Coachmen Intent on Improving Profits in ’06
Coachmen Industries Inc. projects a “flat” sales year in 2006 with revenue from continuing operations in the range of $710 million to $750 million.
The manufacturer of recreational vehicles and manufactured housing still faces “considerable weakness in the RV market, particularly motorized products,” Claire C. Skinner, chairman and CEO, said during a webcast news conference today (Jan. 31).
Commenting on industry projections which forecast 2006 wholesale shipments to decline by 5.5%, she said the first half of 2006 for Coachmen won’t be worse than the second half of 2005. Coachmen has undertaken several initiatives “to improve our piece of the pie even if the pie does not increase,” Skinner said. She added that uncertainties in the Middle East and the spike in fuel prices make forecasting risky.
The conference call came the day after Coachmen announced a net loss of $19.4 million for 2005 on sales of $702 million, down from $802 million for 2004.
For the year, RV Group wholesale unit shipments of all product types decreased by 11.9% in 2005 to 18,162 units. Shipments of motorized products fell 25.9% to 4,839 units, while shipments of non-motorized products decreased by just 5.4% to 13,323 units. Shipments of travel trailers increased 19.5% to 8,638 units due to the market success of its new 2006 models, as well as orders for temporary housing units in hurricane affected areas in the Gulf region.
Calling the 2005 performance by the RV Group “entirely unacceptable,” Michael Terlep, president of Coachmen RV Co. Inc., outlined two major areas – warranty issues and discounting incentives – which dragged down profits in 2005. The segment incurred a pretax loss from continued operations of $17.2 million in the fourth quarter and $40.8 million for the year.
The company reported a $14.3 million expense in 2005 to repair or replace defective laminated sidewalls used in 1,200 units during the fall of 2004 and late spring 2005. The “bubbling or cottage cheese” effect was cosmetic, rather than structural in nature and didn’t manifest itself until outside temperatures rose in late March, Terlep explained.
Coachmen did not identify the sidewall supplier but said an alternative supplier was identified.
Coachmen also had to recall 5,200 camping trailers in 2005 due to a defective lift system. An alternate lift system was found and incorporated in its camping trailers, he said. Production at the company’s Viking RV plant was suspended 16 weeks while the problem was corrected.
After incurring a pretax loss of $5.9 million in the first half of 2005 due to heavier retail and wholesale incentives, Terlep said the company has instituted tighter programs and will minimize discounting to wholesalers. The practice reduced finished goods inventory by $19 million in the second half of 2005.
As previously announced, Coachmen closed its Georgie Boy Manufacturing facility in Edwardsburg, Mich., in 2005 and relocated production to Middlebury, Ind. The company completed the move in the fourth quarter and is ramping up production in the new facility. The move should result in operating efficiencies of $5 million annually, he said. The daily unit output of the group’s towable plants improved by 75% when compared with the first nine months of the year.
Skinner and other Coachmen management also outlined steps in their “Intensive Recovery Plan” to improve the company’s overall performance, which included the divestiture of several of the company’s manufactured housing interests.
“Proceeds from the divestiture of underperforming business segments will generate between $30 million and $40 million, which will be used to restore the company’s cash position,” Skinner said. “The company had $2.8 million in cash on hand at year end, compared with $15 million at year-end 2004. The remaining proceeds will be used to fund overall growth or enhance value to shareholders.”