Marine Products Corp (MPX) 2009 Q4 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation fourth-quarter and year-end 2009 conference call. Today's call will be hosted by Rick Hubbell, President and CEO, and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (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 disclaimer.

Thank you and good morning. Before we get started today, I would like 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 issued today, the 2008 10-K, and 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 and would like one, please call us at 404-321-7910 and we can fax or email one to you immediately.

This morning we are going to 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 2009 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.

Net sales for the quarter were 42% lower than the fourth quarter of last year due to a large decrease in the number of boats sold to our dealers, as well as a decrease in the average selling price per boat. Although we increased production levels slightly compared to the third quarter, we continued to operate at very low production levels, consistent with our strategy to reduce field inventories.

The decrease in average selling prices was due to an unfavorable model mix that favored smaller boats. Gross profit for the quarter was 7% of net sales compared to 10% of net sales in the fourth quarter of 2008. Gross profit was lower because of production inefficiencies resulting from our very low production levels coupled with the unfavorable model mix.

Operating loss for the quarter was $4.8 million compared to an operating loss of $1.8 million in the fourth quarter of last year. As in the prior quarter, our results were impacted by costs to support our dealers in an effort to complete the liquidation of the remaining inventory related to prior model years within the next few quarters. We believe this is a necessary response to aggressive incentive programs announced by our competition.

In spite of the fact that we believe we have seen the bottom of this recreational boating cycle, this quarter's financial results reflect the weakness in the retail selling environment as well as our commitment to assisting our dealers as they prepare for the retail demand for the updated current year models.

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

Thanks, Rick. For the quarter ending December 31, we reported a net loss of $2.8 m compared to a net loss of $1.1 million last year. Our loss per share for the quarter was $0.08 compared to a loss per share of $0.03 in 2008.

Our unit sales declined by 37.8% compared to last year. Each of our model lines experienced unit decline. Average selling prices decreased by 5.8% compared to the prior year. This was due to a mix of smaller boats partially offset by higher sales of our award-winning Premier Sports Yachts compared to the prior year.

During the fourth quarter, we increased production in response to increased dealer demand for new models. But we will remain focused on our strategy of producing at levels to continue progress toward achieving appropriate dealer inventory levels.

International sales comprised 21.4% consolidated net sales in the fourth quarter of this year, a decrease compared to 34.7% one year ago. For the 12 months ended December 31, 2009, international sales were 26.4% of consolidated net sales compared to 33.4% in 2008. Gross margin was 7% of net sales for the quarter compared to 10.3% last year. Gross margin declined primarily because of the inefficiencies resulting from lower production volumes and model mix.

It continues to be a challenge to absorb direct costs effectively at these low production levels but we will manage our costs closely as production levels increase and expect to achieve continued gross margin improvements.

Selling, general, administrative expenses increased by 36.1% in the fourth quarter compared to the prior year. This increase of $1.5 million was due to recording $2.5 million in incentive costs that we expect to incur to complete the noncurrent inventory liquidation efforts. Without these costs, SG&A would have declined by 24% compared to the prior year. That's because much of our SG&A varies with sales and profitability.

For the 12 months ended December 31, 2009, Marine Products recorded a total of $8.5 million in actual and estimated future incentive costs related to the liquidation of noncurrent field inventory. At this time, we do not believe there will be any additional impact on our financial results related to financial support of our dealer network to liquidate existing noncurrent models in field inventory.

Interest income in the fourth quarter was $406,000 or 32.9% lower than the fourth quarter of '08. That is primarily due to lower marketable securities balance. Our cash and marketable securities balance in the aggregate was $42 million at the end of the fourth quarter compared to $51.4 million at the end of the fourth quarter last year.

Turning to the balance sheet, we still maintain a healthy and liquid balance sheet which presents opportunities unavailable to most other manufacturers. Inventories decreased by $3 million compared to the fourth quarter of '08 consistent with lower production volumes.

Accounts receivable decreased more significantly by $4.3 million which reflects not only lower sales but also a favorable outcome with the dealer floorplan lenders one year ago. Our efforts to reduce field inventories have been successful and at the end of '09, our field inventories were over 60% lower than at this time last year.

The combination of low production levels and the various forms of financial assistance to our dealers have reduced our field inventories to the lowest level in many years. We are now able to increase our production to be much closer to expected retail demand compared to the last several quarters.

Our unit backlog at year-end is much higher than one year ago and has allowed us to confidently increase production. The increase in backlog is in large part due to our fresh model lineup including three new models introduced for 2010. Our continued investment in new model development throughout this downcycle will benefit our Company and our dealers as we compete aggressively for market share.

With that, I will turn it back over to Rick for a summary.

Ben, thank you. 2009 was the most difficult year in Marine Products Corporation's history. We made the strategic decision early to support our dealers, which negatively impacted our own short-term profitability during a time when retail sales were low and floorplan financing was not readily available. In light of recent improvements, we increased production in the fourth quarter of 2009 and intend to continue doing so in the first quarter of 2010 as dealer inventories are low and our dealers will need new 2010 products to meet demand.

There are many signs that this industry cycle has finally bottomed and early indications from the winter boat shows are that attendance and sales at the shows are higher than last year. We take comfort from the fact that we are among the best capitalized boat manufacturers in the business. We have a lot of appeal for our customers and dealers who are interested in a Company with the stamina to continue in the marketplace in spite of the industry's problems.

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

(Operator Instructions) Kurt Frederick, Wedbush Securities.

Good morning, guys. I just wanted to get a clarification on the SG&A line. You talked about the incentive costs over -- recorded in Q4. So that covers I guess the Q1 -- like the promotions going on now?

It covers the Q1 promotion, yes, but since -- in response to some programs that some of our competitors have come out with and because we can now see the end of the noncurrent inventories, it's down to a level now where it's a little more in sight and I think it's going to benefit everyone and we can make sure that all of that is effectively cleared out.

We went ahead and set aside what we believe is enough that will allow that to be liquidated in a timely fashion. It will take longer than the first quarter, but we feel that we now recognize the full cost to get that completely accomplished.

Okay. So I think the promotion now runs through the end of February, but if it goes beyond that, that would still be included in the $2.5 million?

That is included in that estimated cost, yes, to go beyond even February as needed and we do expect there will be some requirement past February.

Okay, I was just wondering about dealer base. I was wondering just update on any progress you made on like adding new dealers.

Kurt, it's Jim. We did add some dealers this year, let's call it between 10 and 20, and those were typically dealers who were strong in the market and were carrying the product of another manufacturer who either ceased production or went out of business. So we lost some dealers too but we added some -- and again, call it between 10 and 20 folks who have come to us to sell our products in their market.

I think that's -- this is Ben. That is a very positive development now. It's hard to quantify of course what the positive benefits are in the short-term of that. We clearly believe in the long-term that has upgraded our overall dealer network. But it will only come when we get back to normal -- quote unquote normal retail levels but we do believe it will greatly assist us in the future.

So was it a net positive for the year then?

For the long -- net positive, I think it was a net positive for the long-term. I think the ones we lost for the most part number wise were the weaker dealers. I think the ones we picked up are very, very strong. They have been historically very strong dealers for other manufacturers.

Okay, then just one on the financing that you announced last quarter for the dealers, I was wondering what -- how that's progressing as far as the dealers getting signed up for that and then any feedback you got from it.

The floorplan financing is much more available now. Clearly GE remains the biggest player. They are again back in the market. They clearly are -- they are being -- we believe, I am sure they believe they are being cautious and appropriate but clearly there is much more availability and that's illustrated by the fact that as we have discussed here this morning in our press release, we have increased our production. And we would only be doing that if the floorplan financing had been approved in advance for those dealers. So we are pleased about that.

We can't say that every one of our dealers at this point in time have floorplan availability, but they are all working toward that and -- but I would say that at this point, a majority of our dealers do have floorplan financing available and have placed orders.

That sounds good. Thank you.

(Operator Instructions) It looks like we have no further questions at this time. I will now turn the call back over to Jim Landers for any additional comments or closing statements.

Okay, Kurt. Thanks for the question and thanks to everybody else who listened in. We appreciate that and everyone, have a good day. Thanks.

Thank you. That does conclude today's conference. If you would like to listen to a replay of today's conference call, please visit the Marine Products Corporation's website for further information. We thank you for participating and have a great day.