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Drew Industries Inc. Reports Q4 Sales Up 37%

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February 16, 2010 by   Leave a Comment

Drew Industries logoDrew Industries Inc., a leading supplier of components for recreational vehicles and manufactured homes, today (Feb. 16) reported net income for the fourth quarter ended Dec. 31 of $2.9 million.

Net income for the quarter was reduced as a result of charges related to plant closings and start-ups and employee relocation, according to a news release.

In the 2008 fourth quarter, the White Plains, N.Y.-based company reported a net loss of $9.2 million, including charges for goodwill impairment and executive retirement aggregating $4.9 million after taxes and charges for plant closings and severance aggregating $800,000 after taxes.

Net sales in the 2009 fourth quarter were $105 million, up 37% from the $77 million in the fourth quarter of 2008. This sales increase was largely the result of an 88% increase in industrywide wholesale shipments of travel trailers and fifth-wheel RVs, partially offset by a 27% decline in industry-wide production of manufactured homes.

“During 2008 and the first eight months of 2009, RV dealers and their lenders focused on reducing inventories, resulting in a decline of an estimated 70,000 units,” said Fred Zinn, Drew president and CEO. “In 2009 alone, dealer inventories of travel trailers and fifth-wheel RVs declined by an estimated 30,000 units, implying that retail demand significantly exceeded industrywide wholesale shipments. Over the past few months, it appears that dealer inventories have stopped declining, and as a result, production levels have increased. Evidence of improved industry conditions and Drew’s market share growth has certainly been seen in January 2010, as our net sales increased to $44 million, well more than double our January 2009 net sales.”

“We are extremely pleased to end 2009 on such a positive note, particularly after the very bleak landscape we faced in the RV industry just a year ago, when most of our customers were shut down for extensive periods of time, and industrywide production of RVs was running at the lowest level in decades” said Jason Lippert, president and CEO of Drew’s subsidiaries, Lippert Components and Kinro.

“While the RV industry has a long way to go to get back to where it was a few years ago, industry-wide production levels for travel trailers and fifth-wheel RVs have been well above year-earlier levels for five consecutive months,” Lippert said. “Our customers are running their factories five days a week, even in the seasonally slow winter months. Of course, increased retail demand for RVs is the key to a sustained recovery. In this regard, reports from January and February 2010 RV trade shows have been encouraging; however, we are eager to see how the RV consumer responds in the upcoming spring selling season.”

“While industrywide production of RVs has increased, production in the manufactured housing industry has continued to decline. In addition, we are likely to see further year-over-year declines in industrywide production of manufactured housing over the next several months, partially due to the scarcity of retail financing, and continued reductions in inventory on dealer lots,” said Zinn. “While we tend to focus on our accomplishments in the RV industry, we are extremely pleased that, despite the severe conditions in the manufactured housing industry, Drew continued to be profitable in this segment by carefully controlling costs.”

Costs of the company’s primary raw materials increased in the fourth quarter of 2009, which had a modest impact on fourth quarter results. “Steel and aluminum prices increased 10-30% in the second half of 2009, depending on the type,” said Scott Mereness, executive vice president and COO of Lippert Components and Kinro. “Over the past few months, steel and aluminum prices have leveled off, and some analysts are projecting that there will be no significant changes at least in the near term. We anticipate that these increases in the cost of steel and aluminum will have a modest impact on our future profit margins as compared to the 2009 fourth quarter.”

Full-Year Commentary

For the year, Drew reported a net loss of $24.1 million, due to the first quarter goodwill impairment charge of $29.4 million, net of taxes. Excluding the goodwill impairment charge, net income for 2009 was $5.2 million. During the year, the company also incurred expenses totaling $5.5 million, net of taxes, resulting from plant closings and start-ups, staff reductions and relocations, increased bad debts and obsolete inventory and tooling, largely due to the unprecedented conditions in the RV and manufactured housing industries.

For 2008, Drew reported net income of $11.7 million,  including $4.9 million of after-tax charges for impairment of goodwill and executive retirement. Excluding these charges, net income for the year was $16.6 million.

Net sales for the year ended Dec. 31, 2009 were $398 million, a 22% decline from the $511 million in 2008. This compares to a 25% decline in industrywide wholesale shipments of travel trailers and fifth-wheel RVs, and a 39% decline in industry-wide production of manufactured homes.

“Even before the sharp deterioration in the economy, we had made significant strides, including consolidating numerous manufacturing facilities and substantially reducing fixed costs,” said Zinn. “Throughout 2009, we continued to focus on both controlling costs and increasing our content per RV and manufactured home. We reduced fixed costs by $9 million in 2009 compared to 2008, and these cost reduction initiatives will generate further savings of about $3 million in 2010. We are also particularly pleased that our content per travel trailer and fifth-wheel RV increased nearly 9% in 2009.”

“Our efforts to identify and introduce new products were evident at the annual RV show held in Louisville in December, where we displayed numerous new and improved RV products that focused on consumer safety and convenience, including our Quick-Bite™ coupler, an improved suspension system, entry doors with alarm systems and keyless entry, a “new-look” line of windows, and an innovative new wall slide-out mechanism,” said Lippert. “In our manufactured housing segment, we recently introduced a new line of entry doors, and increased our efforts to expand our share of the market for replacement windows, doors and bath products.”

Drew’s RV Segment also manufactures specialty trailers for hauling boats, personal watercraft, snowmobiles and equipment.

In 2009, nearly 93% of the company’s RV segment net sales were components for travel trailer and fifth-wheel RVs, with the balance primarily comprised of components for motorhomes and specialty trailers. The RV segment represented 78% of the company’s consolidated net sales in the fourth quarter of 2009, up from 62% in the 2008 fourth quarter.

Drew’s RV segment reported operating profit of $7.2 million, on net sales of $82 million in the 2009 fourth quarter, compared to an operating loss of $3.1 million on net sales of $47 million in the comparable period in 2008. Segment operating profit in the 2009 fourth quarter was reduced by $1.3 million due to expenses related to facility closings and start-ups, and employee relocations.

“The increase in RV segment operating profit compared to last year was greater than we would typically expect on the $35 million increase in net sales, primarily because of fixed cost reductions and lower warranty costs,” said Joe Giordano, Drew CFO and treasurer. “In addition, operating results for the 2008 fourth quarter were adversely impacted by unusually high raw material costs and the sharp decline in sales, which adversely impacted production efficiencies.”

“RV segment net sales in the fourth quarter of 2009 increased 74% over the depressed levels in the 2008 fourth quarter,” continued Giordano. “This percentage increase was less than the 88% increase in industrywide wholesale shipments, in part because of the greater-than-usual lag between the time we shipped our products to the RV manufacturers in the 2008 fourth quarter and the time they sold the RVs to dealers, and in part because our marine trailer operation on the West Coast continues to be severely impacted by industry declines.”

For the full 2009 year, Drew’s RV segment reported net sales of $308 million, a decrease of 16% from 2008, compared to a 25% decline in industrywide wholesale shipments of travel trailers and fifth-wheel RVs. Excluding the impact of the acquisition in 2008, net sales by Drew’s RV segment declined 20%.

“Acquisitions, new product introductions and market share growth have enabled us to increase our product content for travel trailers and fifth-wheel RVs by 9%, to $2,066 per unit in 2009, compared to $1,902 per unit in 2008,” added Lippert.

RV segment operating profit was $20.0 million for the full year 2009, after giving effect to $5.3 million of expenses related to plant closings and start-ups, staff reductions and relocations, increased bad debts and obsolete inventory and tooling.

“The improvements experienced in the RV industry and our RV business over the past few months were a very welcome relief after the difficult conditions in the first half of 2009 and much of 2008,” noted Zinn. “Given our sales growth in January 2010 and efficient operations, we anticipate solid first quarter results in this segment.”


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