Marine Products Corp (MPX) 2017 Q4 法說會逐字稿

Good morning, and thank you for joining us for Marine Products Corporation's Fourth Quarter 2017 Financial 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 get us started by reading the forward-looking disclaimer.

Thank you, Cecilia, and good morning. Before we get started today, I'd 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'd like to refer you to our press release issued today, our 2016 10-K and other SEC filings that outline those risks. All of which are available on our website at www.marineproductscorp.com.

I also need to inform you that Marine Products Corporation has used the non-GAAP financial measures of net income and diluted earnings per share, excluding the impact of tax reform in today's earnings release, and we anticipate using these non-GAAP financial measures in today's earnings conference call.

Management believes that presenting the operating results without the impact of tax reform enables us to compare our operating performance consistently over various time periods. Our press release issued today and our website contain a reconciliation of these non-GAAP financial measures to net income, which is the nearest GAAP financial measure. If you've not received our press release, please visit our website at www.marineproductscorp.com for a copy.

We'll make a few comments about the quarter, and then we'll be available for your questions.

Now I will turn the call over to our President and CEO, Rick Hubbell.

Thank you, Jim. We issued our earnings press release for the fourth quarter of 2017 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 operating highlights.

Our net sales increased by 14.6% during the fourth quarter. Net sales increased due to an improved model mix, which included larger boats, such as our Chaparral SSX, our Chaparral Surf Series and our Robalo Explorer models. All of these are new models in 2017.

We continue to be pleased with the market share of all of our product categories. Our Chaparral sterndrive products continue to hold the highest market share in their category, approximately 16.7% for the 12 months ended September 30, 2017, compared to 15.1% for the same period last year.

Our Chaparral Vortex line continues to hold the #2 position in the 20- to 24-foot jet boat category. Robalo's market share continues to grow, as it is now ranked #4 in the outboard sport fishing category.

We also announced this morning that our Board of Directors, yesterday, declared a regular quarterly dividend of $0.10 per share, a 43% increase compared to last quarter's dividend. Also, during the fourth quarter, we repurchased 193,476 shares of common stock in the open market.

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

Thank you, Rick. Net sales for the fourth quarter of 2017 were $65.6 million, an increase of 14.6% compared to the fourth quarter of 2016.

Average selling prices during the quarter increased by 11.7%, while unit sales increased by 4%.

Gross profit in the fourth quarter was $14.4 million, an increase of 17.7% compared to the fourth quarter of last year. Gross margin during the quarter improved slightly to 21.9% compared to 21.3% in the fourth quarter of '16.

Selling, general and administrative expenses were $6.9 million in the fourth quarter of this year, a slight decrease of approximately $73,000 compared to the fourth quarter of last year. SG&A expenses were 10.5% of net sales during the fourth quarter, a decrease compared to 12.2% of net sales last year. The SG&A improvement during the quarter was the result of lower warranty expense consistent with favorable warranty claims experience, partially offset by higher incentive compensation expense.

During the fourth quarter of 2017, Marine Products recorded a net discrete tax provision of $1.7 million, as a result of tax reform that was enacted in December of this year -- or December of '17. The adjustment resulted primarily from the revaluation of deferred tax items using the lower corporate tax rates effective in 2018.

For the quarter ended December 31, 2017, we reported net income of $3.4 million or $0.10 per diluted share. Net income for the quarter, excluding the impact of tax reform, was $5 million, an increase of 34 -- 35.4% compared to $3.7 million for the fourth quarter of last year.

Diluted earnings per share, excluding the impact of tax reform was $0.15, an increase of $0.05 per diluted share or 50% compared to the prior year.

International sales represented 6.7% of sales during the fourth quarter. Though international sales as a percentage of total sales increased by 36.7% compared to the fourth quarter of last year, they still represent a small percentage of our consolidated sales.

Our cash and marketable securities balance increased to $20.7 million at the end of the fourth quarter of 2017 compared to $11.9 million at the end of the fourth quarter of last year. This increase was due to strong net cash provided by operating activities during 2017, partially offset by dividend payments, cash used to repurchase common stock on the open market and capital expenditures during 2017.

Marine Products income tax provision during the fourth quarter was $4,154,000 compared to $1,503,000 in the fourth quarter of 2016. Our effective tax rate was 55.3% in the fourth quarter of this year, resulting from a net discrete tax provision of $1.7 million, we discussed earlier, that was recorded in the fourth quarter in connection with tax reform.

Without the impact of tax reform, the effective tax rate was 32.9% compared to 28.8% in the fourth quarter of 2016. During 2018, we estimate that our effective tax rate will be in the low 20% range. Since we believe that we will continue to generate positive financial results, we will benefit from this lower tax rate through increased earnings and operating cash flow in 2018. And the additional cash generated will support such initiatives as the higher quarterly dividend that Rick just mentioned.

As of December 31, 2017, dealer inventories and backlog were higher than at this time last year, as we prepare to support our dealers' higher demand during the 2018 model year.

I will now turn the call back over to Rick for a few closing comments

Thanks, Ben. The recreational boating market continues to be strong as we look ahead to 2018. Our Robalo sport fishing boats and specialized Chaparral models continue to positively drive our financial results.

Our annual dealer conference was delayed this year because of Hurricane Irma, but we held it a few months ago -- but when we held it a few months ago, our dealers were excited about our new 2018 models as well as the selling environment with their products. We believe that the environment has improved since our dealer conference and indications from the early winter boat shows support our belief that 2018 retail selling season will be another good one.

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

(Operator Instructions) We will now take our first question from Eric Wold from B. Riley FBR.

One just quick numbers question. Can you give us the number of units sold in the quarter?

Eric, we actually don't disclose that on a quarterly basis. We disclose the change in units, but we don't disclose the number.

Okay. And that was up 4%?

Yes, units are up 4%.

Yes, that's correct.

That's correct.

Okay. And then you mentioned, obviously -- the [trials and the] shows have been positive and also you continue to see optimism in underlying demand. Can you give us a sense of any change in sentiment that you saw, if any, around when it looked like tax reform was going to pass and when it did pass. Has that kind of impacted what you're hearing from your dealers out there and what you see in the boat shows? Has that not been as much of an impact to you as maybe you otherwise would have thought?

Eric, this is Jim. It's a little early to tell. I mean, what -- Rick's comments were that in general, the economy's getting better. And I think the fact that the people have more money in their pockets, through several different means, is a positive. But we haven't heard anybody say specifically that they were buying a boat because they felt better about tax reform specifically.

But as we pointed out, obviously there's a clear benefit to the company and Marine Products Corporation. So...

No, definitely. And then final question. Your nice solid market share gains continuing with Chaparral. I guess, in general, I think about the sterndrive segment, you continue to do well in that category, but in general, it's been under pressure for some time on an industry level. When do you think we get to a point where those pressure -- those headwind pressures start to subside and get to more of a baseline demand level that could help you and the entire industry as well?

This is Ben. I -- it's hard to tell. The industry, overall has struggled. I think all we can continue to do is try to be innovative with our new products and try to meet the demand in the market. We -- it's difficult to overcome trends, so we're not trying to buck the trend, but we're trying to make every opportunity that we can. We have a variety of different power choices on our boats that gives us other opportunities as well. So it's a good question and a reasonable question. We still think there's certainly a good market for sterndrive. And I think our results, recently, in this quarter in particular, show, like with the Surf Series, that we can create some really strong demand in that particular market. So -- but it is a recent headwind that is difficult to overcome. And will there be a strong shift back to sterndrive, that's unclear. One of the innovations with the forward-facing drive, that's helped -- that's been paramount to making Surf Series successful. So there could be other innovations that come along as well that help the market, but don't see anything, in particular, in the near term.

We will now take our next question from Ronald Bookbinder from IFS Securities.

I was wondering if you could add some color on the inventory, such as the aging of the inventory. You said the dealers are excited about the 2018 models. But what is the mix of your inventory of 2018 models as opposed to maybe some left over from 2017?

It's -- we do track that and it is -- it's very strong. It's been among the strongest it's been in several years. So we feel very, very good about that. What I've given you is the particular statistics, there is very few older models that are out in dealer inventory.

Okay. Great. And also looking at the inventory, what about the mix compared to your product mix? How do you feel about the sterndrive mix versus the front drive? And do you think you're prepared for the spring products?

Well, the mix was good, given this quarter, as we talked about with some of the larger Chaparrals that have sterndrives. So the mix is very good because it's -- larger boats are doing very well. And I think that maybe -- that's a combination of, I think, that's being driven by the consumer that they are looking for the larger boats, but it's also indicative that we come out with products that are quite appealing. And typically, for us and other participants, the larger the boat, the opportunity you have to generate a larger margin and get some leverage on your manufacturing costs and things like that. So we're pleased with the model mix tending toward larger boats.

And you, specifically, mentioned the forward-facing drives. We -- as Rick mentioned, we sold a lot of those in the quarter, and we've responded to what we know as good market demand. And we are -- we're building more of those to meet retail demand that's coming up. So we think our -- the mix of products that's in the dealer network and that we -- is in our production scheduling is -- it is what's going to meet the right kind of demand in the coming few months.

(Operator Instructions) As there are no further questions, I would like to turn the call back to Jim Landers for any additional closing remarks.

Okay. Well, thank you. We appreciate everybody who called in and the questions. We appreciate your interest in our company and hope everyone has a good day. Talk to you later.

Today's conference will be replayed on www.marineproductscorp.com within 2 hours, following the completion of the call. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.