Marine Products Corp (MPX) 2008 Q4 法說會逐字稿

Good morning, and thank you for joining us for Marine Products Corporation's fourth-quarter 2008 conference call. Today's call will be hosted by Rick Hubbell, President and CEO, and Ben Palmer, Chief Financial Officer. Also present we have Jim Landers, Vice President of Corporate Finance.

At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to advise every one that this call is being recorded.

Jim, will you get us started by reading the forward-looking disclaimer?

Thank you, and good morning. Before we get started today, I need to remind everyone that we are going to be discussing some things today 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 this morning, our 2007 10-K and other SEC filings that outline those risks. All of these 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 e-mail one to you immediately.

We will make a few comments about the quarter and then we will be available for your questions. 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 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 a few of our operational highlights. First, net sales for the quarter decreased approximately 61% compared to the fourth quarter of last year. The decrease in net sales was due to a 63% decrease in the number of boats sold, partially offset by a 7% increase in the average selling price per boat. The increase in average selling price per boat was due to the sales of one new Chaparral Premiere 400, several larger Signature Cruisers and higher average selling prices of the Sunesta Wide Techs and Xtremes.

Our gross profit margin of 10.3% was lower than the 20.9% gross margin that we realized in the fourth quarter of '07. Ben will discuss the reasons for that in a few minutes.

Operating loss of a little less than $1.7 million (See Press Release) for the quarter compared to an operating income of a little less than $5 million in the prior year. And our diluted earnings per share decreased by $0.14 from $0.11 per share last year to a loss of $0.03 per share this year.

The pleasure boating industry's downturn continued, and in fact deepened during the fourth quarter of '08, making three full years of depressed conditions for our industry. Negative consumer sentiment increased during the quarter, as the problems in the financial system surfaced and the availability of credit for dealers and consumers became even tighter than it had been.

During the quarter, we implemented an attractive retail incentive program to help dealers sell inventory, and we reduced our production levels significantly. The lower unit production levels created manufacturing inefficiencies and caused us to realize an operating loss for the first time in our history.

Additionally, as you may have seen from our other press release this morning, yesterday, our Board of Directors reduced the quarterly cash dividend from $0.065 to $0.01 per share in order to support the operations and the long-term goals of the Company during the current industry operating difficulties and stagnant economy.

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

Thanks, Rick. For the quarter ending December 31, 2008 we generated net sales of $22.8 million, which is a 61.4% decrease compared to last year. There was a 63.3% decrease in the number of boats sold, partially offset by an increase in average selling price per boat. Although unit sales decreased across all product lines, interest in the new Premiere 400 Sport Yacht has been encouraging, and average sales price increases in the Cruiser and Sunesta product lines were positive.

Although our sales of smaller sport boats have declined due to increased competition from other manufacturers, especially in the 18- to 21-foot range, our market share has increased slightly in the larger sport boats.

Although international sales decreased by 34% in the fourth quarter of '08 compared to '07, the full year of '08 was still a 3.2% increase over '07. International sales were 34% of total net sales in '08 compared to 23% in 2007.

Gross margin as a percentage of net sales was 10.3% for the quarter compared to 20.9% last year. Our gross profit margin declined compared to the prior year due to cost inefficiencies resulting from the lower production volumes and higher retail incentives that we offered to assist dealers in selling field inventory.

In a discussion of gross margin profitability, I would like to point out that the prices of several of the commodities used in our manufacturing process are declining. Although this is favorable, it is certainly not enough to offset the lower production volumes and other issues affecting gross margin.

Selling, general and administrative expenses decreased 45.8% in the fourth quarter of '08 compared to '07 due to the variable nature of many of these expenses, including incentive compensation and warranty expense. Also, our salaries and product development expenses were lower due to cost control measures instituted during the past year.

Selling, general and administrative expenses in the fourth quarter include costs associated with repurchasing dealer inventory under Marine Products' agreements with third party floorplan lenders. As a percentage of net sales, SG&A were 17.6% of net sales in the fourth quarter of '08 compared to 12.5% last year.

Interest income in the fourth quarter decreased by 5.8% compared to the fourth quarter of last year. However, our cash and marketable securities balance increased from $48.1 million last year to $51.4 million this year due principally to carrying lower levels of inventory.

The effective income tax rate during the quarter was only 8.2% due to the relatively small pretax loss relative to our permanent items and credits. Diluted loss per share for the quarter was $0.03, a decrease of $0.14 compared to $0.11 diluted earnings per share in the prior year.

Now turning to the ballot sheet, we continue to maintain a very healthy and liquid balance sheet. Inventories were managed down by $10.7 million or 32.3% compared to the end of '07 due to a significant reduction in working capital requirements consistent with lower production volumes. As previously noted, the total of cash, marketable securities and long-term marketable securities at the end of '08 increased 6.6% to $51.4 million.

We are pleased to report that dealer inventories at year-end decreased by 19.4% compared to one year ago, which is further evidence of our ongoing efforts to work with our dealers to manage down our field inventories and facilitate the sales of our new products as demand warrants. However, our order backlog in early January indicates continued weak retail demand. The trend of backlog in units continues to decrease and is down significantly compared to one year ago. Therefore, our production levels are expected to remain low for some time.

And as Rick mentioned, we also announced in a press release today that our Board reduced the quarterly cash dividend from $0.065 to $0.01 per share. That is, again, to support our long-term goals during this very difficult operating environment.

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. With 2008 impacted by high fuel prices, a drought in the Southeast, economic uncertainty, residential mortgage problems and credit availability issues so prevalent in some of our major markets, many consumers were prevented from making discretionary purchases such as pleasure boats. The backlog information Ben just reviewed with you does not bode well for the near term either, and may warrant cutting production levels further if the upcoming boat shows do not indicate a more favorable trend.

Having said that, we are proud of our Chaparral 400 Premiere Sport Yacht, and the positive press and consumer interest it has provided. Ongoing product development remains important, as we continue to believe that innovation and customer focus creates advantages for us during a difficult time.

Additionally, although attendance has been off at recent larger boat expositions such as New York, San Diego and in other states, boats are still being sold at a better-than-expected rate considering the downturn in the industry.

Lastly, as previously mentioned, our Board's reduction in the quarterly cash dividend demonstrates management's commitment to the continued future success of Marine Products Corporation. Our fiscally conservative Board and management team will continue to make decisions so that we remain on financially firm footing in order to weather the current economic and industry trends and take advantage of opportunities that could present themselves in the future.

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) Joe Hovorka, Raymond James.

The higher retail incentives you cited on the cost of goods line, can you quantify how much that reduced gross margin by?

Do you have another question? I'll get back to you.

Yes, and then the other one was on the repurchase agreements in SG&A. I'm assuming that's from dealer bankruptcies. Can you confirm that? And then quantify either how much inventory was repurchased or how much the impact to SG&A, how many dealers you lost, all of those things, if you could.

Okay. You are right about the dealer repurchases. As you know, we are notified by the floorplan lenders, and they tell us about repurchases that are coming their way due to dealer insolvencies. So that is right.

We may not have the numbers that you are asking about right at our fingertips at the moment.

It was probably 3 to 5 basis points on the margin line in the fourth quarter.

For the incentives, or --?

For the incentives. On the repurchase and SG&A, it is a little over $0.5 million, was the cost that we incurred because of the repurchases.

Okay. Is that the total cost of the inventory or that is just the --?

That's the [T&L] impact. That is the SG&A impact.

Okay.

And we have not actually received those boats. A lot of that is in anticipation of that happening.

That's correct.

Okay, and do you know what your liability is at the end of the year under each purchase agreement?

At year-end, that is -- well, it gets a little bit complicated -- but unsatisfied or "uncommitted" is just under $3 million additional.

Okay. And what was that last year, at the end of last year? Do you have that in front of you? If not, I could just pull it out of the K.

I don't have it in front of me, but it was probably 4 to 5, maybe.

Okay. And then just last question. The comments regarding the availability of floorplan for your dealers, can you give more color on that? Has one of your major lenders pulled out? How are people finding liquidity?

Well, it is a very difficult environment, Joe. You probably saw that Textron announced that they are getting out of the business. I don't know exactly what they are going to do or the speed with which they will do it, but they have announced that they are getting out.

GE is clearly the big, dominant player in the industry. So they are clearly working through their problems. And so it is quite difficult. And GE is reluctant, obviously, to open up their coffers for a lot more loans at this point in time. And I'm not sure anybody believes that we need to be putting a lot more boats out into field inventory anyway. But they are certainly trying to work through their difficulties.

And we just hope to use our very strong balance sheet to our advantage over the coming quarters. And we hope there will be a lot of -- there will be some opportunities that come out of this.

Right.

And we are still getting credit approvals right now. I mean, the production we have is we are building to order rather than for stock.

Right.

Clearly at reduced levels, but yes. It's not completely dried up, but it is certainly difficult.

Great. Thanks, guys.

(Operator Instructions). Jim?

Yes, ma'am. Yes, Dorothy. No more questions?

We do have other questions. One moment, please. Kurt Frederick, Wedbush Morgan Securities.

I just had one question on -- talk about the -- you had dealer incentives in Q4. I was wondering if those were replaced then in Q1 with this retail promotion or if that was ongoing.

The Q4 cost that I referred to relates to the winter boat show promotion. So that is recognized in the cost associated with that program that actually began January 1.

Okay. All right. That's all I had. Thank you.

[Adam Huff], Holden Asset Management.

I was curious if you have a feel for the level of inventory at the dealer level.

We do. As we indicated, it is down about 19% from last year. For us, it is about 2500 units.

Okay. And then on the takeback of boats from dealers, you said it was about a $500,000 gross margin hit.

SG&A, yes.

So would that -- can we imply then it was about $5 million worth at retail?

No. The amount of repurchases that were "recognized" were about $4 million.

Okay, great. Thank you.

At this time, there are no further questions. We will now turn the call back over to Mr. Jim Landers.

Well, we appreciate everyone calling to listen to our call this morning. We also appreciate the questions. And we appreciate everyone's continued interest in the Company during what has turned out to be a protracted downturn.

I guess the final comment is that we are in the business for the long haul, which you can look at our balance sheet and see that we have the ability to stay in the business. We certainly aren't happy with the environment right now, but we know that when it comes back, we will be well-positioned to take advantage of it. Anything else from anybody else? Thanks, everyone. Have a good day.

Thank you. This concludes today's conference call. You may all disconnect.