Drew Industries Reports 2014 First Quarter Results

Drew Industries Reports 2014 First Quarter Results

PR Newswire — May 1, 2014

ELKHART, Ind., May 1, 2014 /PRNewswire/ — Drew Industries Incorporated (NYSE:
DW), a leading supplier of components for recreational vehicles (RVs) and
manufactured homes, today reported net income of $16.2 million, or $0.67 per
diluted share, for the first quarter ended March 31, 2014, compared to net
income of $8.4 million, or $0.36 per diluted share, for the first quarter ended
March 31, 2013. Net income for the 2013 first quarter was net of an after-tax
charge of $0.7 million in connection with executive succession. Excluding this
charge, net income in the first quarter of 2013 would have been $9.1 million, or
$0.39 per diluted share.

Net sales in the first quarter of 2014 increased to $285 million, 13 percent
higher than the 2013 first quarter. This sales growth was primarily the result
of a 16 percent sales increase by Drew’s RV Segment, which accounted for 91
percent of consolidated net sales this quarter. RV Segment sales growth was
primarily due to a 13 percent increase in industry-wide wholesale shipments of
travel trailer and fifth-wheel RVs, Drew’s primary RV market. In addition, sales
of recently introduced components for towable and motorhome RVs increased, as
did sales to adjacent industries and the aftermarket. Recently completed
acquisitions did not have a significant impact on the increase in net sales in
the first quarter of 2014.

Following a 14 percent increase and a 31 percent increase in retail demand for
towable RVs and motorhome RVs, respectively, for the full year 2013, retail
demand continued to increase during the first quarter of 2014. Despite the harsh
winter weather that affected the industry at the beginning of the year, retail
demand for towable RVs increased an estimated 3 – 5 percent, while retail demand
for motorhome RVs increased an estimated 10 – 15 percent, in the first quarter
of 2014. In anticipation of the traditionally stronger Spring and Summer selling
seasons, coupled with an industry-wide expectation of pent-up demand stemming
from the prolonged winter, RV dealers across the United States and Canada have
increased their inventory levels over the past six months. Nevertheless, most
industry analysts report that dealer inventories of towable RVs are in-line with
anticipated strong retail demand. Future industry-wide production levels for RVs
will depend on the strength of retail sales, which are sensitive to economic
conditions and consumer confidence.

“After a slower than expected start to 2014 due to severe weather conditions,
industry-wide production of RVs, as well as shipments of our products, have
rebounded in recent months,” said Jason Lippert, Drew’s Chief Executive Officer.
“The increase in our net sales in February and March were largely due to the
projected increased retail demand, but also included sales to OEM customers who
were making up for production delays that occurred in January.”

In April 2014, Drew’s consolidated net sales reached approximately $113 million
— 13 percent higher than April 2013 — as a result of continued solid growth in
the Company’s RV Segment. Drew estimates that industry-wide wholesale shipments
of travel trailer and fifth-wheel RVs increased approximately 11 percent in
April 2014 compared to April 2013.

“Our operating profit margins in the first quarter of 2014 were 9.1 percent
compared to 5.4 percent in the first quarter of 2013,” said Scott Mereness,
Drew’s President. “The 2014 first quarter operating profit margins were higher
than the comparable period of 2013 largely due to efficiency improvements,
declines in the costs of implementing facility consolidations and realignments,
and the spreading of fixed costs over a larger sales base. In addition, the
investments we have made in our business over the past several years are
continuing to benefit our bottom-line results. We added capacity ahead of
projected demand, which enabled us to efficiently fulfill customer orders as
demand has increased. While certain capacity expansion plans may have a
short-term negative impact on margins, over the long term these investments
should allow us to improve our operating results, as well as continue to improve
our customer service. Further, we are continuing to implement lean initiatives
and automation where practical, and we are increasing our efforts to improve
employee retention. We believe these efforts, combined with our continual
evaluation of production capacity, will help us meet expected growth in customer
demand, as well as improve operating efficiencies.”

“During the first quarter we completed two acquisitions at a combined purchase
price of $49 million, which together had annual sales of approximately $29
million in 2013, of which $13 million were to Drew, and represent significant
profit potential,” said Jason Lippert.

The two operations acquired by Drew during the 2014 first quarter were:

— Innovative Design Solutions (IDS) – A designer, developer and
manufacturer of electronic systems encompassing a wide variety of RV,
automotive, medical and industrial applications; and
— Star Design – A manufacturer of thermoformed sheet plastic products for
the RV, bus and specialty vehicle industries.
“Based on our commitment to provide outstanding customer service and product
quality, we are confident in our ability to gain market share in these new
product lines,” added Jason Lippert. “Both of these acquisitions were
immediately accretive to earnings.”

“In April 2014, we also entered into a six-year aluminum extrusion supply
agreement, and concurrently sold certain of our aluminum extrusion assets,” said
Scott Mereness. “As part of our ongoing evaluation of capacity and asset
utilization, we concluded that our aluminum extrusion assets were not meeting
our internal financial standards. The sale of our extrusion-related assets will
free up needed manufacturing space, as well as allow management to focus on
other opportunities with higher growth and profit potential. We anticipate
recording a pre-tax loss of approximately $2 million in the second quarter of
2014 on the sale of the aluminum extrusion-related assets. The outsourcing of
these aluminum extrusion requirements will immediately be accretive to

“Our operating management team was further strengthened this quarter with the
addition of Rob Ford at IDS and Kevin Gipson at Star Design, as well as their
experienced and highly capable teams,” concluded Jason Lippert. “Dedicated
people have always been key to our success.”

Conference Call & Webcast
Drew will provide an online, real-time webcast of its first quarter 2014
earnings conference call on the Company’s website, www.drewindustries.com, on
Thursday, May 1, 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 99004354. A replay of the
webcast will also be available on Drew’s website.

About Drew Industries
From 34 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
manufactured homes. In addition, Drew manufactures components for adjacent
industries including buses; trailers used to haul boats, livestock, equipment
and other cargo; truck campers; truck caps; 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 leveling 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 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 retention, inventory levels of retail dealers and manufacturers,
levels of repossessed products for which we sell our components, changes in
zoning regulations for manufactured homes, seasonality and cyclicality 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
pace of and successful integration of acquisitions, 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.




Three Months Ended

March 31, Last Twelve

(In thousands, except per share amounts) 2014 2013 Months
—- —- ——

Net sales $285,377 $252,586 $1,048,367

Cost of sales 222,177 204,995 819,649
——- ——- ——-

Gross profit 63,200 47,591 228,718

Selling, general and administrative expenses 37,154 32,860 137,229

Executive succession – 1,143 733
— —– —

Operating profit 26,046 13,588 90,756

Interest expense, net 120 118 353
— — —

Income before income taxes 25,926 13,470 90,403

Provision for income taxes 9,762 5,098 32,492
—– —– ——

Net income $16,164 $8,372 $57,911
======= ====== =======

Net income per common share:

Basic $0.68 $0.36 $2.46
===== ===== =====

Diluted $0.67 $0.36 $2.42
===== ===== =====

Weighted average common shares outstanding:

Basic 23,774 23,017 23,511
====== ====== ======

Diluted 24,188 23,455 23,936
====== ====== ======

Depreciation and amortization $7,240 $6,552 $28,188
====== ====== =======

Capital expenditures $6,824 $8,938 $30,481
====== ====== =======




Three Months Ended

March 31, Last Twelve

(In thousands) 2014 2013 Months
—- —- ——

Net sales:

RV Segment:


Travel trailers and fifth-wheels $212,130 $184,601 $755,312

Motorhomes 14,384 10,951 51,370

RV aftermarket 7,094 5,729 26,699

Adjacent industries 25,428 22,722 95,346
—— —— ——

Total RV Segment net sales 259,036 224,003 928,727
——- ——- ——-

MH Segment:

Manufactured housing OEMs 16,517 17,779 78,983

Manufactured housing aftermarket 3,467 3,652 13,534

Adjacent industries 6,357 7,152 27,123

Total MH Segment net sales 26,341 28,583 119,640
—— —— ——-

Total net sales $285,377 $252,586 $1,048,367
======== ======== ==========

Operating Profit:

RV Segment $23,729 $12,264 $79,713

MH Segment 2,317 2,467 11,776
—– —– ——

Total segment operating profit 26,046 14,731 91,489

Executive succession – (1,143) (733)

Total operating profit $26,046 $13,588 $90,756
======= ======= =======




March 31, December 31,

(In thousands) 2014 2013 2013
—- —- —-


Current assets

Cash and cash equivalents $6,132 $4,035 $66,280

Accounts receivable, net 75,763 54,249 31,015

Inventories, net 99,017 110,207 101,211

Deferred taxes 12,557 10,073 12,557

Prepaid expenses and other current assets 9,411 9,882 14,467
—– —– ——

Total current assets 202,880 188,446 225,530

Fixed assets, net 129,060 112,783 125,982

Goodwill 48,445 21,177 21,545

Other intangible assets, net 75,456 66,759 59,392

Deferred taxes 12,236 14,993 12,236

Other assets 9,249 7,412 8,499
—– —– —–

Total assets $477,326 $411,570 $453,184
======== ======== ========


Current liabilities

Accounts payable, trade $48,406 $40,256 $24,063

Dividend payable – – 46,706

Accrued expenses and other current liabilities 56,187 49,326 47,422
—— —— ——

Total current liabilities 104,593 89,582 118,191

Long-term indebtedness 10,000 – –

Other long-term liabilities 25,025 21,122 21,380
—— —— ——

Total liabilities 139,618 110,704 139,571

Total stockholders’ equity 337,708 300,866 313,613
——- ——- ——-

Total liabilities and stockholders’ equity $477,326 $411,570 $453,184
======== ======== ========




Three Months Ended

March 31,

(In thousands) 2014 2013
—- —-

Cash flows from operating activities:

Net income $16,164 $8,372

Adjustments to reconcile net income to cash flows provided by (used for)
operating activities:

Depreciation and amortization 7,240 6,552

Stock-based compensation expense 2,625 3,155

Other non-cash items 679 509

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

Accounts receivable, net (42,790) (32,403)

Inventories, net 4,417 (12,840)

Prepaid expenses and other assets 4,743 3,880

Accounts payable, trade 23,374 18,531

Accrued expenses and other liabilities 10,858 3,192

Net cash flows provided by (used for) operating activities 27,310 (1,052)
—— ——

Cash flows from investing activities:

Capital expenditures (6,824) (8,938)

Acquisitions of businesses (46,657) –

Proceeds from sales of fixed assets 707 31

Other investing activities (4) (29)
— —

Net cash flows used for investing activities (52,778) (8,936)
——- ——

Cash flows from financing activities:

Exercise of stock options and deferred stock units 3,320 4,959

Proceeds from line of credit borrowings 79,469 96,333

Repayments under line of credit borrowings (69,469) (96,333)

Payment of special dividend (46,706) –

Payment of contingent consideration related to acquisitions (1,098) (875)

Other financing activities (196) –

Net cash flows (used for) provided by financing activities (34,680) 4,084
——- —–

Net decrease in cash (60,148) (5,904)

Cash and cash equivalents at beginning of period 66,280 9,939
—— —–

Cash and cash equivalents at end of period $6,132 $4,035
====== ======




Three Months Ended

March 31, Last Twelve

2014 2013 Months
—- —- ——

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

Industry Wholesale Production:

Travel trailer and fifth-wheel RVs 75.3 66.7 276.6

Motorhome RVs 11.1 8.5 40.9

Manufactured homes 13.3 (3) 12.9 60.6 (3)

Industry Retail Sales:

Travel trailer and fifth-wheel RVs 44.1 (2) 42.8 254.7 (2)

Impact on dealer inventories 31.2 (2) 23.9 21.9 (2)

Motorhome RVs 7.5 (2) 6.8 32.2 (2)

Twelve Months Ended

March 31,

2014 2013
—- —-

Drew Estimated Content Per Industry Unit Produced:

Travel trailer and fifth-wheel RV $2,731 $2,693

Motorhome RV $1,256 $1,297

Manufactured home $1,300 $1,446

March 31, December 31,

2014 2013 2013
—- —- —-

Balance Sheet Data:

Current ratio 1.9 2.1 1.9

Total indebtedness to stockholders’ equity 0.0 – –

Days sales in accounts receivable 22.1 19.7 16.5

Inventory turns, based on last twelve months 8.1 7.9 7.9


Estimated Full Year Data:

Capital expenditures $ 32 – $ 36 million

Depreciation and amortization $ 30 – $ 32 million

Stock-based compensation expense $ 11 – $ 13 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. 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) March 2014 retail sales data for RVs has not been published yet, therefore 2014 retail data for RVs includes an estimate for March 2014 retail units.

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

SOURCE Drew Industries Incorporated

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