Patrick Industries is pointing to “promising upside potential in the second half of 2024,” the company’s executive management team stated Thursday (Feb. 8) during a conference call with investment analysts.
The call, which followed the company’s fourth quarter and full year financial performance report, also allowed CEO Andy Nemeth to announce a number of leadership changes:
- Jeff Rodino has been named President of RV in addition to his current responsibilities;
- Kip Ellis has been promoted to President of Powersports and Housing;
- Rick Reyenger has assumed the position of President of Marine.
This strategic alignment places Patrick’s leaders with deep expertise in their respective markets at the helm of these pillars to drive focus and excellence, according to the publicly held firm based in Elkhart, Ind.
Additionally, Hugo Gonzalez has been named Executive Vice President and Chief Operating Officer and Charlie Roeder will serve as Executive Vice President of Sales for the organization. “These key appointments empower Gonzalez and Roeder to apply their operational and sales expertise, respectively, across the organization, enhancing integration and adding value throughout Patrick’s comprehensive portfolio,” the company stated.
“I’m extremely energized and excited about the incredible talent in our organization and congratulate our senior team on their new roles,” Nemeth said.
In his prepared statements, Nemeth highlighted how the company has “maintained a strong balance sheet and generated significant free cash flow through focused investments and prudently managing working capital.” In addition, he noted, Patrick has no major debt maturities until 2027, ended 2023 with approximately $780 million of total liquidity, and the company remains “flexible and ready to pivot in response to market conditions and customer needs.”
“Looking forward to 2024, we are confident in our team’s ability to navigate short-term headwinds and capitalize on opportunities to continue to profitably grow our company. We believe the first half of 2024 will look similar to the last few months of 2023 in respect to industry and macro trends with some promising upside potential in the second half of 2024, especially if there is interest rate relief for both retail and floor plan financing,” Nemeth said.
For his part, Rodino said there were two key themes that defined the company’s markets in 2023 – inflation and interest rates, both of which, he added, negatively impacted end consumers’ desire to finance their purchases of RVs, boats, and houses while also increasing floor plan lending rates and limiting dealers’ willingness to hold excess inventory.
“We believe the RV market bottomed in 2023 and our analysis suggests inventories are lean in the field. We are optimistic about potential trajectory of the RV market with the peak selling season just around the corner in the spring,” Rodino said, noting that Patrick’s fourth quarter RV revenues decreased 14% to $353 million, representing 45% of consolidated sales, and the company’s RV content per unit decreased 9% on a full-year basis to $4,800 per unit due to, in part, a higher ratio of entry-level units being produced.
“Throughout my career in the RV industry,” Rodino noted, “I’ve witnessed a number of cycles and from my perspective, consumer demand for smaller, more affordable units tends to lead the broader industry’s recovery.”
What follows in an edited account of the Q&A portion of the conference call.
On Patrick’s long-term strategy, especially in light of the company’s Sportech acquisition in the powersports market as well as its production automation and cost reduction initiatives:
Nemeth: I think that’s one of the things that we’re most excited about is the position of the organization today – the infrastructure that’s been put in place, the caliber of the team and then the automation and operational efficiencies that we’ve been able to deliver and drive and invest in over the last couple of years – have really positioned us to be able to flex up very quickly and leverage the infrastructure that we have in place without adding a lot of incremental overhead and cost to support that.
One of the things that gets us most excited is the opportunity to leverage this and the earnings power of the organization based on the investments that we made in this business over the last couple of years. And we’re going to continue to invest in automation, as we noted with our CapEx plans for 2024. We’re going to stay focused on continuing to drive those efficiencies to be able to improve our throughput, our quality and be able to continue to take care of our customers as they flex up.
On the company’s outlook for the RV industry:
Rodino: So far this year, shows have been mixed. We’re really just a month into it. Our OEM touches have varied from weekend to weekend about what’s going on the shows. I think we’re just trying to give a range to what we’ve seen in the industry and where we’re at. We still feel optimistic that there’s some upside to what’s going on.
But certainly, what we see in retail, probably over the next month in the shows is really going to help us hone in a little bit closer to where we think things will be at. As we’re talking to the OEMs, that’s really what they’re communicating to us is that this next month-and-half of shows will show us where the retail ends up.
On the competitive marketplace among suppliers as OEMs seek to lower their retail price points:
Rodino: We have competitors in every one of our markets that we serve. We pride ourselves on our customer service, our ability to scale our size and have to be able to provide the customer not only with the best product in the market, but the most economical product in the market.
In all of our product lines, we provide “good, better and best” across the board, and that gives us a lot of flexibility to work with customers to design our products to make them work for them – along with getting it into the price point they need for the price point they’re trying to hit in the market.
So, we feel very comfortable with where we’re at in the market.
On the company’s long-term M&A strategy, specifically in broadening its end market exposure and diversifying away from RVs:
Nemeth: We love the outdoor enthusiast space and definitely are focused on that, especially with regard to the runway that exists and the opportunity for not only margin-accretive businesses, but opportunities to continue to provide innovative solutions across our product spectrum with new businesses that we can partner with in those spaces.
We have cross-market opportunities – and certainly today, we’re working across markets with our businesses in the outdoor enthusiast space. So the ability to leverage that and provide a solution for our customers with additional runway is very compelling as we look at the M&A going forward.
We would also tell you that … the recent acquisition of Sportech has absolutely expanded for us to have a lot of options as it relates to M&A on a go-forward basis. Again, I look at where our liquidity position is at today, the strength of our capital structure, the opportunity to be opportunistic in the space and continue to look at deals even today, we are continuing to maintain an active pipeline and want to continue to pursue M&A in that outdoor enthusiast space to continue to drive the business forward.