Noting that the company’s margins have remained resilient amid slowing marine production and “what we now expect to be the lowest RV production in 10 years,” Patrick Industries CEO Andy Nemeth was mostly optimistic Thursday in his comments following the supplier’s financial performance results for the third quarter ended Oct. 1, 2023.
The company’s Q3 report, it can safely be said, was a reflection of the current market conditions. Net sales were $866 million, a decrease of $246 million, or 22% from $1.11 billion in the third quarter of 2022. The decline in sales was primarily driven by a decrease in unit shipments across our end markets and lower pricing passed on to our customers to reflect changes in certain commodity costs, partially offset by market share gains.
“The current general theme across our end markets from our perspective can be broadly centered around the overhang of high interest rates and their impact on retail consumer sales conversion, dealer inventory stocking and overall increased hurdle rates for return on capital,” Nemeth said during a conference with investment analysts.
“Over the last 15 months, OEMs in the RV industry have skillfully managed their production downward, showcasing the industry’s real-time scalability, adaptability and maturity. As we head into the fourth quarter, we see the industry currently matched in a period where retail registrations and wholesale production are closely aligned and positioned for a one-to-one basis and very nimble, ready to pivot,” he added.
For context, Nemeth offered a comparison between the company’s Q3 2023 performance versus the same report in 2019 that, he said, demonstrates the “improved resiliency and profitability of Patrick.”
In the third quarter of 2023, RV wholesale unit shipments were 21% lower than the same period in 2019. Despite the sharply lower unit volumes, total revenue in the third quarter of 2023 was 53% higher than 2019,” Nemeth pointed out. Also, gross margin was 460 basis points higher and operating margin was 160 basis points higher, he said, helping drive a 97% increase in EPS versus the same period in 2019.
For his part, Jeff Rodino, company president, noted that Patrick’s third quarter RV revenues, which represents 46% of its consolidated total, decreased 24% to $400 million when compared to the same period in 2022. In addition, Patrick’s RV content per unit decreased 2% on a TTM basis to $4,957 per unit.
The performance, he said, was “driven by our actions to pass along favorable pricing to our customers, reflecting certain declining commodity costs and smaller units taking larger percentage of production mix, partially offset by market share gains. Additionally, from our operating perspective, OEMs returned to a more predictive production schedule in the third quarter, which allowed us to better allocate our resources and plan further ahead for better efficiencies.”
As far as the RV industry’s field inventory, Rodino said the company believes the mix of current and prior model year units sitting on dealer lots reflects “a more normal relationship compared to what we experienced over the first half of the year.”
“RV wholesale unit shipments of approximately 73,300 units decreased by 20% or more than 18,000 units from the third quarter of 2022, he said. “We currently estimate third quarter retail registrations were approximately 105,800 units, an estimated decline of approximately 13% compared to the third quarter of 2022. The metrics we have outlined imply a net decrease in dealer inventories of approximately 32,500 units during the quarter and approximately 78,000 units year-to-date.”
What follows is an edited transcript of the Q&A portion of the conference call.
• On the pace of RV orders from dealers:
Rodino: We didn’t expect a lot of orders immediately from the Open House, more of a planning between OEMs and dealers, and how they wanted to spread their orders between the fourth quarter and getting into the selling season of the first quarter. So, we’ve continued to see production levels pretty consistent through the end of the third quarter into the fourth quarter. We will see some shutdowns around Thanksgiving and Christmas – pretty traditional from what we’ve seen in the past. – and we expect with the dealer inventory levels at the level that they are currently that we’ll see some upside going into the first quarter based on their need to have product for the selling season. So, I will tell you that the OEMs continue to remain disciplined with their production levels, which is managing the inventories out in the field and putting them in a really good position as we move forward.
• On what the pace of business might look like in Q1, Q2 of 2024:
Nemeth: I think what we expect is a more normal seasonality than we’ve seen in the past as it relates to production and retail. And, when you look at where inventory is at today, dealers are being very thoughtful about the inventories that they’re carrying. The OEs matched their production with that.
We would expect a more seasonal cadence. But again, like I said, I think we’re balanced with what we see today as it relates to production levels and sized appropriately. So as we look at it, what I would tell you is we’re watching retail certainly. But with the balance and the calibration that we see in the field today, between manufacturing, production and retail, we feel really good about the ability to flex across the spectrum.