Drew Industries Inc., parent to Elkhart, Ind.-based supplier Lippert Components Inc., reported higher earnings and a 17% increase in sales for its third quarter, lifted by strong performance in the RV sector and revenue from acquisitions during the past year.
Net income during the quarter, ended Sept. 30, totaled $15.5 million, or 64 cents per diluted share, compared to net income of $14.8 million, or 62 cents per diluted share, for the previous year. Consolidated net sales in the third quarter of 2014 increased to $294 million, primarily resulting from a 21% increase RV revenue, which accounted for 90% of 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% increase in industrywide 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 CEO. “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 billion for the 12 months ended Sept. 30, 2014, up from $492 million in 2007.
“In addition to the positive impact from the industrywide 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 Lippert.
The company’s content per travel trailer and fifth-wheel RV in the 12 months ended Sept. 30, 2014, increased by $111, or 4%, to $2,814, compared to the prior 12-month period. Content per motorhome RV reached $1,436 in the 12 months 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 Corp.
“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 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.”
The company noted that as a result of facility start-up and realignment costs, as well as higher health insurance and material costs, Drew’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 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 industrywide 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.”
Mereness noted that “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.”
Drew also acquired Duncan Systems during the third quarter. The company provides replacement motorhome windshields, awnings, and RV, heavy truck, and specialty vehicle glass and windows.
“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,” Lippert said. “The acquisition of Duncan Systems opens a new aftermarket channel for us, enabling us to fulfill insurance claims for replacement parts.”