Drew Industries Inc., parent to RV and manufactured housing suppliers Kinro Inc. and Lippert Components Inc., today (Aug. 2) reported net income of $11.7 million, or $0.52 per diluted share, for its second quarter ended June 30 compared to net income of $11.0 million, or $0.49 per diluted share, in the second quarter of 2011.
Net sales in the quarter increased to $251 million, a record for any quarter and 35% higher than the same period a year ago. This sales growth was primarily the result of a 39% sales increase by Drew’s RV segment, which accounted for 87% of Drew’s consolidated net sales. RV segment sales growth was largely due to acquisitions, market share gains, and an 8% increase in industrywide wholesale shipments of travel trailer and fifth-wheel RVs, Drew’s primary RV market. In addition, sales to adjacent markets more than doubled this quarter, largely as a result of acquisitions and an increase in sales of axles to non-RV markets. Drew’s MH Segment also reported strong sales growth in the second quarter of 2012, due to an estimated 13% increase in industrywide production of manufactured homes. Excluding the impact of acquisitions, consolidated sales were up 23%.
Drew’s sales growth continued in July 2012, during which sales reached approximately $73 million, 49% higher than in July 2011. Excluding the impact of acquisitions, net sales for July 2012 were up approximately 35%. It is estimated that industrywide shipments of travel trailer and fifth-wheel RVs increased 20% to 25% in July 2012.
Drew’s operating profit margin was 7.6% in the second quarter of 2012 compared to 7.8 percent in the 2012 first quarter. Profit margins continue to be impacted by excess labor, overtime and related costs, all of which reduced net income by approximately $3 million, or $0.13 per diluted share compared to expectations. These higher costs were the result of lower operating efficiencies due to greater-than-expected demand which caused the company to hire, train and support 1,100 more employees than in the second quarter of 2011. Material cost as a percent of sales was also higher than in the first quarter, partly as a result of increased outsourcing costs due to capacity limitations, as well as higher scrap costs.
“As a result of higher-than-expected demand for our products throughout the second quarter of 2012, our operating margins did not improve sequentially as had been anticipated,” said Fred Zinn, Drew’s president and CEO. “In some product lines, demand exceeded our capability to efficiently produce. In order to maintain our commitments to customers for on-time delivery of quality products, we incurred substantial overtime costs and other inefficiencies. However, the increased demand for our products will ultimately benefit our long-term profitability, as we increase capacity and improve production efficiencies.”
“We continue to devote significant effort, and invest financial resources, to expand production capacity and improve production efficiencies,” said Jason Lippert, CEO of Drew’s subsidiaries, Lippert Components and Kinro. “Over the past year and a half we have added 700,000 square feet of production space, and plan to reopen some of the space we shuttered in prior years. Further, we are developing leaner manufacturing strategies, and exploring technology to improve our production capabilities. We have experienced growth surges in the past, and we have right-sized our capacity through investment in people, technology and facilities. While the full impact of such investments takes time to realize, we expect production efficiencies to improve, and we will continue to invest in order to realize our future potential.”
Drew will provide an online, real-time webcast of its second quarter 2012 earnings conference call on the company’s website, www.drewindustries.com today at 11 a.m. Eastern. The call can also be accessed at www.companyboardroom.com.
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