Marine Products Corp (MPX) 2010 Q1 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation first quarter 2010 earnings 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 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 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 issued today, the 2009 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 email or fax 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 first quarter of 2010 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 were 85% higher than the first quarter of last year, in response to the increased dealer demand; we sold 74% more units to dealers compared to the first quarter of last year. Unit sales increased across all product lines. This increase was partially offset by a 3% decrease in the average selling price per boat. The decrease in average selling prices was due to a change in model mix to smaller boats in our Sunesta and Signature Cruiser line. Also contributing to the year-over-year increase in net sales was lower retail incentive cost reported in 2010 compare to 2009.

Gross profit for the quarter was $3.4 million or 14.1% of net sales compared to a gross loss in the first quarter of 2009. The increase in gross profit was due to higher sales supported by higher production levels resulting in production efficiencies, coupled with lower retail incentive costs.

Operating loss for the quarter was $403,000 compared to an operating loss of $4.8 million in the first quarter of last year. In addition to the improved gross margin, the decrease in SG&A expenses contributed to significantly lower operating loss. In the first quarter of 2010 we benefited from a relatively stronger winter boat show and retail selling season, as well as dealer inventories that were much leaner than last year. With that overview I will turn it over to our CFO, Ben Palmer.

Thanks, Rick. For the quarter ending March 31, 2010 we reported a net loss of $80,000 which is basically breakeven, compared to a net loss of $2.5 million last year. Our loss per share for the quarter, again was breakeven, compared to a loss per share of $0.07 in 2009.

Our unit sales to dealers increased by 73.9% compared to last year. Production and sales in all of our model lines increased, but the increases were especially focused within our Sunesta and SSX product line. Dealer demand increased but was skewed towards smaller boats, which also caused average selling prices to decline by 2.9% compared to the prior year. We increased production in the first quarter to support a much improved dealer order flow resulting from the strong winter boat show and the early retail selling season. Much of these orders were for presold boats.

International sales comprised 25.1% of consolidated net sales in the first quarter of 2010, which is a decrease compared to 35.1% one year ago. International sales increased by 32.1% during the quarter compared to the prior year, but decreased as a percentage of consolidated net sales due to the much higher growth rate in our domestic business.

Gross margin was 14.1% of net sales for the quarter compared to a gross loss last year. We recorded gross profit this quarter due to higher sales coupled with increased efficiencies that resulted from higher production and the lower retail incentives. While we were pleased to report a gross profit, profitability is still low relative to our historical results, but will improve as we return to a more normalized level of production. Our gross margin should improve in the second quarter as the benefit of improved manufacturing efficiencies positively impact the full quarter.

Selling, general and administrative expenses decreased by 7.1% in the first quarter of 2010 compared to the prior year and were 15.7% of consolidated net sales. This decrease was due to the positive impact of cost reduction measures we implemented in 2009.

Interest income in the first quarter was $308,000 or 32.3% lower than the first quarter of 2009, due primarily to a lower marketable securities balance. Our cash and marketable securities balance was $43.9 million at the end of the first quarter compared to $55.5 million at the end of the first quarter last year. We recognized a minimal income tax benefit during the quarter because of our pretax loss.

Turning to the balance sheet, we still maintain a healthy and liquid balance sheet. As I mentioned above, we still have a strong cash and marketable securities balance. Inventories increased by $4 million compared to last year and accounts receivable increased by $800,000. Both of these working capital increases are consistent with much higher production and sales in the first quarter of 2010 compared to last year.

Our long-running efforts to reduce field inventories continued to be successful. At the end of the first quarter our field inventories were approximately 45% lower than at this time last year. I'm pleased to state that over half of our dealer inventories are current model year inventory. As discussed earlier and as you can see from our first quarter results, we have now increased our production to a level that is much closer to expected retail demand this year.

Consistent with lean inventories and higher demand, our order backlog is significantly higher than at this time last year. Backlog has returned to a more normal level for us and therefore, schedule higher production using a favorable mix of boats for improved manufacturing efficiency and profitability. With that, I'll turn it back over to Rick for a summary.

Thanks Ben. With 2009 behind us, we are pleased to report growing strength in several important areas. Our existing dealer network is strong and we are happy that we have added new dealers to our network. These dealers have joined us because they know we are a strong, stable company which manufactures high quality products and provides excellent customer service. We believe that our production levels have stabilized for the near term, supported by a renewed order backlog and we look forward to increasing our efficiencies and returning to profitability.

As a testimony to our dedication to our business, we received two additional product awards during the first quarter. One of these awards was for our 310 Signature, which was named one of Boating magazine's 10 Best Boats for 2010. We also won Trailer Boat magazine's Excellence in Design award for the 204 Xtreme. We believe that our actions as a company during the recent difficult economic environment demonstrate the dedication to our business and our ability to perform well for our dealers, retail customers and shareholders. As we emerge from this difficult time in our industry, we believe that we are positioned to continue to gain market share and create shareholder value.

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) Our first question is from Kurt Frederick with Wedbush Securities.

Just a couple of quick questions. One is on the production levels; I was wondering if you're planning to increase production going forward or if you're at a level you're happy with now?

At the moment, Kurt, it's probably going to remain pretty steady. We may be very well subject to our normal seasonal variations kind of third quarter, fourth quarter, but we're reasonably comfortable where we are right now.

Okay. Then on raw material prices; are you seeing much fluctuation there?

Yes, we're starting to see some increases. Copper has been kind of the bellwether of this economic period and copper is starting to go up. Resins have started to go up a little bit due to the fact that it's a hydrocarbon feedstock.

Your next question is from Hayley Wolff of Rochdale Securities.

Just a couple of questions. First, can you give us any color by the different geographic regions where you're seeing strength or you're seeing relative weakness?

The Northeast I think has responded well, the Midwest, Mid-Continent has increased. The two problem areas for us are the Southeast, particularly Florida and west of Denver and particularly California, so we're still struggling in those two areas.

And what regions have you seen the best market penetration for you guys in terms of taking on new dealerships?

I'd say the Midwest. That's historically been kind of the "weaker" area for us; that's where we had the most opportunity and that's where we were able to - we really had some nice adds there.

Great. And switching over to gross margin, first, what's your sense of the overall marine market for 2010 and then what does it take for you to get back to somewhere near historical gross margin?

Well, for overall 2010 in the market, the overall market I think continues to struggle a bit. High dealer inventory levels will continue to be something that the entire industry has to struggle with. It certainly is a headwind for us but we're very, very pleased with how lean our inventories are. Our dealers are well positioned and strong and we're there to pick up a larger share of new boats, because that's what we're producing right now.

Getting back up to historical, of course our margins have varied over time; they've been in the mid to upper 20s at times; it will take a while to get back to there. We're also having at this point in time the smaller boats are more popular. I think as things continue to improve - we've had some of our larger new models we've had a lot of success, so we continue to have some new models that are on the larger side, so we think with the demand for the new models and the larger size, we think it will continue to improve, but it will take some time for it to get back to certainly those really lofty levels.

But what we expect to see in the second quarter is improvement, even all things being equal, in the second quarter compared to the first, due to the fact that we were much more efficient in manufacturing during the first quarter. And so what we sell in the second quarter is going to be that product that was produced more efficiently and we'll produce efficiently in the second quarter as well. We will see some improvement.

And I think an encouraging sign is a lot of the boats we produced in the first quarter were sold boats at the retail level, so it's not adding to our field inventory at all.

And the general environment in terms of discounting; are you getting full price realization or close to it?

I think certainly better than we were a year ago this time. I wouldn't say it's back to the levels of several years ago, but certainly better.

That's still a headwind; everybody's enjoyed being able to talk about getting a good deal on a boat and getting additional help and incentives, so that's a struggle not only for the boat industry, I think that's a struggle for all retail. That will be something we'll have to overcome and as Rick said, it is significantly better than a year ago, but still there. But again, we feel good about our product and our product lineup and if somebody wants a new boat, a new model with the latest features and benefits, we've got them.

And retail credit and wholesale credit continue to be an issue; certainly better than a year ago, but not like it was two or three years ago.

Okay thanks guys. It must be a lot nicer to be looking at the other side of this.

Yes, most definitely Hayley.

Your next question is from Robert Henderson with Rutabaga Capital Management.

You've indicated in your comments that retail sales were up, obviously wholesale sales were, but retail sales as well. How do you know that they were up? Do you have the deep level of detail with your dealers that they tell you that basically for the first quarter year-over-year that they were up?

Yes, we can track that. We track through both what's at the dealers and what we ship and there is a sharing of information and with these retail sales programs there's a lot of sharing of information as well. Yes, we can track that pretty closely.

And when a boat is sold at retail they have to activate the warranty, so we of course know when that's done.

Okay. Can you tell us how much they were up at retail or not?

We're looking; we may not have that right in front of us. We kind of have to look at dealer inventory and so forth and see how that changed.

We know that field inventory is down year-over-year so retail sales are higher than our actual sales. Now obviously there's a time difference in when we ship the boat and when it may be actually delivered to the retail customer but as we said, most of them are presold and it depends on how you measure the timing, but retail sales are up more than what our unit sales are.

Okay. And if you look at what Marine Max announced this morning, I think they announced that their sales were down in the first quarter, so as far as you know for the industry, do you think industry boat sales were up year-over-year in the first quarter?

We don't know. Retail sales based on a couple of reports that came out recently were - we don't know yet, but flat, maybe a little bit down.

Okay. And just one last thing; can you give us any further details - so obviously then you're gaining retail market share, even with all those distressed boats out there for sale, it seems like you gained share against them, so can you give us anymore details on the share that you gained in the first quarter and why you gained it?

We don't have good market share numbers for first quarter yet. As you probably know, those data are reported maybe two months or three months afterwards, so we don't know first quarter yet.

I think maybe one thing to think about with retail sales year-over-year, at this time last year certainly things were very rough, but people were very focused on doing whatever they had to do to get boats out of inventory so I think there was significant discounting. As we said, we had a lot of incentive costs a year ago; dealers were heavily, heavily discounting.

So as things maybe are moving back in the direction where there's a little less pressure on those discounting, then maybe that's also creating - would have supported higher sales a year ago compared to today. So I'm not particularly overly concerned about the fact that it may be flat or slightly down compared to a year ago. And I think our benefit and our position is that we have a lot of new products available, so if people want new boats, we have them.

(Operator instructions) There are no further questions at this time. I'll turn the call back over to you, Mr. Landers.

Thank you Beth. Thanks everybody for calling in and for your questions and hope you have a good day. Thanks.

That does conclude our conference for today. Thank you for your participation.