Marine Products Corp (MPX) 2007 Q4 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation Fourth Quarter 2007 Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO, and Ben Palmer, CFO. Also present we have Jim Landers, VP of Corporate Finance. (Operator Instructions). I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward looking statement.

Good morning and thank you for joining us. Before we get started today I would like to remind everyone that we are going to be discussing things on this call that are not historical facts. Some of the statements that will be made on this call will be forward looking in nature and reflect a number of known and unknown risks. I would like to refer you to our press release issued today and our 2006 10K and our other SEC filings that outline those risks, all of which are available on our website at www.marineproductscorp.com. If you have not received our press release for any reason please call us at 404-321-7910 and we will fax or email one to you immediately.

We will make a few comments about the quarter and then we will be available for your questions this morning. Now I will turn the call over to our President and CEO, Rick Hubbell.

Jim, thank you. We issued our earnings press release for the fourth quarter of 2007 this morning. Ben Palmer our CFO will discuss the financial results in more detail in a moment. At this time I will briefly discuss our operational highlights.

First, net sales for the quarter increased by almost 6% compared to the fourth quarter of last year. The increase in net sales was due to a 12% increase in the average selling price per boat, partially offset by a 5% decrease in the number of boats sold. In spite of the continued downturn in the pleasure boating market I am pleased to report that Marine Products realized its first increase in net sales year-over-year since the third quarter of 2005. This increase was due to the early success of the new Sunesta Wide Techs and Xtremes in 2008 and the strong sales of the SSX Sportboats that we introduced in the 2007 model year.

Secondly our gross profit margin of 20.9% of net sales was similar to the 21.1% gross profit that we realized in the fourth quarter of 2007.

Operating income increased by 12% and pre-tax of net income increased as well. Our diluted earnings per share for the fourth quarter increased by 22.2% due to an increase in net income and a decrease in our shares outstanding.

We are in the midst of the winter Boat Show season which as you probably know is a very important point in the year for assessing the retail demand for the upcoming retail selling season. So far attendance and sales at the winter Boat Shows have been comparable to or lower than last year. For this reason we are cautiously watching signs of demand and scheduling production based on these impressions. With that overview I will turn it over to our CFO, Ben Palmer.

Thanks Rick. For the quarter ended 12/31/07 we generated net sales of $58.9 million, a 5.9% increase compared to last year. Our average selling price per boat increased a little over 12% which was partially offset by a 5% decrease in the number of boats sold.

Unit sales increased in most of our product lines, especially among the newly redesigned Sunesta Wide Techs and Xtremes. Average sales price also increased in most of our product lines, especially among the new Sunestas.

As Rick stated a minute ago our net sales increase this quarter was principally due to the success of these models which our dealers were interested in viewing at the Boat Shows.

Our sales of smaller sport boats have declined due to increased competition from other manufacturers, especially in the 18 to 21 foot range.

International sales grew by almost 27% in the fourth quarter of '07 compared to '06 and they comprised 20% of total sales in the fourth quarter of '07.

Gross margin as a percentage of net sales was 20.9% for the quarter compared to 21.1% last year. Our gross profit margin was similar to last year because of similar production volumes and resulting direct cost absorption as well as fairly stable prices for the raw materials used in our manufacturing processes. Prices for many of the commodities used in the manufacture of our products remain high but have not increased compared to last year.

SG&A expenses were essentially unchanged in the fourth quarter of '07 compared to the prior year at $7.4 million in both periods. These expenses vary with sales and profitability so they increase in several areas, but these increases were offset by a decrease in warranty expense compared to last year. As a percentage of net sales, SG&A expenses were 12.5% of net sales in the fourth quarter of '07 compared to 13.3% last year.

Our interest income was 20% lower in the fourth quarter of '07 than in '06. This was partly due to lower cash and marketable securities balance. However it should be noted that our investments are now in liquid tax exempt securities since about May of this year. So when this factor is taken into account our investment portfolio performed better on a taxable equivalent basis than last year, even when the decline in overall market interest rates is taken into account.

Our effective income tax rate during the quarter was 27.9%, slightly lower than the 28.8% rate during the fourth quarter of '06. Our estimated tax rate going forward we expect to be somewhere in the 31 to 32% range.

Diluted earnings per share for the quarter were $0.11, a 22.2% increase compared to $0.09 diluted earnings per share in the prior year. Our diluted earnings per share increased due to higher net income and in addition our earnings per share increased by $0.01 because of the lower share count resulting from the open market repurchases we made over the last 12 months.

Turning to the balance sheet, we maintained a healthy and liquid balance sheet during the quarter. Inventories increased by 3.6 million compared to the end of '06, and this was due to new inventory requirements for the new Sunestas. Our total cash plus short term marketable securities and long term marketable securities at the end of '07 was $48.2 million compared to $58.8 million last year. Principle among the causes of this decrease was our purchase during the year of $17.8 million of company shares in the open market.

We are pleased to report the dealer inventories are down in the high single digits compared to the prior year which is evidence of our ongoing efforts to work with our dealers to keep field inventories in good shape and facilitate the sales of our new products as demand warrants. However our order backlog in early January indicates continued weak retail demand. Backlog in units is down significantly compared to one year ago. And as a reminder we schedule production levels based on firm dealer orders in hand. We do not build stock inventory.

As you may have seen from our other press release this morning, yesterday our board of directors declared a 20% increase in our quarterly dividend from $0.06 to, an 8% increase to $0.065 per share, and increased our authorization to repurchase shares in the open market by 3 million shares. So with that I will turn it back over to Rick.

Ben, thank you. We are about halfway through the Boat Show season and at this point attendance and sales seems to indicate another difficult year in our business. High fuel prices, a drought in the Southeast, economic uncertainty in the residential mortgage problems which are so prevalent in some of our major markets are preventing people from making discretionary purchases such as pleasure boats. The backlog information Ben just reviewed with you do not bode well for the near term either and may warrant cutting production if the upcoming Boat Shows do not produce more favorable results.

Having said that we are proud of the results that our new Sunesta Wide Techs and Xtremes have produced for us and believe it is a testament to our ability to create advantages for us during a difficult time. In addition our board's increase to the quarterly dividend demonstrates confidence that we can continue to generate cash and have the financial resources to develop innovative new products, successfully support our dealers and customers and share the success with our shareholders in tangible ways through distributions of earnings and open market share purchase.

I would like to thank you for joining us this morning and we would be happy to take any questions you may have.

(Operator Instructions). Your first question comes from the line of Joe Hovorka with Raymond James.

Thanks guys. Good morning. A couple of quick questions. What was the share count at the end of the quarter, not the average?

Sorry Joe, we are usually better prepared for your questions.

No worries. I can move on if you would like as you get it.

Just a second. Want to go to the next question?

Sure. Can you give just some of the cash flow statement numbers? Your cash from operation for the full year, full year CapEx, and what was the full year amount spend on share repurchases in the year?

Joe, this is Jim. I'm not sure how much of that we can share but as Ben said we used $17.8 million to purchase stock in the open market during the year.

CapEx was about $1.5 million.

$1.5 million, okay.

About $1.3 million actually.

$1.3 million?

Yes.

Okay, and then you said your backlog was down in units right now?

Yes.

Is that correct? And if you exclude the new products, I'm assuming new product backlog is up. Is that correct as well, or no?

No, that is correct.

It is? Okay. And then last question, actually two more questions. Where is your production level right now versus where it was in the first quarter of '07? Are you down, flat?

At the current production level Joe we are flat.

Okay. And that is in units right?

Correct.

And then your warranty expense. How much was that down year over year?

We'll get that for you too in just a second.

Okay, that was it.

The share count, [stumbling] here. It is a little over 36 million is the actual share count without any options, restricted stock, or anything like that, if that is your question.

So that is the basic not the diluted number?

Well the basic number, well again basic is normally an average number. So this would be the actual shares outstanding unaffected by, you know how restricted stock they don't all work into the basic calculation because some of them are [backed] out.

Okay, but that is a number we would start with on January 1 as far as the share count for the first quarter and for the full year '08?

Yes, for actual shares. Now average shares would probably be even a little bit less than that.

Right, right. Okay. Great, thanks.

Sure.

Your next question comes from the line of Kurt Frederick with Wedbush Morgan.

Good morning Kurt.

I just had one quick question on just kind of geographically [weakness], you talked a little bit about the Southeast. I'm assuming that is primarily Florida but I was wondering if other markets you are seeing some increased weakness there as well.

Kurt, this is Jim. Yes, here in the Southeast we have had a pretty bad drought this year, and two of our major markets are Atlanta and Charlotte, North Carolina. So those areas have suffered just because of the drought. Then if you kind of look at Florida you have got the mortgage problems, residential real estate problems. And then out in your neck of the woods as well, California, we have got a big presence in Southern California and that has been hurt because of the residential mortgage problems and residential real estate.

That's all I had. Thanks a lot.

Thanks.

Your next question comes from the line of Paul Swinand with Stephens, Inc.

Good morning and congratulations on showing positive numbers.

Thank, Paul.

You don't see that anywhere in consumer these days.

Yeah, well.

First question is, do you feel like the industry is managing the inventories as well as you are?

No, we don't.

Okay. And is that across the board at the high end and the low end or are there strengths and weaknesses in inventory nationally?

I would say the high end is managed better. The smaller boats, the more inexpensive boats I think there are a lot of them out there for sale.

Okay, thank you. And then on the sales increase due to you said it was due to higher average price. A new ski boat is on your website. Is that actually lowering your average price and so, in other words, you have a new product that is affecting the mix, is that part of the drag up or is that actually a slight downward pressure since it is a smaller boat.

Actually, this is Ben. Actually that is definitely a higher priced boat that is contributing to the average sales price increase.

So without the new products you still probably skewed towards the high end and dragged your average price up though. Is that fair?

Yes.

As I indicate the low, low end, the 18 to 20/21 foot is particular impacted for us.

Got it. And last question about the boat season. You say a portion of it is over. Given that Miami is still to go, the shows that are left would it be fair to say they are more concentrated on housing affected markets in aggregate? Do you understand my question?

No I don't think so. I think there is a pretty good range of the shows left. There are a couple left in Texas. The LA show is left to go. So --

So it is well mixed, so your pessimism when you say that based on the first half you are expecting a tough year, it is not because you are going to be [overweighted] in California and Florida in the shows there still to go. It is a good mix.

I think it is a good mix.

Okay, thank you very much.

Thanks.

To answer the question that Joe had earlier, our warranty expense is down 60 basis points as a percentage of net sales year over year.

(Operator Instructions). And you next question comes from the line of John Vota with Blackbird Capital Group.

Good morning.

Good morning, John.

On the geographical side I know that the Minneapolis Boat Show starts today. How important is that particular market to you guys?

Not very. Ever y market is valuable to us but the upper Midwest has not historically been particularly strong for us.

That's because that is sort of the home or fiber glass boating, so there is a lot of sort of entrenched brands up in that area. So that is probably the weakest relative area for us here in the US.

And one more question. Given that you mentioned you are about halfway through the Boat Show season do you have at this point enough information to give us an indication of what the first quarter might look like in terms of unit sales year over year from last year?

We don't really give specific guidance but what we are seeing and what we are trying to convey in our comments is there is a lot of uncertainty right now. Our backlog -- we only build, we schedule production and build boats only based on firm orders that we have in hand from our dealers. The good news for us is our dealer inventory is down year over year, so that is fantastic. So we ourselves, in that respect, are in good shape. But even despite inventories being down, our dealers are being very cautious right now based on the boat show experience thus far. So they are not submitting as many orders as they did a year ago. So at this very point in time, so that is something we are trying to, and are watching very, very closely. So that is what will determine our production here over the next several weeks is based on those orders. And as of today it is down.

Thank you.

Absolutely.

Thanks.

At this time there are no further questions.

Okay, I would like to thank everybody for joining us this morning and everyone have a good day. Thanks.

This concludes today's conference call. You may now disconnect.