Marine Products Corp (MPX) 2011 Q3 法說會逐字稿

Good morning. Thank you for joining us for Marine Products Corporation's Third Quarter 2011 Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; Ben Palmer, Chief Financial Officer. And 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. And 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 following forward-looking disclaimer.

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. You can find all of these documents on our website at www.marineproductscorp.com.

If you've not received our press release for any reason, please call us at 404-321-7910, and we'll fax or email one to you immediately. We'll make a few comments about the quarter and then, we'll be available for your questions this morning. 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 2011 this morning. Ben Palmer, our CFO will discuss the financial results in more detail in a moment. But before he does, I'm going to discuss our operating highlights and then Jim will update us with several additional developments.

First, net sales for the quarter were lower than the third quarter of last year. The decrease in net sales was due to a decrease in units sold compared to the third quarter of last year. This decrease was partially offset by an increase in the average selling price per boat. And the increase in average selling price was due to higher unit sales of several of our larger Chaparral, SSi and SSX models.

Gross profit and operating income increased compared to the prior year due to our increase in average selling prices from selling more of the larger Chaparral models and fewer small boats as we prepared for the 2012 model year.

There were several encouraging developments during the quarter. I already mentioned our stronger unit sales on several of the larger Chaparral models. In addition, we received a very strong reception to our new Chaparral H2O models at our annual dealer conference. These developments combined with significantly lower dealer inventories and higher backlog than this time last year have encouraged us to increase production during the fourth quarter to meet dealer demand.

Jim is now going to share a few additional updates.

Thank you, Rick. I'd like to just take a moment and elaborate on a few things that we talked about in our press release this morning. First, we've been very pleased with the market's reception to our 2011 models this year, one of which won an award during the third quarter.

Trailer Boats Magazine honored our 216 SSi with the title of Australia's Greatest Bowrider. This Chaparral was judged to be superior to its competitors in a number of criteria, including innovation, fit and finish, handling, ergonomics and overall value. We are very optimistic about the reception of this new product, in light of the fact that we received this award at the beginning of Australia's retail selling season.

Rick mentioned the Chaparral H2O a minute ago, and I'd like to review some additional details about this new 2012 model. The H2O line consists of four models, two runabouts and two Fish & Ski Boats, each offered in 18-foot and 19-foot lengths. These models are targeted towards the entry-level segment of our market, and we believe that it will be a profitable catalyst for increased market share. We've seen some clear indications, if this is the case, because of strong dealer orders at our annual dealer conference.

Separate from Chaparral H2O, we are also introducing two new Robalo Center Console models in 18-foot and 20-foot lengths. These offshore sport fishing boats have the same entry level market share strategy of the Chaparral H20. Then finally, we mentioned this in our press release, but both of our brands continue to invest in our products with innovative design elements creating outstanding products for the consumer.

During the third quarter, our Chaparral and Robalo brands received their fourth consecutive Customer Satisfaction Index or CSI awards given by the National Marine Manufacturers Association. The NMMA's CSI awards honor manufacturers that measure and strive to maintain and improve their customer service. Recipients of the award maintained a CSI score of 90% or higher during the previous year, as measured by responses from surveys sent to all customers who purchased a product during that time. And all of Chaparral's model categories received this award, as well as Robalo's offshore sport fishing category. We are proud that our customers continue to recognize us for quality products and remain loyal because of our great service.

At this time, Ben Palmer will provide the financial review for the quarter.

Thank you, Jim. For the quarter ending September 30, 2011, we reported net income of $1.2 million compared to net income of $1 million last year. Our diluted earnings per share for both this quarter and the third quarter of last year were $0.03. Our unit sales decreased by 22% compared to last year. Although, the retail selling season was stronger than we originally anticipated, our unit production was lower during the quarter than the prior year, as we and our dealers remained cautious about field inventory levels at the end of the retail selling season. Although, unit sales decreased, average selling prices increased by 20% compared to the prior year.

One factor contributing to this increase was higher unit sales of several of the larger boats within the Chaparral, SSi, and SSX Sportboat model lineups, including the new innovative 327 SSX bowrider. In addition, we sold fewer of our small boats, as we prepared our production line for the new H2O boats, which we began producing later in the quarter.

International sales comprised 19.9% of consolidated net sales in the third quarter of 2011, a decrease compared to 28.2% of consolidated net sales last year. International sales decreased by 34.6% in the third quarter of '11 compared to the third quarter of last year. Many of our international dealers are located in West Europe where consumer confidence is lower as a result of the eurozone's current financial uncertainty.

Gross margin was 20.8% of net sales for the quarter compared to a gross margin last year of 17%. Gross margin increased due to the very favorable model mix, I've just described. To a lesser extent, we also recognized some favorable materials usage variances. Going forward, I want to point out that we believe that gross margin may be lower than we have reported this quarter. While we believe that our higher unit production will increase overall manufacturing cost efficiencies, we also believe that increasing unit production of our new H2Os and the smaller Robalos will generate lower profit margins than our consolidated gross margin for this quarter.

Selling, general and administrative expenses increased by 8.3% in the third quarter of 2011 compared to the prior year and were 14.1% of consolidated net sales. This increase was due to higher research and development expenses supporting our new model development efforts for the 2012 model year. This increase was partially offset by a reduction in warranty expenses.

Interest income in the third quarter was $233,000 or 16.2% lower than the third quarter of 2010 due to lower-market returns on our marketable securities investment, partially offset by higher marketable securities balances during the quarter. Now briefly turning to the balance sheet, we continue to maintain a very strong and liquid balance sheet with a growing cash and marketable securities balance. At the end of the third quarter, our cash and marketable securities balance totaled $61 million, a $5 million increase compared to last year. Inventories at the end of the third quarter of 2011 were comparable to the third quarter of last year.

A benefit of this quarter's lower production and unit sales is very low dealer inventories and a healthy backlog. At the end of the third quarter, field inventories were 11.9% lower than this time last year and 13.7% lower than the second quarter of 2011. These operational metrics, coupled with the success of the new entry-level boats are a catalyst for us to increase our production during the fourth quarter of 2011, which historically is a seasonally low for unit production.

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

Well, thanks, Ben. To kick off, our 2012 model year has been very positive. Chaparral introduced a new nationally advertised line of entry-level market boats engineered and designed to appeal to the first time buyer. The four new 18-foot and 19-foot Chaparral H2O Sport and Fish & Ski Boats were introduced at our annual dealer conference in August.

The boats are built to high-quality standards and are presented with no hassle pricing, packaged with custom trailers, and presented to the consumers through a different marketing strategy. Backed by the Chaparral name, styling, quality features and components, this product line will place new customers in Chaparral and give our dealer network the opportunity to grow their customer base, gain market share, and put their new customers in the Chaparral brand from their very beginning.

Also introduced in the third quarter, the new 225 Cuddy Cabin will appeal to many customers in the Northeast and international markets. In addition to the introduction of the new Robalo 180 and 200 Center Consoles will provide for Robalo dealers the same opportunity as the H2O Chaparral gives their dealers.

Strategically, we feel our timing and the consumer environment is right for the introduction of all of our new models.

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) Joe Hovorka, Raymond James.

Thanks, guys. A couple of quick question. You said that your retail was up in the eight-month period. I guess, how much was it up and who you're gaining share from?

Joe, good morning. This is Jim. I'm afraid we're not exactly sure. We're not exactly comfortable giving a number how much our retail sales and market share. We think retail market share is up about 70 basis points. That's based on the Statistical Surveys data. Our internal estimates show that our retail market share is up a bit more and not exactly sure who we're gaining market share from.

Okay. Your internal numbers show that you're gaining more share than the SSi numbers.

Correct.

Okay. And what was the market during that period? Was the market down or was the market up?

We believe the market was flat, maybe down a little bit.

Okay. And that's the market is, you too are defining it as fiberglass.

Yes, fiberglass 18-foot to 30-foot sterndrive.

Okay. And your increase in production for the fourth quarter, is that fourth quarter year-over-year or you're increasing it from 3Q to 4Q?

Certainly, 4Q higher than 3Q this year and higher than last year too. Again -- and a lot of this, again, as we try to point out has been driven, I think we had a lot of success with the larger boats, and we think that's going to continue, but a lot of the increase in production is going to be the smaller boats.

Okay. All right. Great. That's all I had.

Thank you, Joe.

Thanks, Joe.

(Operator Instructions) At this time, there are no further questions in queue. I'd like to turn the call back over to Mr. Jim Landers for any additional or closing remarks.

Thank you, operator. Joe, thanks for your question and thanks everybody else for calling in and listening. Hope everybody has a good day. Thanks again.

Again, thank you, ladies and gentlemen, for your participation. I'd just like to remind everybody that the conference call will be replayed on the Marine Products' website within two hours following the completion of this call. Thank you, and have a good day.