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Drew Industries Reports 2014 Third Quarter Results

10/31/2014

ELKHART, Ind., Oct. 31, 2014 /PRNewswire/ -- Drew Industries Incorporated (NYSE: DW), a leading supplier of components for recreational vehicles (RVs) and manufactured homes, reported net income of $15.5 million, or $0.64 per diluted share, for the third quarter ended September 30, 2014, compared to net income of $14.8 million, or $0.62 per diluted share, for the third quarter ended September 30, 2013.

Consolidated net sales in the third quarter of 2014 increased to $294 million, 17 percent higher than the 2013 third quarter. This growth in net sales primarily resulted from a 21 percent increase in net sales of Drew's RV Segment, which accounted for 90 percent of consolidated net sales this quarter. The four acquisitions completed by the Company in 2014 added $15 million in net sales in the third quarter of 2014, all of which related to Drew's RV Segment. RV Segment net sales growth was also due to a 7 percent increase in industry-wide wholesale shipments of RVs. Further, the Company's sales of new products for RVs increased, as did sales to adjacent industries and the aftermarket.

"Our net sales in 2014 continue to be strong, validating the effectiveness of our customer-focused business philosophy," said Jason Lippert, Drew's Chief Executive Officer. "Our sales growth continues to stem from the strong underlying demand in the RV industry, which has benefited from the improvement in consumer confidence over the past few years. For 2014, the RVIA projects the RV industry will produce 350,000 RVs, approximately the same number of RVs produced in 2007, while our RV Segment net sales have doubled over the same period to $1.0 billion for the twelve months ended September 30, 2014, up from $492 million in 2007."

"In addition to the positive impact from the industry-wide increases in RV production, our net sales to the RV and adjacent industries increased as a result of the introduction of new products and product enhancements, which have largely come through our investments in research and development, as well as from market share gains and acquisitions," continued Jason Lippert. "These same areas that generated our success historically continue to provide opportunities for us now and in the future. Furthermore, our heightened focus on the significant opportunities in the aftermarket and international RV markets has opened up broader potential for long-term growth."

The Company's content per travel trailer and fifth-wheel RV in the twelve months ended September 30, 2014, increased by $111, or 4 percent, to $2,814, compared to the prior twelve-month period. Content per motorhome RV reached $1,436 in the twelve months ended September 30, 2014, and $1,834 in the 2014 third quarter, reflecting market share gains through organic growth and the recent acquisition of the Power Gear® and Kwikee® brands from Actuant Corporation.

"As we plan for 2015 and beyond, we believe current economic and demographic factors point towards additional growth in the RV industry, as well as in the other industries we serve," added Jason Lippert. "Many of our OEM customers also believe there is further growth coming and have recently announced significant capacity expansions to meet the projected increases in demand. We also continue to identify ways to grow faster than the industries we serve and sustain our long track record of growth. We did just that in early 2014 with the acquisition of Innovative Design Solutions (IDS), a premier producer of state-of-the art electronic control devices for the RV industry, and IDS is continuing to develop new electronic control devices for the RV industry and adjacent industries for the future."

In October 2014, Drew's consolidated net sales reached approximately $115 million – 21 percent higher than October 2013 – as a result of continued growth in the Company's RV Segment. Excluding the impact of acquisitions, the Company's consolidated net sales for October 2014 were up approximately 15 percent. Future industry-wide wholesale production levels for RVs will depend on the strength of retail sales, which are sensitive to economic conditions and consumer confidence.

As a result of facility start-up and realignment costs, as well as higher health insurance and material costs, the Company's incremental margin was lower than its historical average. "As we discussed last quarter, we are making several substantial investments in our business during 2014," said Scott Mereness, Drew's President. "Two new leased facilities announced earlier in the year added more than 700,000 square feet of combined production and distribution capacity, and are now operational and expected to be fully occupied by the end of 2014. Further, we continue to expand and improve production capacity at other facilities in anticipation of growth, including investing in personnel in excess of current needs, as well as realigning certain operations and implementing improvements at many facilities. We continue to be forward looking, and by staying ahead of the curve on capacity, we expect to be able to fulfill customer orders efficiently as industry-wide demand increases."

Mereness added, "However, these investments come at a cost, lowering our net income per diluted share by $0.04 in the third quarter of 2014. In the fourth quarter of 2014, we also expect to incur costs related to facility re-alignment and process improvements, but as we complete these projects over the coming months, we expect these additional costs to decrease. Over the long term, we expect these investments will improve our operating efficiencies, which should result in improvements in customer service and operating profit margins."

"Our third quarter operating results were also impacted by increases in raw material costs, in particular steel and aluminum, as well as higher health insurance and other costs," continued Mereness. "Collectively, higher raw material and health insurance costs had a negative impact on net income in the third quarter of 2014 of $0.11 per diluted share, as compared to the third quarter of 2013. The increase in health insurance costs is primarily due to the increase in enrollment over the past year, which we believe is largely due to the new health care requirements. Although we are making every effort to offset higher costs through improved product designs and efficiency improvements, and by working with our vendors to identify opportunities to reduce input costs, we expect higher raw material costs and higher health insurance and other costs to impact the year-over-year comparison of operating results in the fourth quarter of 2014. Further, in response to the higher costs, we are implementing sales price increases which should be fully in place during the first quarter of 2015."

The effective tax rate for the 2014 third quarter was lower than in the prior-year third quarter, primarily as a result of higher federal tax credits.

"Consistent with our long-term strategic plan, during the third quarter of 2014 we completed the acquisition of certain assets and the business of Duncan Systems, which added replacement motorhome windshields, awnings, and RV, heavy truck, and specialty vehicle glass and windows to our product offerings, primarily to fulfill insurance claims," said Jason Lippert. "In the past few years, we increased our efforts to sell aftermarket replacement parts to warehouse distributors and retail RV dealers, as well as through our online store. The acquisition of Duncan Systems opens a new aftermarket channel for us, enabling us to fulfill insurance claims for replacement parts. Today, there are an estimated 10 million households in the United States and Canada that own an RV, creating a significant aftermarket opportunity for many of our products. Also, we believe the additional relationships Duncan Systems brings in the heavy trucking and specialty vehicle markets, as well as the broadened customer base of existing RV owners and expected synergies, will help accelerate Drew's growth."

Net sales of Duncan Systems for the twelve months ended July 31, 2014 were approximately $26 million. Drew estimates the aftermarket for the products it currently sells is in excess of $350 million. The purchase price was $18.0 million, plus contingent consideration based on future net sales. After funding this acquisition, the Company remains well-positioned with both financial capital and human resources to take advantage of additional investment opportunities. This acquisition was immediately accretive to Drew's earnings.

Conference Call & Webcast

Drew will provide an online, real-time webcast of its third quarter 2014 earnings conference call on the Company's website, www.drewindustries.com, on Friday, October 31, 2014, at 11:00 a.m. Eastern time.

Institutional investors can access the call via the password-protected site, StreetEvents (www.streetevents.com). A replay of the call will be available by dialing (888) 286-8010 and referencing access code 95921349. A replay of the webcast will also be available on Drew's website.

About Drew Industries

From 36 factories located throughout the United States, Drew Industries, through its wholly-owned subsidiary, Lippert Components®, supplies a broad array of components for the leading manufacturers of recreational vehicles and adjacent industries including buses; trailers used to haul boats, livestock, equipment and other cargo; truck campers; truck caps; manufactured housing; modular housing; and factory-built mobile office units. Drew's products include steel chassis; vinyl and aluminum windows; slide-out mechanisms and solutions; axles and suspension solutions; furniture and mattresses; thermoformed bath, kitchen and other products; manual, electric and hydraulic stabilizer and lifting systems; chassis components; entry, luggage, patio and ramp doors; electric and manual entry steps; awnings and slide toppers; electronic components; and other accessories. 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" with respect to our financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, 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, as amended, and Section 27A of the Securities Act of 1933, as amended, and involve a number of risks and uncertainties.

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. 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, employee benefits, employee retention, inventory levels of retail dealers and manufacturers, levels of repossessed products for which we sell our components, seasonality and cyclicality in the industries to which we sell our products, availability of transportation for products for which we sell our components, 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 pace of and successful integration of acquisitions and other growth initiatives, realization of efficiency improvements, the successful entry into new markets, the costs of compliance with increased governmental regulation, interest rates, oil and gasoline prices, the impact of international, national and regional economic conditions and consumer confidence on the retail sale of products for which we sell our components, and other risks and uncertainties discussed more fully under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013, and in our subsequent filings with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

 

DREW INDUSTRIES INCORPORATED

OPERATING RESULTS

(unaudited)














Nine Months Ended


Three Months Ended





September 30,


September 30,


Last Twelve

(In thousands, except per share amounts)


2014


2013


2014


2013


Months












Net sales


$     901,431


$     790,629


$     294,271


$     250,851


$   1,126,378

Cost of sales


703,736


625,479


231,788


194,725


880,724

Gross profit


197,695


165,150


62,483


56,126


245,654

Selling, general and administrative expenses


117,475


101,148


39,412


33,296


149,262

Sale of extrusion assets


1,954


-


-


-


1,954

Executive succession


-


1,876


-


-


-

Operating profit


78,266


62,126


23,071


22,830


94,438

Interest expense, net


324


279


130


76


396

Income before income taxes


77,942


61,847


22,941


22,754


94,042

Provision for income taxes


27,672


22,805


7,453


7,949


32,695

Net income


$       50,270


$       39,042


$       15,488


$       14,805


$       61,347












Net income per common share:











Basic


$          2.11


$          1.68


$          0.65


$          0.63


$          2.58

Diluted


$          2.07


$          1.65


$          0.64


$          0.62


$          2.53












Weighted average common shares outstanding:











Basic


23,870


23,243


23,935


23,451


23,800

Diluted


24,300


23,644


24,301


23,838


24,219












Depreciation and amortization


$       23,475


$       20,388


$         8,555


$         6,935


$       30,587

Capital expenditures


$       30,032


$       26,080


$       12,120


$         8,535


$       36,547

 

DREW INDUSTRIES INCORPORATED

SEGMENT RESULTS

(unaudited)














Nine Months Ended


Three Months Ended





September 30,


September 30,


Last Twelve

(In thousands)


2014


2013


2014


2013


Months












Net sales:











RV Segment:











RV OEMs:











Travel trailers and fifth-wheels


$     645,655


$     567,087


$     198,239


$     174,637


$     806,351

Motorhomes


49,679


35,278


19,622


12,388


62,338

RV aftermarket


32,777


19,785


16,015


6,904


38,326

Adjacent industries


84,355


72,882


29,728


24,034


104,113

Total RV Segment net sales


812,466


695,032


263,604


217,963


1,011,128












MH Segment:











Manufactured housing OEMs


58,550


62,941


21,269


22,571


75,854

Manufactured housing aftermarket


10,849


10,377


3,677


3,138


14,191

Adjacent industries


19,566


22,279


5,721


7,179


25,205

Total MH Segment net sales


88,965


95,597


30,667


32,888


115,250












Total net sales


$     901,431


$     790,629


$     294,271


$     250,851


$   1,126,378












Operating Profit:











RV Segment


$       72,048


$       54,098


$       20,287


$       19,234


$       86,198

MH Segment


8,172


9,904


2,784


3,596


10,194

Total segment operating profit


80,220


64,002


23,071


22,830


96,392

Sale of extrusion assets


(1,954)


-


-


-


(1,954)

Executive succession


-


(1,876)


-


-


-

Total operating profit


$       78,266


$       62,126


$       23,071


$       22,830


$       94,438

 

DREW INDUSTRIES INCORPORATED

BALANCE SHEET INFORMATION

(unaudited)










September 30,


December 31,

(In thousands)


2014


2013


2013








ASSETS







Current assets







Cash and cash equivalents


$               4


$       52,873


$        66,280

Accounts receivable, net


64,543


54,824


31,015

Inventories, net


127,078


96,164


101,211

Deferred taxes


12,557


10,073


12,557

Prepaid expenses and other current assets


18,410


8,396


14,467

Total current assets


222,592


222,330


225,530

Fixed assets, net


133,543


120,723


125,982

Goodwill


66,203


21,552


21,545

Other intangible assets, net


100,785


61,861


59,392

Other assets


26,286


23,230


20,735

Total assets


$     549,409


$     449,696


$       453,184








LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities







Accounts payable, trade


$       44,541


$       31,809


$        24,063

Dividend payable


-


-


46,706

Accrued expenses and other current liabilities


61,999


53,333


47,422

Total current liabilities


106,540


85,142


118,191

Long-term indebtedness


40,000


-


-

Other long-term liabilities


25,536


21,091


21,380

Total liabilities


172,076


106,233


139,571

Total stockholders' equity


377,333


343,463


313,613

Total liabilities and stockholders' equity


$     549,409


$     449,696


$       453,184

 

DREW INDUSTRIES INCORPORATED

SUMMARY OF CASH FLOWS

(unaudited)








Nine Months Ended



September 30,

(In thousands)


2014


2013






Cash flows from operating activities:





Net income


$       50,270


$       39,042

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





Depreciation and amortization


23,475


20,388

Stock-based compensation expense


7,909


8,224

Other non-cash items


2,837


1,787

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





Accounts receivable, net


(27,162)


(32,829)

Inventories, net


(16,526)


1,246

Prepaid expenses and other assets


(3,668)


4,090

Accounts payable, trade


16,276


10,042

Accrued expenses and other liabilities


13,553


9,681

Net cash flows provided by operating activities


66,964


61,671






Cash flows from investing activities:





Capital expenditures


(30,032)


(26,080)

Acquisitions of businesses


(100,157)


(1,451)

Proceeds from note receivable


750


-

Proceeds from sales of fixed assets


3,344


1,381

Other investing activities


(66)


(117)

Net cash flows used for investing activities


(126,161)


(26,267)






Cash flows from financing activities:





Exercise of stock options and deferred stock units, net of shares tendered for payment


3,555


11,817

Proceeds from line of credit borrowings


330,346


135,452

Repayments under line of credit borrowings


(290,346)


(135,452)

Payment of special dividend


(46,706)


-

Payment of contingent consideration related to acquisitions


(3,732)


(4,287)

Other financing activities


(196)


-

Net cash flows (used for) provided by financing activities


(7,079)


7,530






Net (decrease) increase in cash


(66,276)


42,934






Cash and cash equivalents at beginning of period


66,280


9,939

Cash and cash equivalents at end of period


$               4


$       52,873

 

DREW INDUSTRIES INCORPORATED

SUPPLEMENTARY INFORMATION

(unaudited)











Nine Months Ended


Three Months Ended






September 30,


September 30,


Last Twelve




2014


2013


2014


2013


Months


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












Industry Wholesale Production:












Travel trailer and fifth-wheel RVs


226.6


207.9


65.5


61.3


286.7


Motorhome RVs


34.0


28.9


10.7


9.4


43.4


Manufactured homes


48.0

(3)

45.3


17.3

(3)

16.2


62.9

(3)

Industry Retail Sales:












Travel trailer and fifth-wheel RVs


223.4

(2)

214.4


80.5

(2)

78.7


259.8

(2)

Impact on dealer inventories


3.2

(2)

(6.5)


(15.0)

(2)

(17.4)


26.9

(2)

Motorhome RVs


28.8

(2)

25.7


9.5

(2)

8.5


34.6

(2)































Twelve Months Ended










September 30,










2014


2013




Drew Estimated Content Per Industry Unit Produced:












Travel trailer and fifth-wheel RV






$         2,814


$         2,703




Motorhome RV






$         1,436


$         1,231




Manufactured home






$         1,205

(3)

$         1,401


































September 30,


December 31,








2014


2013


2013


Balance Sheet Data:












Current ratio






2.1


2.6


1.9


Total indebtedness to stockholders' equity






0.1


-


-


Days sales in accounts receivable






20.2


21.0


16.5


Inventory turns, based on last twelve months






8.2


7.8


7.9
































2014




Estimated Full Year Data:












Capital expenditures






$ 38 - $ 40 million




Depreciation and amortization






$ 31 - $ 33 million




Stock-based compensation expense






$ 11 - $ 13 million




Annual tax rate






36%





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

(2) September 2014 retail sales data for RVs has not been published yet, therefore 2014 retail data for RVs includes an estimate for September 2014 retail units.

(3) September 2014 wholesale data for manufactured homes has not been published yet, therefore 2014 manufactured housing wholesale data includes an estimate for September 2014 wholesale units.

 

SOURCE Drew Industries Incorporated

Joe Giordano, CFO & Treasurer (574) 535-1125, Drew@drewindustries.com

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