Drew Industries Inc., parent to key supplier Lippert Components Inc., today (Aug. 4) reported record revenue for its second quarter behind by strong RV segment performance, boosted by a series of RV-related acquisitions in 2014 and the first half of 2015.
Consolidated net sales in the second quarter, ended June 30, increased to $362 million, 13% higher than the 2014 second quarter. This growth in consolidated net sales primarily resulted from a 14% increase in net sales of Drew’s RV segment despite an acceleration in the wholesale production of RVs in late 2014 and early 2015.
Drew’s RV segment accounted for 92% of consolidated net sales in the 2015 second quarter. The acquisitions completed by the company in 2014 and the first half of 2015 added $21 million in net sales in the second quarter of 2015, all of which related to Drew’s RV segment.
“With the strong underlying demand for our products in the second quarter of 2015, we achieved record quarterly net sales for the second time this year,” said Drew CEO Jason Lippert. “The industries we serve continue to grow, which, when coupled with our recent acquisitions, new products and market share gains, have led to the significant increase in our net sales for the second quarter of 2015.”
Drew reported second-quarter net income of $20.9 million, or 85 cents per diluted share, compared to net income of $18.6 million, or 77 cents per diluted share, for the 2014 second quarter.
In connection with the sale of its aluminum extrusion-related assets in April 2014, the company recorded an after-tax charge of $1.2 million for the second quarter of 2014. Excluding this charge, net income in the second quarter of 2014 would have been $19.8 million, or $0.82 per diluted share.
“RV industry fundamentals remain strong, as evidenced by the 12% increase in industrywide retail sales of travel trailer and fifth-wheel RVs in the first five months of 2015,” continued Lippert. “The long-term strength of underlying retail demand has resulted in 15 consecutive quarterly increases in RV wholesale production of travel trailer and fifth-wheel RVs. At the end of 2014 and the beginning of 2015, the RV industry experienced a pull forward in production as dealers ordered product earlier in the seasonal cycle, reportedly to avoid potential shipping delays similar to those experienced in the prior year.
“As a result, certain wholesale production which normally occurs in our second quarter was produced earlier in the season. However, based on the strength of retail sales to date and projected economic conditions, most industry analysts are reporting that RV dealer inventory is in line with anticipated retail demand, and we are optimistic that RV dealers will place strong orders following the annual Open House in Elkhart, Ind., in September 2015.”
In July 2015, Drew’s consolidated net sales reached approximately $112 million, 11% higher than July 2014. Excluding the impact of acquisitions, the company’s consolidated net sales for July 2015 were up 5%.
“Our operating profit margins in the second quarter of 2015 were 9.3% compared to 9.7% in the second quarter of 2014, excluding the 2014 loss on sale of the aluminum extrusion-related assets,” said Scott Mereness, Drew president. “Our year-over-year incremental margin in the 2015 second quarter was lower than our target incremental margin, largely as a result of investments in fixed costs for capacity expansion, partially offset by improved operating efficiencies. In addition, the seasonal shift in industry-wide production of RVs experienced over the past few quarters had a negative impact on our capacity planning efforts in the 2015 second quarter.”
“Over the past couple of years, we made significant investments in manufacturing capacity, both facilities and personnel, to prepare for the expected significant increase in net sales in 2015 and beyond,” continued Mereness. “In addition to investments in fixed costs to expand manufacturing capacity, we have made improvements in marketing, human resources, engineering, customer service and other critical departments for the long-term success of the company. While certain capacity expansion plans had a negative impact on margins in the most recent quarters, we believe these investments are largely completed, and we expect to leverage these expansions as net sales increases.”
“In July 2015, we entered into a six-year exclusive distribution and supply agreement with Furrion Limited,” said Lippert. “This agreement provides us with the rights to distribute Furrion’s complete line of products to OEMs and aftermarket customers in the RV, specialty vehicle, utility trailer, horse trailer, marine, transit bus and school bus industries throughout the United States and Canada. Furrion currently supplies a premium line of LED televisions and sound systems, navigation systems, wireless backup cameras, solar prep units, power solutions and kitchen appliances, primarily to the RV industry, with a potential content per towable and motorhome RV of approximately $500 per unit. Furrion’s sales were approximately $35 million in 2014, representing an existing market share of approximately 20%, providing us the opportunity for significant sales growth and profit potential.
“This new agreement with Furrion instantly provides us with a solid foundation in these new product categories, allowing us to avoid the normal time and costs incurred with research and development and initial market development,” continued Lippert. “In a few short years, Furrion has become known in our markets as an innovator, a similar strength to what has helped make Drew so successful over the years. Furrion is going to continue to invest on an annual basis in product enhancement and new product research and development, and plans to increase their array of products over the coming years, for which Drew would have the distribution rights.”
“Our sales teams will work on increasing the content of Furrion products per RV, as well as expanding into other markets, such as the bus, marine, horse trailer and manufactured housing industries,” concluded Jason Lippert. “We believe that Furrion’s superior product design enhances the end user’s mobile lifestyle, as well as provides a more luxurious experience.”
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