Q2 2020 Marine Products Corp Earnings Call

Good morning, and thank you for joining us for marine products corporations second quarter Twentytwenty Financial earnings Conference call today's call will be hosted by Rick Hubbell, President and CEO and Ben Palmer Chief Financial Officer also present is Jim Landers, Vice President corporate finance.

At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session instructions will be provided at that time for you to queue up for questions I would like to advise everyone. But this conference call is being recorded Jim will get a started by reading the forward looking disclaimer.

Thanks, Amy 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 may be forward looking in nature and reflect a number of known and unknown risks I'd like to refer you to our press release issued today are 2019, 10-K, and other SEC filings that out.

Those risks all which are available on our website at marine products Corp Dot com.

If you're not received our press release, please visit our website again, it marine products Corp. dot com poor copy.

We'll 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.

Hi, Jim Thanks.

We issued our earnings press release for the second quarter of 2020. This morning, Ben Palmer CFO will discuss financial results in more detail in a moment.

This time I will briefly discuss our operational highlights.

We temporarily suspended or manufacturing operations for five weeks during the quarter.

As a precautionary measure to protect our employees their families in our community during the shelter in place order relating to co. Good 19 pandemic.

As a result or unit sales during the second quarter declined by almost 58%.

Which led to lower operating and net income.

We maintain profitability by reducing expenses across the board.

But our second quarter net income declined significantly compared to last years.

Record quarterly financial results.

We resumed operations on May six edit at higher production levels than during the first quarter in response to an increase in dealer and consumer demand that we.

Noticed in late March.

Our dealer sold a great.

Deal their inventory during the second quarter and at the end of June or order backlog.

Was the highest it has been in a number of years.

His were viewed it as we review our market share at the end of the second quarter I'm pleased to report the chip real continues to be a market cheerleader and its stern drive recreational boat category.

Robalo also continues to be a market share leader in the outboard category and the combination of chaparral and robalo outboard models.

The highest outboard.

Boat market share in their size categories.

We announced this morning that our board of directors yesterday declared a regular quarterly dividend of eight cents per share the same as our regular record quarterly dividend in the previous quarter.

With that overview I will turn it over to our CFO Ben Palmer. Thank you Rick.

Net sales for the second quarter of 2020 were 40.8 million of 54% decrease compared to the second quarter of last year.

Sales declined by 57.9% due to the temporary suspension of production, while average selling prices increased by 7.8% during the quarter because of a favorable model mix.

Gross profit in the second quarter was 7.8 million a decrease of 61.7% compared to the record second quarter 2019 gross margin during the quarter was 19.2% compared to 23% and the second quarter of 2019.

Gross margin as a percentage of net sales declined due to manufacturing cost inefficiencies caused by the interruption production in the second quarter of 2020.

Partially offset by the favorable model mix of larger boats sold during the quarter.

Selling general and administrative expenses were 5.8 million in the second quarter, a decrease of 3.3 million compared with 9 million in the second quarter of last year.

These expenses decreased due to costs that Barry with lower sales and profitability such as incentive compensation and warranty expenses.

In addition, these expenses declined due to lower compensation, resulting from employee furloughs and other expense reductions related to the temporary operational suspension during the quarter.

These expenses were 14.1% of net sales in the second quarter of 2020 compared to 10.2%, but net sales in the second quarter 2019.

For the quarter ended June Thirtyth 2020, we reported net income of 1.7 million a decrease of 81.8% compared to record net income of 9.4 million in the second quarter of 2019.

Diluted earnings per share were five cents and the second quarter compared to 27 cents in the prior year.

Our effective tax rates during the second quarters of 2019, and 2020 were 18.3%.

Our international sales decreased by 63.7% and accounted for 4.9% of total sales during the quarter.

And international sales decreased fairly consistently across all of our international markets.

Our cash balance at the end of the second quarter was 22.6 million an increase of 9.6 million compared to 13 million at the end of the second quarter of 2019.

As Rick mentioned dealer inventory levels were significantly lower at the end of the second quarter of 2020 than the end of the first quarter of this year or the second quarter of last year, our order backlog in units was higher than it has been in many years.

Because of increased demand in our lower production and boat deliveries during the second quarter.

Many of our dealers reported very love field inventory at the end of the quarter.

With that I'll now turn it back over to Rick for closing remarks, Thank you Ben.

Starting in late March the dealers in most of our markets reported an extraordinary surge in demand is consumers focused on second homes and soft safe outdoor activities.

In response to concerns over the cobot 19 pandemic.

In fact, a few of our dealers reported that they were completely sold out of our products. So we were eager to resume or production.

Soon as we felt it was prudent to do so.

The demand remained strong during the third quarter, even though we have passed the peak of traditional retail selling season.

Last week, we received preliminary industry retail sales and we noted for our three boat categories.

June sales increased by 16% compared to June 2019.

This contrasts with year to date.

June sales, which fell by 8% for the same categories.

This is encouraging external confirmation.

The increase in demand that we've experienced during the last three months.

The current macro environment over the near term remains uncertain.

But we are encouraged by the enduring appeal of recreational boating to the American consumer.

So we remain cautious in the midst of global uncertainty, we're very pleased with the selling environment for our products and we look forward to meeting strong dealer demand based on our resumed production schedule.

Like to thank you for joining us this morning, and we'd be happy to take any questions that you may have.

Thank you at this time it will be conducting our question and answer session in order to ask your question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound or hash key we'll pause for a brief moment to compile it Q and a roster.

Your first question comes from a line of Eric Wold with B. Riley Eric Your line is open.

Thank you good morning, everyone. Thanks for taking my questions.

Sure I guess first of all start kind of a question on the can last last comment about the preliminary data came out.

That showed in June numbers up.

Four categories. It had been weak prior to June I guess.

Hearing anecdotally that your consumers are going about their.

Looking to buy it.

Maybe you talked about where you.

The.

This this this potential shift we saw in June and we usually recently, it's something that is good in terms of that mix into next year.

Eric This is Jim you faded out for a part of that.

Let me rephrase the question real quickly I think you're asking if.

Maybe if June how we see that continuing or what that trajectory might be beyond June tell me from wrong, but we didn't hear everything yes, exactly just kind of.

The mix that you kind of been received recently in terms of consumers actually buying bodes they may not have been buying before that so maybe think a sustainable more kind of a short term phenomenon with the inventory that's going out there.

Well, our our dealers think it's sustainable because they've they've done some pretty strong ordering for us and they know that the deliveries they ask us for won't come for a number of months.

But this is an awfully uncertain time.

If we feel good about the near term, we don't know about the future we don't know.

There are a lot of people who want to write checks for bodes right. Now we don't know what that total population is so I wish we had better answers Eric and my excuse me this has been.

Maybe if I'm picking up on the essence of your question as well on.

That.

You know dealers reported very strong sales across all categories all boats all.

Ages of boats every bank. So, we'll obviously be relying on the dealers to assess the boat.

Models sizes types that they see selling in the future a lot much of what we are building and delivering today and in the coming weeks our boats that have already been sold by the dealers so they're not going to be in their dealer inventory very long.

Longer term in terms of which both models and and styles will be end demand again, we'll rely on the dealers to help make that they will make that determination in terms of what they want to place orders, Florida to rebuild their their their inventory so reasonable question, but but we deem it and I'm sure the dealers.

Theme this phenomenon as a great opportunity to clear out some inventory that might that might have otherwise or have been sitting around for a while integrates a great opportunity to put them at all and a fabulous position, which benefits of which will also in order to us. So we're we're.

Very pleased about that and Erik this is Rick the other encouraging thing we're seeing is that theres a surge of first time buyers that we've not seen in a while so I think for us and for the industry that's very encouraging.

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I appreciate that Andy you kind of answered.

Your next question a little bit I guess.

Can you give us a sense of how long.

You'll be manufacturing boat that have already been sold them back to kind of manufacturing stock inventory and what is your essentially the dealers in terms of good morning since year.

To the industry.

So on how how it will be.

Take stock inventory back in is it still going to be somewhat somewhat cautious or you think a while we saw last year is now going to in the past in their mind.

Eric the spin I'll take that one.

Hey.

A lot of the boats that are going into current production have already been sold at least that's the indication.

From the dealers.

And and there is a a certainly a relatively long fairway long.

So a lot of that that's already in the backlog. So that is that is great with respect to how long. This will slabaugh will last we've been reflecting on.

911, and what happened after.

That time period and the demand lasted for a number of years. After the the 911 event. So we're hopeful that will be the case here.

Obviously, we won't know until the future but.

Right.

But we do have again, a tremendous backlog at the stand at this point many of which will not be delivered for for many weeks. So we'll just have to see as the winter unfolds and next spring to see.

Where dealer inventory is and what their appetite is and how they're feeling about things obviously, we've got the election coming up in the uncertainty over that.

Oh pulled it.

Yes, theres any interruption at all that to would only be temporary and we can get that behind us.

And continue to move forward, so we feel pretty good about the future for the for the next.

Longer than just this temporary blip, but but again we.

We are we're not able to.

For many respects, we can't ramp production to be able to fill all these orders in the typical timeframe that wouldn't be a very smart thing for.

For us to do from a from a quality and planning perspective, but we're certainly going to ramp up to what we believe is a reasonable level level given the longer term trends, we want to meet the dealer demand into the retail consumer demand, but we also want to maintain our our standards and do all the things that.

We need to do longer term for the health of our company.

Perfect. Thank you guys.

Thanks, Eric.

And as a reminder, if you'd like to ask a question. Please press Star then the number one on your telephone keypad.

There are no further questions I will turn the call back over to Jim Landers for closing remarks.

Thank you Amy.

Thanks, Eric in for everybody else, who listened in this morning. We appreciate your interest in our company and hope everybody has a good day take care.

Ladies and gentlemen, as a reminder, this conference call will be available for replay on Marine products Corp. Dotcom within two hours. Following the completion of the call. This concludes today's conference call on behalf of Marine products Corporation. Thank you for participating you may now disconnect.

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