Marine Products Corp (MPX) 2014 Q4 法說會逐字稿

Good morning and thank you for joining us for the Marine Products Corporation fourth-quarter 2014 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 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 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, our 2013 10-K, and other SEC filings that outline those risks. All of these are available on our website at www.marineproductscorp.com.

If you have not received our press release and would like one, please visit our website again at www.marineproductscdorp.com for a copy.

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

Jim, thanks. We issued our earnings press release for the fourth quarter of 2014 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 decreased by approximately 6% during the fourth quarter due to lower unit sales. Lower unit sales among our Chaparral models was partially offset by increased unit sales of our Robalo sport fishing boats and sales of our Vortex jet boats, which we introduced during the first quarter of 2014. Gross margins as a percentage of net sales increased this quarter compared to the prior year because of a favorable model mix.

We also sold our first Chaparral Suncoast outboards in the fourth quarter. We are pleased to be reentering the outboard market with this Chaparral model.

For the 12 months ended September 30, our Chaparral sterndrive brand continues to hold the number one market share in its category. The most recent report indicates that Chaparral at 13.7% of the 18- to 35-foot sterndrive markets during the period. Robalo's market share grew and reached 3.2% of the coastal offshore sport fishing boat market during this period.

The 2015 winter boat show season is getting underway, and we are pleased with the attendance and sales thus far this season.

We also announced this morning that our Board of Directors yesterday voted to pay a regular quarterly dividend of $0.04 per share. This represents a 33% increase compared to the dividend of $0.03 last quarter.

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

Thank you, Rick. For the quarter ended December 31, 2014, we reported net income of $2 million, a decrease of 4.7% or just $101,000 compared to $2.1 million in the fourth quarter of 2013. Our diluted earnings per share were $0.05 in the fourth quarter of this year, a decline of $0.01 compared to the fourth quarter of last year. Unit sales decreased approximately 6% during the fourth quarter of this year compared to last year.

Gross profit in the fourth quarter was $7.4 million, a decrease of 2.9% compared to $7.7 million in the fourth quarter of 2013. Gross profit declined due to lower sales. This decline was partially offset by an increase in gross margin, which improved from 19.2% in the fourth quarter of last year to 19.9% this year. This increase was due to favorable model mix and efficient production schedule.

On a relative basis, we saw more of the larger SSX Sportboats and Signature Cruisers than in the fourth quarter of last year.

Selling, general, and administrative expenses were essentially unchanged in the fourth quarter of this year compared to the prior year, an increase from 12.3% of net sales last year to 13.1% of net sales in the fourth quarter of this year. US domestic net sales decreased by 2.2% in the fourth quarter compared to last year, while international sales decreased by 33%.

International sales comprised just 8.5% of consolidated net sales in the fourth quarter of this year, a decrease compared to 12% of consolidated net sales last year. International sales continue to struggle consistent with international economies. The strength in the US dollar has also been a headwind.

Interest income during the fourth quarter was $162,000, an increase compared to $114,000 in the fourth quarter of last year. The increase was due to realized gains during the fourth quarter of this year.

Marine Products income tax provision during the fourth quarter was $658,000 compared to $728,000 in the fourth quarter of last year. The effective tax rate was 24.4% this year, slightly lower than the 25.4% effective rate in the fourth quarter of last year.

Our balance sheet remains strong. Our cash and marketable securities balance of $41.6 million is approximately equal to the cash and marketable securities balance at the end of the fourth quarter last year. It declined compared to the third quarter, however, primarily because of an increase in inventories resulting from higher engine purchases. As of December 31, 2014, our dealer inventory was approximately the same as it was at this same time last year, but order backlog has increased.

With that, I'll turn it back over to Rick for any closing comments.

Thank you, Ben. We have several reasons to be optimistic about the upcoming retail sailing season. From a macro point of view, we believe that the steep decline in fuel prices and favorable data points regarding consumer confidence and unemployment hold positive implications for the discretionary purchases such as pleasure boats.

Furthermore, we are experiencing a good start to the winter boat show season with high attendance, good sales, and a favorable model mix of the products we were selling.

We continue to be pleased about our Vortex jet boat sales and are optimistic about the market's reception to our Suncoast outboards for 2015. Based on these factors, we are increasing production during the first quarter of this year.

Thank you for joining us this morning, and we will be happy to take any questions you may have.

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

Could you just talk a little bit more about what regions internationally were particularly weak for you? And then can you just remind us how significant Canada is for your business and if you are seeing international dealers reducing inventory positions at this point or making any other adjustments to account for the fundamental weakness in excess of just the currency moves?

Well, that's a good question. Canada is a pretty significant portion of our international business, and it has struggled a bit, I think, due to the strong US dollar. We've also had a bit of disruption with one of our primary dealers in Canada. So that's something that we are trying to address as well.

Relative to changes in inventory levels, that's something that is a bit -- we don't have a lot -- I don't have a lot of information in front of me on that, but obviously the international economy is struggling. Russia has been a pretty good market for us. Obviously, they are struggling at this point time with the weakness in oil prices that is significantly impacting their economy. So that's certainly not looking up at this point in time. But we expect it will probably continue to struggle for a while.

Okay. So is it fair to say that the weakness for you is primarily seen in Canada and Russia? Those are the two most acute regions of softness?

I think that's right. Probably Russia more going forward. Hopefully Canada maybe will see some improvement in the coming quarters.

Okay. Understood. And then you talked about the strength in some of your larger sterndrive boats. I'm just interested -- is that more weighted at all towards the SSX lines of dayboats versus that Signature line of cruisers? And could you maybe just help us better frame the magnitude of production increases we should expect from you year over year here in Q1?

Hey, Jimmy. It is Jim. Ben used the word relative strength, and I will repeat that, relative. But we had -- I know you know the Company pretty well. We have a 31-foot sport boat that sold better in the fourth quarter of 2014 -- the fourth quarter of 2013.

Cruiser sales continue to be weak, but on a relative basis, we sold a few more of our larger cruisers and a few less of the smaller cruisers. So it is probably more just specific customer preferences than being a discernible trend, although we have seen in the boat shows thus far this year is a preference for slightly bigger boats. So that's occurring. That's encouraging.

It's hard to say exactly how much of our production increase will run through the P&L in the first quarter, but it's probably the magnitude of a 15% production increase, which -- as it works its way through, that should impact revenue and magnitudes.

Okay. Great. And then the positive data points that you are picking up from early-season shows, is that pretty well spread across geographies or any kind of specific standouts there?

As I indicated, some of the Canadian shows were particularly strong, and we did have for Canada relatively some pretty good shipments in early 2015 up north.

But yes, it's been relatively consistent, I would say. Of the 10 or so shows so far, 80% of them have been year over year particularly strong. Whether those are outliers or not is uncertain, but overall it appears to be a very nice trend.

Again, the larger boats, maybe you'll see the decrease in oil prices, maybe people are freeing up I guess just the fact that sales are taking quite a while to pick up with the US economy. In spite of having improved, maybe we are finally reaching that inflection point where people are feeling they need to replace their older boats with newer boats. So, again, we are generally optimistic and prepared to take advantage of if and when or as orders continue to improve.

Okay. Great. Last question for me. Can you just talk a little bit about the progress you are making on the Vortex line? The boats really looked great and well trafficked to the shows we've been to this year. I'm just interested if you are -- if you have any data on the demographics of that Vortex buyer? It seems like your dealers are really highlighting the surfing capability of that line. Would you say you are successfully capturing some water sports enthusiasts that might have been otherwise considering a tournament towboat? And then I guess separately, can you talk about how many dealers are retailing that line or at least how close you are to reaching your target level of domestic distribution?

Jimmy, it is Jim again. Great questions. You and I talked about the towboat substitution part of this. It's too early to tell -- to really have a good demographic picture. We know that the average jet boat buyer is nine years younger than the average sterndrive buyer. So we've been trying to make that -- the person's first boat be a Chaparral and capture somebody who's roughly nine or 10 years younger than the average sterndrive buyer. But we don't -- that's not a specific Marine Products comment.

We don't yet have any consumer feedback that says that people are buying a Vortex instead of a towboat. So I'm going to hold off in saying that is the case until we know that it is. I don't know how many dealers are selling the Vortex right now. I've seen two of them who are, but I don't know.

I think we've had pretty good penetration. We are generally pleased with it, and sales have improved steadily throughout 2014. So we are very pleased. We think the boat does look great, we think there is a big vacuum left when PRP exited the market, and we think we are particularly well-positioned at this point in time and looking forward to it continuing to do very well for us.

Okay. Well, thanks very much for the time.

(Operator Instructions). As there are no further questions at this time, I would now like to turn the call back to Mr. Jim Landers for closing.

Okay. Thank you, operator. Jimmy, thanks for the questions. We appreciate everybody else who has called in and listened, and we hope you have a good day. Talk to you soon.

That will conclude today's conference call. Please note that this conference call will be replayed on www.marineproductscorp.com within two hours following the completion of the call.

Thank you for participating. You may now disconnect.