Drew Industries Reports Record Second Quarter
Record Earnings and Sales, New Products Highlight Quarter
WHITE PLAINS, N.Y., July 26 -- Drew Industries Incorporated continued its string of record quarters led by sales and earnings growth in both its recreational vehicle and manufactured housing segments. Drew reported a 15 percent increase in sales and record profits for the second quarter ended June 30, 2005.
Drew, a leading national supplier of recreational vehicle and manufactured housing components, reported record net earnings of $8.7 million, or $0.81 per diluted share, on record net sales of $163 million for the second quarter of 2005, compared with net earnings of $8.2 million, or $0.77 per diluted share, on net sales of $142 million for the same quarter of last year.
"We are pleased with our growth during the quarter, and with our preparation for future expansion through product development, market share growth and the addition of the Venture Welding acquisition," said Leigh J. Abrams, Drew's President and CEO. "During the quarter, we captured additional market share for our recently introduced slide-out mechanisms and leveling devices for motorhomes, as well as for RV axles, bath products, and steps.
"Our specialty trailer operation in Indiana, opened earlier this year, has continued to expand, and our new window factory in Arizona commenced operations only a few days ago. This is our first factory in the Arizona market. During the quarter, we incurred start-up costs of nearly $850,000 related to these new products and the new facility, and we are likely to incur additional start-up costs over the next few quarters. However, based on our track record of successful investments in facilities and product development, we believe these moves will result in substantial returns in the future."
For the six months ended June 30, 2005, Drew reported net income of $14.5 million, or $1.35 per diluted share, compared to net income of $14.1 million, or $1.34 per diluted share, in the same period last year. Net revenue was $318 million for the first six months of 2005, compared to $250 million for the same period of 2004. Results for the first six months of 2005 include first quarter charges of $2.6 million relating to previously announced legal proceedings, which reduced net income by $0.12 per diluted share.
Recreational Vehicle Products Segment
Drew supplies windows, doors, chassis, slide-out mechanisms and power units, leveling devices, bath products, axles, steps and electric stabilizer jacks for the recreational vehicle (RV) market. Approximately 95 percent of Drew's RV product sales are to the travel trailer and fifth wheel segment of the RV industry, but many of the Company's recently introduced products are targeted for motorhomes. Drew's RV segment also manufactures and markets specialty trailers for equipment hauling, boats, personal watercraft and snowmobiles.
Drew reported net sales of $111 million this quarter for its RV segment, an increase of 18 percent over the $94 million reported in the second quarter of last year. Organic growth, excluding the impact of acquisitions and sales price increases, was approximately nine percent.
The RV segment's sales slowed in June and early July due to reduced production by RV manufacturers, primarily in response to dealers' efforts to reduce inventories of 2005 models in advance of the introduction this summer of 2006 models. Some RV manufacturers also expanded their typical July 4th holiday shutdown from one week to two weeks, including the last week of June, causing RV segment sales to fall three to five percent short of Drew's initial expectations this quarter.
Operating margin for Drew's RV products segment was 9.5 percent in the second quarter of 2005, an improvement from the first quarter margin, but below the 11.1 percent achieved in the second quarter last year. The operating margin declined from last year in part due to the more than $600,000 of start-up costs related to new RV product introductions, as well as an increase in the allowance for doubtful accounts of approximately $600,000 in this segment. Further, the substantial raw material cost increases incurred in 2004 were passed on to customers largely without margin, leaving net profits intact, but reducing Drew's overall margin percentage.
"Production efficiencies improved throughout our RV operations, even with the time and expense related to new product introductions," said Abrams. "Our operating management continues to do an outstanding job of controlling costs while simultaneously moving ahead with expansion programs which will enable us to continue to exceed industry growth."
Manufactured Housing Products Segment
Drew supplies vinyl and aluminum windows and screens, chassis, chassis parts, and bath and shower units to the manufactured housing (MH) industry, as well as chassis and windows for modular homes and offices. Drew reported that new homes produced by the MH industry were flat in April and May 2005 after several consecutive monthly increases, although industry production is up about four percent year-to-date. This follows an almost six-year slump that saw industry production decline by 65 percent, according to the Manufactured Housing Institute.
"While the monthly production of the MH industry did not continue to increase this quarter as it has in prior months, it still appears that lower repossessions, reduced dealer inventories and improved financing practices are likely to have a positive impact on industry-wide production levels. While it's too early to determine if a sustained trend is on the immediate horizon, we continue to expect modest growth for the MH industry in 2005," said Abrams.
Drew's MH segment sales increased nine percent to $52 million this quarter compared with $48 for last year's quarter. Excluding the impact of price increases and acquisitions, sales were approximately the same as last year's second quarter. The operating profit margin of the MH products segment increased to 12.7 percent this quarter, compared to 11.4 percent in the second quarter last year. The increase in margin resulted partly from improved production efficiencies, which offset the impact of $200,000 of start-up costs and $250,000 of additional bad-debt expense in this segment.
"The acquisition during the quarter of the assets and business of Venture Welding further enhances Drew's position as the leading supplier of components to the MH industry," said Abrams. "Also, the patented cold-camber technology acquired in this transaction will enable us to build superior chassis and continue to improve production efficiencies and fits with our emphasis on innovation and product development leadership.
"We were pleased with our record results in the quarter, and are optimistic the investments we've made -- in the second quarter as well as in the past -- will lead us into a successful second half of 2005."
Conference Call
Drew will provide an online, real-time webcast and rebroadcast of its first quarter earnings conference call tomorrow, Wednesday, July 27, 2005, at 11:00 a.m. Eastern time, on the Company's website, http://www.drewindustries.com/ . Individual investors can also listen to the call at http://www.companyboardroom.com/ .
Institutional investors can access the call via the password-protected event management site, StreetEvents (http://www.streetevents.com/ ). A replay of the conference call will be available by telephone by dialing (888) 286-8010 and referencing access code 10232788. A replay 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 and manufactured homes. Drew's products include vinyl and aluminum windows and screens, doors, chassis, chassis parts, RV slide-out mechanisms and power units, leveling devices, bath and shower units, axles, steps, electric stabilizer jacks and trailers for equipment hauling, boats, personal watercrafts and snowmobiles, as well as chassis and windows for modular homes and offices. From 50 factories located throughout the United States and one factory in Canada, Drew serves most major national manufacturers of RVs and manufactured homes in an efficient and cost- effective manner. Additional information about Drew and its products can be found at http://www.drewindustries.com/ .
DREW INDUSTRIES INCORPORATED
OPERATING RESULTS
(unaudited)
Six Months Ended Quarter Ended
June 30, June 30, Last Twelve
2005 2004 2005 2004 Months
(In thousands, except per share amounts)
Net sales $317,569 $249,710 $163,023 $141,687 $598,729
Cost of sales 246,750 192,271 125,222 109,127 468,970
Gross profit 70,819 57,439 37,801 32,560 129,759
Selling, general
and administrative
expenses 45,277 33,269 22,671 18,410 84,819
Other income 31 428 - - 31
Operating
profit 25,573 24,598 15,130 14,150 44,971
Interest expense,
net 1,999 1,413 1,055 788 3,725
Income before
income taxes 23,574 23,185 14,075 13,362 41,246
Provision for
income taxes 9,097 9,042 5,414 5,211 15,804
Net income $14,477 $14,143 $8,661 $8,151 $25,442
Net income per
common share:
Net Income:
Basic $1.39 $1.38 $.83 $.79 $2.46
Diluted $1.35 $1.34 $.81 $.77 $2.39(1)
Weighted average
common shares
outstanding:
Basic 10,403 10,258 10,443 10,271 10,354
Diluted 10,696 10,588 10,730 10,616 10,653
Depreciation
and amortization $5,451 $4,497 $2,877 $2,362 $10,254
Capital
expenditures $9,605 $10,322 $4,513 $7,220 $26,341
(1) Includes after tax charges related to legal proceedings of $1.3 million in the first quarter of 2005 and $.9 million in the fourth quarter of 2004, net of the related reduction in incentive compensation. These charges reduced diluted net income per share by $.21.
DREW INDUSTRIES INCORPORATED
SEGMENT RESULTS
(unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
(In thousands) 2005 2004 2005 2004
Net sales
RV Segment $216,257 $166,971 $110,999 $93,798
MH Segment 101,312 82,739 52,024 47,889
Total $317,569 $249,710 $163,023 $141,687
Operating Profit
RV Segment $18,906(1) $18,265 $10,512 $10,406
MH Segment 10,463(2) 9,057 6,593 5,445
Total segments
operating profit 29,369 27,322 17,105 15,851
Amortization of intangibles (645) (466) (360) (261)
Corporate and other (3,182) (2,686) (1,615) (1,440)
Other income 31 428 - -
Operating profit $25,573 $24,598 $15,130 $14,150
(1) After a charge of $.5 million related to legal proceedings, less the related reduction in incentive compensation.
(2) After a charge of $2.1 million related to legal proceedings, less the related reduction in incentive compensation.
DREW INDUSTRIES INCORPORATED
BALANCE SHEET INFORMATION
(unaudited)
June 30, December 31,
(In thousands, except ratios) 2005 2004 2004
Current assets
Cash and cash equivalents $7,019 $60 $2,424
Accounts receivable, trade,
less allowance 46,563 37,903 26,099
Inventories 72,273 75,036 72,332
Prepaid expenses and other
current assets 10,280 6,916 10,552
Total current assets 136,135 119,915 111,407
Fixed assets, net 106,675 90,055 99,781
Goodwill 23,439 16,926 16,755
Other intangible assets 10,134 6,933 6,070
Other assets 7,755 2,915 4,040
Total assets $284,138 $236,744 $238,053
Current liabilities
Notes payable, including
current maturities of
long-term indebtedness $11,460 $12,183 $12,121
Accounts payable, accrued
expenses and other current
liabilities 59,895 55,200 42,082
Total current liabilities 71,355 67,383 54,203
Long-term indebtedness 69,170 57,496 59,303
Other long-term obligations 1,984 2,363 2,503
Total liabilities 142,509 127,242 116,009
Total stockholders' equity 141,629 109,502 122,044
Total liabilities and
stockholders' equity $284,138 $236,744 $238,053
Current ratio 1.9 1.8 2.1
Total indebtedness to
stockholders' equity 0.6 0.6 0.6
DREW INDUSTRIES INCORPORATED
SUMMARY OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
2005 2004
Cash flows from operating activities:
Net income $14,477 $14,143
Depreciation and amortization 5,451 4,497
Deferred taxes (1,018) -
Loss on disposal of fixed assets 104 119
Stock based compensation expense 628 537
Changes in assets and liabilities:
Accounts receivable, net (20,464) (18,043)
Inventories 987 (30,951)
Prepaid expenses and other assets 1,233 1,614
Accounts payable, accrued expenses and other
liabilities 16,722 20,562
Net cash flows provided by operating activities 18,120 7,522
Cash flows from investing activities:
Capital expenditures (9,605) (10,322)
Acquisition of businesses (17,793) (21,588)
Proceeds from sales of fixed assets 643 148
Other investments (51) (289)
Net cash flows used for investing activities (26,806) (32,051)
Cash flows from financing activities:
Proceeds from line of credit and other
borrowings 121,925 115,330
Repayments under line of credit and other
borrowings (112,719) (85,647)
Exercise of stock options 4,399 1,169
Other (324) -
Net cash flows provided by financing
activities 13,281 30,852
Net increase (decrease) in cash 4,595 (8,721)
Cash and cash equivalents at beginning of period 2,424 8,781
Cash and cash equivalents at end of period $7,019 $60