LCI Industries (LCII) 2006 Q2 法說會逐字稿

Welcome to the second quarter 2006 Drew Industries Incorporated earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's conference, Mr. [Ryan McGrath] with [Lambert, Edward & Associates]. Please proceed, sir.

Thank you. Good morning, everyone, and welcome to Drew Industries second quarter 2006 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, CEO and a director of Drew, David Webster, president and CEO of Kinro and a director of Drew, Douglas Lippert, chairman of Lippert Components and a director of Drew, 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 to discuss our second quarter results. However, before we do so, it is my responsibility to inform you that certain predictions and projections made in today's conference call presenting Drew Industries' and its operations may be considered forward-looking statements under 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 these results to differ materially. These risk factors are identified in our press releases and in our Forms 10-Q and 10-K filed with the SEC.

With that, let me turn the call over to Leigh Abrams. Leigh?

Thank you, Ryan, and good morning and welcome to all of you on this call as well as those listening on the internet.

We're once again proud to report second quarter sales and net income with profits up 18% and a 24% increase in sales. These record results were attained because we continued to gain market share in many of our established product lines as well as our new products. In addition during the second quarter we successfully completed our second accretive acquisition in 2006.

Second quarter sales reached nearly $202 million as compared to 163 million for last year's second quarter and our second quarter was slightly less than our 208 million in sales during our 2006 first quarter but the first quarter included about 19 to 27 million of sales of hurricane related business whereas neither last year's second quarter or this year's second quarter had any hurricane related sales. I should say very, very few, if any at all.

Net income for 2006 second quarter was $10.2 million, the same as our 2006 first quarter but up from the 8.7 million for last year's second quarter, and earnings per share for our 2006 second quarter increased to $0.47 per diluted share compared to $0.40 per diluted share for last year's second quarter. For 2006 second quarter -- the 2006 second quarter about 69% of our sales were from our RV segment and of that amount, about 90% came from our total RV sales with the balance generated from sales of specialty trailers and components for motor homes. The remaining 31% of our second quarter sales were from our manufactured housing segment.

The industry today, to say the best, is confusing. Industry statistics reflect a gap between wholesale shipments of [inaudible] RV by manufacturers and retail sales by dealers. The RVIA has reported that through June 2006 wholesale shipments by manufacturers of travel trailers and fifth wheel RVs, those are both our primary RV markets, were up 29% and 9% respectively. However, information provided by statistical surveys indicated that retail sales of these types of RVs were up less than 2% for the five months ended May 31st, the last month for which any RV retail sales were available.

This dichotomy between wholesale and retail sales is partially explained by the fact that Canadian retail sales are not included in the retail sales statistics provided by statistical surveys, while Canadian sales are included in the wholesale shipment data provided by the RVIA. Because of the strong Canadian dollar, wholesale shipments to and retail sales of RVs in Canada have been very strong. The gap between wholesale and retail may also be partly explained due to increasing dealer inventories, but dealer surveys do not bear this out and higher interest costs certainly make carrying higher inventories very expensive for the dealer and therefore not likely.

Despite what we're seeing as indications that certain of our customers may be slowing production to match demand and to reduce inventories, our July consolidated sales increased about 21% from last July. We believe that during times of uncertainty, as we are experiencing with the higher gas prices, the rising interest costs, with the conflict in the Middle East, consumers may [inaudible - background noise] discretionary purchases. Hopefully these matters will be short term and consumer confidence will [inaudible - background noise]. I should point out that after reaching a four-year peak in April 2006, the consumer confidence index fell in May, but has risen both in June and July, which is a good sign for the future.

We remain optimistic about the long-term growth of the RV industry due to extremely strong demographic trends with almost 20 million people, or 11,000 people per day, turning 50 within the next 10 years. This is the primary buying group for RVs, although the 50 to 30 age bracket is the fastest growing RV age group.

I'd like to point out that our new sales have continued to grow in part because of our customer relationships, our product quality and our customer service, as well as our extensive R&D efforts. We estimate our market potential for new products introduced in the last two years to be more than $700 million. And at the end of March of '06 we had captured about 85% of annualized sales of these markets and by the end of June our annualized share had risen to about 100 million. And we continue to be optimistic that we will increase our market share of these new products and will continue to add new products to the RV market.

Our RV and manufactured housing segment both outpaced industry growth rates during the second quarter and for the six months ended June and our growth was mostly due to our market share gains and our new product introductions as well as acquisitions, including the 2005 acquisition of Venture Welding, the March 2006 acquisition of Steel Co and the June '06 acquisition of Happijac. I should point out that the Happijac acquisition had little effect on the second quarter results and of course it was incurred late in the quarter, but the acquisition will be accretive to Drew's future earnings.

Happijac, which is a manufacturer of bed-lifted toy haulers and other RV products, obtained a broad patent for bed lifts in late 2005 and thus should greatly benefit from the fast growing segment of the RV industry. And for those of you that are unfamiliar with the term toy haulers, toy haulers are RVs which include space to transport leisure vehicles such as motorcycles and ATVs. It appears that more and more Americans are taking their toys along with them on RV trips, which puts Happijac in a great market. We expect continued growth of the toy hauler market and thus increased sales of our bed lift products as well as synergistic cost savings.

Despite higher gas prices, the general public seems to continue to prefer the RV lifestyle and domestic travel over foreign travel. RVs are used not only for family vacations, but they're also used in special events such as NASCAR races and college sporting events. In addition, many RVs are simply parked and used as vacation or second homes and thus rarely moved. It appears that RV'ers are continuing to use their RVs despite higher gas prices but are simply taking shorter trips.

However, according to a recent industry survey by the RVIA, 89% of RV'ers plan on driving their RVs the same or more this summer than they did last. The same survey also indicated that the average family of four will spend between 26% and 75% [inaudible] RV trips as compared to what they would spend on other types of vacations, which more than makes up the increase in fuel prices, and almost 70% of RV'ers have indicated that they will be on the road in their RVs on Labor Day.

With respect to manufactured housing, the industry's wholesale shipments grew to 147,000 homes in 2005, which was up from 131,000 homes in 2004. However, the 2005 growth was due to about 20,000 single section homes purchased by FEMA following the hurricanes and the later flooding that struck the Gulf Coast last fall. During late 2006 and into 2007 when the clean up of the devastated areas is further along, we believe that the manufactured housing industry will begin selling more homes to replace housing that was damaged by the 2005 storms and that's just about what happened in Florida after the 2004 hurricanes.

I'd also like to point out that manufactured housing production through May of '06 was up about 3.7% from last year and is projected to reach about 140,000 homes this year. I should point out also that most of that 3.7% gain occurred early in the year and is from dealer restocking of FEMA homes purchased in late '05.

Indications are that this year's repossessions of manufactured homes are significantly lower than in prior years and that inventory levels of both dealer and the manufacturer are relatively low. And we believe that with the pressing need to rebuild the Coast, as well as the increased demand by the baby boomers as they begin to retire in bigger numbers, the manufactured housing industry should experience strong growth in the coming years.

In late 2004 we began operations at the specialty trailer factory in Indiana and are attempting to capitalize on the success of our Zieman specialty trailer business on the West Coast. However, in 2005 we lost over $2 million at that factory and the losses have continued into 2006 [inaudible] in the six months ended June '06 with a million of such losses in the second quarter alone. Accordingly, we've now decided that we'll wind down manufacturing specialty trailers in Indiana but we've used the existing factory to handle growth of our other products. Nevertheless, we will continue to expand our profitable Zieman specialty trailer business on the West Coast and we expect that our 2006 third quarter will have some ongoing operating expenses related to Indiana specialty trailer facility.

I'd like to also point out that a new Kinro window factory in Arizona, which opened in 2005 and incurred startup losses of 700,000 during 2005, is now nicely profitable and also has the capacity to capture additional market share.

In summary, we're overall pleased with our progress to date and optimistic about the long term prospects of both the RV industry and the manufactured housing industry. And lastly [inaudible] as I say in every one of these calls and as often as I possibly can, Drew's success is absolutely directly tied to the extraordinary management team headed by David Webster and Jason Lippert.

David and Jason are responsible for the continued market share gains that we get, our new product successes at both Kinro and Lippert and, as always, good management, in my opinion, 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 gained market share, introduced new products and made great acquisitions and, most importantly, have simultaneously kept costs low and quality and customer service high.

I'll now ask Fred Zinn, our executive vice president and chief financial officer, to quickly review our financial results in more detail.

Thank you, Leigh.

Drew's sales in the second quarter of 2006 increased $39 million, or 24%. That included organic growth of between 17 and 18%. That organic growth doesn't include price increases or the impact of the acquisitions we made. Further, the current quarter included little, if any, hurricane related sales, as Leigh said, and that makes our growth even more impressive.

Net income for the 12 months ended June 2006 reached nearly $40 million, or $1.82 per diluted share, and that's a 17% increase over the $1.56 we reported for calendar 2005. Operating profit for the 12 months ended June was nearly 68 million and EBITDA, which is earnings before interest, taxes, depreciation and amortization, exceeded $81 million for the 12 months.

Volatile raw material costs continued to be a concern, particularly with some steel costs reaching new highs in recent weeks. Our operating management has continued to offset these higher costs with price increases, albeit without margin, and improvements in operating efficiencies. Profit margins on certain new RV products have improved in recent quarters and we expect further improvement as we increase production levels in response to market share gains. Increased product give us better purchasing power and allows us to spread fixed costs over a larger sales base.

We have historically tracked our content per RV and manufactured home as a way to measure how we have grown relative to industry trends. Last quarter we refined the measure to show content per type of RV because industry production trends for travel trailers and fifth wheel RVs, which were up 22% this year, had been very different from the trends in motor homes, which had declined nearly 12%.

We estimate that our content per travel trailer and fifth wheel increased to $1,431 per unit for the 12 months ended June '06 from $1,403 at the end of the first quarter and that provides further evidence of our ability to exceed industry growth rates. Our content per manufactured -- per motor home, rather, also increased to $280 per unit from $269 in first quarter. [inaudible] the manufactured housing industry production statistics for June so we can't precisely calculate our content per home, but we estimate that our content per home increased about 4% from the $1,544 we reported in the first quarter 10-Q.

Our expected annual effective tax rate increased slightly to 38.6% from the 38.5% in the prior quarter and that was partly as a result of changes in the allocation of our assets and operations among the various states where we operate. Each quarter we will continue to update the expected tax rate.

Capital expenditures for 2006 are now expected to aggregate 26 to $28 million. Major projects include expansion projects to expand our capacity for vinyl windows for manufactured homes, powder coat paining in RV doors as well as projects to improve operating efficiencies, such as adding new robotic welders, chassis [cambering] equipment and information technology upgrades. Partially offsetting those capital expenditures we currently expect to generate at least $5 million from the sale of properties over the next 18 months.

Deprecation and amortization aggregated $13.8 million over the last 12 months, but is expected to increase to an annualized rate of more than $16 million for the balance of the year with the increase largely due to the amortization of patents and other intangibles that we obtained in the acquisition of Happijac.

The acquisition of Happijac was in part financed by $15 million of seven-year variable rate senior notes purchased by Prudential Investment Management under our shelf loan facility. The variable interest rate on these senior notes was simultaneously swapped out to a fixed rate of about 7% and the balance of the $29 million purchase price was financed through our bank line of credit at variable interest rates.

Our total debt at the end of the quarter net of 3.5 million in short term investments increased approximately $19 million to $95.5 million from $76.2 million at the end of the prior quarter. The increase was due to the acquisition of Happijac, offset by a very strong cash flow from operations. We have fixed interest rates on about $60 million of our debt and the average interest rate on our debt was about 6% at June 30th.

Inventories increased to $110 million at June 30th, 2006, up from the $101 million at the end of December and $72 million last June and that increase was largely the result of increased sales, two acquisitions that we completed in 2006, higher raw material costs and also an expanded use of imported components for some of our newer [inaudible]. Most of the increase was in raw materials and finished goods inventory still represents less than a two-week supply. We continue to evaluate our inventory needs and anticipate that inventory levels will be reduced by the end of the third quarter.

Through improved collection efforts we were able to speed up collections [and reduce base sales] and accounts receivable down to 19 days at the end of June, this June, compared to 25 days at the end of last June. As a result, our accounts receivable level declined to $40 million at the end of the quarter from nearly $47 million at the end of the June quarter last year and that's despite a 24% increase in sales. In addition, the [debt] expense declined by more than $800,000 this quarter compared to the second quarter of 2005.

As we noted in the last table of the press release, we reclassified certain [inaudible] steel parts operations to report these results in the segment using the steel parts rather than the segment producing the steel parts. For the full year 2005 this reclassification increased RV segment operating profit by about 3%, or $1.4 million. Manufactured housing segment operating profit was reduced by the same dollar amount, so there was no impact on consolidated results.

Lastly, with all the publicity concerning companies that have improperly backdated stock options, I'll point out that we have always dated and priced our options when they are granted by the compensation committee, with employee stock options issued every other year in mid November and director options issued December 15th each year. This consistent dating ensures that we don't try to time our option grants before good news is released. Stock option expenses aggregated about $600,00 this quarter compared to $200,000 in the second quarter last year and that increase was largely due to the options that we granted [this past ] [inaudible].

I'll now turn it back to Leigh.

Thank you, Fred. Just want to quickly point out that we've been expensing stock options since 2002.

And with that, Jennifer, I'd now be happy to take any questions that you have.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

And gentlemen, your first question comes from Kathryn Thompson with Avondale Partners.

Thank you. First question is on margins. You've indicated in your release that margins were somewhat impacted by both commodities, which was not a surprise, and also a higher mix of new products that generally have a lower margin. What is the general breakout of the margin pressure, first at your commodity versus your new products, and then secondarily, just so we can get a sense looking forward and modeling, what is the differential between, say, a legacy product margin versus a newer [inaudible] product margin?

I would say probably it's about half and half, maybe a little bit more because of commodity prices [inaudible - technical difficulties].

In terms of the specific products, we tend not to focus on that, disclose that information since it's very confidential. I can say that we have made some progress in some of the new product lines, margins increasing a bit, but we still have a way to go and do expect to see [inaudible - technical difficulties].

I guess were there any -- because you're constantly introducing new products, were there more recent ones that were lower margins than, say, previous newly introduced products?

No, I don't think so. I think it's just that the new products have grown rapidly, so they have more of an impact than they had in the prior two quarters.

Prime example would be our slide out systems that we introduced in '02. We first introduced them we didn't have much purchasing power, material costs were high, we were inefficient in manufacturing, but as we picked up market share we rather dramatically reduced product costs and improved efficiencies. And we expect the same thing to kind of happen with the balance of our new products.

Okay, great. And just kind of what is your current market read on both the RV market and also manufactured housing market?

Very confusing. We honestly just don't know. We talked about the dichotomy between retail and wholesale sales. We expected a rather bad July, yet we had a very nice July with sales up 21%. So we are constantly surprised but basically confused about where the industry is today. I think that's pretty much -- from what I've heard from many of our customers and many of our other peer companies, it's just a very confusing time with everything going on, with interest rates, with gas prices, the conflict in the Middle East, it's just very unsure. All I can say is that we are continuing to move ahead and we feel optimistic about the long term

Do you feel the same way for the manufactured housing industry, too?

Manufactured housing is different. It's been slow for the last number of years. It's been basically flat at about 131,000 units. We just don't see any great impetus except for expected rebuilding that's in the Gulf Coast that will probably start soon and continue into next year. And as the baby boomers start to retire, I believe that they will sell their primary residence, take some of that cash, buy a manufactured house and put the balance in the bank to live off of. And of course the baby boomers today are the fastest growing segment in the industry. They're just starting to turn 50 in big numbers and in the next five or 10 years, as they start to retire, I think that will be a great impetus to the industry.

But I don't see anything now that's going to dramatically improve that industry in the short term. However, we have continued to make great profit in that industry. We were profitable since 1998 in that segment when the industry dropped 65%, yet we were profitable every month in our manufactured housing segment. So we're doing very nicely in it now and if hopefully I am wrong and we see some greater increase in sales than we're expecting, we'll do even better.

So just the assumption is a flat market in manufactured housing is actually pretty okay, that you're not fighting a decline.

[inaudible - technical difficulties]

Katherine, I've got to take some calls from other people and let you get back in the line.

Sir, your next question comes from [Jaime Rowan] with [Rowan Management].

Hi, fellows, nice quarter.

Hi, Jaime.

Question on Happijac. First off, you mentioned a bunch of [inaudible - technical difficulties]. Are they all on existing products or is there a pipeline of products [inaudible - technical difficulties]?

They are primarily just [inaudible - technical difficulties]

Okay. And as you look out and you talk about the potential for the market, as you look out two to three years, what kind of volume potential do you have? And I don't know if you ever stated what the operating margins are in this business...

I'm going to ask...

Sorry?

[inaudible - technical difficulties]

Oh, I was just wondering if there's a potential for -- and you talked about potential for cost savings. How much additional improvement do you foresee and over how long a period of time?

I was going to ask Jason to answer it but I'm just going to give you a quick summary and then I'll let Jason give you some detail. This is a product line that is the fastest growing product line. We believe that there are additional products that we'll offer in the next year or two. Again, we don't want to talk specifically about that and give anything away to our competitors. We just think it's an overall acquisition that's going to help us reduce costs, give us some synergies and be part of a fast-growing market. With that, Jason, you want to [inaudible - technical difficulties]?

Yes, I think a couple of the most important things with the Happijac acquisition is they do have a few real high-powered products that we feel are going to be able to gain a lot of momentum in the marketplace, to be able to come to market in the next couple of quarters, and they do have some patents on those products. With the buying power that we have, purchasing a few hundred million dollars in steel a year and those guys only purchasing to the tune of 4 or 5 million in steel a year, we feel that we're going to be able to significantly improve material costs on their products. So those are the -- those are kind of the angles with respect to new products and improving the material costs. That's kind of our 80/20 focus on that company right now.

Would you just divulge what the operating margins are on that business?

No. We don't give individual product [inaudible - technical difficulties].

Your statement it'll be accretive from the get-go, is that for the improvements in -- ?

Yes.

Okay. In looking at the RV industry, [inaudible] is your biggest customer?

Yes.

So we're -- you're kind of riding the best horse there as they seem to be gaining market share, that's obviously helping our sales within the industry [inaudible - technical difficulties]?

Yes, that's true.

Within the other people below them in the spectrum, are we gaining share with them or is it just a function of -- ?

As we indicated in our press release, we are continuing taking market share and that's pretty well across most product lines.

Okay, and not just with [Tour], but with other manufacturers?

With other manufacturers as well, yes.

Okay. And lastly, you have sold the facility in California and said you've got a bunch of other facilities...

Yes.

...to sell. What kind of value are you looking at selling them for and how do you decide? Did you sell California just because it became worth a lot of money or -- ?

We sold California because we thought we could be more efficient in operations by combining that operation with our other operations.

Okay.

I should also point out that many vacant factories that we do have, we value on a quarterly basis and if we don't think the market value is there, we have taken in the past reserves against those properties. So any properties that we sell, we expect to have at least a breakeven to a profit [inaudible - technical difficulties].

Okay, and how much in total value are you talking about?

Well, for the next 18 months I think we may have said in the press release we're looking at collecting more than $5 million. And if things go right, and you can never tell with the real estate market, could take six months or take 18 months to sell something, but if things go right, it could be several million dollars more than [inaudible - technical difficulties].

And lastly, if I may ask one more, the Indiana trailer facility that you're winding down [inaudible - technical difficulties], could you tell us a little bit about why the opportunity wasn't there to turn that into a production plant for that product line?

We tried everything possible. We were probably too optimistic in our outlook to start with and probably tried to introduce too many products too quickly, probably underestimated market in the Midwest and just were unable to get it to be profitable. We tried for as long as we thought it was prudent. We will grow in specialty trailers, but probably [inaudible - technical difficulties] acquisitions. Jason, I don't know if you want to add anything to that?

Yes, all that's pretty right on. A big part of it was just that the market softened up on that and the things and then Midwest quite substantially over the last couple of years since we've been in it and weren't able to attain some of the market that we thought we were able to and that's about the extent of it.

I think the best thing a company can do when they realize they've made a mistake and done something wrong is cut their losses and get out. We've done that in the past, we're doing it again right here.

Outstanding job, fellows. Thank you.

Gentlemen, you next question is from [DeForrest Hinman] with Paradigm Capital Management.

I had a couple of questions. Can you comment on the [inaudible] costs of the Indiana facility? I know you said [inaudible - technical difficulties] is that going to be ongoing for...

It could be...

...years?

No, no, no, because that facility's being converted into other production. But there'll be some additional losses in the third quarter, certainly less than in the second quarter, and maybe some minor losses in the fourth quarter.

All right. And then can you give us more color on those legal issues I think that were in the Q with -- in California, [Dora Garcia versus Coral Construction]? Do we have any update on that?

Really, I think there's nothing terribly new. What we said in the 10Q before pretty much [inaudible - technical difficulties].

You never like to see litigation, but we've been very successful in the past at getting out of litigation. I don't see any significant current litigation that [inaudible - technical difficulties].

All right. Thanks a lot, guys.

Thank you.

Gentlemen, your next question is from [Dick Edgar] with Ivory Capital.

Hi. I just had a follow-up question on some of the comments you made regarding the discrepancy between wholesale and retail on the RV side. So I found that pretty interesting that the retail numbers don't include Canadian sales and that the, I guess the wholesale units do include Canadian sales. I'm just doing some math in my head here. In order for there to be, like, this huge discrepancy, the [inaudible - technical difficulties] being up 22% versus -- on the wholesale side versus retail, I mean how much does Canada make up of the wholesale because if it's only 10 or 20%, that implies you would have to be up 100 to 200% year-over-year.

That was one of the reasons I said we just don't understand the market right now. We know it doesn't account for 20% of the difference. It accounts certainly for a few percent. I know a few of our customers have indicated that their Canadian sales are up 50% from...

Oh, really?

Yes, going from maybe -- rather significantly they were up. But again, you can't quantify that into numbers. We just can't fully explain the difference because again, dealer surveys we've seen have indicated that dealer inventories may be slightly high but not terrible and the industry did close for an extra week this year in June and July, which helped bring some inventories further back into line. But I just don't get anybody telling me that they expect the industry to boom, although the numbers in July certain indicate that we did well.

And do...

I think in terms of the retail statistics, they have [inaudible - technical difficulties] been, I don't know, less reliable I think than the wholesale statistics. There are surveys. They may not be complete, they're probably based upon vehicle registrations and who know when the states actually accumulate their [inaudible - technical difficulties]. So it's less reliable I think than the wholesale [inaudible - technical difficulties].

Got you. And do we have any idea as to why there's so much strength coming out of Canada? Is it just general economics? I understand the Canadian dollar is stronger so it's cheaper to buy anything American made, but is there anything else going on there?

Not that we know of.

And last question, do we know how big a piece of the pie Canadian sales are of all wholesale shipments?

No, we don't have numbers on that either. We just know that some of our manufacturers ship as much as 8 and 10 and 12% of their total sales to Canada.

Okay, got you. Okay, thank you very much.

Okay.

Gentlemen, your next question is from Ed Aaron with RBC Capital Markets.

Hey, thanks. Good morning.

Good morning, Ed.

I was hoping you could talk a little bit more about the impact of commodity inflation on margins. Has it become more difficult to pass on those costs than it was, say, a year ago?

It's always difficult to pass on price increases. We act as a partner with our customer. We want them to sell as much product as they can and pricing is very important. But it's always very difficult and we try to hold off as long as we can and that's to say we work cooperatively with our customer in making sure that they can sell their product and we can sell our product at a profit.

Right, okay. Do you think that overall the commodity inflation on a year-over-year basis is up more this year than it was a year ago?

I would say I don't know if it's up more, probably is up a little bit more, but really the problem is that it's very volatile. It goes up [inaudible - technical difficulties] price increases, goes down a little bit and customers want decreases, and it goes back up again before -- the volatility has been the most difficult part. But yes, there has been a fair amount, more than a fair amount of inflation in our commodity [requests], even in the past three months.

David, Jason, you want to add anything to that?

No, not here.

Okay, great. And then looking at kind of the bigger picture industry backdrop, I know you've kind of talked about some uncertainty out there, but to the extent that the channel inventories are higher than they were maybe three, six, 12 months ago and that your -- maybe demand is flattening out a bit, can you talk about how those factors might affect margins going forward or do you -- I don't know how much kind of guidance you -- ?

As you know, we don't give guidance on that. But certainly if you look at the demographics in the RV industry, they're very good. But there's still a few percent a year growth as far as the demographics and we wouldn't be satisfied with a few percent growth and neither would you. Our growth is going to come largely from the new products.

We talked about the fact that our market share on the new products we introduced [inaudible - technical difficulties] 100 million from 85 million just a quarter ago. We're going to make acquisitions. So a down market in the short term may affect us little bit, but over the long term it's going to be our growth in new products, acquisitions and market share.

Okay, great. One more question for you, if I could. You mentioned a pretty strong July. I know we're still in the very early days of August, but I imagine you have at least a few weeks of visibility on your business. Do you see any real directional change in August versus what you saw in July?

We really don't have much visibility. We sometimes get as little as two and three day's lead-time. First few days of the month you just can't tell where [inaudible - technical difficulties].

Understood. Thank you.

Gentlemen, your next question is a follow-up question from DeForrest Hinman with Paradigm Capital Management.

Hi again.

Hi.

Can you talk about some of the directions with the new products, which ones were coming -- or getting the share increases?

Jason, I'll let you answer that one.

Can you come again with the question there?

In terms of the new product, which ones are we seeing share gains in?

Oh, well, our towable axles on the RV side of the business is certainly one that tops the list. Just to give you an idea, in the last year we were producing -- third and fourth quarter last year producing 6, 700 axles a day for the RV industry and we're at just over 1,550 axles a day today. We've broken into some of the other specialty trailer axle markets, which will continue to enhance our profitability and sales on that end of things. But axles definitely top the list. We've got -- still hitting the motor home slide-outs and leveling hard. That would be probably a good number two there. And then we've got various other products that we're working on that are relatively in the early stages of development that will continue to break into noticeable sales in fourth quarter this year and first quarter next year.

All right. And in terms of [inaudible - technical difficulties] parts, any update on that?

Let me go to David. David, do you want to add anything to Kinro?

Well, the [inaudible] we're really just getting started in the RV side of it. I think we'll see a big increase in shower stalls, tubs, sinks, possibly some other products. Yes, I think it's going to be a tremendous growth for us.

And then in terms of specialty trailer products, is that market smaller now that we're exiting the Indiana facility?

Well, no. As I said, we had very nice growth, very nice sales in our West Coast Zieman and specialty trailer business. We felt we could grow it in the Midwest, we were not successful, but there are a number of companies that are available for acquisition. So we'll do that as time goes on as to whether that's an area we want to grow in. And we'll continue obviously to grow on the West Coast, but we'll decide whether we want to expand that nationwide or just leave it on the West Coast.

We're just going to reevaluate our strategy on how we're going to grow the Zieman back in the Midwest. It'll happen, it's just a matter of reevaluating that strategy and then getting it going again.

All right. Thanks a lot.

Gentlemen, your next question is from [Vito Menta] with Sandler Capital.

Hi, guys. Wondering, just for a little clarification, one thing. The 20 -- you guys in your sales increased by 24% this quarter and you said it's largely absent from the Happijac acquisition. And you're saying sales for the month of July are up 21%. I'm just curious how much of that is Happijac that's driving that?

Happijac sales were only $15 million prior to our acquisition, so obviously it's not much [inaudible - technical difficulties] sales were very strong for Happijac in the month of July.

Okay, I didn't hear the 15. Thank you very much.

Gentlemen, your next question is from Arnold Brief with Goldsmith & Harris.

You on many occasions have given us some indication of new product successes and the content per vehicle. Could you sort of do the reverse and go through the content of the vehicle that you're currently not serving and how much of that are really good potential markets for you and how much are maybe in categories that -- areas that you don't want to enter?

[inaudible-microphone inaccessible]

...idea of the future potential, not from market share, just from markets that you're not in, so to speak.

Okay. I can answer that two ways. One I'll answer it we have market potential of much greater number than [inaudible - technical difficulties] before. We said $1,400 for RV. That market potential is probably 2,800 to $3,000, so we have lots of market potential growth in our existing products. As to other product lines, we really don't comment on that because we're constantly looking at other product lines to get into and unless we can get into it in a big way, we probably won't go. But there are other product lines that we have looked at, are looking at, and when we're ready to do something then we'll announce it.

[inaudible - technical difficulties] with respect to product content with the huge growth in the toy hauler end of the market, the towable toy hauler end of the market and now motorized motor homes getting into it, the addition of Happijac will significantly boost our material content with respect to the addition of the bed lift in all those trailers.

Jennifer, do we have any other questions?

Gentlemen, there are no further questions in the queue at this time. I'd like to hand the presentation back to you for -- to Leigh Abrams for closing remarks.

Again, we thank everybody for listening in and look forward to speaking to you again at the end of our third quarter. Everybody be well. Thank you.

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