Marine Products Corp (MPX) 2010 Q3 法說會逐字稿

Good morning, and thank you for joining us for the Marine Products Corporation's Third 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.

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'd like to refer you to our press release issued today, the 2009 10-K and other SEC filings, all of which outline those risks. 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'll make a few comments about the quarter and then we'll be available for your questions.

Now, I'll turn the call over to our President and CEO, Rick Hubbell.

Jim, thank you. We issued our earnings press release for the third 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. Net sales for the quarter were substantially higher than the third quarter of last year. As a result of improved dealer inventories and demand for current-year models, we sold significantly more units during the third quarter compared to last year. Unit sales increased significantly across all product lines. And this year, we reported significantly lower retail incentive costs, as a percentage of sales. The positive impact of the increase in volume was partially offset by a 4.9% decrease in the average selling price per boat. The decrease in average selling price was due to a change in model mix in our SSi Wide Tech and Robalo product lines.

Gross profit for the quarter was $4.1 million or 17% of net sales, compared to a gross loss in the third quarter of 2009. The increase in gross profit was due to higher sales and the resulting production efficiencies coupled with much lower retail incentive costs, as a percentage of sales. Operating income for the quarter was $1.2 million, compared to an operating loss of $3.3 million in the third quarter of last year. We generated a gross profit partially offset by slightly higher SG&A expenses compared to the third quarter of 2009.

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

Thanks, Rick. For the quarter ending September 30, 2010, we reported net income of $1 million, compared to a net loss of $1.6 million last year. Our diluted earnings per share for the quarter were $0.03, compared to a loss of $0.04 in 2009. Our unit sales to dealers more than tripled compared to last year. Production and sales in all model lines increased. Dealer demand increased, but was skewed towards smaller boats, which also caused average gross selling prices to decrease by 4.9% compared to the prior year. We decreased production sequentially during the third quarter in order to further improve dealer inventories in the face of a continued uncertain selling environment.

Gross margin was 17% 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 significantly lower retail sales incentive costs, as a percentage of net sales compared to the prior year.

Selling, general and administrative expenses increased by 5.2% in the third 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 39.3% in 2009 to only 12.1% in 2010, due to leverage of fixed expenses over higher net sales.

Interest income for the third quarter was $278,000 or 33.8% lower than the third quarter of 2009. This was due to lower marketable securities balances and slightly lower returns from the short-term investment-grade debt markets in which we invest our excess cash.

Turning to the balance sheet, we still maintain a healthy and liquid balance sheet. Our cash and marketable securities balance at the end of the third quarter of 2010 was $55.9 million, which is a $7.4 million increase compared to the third quarter of 2009. While our inventories are higher, consistent with higher levels of production, our accounts receivable balance is lower due to a healthier dealer network and a more stable floor plan financing situation.

Good working capital management and positive cash flow from stronger operating activities have generated cash during the first three quarters of 2010. Our strong balance sheet has allowed us to continue our strategic investments in new product development. We introduced several new models at our recent dealer meeting.

Our dealer inventories at the end of the third quarter of 2010 are slightly higher than at the end of the third quarter of 2009. However, the percentage of non-current models is down significantly. Our dealer order backlog allows us to schedule reasonable levels of production to balance dealer demand or new models with current dealer inventory, including the older models.

And with that, I'll turn it back over to Rick for a quick summary.

Thanks, Ben. We held our annual dealer conference for Chaparral and Robalo during the third quarter and I'm pleased to tell you that attendance and the level of enthusiasm from our dealer network was better than 2009. Our dealers responded well to Leading By Design, our theme for the upcoming model year. Leading By Design emphasizes our financial strength, new product development, dealer support and satisfied customers as the pillars of our current and future success.

The orders that we received from this conference have allowed us to schedule manageable production for the fourth quarter, as Ben just mentioned. The winter boat show season will begin in a few months and as always, we will monitor indicators from the boat shows as the gauge for the upcoming retail selling season.

While we are always prepared to increase production to meet rising dealer demand, the lingering recession and weak real estate market force us to believe that the near-term outlook for the selling environment for our products will remain uncertain. This belief is supported by an announcement this week that retail sales in our category last month fell almost 28% compared to September 2009 when non-current models were being heavily discounted. We are encouraged by the dealer reception to two of our new models in the Signature Cruiser and Sunesta Wide Tech product lines. Both of these are larger boats and will generate higher average selling prices within each model line.

Also, published industry reports indicate that our market share is holding steady, if not increasing. And given the fact that we are selling more current model year boats, we believe that the retail consumer is responding very favorably to our new models.

I'd like to thank you for joining us this morning and we'd be happy to take any questions you may have.

(Operator Instructions) And we'll take our first question from David Guttag, HealthCor.

Hey, guys. Congratulations on the quarter.

Thank you.

Thank you.

I just had a couple of questions. So, one of the things I'm trying to get my hands around is, you mentioned benefiting in the quarter from lower dealer inventories and that's kind of consistent with what I've heard from a number of dealers this quarter. I was trying to figure out, can you guys quantify if you've benefited from any restocking in the quarter and if so, how much?

Probably for -- not to quantify specifically, but clearly our sales are up, sales to dealers are up, so clearly we've benefited from that. I think as we indicated, dealer inventories are higher than they were a year ago, but we think they're in a relatively given the environment healthy position, so we feel good about that. So clearly us working down the non-current models in the last 9 to 12 months has allowed us to be at the production levels where we are today. Clearly, we would love to be building more boats than we are, but as you can tell by the results, it's much better and clearly we're benefiting from the fact that it's, at least, at reasonable levels that allow us to, at least, break even and may be able to do a little bit better than that.

So it sounds like last year, you guys underproduced retail demand and this year it kind of swung the other way and you overproduced retail demand a little bit.

Well, some of our production so far this year has been for sold boats. And the balance of that production would be to replenish the dealer inventory. So certainly we didn't produce exactly what the retail demand was. So, the dealers are carrying an inventory.

And that's an historic norm and what we want to have happen, but we're comfortable -- we're very comfortable with where dealer inventories are today. And our dealers are being very, very cautious and we're fine with that. So I wouldn't tell you we've overbuilt. We'd certainly build ahead of what current retail demand sales are, but that's what's necessary to set up what we believe will be sale -- they need to have boats in inventory that they can sell during the winter boat show season and into the early retail selling season. So we're comfortable with the levels where they are now.

And certainly we didn't produce any boats, send any boats out that the dealers didn't have the credit approval for and we certainly didn't force dealers to take any more boats than they felt comfortable they could sell.

Right. So it sounds like a big part of this is that dealers are getting more comfortable with their credit lines and are able to get back to inventory levels they think are appropriate.

Yes. But they're still very cautious.

Yes, as we are. Yes.

So if I think about modeling next year then, next year it sounds like I should think about modeling your production sales in line with retail?

If you know what retail is, that might be a good assumption.

Yes. Yes, that works.

Yes, if you know exactly what retail is going to be, that's certainly not unreasonable.

Okay.

(multiple speakers) I'm not saying that we know exactly what retail is going to be.

If I knew, it would make this job an awful lot easier, ah?

That's right.

Exactly.

That's right.

All right. Thank you very much, guys.

Thank you.

Thank you.

Good luck this quarter.

Right. Thank you.

Thank you very much.

(Operator Instructions) Having no further questions in queue, I would now turn the call back over to Jim Landers for closing.

Well, thank you. We appreciate everyone calling in and participating today. Hope everybody has a good quarter and we'll talk to you next time. Thanks.

Today's conference call will be replayed on the Company's website within two hours following the completion of the call. Thank you for your participation.