Marine Products Corp (MPX) 2011 Q1 法說會逐字稿

Good morning, and thank you for joining us for Marine Products Corporation first-quarter 2011 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 a 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 is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Thank you, Kathy. Good morning, everybody.

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 2010 10-K, and our other SEC filings, which outline those risks. All those are available on our website at www.marineproductscorp.com.

If you've not received our press release for any reason and would like one, please call us at 404-321-7910, and we'll fax or email one to you immediately. This morning, we're going to make a few comments about our first 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 first quarter of 2011 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 11% higher than the first quarter of last year. As a result of increased demand, we sold approximately 5% more units to dealers compared to the first quarter of last year. Unit sales increased in our smaller sportboats and Cuddy Cabins, as well as in selected larger new models. The average selling price increased as well, due to model mix in these product lines that generated higher unit sales.

Domestic sales were much stronger than international sales. Gross profit increased due to higher unit sales, slightly lower incentive costs, and increased manufacturing efficiencies. We generated an operating profit for the quarter compared to an operating loss in the first quarter of last year, as dealer and retail demand improved. For the quarter, Marine Products Corporation reported diluted earnings per share of $0.02 compared to a loss of less than $0.01 per share last year.

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

Thank you, Rick. For the quarter ended March 31, 2011, we reported net income of $666,000 compared to a slight loss of $80,000 last year. Our diluted earnings per share for the quarter were $0.02, as Rick said, compared to a loss of less than $0.01 last year.

Our unit sales to dealers increased by 4.6% compared to last year. Unit sales increased in our SSi and SSX Sportboats and Cuddy Cabins, some of which were smaller boats, but also included our new model year 2011 327 SSX. Unit sales also increased in our Robalo Sport Fishing Boats. Average gross selling prices increased by 6.4% during the quarter due to sales of our new, larger, 330 Signature Cruiser as well as the 327 SSX, which is also a larger boat and, therefore, carries a higher average selling price.

Also contributing to the year-over-year increase in net sales was slightly lower retail incentive costs as a percentage of sales, as rebates are trending toward more normal levels. During the quarter, we operated with manageable field inventories and order backlog, given the level of underlying retail demand. Attendance during the winter boat show season improved moderately compared to last year, and we believe that retail demand has stabilized, although we are concerned about the recent rise in fuel prices as we enter the height of the 2011 retail selling season.

While international sales decreased by 20.2% during the quarter compared to the prior year, due to continued economic instability, our domestic sales increased 21% compared to the consolidated net sales increase of approximately 11%.

Gross margin was 16.4% of net sales for the quarter compared to gross margin last year of 14.1%. Gross margin improved because of efficiencies gained from higher production levels, partially offset by increases in the cost of materials. The cost of materials increased due to slight price increases for certain raw materials and selected key components.

Gross profit for the quarter was $4.5 million or 16.4% of net sales compared to a gross profit of $3.4 million, or 14.1% of net sales in the first quarter of last year. Also contributing to the overall improvement is the slight reduction in incentives.

Selling, general and administrative expenses in the first quarter 2011 were comparable to the same period in 2010. As a percentage of sales, however, these expenses declined due to leverage and fixed costs over higher net sales.

Interest income in the first quarter was $236,000, or 23.4% lower than the first quarter of '10. This decrease was due to lower market returns on our investments, which resulted from lower market interest rates on short-term, high-quality debt securities. This decrease was partially offset by a higher cash and marketable securities balance during the quarter as compared to the prior year.

Our cash and marketable securities balance was $55.8 million at the end of the first quarter compared to $44 million at the end of the first quarter last year. Our effective tax rate was only 20.7% during the first quarter, but we expect our full-year effective tax rate will be approximately 29%.

Turning to the balance sheet, our profitable operations have generated a stronger and more liquid balance sheet than at this time last year. As I mentioned above, our cash and marketable securities balance has grown during the quarter. Inventories are lower by $1.9 million in spite of our higher production levels. Accounts Receivable have increased by $763,000, which is consistent with higher sales.

While our field inventories and order backlog are manageable, they also reflect different dynamics than at this point in 2010. During the second quarter of 2010, our dealers were still building inventory from very low levels in response to 2009 sales weakness, and restricted floorplan financing terms and availability.

As we enter the second quarter of 2011, our dealers have adequate, though in our opinion, still conservative levels of inventory. As we continually balance our manufacturing production levels with dealer inventory levels and expectations of retail demand, we expect to decrease our production levels for at least a portion of the second quarter. However, we will continue to monitor field inventories, and are prepared to increase production in response to additional dealer orders to meet retail demand.

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

Thanks, Ben. While the 2011 winter boat show season was moderately stronger than last year, retail sales during the latter part of the retail selling seasons are not continuing to strengthen as we expected or would like. Our dealers are concerned about this spring's rise in fuel prices as well as the persistent weakness in residential real estate. We believe that both of these factors could impact consumers' decisions about making large discretionary purchases such as pleasure boats.

A conservative response to market conditions has always served us well in the past, and we believe that it will in 2011 as well. Last quarter, we discussed two of our innovative new models -- the 327 SSX Sportboat and the 330 Signature Cruiser. As I mentioned a few minutes ago, these models continue to be well-received by dealers and consumers, and contributed to our positive financial results this quarter.

Successes such as these continue to set us apart as leaders in our industry. This strong leadership position will benefit us when retail demand begins to grow more significantly -- and we believe it will. Even though consumer confidence has not yet returned to the levels that readily support large discretionary purchases, boating remains a popular American pastime.

As an example, we are encouraged by a statistic published yesterday, which showed that slightly more than 32% of the American population went boating last year -- the highest participation since 1999. We are currently planning our 2012 dealer meeting for this fall, including the introduction of several new and innovative models that we expect will appeal to our dealers and, ultimately, our retail customers.

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

(Operator Instructions). Jimmy Baker, B. Riley & Co.

Good morning and thanks for taking my question. The moderate improvement in the winter boat show season you spoke of, can you talk about that maybe in terms of improved sales versus improved traffic that maybe weren't converted to sales in the show season, but might indicate some opportunities for your dealers later in the season?

Well, I think, in general, the winter boat show season had attendance that was sort of, on average, increased somewhere between 5% and 10%. That's what we've heard from all the boat shows. So that's always a strong indicator of what retail sales are going to be like.

I think we also noticed that there were perhaps fewer contracts written and orders taken than that level of attendance would have indicated. However, our dealers also reported that subsequent to the boat shows, they got more inquiries from people who had been there.

So I think when you mix all that together, I think you have people who came and were maybe a little more tentative than in previous years, but that they -- there was stronger follow-through than perhaps had been in past years. So, that does give us some hope for the continuing part of the retail selling season.

And I think, overall, again, as we said, domestically, obviously here in the US, our sales were up 21%, which is very, very strong. So we are encouraged by that. But as we've said several times, there's a little bit of apprehension right now with the impact, perceived or otherwise, the impact of fuel prices on consumers' attitudes.

It sure would be great if gas prices were to drop back. I think it might -- just as quickly as it affected peoples' decisions, maybe that would turn back around, and maybe we could look past any concern that that might raise. But I think it's a real concern, and something that we're watching very closely and prepare to respond to.

Right. And what are you hearing from your dealers with regard to availability of financing for their customers?

It's been an ongoing issue; certainly, not as easy as it has been historically. I don't know that we're hearing that multiple sales are being missed, but it's just -- I think consumers have to work a little bit harder, maybe have to put a little bit more money down on some of their purchases.

Banks certainly -- we talk to the banks a lot, not necessarily on the consumer side, but they say they're open for business and ready to lend. They're just not getting as many inquiries. So, hard to pinpoint it exactly. Certainly, the more readily available financing is through whatever various programs, that certainly could be a benefit. But I think, certainly, we're hearing stories of people saying there is some difficulty, but it's not clear that it's had tremendous impact on our sales.

And clearly, the individual credit standards are higher today than they have been in the past. But as far as the availability, it's probably better than it was this time last year.

I'd agree with that.

And would you say directionally positive from, let's say, Q3, Q4? Or is it not that clear?

I'd say about the same.

Yes. I don't know that we've heard either better or worse; it's probably more of the same.

Okay. Thank you very much.

Joe Hovorka, Raymond James.

You commented that production would be down in the second quarter. Is that relative to the rate you run in 1Q '11? Or relative to the 2Q number from last year?

Both, actually.

Both? Okay.

Both, yes.

And do you have an idea of what retail was for the industry in the first quarter? Whether it was up or down, and if the trend got better or worse as you went through the quarter?

Joe, this is Jim. We've looked at some statistical surveys data. As you know, it's too early to talk about first quarter just because that data gets better with age. We think that, based on everything we've heard, maybe at retail, January might have been lower than a year ago, but March actually seems pretty strong. We've heard that from several sources, so.

Okay. And the early read on April, you don't have much yet because of the data is too --?

Correct.

Okay. So you can't tell how much the gas prices -- so the comment that you're making regarding higher fuel costs are more anecdotal coming from the dealers, which is giving you concern as opposed to actual data at this point, or --?

That's correct. And what the dealers tell us is certainly traffic in their dealerships is down.

Okay. And just to confirm, you gave the plus 21% in domestic and minus 20% international. Are those the numbers?

Yes.

Okay. And that was the wholesale shipment that you had in the first quarter?

Right. Sales to dealers, correct.

Okay, great. I just kind of missed that. Thanks, that's all I had.

(Operator Instructions) Robert Henderson, Rutabaga Capital Management.

On your domestic sales, they were up 21% with the ASP increasing. I'm roughly guessing that unit sales domestically were probably up 15%, something like that, is that right?

Yes.

Okay. And then just do you have an estimate on what your brand's retail sales were in the first quarter? Were they roughly up 15% as well?

Market share, I guess you're talking about.

Market share or unit sales at retail. Hard to say, we're still waiting on those data.

Okay.

We feel like we're doing better than the industry overall. Joe, the previous question talking about comparing kind of year-over-year retail sales -- last year was still impacted somewhat, I think, industry-wide by people, other competitors still trying to clear their dealer inventories. So retail sales last year maybe had some momentum there to close out some older models. So, that kind of -- we were relatively clean this time last year -- very clean this year.

We think, overall, the competition is, industry-wide, we're in pretty good shape. The dealer inventories are pretty clear. But we think that our sales increases are certainly stronger, I think, than overall industry sales at this point.

Okay. Thank you.

And it appears at this time there are no further questions. I would like to turn the conference over to Mr. Landers for any closing or additional comments.

Okay. Thank you, Kathy. We appreciate everyone calling in and listening, and the questions and discussion. Thanks again. Hope everybody has a good day.

And ladies and gentlemen, that does conclude today's conference call. This conference will be replayed on the Marine Products' website within two hours. Thank you for your participation.