Marine Products Corp (MPX) 2008 Q1 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation First Quarter 2008 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.

(OPERTOR INSTRUCTIONS). I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Thank you, Operator, and good morning.

Before we get started today, I need to remind everyone that we are going to be discussing things 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, which was issued this morning, our 2007 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.

This morning, we're going to make a few comments about the quarter, and then we will be available for your questions this morning. And at this time, I will turn the call over to our President and CEO, Rick Hubbell.

Jim, thank you, and good morning to everybody. We issued our earnings press release for the first quarter of 2008 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 slightly less than 1% compared to the first quarter of last year. This was due to a 9% increase in our average selling price per boat, almost completely offset by an 8.7% decline in the number of boats sold. The new Chaparral Sunesta Wide Techs and Xtremes were responsible for the sales price increase, and they all stay at strong unit sales. Overall, unit volume was down because of the weak selling environment.

Our gross profit margin of 20.5% was lower than the 21.5% gross margin that we realized in the first quarter of 2007. Ben will discuss the reasons for that in a few minutes.

Operating income decreased by 5.7%, and pre-tax income decreased as well. However, net income increased by 5.5%, and our diluted earnings per share increased by $0.01, or 10%. These increases were due to a lower effective tax rate during the quarter.

The winter Boat Show season was weak in many of our markets, and we have prepared for a weak spring and summer retail selling season through both cost reductions and a new retail incentive program.

With that overview I will turn it over to our CFO, Ben Palmer.

Thanks, Rick. For the quarter ending March 31, we generated net sales of $65.5 million; that's a 0.9% increase compared to last year. Our average selling price per boat increased by 9%, which was offset by an 8.7% decrease in the number of boats sold.

Unit sales increased among our new Sunesta products, as Rick mentioned, as well as in our Robalo sport fishing boats. Sales of our Chaparral sport boats were off significantly, though, which caused an overall unit sales decline. Average selling prices were flat or slightly down in all product lines except Sunesta, again as Rick noted earlier.

Sales of smaller sport boats have declined due to industry-wide weakness in smaller boats, increased competition from other manufacturers in this category, and our dealers shifting their purchases toward the highly successful new Sunestas.

Because of continued weakness in the US dollar, international sales comprised 32% of net sales in the first quarter of '08 compared to 25% of total sales in the first quarter of '07.

Gross margin as a percentage of net sales was 20.5% for the quarter compared to 21.5% last year. We implemented a number of cost-reduction efforts in the first quarter, some of which increased our profitability as we reset our cost base for lower production levels, and we benefited from selling more of the larger models, which tend to carry higher profit margins. However, these benefits were more than offset by the cost of our new retail incentive programs for the spring retail selling season, which is designed to reduce our current field inventory and generate additional sales for the upcoming model year.

Selling, General, and Administrative expenses decreased by 2.2% in the first quarter of '08 compared to the prior year, and as a percentage of net sales decreased slightly as well. This decrease was due to the variable nature of many of these expenses, including incentive compensation, which varies with sales and profitability.

Our interest income was 22.5% lower in the first quarter of this year compared to the prior year. This was due to a lower cash and marketable securities balance, together with lower overall market interest rates, and the fact that our investments are now in liquid tax-exempt securities, which carry a lower nominal yield. Although we believe that the taxable equivalent yield, given our tax status, is higher than on taxable securities of comparable credit quality and maturity.

Our effective income tax rate during the quarter was 28.4%, which was much lower than the 37.3% effective tax rate during the first quarter of '07. As I mentioned, when discussing interest income, our investments are now tax-exempt marketable securities, and this difference in tax treatment accounted for much of the change in our effective tax rate. So the effective tax rate going forward will depend upon the relationship of our tax exempt interest income to our operating income.

Diluted earnings per share for the quarter were $0.11, a 10% increase compared to $0.10 diluted earnings per share in the prior year. Our diluted earnings per share increased due to higher net income, which was due to our lower effective tax rate, as I discussed above. We had a lower average share count resulting from the open market repurchases we made over the past 12 months, but this did not have a material impact on diluted EPS during the current quarter.

Turning to the balance sheet, we still maintain a healthy and liquid balance sheet. Inventories increased by $1.0 million compared to first quarter of last year, but it decreased by about $800,000 compared to 12/31/07.

Our total of cash, short-term marketable securities, and long-term marketable securities at the end of the first quarter was $57.1 million compared to $60.3 million at this time last year. While our operations generate cash with minimal requirements for working capital or capital expenditures, we have repurchased a great deal of common shares in the open market over the past 12 months, as well as increased our dividends.

We are pleased to report the dealer inventories in units are comparable to this time last year. And our order backlog is down significantly at this point, though, and we are monitoring this closely. We are adjusting production levels as needed in order to manage our dealers' field inventories, and we're working with our dealers to get through this very difficult environment.

Now with that, I will turn it back over to Rick.

Ben, thank you. We have finished the winter Boat Show season, and are entering the height of the retail selling season. Escalating fuel prices and the problems with housing continue to make daily headlines. This forces us to be pessimistic about this year's retail selling season, as the cost of fuel impacts consumer boating decisions. Furthermore, the problem with housing has impacted consumers' discretionary expenditures, and those problems are concentrated in important boating markets, such as California and Florida.

In response to this, we have implemented a new retail sales incentive program for the early spring selling season. Under this program, we are sharing with our dealers the cost of incentives to encourage retail sales of existing dealer inventory. We are offering this one-time program during a very limited timeframe in order to focus our dealers' attention on this opportunity, and to move older inventory out of the dealer network, thus enabling our dealers to place orders and take delivery of the new 2009 models, which we have been working on, and about which we are very excited.

Also, we will be introducing our 40-foot sport yacht to a number of dealers and targeted retail customers late in the second quarter, in time for our 2009 model year. We are excited about this new offering, and hope that it will not only generate high margin sales for us, but enhance customer loyalty and consumer appeal of our existing Chaparral products.

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

(OPERATOR INSTRUCTIONS).

Kurt Frederick.

Hey, good morning guys. Congrats on a good quarter.

Thanks.

Just a couple of quick questions. One was on just kind of like the order backlog and I think you said it was down significantly from what it was last year; is that correct?

That is correct.

Okay, so then on this incentive program, you talked about trying to get the dealer down; you said it's comparable -- the inventory now is comparable to last year. I was wondering what the kind of like optimal level is, and are you trying to bring it down farther than it currently is?

I'd say yes; what we're trying to do, we're in a critical time right now. The industry is weak, and spring and summer is obviously usually the peak retail selling season, and understandably our dealers are reluctant to take on, or place orders to bring into their inventory unless they're confident about retail sales, so we're just looking to try to do everything we can to get the inventory down and perhaps get dealers the comfort of being able to even order some '08 models here late in the year, but probably even more importantly is get them prepared for the '09 model year, because again, if they get through this selling season, and their inventories are not moving enough, then certainly, again understandably, there would be some reluctance to order much product in the fall and winter when retail sales are much lower.

So that's what we're trying to accomplish is we don't really have a target in mind per se, but just trying to get it, continue to get it headed in the right direction.

Okay, and one of the major boating retailers had indicated that they saw a big slowdown in March. I was wondering if you guys had seen something similar, or at least like a decline, I guess further decline in the industry in March.

Kurt, this is Jim; nothing in particular in March, remembering though that the retailers sell directly to the consumer, they might know -- they'd have a closer bead on what was happening with retail sales in a given month than we might, but nothing in particular in March.

Okay, and then, I finally was just going to ask you to comment on raw material prices, if you're seeing any sort of change or any type of increase.

In this particular quarter, not really; in fact, as we noted, we've had some cost reductions in place and model mix helped us and that sort of thing. Clearly though, as I know you know, Kurt, and most others know, there's -- hydrocarbons go into our boat a lot, in the resins, in the foam, and a few other things. So with the price of oil going up, continuing to go up, you could certainly anticipate that going forward.

Okay, that's all I had; thanks a lot.

All right, thanks Kurt.

Joe Hovorka.

Thanks guys; I have just one question. Do you see any changes in the availability of credit to your-- to retail customers going into your dealers, whether it's tightening, loosening, any change?

Floor plan financing?

No, actually the guys coming in buying the boats as a consumer directly from your dealers. I know you don't play in that, but just if you hear anything anecdotally changing from your dealers.

I don't know that we-- I personally haven't heard anything directly I guess. Certainly, home values and there's been evidence or suspect that consumers were using their home equity lines to buy boats and other things, and that certainly would tighten things up a bit. But I have not heard of any particular problems with consumers being able to get consumer loans for things such as boats.

Okay, and the retail incentives that you're referencing impacting your gross margins, is that, was it in the form of rebates, was it a form of financing incentives, was it a combination of those?

Well, it's more of a rebate at the retail level rather than any financing support at the retail level. We have financing support on the floor plan side, but not on the retail. So these are, for the most part, cash rebates.

Cash rebates, okay; great thanks guys.

Joe thank you.

(OPERATOR INSTRUCTIONS).

At this time, there are no further questions.

Okay, we appreciate everybody calling in this morning, and have a good day. Thanks a lot.

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