Marine Products Corp (MPX) 2011 Q2 法說會逐字稿

Good morning, and thank you for joining us for Marine Products Corporation's second 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 for you at that time 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'd 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 other SEC filings that outline those risks, all of which are available on our website, 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 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.

Thank you, Jim. We issued our earnings press release for the second 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 lower than the second quarter of last year. The decrease in net sales was caused by a decrease in units sold to dealers compared to the second quarter of last year. This decrease was partially offset by an increase in average selling price per boat. The increase in average selling prices was due to a change in model mix, highlighted by sales of our new 327 SSX Sportboat. Gross profit and operating income decreased along with the decrease in net sales.

We decreased production in response to economic events early in the quarter, which made our dealers hesitant to increase inventories. However, I'm pleased to report that our domestic dealers actually sold more boats to reach out customers in the second quarter of 2011 than in this quarter last year. As a result, our field inventories declined during the quarter compared to the first quarter of this year, and are very low at this point. These inventory levels should prepare us well for the 2012 model year.

These operational metrics as well as more recent indications of stronger domestic dealer demand have prompted us to gradually increase production during the third quarter. As we increase production, we will continue to monitor dealer inventory levels and other indications of demand.

We've been pleased with the market's reception to our new models in 2011. Our award-winning 327 SSX Sportboat was a highlight of the Sydney International Boat Show in Australia this month, and this has been a strong product for us this year.

We are building on this success with a new model lineup for 2012 model year called the Chaparral H20. The H20 line will consist of four models, two runabouts and two fish-and-ski boats, each offered in the 18 to 19-foot lengths. This model is targeted toward the value-conscious segment of our market and we believe that it will be a profitable catalyst for increased market share. We are also introducing two new Robalo Center Console models in the 18 and 20-foot lengths.

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

Thank you, Rick. For the quarter ended June 30, 2011, we reported net income of $1.2 million compared to net income of $2.5 million last year. Our earnings per share for the quarter were $0.03 compared to earnings per share of $0.07 in 2010.

Our unit sales to dealers decreased by 17.9% compared to last year. Although unit sales decreased, as Rick mentioned, the average selling prices increased by 12.4% compared to the prior year. A significant driver of this increase was sales of the new 327 SSX Sportboat, which carries selling prices that are significantly higher than the overall average.

We decreased production in the second quarter in response to caution among our dealer network, which was prompted by higher gasoline prices early in the second quarter. Retail sales were actually higher than many expected, which caused dealer inventories to fall during the quarter. As a result, our dealer inventories prepared to accept the new 2012 models that we have started to produce. Although we have been cautious about the selling environment, we are pleased to report that during the quarter, our domestic dealer sales to customers increased compared to the second quarter of 2010.

US domestic net sales increased by 8.2% in the second quarter of 2011 compared to the second quarter of last year. International sales comprised 25.2% of consolidated net sales in the second quarter of 2011, a decrease compared to 36.5% of consolidated net sales last year. International sales decreased by 36.6% in the second quarter of 2011 compared to the second quarter of last year.

Gross margin was 16.9% of net sales for the quarter compared to a gross margin last year of 20.8%. Gross profit this quarter was lower due to lower sales coupled with decreased efficiencies that resulted from lower production levels and higher materials costs. Although our gross margin decreased in the second quarter compared to the prior year, it increased slightly compared to the first quarter.

Selling, general and administrative expenses decreased by 9.3% in the second quarter of 2011 compared to the prior year and were 12.7% of consolidated net sales. This was a decrease due to a reduction in expenses that declined with sales and profitability as well as improvements in warranty claims.

Interest income for the second quarter was $272,000, or 6.2% lower than the second quarter of 2010. This was due to lower market returns on our short-term marketable securities, partially offset by higher marketable securities balances during the quarter.

And briefly, turning to the balance sheet, we still maintain a very healthy and liquid balance sheet, with a growing cash and marketable securities balance. At the end of the second quarter, our cash and marketable securities balance totaled $56.6 million, which is a $6.6 million increase compared to this time last year. Inventories decreased by $4.9 million compared to last year, consistent with lower production levels, although accounts receivable did increase slightly by $485,000.

As we've already mentioned a couple of times this morning, our ongoing efforts to manage field inventories continue to be successful. At the end of the second quarter, field inventories were equal to this time last year and 24% lower than first quarter of 2011. And our order backlog at this time is approximately equal to last year and we think it's appropriate for this point in the model year and sets us up well for 2012.

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

Thanks, Ben. The 2011 retail selling season was somewhat disappointing due to a continued weak economy. For our market, this weakness was exacerbated by our dealers' concerns about the rise in fuel prices early in the second quarter, which increases the operating expenses of boat ownership and have made some potential purchasers of new boats delay their expenditures for another selling season.

In spite of this, our dealers sold more boats to their customers this quarter than during the second quarter of last year. Towards the end of the quarter, we noticed indications of stronger demand, both in overall market statistics and within our dealer network. These indications have prompted us to begin increasing production during the third quarter.

We've always believed that our experience and financial strength give us the ability to invest creatively in the design of new products. We are excited about our new Chaparral H20, which we believe offers good designs and quality products to the value-conscious segment of the recreational boating market that we would like to reach.

We have plans to add additional models to this lineup subject to market acceptance. We will hold our Annual Dealer Conference next month, and we are looking forward to showing these new models to our dealer network and starting the 2012 model year.

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) Brandon Taylor, Raymond James.

Hey, good morning, guys.

Hey, Brandon.

Good morning, Brandon.

I actually had a couple of questions. One, if you could just give us some color on where the retail strength was, maybe like big versus small? I know that you said that in terms of shipments, the 327 increased the ASP, but could you give us some sense of where the retail strength was?

Clearly, the smaller boats are stronger than the large, or the large are weaker than the small, however you want to put it. That's been a trend obviously for a while. And again, as we indicated, we're now responding to that. We think it's a good time for us to come in with this smaller value boat and we think that's going to have a lot of benefits. But we think it's going to do quite well because of the design; we love the design, but we also think it's the right time given where the market is currently and probably will stay for a little while.

Okay.

Brandon, I think the success of the new 327 shows that it's a bigger boat with a higher price, that innovative products and creative design will sell regardless of the economy.

That's right.

Okay. I have a second one here. In terms of the, I guess maybe geography, I guess was it strength like in the Southeast, was it strength kind of broad-based across the entire country, or were there any region that were especially weak relative to kind of what you thought retail at for the quarter? I guess maybe some color there as well.

Brandon, this is Jim. There was I guess some selected areas of strength in the middle section of the Company -- our country; I mean perhaps Texas, Oklahoma, that area, which kind of goes along with strength in the energy sector and employment in those areas. The Southeast was actually decent; I hesitate to say good, but was decent.

Okay, okay.

Of course, the West Coast continues to struggle.

Yes.

Okay. And just one more. I noticed you gave like a plus 8.2% change versus last year. Is that for the overall -- I might have missed that. Was that the overall industry or was that for your dealers specifically?

That was our domestic sales to dealers, yes.

Yes.

Okay, okay.

Yes, [ours].

Got it. And sorry, just one last one. Do you think you guys gained share in the quarter?

Brandon, this is Jim. Not sure yet. We've looked at the Statistical Surveys reports and they're not yet ripe. I mean, as you know, the longer you wait for those data, the better.

Yes.

They actually showed that we did potentially gain some market share, but we hesitate to talk about those numbers yet, because we need to make sure they're reasonable.

I know you probably know this, but market share is just an indicator of -- and a potential indicator of your success, and we've been focused on larger boats for quite a while. So from a fewer market share unit count standpoint, these smaller boats clearly are taking up a bigger share of the total sales. So -- but whatever that's worth, I expect our market share numbers are going to look much better going forward.

Okay. Thanks, guys.

Sure.

Thank you.

Thank you.

(Operator Instructions) Mr. Landers, we have no further questions at this time. I'll turn the call back to you for any closing or additional remarks.

Okay. Thank you. Well, we appreciate everybody calling in this morning and Brandon's questions. We look forward to speaking with you all again during the next quarter. Everybody have a good day. Thanks.

Thank you. And that does conclude our conference. As a reminder, the conference call will be replayed on our website within two hours following the completion of the call.