Market Overview

Drew Industries Reports Third Quarter 2012 Results

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WHITE PLAINS, N.Y., Nov. 1, 2012 /PRNewswire/ -- Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RVs) and manufactured homes, today reported net income of $9.8 million, or $0.43 per diluted share for the third quarter ended September 30, 2012, an increase of more than 70 percent compared to net income of $5.6 million, or $0.25 per diluted share in the third quarter of 2011.

Net sales in the 2012 third quarter increased 36 percent to $226 million, compared to the 2011 third quarter. This sales growth was primarily the result of a 43 percent sales increase by Drew's RV Segment. The RV Segment accounted for 86 percent of Drew's consolidated net sales this quarter. RV Segment sales growth was largely due to a 19 percent increase in industry-wide wholesale shipments of travel trailer and fifth-wheel RVs, Drew's primary RV market, as well as market share gains, acquisitions, and increased sales to adjacent industries. Excluding the impact of acquisitions, consolidated net sales increased 27 percent.

In October 2012, consolidated net sales reached approximately $85 million, an increase of 35 percent from October 2011 sales, as a result of strong growth in the Company's RV Segment. Acquisitions did not have a significant impact on sales growth in October 2012, as most acquisitions were completed more than a year ago. Drew estimates that industry-wide RV production increased about 30 percent in October. This increase in industry-wide RV production was apparently in response to very strong initial orders following the 2012 annual RV open house in Elkhart, Indiana in late September. On the other hand, Drew estimates that industry-wide production of manufactured homes declined 5 percent to 10 percent in September and October 2012, after more than a year of solid growth. This decline resulted from an increase in production last September and October in response to orders by FEMA, which did not recur in 2012. Recent increases in site-built single-family housing starts are an encouraging sign for the manufactured housing industry.

The Company's content per travel trailer and fifth-wheel RV in the 12 months ended September 30, 2012 increased by $440, or 19 percent compared to the prior 12 month period. Content per motorhome RV reached $1,000 in the 12 months ended September 2012, and exceeded $1,200 in the 2012 third quarter, which was nearly double the year-earlier quarter. The Company's content per manufactured home remained consistent with the year-earlier period. The change in content per unit is a measure of the Drew's overall market share growth across its existing product lines.

"Sales in the 2012 third quarter increased nearly $60 million compared to the year-earlier quarter, on which the Company achieved incremental operating profit of $5.7 million. This is an improvement from the year-over-year incremental margin we achieved in the second quarter of 2012, and in the first quarter of 2012," said Fred Zinn, Drew's President and CEO. "Greater-than-expected demand continued to reduce production efficiencies during the 2012 third quarter; however, we expect production efficiencies to further improve before the 2013 selling season."

"We are no longer 'looking up hill,' so to speak," said Jason Lippert, CEO of Drew's subsidiaries, Lippert Components and Kinro. "In certain product lines we've begun to realize the benefits of resource planning and lean manufacturing initiatives, as well as the investments we're making to expand capacity. The continued strong demand for our products throughout the third quarter is very encouraging. As a result, our production levels remained very high. Implementing our plans to improve production efficiencies has taken longer than expected because it's very difficult to re-organize production flow while still operating near capacity at several key plants. In the seasonally slower months ahead, we plan to retain more production employees than typical in the slow winter season in order to level out production by building to stock certain high volume products. Retaining employees will also enable us to minimize hiring and training costs when demand ramps up in early 2013. In the fourth quarter of 2012, we also expect to incur costs related to facility re-alignment, and process improvement, as we did in the third quarter. We're targeting our efforts to help ensure that we achieve stronger production efficiencies next year and beyond."

The effective tax rate for the 2012 third quarter was lower than in the prior year as a result of higher federal and state tax credits, as well as declines in tax reserve requirements.

The Company had $33 million in cash and no debt at September 30, 2012. Cash balances typically increase in the fourth quarter due to seasonal reductions in working capital requirements. Return on equity for the 12 months ended September 30, 2012 improved to 12.5 percent, from 11.1 percent in the year-earlier period.

Industry Trends

For the three months ended August 2012, the last month for which industry statistics are available, retail sales of travel trailer and fifth-wheel RVs were up 5 percent from the year-earlier period, compared to the 15 percent increase in industry-wide wholesale production over the same period. Dealer inventories of these types of towable RVs increased by about 23,000 units during the 12 months ended August 2012, compared to a 13,000 unit increase in retail sales for the same period. Industry surveys indicate that RV dealers are cautious, but generally comfortable with their level of towable RV inventory in relation to the increases they anticipate in retail sales. Future RV industry-wide production levels will depend largely on the strength of retail sales levels. Historically, retail sales of RVs have been closely tied to consumer confidence, which according to one measure reached a five-year high this October. 

Conference Call & Webcast

Drew will provide an online, real-time webcast of its third quarter 2012 earnings conference call on the Company's website, www.drewindustries.com, on Thursday, November 1, 2012 at 1:00 p.m. Eastern Time. The call can also be accessed at www.companyboardroom.com.

Institutional investors can access the call via the password-protected site, StreetEvents (www.streetevents.com). A replay of the call will be available by telephone by dialing (888) 286-8010 and referencing access code 91653989. A replay of the webcast will also be available on Drew's website.

About Drew

Drew, through its wholly-owned subsidiaries, Kinro and Lippert Components, supplies a broad array of components for RVs, manufactured homes, modular housing, truck caps and buses, and trailers used to haul boats, livestock, equipment and other cargo. Currently, from 31 factories located throughout the United States, Drew serves most major national manufacturers of RVs and manufactured homes. Additional information about Drew and its products can be found at www.drewindustries.com.  

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, acquisitions, plans and objectives of management, markets for the Company's Common Stock and other matters. Statements in this press release that are not historical facts are "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 27A of the Securities Act of 1933 (the "Securities Act").

Forward-looking statements, including, without limitation, those relating to our future business prospects, net sales, expenses and income (loss), cash flow, and financial condition, whenever they occur in this press release are necessarily estimates reflecting the best judgment of our senior management at the time such statements were made, and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by forward-looking statements. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider forward-looking statements, therefore, in light of various important factors, including those set forth in this press release, and in our subsequent filings with the Securities and Exchange Commission.

There are a number of factors, many of which are beyond the Company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors include, in addition to other matters described in this press release, pricing pressures due to domestic and foreign competition, costs and availability of raw materials (particularly steel, steel-based components, and aluminum) and other components, availability of credit for financing the retail and wholesale purchase of products for which we sell our components, availability and costs of labor, inventory levels of retail dealers and manufacturers, levels of repossessed manufactured homes and RVs, changes in zoning regulations for manufactured homes, sales declines in the industries to which we sell our products, the financial condition of our customers, the financial condition of retail dealers of products for which we sell our components, retention and concentration of significant customers, the successful integration of acquisitions, realization of efficiency improvements, interest rates, oil and gasoline prices, and the outcome of litigation. In addition, international, national and regional economic conditions and consumer confidence affect the retail sale of products for which we sell our components.

DREW INDUSTRIES INCORPORATED

OPERATING RESULTS

(unaudited)























Nine Months Ended



Three Months Ended



Last

(In thousands, except

September 30,



September 30,



 Twelve

per share amounts)

2012



2011



2012



2011



Months





















Net sales

$     700,889



$     521,570



$     226,323



$     166,689



$     860,485

Cost of sales

568,101



409,631



184,781



134,688



699,915

Gross profit

132,788



111,939



41,542



32,001



160,570

Selling, general and administrative expenses

81,499



69,283



26,594



22,798



103,389

Operating profit

51,289



42,656



14,948



9,203



57,181

Interest expense, net

246



197



116



78



341

Income before income taxes

51,043



42,459



14,832



9,125



56,840

Provision for income taxes

18,448



16,488



5,061



3,506



20,157

Net income

$       32,595



$       25,971



$         9,771



$         5,619



$       36,683





















Net income per common share:



















Basic

$          1.45



$          1.17



$          0.43



$          0.25



$          1.63

Diluted

$          1.43



$          1.16



$          0.43



$          0.25



$          1.62





















Weighted average common shares outstanding:



















Basic

22,507



22,254



22,563



22,273



22,457

Diluted

22,724



22,427



22,800



22,447



22,667





















Depreciation and amortization

$       19,211



$       15,069



$         6,850



$         5,053



$       24,664

Capital expenditures

$       22,010



$       17,721



$         8,856



$         7,178



$       28,606

 

 

DREW INDUSTRIES INCORPORATED

SEGMENT RESULTS

(unaudited)























Nine Months Ended



Three Months Ended



Last



September 30,



September 30,



 Twelve

(In thousands)

2012



2011



2012



2011



Months





















Net sales:



















RV Segment:



















RV OEMs:



















Travel trailers and fifth-wheels

$     514,653



$     387,746



$     162,719



$     117,946



$     626,759

Motorhomes

22,568



12,244



8,376



3,304



26,152

RV aftermarket

14,714



12,169



5,355



4,108



17,205

Adjacent industries

57,008



27,497



18,507



10,870



69,814

Total RV Segment net sales

608,943



439,656



194,957



136,228



739,930





















MH Segment:



















Manufactured housing OEMs

61,678



56,112



21,188



21,487



82,653

Manufactured housing aftermarket

12,730



12,693



3,990



4,254



16,221

Adjacent industries

17,538



13,109



6,188



4,720



21,681

Total MH Segment net sales

91,946



81,914



31,366



30,461



120,555





















Total net sales

$     700,889



$     521,570



$     226,323



$     166,689



$     860,485





















Operating Profit:



















RV Segment

$       47,209



$       40,370



$       12,945



$         7,745



$       52,554

MH Segment

10,942



8,963



3,781



3,786



13,959

Total segment operating profit

58,151



49,333



16,726



11,531



66,513

Corporate

(6,513)



(5,846)



(1,989)



(1,803)



(8,150)

Accretion related to contingent consideration

(1,350)



(1,394)



(430)



(445)



(1,842)

Other non-segment items

1,001



563



641



(80)



660

Total operating profit

$       51,289



$       42,656



$       14,948



$         9,203



$       57,181

 

DREW INDUSTRIES INCORPORATED

BALANCE SHEET INFORMATION

(unaudited)















September 30,



December 31,

(In thousands)

2012



2011



2011













Current Assets











Cash and cash equivalents

$       32,584



$         1,472



$          6,584

Accounts receivable, net

50,421



41,965



22,620

Inventories

98,393



97,765



92,052

Deferred taxes

10,125



12,142



10,125

Prepaid expenses and other current assets

11,165



6,960



6,187

Total current assets

202,688



160,304



137,568

Fixed assets, net

101,931



90,884



95,050

Goodwill

21,177



20,137



20,499

Other intangible assets, net

71,755



80,746



79,059

Deferred taxes

14,496



15,744



14,496

Other assets

6,422



3,544



4,411

Total assets

$     418,469



$     371,359



$       351,083













Current liabilities











Accounts payable, trade

$       33,392



$       30,106



$        15,742

Accrued expenses and other current liabilities

47,074



39,413



36,169

Total current liabilities

80,466



69,519



51,911

Long-term indebtedness

-



8,075





Other long-term liabilities

20,369



20,005



21,876

Total liabilities

100,835



97,599



73,787

Total stockholders' equity

317,634



273,760



277,296

Total liabilities and stockholders' equity

$     418,469



$     371,359



$       351,083

 

 

DREW INDUSTRIES INCORPORATED

SUMMARY OF CASH FLOWS

(unaudited)











Nine Months Ended



September 30,

(In thousands)

2012



2011









Cash flows from operating activities:







Net income

$       32,595



$       25,971

Adjustments to reconcile net income to cash flows provided by operating activities:







Depreciation and amortization

19,211



15,069

Stock-based compensation expense

4,703



3,352

Deferred taxes

-



26

Other non-cash items

889



751

Changes in assets and liabilities, net of acquisitions of businesses:







Accounts receivable, net

(27,801)



(24,440)

Inventories

(5,753)



(20,581)

Prepaid expenses and other assets

(6,993)



(1,996)

Accounts payable

17,650



18,755

Accrued expenses and other liabilities

10,086



(628)

Net cash flows provided by operating activities

44,587



16,279









Cash flows from investing activities:







Capital expenditures

(22,010)



(17,721)

Acquisitions of businesses

(1,473)



(49,340)

Proceeds from maturity of short-term investments

-



5,000

Proceeds from sales of fixed assets

5,397



1,248

Other investing activities

(88)



(438)

Net cash flows used for investing activities

(18,174)



(61,251)









Cash flows from financing activities:







Exercise of stock options and deferred stock units

2,840



504

Proceeds from line of credit borrowings

37,702



48,675

Repayments under line of credit borrowings

(37,702)



(40,600)

Payment of contingent consideration related to acquisitions

(3,253)



(226)

Purchase of treasury stock

-



(626)

Other financing activities

-



(163)

Net cash flows (used for) provided by financing activities

(413)



7,564









Net increase (decrease) in cash

26,000



(37,408)









Cash and cash equivalents at beginning of period

6,584



38,880

Cash and cash equivalents at end of period

$       32,584



$         1,472

 

 

DREW INDUSTRIES INCORPORATED

SUPPLEMENTARY INFORMATION

(unaudited)

























Nine Months Ended



Three Months Ended



Last





September 30,



September 30,



 Twelve





2012



2011



2012



2011



Months

























Industry Data(1)(in thousands of units):





















Industry Wholesale Production:





















Travel trailer and fifth-wheel RVs

188.2



167.7



56.7



47.5



233.4



Motorhome RVs

21.3



20.0



6.8



5.3



26.1



Manufactured homes

42.1

(2)

37.1



14.4

(2)

13.9



56.6

(2)

Industry Retail Sales:





















Travel trailer and fifth-wheel RVs

180.9

(3)

167.9



62.9

(3)

59.4



210.4

(3)













































































Twelve Months Ended

















September 30,

















2012



2011





























Drew Content Per Industry Unit Produced:















Travel trailer and fifth-wheel RV



$         2,685



$         2,244







Motorhome RV



$         1,002



$            617







Manufactured home



$         1,459

(2)

$         1,472



















































































September 30,



December 31,













2012



2011



2011

























Balance Sheet Data:





















Current ratio



2.5



2.3



2.7



Total indebtedness to stockholders' equity



-



-



-



Days sales in accounts receivable



22.6



22.7



17.1



Inventory turns, based on last twelve months



7.5



6.0



6.3















































































2012





























Estimated Full Year Data:



















Capital expenditures



$ 27 - 28 million







Depreciation and amortization



$ 25 - 26 million







Stock-based compensation expense



$ 6 - 7 million







Annual tax rate



37%









































































(1) Industry wholesale production data for travel trailer and fifth-wheel RVs and motorhome RVs provided by the Recreation Vehicle Industry Association ("RVIA").  Industry wholesale production data for manufactured homes provided by the Institute for Building Technology and Safety ("IBTS").  Industry retail sales data provided by Statistical Surveys, Inc.

(2) September wholesale data for manufactured homes has not been published yet, therefore 2012 manufactured housing wholesale data includes an estimate for September 2012 units.

(3) September retail sales data for RVs has not been published yet, therefore 2012 retail data for RVs includes an estimate for September 2012 retail units.

SOURCE Drew Industries Incorporated

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