Marine Products Corp (MPX) 2013 Q4 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation's fourth-quarter 2013 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. (Operator Instructions) I would like to advise everyone that this conference call is being recorded.

Jim, will you get us started by reading the forward-looking disclaimer?

Yes, thank you and good morning, everybody. Before I read the forward-looking disclaimer I'd just like to tell everyone that we are having a rare winter storm here in Atlanta, and all three of us are not in the same place this morning. So we assume technology is going to work, but we ask you to bear with us in case this call doesn't go as smoothly as we'd like and as it has in the past.

Before we do get started with our prepared remarks I need to remind everyone that some of the statements that we will make on this call may 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 and our 2012 10-K and our other SEC filings which outline those risks. All of these are available on our website at www.MarineProductsCorp.com. If you have not received our press release for any reason and would like one, please also visit our website for a copy.

We will make a few comments about the quarter this morning and then we will be available for your questions. Now I would like to turn the call over to our President and CEO, Rick Hubbell.

Jim, thank you. We issued our earnings press release for the fourth-quarter and full-year of 2013 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.

Our net sales increased by almost 16% during the fourth quarter. Net sales improved due to a higher number of units sold and an increase in average selling prices due to our model mix.

We sold a lot more Robalo sportfishing boats during the fourth quarter, as well as our larger Chaparral SSX and Sunesta Sportboats. Gross margins improved primarily because of the larger Chaparrals carry higher average selling prices; and the increased Robalo unit sales included several of the larger models.

Our Chaparral sterndrive brand continues to hold the number-one market share in its category. The latest available data for the nine months ending September 30 indicate that Chaparral had a 13.9% market share, an increase of almost 2.2 percentage points compared to the same time in 2012.

We also announced this morning that our Board of Directors yesterday voted to pay a regular quarterly dividend of $0.03 per share. With that overview, I will now turn it over to our CFO, Ben Palmer.

Thank you, Rick. For the quarter ended December 31, 2013, we reported net income of $2.4 million, an increase of more than 100% compared to $1.1 million in the fourth quarter of 2012. Our diluted earnings per share for the quarter were $0.06, compared to earnings per share of $0.03 in 2012.

In the fourth quarter of 2013 we benefited from both the volume and prices of boats sold. Our unit sales to dealers during the quarter increased by 8% compared to last year, due primarily to significant increase in sales volumes of our Robalo sportfishing boats.

We also benefited from unit sales growth in several of our new 2014 Chaparral models, which are larger boats that carry higher selling prices and margins. Increased sales of the larger Robalos and Chaparrals also contributed to higher parts and accessories sales during the fourth quarter.

Gross profit in the fourth quarter was $8.2 million, an increase of 48.2% compared to the fourth quarter of 2012. Gross margin during the quarter was 20.8% compared to 16.2% last year. The increase in gross margin was generated by the sales increase and improved model mix.

On a relative basis, we sold fewer of our lower-priced Chaparral H2Os this quarter; and the increased volumes of the Robalo and larger Chaparrals that replaced them are higher-margin boats. Also, we achieved some cost efficiencies from higher production volumes.

Finally, during the quarter we benefited from a targeted volume purchase discount program on selected raw materials. At this time we do not anticipate any continuing benefits from this program.

Selling, general, and administrative expenses increased by 13.4% in the fourth quarter of 2013 compared to the prior year and were 12.5% of net sales. As a percentage of net sales, our SG&A decreased slightly during the quarter. These costs increase due to costs that vary with sales or profitability, including primarily incentive compensation and sales commissions.

US Domestic net sales increased by 23.5% in the fourth quarter compared to the fourth quarter of last year, while the international sales declined by 20.6%. International sales comprised 12% of consolidated net sales in the fourth quarter of 2013, a decrease compared to 17.5% of consolidated net sales last year. This continues a trend of declining international sales, as many countries continue to experience struggling economies.

Interest income during the fourth quarter was $114,000, a decrease compared to $272,000 in the fourth quarter of 2012. This decrease was due to a lower average marketable securities balance during the fourth quarter as compared to the prior year.

We liquidated a portion of our marketable securities balance late in the fourth quarter of 2012 to fund our special year-end dividend. Our average balance was higher in 2012 than in 2013.

Marine Products' income tax provision during the fourth quarter was $966,000 compared to $383,000 in the fourth quarter of 2012. For the full year of 2013 our effective tax rate was 26%. This included the impact of a 2012 R&D tax credit.

We anticipate that our effective tax rate during 2014 will be between 27% and 28%. However, the effective rate will be higher if the R&D tax credit provisions for 2014 are not renewed.

Our balance sheet remains strong. Our cash and marketable securities balance increased to $41.7 million at the end of the fourth quarter compared to $38.6 million at the end of the fourth quarter of 2012.

At December 31, 2013, our dealer inventory in units was higher than at this time last year, consistent with higher retail sales volumes. Order backlog is higher as well by a similar percentage, and we have increased production to meet this higher level of demand. We are comfortable with our production levels at the present time, given the indications of a strong 2014 retail selling season.

I will now turn it back over to Rick for a few closing comments.

Thanks, Ben. The overall selling environment for recreational boats continued to improve gradually, as consumer confidence improves and the real estate market stabilizes in many of our markets. In general, we are pleased with 2013's progress and are optimistic about 2014.

In particular, we continue to be gratified by our industry-leading market share. Preliminary industry sales data for 2013 indicate that the sterndrive fiberglass recreational boat market was weak in 2013, so we are pleased with the market's confirmation of the quality of our product offerings.

We are also very proud of Robalo's success. It has become a much larger part of Marine Products than in the past, and we are proud of our product offerings there and their appeal to the sportfishing market.

We have expanded that product offering with a new bay boat. We introduced the 206 Cayman bay boat during the fourth quarter and expect to introduce the 226 this month and the 246 Cayman this spring.

One of our demonstrated competencies is the enduring ability to be innovative and to develop products that appeal to our customers as the recreational boat market changes. I believe that the next demonstration of this competency will be with the new Vortex jet boat that we will be introducing during the 2014 retail selling season.

We are going to initially produce three models: a 20-foot, a 22-foot, and a 24-foot version. All these boats will be true bowriders, which is rare in the jet boat market, and they will offer the best of Chaparral's styling and features. The Vortex by Chaparral will also offer the advantages that jet boats provide, such as more seating because of the smaller power plant, lively acceleration, and better fuel economy at lower speeds.

The 2014 winter boat show season is underway, and in general attendance has been better than last year, and the level of interest among the boat show attendees is higher as well. I would like to thank you for joining us this morning, and we would be happy to take any questions you may have.

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

Hi, good morning. Nice quarter and thanks for taking my questions. I think you called out a benefit from volume procurement costs here in the quarter that you don't expect to continue. Can you just go over that in a little more detail.

And if there is a one-time benefit here to Q4, can you help us quantify that?

This is Ben, Jimmy. Yes, the gross margin during the quarter was over 20%, which has clearly been higher than the other quarters. Without those adjustments, we believe the gross margin is trending a bit higher than it has in the last couple of quarters. But we think there is probably a 1.5 to 2 percentage point impact from those sort of one-time items.

Okay. That's helpful. Thanks, Ben.

Then I think you highlighted the lackluster sterndrive market again in the release and talked about it here in the prepared remarks. Any thoughts on how you see that market playing out in 2014, based on the boat show feedback or other anecdotes?

Also, with you and others bringing new jet boat product to market, do you see any incremental pressure on the category from jet boats maybe taking some share?

Then lastly, on your market share, do you expect to retain your market share leadership in the sterndrive 18- to 35-foot category here in 2014?

Jimmy, this is Jim. Maybe I can take that; and Ben, if you want to follow up, please do. Yes, preliminary sales data indicate that the sterndrive boat market was down in 2013, slightly.

We think that is because fiberglass sterndrive boats tend to be a little more expensive to buy and to own. We think that as the economy continues to improve, real estate stabilizes -- back to some of Rick's remarks -- we think the sterndrive market will get better, as people are able or feel comfortable purchasing those slightly more expensive products.

You have seen more strength in smaller outboards and aluminum boats, things of that nature, which are great products and are less expensive than the typical sterndrive fiberglass boat.

We don't think -- if what I heard behind your question was about the jet boat market cannibalizing sterndrives, we don't see that happening. Jet boats are for a different market than sterndrives. You don't take a long trip in a jet boat necessarily, and it offers some advantages that might not matter as much to a bigger sterndrive owner. So we don't think it is going to cannibalize that.

We also think that -- I mean, it sounds self-serving but that our market share ought to continue to grow. We are building and selling some good products. Part of our financial results this quarter were due to some 2014 models that are selling well, and those are sterndrive boats, so we anticipate that will continue. We don't know any reason that it wouldn't at this point.

I have nothing to add to that. That was a good answer.

Thanks, Jim. So, just to be clear on the cannibalization or lack thereof of your jet boat line, I know in the release you talked about mix moving away from the H2O line and that benefit to gross margin. So even though your jet boat offerings are largely incremental, I suppose if there were any overlap with your existing portfolio it would be in that H2O line.

So just to be clear, you are not seeing dealers reduce H2O inventory positions ahead of the jet boat launch at all?

No, I wouldn't read the lower H2O sales -- I wouldn't connect lower H2O sales with the coming of the Vortex at all.

Now, Jimmy, this is Ben. I would -- I think that is a good observation, but you are absolutely right. The jet boats, we don't expect to make any jet boats any larger than 24 feet. That is one of the limitations of that power plant.

So you are right. The overlap probably wouldn't be with the value-priced H2Os, if there is any.

But we believe, too, there are differences in a lot of cases in the dealers between the jet boats and the sport boats. So we think if there is any cannibalization -- surely somebody is going to be able to find specific examples where somebody came in and said I want a sterndrive and they got talked into a jet boat; that certainly will happen, in some instances. But we don't think it is going to be a market change or something that is really visible.

Okay, great. Thanks. Last one for me, can you just give us some color on how many dealers you have carrying the Vortex now -- or that are planning to carry the Vortex I should say in 2014? And maybe just give us a shipment cadence or any guidance as to the number of units you expect to ship.

Is there a potential that you could become capacity constrained if demand is significantly more robust than planned? What kind of upside potential do you have on the capacity side?

Jimmy, this is Jim again. I will take a shot at that. We are going to start selling the boat, delivering it to dealers in the height of the retail selling season; so sort of May/June time frame.

I don't have good data on how many we are going to produce. It probably wouldn't be worth talking about how many we're going to produce and sell and what impact it would have.

We do not see ourselves being capacity constrained. Just a quick thing to tell you is that in 2005 we built and sold over 7,000 boats in the same manufacturing plant we have today. So being capacity constrained would be a nice problem, and one that we do not anticipate in the near term. Do you agree, Rick?

Yes. No, I agree. There are some of our production plants that we have temporarily closed during the downturn that we may have to reopen for this new volume. But we ought to be able to do that without any problem.

Jimmy, as it relates to the dealers, that is still developing, in terms of the number of dealers. But there has been very enthusiastic reception.

We think those dealers that we want, that we think would benefit from this and would benefit us, are quickly signing up and getting onboard. So we are excited about that.

Okay, great. Well, thank you very much for the time.

Alexander Renker, Sidoti & Company.

Morning, everyone. I just had a quick question. I know in the gross margin line there you were breaking out between the bargain discount program and a little bit of manufacturing leverage. If next year were to be a growth year that is analogous to this year both in pricing and unit sales, how much manufacturing leverage would you expect there from a similar amount of growth?

Good question.

That is a good question. There would be some incremental improvement; but with the new introduction of the jet boats and some of the other changes that we are making, I wouldn't want to commit to any significant improvement. But there should be some lift there. There should be some kind of lift.

Sure.

Okay, great. Thank you. Then just one more. What did industry pricing in general look like? The motivation for my question is, I am just trying to ascertain a little bit the impact of sales mix versus general industry price increases being driven by a recovery in demand.

This is Ben; I will touch on that briefly. We have increased some of our retail prices on our boats, typically to cover increases in raw material costs, so from a retail selling price perspective there has really not been any growth or increase. But we are seeing some improvement, which would be a reduction in the level of incentives that are required.

So that, too, again it helped the fourth quarter; it's helped the last few quarters; and it's at least trending in the right direction. So that in and of itself is helping us and the dealers.

Okay, great. Thanks for taking my questions, guys.

(Operator Instructions) Joe Hovorka, Raymond James.

Thanks, guys, actually most of my questions have been answered, but I just wanted to clarify. Did you say the sterndrive market was down modestly in 2013 at retail?

Joe, this is Jim. Based on some NMMA data that came out a few weeks ago, the 14- to 30-foot sterndrive market, which doesn't exactly overlap with ours, it indicated that unit sales had declined 10%, I think -- 10.4%. And that was based on something that came out. That was -- I think that was NMMA, or maybe it was Statistical Surveys. It was Statistical Surveys on early indications; so that was down, it said, 10.4% in units. And again that's sterndrive, 14- to 30-feet. So that is just a quick --

That is the full year?

I'm sorry?

That is the full year?

Yes, yes, that is for the full year.

And do you guys know what your retail was or approximately what it was in 2013?

I'm sorry, Joe, what?

Yes, with the amount of share that you gained, were you up in retail, or were you flat?

We were probably -- don't have the actual retail numbers yet. Chaparral was slightly down in terms of retail sales, I believe.

Right. Great; I think that's all I had.

Okay, thanks.

Thank you.

There are no further questions at this time. I would like to turn the conference back over to Jim Landers for any additional or closing comments.

Okay, Celia; thank you. We appreciate everybody who called in and appreciate the questions. Everyone have a good day. Thanks.

That does conclude today's conference. As a reminder, the conference will be available for replay at the Company's website within the next two hours. We thank you for your participation. You may now disconnect.