Marine Products Corp (MPX) 2010 Q2 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation's second-quarter 2010 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. Instructions will be provided at that time for you to queue up for questions.

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

Good morning. Before we get started today, I would like to remind everyone that we are going to be discussing some things that are not historical facts. Some of the statements that we 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 10K and other SEC filings that outline this risk, 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'll fax or e-mail one to you immediately. We are going to make a few comments about the quarter and then we'll 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 second 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 prefer discuss our operational highlights. Net sales for the quarter were substantially higher than the second quarter of last year. As a result of dealer demand for new models, we sold significantly more units during the second quarter compared to last year. Unit sales increased significantly across all product lines and we recorded significantly lower retail incentive costs this year.

The positive impact of the increase in volume was partially offset by a 14% decrease in average selling price per boat. The decrease in average selling price was due to a change in model mix in our Sunesta and Signature Cruisers Lines, as well as the lower quantity of Premiere Yachts sold during the current quarter.

Gross products -- Gross profit for the quarter was $6.6 million or 21% of net sales compared to a gross loss in the second quarter of 2009. The increase in gross profit was due to higher sales supported by higher production levels, resulting in production efficiencies coupled with much lower retail incentive costs. Operating income for the quarter was $2.5 million, compared to operating loss of $6.3 million in the second quarter of last year. We recorded higher gross profit partially offset by higher SG&A expenses, compared to the second quarter of 2009.

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

Thanks, Rick. For the quarter ending June 30, we reported net income of $2.5 million compared to a net loss of $3.8 million last year. Our diluted earnings per share for the quarter were $0.07, compared to a loss per share of $0.11 in 2009.

Our unit sales to dealers more than tripled compared to last year. Production and sales and all of our product lines increased, but the increases were especially focused within our Sunesta line.

Dealer demand increased but was skewed towards smaller boats which also caused average gross selling prices to decrease by 14.3%, compared to the prior year. As Rick mentioned, our decline in average selling price was also due to fewer unit sales of our Premiere Sport Yachts.

We increased production in the second quarter to support our much-improved dealer order flow resulting from retail customer interest in our newer models and a much leaner dealer inventory. Many of these orders were for presold boats because our dealers remain focused, as we do, on managing their inventory levels.

Gross margin was 20.8% of net sales for the quarter, compared to a gross loss last year. We recorded a gross profit this quarter due to higher sales, coupled with increased efficiencies that resulted from higher production and lower retail incentives compared to the prior year. In the second quarter of 2009, we included a recognition of approximately $4.4 million of estimated incentive costs related to boats sold in prior periods.

Selling, general, and administrative expenses increased by 74% in the second quarter of 2010, compared to the prior year. This increase resulted from increases in expenses that vary with sales and profitability. These expenses decreased as a percentage of net sales from 28.6% in '09 to 12.8% in 2010, due to leverage of fixed expenses over higher sales.

Interest income in the second quarter was $290,000 or 24.1% lower than the second quarter of '09, due to a lower marketable securities balance and lower market returns from the short-term investment grade debt markets in which we invest our excess cash. Our cash and marketable securities balance was $50 million at the end of the second quarter, compared to $55.7 million at the end of the second quarter last year.

Turning to the balance sheet, we still maintain a healthy and liquid balance sheet. As I mentioned above, we have a strong cash [and] marketable securities balance. Inventories increased by $13.3 million compared to last year and accounts receivables increased by $1 million. Both of these working capital increases are consistent with much higher production and sales to dealers in the second quarter of 2010, compared to last year.

Our strong balance sheet has allowed us to continue our strategic investments in new product development. We are introducing several new models at our upcoming dealer meeting.

Our long-standing efforts to reduce field inventories continue to be successful. At the end of the second quarter of 2010, our field inventories were approximately 18.5% lower than at this time last year. Consistent with leaner, dealer inventories and improved demand, our order backlog is higher than at this time last year. But we are beginning the third quarter which is typically the quarter with the lowest production and sales to dealers corresponding with the calendar quarter that has the lowest levels of retail sales.

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

Thanks, Ben. Our 2011 model year started last month and we will soon hold our annual dealer conference. We believe that our dealers will respond positively to our new models for 2011.

We are pleased about many aspects of our results for the second quarter. Our efforts to reduce dealer inventories have been successful which improve our -- which improves our dealers' financial condition and allows them to accept shipments of new products when the retail selling environment permit. It is particularly important to maintain appropriate dealer inventories right now because the retail selling environment for our products remains weak.

Last year, the industry provided significant incentives to encourage retail sales. We agree with most industry estimates stating that retail boat sales will decline by 10 to 20% in 2010 compared to 2009. This decline will be exacerbated to some extent by weakness in the Gulf Coast markets caused by the decline in tourism from the oil spill that occurred in April.

Given these negative developments at the present time, we plan to reduce production during the third quarter in order to manage our dealers' inventories as effectively as possible.

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). It appears we have no questions at this time. (Operator Instructions). David [Guttag] with [Healthcore].

Congratulations on the quarter. I was wondering if you could talk a little bit about trends you've seen in July, and if things have gotten kind of better or worse since the end of the quarter?

This is Jim Landers. It is a little bit of a difficult question. You know, we haven't closed July yet. The retail selling season typically really tails off after, say, July 4. So traditionally third quarter is fairly weak anyway.

I think probably a better way to answer that question will be after this quarter when we have had our dealer conference, which we will have in a few weeks and we will see what their orders are. So it is really hard to make any sort of statement about July.

Okay. And then the second question was, is there any way you can kind of quantify what you think dealer inventories are, relative to last year or kind of first quarter?

Is that an industrywide question or our -- a question about us?

Both. Whichever you feel more comfortable answering.

I'm afraid we don't -- we just don't know about industrywide, an industrywide answer. There are 5,000 boat dealers in the United States. So we don't really, really know.

Yes. We -- I indicated in my comments that our dealer inventory is down from last year 18.5%.

Okay. Perfect. Thank you.

Brandon Taylor with Raymond James.

Good morning, guys. In terms of the inventory, if you mind clarifying, is that units or is that dollars?

Units.

Units. Okay. And also, one questioned about the production cut. I am assuming that's sequentially. Or is that on a year-over-year basis?

Sequentially.

Year to year, it would be up. (multiple speakers).

Just wanted to make sure. And one final thing, about the tax rate in the quarter, I think it was like 12.7%.

Yes. That is kind of a tough one with all of our taxes [and ventures], for one. When earnings are relatively low relative to tax-exempt income and we also have a couple of other things going in there that are positive, permanent differences, the rate can get kind of kooky at these relatively low levels of profitability.

Okay. Great. Thank you, guys.

(Operator Instructions). Stephanie Haggerty with Register Financial.

Good morning. Numbers look a little better this quarter.

Yes, they do.

Do you see in this forecast of off 10 to 20% industrywide? I mean, do you -- at what kind of momentum or lack of momentum do you see as the year wears on, and what is your preliminary thinking on next year at this point?

[Take] my personal opinion. I think as long as everything continues to, I think, improve with the economy, as long as we don't have a step back, I think we will be in much better shape. I think we maybe, compared even to others because of where we are with our dealer inventory, I think we will have a nice move into next year.

I would characterize it as what -- where we are right now is things are clearly better as the results indicate. But there hasn't been enough momentum just to pull us all the way through the latter half of this year into next year. So I think a lot will depend, as Jim stated earlier, how our dealer meeting goes as the third quarter winds down. And our dealers begin to prepare for the winter boat shows and they look at their dealer inventory levels and then they start projecting into next year.

I think they will feel better about next year. But I think there's still a lot of wariness both on our part and our dealers' that they don't want to -- that they want to keep the lean inventories, and we are fine with that. We're okay with that.

But I don't see any reason to believe -- I don't see any reason to say that, you know, we shouldn't pick up again next year at this point. (multiple speakers) Early next year. Sorry. Go ahead.

How many new models did you introduce next year -- this year, and what are your plans for next year?

I don't remember on 2010. I think for 2011, there are five or six new models.

I think that's right, yes.

That's pretty typical.

We have not made dramatic changes in the level of investment in our product development, new product development. We continued that on through. We have been pretty consistent with that.

And [to] get back to those sales, retail sales last year, there was a lot of boats sold last year at retail because of the huge incentive incentives that we offered and some of the other manufacturers offered. So I think some of the demand was satisfied last year that may have spilled over to this year. So the industry, I think, presold some boats last year that may have been sold this year.

And I think that's what a little bit of what we are struggling with, and then just the general malaise in the economy.

The Gulf doesn't help, either.

That's exactly right.

No, because that is a big market for us. You're right.

Thank you. Good luck.

And we have no further questions in the queue. At this time, for closing remarks, I would like to turn the call over to Mr. Jim Landers.

Thank you, Regina. I appreciate everybody listening this morning and we enjoyed your questions. I hope everybody has a good day. Thanks.

Thank you. That does conclude today's conference. We thank you for your participation.