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Drew Industries: Higher Q1 Sales and Earnings

Drew Industries logoDrew Industries Inc., a leading supplier of components for recreational vehicles and manufactured homes, today (May 2) reported net income for the first quarter ended March 31, 2011, of $9.4 million or 42 cents per share, a 28% increase over net income of $7.3 million or 33 cents per share reported in the first quarter of 2010.

Net sales in the 2011 first quarter increased 15% to $169 million, from $146 million in the first quarter of 2010, due to increases in industrywide shipments of travel trailer and fifth-wheel RVs, as well as continuing increases in Drew’s average product content in these types of RVs. Components for travel trailer and fifth-wheel RVs comprised 81% of the company’s consolidated net sales in the first quarter of 2011, while manufactured housing components accounted for 12%, and the balance consisted of motorhome components and other products.

“Over the last 10 years, our average product content in new travel trailer and fifth-wheel RVs has more than tripled due to market share gains, acquisitions and new product introductions, and this growth continued into 2011,” said Fred Zinn, Drew president and CEO. “For the three months ended March 31, 2011, our average product content in these types of RVs was 6% higher than in the same period in 2010, which helped boost our profit growth in the quarter. Further, our sales remained strong in April 2011, reaching approximately $60 million, about 6% above April 2010 sales, despite having one less shipping day this year than the prior year.”

“With every new product or product enhancement, our goal is to add value for our customers and for the RV user,” said Jason Lippert, CEO of Drew’s subsidiaries, Lippert Components and Kinro. “If we do it right, momentum builds over time, and these products become ‘standard’ on a wide range of RVs. We are very encouraged by our recent market share gains in the products we’ve introduced or enhanced during the past few years, such as RV entry doors, our new in-wall slide-out mechanism, furniture and mattresses, leveling systems, and electric jacks and stabilizers.”

About the RV Segment

The RV Segment represented 87% of the company’s consolidated net sales in the first quarter of 2011, compared to 85% in the 2010 first quarter. In the 2011 first quarter, more than 90% 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 mid-size buses, as well as specialty trailers.

RV Segment net sales in the first quarter of 2011 reached $146 million, an increase of $22 million, or 18% compared to the 2010 first quarter.

“Our sales increase was significantly more than the 10 percent increase in industry-wide wholesale shipments, largely because of acquisitions, and market share gains in both our towable RV and motorhome product lines,” said Lippert. The company’s content per travel trailer and fifth-wheel RV for the 12 months ended March 2011 reached $2,210, compared to $2,168 for the 12 months ended December 2010.

“Our new products for motorhomes are also attracting a lot of attention, and we continue to see strong growth opportunities in that market,” he added.

Drew’s RV Segment reported operating profit of $15.3 million in the first quarter of 2011, an increase of 19% over the $12.9 million reported in the 2010 first quarter. “The increase in RV Segment operating profit was less than we would typically expect on a $22 million increase in net sales, largely because of higher raw material costs,” said Joseph Giordano, Drew CFO and treasurer. “We expect to be successful at substantially reducing the impact of higher raw material costs, as we have over the last several years.”

On Jan. 28, Drew acquired Home-Style, the leading manufacturer of RV furniture and mattresses in the growing Northwest RV market. “During 2011, the acquisition of Home-Style should add about $60 to our average product content in towable RVs,” added Lippert. “Further, we expect the acquisition to be accretive to earnings this year, as we build on the experience and purchasing power we’ve gained in that product line since our acquisition of Seating Technology in 2008. With our debt-free balance sheet and significant credit availability, we have the capability to continue to invest in profitable growth opportunities.”

Drew’s net sales in the first quarter of 2011 were also aided by a 10% increase in industrywide wholesale shipments of travel trailer and fifth-wheel RVs, compared to the first quarter of 2010. The impact on Drew of this increase in wholesale RV shipments was partially offset by an estimated 14 percent decline in industry-wide wholesale shipments of manufactured homes.

“The long-term health of the RV industry depends on consumer demand for RVs,” added Zinn. “And retail sales of travel trailer and fifth-wheel RVs have been up year-over-year for 12 consecutive months through February 2011, the last month for which retail data is available. In anticipation of a strong spring and summer selling season, RV dealers across the U.S. and Canada added an aggregate of about 23,000 travel trailer and fifth-wheel RVs to their inventories between December 2010 and February 2011, somewhat more than the 20,000 units added during the same period a year earlier. Therefore, strength in retail sales of RVs during the spring and summer selling season is key to maintaining high production levels, and we are encouraged by recent reports of industry analysts which cite continued strength in retail sales, as well as improving credit conditions.”

While industrywide production of RVs has increased, production in the manufactured housing industry has declined, partly due to continued weakness in the housing market and difficult credit conditions. “Despite adverse conditions in the manufactured housing industry, Drew has remained profitable in this segment by carefully controlling overhead costs, improving production efficiencies, expanding our product line, and gaining market share for after-market replacement products,” said Scott Mereness, President of Lippert Components and Kinro. “We continue to see opportunity for growth in the manufactured housing industry over the next few years, as the real estate market begins to recover.”

“We are delighted that Drew’s sales and profits in the first quarter of 2011 were nearly back to the pre-recession results we reached in the first quarter of 2007, and our balance sheet is even stronger than it was then,” said Zinn. “Our pay-for-performance compensation plans incentivize management to focus on producing bottom-line results by controlling costs, improving operating efficiencies, and increasing our return on invested capital. However, we still face uncertainty due to various conditions beyond our control, such as increases in gas prices. Further, our raw material costs increased sharply since November 2010, adding $2 million to cost of sales in the first quarter of 2011. While the effect of these higher costs on Drew’s second quarter cost of sales will be greater than in the first quarter, we have worked with our customers to significantly reduce the impact of these incremental cost increases through sales price increases and increased market share, and we have implemented new production efficiencies.”

Because of the seasonality of the RV and manufactured housing industries, historically, the company’s operating results in the first and fourth quarters have been the weakest, while the second and third quarters are traditionally stronger. However, because of fluctuations in RV dealer inventories and volatile raw material costs, seasonal industry trends may be different than in prior years.

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