Q3 2019 Earnings Call

[laughter] good morning, and thank you for joining us for marine products corporations third quarter 2019 financial earnings Conference call.

Today's call will be hosted by Rick Hubbell, President and CEO , Oh, Ben Palmer, Chief Financial Officer also person as Jim Landers, Vice President corporate finance.

At this time all participants are in a listen only mode.

The presentation, we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions I would like to advise everyone that this conference call is being recorded Jim will get a started already before [laughter].

Thank you Brittney and good morning, before we get started today I'd like to remind everyone that some of the statements that we will make on this call maybe forward looking in nature.

Like the number of known and unknown risks I'd like to refer you to our press release issued today 2018, JNJ, another FCC islands, which outlines risks.

All of these are available on our website at Www Dot Greenparks Corp dotcom.

If you've not received our press release. Please visit our website again at Www Dot Greenparks core dot com for a copy.

Well make a few comments about the quarter and then we'll be available for your questions now I will turn the call over to our President and CEO Rick Hubbell, Jim. Thank you we issued our earnings press release for the third quarter 2019. This morning, Ben Palmer, our CFO will discuss the financial results in more detail in a moment.

This time I will briefly discuss or operational highlights our net sales during the second quarter increased slightly over the second quarter of the prior year.

Net sales increased due to a 5.8% increase in average selling price per boat.

These increases were partially offset by a 6.1% decrease in the number of units sold during the quarter.

We continue to hold a high market share and all of our product categories.

Our chaparral sterndrive products holes in the second highest marketshare and their category approximately 15.7%.

For the 12 months ending June 30.

Well ball that maintained its position as the second largest brand in its category, where the March drill pipe was 5.5 or so.

The combination of revolver and chaperone outboard.

Continue to hold the highest position.

In the overall outboard market.

The share of 6.8%.

We announced this morning that our board of directors yesterday.

Declared a regular quarterly cash dividends of 12 cents per share.

That's a special year in church dividend.

10 cents per share.

Board of Directors continues believed this dividend level and especially here in dividend represents a prudent use of capital to reward our shareholders.

Also during the third quarter, we <unk>, we repurchased 85354 shares of common stock on the open workers that overview I'll turn it over tour CFO been Paul.

Thank you Rick.

Net sales for the third quarter of 2019 were 72.2 million relatively unchanged compared to the third quarter last year.

Average selling prices again increased by 5.8% that's just consistent with continued strength in sales larger models.

Unit sales decreased as we focus production on producing our newer larger models.

Gross profit in the third quarter was 15.7 million a decrease of 2.7% compared with the third quarter 2018.

Gross margin during the quarter decreased to 21.8% compared with 22.5% third quarter 2018.

Selling general and administrative expenses were 6 million third quarter 2019, a decrease of 957000 compared to 7 million in third quarter last year.

These decreases these expenses decreased due to state incentives of one point Sixmillion recorded during the third quarter, partially offset by higher advertising and employment related costs.

As a percentage of net sales SG <unk> expenses decreased 8.4% third quarter 2019, compared to 9.7% third quarter last year.

Interest income during the third quarter 2019 was 83018, 0.6% decreased compared with 102000 during the third quarter last year.

For the quarter ended September 30, we reported net income of 7.9 billion an increase of 9.7%.

<unk> net income of 7.2 million in a third quarter 2008 change.

Adjusted earnings per share with 23 cents and the third quarter. This year compared with 21 cents a third quarter 2018.

Our effective tax rate during the third quarter of 2019 was 19.8%.

Paired with 22.9%.

For 2018.

Grain products domestic sales decreased slightly during the third quarter 2019, compared to the third quarter part here.

In contrast international sales represented 4.3% of net sales compared to only 3.1% of net sales in the third quarter of last year.

An increase of 37.9%.

This year compared to prior year.

International sales increased significantly in our Canadian markets, which were negatively impacted last year about trade cares.

Cash balance at the end of the third quarter was 23 million, an increase of 700000 or 3.1%.

Compared to cash and marketable securities of 22.3 million and the third.

Last year.

As of September Thirtyth, 2019 dealer inventories were lower than it at the end of the second quarter, indicating strong dealer sale sell through during this retail selling season.

However dealer inventories were higher in the third quarter than at this time last year and order backlog was color.

Because of these developments, we're monitoring dealer inventory levels closely and have reduced schedule production and head count early in the fourth quarter with that I'll turn back over to work.

Thanks, Ben we held her annual dealer conference in August and we're pleased with both our dealers reception.

Sure 2020 models, our dealers are we're very enthusiastic about our redesigned robot <unk> came in to six among our chaparral products, we showed or dealers and updated search series models are new to 80 or six and upgrades on the 300 or six which was new for 29.

[noise], we're presenting a more focused model line up two or dealers and customers in 2020 then in.

Past years, we believe that are model lineup is directed toward high demand in markets and will allow us to increase our focus on efficiency and profitability.

As always we pay close attention to the general economy and indications of demand for products and are prepared to adjust our production to meet our dealers requirements like thank you for joining us this morning, and we'd be happy to take any questions you may hear.

Thank you if you would like to ask a question. Please.

Thanks Darren.

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Speakerphone, Please make sure your mute function.

Your signal to reach.

Again.

To ask a question.

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Our first question comes from.

With B. Riley.

Thank you good morning.

So your question I guess I guess, one on go into the inventory comments I guess, maybe you so up a little bit year over year don't from from from June maybe give a sense of what that would the mix looks like and maybe the age it kind of where would you want to see that inventory moves to give me now look into kind of adjust production a little bit no I guess.

So it's kind of question on that yeah, maybe I'll stay, but what you're seeing from dealers in terms of their.

You know their desire to going to replace that inventory it doesn't take inventory and that this environment.

Sure much written take that yeah sure Hurricanes as Jim.

We have or we have a real practice of keeping our inventories.

Lean and and as much current model year as possible. So in terms of the age of our inventory don't have the numbers right from your but it's it's it's pretty good I mean, it's a it's not all 2020 model inventory because we've just started started a year, but inventories is pretty good dealers are.

Our you know seem to be a bit cautious right now there's a lot of mixed signals in the media and some other things.

And that.

Some of the concerns or or belied by the you know.

Decent you know retail boat sales, but registrations in December reduce aren't in September we are decent for example, so there's a mixed signals right now and that just causes us to be to be cautious about production.

For the next few months, we need to get through the winter boat show season, and get some better indications.

Okay in the press release it we talk about gross up selling prices you mentioned it feels good scout decreased slightly that vendor occasionally you have not needed to be promotional to move inventory recently and that is at the right interpretation and then what are you seeing from the competitive landscape on that.

Yeah. Eric This is Ben that's correct, we have not had to be particularly aggressive.

With our promotions at this point in time and back to your earlier question and John's comments, you had the aging of the inventory we're very pleased with.

I think you know, there's there's a lot of pushing and pulling when it comes to dealers, making decisions about adding to their inventory you know we had the a financing companies that are are being a bit cautious right now.

No.

May be prudent maybe maybe overly cautious, but you know that push and pull and keeps everybody, perhaps a little more healthy.

And there's a overall maybe right decisions are made but at this point in time, yet there is a little bit of caution out there we feel again very good about the quality of the dealer inventory in our model line up. So we're just making these adjustments at this point in time, and we'll we'll adjust as we see.

The.

A little clear road ahead.

Okay and then final question for me on the yesterday, the 1.6 million in state incentives you. Maybe can you give a sense of what that was four and is that a onetime situation is that something that would be in you, possibly could you periods as well.

Good question that is it is an annual incentive but it is a large amount this year because for for a variety of reasons. We had a number of years, that's sort of cleared through in this very type timeframe. There was a number the things we need to do just sort of secure that and wrap that up so they all hit here in the third quarter.

Typically.

It would be no more than we appreciate it no more than three or 400000, a year and again this was four or five years' worth of credits all for incentives all hitting it in one board.

Okay, what does it work physically.

[noise] what does it for it it's a it's a georgia state incentive related to R&D activities I'm sure. There's a process you go through its it's similar to the federal tax program you have to go through a qualification process and and we were did we did in the state approved it add.

And.

We'll we'll collect those incentives over the upcoming few months.

Perfect. Thanks.

Sure. Thank you thanks.

Our next question comes from Shawn Boyd, What's next Mark capital.

Good morning, Thanks for taking the questions can you guys.

Yes, absolutely.

Great just real quick.

Linear any within the quarter could you talk briefly about that.

That's a month for the quarter.

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Oh, it's Sean. This is this is Jim Landers [noise] we are.

In terms of linearity, there's there's not a whole lot of comment to make just remember that we tried to produce our products on a on a regular.

Smoothed out production schedule, which is the best with running manufacturing com, our dealers sell to the to the retail public and their their sales may fluctuate a bit. So there's not you know I'm not really a whole lot. We can we can tell you. If you were to see the individual months of our quarter you would.

See a lot of a lot of variation.

Okay.

I appreciate that.

Maybe if we could talk a little bit about just the order flow quarters.

Progressed.

You're talking about what are the I think quarter and <unk>.

Actually.

Yes, so we actually only disclose those statistics in detail once a year entertain checks, we make qualitative comments about them during the year.

And Uh huh.

Again order flow is is fairly.

Even throughout the quarter, if you're maybe trying to get that fourth quarter sales I believe our sequential third to fourth quarter decline last year was around 14% has been alluded as Ben mentioned we're.

Looking at cutting production to make sure dealer inventories stay healthy. The one thing one thing you really don't want to do is have your dealers and they're put too much inventory so the hour or production and sales decline in fourth quarter. This year.

We'll be perhaps a bit more pronounced than than last year, that's maybe keep dealer inventories healthy and all that this is Ben I'll elaborate on that gems, absolutely right, but it is typical for us that's a third fourth quarters. As you can imagine are typically we do produce less and there for sure.

Blasts, and therefore record lowered revenues typically in the third and fourth quarter. So this is not that unusual obviously, we're wanting to ship as many boats dealers are interested in bringing bugs in a moving them out as quickly as possible and that certainly benefits us as well, but as Jim said, we try to keep production.

Reasonably steady.

We it's not we don't adjust production weekly or even monthly no. It's a longer term view.

You know that may be that a number of orders flow in to us here in the near term and we can pivot and I just.

Production fairly quickly, but there's a number of logistical issues you have to work through the make adjustments to production. So again, it's not something this is fluid is weekly you're usually even on a monthly basis. So it's more a longer term view and as we indicated we are taking production down a little bit at this point not that unusual for late.

The or after the selling retail selling season, so just being a little bit cautious at this point in time and and that's being supported by the floor plan financing companies.

Indirectly not directly but just to indirectly they're supporting that because.

Hey, bare being a little bit cautious at this point down as well.

Sure sure no I appreciate the comments on the overall seasonality.

I hear you lot unclear on that.

Just to kind of wrap this up the production in headcount cuts.

Early in Q4.

Just roughly how big are they versus say.

Last year going into that sequentially Q4.

John we're still in process on that so we'll we'll we'll have to give an update on that one later on.

Okay.

Okay and.

And I guess just last question for me in terms of.

Youre [noise].

At this point and cuts would they be focused and.

Particular areas are pretty widespread.

Thinking about come in the press release of the weakness.

Yeah, the sterndrive boats in particular.

I.

Certain models.

Hi.

Much better shape.

But if you could just elaborate maybe.

Spreads.

So.

And I mean hard to comment it's kinda based on our order book, there's not anything that stands out as being particularly bad or or particularly good I think the trends in our models that are sales that we've seen over the past years. So we're probably going to stay in place for fourth quarter.

We have migrated a bit towards.

Towards larger boats that kinda continues and we've got a more focused model line up or we think there market opportunities for us, but there's really nothing that jumps out that would.

You know moved the financial results necessarily we are getting geared up that with some of the you know the newer models that you got a real strong reception from the dealers. So oh were scrambling to meet that demand theaters wanting to get those new models you know in their inventory by the time for the winter boat shows.

So that's something we're clearly focused on and that'll be [laughter] that'll be part of the ultimate in Oh.

Driver the results as well.

Okay.

Thanks, just as we're talking here I'm looking back on.

Q3 Q4 decline.

Mentioned.

13, 14% decline last year quarter to quarter.

You do have years, we don't see that so.

Yeah, if you go back to.

Sure.

Yes.

Yes.

[noise] was there.

In particular about this <unk> <unk>.

Position or what have you know what's driving that up.

I understand that.

<unk>, 14%.

Sean maybe maybe we can discuss this later on I mean, there's nothing that we wouldn't want to disclose publicly but the boat business is very cyclical.

There are some years, where there are many years in fact, we're the cyclical nature of the boating industry.

Overshadows, the seasonal nature of it.

We could point to any given year and talk about the economy and consumer demand at that time, we could go all the way back to 96 point those point out because things.

What's your that but you are correct that there have been some years, where no when there's tremendous strength and yet were scrambling to catch up and keep up and things like that so.

So at this point.

No we feel good about like as we've talked about we feel good about the position of industry, but there's a little bit caution out there so all things being equal shipping producing and shipping fewer boats in the fourth quarter. You know takes logical sense. If there is caution out there people.

The financing companies the dealers there won't be a lot of sell through in the fourth quarter. Yeah. We may look back.

Early next year, and say Darren I wish we'd shipped more votes, which we've been able to deliver more votes in the fourth quarter and we wouldn't be so behind what production in the first and second quarter 2020, So the points well taken there are some years, where the fourth quarter is higher than the third quarter, but there are several.

Examples as well, where the fourth quarter can be.

Among the weakest of the year or will be the weakest still a calendar year.

Thank you at this time there no further questions I will now I'll turn the conference back over to Jim Landers for closing.

Okay. Britney. Thank you a we appreciate everybody who called to listen we appreciate the questions and look forward to some follow up and talking to everyone against.

Good day.

Thank you everyone.

This conference call.

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