Marine Products Corp (MPX) 2010 Q4 法說會逐字稿

Good morning and thank you for joining us for Marine Products Corporation's fourth-quarter and year-end 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 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, 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, thanks. We issued our earnings press release for the fourth 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 fourth quarter of last year. Our dealers, who are cautiously optimistic, have been restocking their inventory with current year models. Therefore, we sold significantly more units during the fourth quarter of the year compared to last year.

Unit sales increased across all product lines and this year we recorded more typical incentive costs as a percentage of sales. The positive impact of this increase in unit volume was enhanced by a slight increase in the average selling price per boat. The increase in average selling prices, which is contrary to industry trends, was due to a positive shift in model mix in our SSi Wide Tech, Sunesta, and Robalo product lines.

In general, as we end 2010 and enter 2011, we find the recreational boating industry to be in a moderately more sound operating condition. As I mentioned, cautiously optimistic.

Our dealer network has improved access to financing and reasonable inventory levels with a high percentage of current year models allow us to sell to our dealers with the normalized level of incentive costs more similar to our traditional volume incentive agreements. While retail demand is not robust, improved retail demand can be converted more easily into profitable sales because our dealers are no longer faced with large amounts of liquidated inventory being available in the market.

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

Thanks, Rick. For the quarter ending 12/31/2010 we reported net income of $468,000 compared to a net loss of $2.8 million last year. Our diluted earnings per share for the quarter were $0.01 compared to a loss per share of $0.08 in 2009.

Our unit sales to dealers increased by approximately 50% compared to last year. Production and sales in all model lines increased. Average gross selling price increased slightly compared to the prior year due to the improved dealer outlook and related demand, which for us was skewed towards larger boats.

We increased production during the fourth quarter when compared to the prior year in response to an improved financing environment for our dealer network as well as dealers being more comfortable with the near-term level of retail demand for our products.

Gross margin was 17.3% of net sales for the quarter compared to a gross loss last year. We generated a gross profit this quarter due to higher sales, coupled with increased efficiency that resulted from higher production, and significantly lower retail sales incentive costs as a percentage of net sales being recorded this year compared to the prior year.

Selling, general, and administrative expenses decreased by 5.5% in the fourth quarter of 2010 compared to the prior year. While we recorded higher expenses for several categories that increase with higher sales and profitability, we recorded lower warranty expense during the quarter due to more normal warranty claims activity.

Interest income in the fourth quarter was $296,000 or 27.1% lower than the fourth quarter of 2009. This was due to lower marketable securities balance and lower market returns from the short-term investment grade debt markets in which we invest our excess cash. This high-quality investment portfolio has a weighted average duration of only 1.4 years, so its market value and total return are not highly sensitive to interest rate fluctuations.

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 fourth quarter of 2010 was $52.4 million, a $10.4 million increase compared to the fourth quarter of 2009. While our inventories are higher, consistent with higher levels of production, our accounts receivable balances is lower due to a healthier dealer network and improved floor plan financing arrangement.

Improved working capital, positive cash flow from stronger operating results, and a 2009 tax refund received in 2010 have generated cash in the last 12 months. 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 and at upcoming winter boat shows, which Jim will review in a moment.

Our dealer inventories at the end of the fourth quarter 2010 are higher than at the end of the fourth quarter of 2009. However, last year's dealer inventories were extremely low due to inventory liquidation and our current inventory levels are more appropriate for anticipated near-term retail demand.

Our unit backlog allows us to schedule current production levels with confidence during the winter boat show season and the retail selling season. An additional benefit of this level of clean dealer inventory relative to demand is that even a moderate response by us through increased production due to increased retail demand should yield much improved financial results for us through manufacturing efficiency and cost leverage.

With that I will turn it over to Jim to discuss our 2011 models for a summary.

Thank you, Ben. It's a pleasure to be able to share some details about a few of our 2011 models which dealers and consumers are receiving enthusiastically this year during winter boat show season. The first one I would like to mention is Chaparral's 327 SSX Sportboat, which is now the largest model in our SSX line.

This is an innovative wide beam bowrider. It has an air-conditioned cabin running across the entire beam of the boat and features a standup enclosure, a sleeper sofa, and a full entertainment center. These features are unique to this type of design and may place us and this product in a strong competitive position. If you go to the Atlantic City Boat Show this week or so, you will be able to see it and it will be also in Dallas in the few weeks as well.

Another new model for 2011 is the 330 Signature, which is one of the larger models. Again, a larger model within our Chaparral product line. This cruiser is a good size for the sport cruiser market. It features two completely different interior options which are fabricated using an innovative manufacturing process that increases quality and allows us to have more production flexibility.

Finally, Chaparral's new 246 SSi Wide Tech is attracting attention as a large family bowrider that offers a large amount of seating for a boat of its size and several different interior options. It also comes with an optional wakeboard tower and several engine options which allow the boat to plane quickly and perform very well as a wakeboard boat.

They will soon be shown on one of our product websites. They are not there yet, but we have just revamped our product website so we would love for everybody to take a look at it. That web address is www.ChaparralBoats.com so please take a look at that when you get a chance. Not only to see the website, but also to see our new models.

I am now going to turn this back over to Rick Hubbell for a couple of closing remarks.

Thank you, Jim. The winter boat show season has begun and, returning to my earlier statement that we were in a more normalized operating environment, the reports of attendance and sales at early major shows is generally favorable with varying levels of increased attendance and positive retail indications at all the major shows. Recent industry research confirms that boat show attendance is highly correlated with a subsequent purchase of a boat, so we believe this continues to be an important industry indicator for us.

In summary, though retail demand is still soft, the inventory and financing problems that plagued the industry during the severe recession are largely behind us. We have returned to something closer to a normal operating environment and believe that we are maintaining our traditional competitive advantages that come from high-quality products, good management, and unmatched financial strength.

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) There are no questions coming in queue at this time. (Operator Instructions) Robert Henderson, Rutabaga Capital Management.

Good morning. Could you give us any indication on what you think production levels might be going into the season, or is it too early to say?

I would say it's too early to say. We are always conservative with setting our production levels, always doing it only with firm orders in hand. But what we have seen at these early shows, again, is improved attendance, improved activity. We hear contracts being signed but not as many deposits being put down for boat, so dealers aren't quite as comfortable with move forward to actually place orders at this -- within the last couple, three weeks. But a lot of good indication.

So we will -- again, we stand ready to increase production when we get those orders in hand. So that is what we are waiting on and we think, again, there is a lot of good indicators for that. But we have in some prior years, due to the way we operate the business, sometimes demand has increased quite rapidly and we have a difficult time ramping up production to capture all of that opportunity.

But we stand ready. We have plans in place that when the orders come in we will increase so we don't at this point. It's too early to tell. We are just waiting for the order backlog to become a little more definitive.

Okay. Now that you and the industry are out of the worst part of the cycle when it comes to financing and cash needs and everything else is any thought being given by the Board to other ways you could redeploy the cash on the balance sheet, other than just keeping it and investing it in short-term securities?

Well, the only two ways I can think of or three ways would be to buy back stock or pay a dividend or do an acquisition. And we have addressed all of those.

We have not reestablished our dividend, but if -- I am sure we will consider it if our performance continues the way it has been. As far as acquisitions, we are constantly searching so I don't have anything definitive for you. But we are trying to explore all of those avenues.

Okay, all right. Thank you.

(Operator Instructions) Joe Hovorka, Raymond James.

Thanks, guys. Just one quick question. What does your backlog look like right now versus the same time last year? Is it up?

Joe, it's actually -- when you look at the way we accumulate our statistics, it's actually down and down fairly significantly. But last year I wouldn't call it as firm. It was such an uncertain time last year that it sort of hard; we don't have good comparable statistics.

Clearly, we are much more comfortable with the backlog we have this year compared to last year so, unfortunately, I can't really give you a percentage change or how it compares. But it is, just based on the numbers that were in our system, it is down a lot. But clearly our production at this point is the same or higher than it was last year, again, because we weren't completely comfortable with all of those orders last year.

Okay. And the plan for 2011 would be to produce in-line with retail? I know this year we kind of built some inventory so you produced more than what was actually sold. But we will go back to one-to-one kind of in 2011?

Probably, probably pretty close. That is probably the way it would work out. Again, we will do it based on orders in hand. So, yes, if field inventory is at, quote-unquote, a reasonable correct level that is probably correct.

Okay, great. Thanks, guys.

Joe, this is Jim. Just another elaboration on backlog. It is well within the range. There is a range of backlog numbers that we operate under and it's back within the range that we have had during our time as a public company.

Okay. And just to clarify, that backlog is orders that have come out of the dealer meetings but are, like you said, could be cancelable?

Yes, and again, normally when we get those orders, except for the last year, 18 months ago, those orders generally are very firm and are rarely canceled. Again, last year this time was a very unusual period.

But at this point, yes, the orders we have in hand we feel very good about. We are planning production around the orders that we have in hand today.

Okay, great. Thanks, guys.

There are no other questions in queue at this time. I will turn the call back over to Jim Landers for closing remarks.

Thank you. Appreciate everybody calling this morning and listening in and I appreciate the questions as well. Have a good day. Thank you.

As a reminder everyone, today's call will be replayed on the Company website within two hours following the completion of this call. This does conclude today's conference call. Thank you for your participation.