Drew Industries Inc., White Plains, N.Y., Thursday (July 30) reported net income of $2.6 million for the second quarter ended June 30, compared to net income for the second quarter of 2008 of $9.2 million.
The net income decline was attributed to a $50 million decrease in net sales to $101 million, 33% below the $151 million reported in the 2008 second quarter. This decline in net sales resulted from a 44% drop in industry-wide wholesale shipments of travel trailers and fifth-wheels and an estimated 43% decrease in industry-wide production of manufactured homes, as compared to the 2008 second quarter.
“We are very pleased with the substantial improvement in our operating results during the second quarter,” said Fred Zinn, Drew president and CEO. “We continued to gain market share in many of our product categories, introduced several new products, and further strengthened our balance sheet. At the same time, our cost control programs have been expanded and are ahead of schedule.”
“Industry-wide shipments of travel trailers and fifth-wheel RVs for the month of June 2009 reached a seasonally adjusted annual rate of about 148,000 units, greater than any other month this year,” said Jason Lippert, president and CEO of Drew’s subsidiaries, Lippert Components and Kinro. “Industry production levels during the last several months have far exceeded our expectations, and we hope this is related to increased retail demand. Although we cannot predict whether this production level will be maintained, the RV industry is currently in a much better position than anyone expected a few months ago.
“Last year at this time many of our customers began to significantly cut back production schedules in response to lower demand from dealers. While there are uncertainties, it appears that many of our customers will continue to produce five days a week for the next couple of months. Beyond that it is difficult to anticipate demand, particularly during the winter months.”
The company also continues to reduce expenses through facility consolidations, staff reductions and synergies between its subsidiaries, Lippert Components and Kinro. Cost reduction measures benefited second quarter 2009 results by over $2 million compared to the same period in 2008, and are expected to benefit full year 2009 results by nearly $10 million.
New Products Introduced
“We continued to gain market share and introduce new products in the second quarter,” said Lippert. “New products included the debut of the Tow-N-Stow convertible storage unit, and the introduction of the innovative QuickBite coupler. We are currently considering several other new products, and we will take every prudent step to ensure that we increase our opportunity for growth, while maintaining outstanding customer service and product quality.”
Net loss for the current six-month period was $34.1 million. Excluding the first quarter 2009 goodwill impairment charge of $29.4 million, net of taxes, and $3 million, net of taxes, of extra expenses in the first quarter of 2009 related to plant consolidations, staff reductions, increased bad debts and obsolete inventory and tooling due to the unprecedented conditions in the RV and manufactured housing industries, the net loss for the current six-month period was $1.7 million.
Due to the seasonality of the RV and manufactured housing industries, the company’s results in the first and fourth quarters are typically the weakest, while second and third quarter results are traditionally stronger.
“The economy, while somewhat better than during the 2008-2009 winter, remains weak,” said Zinn. “In addition, many RV and manufactured housing dealers and consumers continue to have difficulty obtaining credit, which could make it tough for some dealers during the traditional seasonal slowdowns starting later this year. Therefore, our industries are likely to face additional challenges in the latter part of 2009 and the beginning of 2010. Further, our raw material costs continue to be volatile, declining modestly during the 2009 second quarter, but recently rising by 5-15%, depending upon the type of raw material.”
More than 90% of the company’s RV segment net sales are components for travel trailer and fifth-wheel RVs, with the balance comprised of components for motorhomes, and specialty trailers. The RV segment represented 78% of consolidated net sales in the second quarter of 2009.
Drew’s RV segment reported operating profit of $6.3 million, on net sales of $79 million in the 2009 second quarter, compared to operating profit of $13.0 million on net sales of $111 million in the comparable period in 2008. Excluding sales price changes and acquisitions, the “organic” decline in RV Segment net sales was $43 million, or 39%, due to the sharp decline in industry shipments.
For the first six months of 2009, the RV segment reported net sales of $131 million, a decrease of 44% from the same period in 2008. RV Segment operating profit was $1.7 million for the first six months of 2009, including $2.9 million of extra expenses in the first quarter of 2009 related to plant consolidations, staff reductions, increased bad debts and obsolete inventory and tooling. Excluding these extra expenses, the company’s RV segment had an operating profit of $4.6 million in the first six months of 2009.
“Through acquisitions, new product introductions and our position as an increasingly important supplier to leading RV manufacturers, we increased our product content for travel trailers and fifth-wheel RVs to $2,071 per unit for the last 12 months, compared to $1,891 per unit in the prior 12 month period,” said Lippert. “Our success over the years has been a direct result of our ability to gain market share, introduce new products and improve operational efficiency, as well as our financial strength. We are striving for continued success in each of these areas.”
Jason Lippert, president and CEO of Lippert Components and Kinro, subsidiaries of Drew Industires Inc., sees evidences of an upturn in the RV industry.
“We’re glad to leave behind the very slow winter months, when many of our customers closed for extended periods,” said Lippert, whose observation was contained at the end of a financial release filed today (April 24) by the parent company. In that quarter, Lippert and Kinro incurred approximately $4 million in extra expenses due to plant consolidations, staff reductions, higher bad debts and obsolete inventory and tooling, he noted.
“In recent weeks we have also experienced an increase in demand for our products, which has helped us improve production efficiencies,” he said. “While it’s too soon to know whether this will continue, it is encouraging to see our facilities producing more and have our employees working more consistent hours.”
He added that Drew is beginning “to realize the benefits of synergies between Lippert Components and Kinro – in terms of increased efficiencies, reduced costs, product development and coordinated sales efforts. We’re extremely proud of the way our management team and all our employees have responded to the very difficult economic conditions, and we are confident in their ability to position Drew to continue to outperform the industries we serve.”
In the release, Drew, based in White Plains, N.Y., stated that it expects operating results for the quarter ended March 31 to reflect a material, non-cash goodwill impairment charge. The company is in the process of finalizing the charge, but it is anticipated to include all or substantially all of the goodwill recorded on the company’s consolidated balance sheet, which totaled $45 million. If, subject to final review, the entire goodwill balance is written-off, the impairment charge would be approximately $29 million, net of taxes, or $1.36 per share.
“The impairment charge is non-cash, and will not affect our operations, liquidity, cash flows, or the company’s borrowing availability under its line of credit and shelf-loan facility,” said Fred Zinn, Drew’s president and CEO. “In the first quarter we generated significant cash flow, increasing our cash balances by $6 million, to more than $14 million at March 31. We also reduced total debt by over $2 million in the first quarter, to less than $7 million. We expect to continue to have strong cash flow over the coming quarters. After giving effect to the impairment charge, our stockholders’ equity will remain well over $200 million, and in this economy, maintaining a strong balance sheet will continue to be a primary focus of our entire management team.”
“The non-cash impairment charge is largely the result of uncertainties in the economy, and in the RV and manufactured housing industries,” said Joe Giordano, Drew CFO and treasurer. “Another key factor in the evaluation of goodwill is the discount rate used to determine the present value of projected cash flows. Since the end of 2008, the discount rate required for this calculation has increased substantially, contributing to the reduction in the fair value of our projected cash flows, which is one basis of our goodwill evaluation.”
Drew will report its full first quarter results on May 4.
Goshen, Ind.-based Lippert Components Inc. will launch a new consumer-use cargo trailer, the Tow-N-Stow, that converts and stores itself as a storage unit, at the National Hardware Show May 5-7 at the Las Vegas Convention Center. The unit’s substructure is made up of steel and composites that reinforce an outer shell consisting of a lightweight, durable polymer made from recycled product. The chassis employs a load-dampening torsion axle and steel substructure produced entirely in the U.S. at Lippert’s manufacturing plants. The unit provides nearly 50 cubic feet of lockable, watertight cargo or storage capacity. The Tow-N-Stow’s most innovative feature is its ability to convert from a cargo trailer into an upright, outdoor storage unit in less than one minute. Lippert has domestic and foreign patents pending and is beginning the manufacturing process of the Tow-N-Stow this month. The Tow-N-Stow will be available for retail distribution into home improvement and sporting goods markets. ”Fuel costs and a softening economy provide Lippert Components with a unique opportunity to offer a product that helps consumers maximize fuel conservation with smaller automobiles,” said Jason Lippert, CEO of Lippert Components, “which should be very advantageous for our customers. The Tow-N-Stow lightweight consumer trailer will also utilize our existing manufacturing capacity, making production very efficient.”