Drew Industries Inc. has reported a net loss of $36.7 million for the quarter ending March 31.
The results included a non-cash impairment charge of $29.4 million.
Excluding the impairment charge, the net loss for the 2009 first quarter was $7.3 million, compared to net income of $9.1 million in the first quarter of 2008. The White Plains, N.Y.-based supplier to the RV and manufactured housing industries attributes this first quarter 2009 loss to the severe recession and tight credit markets, which resulted in sharp declines in the two industries.
In the first quarter, the company also incurred $4.9 million of extra pre-tax expenses, which reduced after-tax results by $3 million. These extra expenses were due to the unprecedented conditions in the RV and manufactured housing industries, and included increased bad debts, obsolete inventory and tooling and costs related to plant consolidations and staff reductions.
Net sales in the first quarter declined 55% to $71 million, from net sales of $159 million in last year’s first quarter. This decline in net sales resulted primarily from a 61% drop in industrywide wholesale shipments of travel trailers and fifth-wheel RVs, and a 46% decrease in industrywide production of manufactured homes.
“RV and manufactured housing sales are particularly dependant on the availability of credit for dealers and consumers, and credit has remained difficult to obtain throughout the last eight months,” said Fred Zinn, Drew president and CEO. “When loans to dealers and consumers become more readily available, we expect that both the RV and manufactured housing industries will benefit substantially.”
In recent weeks, the RV industry has experienced some seasonal increase in demand, although the company cannot predict whether this increased demand will continue, as it is still very difficult for dealers and consumers to obtain financing. Historically, the RV and manufactured housing industries have been seasonal, with the first and fourth quarters normally the weakest, and second and third quarter results traditionally stronger.
During the first quarter of 2009, the company generated solid cash flow, increasing cash by $6 million, to more than $14 million, and reducing total debt by more than $2 million, to $6 million.
“This was accomplished by reducing inventory by $19 million during the quarter which more than offset the seasonal increase in accounts receivable,” said Zinn. “We expect our strong cash flow to continue over the next several quarters, as we further reduce inventory levels by $15 million to $20 million in addition to the $19 million we reduced in the first quarter.”
The company also continued to reduce expenses through facility consolidations, staff reductions, and synergies between its subsidiaries, Lippert Components and Kinro. These and earlier cost reduction measures benefitted first quarter 2009 results by $2 million compared to the same period in 2008, and are expected to benefit full year 2009 results by nearly $9 million. “Our continuing efforts have enabled us to significantly reduce our breakeven sales level and reduce inventories, while maintaining our traditional high level of customer service,” said Jason Lippert, president and CEO of Lippert Components and Kinro.
“Operating management has done an outstanding job in dealing with the unprecedented weakness in our markets,” said Zinn. “In order to bring our capacity in line with current demand, we have been forced to make significant staff cuts, and I know this has been very difficult for everyone involved.”
“On the bright side, we continue to provide jobs for about 2,000 dedicated employees. And because of our strong balance sheet and cash flow, we have the resources to aggressively pursue opportunities for further market share growth and new products, helping to ensure that our business can thrive and grow rapidly once industry conditions begin to improve.”
“We are extremely encouraged by our market share gains in several of our recently-introduced products, in particular, our suspension products, jack stabilizers and RV entry doors,” said Lippert. “The enhancements we have made to our unique entry door give us a great shot at gaining even more RV market share, and give us the opportunity to bring our entry door to other markets. We have several other exciting new products in development, and we will take every prudent step to ensure that we increase our opportunity for growth, while continuing to improve our production efficiencies.”
Drew’s RV Segment also manufactures specialty trailers for hauling boats, personal watercraft, snowmobiles and equipment.
More than 90%of the company’s RV Segment net sales are components for travel trailer and fifth-wheel RVs, with the balance comprised of components for motorhomes and specialty trailers. The RV Segment represented 74% of consolidated net sales in the 2009 first quarter.
Drew’s RV Segment reported net sales of $52 million in the first quarter, a decrease of 58% from net sales of $124 million reported in the comparable period in 2008. Excluding sales price changes and acquisitions, the “organic” decline in RV Segment sales was 65%, due to the sharp decline in industry shipments.
Many of the towable RVs produced by the industry over the last several months have included fewer of the features and options ordinarily provided by the company. Industry-wide wholesale shipments of motorhomes, components for which represent 3% of Drew’s RV segment sales, were down 78% in the first quarter of 2008.
In the first quarter Drew’s RV Segment reported an operating loss of $4.7 million, which included $2.9 million of extra expenses 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 loss of $1.8 million, a decrease of $16.1 million from the segment operating profit of $14.3 million in the same period last year.
“This $16.1 million adjusted decline in RV Segment operating results was 20% of the ‘organic’ decline in net sales,” said Joe Giordano, Drew’s CFO and treasurer. “This was consistent with what we would typically expect, as increases in labor and material costs as a percent of sales were offset by fixed-cost reductions.”
“Through acquisitions, new product introductions and our position as an increasingly important supplier to leading RV manufacturers, we increased our product content for travel trailers and fifth-wheel RVs to $1,943 per unit for the last 12 months, compared to $1,760 per unit in the prior 12-month period,” said Lippert.
“We are very pleased with these market share gains, as well as the opportunities we see for our new, patent-pending Tow-N-Stow,” said Lippert. “Weather-proof and lockable, Tow-N-Stow converts in minutes from a versatile trailer, which can be towed by fuel-efficient cars rather than trucks or SUVs, to an attractive upright storage shed. We are introducing the Tow-N-Stow this week at the National Hardware Show in Las Vegas.”
Meanwhile, Drew reported that net sales in April were down approximately 45% year-over-year. This is an improvement over the 55% net sales decline in the 2009 first quarter, and April 2009 net sales were about 19% higher than March 2009 sales.
“While it’s too soon to know whether this sequential improvement in sales will continue, it is encouraging that our reduced number of facilities are producing more and our employees are working more consistent hours,” said Lippert. “RV dealers have been consistently reducing their inventories over the last nine months. Therefore, once credit becomes more readily available to dealers and consumers, and retail demand improves, we expect that dealers will have to replenish their inventories, which should significantly boost wholesale production.”