Marine Products Corp (MPX) 2018 Q1 法說會逐字稿

Good morning, everyone, and thank you for joining us for Marine Products Corporation First Quarter 2018 Financial 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. (Operator Instructions) I would also like to advise everyone that this conference is being recorded.

And now Jim will get us started by reading the forward-looking disclaimer. Jim?

Thank you, Lori, 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 that 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 2017 10-K, and other SEC filings that outline those risks. All of these are available on our website at www.marineproductscorp.com.

If you've not received our press release and would like one, please visit our website for a copy. We'll make a few comments about the first quarter, and then we'll be available for your questions.

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

Jim, thanks. We issued our earnings press release for the first quarter of 2018 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 9.1% during the first quarter. Net sales increased due to a model mix of larger boats, which contributed to a 9.6% increase in the average selling price per boat. We continue to be pleased with the market share 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 December 31, 2017. Robalo's market share continues to grow, as it is now ranked #3 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, consistent with the quarterly dividend issued last quarter. Also, during the first quarter, we repurchased 110,141 shares of common stock on the open market.

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

Thank you, Rick. Net sales for the first quarter of 2018 were $77.5 million, an increase of 9.1% compared to the first quarter of 2017. Higher average selling prices generated this increase, as unit sales declined slightly. Gross profit in the first quarter was $17.7 million, an increase of 18.4% compared to the first quarter of '17. Gross margin during the quarter improved slightly to 22.8% compared to 21% in the first quarter of '17, primarily due to an improved model mix.

Selling, general and administrative expenses were $8.6 million in the first quarter of this year, an increase of approximately 7.6% compared to the first quarter of 2017. SG&A expenses were 11.1% of net sales during the first quarter, a slight decline compared to the first quarter of the previous year. SG&A increased due to expenses that vary with improved operating results, such as incentive compensation.

For the quarter ended March 31, '18, we reported net income of $7.6 million. Net income increased by $2.3 million or 44.6% compared to the first quarter of last year. Diluted earnings per share of $0.22 increased by $0.07 or 46.7% compared to the prior year. Contributing to the year-over-year improvement in net income and earnings per share was lower corporate tax rates, as I will discuss in a moment.

International sales represented 7.7% of total sales during the first quarter this year compared to 5.4% of net sales last year. Sales increased in several of our international markets, including Canada.

Our cash and marketable securities balance increased to $21.4 million at the end of the first quarter of this year, an increase of $3.4 million compared to the first quarter of last year, and a slight increase of $700,000 compared to the end of 2017.

Our effective tax rate during the first quarter of 2018 was 16.1%, a significant decrease compared to 24.3% in the first quarter of last year. The effective tax rate declined in the first quarter of this year primarily because of the Tax Cuts and Jobs Act enacted in the fourth quarter of last year. Also, the effective tax rate in the first quarters of both years reflects an excess tax benefit related to the restricted shares that vested during these periods.

We estimate that Marine Products' effective tax rate for the next 3 quarters will be approximately 22% and that the effective tax rate for the 12 months will also be in the low 20% range. The lower effective tax rate for the first quarter of '18, due to tax reform, increased diluted earnings per share by approximately $0.02 to $0.03 compared to the effective tax rate during the first quarter of last year.

As of the end of the quarter -- first quarter of 2018, dealer inventories and backlog were higher than at this time last year, as we prepare to support our dealers' higher demand during the remainder of the 2018 model year.

And with that, I'll now turn it back over to Rick for a few closing comments.

Thanks, Ben. The recreational boating market continues to be strong as we enter the height of the 2018 retail selling season. In spite of continued weakness in the overall sterndrive boat market, we are developing appealing Chaparral products that drive our market share and results. And we continue to be pleased with Robalo's success and market share growth.

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

(Operator Instructions) And we'll go first to Eric Wold at B. Riley.

Couple questions. I guess, one, there were some weakness in the SSi new boat sales registration data for March that we believe was due mostly, if not entirely, by poor weather. What did you hear from your dealers out there in the channel during March in terms of deliveries, sales impacts, et cetera? And kind of what have you heard so far during April there has been any kind of recovery from that weakness?

Eric, this is Jim. Your question alludes to the fact that we're one step away from the retail customer because we sell to the dealers. So given that we really -- we're aware of that comment about the SSi retail data, but we really haven't seen an impact, a negative impact. And in our largest dealers in the Southeast, we've got a big presence in Florida. We -- it seems to be a bit of an nonevent to us, so it's just our perspective on it.

Okay. That's helpful. And then lastly on commodity cost, just update us on your thoughts in commodity costs in general going forward and what level if any could the tariff -- proposed tariffs have on some costs, I guess, obviously, not around fiberglass, but everything else and your ability to offset those costs, is there going to be any pressure?

This is Ben, Eric. In terms of commodity prices, there are overall in the market some indication of some upward cost pressure on commodities. We've not seen that yet at this point, but we're looking to manage that. I guess, with respect to tariffs, that too is a very good question, but it's very fluid. There has been a lot of talk, not necessarily anything in particular, that's come out in that regard. Our suppliers -- I don't to talk directly myself to our suppliers -- but they at this point are working through it, planning through it. Obviously, our largest engine supplier or one of them, obviously, is Japanese. And I think, they're hopeful that they won't be impacted, but who knows. So at this point, we'll just have to respond to whatever happens. There's really nothing we can do at this point. But a relevant question and obviously, a potential concern for everybody. But hopefully, it's more [redic] and posturing rather than actual impacts.

And we'll go next to Ronald Bookbinder at IFS Securities.

Your unit sales decreased slightly. Why do you think that is, given the growth of the overall boating market? Is it just that you're moving to higher-priced boats? Or could you add some color?

Ron, this is Jim. I think, the best answer is probably that sterndrive sales continue to be weak overall. That's a market that we've historically -- has historically been a big part of our sales and still is. But I think retail -- let's see if I have this handy, I may not, but -- yes, I mean, sterndrive sales, retail sales continue to decline. So we've been fighting that weakness for a while with different products in the sterndrive market that fit niches and then, of course, with Robalo and some other things. So I think it's just sterndrive weakness.

I think that, and I'll add -- this is Ben -- that some obvious timing on shipping also. I think that on a net-net basis, I think we'll probably have a slight -- more of a slight unit increase if we -- if the timing of the shipments had occurred as we had hoped. But certainly, moving up in size is obviously helping our margins. That's where we prefer to be. We're going to go to where the demand is and where we can make the best margin for ourselves and for our dealers. And the bigger boats is where we want to go. And that, by definition, means fewer sales overall as well, all things being equal. So I think more of a flattish order unit is probably a better way to look at it than focusing on the decline. Obviously, we pointed that out in the release, but I think it's probably more flattish than down.

And the inventory increased 14%. Obviously, a lot of that is due to the higher-priced boats. So on a unit basis, it wasn't nearly as much. But are you comfortable with your inventory? It was an increase on top of last year's increase. And how is the aging of the inventory and the balance between newer and older boats?

Well, I'll answer that a couple of different ways. In terms of the inventory that's on our balance sheet, we're very, very comfortable with that. Obviously, all that's brand-new boats, and as I alluded to, with the timing difference on shipments, what you have is some inventory sitting in there that hadn't been shipped yet, okay? So that's part of what's -- a big part of what's contributing to the increase on the balance sheet.

Now with respect to dealer inventories, which are not on our balance sheet, we're very comfortable with that. Those inventory levels are actually only up slightly year-over-year. So that's a good thing. That means, we have really good sales through to the retail customer. And in terms of the aging of those boats, they are -- there are very few boats that are model year 7 -- earlier than model year '17, and a majority of them are current model year boats. So also with the dealer level, we're very, very comfortable with the inventory.

Okay. And the lower warranty expense that you experienced in Q4, did that continue into Q1?

Yes. We're still seeing positive trends on the warranty side, which we're pleased with. And warranty is one of those things that works itself out over longer periods of time. But we are comfortable that the level at which we are reserving for warranty is stable and at a reasonable level. You always want it to be better than what it is, but we're comfortable where it is at this point.

Okay. And lastly, are you guys going to be presenting at the Burkenroad Conference on Friday?

Yes, we are, Ron. Are you coming?

Yes, I'll see you there.

Looking forward to it.

(Operator Instructions) And it looks like we have no additional questions at this time. Mr. Landers, I'll turn things back over to you, sir.

Okay, Lori, thank you, and thanks to everybody who listened in and for the questions. Everybody have a good day. Talk to you soon.

And ladies and gentlemen, once again, that does conclude today's conference. I'd like to thank everyone for joining us today. And just a reminder that today's conference will be replayed on www.marineproductscorp.com within 2 hours following the completion of today's conference. Once again, thank you for joining us today.