Drew Industries Inc. reported net income of $7.2 million for the third quarter ended Sept. 30 nearly triple the third quarter 2008 net income of $2.6 million.
The marked increase in 2009 third quarter net income was achieved despite a 2% decline in net sales, to $122 million. Market share gains enabled the company to increase net sales in its RV Segment by 10% in the third quarter, as compared to the third quarter of 2008, the company reported in a news release.
The company’s Manufactured Housing Segment also gained market share, although net sales declined by 29%, due to an estimated 39% decrease in industrywide production of manufactured homes.
“Continued market share gains, effective cost control programs, and our focus on profitable expansion opportunities, were key elements that enabled us to achieve this very gratifying profit improvement,” said Fred Zinn, Drew president and CEO. “Compared to the second quarter of 2009, our net income increased $4.6 million on a $21 million increase in net sales. While our profits have not yet recovered to the record pace of earnings we achieved in 2007, we have made critical strides in controlling costs and increasing our content per RV and manufactured home.”
“We are proud of the accomplishments of our management teams in both segments of our business,” said Jason Lippert, president and CEO of Drew’s subsidiaries, Lippert Components and Kinro. “They have taken advantage of numerous opportunities to improve profitability during very difficult times in both industries. The strength of our management team is what truly allows us to continue to out-perform our end markets.”
“RV industry production levels during the last several months have continued to exceed expectations, reportedly due to both a restocking of inventory by dealers, and improvement in retail demand,” added Lippert. “While recent retail industry data is not available, we believe that dealers would likely not be restocking inventory so late in the season unless retail demand had improved. Further, many of our RV customers are expecting higher fourth quarter production levels than they did in the fourth quarter of 2008.”
“Our raw material costs continue to be volatile,” said Joe Giordano, Drew’s CFO and treasurer. “Last years’ third quarter net income was reduced by $0.06 to $0.08 per diluted share due to high material costs which impacts the comparison to the 2009 third quarter. Then, earlier this year, raw material costs declined, but have risen 10% to 30% in the last few months, depending upon the type of raw material. We anticipate that these recent cost increases will likely have a modest impact on our profit margins going forward.”
Meanwhile, for the first nine months of 2009, the company reported a net loss of $27.0 million due to the first quarter 2009 goodwill impairment charge of $29.4 million, net of taxes. Excluding the first quarter 2009 goodwill impairment charge, and $3.0 million, net of taxes, of extra expenses in the first quarter of 2009 related to plant consolidations, staff reductions, increased bad debts, and obsolete inventory and tooling, due to the unprecedented conditions in the RV and manufactured housing industries, net income for the current nine-month period was $5.4 million.
Because of the seasonality of the RV and manufactured housing industries, the company’s results in the second and third quarter are traditionally stronger, while the first and fourth quarters are typically the weakest.
“Historically, the RV industry has been a leading indicator of broader economic recoveries,” said Zinn. “Therefore, the recent improvements in this market are encouraging. A prolonged recovery in the RV market depends on the strength of retail demand, so we are pleased that the popularity of RVing remains high … and we continue to be ‘bullish’ on the long-term future of the RV industry.”
For the nine months ended Sept. 30, over 90% of the company’s RV Segment net sales were components for travel trailer and fifth-wheel RVs, with the balance primarily comprised of components for motorhomes, and specialty trailers. The RV Segment represented 78% of the company’s consolidated net sales in the third quarter of 2009.
Drew’s RV Segment reported operating profit of $11.1 million, on net sales of $94 million in the 2009 third quarter, compared to operating profit of $4.6 million on net sales of $86 million in the comparable period in 2008.
“RV Segment operating profit increased $6.5 million in the 2009 third quarter compared to the same period in 2008, which was more than we would typically expect on the increase in segment net sales,” said Giordano. “The increased profitability was partly due to the fixed cost reductions in this segment, as well as other decreases in group insurance and warranty costs, partially offset by higher overtime costs and equipment write-downs. In addition, higher raw material costs in the 2008 third quarter impacted quarter-to-quarter comparisons.”
For the first nine months of 2009, the RV Segment reported net sales of $226 million, a decrease of 30% from the same period in 2008. RV Segment operating profit was $12.8 million for the first nine months of 2009, including $2.9 million of extra expenses in the first quarter of 2009 related to plant consolidations, staff reductions, increased bad debts and obsolete inventory and tooling. Excluding these extra expenses, the company’s RV Segment had an operating profit of $15.7 million in the first nine months of 2009, a decrease of 51% from the $31.8 million during the same period of 2008.
“Acquisitions, new product introductions and market share growth have enabled us to increase our product content for travel trailers and fifth-wheel RVs by 12 percent to $2,088 per unit for the last 12 months, compared to $1,870 per unit in the prior 12 month period,” said Lippert. “We plan to continue to pursue profitable growth opportunities.”