Q3 2020 Patrick Industries Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Patrick Industries Inc. third quarter 2020 earnings Conference call. My name is Kevin and I'll be your operator for today's call.
At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
I do want should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Now my pleasure to trouble over to Ms. Juliet Kotowski from Investor Relations Ms. Kotowski. Please begin.
Good morning, everyone and welcome to Patrick Industries third quarter 2020 conference call I am joined on the call today by Andy Nemeth, President and CEO and John Ford Interim CFO.
Certain statements made in today's conference call regarding Patrick industries, and its operations, maybe considered forward looking statements under the securities laws.
There are a number of factors many of which are beyond the company's control, including without limitation, the disruption of business, resulting from unforeseen events, such as the ongoing impact of a cold and Nike Panasonic and its impact on economic conditions capital and financial markets, and our operation, which could cause the actual results and events to differ materially.
From those described in the forward looking statements.
These factors are identified in our press releases, our form 10-K for the year ended 2019 and in our other filings with the Securities and Exchange Commission we.
We undertake no obligation to update these statements to reflect circumstances or events that occur. After the date. The forward looking statements are made.
I would now like to turn the call over to Andy Nemeth.
Thank you Julie and good morning, everyone and thank you for joining us on the call today.
Before we cover the details of our quarterly results I want to provide an update on our successful efforts to continue to prioritize a safe and healthy workplace for our team members and customers in a COVID-19 environment, while aggressively supporting an unprecedented rise in demand in our end markets.
All of our facilities are up and running and we have integrated and continued to successfully integrate safety protocols across our platform aligned with CDC state and local guidelines and recommendations into this new normal environment as we adapt to the changing dynamics of this global pandemic.
The tremendous hard work dedication drive and passion exhibited by our team members continues to be both humbling and inspiring as they respond to the strong demand for our products and adhere to equally demanding production schedules.
These achievements have also been made possible by the mutual support and compassion, we have for one another as we uphold our common team values, which continue to be an essential part of our culture.
The amazing to witness the tenacity and resiliency of our team members in todays call, but 19 environment.
Our leader lifestyle markets, which represent 74% of our revenues continued their strong rod again in the third quarter, attracting new buyers due to the continuation of positive lifestyle and secular trends in domestic travel and outdoor recreation activities.
These trends in the RV and marine markets are also creating and stimulating a network effect that is expanding the breadth and depth of our touches in our addressable markets.
Our MH and industrial platforms, representing 26% of our third quarter revenues are seeing tailwinds from very tight housing market conditions, an increase in home improvement activity and increasing migration to suburban and rural communities.
Both MH Oems and single family home builders are reporting increasing backlogs extending out several months.
With that as context, our third quarter operating performance was strong as we were able to offset labor hiring headwinds wage increases and overtime inefficiencies by leveraging our lean fixed cost structure and as a result of the tremendous commitment of our team members to our brands into taking care of our customers.
Our financial metrics benefited as a result with improvement in gross profit operating income net income and diluted earnings per share.
Our third quarter revenues increased 135 million or 24% versus the prior year, reflecting the momentum in most end markets and our ability to shift gears with customer demand accelerates.
We earned $1.62 per diluted share a 76% increase over the prior year third quarter.
Cash flows were strong and we returned approximately $11 million of capital to our shareholders via dividends and opportunistic share repurchases consistent with our disciplined capital allocation strategy.
At the end of the third quarter, we had $473 million of available liquidity, which includes approximately $62 million of cash on hand, and our net leverage was at 2.2 times right in line with our targeted financial policy.
Now turning to our end markets. The momentum we saw a building in May and June continued through the third quarter, resulting in improvements in three of our four end markets RV and marine dealer inventories, both new used a new or its statistical lows when compared to historical weeks on hand, and RV and marine retail sales are as strong as we have seen in recent memory.
Oh Oems in both markets continue to flex their production schedules up to meet retail demand and manage backlogs, which are a product of very strong consumer demand coupled with lean inventories.
Housing demand driven by tight housing inventories low interest rates and a shift from urban to suburban and rural housing has expanded demand in our industrial market and is a tailwind for our MH market.
Now taking a deeper dive our RV revenues were up $111 million or 36% in the third quarter and represented 60% of our consolidated sales.
RV wholesale unit shipments were up 33% totaling more than 124000 units for the quarter and we estimate retail unit shipments increased 25% to 30% in that same period or between 170000 to 175000 units sold for the third quarter.
Dealer inventories continue to trend at extremely low historical levels as retail sales outpace wholesale shipments and immediate retail sell through at the dealer level continues to prolong the timeline for dealer inventory replenishment cycle two to begin.
Based on our estimates we believe between 45000 50000 additional units were pulled out of the inventory channel during the quarter over 100000 units year to date and over 165000 units over the last 18 months.
We continue to be energized as well about the longer term growth potential of the RV market.
The continued strong traffic and engagement at the dealers from new RV buyers unprecedented awareness of the RV lifestyle.
I am and dealer commitments to driving a strong value proposition of the industry and promoting the lifestyle for future generations.
And the recently enacted Great American Outdoors Act will all provide greater opportunities and capacity for Americans to experience camping outdoors.
On the marine side of our business momentum continues to mirror, the RV wholesale retail and dealer inventory levels are.
Marine revenues were up $18 million or 25% for the quarter on estimated marine wholesale unit shipments that were down approximately 4% in the same period and Murray retail shipments that are estimated to be up approximately 30% to 35% in the quarter.
The marine industry has experienced a similar strong increase in new buyers driven by the same secular trends in outdoor recreation.
Heavy boat usage patterns, and resulting demand for new marine products, including aftermarket products have created historically low channel inventories.
We expect a very positive demand trajectory for marine wholesale unit shipments in the fourth quarter of 2020, and healthy supply and demand dynamics in 2021.
In summary, the leisure lifestyle markets are poised to see a long term network effect as a result of new entrants into the space as family friends neighbors and communities are exposed to the wide ranging benefits of domestic recreation and the customer base and associated addressable markets achieve their long term growth potential.
The RV and marine markets are ideally positioned to support continued social distancing combined with the value proposition of spending quality time with family and friends and as well highlight the tremendous attractiveness of domestic leisure recreational travel and enjoyment.
Historically, lean RV and marine inventories and a broadening of the addressable markets through the expansion of the customer base lead us to believe that the leisure lifestyle markets are poised to continue their strong trends through the final quarter of 2020 full year 2021 and into 2022.
Now turning to the housing industrial side of our business.
Our housing and industrial end markets, we as well saw Tailwinds this quarter due to strong new single family housing starts and the continued surge in home improvement projects and related do it yourself activities.
The trend in demand moving from urban centers to suburban and rural areas driven in part by the impact of Carbonite team and the desire for increased patient social buffers continued in the quarter.
This lends further support the single and multifamily housing demand in those areas as well as attractive opportunities in the MH market.
The housing market remains tight and affordability of manufactured housing is very strong.
The MH markets have essentially recovered from the impact of COVID-19 and strong demographic trends. In addition to increasing OEM backlogs indicate robust current demand and future growth potential.
Our manufactured housing sales represented 15% of our total revenues in the third quarter and relatively flat compared to the third quarter of 2019 on an estimated decrease in MH wholesale unit shipments of 2%.
M- sales have been gradually recovering since June with Oems experiencing intermittent labor and cobot headwinds in the quarter, resulting in delays in M- unit production orders for some of our products.
The long term potential of the MH market will continue to benefit from several factors, including a tight housing market a shift from urban to suburban and rural the recent reinforcement of homeownership continued narrowing of the financing spread between traditional and MH financing and the need for affordable housing.
M- has a substantially lower price point compared to stick built homes with Emirates, representing an estimated 80% of new homes sold under $150000.
Revenues in our industrial business, which represented 11% of our overall sales mix in the third quarter increased 9% compared to the prior year.
Our supply to new residential construction, the remodeling market and big box home improvement was driven by a resurgence in single family housing starts in a robust home improvement demand.
Additional demand drivers include low interest rates and increase in demand for suburban homes and what continues to be a tight housing market supply.
Continuing their strong recovery in June new housing starts increased 11% in the third quarter.
Our residential new construction products are generally the last to go into a new unit and trail new housing starts by four to six months.
Single family housing starts increased 17% in the third quarter, while multifamily housing starts decreased 1%. This.
The south West and Midwest have rebounded, while the northeast and northwest multifamily is still catching up with some bottlenecks and capacity constraining protocols due to COVID-19 effects.
In summary, strong fundamental demographics, and new secular trends and Tailwinds in all four of our primary markets have poised our business to expand and grow.
We are aggressively investing in our infrastructure and alignment to support the Oems and builders as they cultivate and establish new networks of buyers, which we believe will lead to continued expansion of our addressable markets in both the leisure lifestyle industry, and our housing and industrial markets.
We currently anticipate RV wholesale shipments to be up 25% to 30% in the fourth quarter of 2020 and mid single digits for the full year on retail shipments that are estimated to be up 15% to 20% for the fourth quarter and mid to high single digits for the full year.
For 2021 RV is currently estimating an approximate 20% increase in wholesale unit shipments to 507000 units and we believe there is upside opportunity.
We anticipate fourth quarter 2020, marine wholesale shipments to be up approximately 10% to 15% and down low double digits for the full year. After destocking in the first quarter prior to call. It.
For 2021, we currently anticipate marine wholesale to be up 20% to 30% on retail that is estimated to be up low single digits to mid single digits, if not more.
Based on these estimates and the continued strong retail demand, we believe in both RV and marine markets. The channel inventories will remain well below recent historical levels and will not be calibrated until late 21 or into 2022 at this point.
In the manufactured housing and industrial markets. We currently expect MH wholesale unit shipments to increase low to mid single digits for the fourth quarter and 2021 and new housing starts to continue their strong trajectory of high single digit to low double digit growth into the fourth quarter of 2020 and into 2021.
The strong rebound in our markets are sound and flexible capital structure, our disciplined leverage position and a robust cash flows have positioned us extremely well for the future growth in our markets.
We invested $11 million in Capex in the third quarter, which helped to increase facility capacity and broaden production output in automation will also alleviating certain labor constraints and improving our flexibility to meet the sharp uptick in market demand.
We have strategically and aggressively full forward capital expenditures related to automation and throughput optimization from 2021 to ensure that we are in a position to support the expected tremendous demand patterns in our markets in 2021 and beyond and while our market projections are planning for strong growth in 2021 and beyond we are positioning our capacity levels in advance of that.
To ensure that we can flex with our customers demand levels and continue to capture market share where other lifestyle businesses can.
Strategically we further invested $99 million in three acquisitions in the third quarter, expanding our penetration of the RV space with synergy RV transport into the marine space within the plywood and the industrial space with front range stone.
These three acquisitions present attractive growth opportunities at tremendous talent to our team leverage our existing operations and increase our presence into the three key end markets.
We continue to maintain and cultivate a full acquisition pipeline and evaluate businesses that will help further bolster our leisure lifestyle and housing for our product portfolio and overall solutions based value proposition.
I'll now turn the call over to John who will provide additional comments on our financial performance.
Thanks, Andy or consolidated net sales for the third quarter increased 24% to $701 million driven by increases in three of our four primary end markets.
Or leisure lifestyle end markets continue to benefit from the popularity of RV and marine in the COVID-19 environment, while our industrial market benefited from a strong housing and remodeling environment.
Revenue from our leisure lifestyle markets, which is comprised of RV and marine increased 34%.
With RV and marine revenues up 36% and 25% respectively.
RV content per unit on a TTM basis was relatively flat at approximately $3140 per unit and.
An estimated marine content per unit increased approximately 16%.
Two $1915 per unit, including the impacts of the cold mid Nineteens shutdown.
Revenues from our housing and industrial markets increased 3% in the quarter with them age revenues down 1% versus the prior year and industrial revenues up 9% compared to the prior year quarter.
Estimated MH content per unit increased 4% to $4503 per unit.
Gross margin in the third quarter was 19.1%, increasing 70 basis points compared to the prior year.
The gross margin improvement was primarily driven by benefits of leveraging our fixed operating cost against a strong increase in revenue, but was partially offset by labor increases and inefficiencies related to overtime.
Operating expenses were 10.5% of sales compared to 11.8% in 2019.
Warehouse and delivery expenses decreased 60 basis points due to a lower mix of MH sales in the quarter.
DNA expenses were 5.4% of sales in the quarter, a 60 basis point decrease compared to the prior year, primarily reflecting higher sales volumes and the leveraging of our cost structure.
Operating income of $60 million increased 60% in the third quarter and operating margin of 8.5% increased 190 basis points, primarily due to the increased sales volume and leveraging of our fixed costs.
Our net income per diluted share in the third quarter was $1.62 up from 92 cents in the prior year.
Our overall effective tax rate decreased to 24.3% for the third quarter of 2020 compared to 26% in the prior year.
The decrease primarily reflects the impact of certain state and federal income tax benefits.
For the full year 2020, we are now estimating our all in effective tax rate to be in the range of 24% to 25%.
Now turning to the balance sheet.
Our total assets increased by approximately 104 million as of September 27, 2020, largely reflecting the addition of acquisition related assets.
Looking to cash flows we generated approximately $113 million of operating cash flows for the first nine months of 2020, a decrease of 8% compared to the prior year.
The decrease primarily reflects the net income impact of the gold 19 business disruptions that largely affected late first quarter and second quarter 2020 operating results.
Operating cash flows for the third quarter of 2020 were $73 million, an increase of $45 million or 160% from the $28 million in the third quarter of 2019.
The increase in the third quarter of 2020 is attributable to the improvement in our RV Marine and industrial end market performance compared to the prior year.
While we made the strategic decision to pause certain strategic initiatives, such as capital expenditures acquisitions and share repurchases in the second quarter due to COVID-19, uncertainties, we resumed to all three of these allocation initiatives as the end market demand increase.
In the third quarter of 2020, fueled our investment of $90 million to $99 million in business acquisitions.
As Andy mentioned earlier these acquisitions were made to expand our product offerings and geographic presence in the RV Marine and industrial end markets.
Investments in business acquisitions totaled $124 million on a year to date basis.
In addition in alignment with our balanced capital allocation strategy and dividend policy, we invested $11 million and capital expenditures in the third quarter of 2020 to support operational improvements and growing end market demand.
We returned approximately $6 million to shareholders in the form of quarterly dividends and almost $5 million in the form of share repurchases.
We have approximately $473 million of total liquidity at the end of the third quarter, including $62 million of cash on hand, with no major debt maturities until 2023.
Our strong operating cash flows position us to capitalize on strategic growth opportunities.
Return capital to our shareholders and maintained our disciplined capital allocation strategy with attention to our long term leverage profile.
Our leverage position at the end of the third quarter was 2.2 times net debt to EBITDA.
The final quarter of 2020, we will set the stage for 2021, we expect a continuation of recent recent growth trends and preferences in our end markets. Our financial plan will be consistent with the growth expectations and opportunities Andy previously discussed.
Geographic diversification and scalability will enable us to support and partner in the growth of our addressable end markets.
Proactive.
Capital and strategic investments made possible through our strong cash flow and liquidity will allow us to stay ahead of the curve and fulfilling our customers' needs.
We estimate we will generate more than $200 million of operating cash flow in 2020. Despite the short term headwind we experienced in the second quarter of 2020, when many of our plants paused operations.
We expect to complete the deployment of capital expenditures through the final quarter of the year to support increases in end market demand, we estimate 35 million of Capex for the full year, which will enable us to continue to flex.
With the expected growth of all our end markets.
That completes my remarks Andy.
Thanks, John our resources liquidity and strong consistent cash flows will continue to allow us to deploy capital to further take advantage of growth and acquisition opportunities in alignment with our strategic plan.
In addition, our highly variable cost structure and liquidity profile provide us the flexibility to stay ahead of changes in this dynamic macro environment expand our infrastructure and other resources to meet customers' growing needs and maintain the flexibility to quickly pivot on our strategic plan to adapt to changes in both demand and economic conditions.
The RV Marine and housing markets are growing and changing our portfolio of solutions for these end markets is position to accommodate ongoing changes in the way consumers travel spend time outdoors and establish the footprint of our communities.
The combination of our solid operational and financial Foundation customer first performance oriented culture, and the talent dedication and passion of our 8000 team members will continue to position us to execute on our strategic plan as we strive to continuously exceed our customers expectations.
As we look ahead to 21, we are excited about the opportunities and growth potential in front of us and believe positive fundamental demographic trends and macroeconomic and secular tailwinds will lead to continued strong demand in our end markets. In addition, the ongoing support we received from our customers suppliers board of directors and shareholders affords us the.
Opportunity to continually strive towards our goal of increasing long term shareholder value by serving our customers at the highest level reinvesting in protecting our talented and dedicated team members dealing ethically and responsibly with our business partners and supporting our local communities. This.
This is the end of our prepared remarks, we're now ready to take questions.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one under telephone keypad, a confirmation tone will indicate your line is in the question queue. You may prostar queue, if you'd like to will be a question from the queue for participants using speaker equipment maybe necessary.
To pick up your handset before pressing star one one moment. Please while we poll for questions. Our first question today is coming from Brett Andrews from Keybanc capital markets. Your line is our lives.
Hi, good morning.
So so a lot of investor conversations around the state of the RV supply chain and sounds like you are in a position.
To to meet demand.
Potentially better than others, but but what are you seeing across the broader supply chain and I guess, maybe said another way what gives you confidence to supply chain can meet.
A 25% to 30% increase in Fourq you shipments.
Brett This is Andy good morning.
Thanks very much for the question, Yes, I think we're in a really good spot as it relates to where we're situated today, we went into covered with a very strong financial platform first of all and so as we work through the cobot shutdowns and then the subsequent ramp up we really pushed our teams to put themselves in a position to be able to make sure. They can take care of our cause.
Numbers coming out of Covance and so they did a great job doing that.
And then we aggressively went after capital expenditures early in the game to make sure that we are positioning ourselves in both Q4 and.
And into 2021, so worst we're we're feeling good about what we're doing from a capacity perspective.
I think theres Theres hot spots, you know kind of across the space, but but the supply base has been extremely resilient in managing and adapting to changing circumstances and run rates as it relates to the industry. So I view this as short term and I view the supply base it.
It really being able to position itself well to support the increased run rates that were expecting for next year I think as we think about it we definitely believe we're in a great position to be able to support that and we're planning to invest.
Through the fourth quarter here to make sure that were in that position to support those run rates next year.
Got it Okay, and then a follow up on the I think it was 15% to 20% for.
For Q RV retail outlook could be it definitely encouraging outlook, but is there anything that you are seeing in October trends that give you the confidence.
Using for the remainder of the quarter on retail.
Trends have been very consistent both on the retail side as it relates to our channel checks.
With our partners.
New buyer activity still remains strong retail.
Retail units are still sold really through November and December at this point in time. So there is no channel refill occurring at this point, which from our perspective is a really good thing. It just it just extends out the cycle for the channel to be refilled back to appropriate levels into 21 and likely into 2002.
As it relates to our wholesale we've we've heard production increases and strong production rates to continue really through the fourth quarter and into into the first quarter of 21 at this point in time, So nothing's really changed if anything we continue to hear robust demand across the platform.
All right. Thank you.
Thanks.
Thank you. Our next question today is coming from Daniel Moore from CJS Securities. Your line is now live.
Good morning, any good morning, John.
Morning, Good morning.
I wanted to drill down a little bit on the inventory levels fulsome RV as well as marine.
Talks about how many units had been stripped out.
Maybe talk about where we are in terms of absolute levels, whether it's weeks of production percentage of annual shipments today and kind of where that stands in terms of upper and lower bounds over the last 10 years.
Sure Dan This is Andy in the RV industry in particular.
We track the statistics, there as it relates to retail wholesale and inventories and weeks on Hana event happened from where they were back in 2014 on roughly 45% to 50% more in retail volume.
Inventory turns have doubled.
At this point in time compared to where they were if you just baseline kind of that 2014 year. So as we look at AD inventories are extremely lean right now.
And are absolutely going to need to be rebuilt for the foreseeable future.
Similar story in the marine side of the business.
I think as we watch kind of retail wholesale match up fairly closely over the last couple of years, I think with where we're at today and the strength of reaped retail we're definitely seeing the same situation as it relates to inventory turns increasing weeks on hand, decreasing and just not enough not enough inventory out there. So.
We view this as very healthy exciting I think as we look into 2021 and 22.
And are excited about our potential to be able to take care of that.
Helpful. Thank.
You mentioned, despite the really strong operating leverage some labor and overtime constraints understandably.
Any ability can we quantify the margin impact in the quarter and thoughts on.
Either lingering inefficiencies or opportunity to correct those in Q4 and 21.
Yes, Dan this is John just.
We really feel that labor inefficiencies in Q3 were 30 to 50 Bips.
And overtime being probably the most significant component of that second item would be as we ramped up just some labor efficiencies as we work to ramp up our facilities. So those two items.
Needless to say, we've kind of worked through the ramp up period. So we wouldn't expect those to continue on.
We are continuing to work to add to our team to build labor, we will have some additional overtime in Q4 wells.
Good morning, Eric.
Got it very helpful.
And then what are you hearing about obviously demand is robust the Oems regarding holiday schedules relative to Q4 last year and are you seeing or experiencing any rising Toby cases are intermittent shutdowns.
Either patrick or across the supply chain.
Right now I would tell you that we are expecting the production schedules for the holiday season here to be improved if you will over what they were last year. So we would expect more days of production than what we saw last year at this point in time.
And then as it relates to covet our team has done a fantastic job of implementing covered protocols. We've not had any serious clusters. We've had cases for sure but our protocols are in place and I believe that in our team again has done a fabulous job of protecting our employees and taking care of our employees, especially while in the facility. So.
No major issues at this point as it relates to covet. The team continues to remain vigilant and we continue to adapt to changing circumstances as it relates to call that but overall, we feel good about where we're at.
As it relates to make sure our employees are safe inside our facilities.
Perfect and last for me and on the MH side backlogs are through the roof.
For most of the Oems.
But there is some significant near term bottlenecks to production how fast do you think they can alleviate those and how fast do you think the image business to grow and 21.
The industry in general is not patricks.
Right now as it relates to kind of MH, you know, we're kind of thinking low to mid single digits up in 2021.
I think certainly the labor is the biggest issue out there today I know that the manufacturers are looking at opportunities to increase production and throughput in that space and.
And but they're dealing with the same things that we are as it relates to labor.
But overall I would tell you that again I think everybody's focused on it I think Gary is getting their arms around it and.
You know again, we're looking to do anything we can from an automation perspective, not necessarily to eliminate positions, but to reallocate to other areas, where we do have bottleneck. So I think what we would expect as everybody else is doing that as well.
Okay perfect ill jump back then follow ups. Thanks, Todd Thank you again.
Thank you. Our next question today is coming from Scott Stember from CL King and Associates. Your line is now live.
Good morning, guys and thanks for taking my questions.
Morning, Mark.
Can you maybe talk about your view for Rvs for next year I know the R&D is looking for.
A nice increase in shipment activity, but that.
When I look at those numbers one to think that they are just looking at replacement demand I'm just trying to refill their coffers on on the deal a lot so what.
What are your expectations for retail what do you think we can do particularly if the industry is off like you said mid to high single digits. This year.
Our current expectation I would tell you is that retail is going to be up low to mid single next year and that's going to continue to again prolong the channel refill cycle I think even with RV I'd numbers that being said again the manufacturers are adding capacity today to be able to support that we're doing the same thing so the industry.
He has proven extremely flexible and nimble when it comes to the run rates and being able to flex and move with that and so again I think that.
As we look at it you know we think that the balances is really well positioned for a lot of Ron here, especially at the wholesale level.
We still anticipate strong retail for next year.
And on.
Some of the suppliers is obviously, you're faring much better than than most could you give us any examples of any share gains that you've had because of some of your competitors not being able to fulfill demand.
Yes, I think that as we look at it really in Q3 I would tell you that our share gains have been.
Relatively nominal we picked up a little bit, but we've really been focused on making sure that we're taking care of our existing customers at this point in time, given the significance of the ramp up I think as we look forward. We're really excited about the opportunity to capture some share as we head through Q4 and into Q1 of next year, especially with the initiatives that we're putting in place on the capital side to be able to support that growth. So.
We've really been focused again on taking care of our existing customers because they've all ramped up extremely quickly and we want to make sure that again, we're we're taking care of those who have been there with us and absolutely focused on again driving that value proposition as we go forward with our flexible with our flexible model.
Got it and on the industrial side not on Roes can you talk about how those business trends are whether it's a high rise or hospitality. Obviously, there is some weakness there, but maybe just give us a flavor.
Flavor, what's going on there.
The the biggest issue we see today.
Really two things one multifamily is a little bit constrained due to some cobot protocols at least where we're at out in the in the Pacific Northwest, but.
But as it relates to the high rise commercial.
The biggest issue is constraints on the number of subs that can be inside a project at any given time due to the cold. It distancing protocol. So that's really what's holding things back today, but overall, we think that again longer term. Those are those markets are going to continue to be in a good spot.
That that's all I have right now.
Thank you.
Thank you. Our next question today is coming from Craig Kennison from Baird. Your line is allies.
Hey, good morning, Thanks for taking my questions.
Good morning, good morning.
So I'm sorry, if I missed it did you report organic growth by category.
Now the way.
We didnt than for the for the quarter drag on organic was 2%.
And just to give you the rest of the story, we feel out of the 24% sales growth in the quarter organic was two acquisition was six percentage points.
And.
End market industry was 16%.
So the organic net.
2% is net of industry just flat.
Yes, Thats a good an important clarification I appreciate that and then I know that.
In the RV market Theres been tremendous demand for entry level units as more people join.
He joined this industry. So ASP trends have been I think under pressure curious what your expectation is for content per unit it looks like it held flat.
What's your outlook for content per unit, maybe into next year and then as some of these first time buyers upgrade do you see any upward trajectory in ASP is going forward.
Yes, Craig this is Andy I think as we look at it.
We've definitely seen smaller units.
Little bit of a shift there it was already kind of on the low end of the spectrum as it relates to size of units heading into co bid the new buyers certainly have been attracted into that space.
So ASP as you know under.
Under pressure as well you know as it relates to kind of pricing we've been we've been our markets and our commodities have been relatively stable and weve given some pricing. This year. So thats been a headwind so as we look at kind of going forward I.
I think that as consumers upgrade we certainly expect opportunities for content gains.
In the 21.
Great and then on.
On the margin front.
And a lot of incremental revenue coming in how should we think about your incremental margin today given your changes in your portfolio and new acquisitions, just trying to get a feel I guess for.
The incremental profitability of the business.
Hey, Greg This is John just a couple of things.
Were we set out on a journey to improve op margins 30 to 50 Bips. This year, we're on track to do that and as it relates to again on higher sales volumes in our ability to leverage fixed costs. So absolutely. We saw that in Q3, we expect expect that can do.
Menu as we push forward.
As we discussed.
Got some labor challenges of course, we've got both overtime and then just some inefficiencies and staffing up challenges.
That that do impact our margins, but all in we expect to hit that target to 30 to 50 Bips This year.
Terrific. Thank you so much.
Thank you.
Thank you. Our next question is coming from Steve O'hara from Sidoti. Your line is our lives.
Hi, good morning.
Good morning.
So just.
Good morning, Ed just maybe on.
Maybe previous commentary made by some who kind of dispute the impact of co video on demand and I'm just wondering.
You know.
Is there a way to kind of how do you guys think about the maybe cobot driven demand and maybe that's around the new buyers coming in.
Versus kind of what growth might be.
Outside of that.
Steve This is Andy I think that as we look at it we think that the new buyers have certainly a ban on top of what was already strong fundamental demographic trends that we're supporting the market and so you know.
Certainly the need and opportunity for social distancing.
But being able to get away, it's been a very attractive option for many consumers.
And just to anybody that has a lot of people that we talk to it just out in the public are interested in the lifestyle in the space and being able to do that so we believe that it's already we believe that that cobot fundamental if you will the new buyer turn is already on top of a strong demographic trend and we believe that's going to continue.
For the foreseeable future end to end at 21, especially with the cobot overhang that continues to exist. So if anything it's but it's we believe it's been a plus.
Okay, and then I guess just on the Youre.
Kind of revenue per.
Industry segment.
I mean is it.
Are there areas where.
It's not due to the.
The Delta between you guys in the industry.
Is not due to acquisitions, where maybe youre outperforming kind of.
Unrelated to acquisitions or underperforming.
Due to supply.
The supply constraints on your end.
I I think that we've got.
We've got we've got hot spots here and there across the platform as it relates to.
Just some supply constraints, but nothing overly significant and what I mean by that is that we see opportunities to be able to improve going forward.
I would tell you that our operations, we would tell you are performing.
As expected, if not better, especially given the tremendous attention and.
I think that our work ethic that our team has put in over the last six months to really really partner up together and support our customers through this process. So.
I would tell you that were our teams are running as expected and if not better, especially with the dedication that we've seen out of them.
Okay. Thanks very much.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is a follow up from Daniel Moore from CJS Securities. Your line is alive.
Thanks, again, obviously you know.
Yes, once again aggressively reallocating strong cash flow, maybe just talk about rank ordering priorities.
As we go forward, obviously capex to ramp up is first and foremost but.
We spent a lot more on acquisitions and buybacks stocks kind of 10% free cash flow yield or higher by my math. So just curious how that you might think about that on a go forward basis.
Sure Dan This is Andy I think as we look at things right now we've got a very strong acquisition pipeline.
Were excited about the candidates and partners or potential partners that are in that pipeline today.
Which we continue to cultivate.
So we're going to continue on the strategic path. Their capex has absolutely been a priority, especially with the anticipated capacity opportunities next year and so we definitely have pulled that forward in Q2, or Q3, Q4 here and probably a little bit into Q1, but overall I think we're going to be well situated there you know and as it relates to buybacks we always.
Stay disciplined in the market and we always have plans in place.
Based on our metrics and expectations and forecast and modeling and returns it.
To be able to repurchase shares so I would expect us to continue as we have.
Down the path and continue to execute on all those all the while continuing to support our dividend policy as well so the strength of our cash flows you know is very strong our liquidity position our leverage positions in a great spot today. So we couldn't be more excited about our opportunities that are in front of us strategically.
Alright, Thanks again for the color I appreciate it.
Thank you.
Thank you Weve reached end of our question and answer session I'll. The turn the floor back over to management for any further or closing comments.
Thanks, Kevin we appreciate everyone for being on the call today and look forward to talking to you again in our fourth quarter 2020 Conference Tom.
Replay of today's call will be archived on Patrick's website, Www Dot Patrick I'd Dotcom under Investor Relations now I'll turn the call back over to the operator.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time have a wonderful day, we thank you for your participation.