Q4 2020 Marine Products Corp Earnings Call
Yes.
Good morning, and thank you for joining us for Marine products Corporation's fourth quarter 2020 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 of corporate services that's.
At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions.
I would like to advise everyone that this conference call is being recorded and.
Jim will get us started by reading the forward looking disclaimer.
Thank you and good morning.
Before we get started today I would like to remind everyone that some of the statements that we'll make on this call may be forward looking and nature and reflect a number of known and unknown risks I'd like to refer you to our press release issued today, our 2019 10-K and other SEC filings that outline those risks all of these are available on our website at.
Marine products Corp Dot com.
If you do not receive a copy of our press release. Please visit our website again at marine products corporate on Com Port copy.
We will make a few comments about the quarter and then we will be available for your questions.
Now I'll turn the call over to our President and CEO Rick Hubbell.
Jim Thank you.
We issued our earnings press release for the fourth quarter of two.
2020, this morning, Ben Palmer, our CFO will discuss the financial results in more detail and a moment.
Before we start though I'd like to thank our employees for working through this incredibly challenging year of 2020.
Through their efforts our company has thrived during 2020 and is positioned to continue its success in the coming year. We appreciate your dedication.
Now for a few highlights on the quarter.
And products Corporation's fourth quarter, 'twenty and 'twenty results represented are continuing and response to our dealers and customers renewed interest and recreational boating, which began during the second quarter of 2020.
We operated at a higher fourth quarter production rate than usual as we work to fulfill dealers orders and preparation for what we believe will be a strong 2021 retail selling season.
We are starting the year with continued low dealer inventory levels and historically high order backlogs.
We continue to hold leading market share and all of our product categories, but today I am pleased to report that our robalo outboard sport fishing boats held the number one market share and their category up from a number from number two a quarter ago.
We announced this morning that our board of directors yesterday declared a regular quarterly cash dividend of <unk> <unk> per share representing a 25% increase compared to the prior quarter.
With that overview I will turn it over to our CFO Ben Palmer. Thank you Rick.
Net sales for the fourth quarter of 2020 were $71 1 million or 47, 6% increase compared to the fourth quarter of last year.
Net sales increased by 27, 8% during the quarter and average selling prices increased by 14, 1% due to the popularity of some of our larger models and boats chaparral and robalo.
Gross profit and the fourth quarter was 17 4 million and increase of 65, 7% compared to the fourth quarter of 2019.
Gross margin on during the quarter was 24, 5% compared to 21, 8% and the fourth quarter of last year.
Gross margin as a percentage of net sales increased due to the efficiency benefits of higher production.
A favorable model mix, consisting of larger boats and lower incentives due to the impact of strong product demand.
Selling general and administrative expenses were $8 $3 million and the fourth quarter of 2020 and increase of $2 million compared with $6 3 million and fourth quarter of last year.
These expenses were higher due to costs, which increase with sales and profitability such as sales commissions and incentive compensation.
Also contributing to the increase and selling general and administrative expenses was a noncash pension settlement loss of $650000, resulting from lump sum payments from that from the defined benefit pension plan.
These payments from plan assets were part of an effort to reduce ongoing planned costs.
For the quarter ended December 31, and 2020, we reported net income of $7 million and increase of 97, 5% compared to net income of three 5 million and the fourth quarter of 2019.
Diluted earnings per share were 21 cents and the fourth quarter of this year compared to 10 cents and the prior year.
Our effective tax rate during the fourth quarter of 2020 was 23, 1% compared to 17% and the prior year.
The variance and the tax rate was due to slight changes and year over year tax effective rate attributes.
And for 2021, we expect our full year effective tax rate of approximately 19%.
Our international sales and Canada accounted for four 8% of total sales during the quarter and increase of 82% compared to the fourth quarter of the prior year.
Our international sales improved in many international markets, including Australia, and the Middle East.
Our cash balance at the end of the fourth quarter was $31 6 million and increase of $11 8 million compared to $19 8 million at the end of the fourth quarter of 2019, reflecting strong cash flows and the business.
As Richard mentioned dealer inventory levels remain historically, low and order backlogs continue to be very high.
Matt I'll turn it back over to Rick for a few closing remarks, thanks, Ben 2021, and is starting well for Marine products Corporation and as many consumers continue to view recreational boating is a leisure activity of choice because it takes place close to home and and outdoor setting and.
And within a small group several weeks ago, where industry reported that retail power boat sales exceeded pre financial crisis levels for the first time.
We have every reason to believe that our industry is experiencing a favorable secular transformation.
The offsets to this strong demand environment include the fact.
That the 'twenty 'twenty one boat shows have been canceled along with our dealers. We are conducting is as much virtual marketing as possible and as you might imagine consumers are increasingly comfortable making important purchase decisions in this manner.
And along with other industries experiencing high demand, we are closely monitoring our employees' well being labor constraints and potential supply chain log jams as we work to serve our dealers and customers in this environment.
We are continuing continue we continue to prioritize product quality as we consider production increases.
We are excited about the coming year and once again, we're very pleased about all of our products strong market share and especially robalo rising to number one and its category.
And I'd like to thank you for joining us this morning, and we'll be happy to take any questions you may have.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
I would like to withdraw your question press the pound key.
Your first question comes from Eric Wold of B Riley Securities. Your line is open.
Thank you and good morning congrats.
Congrats on a strong quarter.
And yes.
First question.
Obviously that youre.
Dealer inventories and historically low levels and order backlog remains high and any sense you can give us in terms of how much of your production.
Now is geared towards already purchased boats vs.
Putting stock inventory back into the channel.
Good morning. This is this is Ben.
I don't want to give a specific percentage, but it is significant.
It's just it's obviously unprecedented.
And.
And that's clearly what's driving where we are.
We have prioritized production based on sold boats with our dealers.
To a large extent so trying to meet that in consumer demand, but it is very significant.
Understood.
And you know that a favorable model mix and a shift to larger boats.
What is it.
And normal from what you've normally seen and an indication that consumers are kind of buying what they can get their hands on.
And purchasing behavior have you seen or heard from your dealers in terms of.
And where buyers are gravitating, given given the tight inventory and how this is affecting their purchase behavior.
Eric Good morning, this is Jim.
So the answer to your first question I prefer not to characterize it as buying whatever you can get your hands on.
And just say that let's just say that consumers are very eager to get into boating and where they may have wanted a red one and they'll take a blue on but in general there's still choosy and theyre looking for quality and and that's that's.
And that's where we were we tried to play and where we try to be.
It is hard it's hard for us personally to say whether on.
Our shift to larger boats is a.
As a secular consumer change or just just kind of where we are and the kind of products, we're making we're emphasizing knows.
Because we see demand there.
And that's kind of all I can say without being too speculative we are noticing that.
With.
And with outboard boats growing youre seeing bigger outboard boats with frankly, just more engines on the back I think that's easier to do so.
And so I think that that's a possibility as well, but that's kind of our best look at it and then I would also add that you know that to some extent again working with our dealers very closely with.
And with their orders again, many of which have already been pre sold we are trying to.
Allocate and prioritize somewhat to the larger models as well so that.
And in a particular period that can have some impact as well.
Terrific and then just final question on on the supply chain.
Pressures I guess.
What is your best guess on how long these these could persist and.
Any sense of.
How much more production or margin headwind these may be trading versus what you could be doing.
It's a very reasonable question, we have experienced.
And slight interruption here and there thus far and clearly we're hearing from our suppliers and the industry overall.
That is certainly a risk and and it's something that everybody is going to manage through.
Just like US our suppliers are trying to gear up and trying to address the various challenges they have to meet the demands of their of their customers.
It's a reasonable question. We don't know, we'll just have to take it day to day partnering with the supply chain and and do the best we can.
And we at this point and time are hopeful that they will that we can maintain our quality and maintain our production levels that we have in place today and we'll just have to manage through it and do the best we can working with our suppliers to keep things.
Moving along but very as I'm sure you can imagine it's very difficult to quantify.
But but we're hopeful that we'll be able to manage through with with hopefully.
On a more disruption.
And I apologize if I can throw one last time and addition to that whereas the main supply chain issues right now is there a certain.
One or two main parts of areas that youre seeing this.
Eric.
We're fine on engines right now, but we're watching engines very closely that as a potential constraint and then there are a few components that have a limited number of manufacturers.
Maybe the Best example is boat windshields and so that's something we're watching as well.
Perfect. Thanks, all of you guys I appreciate it.
I appreciate it.
And again, if you would like to ask a question Press Star then the number one on your telephone keypad.
The next question comes from Fred Wightman of Wolfe Research. Your line is open.
Hey, guys. Good morning, Thanks for taking the question, Hey, Brentwood and you had mentioned that you were expecting a strong retail season and for 2021, which makes sense, but I'm wondering if you could just build out on that a little bit either the company or the industry level is there a chance that you think industry growth. This year just given how strong 2020 was are we talking about sort of flat to slight.
Clients and any color there would be helpful.
Hey, Fred this is Jim so.
Year over year, if you want to compare 2021% to 2020.
And we're conservative people, but I'd be willing to take a bet that the industry will really grow in 2021.
Especially when you consider that 2020, most manufacturers, including US were shut down for a good part of second quarter. So.
We will definitely see growth in 2021 over 'twenty and 'twenty.
Barring any just total systemic.
Things that happen Corona virus or something else getting worse, but we definitely think 2021 is going to grow over 'twenty and 'twenty on.
On a retail basis right I assume that day or comments for wholesale you think retail will be meaningfully as well too.
Yes, okay.
Okay that makes sense and you had also mentioned lower incentives as a benefit on the gross margin line can you maybe talk about how you think the promotional environment will will look as we move into next year and some of the dealer inventories start to refill should we expect some margin headwind as promo levels and incentives to get a little bit high.
Or do you think that day.
Given how tight everything is on the channel that we'll be talking about pretty favorable promo environment throughout next year as well too.
I think with with the strong demand and that as Jim indicated we will continue I think that'll continue to be a lower than normal incentive environment, but I would expect it to your earlier point about retail sales certainly.
Dealers being able to sell out of inventory immediately and 20.
There'll be some stabilization there and I would expect that our incentives and we're going to work with our well will work with the dealers I'm sure as everybody will to try to.
No.
Meet their.
Orders that have already been committed with a consumer but also get them back to reasonable inventory levels and I expect sometime in 'twenty. One early 'twenty, two we'll be headed back toward more and more normal perhaps I think still.
Very strong, but more normal sort of flows of production.
Production and inventory levels. So I would expect those incentives to normalize a bit but it still will be a favorable environment I believe.
Perfect and then and then finally, maybe just a bit more detail on what you guys are seeing and for some of the digital boat shows our digital efforts that you've done to replace the boat shows so far.
It sounds like Youre seeing good traction there, but if there's anything else you could add or give us some color on that that'd be great.
Fred and not really I just think.
And we have a nice convergence of improvements and technology.
And customers increasing comfort with.
With considering large purchases by looking something virtually and getting closer to the finish line and that they might have been they might have a couple of years ago.
So we've got a good marketing department that has come up with some good things and we work closely with our dealers who are trying to do the same thing.
They're doing virtual boat shows and their markets.
And so.
It's working I'd like to say as well as can be expected right now and I think we're doing pretty well with them.
And integrating we sort of kicked it off we kicked it off this year with doing a virtual dealer meeting and that was sort of a nice.
Intro to the process and we're able to you know.
Flex that a bit and test that out and I think we're just continuing that that effort through all the various mediums that we have.
Yeah on the on the Internet and so forth so it's going well.
Great. Thanks, a lot.
Thanks, Bret and thank you.
And there are no further questions at this time I will now turn the call to Jim for closing remarks.
Yes.
Thank you. Thanks for your questions, we enjoyed the discussion and thanks to everybody who.
Who called in this morning to listen and we hope everyone has a good day talk to you soon.
Ladies and gentlemen, this concludes today's call.
Be advised that the conference call will be replayed on Marine products Corp, Dot com within two hours of the completion of the call.
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