Q4 2019 Earnings Call
Good morning, ladies and gentlemen, welcome to the Patrick Industries, Inc. fourth quarter 20, Nike Inc. earnings Conference call. My name is trying to help your operator for today's call. At this time all participants are only mode. Later <unk> you will conduct a question and answer session.
Yes. Good question Press Star then one on your Touchtone phone.
Please note that this conference is being recorded and then I'll turn the call her to Miss Julianna Tulsky from Investor Relations.
Koski you may begin.
Good morning, everyone and welcome Patrick Industries fourth quarter 2019 conference call I enjoyed hammacott say by any measure president and CEO and Josh CFO.
Certain statements made in today's conference call regarding Patrick industries that its operation maybe considered forward looking statements under the securities lot.
Another factor many of which are beyond the company's control, which could cause the actual results could differ materially and those described in the forward looking statements.
These factors are identified in our press releases, our form 10-K for year ended 2018 and in our other filings with Securities Exchange Commission.
We undertake no obligation to update these statements reflect circumstances or events that occur. After the date really think statements are made except as required by law I'd now like turn the call over to ask you mean.
Thank you Julie and good morning, everyone and thank you for joining us on the call today.
Before I begin my prepared remarks, I'd like to thank our executive chairman of the board and my predecessor, and Frank Todd Cleveland for his leadership and Mentorship over the years, but to me personally and to our management team and all of our 7500 plus team members.
Been fortunate the witness and be a part of Todd legacy during the past 13 years. He has been a member of the Patrick family and I'm truly humbled and inspired by strength in passion for our company our customers our communities our team members and the industries we serve.
Look forward to continuing to work with Todd and our board of directors, our management team and all of our talented and dedicated team members as we continue our journey together.
2019, Mark to Europe adaptation and execution for us as it was well that headwinds, which included significant volatility our primary markets fluctuations in commodity prices weather related issues that impacted demand in both the RV and marine markets as well as the ability OSAT homes in the manufactured housing market and interest rate volatility.
In light of these headwinds, we're pleased with our fourth quarter and full year performance and ability to flexibly and nimbly manage our business fourth quarter revenues of 550 million increased 3% versus the prior year, despite double digit wholesale shipment declines due to inventory recalibration in our leisure lifestyle markets.
Additionally, we continue to grow organically and increase our content per unit in each market sector on a year over year basis.
Our fourth quarter 2019, net income was approximately 20 million or 86 cents per diluted share.
Full year revenues increased 3% as well with net income up 90 million or $3.85 per diluted share.
[noise] execution highlights during the year included the following.
The integration of nine acquisitions, we completed in 2018, including Lasalle Bristol, where we're on track of executing on our goal of delivering 5 billion, an annualized synergies of which we realised 3 million in 2019, and we'll realize an additional 2 million in 2020.
We see the overall organic growth net of industry of 2% for the quarter and 1% for the 2019 year. Despite wholesale shipment declined 16% and 13% for the full year in our RV in marine markets, respectively, and which make up 69% of our consolidated full year revenues. In addition, lower commodity prices and related.
Pricing decreases were passed on and true partnership to our customers.
We generated over 192 million, an operating cash flows 165 million in free cash flow or over $7 per share on double digit industry declines in our leisure lifestyle business.
We completed two strategic acquisitions during the second half of the year. After we paused in a disciplined fashion during the first half of the year to assess the trajectory of each of our markets. We executed on fixed cost reduction initiatives totaling more than 10 million annually, we enhanced our capital structure, which included the successful launch of our high yield bond offering our amended and restated numbers.
City and related extension of its maturity for another five years positioning our platform with the capacity in dry powder necessary to execute on our strategic initiatives and as well comfortably absorb any further or economic volatility.
And we returned additional capital to our shareholders through the adoption of our dividend policy and began the issuance of quarterly dividends in the fourth quarter.
Overall momentum appears evident in both our leisure lifestyle in housing and industrial markets with a secular calibrations that have been taking place and 29 team.
On the leisure lifestyle front, encompassing RV and marine which collectively represent 67% fourth quarter revenues disciplined dealer inventory management was a strong focus again in these markets both for the fourth quarter and back half of the year.
Our housing and industrial markets, representing 33% of fourth quarter revenues rebounded further from the weather related issues experienced in the first after 2019 as interest rate reductions and improved weather conditions to cold in the back half of 29 team.
I'll now provide an update and some additional color on each core market we serve.
Our RV revenues were down 12 million or 4% in the quarter against wholesale unit shipments that were down 8%.
For the full year 2019, RV wholesale unit shipments were approximately 406000 units down 16% from 2018.
Retail unit shipments are estimated to be down mid single digits for the full year. After final adjustments come through and dealer inventories have continued to be driven down positioning the industry for returned to a more direct relationship between wholesale unit shipments and retail unit sales for the upcoming 2020 selling season.
The gap between retail shipments in wholesale production for 2019 is estimated to be more than 50000 units with retail having outpaced wholesale and we estimate there have been more than 100000 units of inventory taken out since the Destocking began in the second quarter of 2018.
Additionally, using this data and based on our estimates this would imply that by the end of 2019 more than 10 weeks have been taken out of inventory weeks on handsets 2014.
On retail unit shipments that are up more than 40% from that same time.
Inventory turns have increased almost a full turn as well during this time period.
The RV is currently estimating approximately 386000 wholesale units for 2020 or a decline of approximately 5% for 2019.
However, reduced and leaned out inventories as noted physician wholesale production to remain resilient in 2020.
Based on this data and assuming the 2019 inventory turn levels remain intact, we could see RV wholesale shipments increase in 2020, even with retail demand down mid to high single digits.
Regarding retail demand initial 2020 reports indicate that the early RV dealer show has held throughout the country have experienced record attendance and strong buying levels, including in particular, the Florida RV Super show in Tampa, which has been viewed as a gauge of potential retail demand for the new selling season.
Additionally, we have seen the decontenting of units slow and a potential reversing of those trends with up contacting and certain brands looking to differentiate their units taking place as well as buyers looking to upgrade.
This will ultimately add to our content per unit.
As we are progressing through the RV retail dealer show season in the first quarter of 2020, our data indicates wholesale production to be up through February at this point based on current first quarter run rates to date and a significant declines in shipments in the first quarter of 2019, which were partially impacted by negative weather, we are anticipating year over year growth in shipments in the first quarter of 2000.
Hi.
The marine side of our business performed well in light of aggressive inventory recalibration as we saw dealers and Oems were collectively together to continue to concentrate on inventory destocking, primarily related to a challenging weather environment and the northern parts of the country in the first half of the year that negatively impacted retail, particularly in the pontoon and aluminum fishing.
Categories.
Marine Powerboat wholesale unit shipments were estimated to be down 18% to 20% in the fourth quarter compared to the prior year and our marine revenues declined approximately 10 million or 13% in the quarter and represented 13% of our consolidated sales.
Our content per unit increased 26% in the quarter as a result of both strategic and organic growth net of industry.
Marine retail rebounded in the fourth quarter, which generally represents about 10% of full year shipments increasing an estimated 1% for the quarter with both pontoon and scan wake each up 6%.
Aluminum fish, both remained soft with retail shipments down approximately 2% for the quarter and 10% for the year on an unrevised basis production levels continued to be rationalize and in the fourth quarter as inventories were depleted and appear to be appropriately recalibrating as a result of marine retail outpacing wholesale.
We expect retail shipments to be down low to mid single digits in wholesale shipments to be down an estimated double digits for the full year 2019.
For 2020, we expect marine wholesale shipments to be down mid single digits in the first half of the year as retail pull through and inventories recalibrate and to improve in the back half of the year.
Marine dealer show has held in the early part of the first quarter were positive and there are solid expectations for the Miami boat show being held this week as we continue to see Oems offering continued innovations and more value added content on boats signaling long term fundamental demand.
In addition, we have put several initiatives in place drive innovation sales growth and market share gains across our brand platform, including the launch of our comprehensive Marine studio showroom and design and Engineering Center strategically located in Sarasota, Florida similar to our Elkhart, Indiana based studio in design Center.
This studio showcases our broad product offerings tremendous design and engineering capabilities and promotes our full engineered solutions model that offers an innovative and creative one stop shop for our marine customers as they designed and built their new and existing models from the ground up.
Now turning to the housing and industrial side of our business, which rebounded from the weather related issues that impacted both of these markets in the first half of 2019 and from a tailwind related to declining interest rates.
Our manufactured housing sales represent 20% of our total revenues in the fourth quarter and increased 37 million or 50% over the fourth quarter of 2018.
This compares to 14% of our revenues from the fourth quarter of 2018 and reflects a 9% increase in wholesale unit shipments our content per unit is up 62% and the MH market as a result of both strategic and organic growth net of industry.
The demographic trends are consistent with our leisure lifestyle markets and indicates strong expected demand patterns. As we are seeing both growth and population of first time buyers and the older generation looking to downsize into multifamily housing from rural to more urban areas.
Pent up demand continues to be created and the need for quality affordable housing remains intact and increasingly attractive to the growing population of 35 to 44 euros.
For the full year 2020, we're currently anticipating mid single digit growth in MH wholesale units as we continue to see an experienced the tailwinds in the space and remain excited about the overall long term prospects in both stick built and manufactured housing.
Revenues in our industrial business, which represent 13% of our overall sales mix in the fourth quarter increased 6% compared to the prior year.
This was against the backdrop of new housing starts, which rebounded quite nicely in the fourth quarter, reflecting a 20% increase over prior year period with the benefit partially attributed to a drop in mortgage rates and the extremely tight supply of existing homes for sale.
Our products are generally the last to go into new unit and generally trail new housing starts by four to six months single family housing starts were up 15% in the quarter, while multifamily housing starts rose, 29% with a south in western regions up 7% and 48% respectively.
The non residential side of our industrial business, which is primarily focused in hospitality high rise commercial construction and institutional furniture markets with strong in the fourth quarter.
We have several initiatives in place to continue to penetrate new markets that include leveraging our brand capabilities to drive partnerships to support large scale industrial products and expanding our centralized industrial sales team to leverage the industrial market brands capabilities and resources.
Fundamental housing demand is strong and we are currently anticipating low to mid single digit growth in new housing starts for fiscal 2020.
Overall, we are optimistic about Oliver end markets in the 2020 fiscal year demographics are positive secular trends are showing signs of improvement in interest rates and commodity cost declines in 2019, which went past on in partnership to customers are now tailwinds supporting and positioning both our leisure lifestyle and housing industrial markets for.
A return to overall growth.
These tailwinds combined with our team's focus on driving market share gains operational improvement in synergy realization will continue to strategically positioned the company to remain flexible and nimble and drive overall long term growth in both our top and bottom line.
On the acquisitions front, while we paused and disciplined fashion in the first half of the 2019 year, while our markets calibrated. We continue to actively cultivate our acquisition pipeline and have a full pipeline of candidates spanning all of our primary markets.
We remain focused on targeted strategic acquisitions in our primary markets and most recently in late December completed the acquisition of topline counters, a high quality value added countertop manufacturer in the industrial space strategically located in the Pacific Northwest.
We're very excited about our acquisition pipeline as we are constantly exploring new opportunities in our primary markets and we'll continue to be opportunistic and discipline when it comes to evaluating and prioritizing our acquisition model.
We also expect to continue to drive synergies from the company's we acquired over the last few years.
In addition to the acquisition of topline we further executed on our disciplined capital allocation strategy repurchasing more than 100000 shares of our common stock and added a dividend policy to our Arsenal with a declaration of a cash dividend in the fourth quarter of 2019.
Our ability to generate strong and consistent cash flows coupled with our solid financial position allows us to reward our loyal and supportive shareholders with a quarterly dividend. In addition to driving the execution on the balance of our capital allocation strategy, which includes strategic acquisitions and share repurchases and investing in organic growth opportunities through strategic capital expenditure.
Okay and geographic expansions.
I'll now turn the call over to Josh will provide some additional comments on our financial performance.
Thanks, Andy our consolidated net sales for the fourth quarter increased 3% to 550 million, primarily reflecting industry growth in our inmates and industrial market and acquisitions, which were partially offset by industry decline in the RV emerging market.
On the topline we continue to focus our strategic initiative to drive organic growth and penetrate new market geographic region.
For the quarter, we were again able to drive organic growth net of industry growth by approximately 2%.
Despite the difficulty lower commodities and pricing decreases passed along to customers.
In 2019, we completed two strategic acquisition into the second half of the year, which contributed approximately 5 million of revenues in both the fourth quarter and the full year.
Revenue from our leisure lifestyle market, which is comprised of the RV emerging markets decreased 6% with RV marine revenue down, 4% and 13%, respectively compared to fourth quarter of 2018.
RV content per unit increased 7% to $3170 per unit in estimated marine content per unit increased 26% to $1581 per unit.
Revenue from our housing industrial market increased 29% the quarter with inmates revenues up 50% versus the prior year and inmates content per unit, increasing 62% to $4616 per unit.
On the industrial side revenues increased 6% in the quarter.
Housing starts were up 20% the fourth quarter, but were down 1% in the second quarter of 2019, which in the fourth quarter, our products would be going into new homes that were started at this time.
Generally our products are put into home four to six months. After they are started.
We would expect to see the impact of the strong momentum and housing starts in the first half of 2012.
Our growth margin in the fourth quarter was 18.1% declining 10 basis points compared to prior year, which was impacted primarily by declines in both the RV and marine market.
Operating expenses were 11.5% of sales in the fourth quarter.
Warehouse and delivery expenses and intangible asset amortization increased 70 basis points, which was driven by certain 2018 acquisition and negatively impacted our operating margins due to having a higher operating expense profile relative to our overall margin profile.
SDN expenses were 5.4% of sales in the quarter, a 10 basis point decline compared to prior year.
That's unique visits were down $4 million compared to the third quarter of 2019, as we sell the impact of EUR 10 million annualized strategic cost reductions take effect.
Operating income declined 7% the fourth quarter to 36 million compared to prior year.
The fourth quarter 2018, operating margin of 6.5% decreased 80 basis points compared to prior year.
For the full year 2019, our operating margin declined 130 basis points, which was in the range. We provided during our third quarter earnings call, primarily reflecting the impact of the dilutive margins related to our Lasalle Bristol acquisition volatility and significant declines in industry volumes offset in part by the execution of recent cost reduction.
And synergies related to acquisitions.
Our net income per diluted share the fourth quarter was 86 cents down 25% from $1.15 of the prior year, excluding the benefit of share based compensation of 19 fit in the fourth quarter of 2018.
Our net income per diluted share was down 10% compared to the prior year.
Our overall effective tax rate as reported with 22% and 44% for the fourth quarter for year 2019, respectively.
For the full year 2020, we are estimating our all in effective tax rate to be in the range of 20, 526%, excluding the impact of onetime items.
As we progressed into 2020, we expect to continue to capitalize on the benefits from our growth initiatives driving both organic and strategic revenue growth net of industry growth.
As a core market to stabilize commodities have overall returns with date of mobilization and demographic trends appear to be strong heading into 2040. It is our expectation that we can drive organic revenue in all of our primary mark.
Additionally, our cost structure is appropriately aligned with expected volume levels in the organization is strategically positioned to support hurt demand levels.
With ample capacity and the ability to flex up quickly should we see additional momentum above per forecast.
The actions taken in 2019 combined with the stabilization of our end markets and the realization of synergies execute our throughout the year will provide significant margin expansion in 2014.
Based on the market assumptions, Andy outlined in a flat RV wholesale market Weve expect to increase our operating margin at the upper end of our range of 30 to 50 basis points with a potential upside if RV wholesale shipments improved beyond that.
Now turning to the balance sheet, our total assets increased approximately 240 million largely reflecting the recognition of net cash proceeds from the senior notes offering we completed in September 2019, after the pay down of existing debt.
As previously noted we generated approximately 192 million of operating cash flows and invested approximately $28 million capital expenditures, it's clear that team.
In the fourth quarter, we retired approximately 10 million of capital to shareholders, which included repurchasing of 103000 shares of our common stock at an average price of $37 per share for a total costs were approximately 4 million and our first quarterly cash dividend payout in 2003 at the end of December.
Our net liquidity available is currently about $550 million, including cash on hand.
This dry powder combined with ongoing operating cash flows, which we project to be over 200 billion. In 2020 provides us with the flexibility to continue to execute on a strategic growth plans.
And our leverage position relative to EBITDA at the end of fourth quarter was under 2.3 times.
For the full year 2020, we will continue to make disciplined strategic investments in our business in order to maintain sufficient capacity that can support expected volume levels for the full year 2020 were projecting capital expenditures of approximately 30 million.
That completes my remarks Andy.
Thanks, Josh as we look towards 2020, we believe that momentum is building in both our leisure lifestyle and housing in industrial markets.
Retail demand and demographic trends remain positive for all of our primary markets supported by macroeconomic and secular tailwinds.
We have strategically and Opportunistically diversified our business model that is based on building upon our strengths and expertise and staying close to what we now and what we do best.
We've positioned ourselves with a rock solid patient capital structure with capacity dry powder and runway that will allow us to deploy capital right in alignment with our strategic growth plans.
The combination of our operational and financial foundation customer Onest performance oriented culture, and the talent dedication and passion of a more than 7500 team members will continue to position us to execute on our strategic plan to grow both top and bottom line reinvest in our businesses team members and communities and exceed our customers' expectations.
In closing, we look towards 2020, and all the opportunities that brings in a primary markets. We serve the ongoing support we receive from our customers suppliers board of directors banking partners and shareholders affords us the opportunity to continue to focus on our goal of providing the highest level of quality service and overall shareholder value. This.
The end of our prepared remarks, we're now ready to take questions.
Thank you will now begin the question and answer so.
Yes. Good question. Please press Star then one on your Touchtone phone.
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And our first question is from Scott Stember from C.L. King.
Good morning, guys and thanks for taking my questions.
Morning.
One of your competitors on their conference call talked about the level or how good things have been at least from their top customers on the RV side from an order standpoint can you maybe just talk about the cadence so.
Maybe I don't know a size up the increases that were seeing so far bye bye.
Yeah.
Sure based on our data and we do some some pretty detailed tracking as it relates to production rates with our customers. We're anticipating right now based on what we're seeing a January was up double digits and access to be wary is up single digits. All in for the first two months, we're going to be up high single digits to low double digits.
So production rates or improve there is little bit of there is some weather impact from a year ago. So again, we would tell you that were a mid to high single digit.
Production rate increase right now, but we are seeing that in both January and February.
Got it and.
Maybe on the on the margin side.
Yes, you talked about in a flat RV environment being able to hit that the higher end with a 30 to 50 basis points of expansion, maybe just talk about the cadence. So that should we expect to start seeing that in the first quarter or would this happened a little bit later in the year, just trying to give us sense, how we should model.
Yes, I think when we tee up 2020 like in our prepared remarks quickly positioning us well to be able to generate so solid margin expansion.
So with all of our end markets flat to up based on current forecast I would think.
Already out of the gate in Q1, we should be in that range of 30 to 50 basis points.
And you know if we see upside on the RV side above being flat for next years, when we talked about potentially exceeding the 50 basis points.
Got it.
And maybe just touching base on.
The marine market just one last comment of that we've got some pretty decent theres about retail sales it looks like inventories have.
Come down to appropriate levels went when should we expect to start seeing.
Order intake start to pick back up on that side.
Sure Scott This is Andy we're feeling like the inventories on the marine side or calibrating very nicely the dealers in the manufacturers.
Worked very closely together.
Have worked very closely together second half of the year last year to really manage that and bring inventories in line. We're hearing good things out of our customers today, we're expecting that inventories will be calibrated appropriately really through probably towards the latter ended the first quarter ended the second quarter. So first half a year right now we're estimating wholesale production to be be down just a little bit.
Yet, but picking up in the back half of the year. So again, we think that they've done a great job. We're hearing positive trends on retail and our customers are continuing to have content there boats. So.
Everybody's feeling pretty good right now.
Got it that's all I have for now thanks.
Thanks, Thanks Scott.
Our next question is from Daniel Moore from CJS Securities.
Any Josh good morning, Thanks for taking my questions.
Morning.
Very quickly Todd good there somewhere listening I want to thank you for all your help congratulate you on the tremendous success and wish you all the best in future endeavors, low and there will be you've seen in hearing from you.
Andy or.
Josh view, you talked about RV wholesale being flat to up even if retail were down mid to high single digits.
At this stage is that your expectation in terms of retail do you use that you best Crystal ball that we'd be down mid to high single digit Sir.
Based on what you're seeing entering the year.
Conversations with with dealers.
How do you see the year shaken out.
Sure Dan This is Andy absolutely right now based on our math and the level of inventory turns.
That are out there the level of inventories again that we talked about.
Our lower than they were back in 2014 on 40% more retail demand and so as we looked at it and we've done our Calcs like said, we think that that wholesale could be up mid to high single digits based on.
[music].
Mid to high single digit declines in retail so we do feel like Thats, a reasonable expectation at this point.
We're hearing solid demand the new turn level is really going to be.
The new standard so I think we'll get a field for that here in the first part of the year. So we do expect we would expect turns to have gone up.
From from those historical periods that being said, we do think that there's there's definite opportunity on the wholesale side to match up well with retail.
No I absolutely the math makes perfect sense I was more focused on retail do you think were down mid to high single digits or.
Do you think flat to down five is no more realistic expectation sorry.
The labor the point.
Sorry retail specifically.
No. We think retail is in a good spot other than the trending up down flat to mid single, we would tell you that retail feels pretty good right now we're hearing good news out of the shows.
Hearing traffic's up we're hearing as well.
Sales are up and unit sales are up so everything is positive at this point from our perspective on the retail side. So we're not starting the year down high single digits, but just if that were to be the case I just wanted to clarify that.
We don't believe so okay helpful and then Decontenting.
That seems to be.
Flattening out as well.
Any crystal ball expectations for what type of content growth you might be able to achieve.
They both in RV and marine this year.
We think the Decontenting is definitely stabilized and in fact, we're seeing certain customers up content at this point Im really looking to differentiate their units.
From the content thing that have been taken out so we've actually kind of seen a little bit of a shift.
So the start of that looks like it's starting to happen.
Our estimates continue to be with 2% to 3% organic growth on top of industry is kind of how we think about things. So we feel like those are valid and achievable targets, yeah, Dan just add a little bit additional color on marine side.
At the recent acquisition of TG Schmidt and the additional market share.
Packed on Marine we expect married to continue to probably go grow double digits on the content per unit in RV to be in that low to mid single digit range.
Perfect.
Couple of little housekeeping ones, but.
Sounds like tax rate you expect to pick up does that conservatism or do we have some discrete benefits this year that won't recur.
We had some discrete benefits in Q4.
We do not expect to it re occur.
Theres always some moving pieces at year end regarding taxes, So our best Crystal ball right now is to continue to be in that 20, 526% range, excluding the discrete items.
Which we recovered over 25% for the full year 19 without the impact of those items.
Got it and then.
One more what do we expect to roughly for DNA for 2020 and of that.
How much is amortization expense I know that.
Cash earnings has continued given you continue to be acquisitive cash earnings continues to grow in terms of the gap relative to to GAAP.
Yes, so on the DNA side were 60 570 million.
For 2020 total.
Yep.
And in that 15 to 16 million range consistent on the on the stock compensation.
And do you have the amortization component of that 60 570.
Yes.
Expected to be in.
30, 30 840 million range.
Perfect I appreciate the color if any thoughts I will jump back thanks.
Thank you.
Our next question is from Tim Connor from Wells Fargo Securities.
Hi, there this is actually Joe lackey dialing in for Tim.
So I just wanted to follow up on your RV assumptions since it sounds like.
Pretty good few months to start the year, particularly on the retail side, but my question is what do you think industry unit shipments could potentially look like in a best case scenario. For example, say retail sales were flat to up slightly and then maybe comment on your ability and how quickly you'd be able to ramp up production and the best case scenario.
Sure. This is Andy if retail sales are retail unit sales or call. It flat based on our math and turns we would expect.
Double digit growth in wholesale.
Using the same math that's in place today.
Our ability to ramp up as well is we've got we can work Friday and Saturday. So we're in a gets less good place from a capacity perspective, so we feel like there's flexibility there to match up very well with.
With with wholesale demand and retail demand.
Our that's helpful. And then in regards to margins can you talk through your outlook for input costs as we look into 2020, and specifically labor costs and and along those lines I wanted to ask as yet any any automate automation opportunities this year or beyond thanks.
Yes regarding input cost so commodity for lack of stabilized over the course of 19, we saw the decline in commodities coming out of the latter part of 18 in the first half a 19 those have stabilized Dan we've passed along pricing accordingly, with the movement of those commodities as we look out for 2020, we don't really see.
The headwinds or tailwinds related to commodities with where we're at today, we kind of see them stay relatively consistent and really having no impact from a margin perspective on the labor front, given where capacities are at today in the initiatives that we've taken over the last couple of years are we would say labors in a really good spot.
We have turnovers come down consistently over the last few years onto a low point here in 2019, and so we're in good position to be able to flex up as Andy alluded to from a day's perspective without even adding additional workforce here as we enter tweets already so we would say from a margin perspective really know puts or takes.
On the commodity side and labors in a really good spot on with the ability to flex up into 2020.
Great. Thanks.
Our next question is from Craig cash from Baird.
Hey, good morning, Thanks for taking my questions in Taiwan, and Andy Congratulations to both of you on a great partnership than.
Youre succession plan.
Question on M&A.
Kind of great balance sheet now on locked up some capital for the long term.
What kind of how much capital could you deploy in in 2020, and then what sectors look most appealing today for you.
Sure crack thanks, very much for the covenants.
Yeah, we're very excited about our acquisition pipeline today, it really spans all four market sectors.
We feel like we've got a great capital structure that we position for the next evolution of our strategic plan and looking to deploy that capital.
We're going to deploy in the range of the range of our operating cash flows. This kind of how our model is centered and we're going to keep a very disciplined leverage profile in doing so and so again as we look across the spectrum, we think there's tremendous opportunity in each of our market sectors.
Leisure lifestyle markets look look really good right now in our industrial markets look really good and as we see manufactured housing continue to improve where we would expect valuations to come much more in line with cash flows and so we think that will be.
Up and coming opportunity, but we're very excited about I would say again, our leisure lifestyle or industrial markets today in particular with potential on the m- side as well.
Thank you and then Josh you'd mentioned an optimistic margin outlook for 2020, what are the key drivers to your margin expansion outlook.
Yes.
I think the biggest driver is going to the stabilization of or end market.
So are we seeing.
Pretty significant declines in RV in 2019 of 16%. The first half of 2019, all four of our end markets were down.
We have marine down pretty significantly here in the back half of the year and so as we're seeing the stabilization of those markets. The tailwinds on both the manufactured housing in the industrial side on the housing side as well so that would be first and foremost arm. In addition to that the initiatives. We've taken place in 2019 with the recent cost reductions that we enacted in.
Three of $10 million, we still estimate tick in year over year impact of will benefit from that in 2020. Additionally, we have the Lasalle Bristol acquisition and the corresponding synergies associated with that that will fill the impact of that 20 to 20 as well and so we put all those pieces together.
We feel good with the margin outlook of 30 to 50 basis points with upside from there based on the RV scenarios that we've kind of outlined this morning, the Andean mentioned.
That's helpful and just in terms of the cadence would you expect to fairly even cadence throughout the year in terms of be expansion or is it.
Loaded in one half of your.
It's not loaded in one half of the other I would say relatively even we talked about marine being down in the first half the year relative to the back half of the year. So our mix of distribution and M- side of the business is relatively higher and marine is pretty much all manufacturing and so with marine being a little softer in the first half I would say.
Both stronger op margin improvement the back half the year, but not a significant difference.
Yeah, Thanks, Josh and then finally just.
With respect to your supply chain do you have any exposure to regions that have been hit hard by the car buyers.
Greg This is Andy we do have exposure, it's a it's a mixed bag.
At this point, though the Corona virus lined up with Chinese new year, and we always we always buy a little bit ahead. During during this time period. So we're good from an inventory perspective through the first quarter.
We've heard that that return to work rates are coming back at 70% to 75% at this point in time.
It also depends on the automation of the facilities as well and so we've got a mix of facilities that are more highly automated and a mix of facilities that are more labor intensive and so we don't expect anything at this point, we're planning ahead and making sure that we're working on supply, but certainly from a looking out today, we'll continue to evaluate but we're getting.
Okay.
Is there kind of a downside scenario you could.
Frame for US just in terms of production doesn't come back on line how much of your supply chain Marie.
We'd be disruptive.
Well, it's Josh permit from the import perspective in China. The majority of input puts our finished goods. They are distributed product, which we keep an ample supply on hand at any given time and as Andy alluded to with the Chinese new year, we have excess of inventory on hand rented to Q2 and so.
I would say at this point in time, we're not ready to give some type of Doom and gloom scenario, if if production to resume back to full stayed at some point in time from a manufacturing standpoint, you know were somewhat limited on what comes from China, It's more distributed side and with inventory that we have on hand, we're obviously going through contingency planning.
But really our you know looking at some doom and gloom scenario, we would expect to be sufficient through Q into Q1 into Q2.
Let more visibility here over the next few weeks and this is Andy just add on just a little bit to that.
We may experience.
Some some for additional freight charges or air freight charges for a short period of time, but we don't expect anything overly significant at this point, we think we've got a good supply chain.
We're actually also see here and some opportunities on on our production side on some of them more custom products that are coming our way because of this so it's a little bit of a mixed bag, but we would expect to manage through this fairly well.
That's super helpful. Thank you.
Yes. Thanks.
Our next question is from Steve O'hara from Sidoti and company.
Hi, good morning.
Good morning, just on the I guess.
Going back to acquisitions quickly.
Can you just talked about.
Which markets end markets may be you see the best opportunity in.
And where are you.
Kind of debt today, which ones will be the more likely candidates for.
Positions versus.
Where you'd probably see less activity I would assume marine will be the first and then our view kind of be last but maybe I'm wrong.
Steve This is Andy I would say really in our leisure lifestyle markets RV and marine we have opportunities.
And then like I said, the industrial market is very exciting for us we've got new presence in the Pacific Northwest that we're extremely excited about we're excited about the western regions of the country today on the industrial market. So again very excited about both those two on the M- side, we're a little bit more distribution oriented.
So I would say few if you were to rank them I would rank leisure lifestyle and industrial kind of together.
MH I'm not saying, we're not we're not looking at MH candidates, but again as that business continues to improve we expect valuations to line up better with cash flows and and expect to see more opportunities there.
Okay.
And then maybe this is Ben Aspen in terms of the scenario you painted for the retail.
Yes, I assume that was just kind of a.
With the potential could be that wasn't any change in outlook I think in the past you guys have said kind of low to mid single digits downturn retails that does that still the case.
That's the case and that's really based on the trending that we've seen so trending of tell us that it's going to be down low to mid singles at this point that being said again, we're hearing good things out of the shows.
So far we're hearing increased units.
In the high single and double digits as it relates to retail. So again I think we feel we feel pretty good about where retails at and wholesale today, but based on training that we've seen low to mid single down is.
So the baseline, but with upside potential for sure.
Okay, Okay and then.
Maybe just lastly on the industrial side.
In terms of your ability to kind of capture the.
The upside on housing if you start to remain strong is there.
Guys have any geographic issues or regional issues, where you are underrepresented in certain areas or.
It was a pretty national where you can shipping is not prohibitive and things like that thank you.
Sure. This is Andy I would say were more concentrated in the western regions as it relates to that housing market in particular, and what we're seeing going on today in both single family and multifamily. So thats good from our perspective, and we see a tremendous runway there as it relates to that industrial platform. So I wouldn't say were up under.
Presented I would say, we see hit a lot of opportunity to expand in those areas.
Okay, all right. Thank you very much.
Our next question is from Daniel Moore from CJS Securities.
Most of my follow up those have been touched upon.
If you mentioned it Josh I missed it what was organic growth and or the revenue contribution from acquisitions.
Trailing 12 months in Q4.
Yes, so for the quarter.
Our consolidated industries were down 7%.
And organically, we were down five so organic net of industry growth at plus two.
And acquisitions contributed 8% of the revenues or 45 million for the quarter.
For the year.
With the headwinds in pricing lower commodity costs organic net of industry is plus one so our industry down 13 to organic down 12.
Perfect. Thank you again.
Yes.
Our next question is from John Lovallo from Bank of America.
Hey, guys I. Thank you for taking my questions as well, maybe starting with the maybe starting with manufactured housing given the trend that you are the first time buyers buying a little bit later in life and arguably perhaps a little bit better off financially than than predecessor generations are you seeing a mix up in the content of manufacture.
The thing and then maybe along the same lines is there any risks that the first time buyer maybe skipped the manufactured housing leveling in moves into maybe a little bit more expensive stick frame home just given the fact is there a little better better off financially.
This is Andy what I would say is that manufactured housing provides a very nice value proposition today with the quality of the components that are going into manufactured housing.
Much improved from where they were years ago.
And with the cost being half the price of stick built we think theres tremendous opportunity both on the M- side and the stick built side. So I don't know that we see that you now we may see some some buyers surpassed that but with our presence in both single family multifamily and manufactured housing. We think we've got a balance that we can we can play well was.
So we wouldn't anticipate any impact.
Okay. That's helpful and then.
Such data and analytics is calling for a decline in commercial new construction in 2020. In 2021 are you seeing anything that is that would suggest it thats accurate how how your customer pipelines looking.
It does seem conservative to us.
We're not seeing that right now so we're feeling our customers are feeling good about where theyre at from upfront production perspective.
Okay. That's helpful. Then finally im just because there was.
Punch in numbers to Enron I, just want to make sure on the RV side, what exactly are you planning your business around in terms in terms of wholesale and retail.
We think RV based on the metrics that we're looking at today is is flat to up on the wholesale side.
And what does that translate to reenter from retail you said down mid to low low to mid single digits. We think we think retail could be down mid to high based on the turns that we're seeing today.
Then medac okay. Thank you very much faster.
And we have no further questions at this time I'll now turn the call back over to Miss Julian Kotowski for further remarks.
Thanks, John we appreciate everyone for being on the call today and look forward to talking to again at our first quarter 2020 conference call.
Replay of today's call will be archived on Patrick website, Www Dot Patrick I, Indeed, dot com under Investor Relations.
On the call back over to our operator.
Thank you ladies and gentlemen. This concludes today's teleconference. Thank you participating and you may now disconnect.