously keeping cost low, and quality and customer service high. And as a result of all of this, I’m optimistic that we will continue our growth in the coming year. I'll now ask Fred Zinn, our Executive Vice President and Chief Financial Officer to review our financial results in more detail.

Thank you, Leigh. As usual, we have been, we've tried to be as complete as we could be in our press release, but I would like to comment on a couple of items that were mentioned only briefly in the press release. First is the impact of the charges related to legal proceedings. In the fourth quarter of 2004, we recorded a $1.9 million charge related to an adverse jury verdict in a work place accident, and in our conference call, we said that charge was an estimate based on consultations with the advice of our Trial Counsel, who advice that it was highly likely that the $4 million punitive damage award would be reduced to a maximum of 4 times the [inaudible] basic award. So, we recorded the $1.9 million, but the during the first quarter, this year, the trial judge unexpectedly denied that motion to reduce the punitive damages, and accordingly, we recorded an additional charge of $2.1 million in the first quarter. We do plan to appeal the verdict, as well as, the punitive damage award.

The balance of the charges for legal proceedings that hit the first quarter was a $500,000 charge related to the SteelCo litigation that we've discussed several times in the times. We recorded this charge as result of an offer to settle. Although, the offer was rejected, Generally Accepted Accounting requires too that a settlement offer like this is strong evidence that that’s the minimal expense that should be recorded, and so we recorded $500,000.2.1 million in the first quarter expense over the due litigation was recorded in manufacturing housing segment as was the fourth quarter charge of $1.9 million. $500,000 of litigation expense was recorded in the RV segment. These expense, however, were partially offset by reductions in the incentive competition expense.

As many of you know, Drew's incentive compensation program rewards our employees including plant, corporate, and executive managers with incentive bonuses based largely on the profits of the operations they manage. So, each month, we record 18 to 20% of our subsidiaries operating profits as an approved bonus expense. Since, the $2.6 million in charges of legal proceeding reduced operating profit, the accrual for incentive bonuses also reduced by nearly $0.5 million. As a result, the net impact of litigation expenses on the manufactured housing segment was just over 1.7 million, and the net impact on the RV segment was just over $400,000 in the first quarter.

Selling, general, and administrative expenses in P&L for the quarter were 14.6% of sales, but excluding the next charges of litigation, SG&A expenses were just under 13.3% of sales, which is below the 13.8% of sales that we recorded in the first quarter of last year. Also during the first quarter of 2005, as we said in the press release, about the specialty trailer facility in Indiana incurred $400,000 of start-up losses. We also incurred smaller amounts of start-up losses on some of other new operations. Over the next couple of quarters, I would expect start-up losses will continue for these and other new products that we are introducing.

But as Leigh said, in the long term, we expect them to be significant contributors to our bottom line. Interest expense for the quarter was $944,000, but that’s net of a 135,000 of interest cost on capital construction -- projects and process, and they get capitalized in accordance with GAAP. Several of those projects are now being completed, and will even put into service in the next few months. So, we expect that the interest capitalization will be less in the coming quarters.

Out tax rate for the quarter was 38.8% or just under that, compared to 39% in the first quarter of 2004, and 38.5% for the full year in 2004. The states we operate in continued to aggressively seek new revenues, and that drives our tax rate up. But, this quarter it was largely offset by the provision of the new Jobs Creation Act of 2004, that gave us small federal tax break on manufacturing activities.

On the balance sheet, inventories were up $2 million, since the end of 2004. And that the spike in sales growth, and the fact, that we are ramping up for our busy season. I know, there has been some concern about inventory levels, but based upon the fact that we increased sales 43% in this quarter, and our expectations for the future inventory levels at the end of March 2005, really are appropriate, and inline with our sound inventory management policies. We continue to carry less than two weeks supply of finished goods.

Accounts receivable increased $60 million since year-end, and that’s again primarily due to the seasonal increase in our sales volumes. Receivables remain current, we have 23 days outstanding at the end of the quarter, compared to 21 days outstanding last year, first quarter, but a good part of that is because of Zieman, Zieman tends to sell their specialty trailers to retailers, and so they quite were slower. Excluding, Zieman they were just 20 days of sales and receivables at the end of the quarter. Accounts payable and accrued expenses increased $19 million from the end of December, and that’s probably because we have ramped up purchases in expectation of the seasonal pick up in our business, probably just due to the timing of payments.

We are still paying our payables within the discount period, a number of home vendors give us significant discounts. And paying within this discount period gives us a leverage with our vendors to get the best prices. During the first quarter, we made the final $8 million payment on our senior notes, and we borrowed the funds for that payment, under our line of credit with the banks. And during the quarter, the total debt declined by nearly $4 million from the end of the year, to less than $68 million, we continue to expect strong cash flow this year. But, if growth exceeds our expectations, we could require additional investments in both capital expenditures and in working capital. All other things being equal, our working capital typically increases by about 10% of the annual increase in our sales, although of course there are some seasonal variations. I also want to point out that this call is to assist you in analyzing and understanding our business. Our press release includes a selling cash flow statement and also a comparative balance sheet at the end of the year.

Now I will turn it back to Leigh.

((Leigh Abrams, President, Chief Executive Officer, Director))

Thank you Fred. Now we will be more than happy to accept questions.

Ladies and gentlemen, if you wish to ask a question you may press "*" followed by "1" on your touchtone telephone. If your question has been answered or you wish to withdraw your question you may press "*" followed by "2". Please press "*" "1" to begin. Your first question comes from the line of Steven Weiss (phonetic) of Mindflow Capital (phonetic). Please proceed.

I think very much Leigh, I have a couple of questions for you regarding -- lot of your competitors over last few months have been recently implementing some new strategic initiatives to help them reduce their sourcing costs in terms of raw material as that was a better line of communication between the suppliers and open up easier collaboration especially with the increased raw material cost. There are lot of companies in industry are seen. I am curious as to know what is true industry's feeling in terms of entering new technology for strategic initiative to allow you guys to reduce your sourcing cost, improve your [inaudible] actually used producers cost and then improve your bottom line.

Well, we constantly looking at our factories for efficiency and I will ask David and Jason to comment on that in a minute. But that’s been -- the way we have been able to keep our profits at reasonable levels over the years is that whenever we get price increases we try to fight them off just like our customers try to fight our price increases but we then go back into our factories and see what we can do to make them more efficient and that's where we put $27 million into capital improvement. Last year we bring in the latest equipment, built factories closer to our customers which reduces freight and reduces delivery costs so we do whatever we can within the factory and we are willing to spend the money to make our operations as efficient as possible and now David or Jason do you want to add anything to that?

Now it's that as far as raw materials go is that what you are asking involve with respect of sourcing, I am a little bit -- things you know most of our product cost is steel and it's kind of a one-way street or at least it has been for last 12-18 months with steel manufacturers, so we are kind of at their mercy on that and but we have -- you know we've gone on our side of things overseas and some products and some steel assembly or somethings like that where we've been able to make up some ground but I thought we'll have to add on our end.

And how you guys are projecting total cost ownership to all your supplies, you know, it's going to take any kinds of suppliers score carding to make sure certain suppliers are able to provide the right allocation or everything you are optimizing your allocation levels?

Yeah, I am not sure what you are -- exactly what you are asking but I think we do deal with the number of given suppliers. We try to allocate our producers among those suppliers and the way they minimizes our costs. We don’t deal with -- there are hundreds and hundreds of major suppliers out there. We deal with -- we try to focus on the ones that are giving us the best prices, whether it's here or overseas.

And final question to Leigh. The remainder of the year what would you say your top initiative is going to be in related to you know reducing cost throughout your operations, just have it clear?

I missed the second word you said, what was my what?

No for you top initiative for the remainder of the year, what is going to be you know the top initiative on your planning in order to reduce cost throughout your operations and how do you plan to --

Our top initiative is always to make as much money as we can and still deliver good quality product to our customers.

I feel also just to supplement that if most of their costs are material costs, steel, aluminum, glass, vinyl, and plastic cost, so those certainly are key. But as Jason said, sometimes we're at the mercy of our suppliers. We can’t resist price increases forever. So the areas that we have the most control are in our production processes, the labor and overhead costs. And I think that’s where we have the biggest bank for our in terms of our ability to reduce costs.

Okay. Thank you. Congratulations on a good quarter.

Thanks.

Your next question comes from the line of Richard Paget of Morgan Joseph. Please proceed.

Good morning everybody.

Hey Richard.

Hi.

I was wondering if you could talk more about manufactured housing. If you could give us an idea what your current capacity utilization was and then now you talked about what revenues would be with increases in unit shift, but could you give us a better idea about the incremental margins there?

What's good capacity, I think we are probably looking at an overall average capacity is about 50% in manufactured housing. As not to say certain factories are now at 80% and certain other ones at 40, but overall we have room to grow and as you know, during last three years or so, particularly with our vinyl window factory we are somewhat limited with capacity. Even during a down turn we closed three small leased factories and replaced them with three large owned factories that gave us more capacity. So we’ve done whatever we could during this period to increase capacity within manufactured housing to be ready when the turn around comes.

In terms of the margins, the variable margins, but you know we don’t, we have not disclosed in the past, but I think I had said in the past that generally that’s very considered by product line. But generally our material costs are just north of 50% of our selling price. Our labor cost probably 12%-15% of our selling price and our overhead costs are probably 12%-15% of our selling price. And of course the opportunity for leverage is mostly in your overhead costs.

Right.

So it's you know portion of that overhead of course that give us some leverage.

Okay the operating margins are considerably higher than the segment margins you see you know we generate this year, 8% margin is in our both for manufacturing housing and RV segment. Well, that includes some of the litigation expenses. Clearly there is leverage about those levels.

Right. And then in the press release you talked about the issues with the composite material and seeing how may not be able to perfect the product or process for that product is this a timing issue if you could just give us some more clarity on what --

This is -- we can go through all your explanations, I don’t think we have time for but this was back process that we co-developed with another company. We sold them our share of the patent for $4 million and so far collected a $1 million on that 4 million. The balance of the $3 million note is reserved. Then we will be going enter into at least with the people with the other partner for production equipment and in order to manufacture products for bath and other areas. They have not yet been able to get that equipment to work and then in the first quarter they were fairly pessimistic about it. And you know we did not have any of those products in our projections. We were hoping that there would be a nice product addition for us in the future but at this moment in time I don’t think we can really be very optimistic about it and then you want to add anything David to them?

No that's pretty where it stays.

Okay, so you still get that 3 million regardless but it might be a walk either to write-off.

Two separate transactions, yeah.

Well, we have reserved -- we have continued to reserve the balance -- that we have concerns about the collectibility

Should any course or equipment that we have related to the process we have now reserved, but we are still hoping that it will become effective [inaudible].

Okay and then getting back on to the -- Harvey said the $500,000 lawsuit write-off, that’s the minimum, so that could be more going down?

I am going to be honest with you. We are very optimistic on that lawsuit. You know we generally don’t comment on lawsuits, but since we made an offer, it was more of an nuisance offer that was made under what they call California Rule 68 which says that if they reject the offer and they lose the lawsuit, they are [inaudible] that occurred subsequent to this particular offer. That was more a strategic offer and we remain very optimistic on that.

Okay. Great, that’s it from me.

Your next question comes from the line John Diffendal of BB&T Capital. Please proceed.

Hi, John

Good morning Lee and Fred. Congratulations on the quarter.

Thank you.

First off on the 20 million in additional new products, I assume that is virtually all on the motorized slide-out?

Before we answer the question, let me first tell everybody John Diffendal is with BB&T Capital Markets and they initiated coverage on Drew after last quarter’s conference call and we appreciate that very much John.

Thank you.

As far as the 20 million I am going to just basically say that those are primarily at this point on motorhomes. I am going to ask Jason to expand a little further on that.

Yeah, definitely the [benefits] is coming on motorhomes because we introduced that product middle into last year and we had a real good reception with this year so far, but the rest of its, the rest of its come on our new RV axle product, so it's kind of a mix between the two.

I see. And you are feeling, I mean you know mentioned the potential there is 250 million, but the conversations with other RV manufactures or whatever moving long, well enough that if you feel pretty good about how that will sort of fill in over time?

Yeah, we feel real good about it. I mean with respect to our current chassis and slide-out products for towables, were largest part of our customers [build] the material, so we have a lot of [base time] with our customers, our product is real visible and you know we proud ourselves on taking care of our customers and having good customer relationships. So, you know we kind of use the product that we already have and the relationships we already have to move on a lot of that new products. So --

And on the RV segments your growth in revenues was great, I know some of this was from acquisition, but lot of cross-currents out there, even on the towable side I guess with Fleetwood reporting yesterday their quarter and very weak towable sales as they have been struggling to turn around that division, and they are a big customer of yours as I understand. Can you give us a little bit of color on what you are kind of seeing out there? I mean know doors and others have done well, but there is a lot shifting going around, you know in the market and doors showed a pretty strong gain this quarter.

You know as I have said in my introductory remarks, the RV industry is certainly mixed. You know before the first quarter, towable RVs were up 10.4%, while motorhomes were down 9.7%. And since you know 95% of our sales are in the towable segment, we have just so far not seen any major interruption in our business, and even though the motorhome segment is down, we are starting from a base of zero trying to get market shares. So, at this particular moment that segment is somewhat weaker.

And did -- sticking on the towables for a while, how did it sort of proceed through the quarter? I mean did you see March much different than January and February, if you can give us a little bit of movement in terms of business and whatever update you can give us on April business in both segments would be helpful.

Okay. There really wasn't much change in March, although to be honest with you, John, you know we have so many new products coming out and it's a little hard to segregate out just the [old cars] and see what’s happened there but March was pretty good.

You know for the month of March alone travel trailers were up 15% and 5th wheels were down 8%, industry-wide.

Industry-wide.

David I ask you, what are you seeing trends in April? RV trends?

Well I see a lot of units but I mean what we are seeing in our RV plants we still doing a lot of production and work a lot overtime and lot of weekends, so we are continuing, we are keeping a close watch on it. Jason, you have anything to add to that.

And on the MA side, how does -- any sense of April, you say the March shipment numbers was flattish?

And I think April could be flatter down, I won't be surprised to see that. I was hoping to see an upward trend in April, but I don't know David or Jason you --

We are not seeing anything right now you know if anything I think it's going to be flat.

Alright, thank you guys.

Your next question comes from the line of Arnold Brief of Goldsmith & Harris, please proceed.

Hi Arnold.

Hi good morning. Just a couple of quick numbers and then more of a conceptual question, could you give us depreciation for this year and if you gave the capital expenditures for '05 I missed it.

Yeah, it's in the press release I believe. The depreciation we are looking at $11 million, first quarter was 2.6, it will increase a little bit because we are do those [project process] and we are talking about 12 million to 15 million of capital expenditures for the year, of that 5 million was first quarter.

Okay. And the tax rate you imply that the first quarter rate was a little lower than normal or it might be a little high for the rest of the year?

No, no what you do with the tax rate is you have to record each quarter which you expect for the full year, so that is what that is point --

Okay. All right, and then just more conceptually on the -- you discussed a lot about new products, we discussed a little about new products, we discussed a little bit about new markets and how you are doing in the motorhomes and in the modular homes in terms of the penetration there?

I think the fact that we have already picked up $20 million of business is an indication that we are doing well in the motorhomes. We're new in it. You know we are just getting started on it, but we don’t generally go into a product unless our customers have asked us to into it and unless we are optimistic that we can get significant market shares. So we are optimistic that the motorhome segment is doing well. As far as the marine and leisure segment, we've opened to plant in the Midwest in the [inaudible] that’s Midwest and that’s starting out with some fairly nice sales levels and hopefully we'll grow from there and as soon as they get the production there, it could be [contributable] to 53 to our bottom line profits. And so you know we are optimistic.

How about the modular?

Modular is not really a new product for us. I mean some of our products that we make do go into modular homes. We make some transporters for modular homes. We make windows that could be used either in modular or manufactured housing. I think and often we don’t even know we it goes. So its very hard for us to track that.

And I also I should point out modular is still a small housing segment, it's only 40,000, 45,000 homes built in the modular industry, probably only 10,000 or so are built by manufacturers of manufactured homes.

Our key new markets are the motorized, the new products that we mention and the specialty trailers. They are pretty good markets, but the returns aren't in yet. We are just at the tip of the iceberg and we will see how far we get.

Thank you.

Your next question comes from the line of Doug McLane of Sirios Capital Management. Please proceed.

Hello. Just following up on some previous comments, think, a comment you made in your opening remarks, just looking at the problems at the motorized side is having and how obviously the industry has got opened it's shelf line from too many wholesale shipments then greater than retail takeaway for once a month and just looking at the fifth wheel and the travel trailers in the industry, I have seen kind of the same thing play out for the last 11 out of 14 months or so, shouldn’t we see a retail takeaway? And I was just kind of wondering if you could give your perspective, and given as the very same manufacturers that misread motorized demands that are making towables, your confidence levels they won’t do the same on the towables side.

I can only say, we haven’t seen it yet. You know, we have been looking at the lots for the last year. Though they were full a year and a half ago, and yet volume continues. So there's got to be a pretty good sell through.

And actually hinting -- the gap between wholesale shipments and retail takeaways widening though. That’s the day I was looking at RV, those statistical surveys put out. It's actually worsened since the fourth quarter.

I’ll ask Jason to answer in a minute. But I should point out that the retail information is still retail sales through licensing. And licensing can take months sometimes to catch up with actual numbers. So there could be a trail there and Jason if you have anything to add to that?

No, I mean, a lot of talk with regard to Zinn [ph] may have mentioned that retail definitely softening up a little bit but, you know, we're still having -- there are still record number of units being produced and a lot more players in the industry today and last year and a year before and a lot of the OEMs are fighting for market share and market share shifting between the manufacturers and for the most part I mean we were -- and our understanding which is the most important thing here I mean we are continuing to take new market share and increase our top line. So --

As your question goes I just can't answer as to whether the total segment will receive the same kind of inventory overlap that the motorhome has experienced; so far has not occurred.

Okay and also just wanted -- just question on that -- on inventory and in cost, are you on FIFO?

Yeah.

Isn’t that correct.

yes.

So when will we see the high point of, kind of, raw materials work its way through the P&L, just kind of curious?

Really, inventory turns pretty quickly. So we only have a couple of months of inventory in total. Some time it might be a little more, some a little less. So it works its way pretty quickly. I think it is probably a two -- two and a half months lag between when prices move and when prices are coming through our P&L.

Just probably see that next -- good so that --

You will see a little bit more, I guess. Just see a little more in the second quarter.

Okay. Thank you very much.

Your next question comes from the line of Jamie Wilen of Wilen Management. Please proceed

Hi Jamie.

Hi fellows, another nice quarter.

Thank you.

Two questions; one, on the new products right now that you are putting on they are losing money?

No, no. Just those that we particularly mentioned, the specialty trailers and we opened up a new facility there. It is new product line for us in that part of the country. And I think this -- we are hoping to see that turnaround pretty quickly but others -- others or the new products are doing okay.

And eventually operating margins will at least be what you --

Well, it's hard to tell. We will see what competition is, whenever you put it into a new product line you know you are going to have competition, depends on how they react as well.

Okay.

In the long term we do see pretty good margins.

Okay. On the Zieman operations, when you bought it sales were not fully national. They were doing -- regions and they also -- you had mentioned that they were potentials for these amount of operating efficiencies to get their margins up to yours and I see Lippert opened up a new powder coating plant in Southern California. Could you talk about what’s the revenues and operating margins were when you bought them and what you expect to do in that business this year and how much more opportunity there is as you bring up from regional to a national?

Well, in terms of the regional and national, we have seen it operated only on the West Coast and they -- half of their volume was in our traditional products. So we already covered the rest of the country that they are being manufactured in other chassis. So it is primarily the specialty trailers that we were intending to move and we have Jason has moved opened that factory up in Indiana just starting out there, let's say, in a couple of months under it's belt. In terms of the margins, we don’t really comment on the margins by subsidiary. But I can tell you that this quarter Zieman's margins were up probably 1.5 points from they were last year in that range and we expect to see further improvements.

Jason, you want to add anything to that?

No, really far as efficiency in Zieman's side, I mean, it is a big initiative of ours and it takes a while to get all the changes you want to make down and we have already closed two of the preexisting Zieman facilities and have consolidated them into existing facilities without even hiring additional people or moving people. So we have made a lot of changes already and we have a lot of changes left to make and we are going to continue to seek all things there.

By providing territory and capabilities, do that enhance the product line to make it superior to the competition?

We just add a value on a competitive edge over our competition and we certainly hope that that's the difference it makes, yeah.

Okay, great Thanks Scott.

As a reminder ladies and gentlemen to ask a question press "*" "1". Your next question is a follow up from the line of John Diffendal. Please proceed

Just want to be clear, we've heard you pick sales gains and I know it's partially the Zieman flow through segment, and also I guess the run up in steel costs and other commodities, -- give us a little -- I just want to make sure I am clear on the laughing of all of this and as we go forward?

Well in the press release, [I am not sure] that this is exactly your question but we -- shares were $47 million.

Right

15 million was in it about 15 million to 17 million was price increases and the reason we can't be too precise there, is when you get a new customers they consider price increase over what you have charged. But in any case in that range 50 million to 70 million. So, that leaves a balance of 15 million to 17 million that was organic or internal growth.

Right, now the question I think you are going to get, in the second quarter Zieman last year came in on the fourth.

Yes, right, two thirds over the year-end.

Yeah so they were in the two-thirds.

And selling prices would have accelerated in the second quarter last year.

but nevertheless, when we were starting to see the acceleration.

Right. I think the first quarter of last year maybe we had a $1 million or $2 million worth of selling price increases, first quarter last year and then this quarter more and of course the third quarter was more.

Right and just to go back again, once again on the Indiana facility, so it's opened up, its producing?

Yes,

So, can you give us a sort of -- are they -- how quick a ramp up would that facility tend to see and you've got customers, you are -- I mean just give us a little color on, how you sort of see that, like I know you said there is been some additional start up cost as you look forward but --

Jason I'll ask you to --.

Yeah, we expect -- we expect to start seeing a lot of our progress just in the month of May. All of our -- most of our new customers are coming on board over the end of March, April and end of May and as we do that of course there is a lot of start up cost involved, but we are moving past of lot of that, a lot of that was behind us in the first quarter and already the start cracking things up.

We I expense all of that stuff so we don't depend in any other resources.

But I think the other point John [ph], is that as we introduce new a lot of new products on the list and as we introduced them there will be some start up cost in first three or six months of each of those compared to that.

I will say we have had -- we've had just an excellent reception on the marine and specialty trailer side, I think all the customers that we went to see and picked up those have been extremely happy with our product and we are powder coating all of our product here in Indiana which none of our competitors are doing and it's shown to give us a very good competitive advantage so.

To give an example, Kinro opened a new plant a little over a year ago and of course they had start up losses for the first few months and yet in this first quarter that plant was extremely profitable.

Big turnover and in fact even on some of the new products, the new RV gas products, it's just a very, very modest amount of sales but we are comfortable certainly, the slide outs for the motorhomes have been homes have been profitable, so it depends on the privately held divinities from what we are making.

And then it does sounds like that the load rate into these new factories and correct me if I am wrong, the specialty chassis won in the Indiana, I mean it sounds like you are loaded pretty fast.

Yes.

But I think the volume can, there is a lot of room there on for volume to grow from where it was in the first quarter.

Right.

It's loading fast.

Right.

Great, well thank you.

Okay.

Your next question comes from the line of George Mileth (phonetic) of Lord Abbott. Please proceed.

Hi George.

Hi how are you?

Good.

Quick question on the price increases related to raw material prices, 15-17, can you break that down between manufactured housing in Northeast?

I actually don’t have it that here in front me but I don’t have any information. I am sorry.

Okay, great. And then just I am not sure I understood the previous questions regarding you use [FIFO] which means that basically does that suggest your -- you still have some in the cost of good sold some, maybe slightly more expensive deal and as your EBIT margin should be couple over.

Yes, that's just the way it works. Material [direction] prices go whatever came in 2 months ago it doesn’t get sold until 2 months later. So prices have come down and that would be good.

Okay. Great, that’s --

We are -- we tend to focus on only certain raw materials but we've got a whole array of raw materials and some of them, there are still going up way beyond just a little creek, big price increase so.

Particularly anything that’s a petroleum based.

Right, right.

Last final?

Yeah, yeah, yeah.

Those are illuminant, there are all a largely driven by energy cost.

Okay. Well congratulations to all of you.

All right. Thank you.

Well, ladies and gentlemen this concludes today's question and answer session. I will now turn the call back over to management for closing remarks.

Again I thank everybody for joining in and we are looking forward to our second quarter report but we hope it will be as good if not better than the one we just presented. So, speak with you all later and again if you should have any questions don’t hesitate to call us. Thanks again.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.