Q1 2021 LCI Industries Earnings Call
Good day, and thank you for standing by and welcome to the Q1 2021 LCI industries earnings conference call at the.
This time all participants are in a listen only mode. Please be advised that today's conference is being recorded.
The speaker's presentation, there will be a question and answer session to ask the question. During the session you will need the press the star one on your telephone if you require any further assistance. Please press star zero and I would now like to turn the call over to your Speaker today, Chief Financial Officer, Brian Hall. Please go ahead.
Good morning, everyone and welcome to LCI industries first quarter, 2020, One conference call I'm joined on the call today by Jason Lippert, President and CEO and director, we will discuss the results for the quarter and just a moment of.
First I would like to inform you that certain statements made in today's conference call regarding LCI industries and its operations may be considered forward looking statements under the securities laws and involve a number of risks and uncertainty as the result, the company cautions you that there are a number of factors many of which are beyond the company's control which were.
Cause actual results and events to differ materially from those described and the forward looking statements.
These factors are discussed in our earnings release and in our form 10-K, and other filings with the SEC. The company disclaims any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur. After the date. The forward looking statements are made except as required by law with that I would like to turn the call.
Over to Jason Lippert, Jason.
You, Brian and good morning, everyone and welcome to LCI industries first quarter 2021 earnings call. We are happy to announce that we delivered our best quarter ever to kick off of the year. The growing number of RV enthusiasts has continued at a breakneck pace driving retail demand. The all time highs as a result, we of the largest number of rvs on the road, which has set us up the most robust.
The placement cycle and the history of the industry.
Because we have been very intentional over the last eight years around setting up a separate infrastructure to deal with the aftermarket lippert has uniquely positioned itself to capture this grille and both lifelong enthusiasts and those just entering the market.
And our proven operational expertise and best in class customer service will undoubtedly support continued success for many years to come.
During the quarter, we achieved an astounding 1 billion and revenue up 52% year over year, which was led by double digit growth across our RV OEM Europe adjacent markets and aftermarket segments.
The strength of our non RV OEM businesses and underscores the success of the execution of our diversification strategy. We set in motion just 11 years ago and of supported lipids continued outperformance.
We also achieved solid content per vehicle expansion, considering the current market demographics of record number of first time buyers generally buying the entry level products. Additionally, we have gained some meaningful market share for this year due to some suppliers and ability to execute during this challenging last 12 months, helping to solidify our position as a leading supplier to the RV and marine industries.
RV OEM sales increased 64% year over year to 566 million for the first quarter driven by unparalleled retail demand as new RV Ers flocked to the lifestyle further based on preliminary results April trends reflect the continuation of that explosive growth.
While many of the industry of and faced with supply chain constraints, our team's ability to creatively navigate headwinds showcased our resiliency and strength of our operational leadership.
Our supply chain and operations teams have been doing a fantastic job juggling one significant challenge after the next over the past several quarters.
The RV industry remains poised for sustained growth as the new generation of RV enthusiasts of converted of novel Passion and do a way of life that allows them to experience the outdoors family and friends and and affordable and safe way, especially during the uncertainty of COVID-19 underscoring our confidence in the industry of the RV as most recent report on 2020 one to me and she was 530 <unk>.
3000 units for wholesale, which surpasses historic levels and surpasses last year's wholesale by 100000 units.
We're the largest survey of population ever conducted by RBI. As recent report data showed that are being has and all of a sudden become popular due to the pandemic and fact, the amount of RV and wanting household is up 85% to $11 2 million households from the survey taken in 2001.
It also shows that millennial and Gen Z owner's control of 22% of these $11 2 million of RV owning households, with over 75 per cent of millennials and Gen. Z are surveyed saying the intend to buy and RV and the next five years and total the survey showed that 9 million households, and 10 on buying and RV and the next five years.
Complementing these trends of the growing popularity and availability of peer to peer RV rental services and by consumers to taste, the RV lifestyle and further developing the foundational infrastructure for future growth.
There are many new peer to peer digital rental platforms meeting record demand of potential RV, ers, who aren't ready to buy but to try the RV lifestyle.
Many families aren't ready the travel through traditional ways. So we are very excited about peer to peer of rental opportunity of giving families. The very easy way to get away and and RV.
Despite the ongoing significant wholesale mix shift towards smaller entry level products geared towards first time buyers, we continue to deliver content growth and both total units and motor homes.
Testament of the strength of the Libert brand content per total RV increased 4% year over year to 3400 $76, while content per motor home RV increased 9% to 20 525 year over year.
Going forward, our market share opportunity remains strong which is the likely to drive further content increases.
Operationally, we have a strong foundation to build the along with the six new facilities, and we announced and the last two quarters. We are committing to further expanding our production capacities by executing additional projects, resulting in over 2 million additional square feet organic capacity altogether.
Similarly, our efforts to jumpstart our record number of continuous improvement projects, including some great automation projects. This year continue to free up manufacturing space, enabling us to add capacity.
Additionally, we expanded our chassis facilities during the quarter welcoming team members from Wolf pack chassis, which allowed us to immediately increase of chassis production to meet heightened industry demand and market share gains, we have been gaining market share and chassis and the last year and need of this capacity the quickly bolt on new customers.
Turning to our aftermarket segment total revenues grew to 184 million another record for first quarter of 45% year over year supported by the strength of our current group Curt which is running at record level had strong organic growth across the business. The Curt teams powered through their growing backlog and the first quarter of 2021, which was more than <unk>.
Triple of what they started with the first quarter of 2020.
To accompany Kurt and the truck accessories segment of their operations, we successfully executed the bolt on acquisition of branch and and automotive and aftermarket supplier of custom bumpers grill guards and steps and the roughly $5 billion of truck accessory market we.
We're excited to welcome ranch, he and his team members the deliberate family and are eager to begin integrating their business into our current aftermarket business.
During the quarter, we saw an incredible number of used R V center of the repair and refurbishment cycle.
With the surge in popularity and growing number of rvs on the road today consumers will invariably seek maintenance services repairs and upgrades at a much higher level than in years past.
And there are a record number of rfps entering their first replacement cycle, coupled with the millions that are already and replacement cycles and it makes for an incredible season coming for our aftermarket businesses.
Lippert remains uniquely positioned to serve this growing community not only through our aftermarket offerings, but by leveraging investments and enhancing the customers' experience the.
And the insight and candid feedback that our customer experience initiatives have received through initiatives such as Lippert Scouts, social media brand ambassadors and our campground project and have proven to be and valuable and broadening our competitive advantage and the industry.
From letting these customers and only care to making more customer service programs available to listening and getting new product ideas product feedback and suggestions for enhancing our products. This initiatives and certainly help us to become more reliable source for our viewers everywhere.
We firmly believe helping to play a role and the change of the customer experience will be pivotal to our future success as we support all consumers engaged and the RV lifestyle and become one of the most well known brands for customer care and the business.
Turning to our adjacent markets revenue for the first quarter increased 34% to $251 million driven by strong performance and marine which continues to benefit from similar secular tailwind driving growth across the ERP and the aftermarket.
Marine remains the primary focus of our diversification strategy and as demonstrated in our recent acquisition of the out of industries, one of the country's largest both seat manufacturers and.
Additionally, we have strengthened our presence and the marine space by supporting the largest boat builder and the country tracker Marine as we just launched our Missouri Marine Division and not too far from the tracker campuses.
We are encouraged by the marine industry of scorching growth trends in 2020 and are excited to be expanding our position and the space given the rapid influx of new boaters.
Inside of Marine we are heavily focused on trailer axle and suspension systems and achieving great market share here along with other products, we sell the trailer manufacturers.
We're also focused on continuing to build a residential and housing window and door businesses, along with the glass solutions and other components of our commercial vehicles power sports vehicles and buses Liberty is focused on driving content growth and all of these areas as we further expand into additional markets and international businesses maintained its momentum with revenues increasing 50%.
<unk> year over year to $91 million, we are encouraged by the significant growth opportunity and our and international RV OEM segment as our European Pop-top and other new products hit the fastest growing RV vehicle type and North America and Europe, the class B the end market the.
And the various European countries, and which we operate including Germany, Italy, the Netherlands, and the UK continue to follow closely behind the Trailblazing recovery, we saw in the U S RV and marine markets, indicating a bright outlook for 2021.
Europe's ongoing heightened retail demand is strong as European customers turned toward the outdoor lifestyle first quarter retail care of an registrations in Europe increased almost 20%.
Our international and excitement continues as we see consistent positive trends of U S. RV Oems adopting our European designed and manufactured components. This helps solidify and lipids reputation with Oems as an innovator with the ability to bring these products to the U S market on a regular basis.
We remain confident and the ability of our leadership teams to continue to capture demand and drive new growth across the international businesses. Thanks to the strong market leaders. We have there and addition to the success of our RV business, we have seen great progress and our marine and rail components businesses in Europe, both of our marine and rail segments businesses, there continue to gain momentum through market share.
And the efficiency gains and look forward of the growth and these two segments and Europe, all and all we continue to reap the benefits of our diversification strategy. As we mentioned we reached a significant milestone in 2020, surpassing more than 50% of our total sales from our adjacent markets aftermarket and international business.
And we are not stopping there, we expect organic and inorganic growth to continue and all of these important areas outside of our RV business and the future.
We would be remiss not to state that the 10 year journey, we have undergone with respect to our culture and leadership transformation is one of the main reasons. We are joining the success we are having today.
As a result of this transformation and our values and the way we live and lead it work. Our team members have made of more conscious decision to stay and lippert for the long haul.
And as a result of that attrition of slowed recruiting and retention of improved and in general when people get more content and excited about their work home and family. They naturally bring more energy passion and innovation to the workplace, having this base of contentment.
Contentment has never been more important and when you go through big challenges of our crisis like we've gone through and the last 12 months today. There is so much available work and our industries that many people who arent happy with our company are leaving quickly because of higher compensation available to them. This is disruptive for companies as they end up losing large chunks of their workforce and ultimately create.
<unk> safety and quality related issues, and our culture and leadership movements have created significant stability and our workforce is our team members and divisions and been able to take on record demand and even significant market share gains the big product categories like Windows chassis awning.
And where some of our peers were shaken up with workforce related problems.
Our success is also underpinned by our focus on innovation, we remain committed to providing the best experience for the consumers using our products, which includes leading the industry and the advancement of RV and marine component solution.
One Great example of this is our tire linked tire pressure and temperature management systems, helping to promote safety within the RV business. We are on track to be prepping, thousands of RV and annually to provide for our aftermarket team the ability to offer this and the aftermarket easily.
We are prepping more and more rvs for all sorts of products and it's easier for the RV Oems to accept of prep and a full price product and then from there our aftermarket teams can figure out of way to sell that component of the aftermarket world.
Safety products also will be a core focus for us over the next several years as we believe consumers will ultimately search for Rvs and have the best safety story like they do automobiles.
Switching gears the capital allocation, we continue the rain receptive to the strategic M&A opportunities, while remaining laser focused on integrating our recent acquisitions and paying down debt at the same time, we are investing in innovation and optimizing our manufacturing footprint to ensure we maintain the appropriate capacity to meet heightened demand for recreational products.
At current pace, we look to be close to a one five times leverage position at the end of the year of considering forecasts and no other acquisition.
We're happy about the way, we manage our balance sheet and cash and such a challenging time and we will continue to be diligent like we have in years past and closing I would like to thank the nearly 14000 and dependable and dedicated team members across the entire company the contributed to helping power lippert through the first quarter of 2021, and all of 2020 for that matter while at the same time called of.
And a culture that supports individual team member growth and continuous improvement and all areas of the business.
There is no doubt that rvs are of popular way to vacation and even more popular and an era, where social distancing and maintaining more control over your environment is important to so many during these times.
We look forward to continuing our incredible momentum through 2020, one and beyond as we further deliver value for all of our stakeholders I will now turn to Brian our CFO to discuss in more detail our first quarter financial results.
Thank you Jason.
Our consolidated net sales for the first quarter increased 52% to $1 billion compared to the prior year with acquisitions contributing $41 million or 6% growth over the prior year and organic growth contributing the balance driven by strong market performance, coupled with solid company execution.
Q1, and 2021 sales to RV Oems increased 64% compared to the prior year due to the sustained record RV OEM retail demand.
Sales to adjacent industries grew 34% aftermarket segment sales increased 45% and international sales increased 50% as consumers continue to turn towards the outdoor leisure activities driving the strong demand and our markets across the board.
As Jason mentioned demand and our core RV and marine markets is at record level, which coupled with the significant inventory replenishment cycle is the resulting in record production volume current.
RV industry production rates would imply 2021 wholesale shipments of approximately 570% of 590000 units and all time record for the industry.
Growth rates and the marine market are not significantly different as the industry is working feverishly to support demand.
We continue to advance along our diversification strategy with acquired revenues contributing $41 million across the business during the quarter driven by the recent acquisitions of challenge of door and be out of these acquisitions are split across the RV OEM $14 million Marine OEM $21 million and adjacent industries and $6 million.
Subsequent to quarter, and we announced the closing of two transactions first ranch and our first bolt on acquisition for the current group range and represents $50 million of acquired net sales all of which will be classified and our aftermarket segment.
Last week, we announced the acquisition of <unk>, which creates a strategic presence for us in Germany and represents $25 million of acquired net sales that will be classified and our OEM segment.
We have also driven further content growth and both total units and motor homes current.
And per total RV unit increased 4% to $3476 and content per motorized unit increased 9% to 2000 and $525 compared to the prior year adjusted to remove the impact of Purion sales from prior periods.
The content increase and total was primarily driven by organic growth offset somewhat by the increased demand for entry level product. In addition price reductions path for our customers. During the last 12 months, primarily due to commodity index pricing have negatively impacted content growth and we estimate the significant volatility in the OEM inventories during 2000.
'twenty have negatively impacted content growth as well pro forma total content growth is estimated to be approximately seven 5%.
We expanded operating margins by over 340 basis points from the prior year, primarily driven by the favorable impact of leveraging organic sales growth along with the increase of operational efficiencies driven by increased automation and lean manufacturing initiatives, partially offset by increased labor expense to meet heightened production requirements and.
And the increasing cost of steel aluminum and freight.
We anticipate the current headwind from higher input cost to continue through the next quarter as I mentioned last quarter, while the pricing for many of our products of the index the steel and aluminum costs. The remainder of the traditional lag time and effectiveness of approximately two quarters.
GAAP net income in Q1, 2020, one was $74 1 million or $2 93 per diluted share compared to $28 2 million or $1 12 per diluted share in Q1 of 2020, primarily due to the strong growth and sales across all of our business segments.
Adjusted EBITDA increased 68% to $125 9 million for the first quarter.
Non cash depreciation and amortization was $24 5 million and the first quarter, while noncash stock based compensation expense was $7 4 million for the quarter, we continue to anticipate depreciation and amortization and the range of $100 million to $110 million. During the full year of 2021, primarily due to increases in capital investments for capacity.
Of the inefficiencies.
For the three months ended March 31, 2021 cash generated from operating activities was $5 million, while 3 million was used for business acquisitions $21 million for capital expenditures and $19 million was returned to our shareholders and the form of dividends.
Total capital expenditures for the first quarter included 56% dedicated the maintenance, 18% and automation investments and 26% to new market share.
With RV retail demand at record levels through the first three months of 2021, the industry has faced challenges with supply chain constraints rising material cost and tightened labor market.
Especially in northern Indiana to address these challenges we have strategically managed working capital, including the intentionally building up level of certain inventory items to avoid future shortages and have expanded our production and capacity. This has allowed us to further cement our relationships with Oems and grab market share from other suppliers that are of experienced supply chain issue.
At the end of the first quarter, we had an outstanding net debt position of $730 million, one eight times pro forma EBITDA adjusted to include LTM EBITDA of acquired businesses.
We continue to prioritize maintaining a strong balance sheet and targeting long term leverage of one to one five times net debt to EBITDA as we work to integrate recently completed acquisitions, which we believe will contribute strong operating cash flow.
We continue to expect capital expenditures and the range of $130 million to $150 million for the full year of 2021, as we focus on various smaller scale continuous improvement and automation projects that support growth and continue to build capacity to support heightened production rates.
With these incredible results, we remain confident and our ability to drive growth for LCI and deliver shareholder value over the long term as we continue to execute on our proven growth strategy.
And that at the end of our prepared remarks, operator, we're ready to take questions. Thank you.
Thank you at this time, we will be conducting a question and answer session in order to ask a question. Please press star and the number one and your telephone keypad. Your first question comes from the line of Kathryn Thompson with Thompson Research Catherine Your line is open.
Hi, Thank you for taking my questions today.
And it's the first focusing you've done a great job of managing inflation.
And supply chain and the quarter.
As we look forward and really are looking down the theyre all of additional costs going up and pricing actions and.
With steel and aluminum how are you able to manage this cost and are there anything other than price increases that can help mitigate the impact of this costing pieces. Thank you.
Yes, Catherine I, specifically around steel.
Most of that raw material goes into our chassis products and.
And almost 100% of our chassis products or index. So we've got the trailing two quarter lag.
So I think the good news is as you know the the great results. We've had you know show a significant impact to steel to our bottom line, where we won't really see the price increases.
And those products the chassis related products until a quarter or two out.
You know, we can't see the steel price is going much higher.
They are already at record levels of historical record levels, but.
And if they do there we do have an index agreement with our our large Oems to cover us up there.
And the same with aluminum for the most part.
Okay and as Leigh.
You outlined a lot of several initiatives for growth.
And also for efficiency, but.
Have you been able to put a number on the efficiency gains that came through kind of this painful process and that's going to COVID-19 and having to rethink about.
How we approach the world too.
It could be anything where for instance, we're able to have.
The same output with the 70% of the footprint or any type of metric just to be able to better understand and quantify those productivity gains.
I think it's all I know, Brian has got some comments, but I'll I'll chime and just by saying that it's hard to anticipate what the total efficiency gains are with respect to all of the the ravaging the COVID-19 had on our business.
Overtime is significant right now we're trying to add capacity like I mentioned and our our opening remarks.
And that all of that will add significant efficiency, but it's really hard to tell how fatigue and how inefficient. The workforces given all of the overtime are putting and to keep up with the Oems, but I know Brian has got some comments right and what I'd add to that Kathryn as from a financial perspective, if you went back to Q3 as.
As we really started ramping up production volumes and <unk>.
And I'm trying to deal with the the new COVID-19 environment of as you called out we saw some of our best labor rates that we had seen and the last 10 years or so during that quarter now and certainly slipped some when we got into the Q4, but it's slowly starting to improve from there, which I think is are we.
We can credit a lot of that to the automation investments of the lean layout that we have.
And the things that we've been investing and for a number of years now that are helping to minimize some of that impact that I think we would have seen had we not done a lot of that pre COVID-19.
Okay great.
And then final question is just around the acquisition and M&A.
All of these have done historically and get job with that but.
And the World is a little different and maybe the CIT that marine Marine is part of and important part of the strategy, but as you think about.
And markets or types of businesses.
Where you are placing greater relative focus how has that changed and how should we think about your M&A strategy in terms of areas of COVID-19 going forward.
Thank you know of.
Big piece of it is and we're just getting more comfortable as we've done more acquisitions around the aftermarket around Europe and and the international market.
Around adjacent and adjacent markets and especially marine. So you know if you go back five years ago, we werent really doing any acquisitions in those spaces and today, we're doing more and more of their and getting more comfortable we're getting and all of those markets a lot better and getting to know the players a lot better and so that we can have those conversations and look for the strategic fence just like we do.
Did you know the RV business.
And or a decade and a half ago. So I think we're getting that level of comfort with all of these other markets and and that bodes well for us and we're just going to be very careful and strategic about the fits with respect the leadership product innovation and growth strategies that really are the the.
The foundation of of what we what we used to decide what acquisitions, we're going to make.
And and just one quick clarification.
Are you are you primarily focused on fleshing out the marine and or kind of of that.
But broadly speaking recreation and focused or would you be would you look at and beyond.
And of that that core core focus.
I think you know marines and being in the recreational segment being it's a close number two.
And behind RV, it's always going to have significant opportunity there, but you know almost a close second our aftermarket and and our adjacent markets in the Europe.
Europe market, so for rvs and marine over their site.
And it feels like we've got you know for real strong buckets of opportunity outside of RV, and and Theres still opportunities and our V. So we're just trying to be real selective we're the ones that we the ones that we choose right now.
Okay, great. Thank you very much.
Your next question comes from the line of Daniel Moore with CGS Securities. Daniel Your line is open.
Good morning, Jason and Brian and Thanks, again for taking the questions Dan.
Maybe just talk a little bit about the shout acquisition.
Any more detail in terms of growth rates margin profile and then.
Does it set you up for more M&A and in Germany, and any more detail on the European caravan outlook in.
In general it would be great.
Yeah the.
The care of an outlook as rosy there.
And in our opening remarks, I mean of the wholesale looks like its 25% and that and that range right. Now. So it's starting to closely trail of what we're seeing here in North America.
It's important to have the German presence and we've been looking for a German a good German company to fit strategically with our business for since we've been doing business in Europe, and and shops are our first acquisition. We have we've had an office in Germany.
With some German executives that are helping us.
It worked through the RV business over there.
But I would tell you that with respect to <unk> product.
And the really the impetus there was just we wanted.
And the ability to have the same kind of technology head start.
Integrating smart technology with our products and control systems things like that that we do here and the U S. It's been a huge advantage for us here and the U S to have smart technology integrated the all of our components, where we can and just you know.
And the tax to our our components that we've had traditionally and all of our new products and we need the same thing there and they were they were the best option for us to the go forward and the probably the biggest opportunity there.
Got a very limited.
Customer base and over there we do business with every OEM like we do here. So we can easily move their products to two three of the distribution channels to other customers that they just don't have relationships right. Now so we should be able to to grow up pretty well and and pretty quick.
And Dan.
Add to that as I said in my opening remarks, I think that about $25 million business U S. U S dollar.
And accretive EBITDA margins pretty typical type purchase price from what we've seen in the past from of multiple perspective. So.
Nothing really unusual there so great great synergies expected out of material savings and and and being able to cross sell products move bring more of their products over here to the North America.
And because there really arent products like theirs here so.
So those are some of the highlights I'd say from a financial perspective.
Perfect and then switching gears.
<unk>, obviously got off to us and extremely strong start for Q2.
$365 million revenue is that of a reasonable run rate to think about given some of the supply chain constraints et cetera.
From my.
Perspective from our perspective and the company.
And that's what it feels like it and we're going to continue to grow as long as the retail demands there are Oems are adding capacity.
If you take the four months that we've got and the books in terms of run rate and again, we supply one of the one chassis just for every just about every unit out there the ones. We don't supply on maybe 15% of the total business. We know what those manufacturers are running so we can fill in the brain volume is pretty easy and if you look at the first four.
Months and then take.
And the run rate on the next eight months.
It's a 580000 type run rate, which the industries projecting $5 30. So we can we know the number is gonna be easily and between those two it's just where is it going to wash out, but right now supply chain hasn't held up the business of the RV business much it's holding up the marine business, a little bit, but it hasnt held up the RV business much and.
And there are at and the Oems are adding capacity. So you put two and two together.
You can kind of.
Bigger than it is going to be north of $5 33 for sure.
Indeed, that's really helpful.
And then maybe last of the $1 5 million sorry at 1.5 times leverage ratio that you kind of threw out at year end is that just kind of descriptive or as is.
Is that kind of of gold should we think about more M&A opportunistically or you're kind of focused on debt pay down and the near term. Thanks.
Dan It's Brian.
We typically target somewhere between one and one of the half, but certainly when the market is right and we get the right strategic opportunities. We would we certainly don't have an issue being up two times or even north for the right opportunity. So that's more of our long term target, but we'll see how things play out and we've started.
<unk> invested a lot as we mentioned and and working capital to be prepared and provide a bit of of buffer. So that we don't have as many supply chain issues and that coupled with some acquisition opportunities could certainly keep us north of that but that's our long term target.
And that's what that's perfect. Thank you against the color and look forward to catching up and a couple of weeks. Thanks.
Hey, Dan.
Your next question comes from the line of Fred Wightman with Wolfe Research. Your line is open.
Hey, guys. Good morning, Thanks for taking the question I just wanted to touch base on that $5 70 to $5 90 run rate that you touched on and whether you think that that's appropriate and then given the seasonality that seems to imply a bit of a slowdown versus the 54000 and the industry posted in March. So wondering if you could just sort of touch on longer term. If you think that's a good industry.
The number and then sort of more near term and know how we should think about the posted wholesale numbers over the next few months given that backdrop.
And I think we just kind of keep connecting the dots and I was looking to camping world's released this morning, and they showed a deficit and a reduction of $339 million or so and inventory new and new inventories so as long of the inventories stay depressed.
Retail demand stays high and we're going to have this issue I'm going I mean, if you take April April's run rate I mean, we're in the 605000, you know you rolled out 12 months of yield of 605000 number of our calculations. So.
I mean, the industries running really strong right now and inventories don't seem to be improving much and retail demand still seems very heavy until those two those two needle start moving the other direction, we're kind of locked and the <unk>.
This range and.
And Fred I would add to that to be consistent with kind of how I've been describing it for a while we've been trying to track it as closely as we can the weekly production rates.
So of Wholesales, one thing as you know and there can certainly when we've had some supply chain disruption here or there that can create a bit of a disconnect between wholesale shipments and production rates. So.
We've been close to the slow ramp up.
And through the first three months of the year and when we hit April it's been somewhere we'd estimate somewhere around 12005 hundred units and north per week.
That was pretty consistent all through April so I would anticipate that barring.
Supply chain disruption that that rate would remain pretty consistent and as Jason said as new capacity comes online.
Leave and increase from there.
That's really helpful. I guess, just the shift to the margin from Brian last quarter, you talked about one to 200 basis points of sequential gross margin pressure and then.
Sort of of high teens operating margin leverage figure it looks like you sort of came in towards the higher end of that gross margin side, but a little bit light on the operating margin leverage could you sort of just walk through where the disconnect was was it just higher materials some of the labor issues and how we should think about those going forward. Yeah. I mean, a couple of things I would call out one and I think the timing on some of the.
The.
Inflated material cost pulling through our P&L was likely off a little bit so I would temper your expectations some for Q2.
Is thats likely whats happened is its delayed delayed the pull through on that to Q2, we certainly have some some additional price adjustments as Jason mentioned when indexes.
We will continue to ramp up on steel and aluminum products when we get the Q3.
So Q2, you might see a little bit more of that pull through and then it was it was mainly offset then on and we exceeded the expectations on sales growth, so certainly leverage and that sales growth on our fixed cost.
Definitely where we saw the offset and the margin.
Perfect. Thanks, guys.
Net.
Yeah.
Your next question comes from the line of Scott <unk> with C. L. King Scott Your line is open.
Good morning, guys and thanks for taking my questions as well.
Yeah.
Just back to the margins Brian.
You gave a pretty good walk through of the about the cadence, but where do you see assuming no further.
Hiccups with regards to or major increases in steel and aluminum.
And what kind of a run rate from an operating margin standpoint, and we'd be looking at as we exit 2021.
The heading into the following year.
Yeah I mean.
No I've continued to say that is our aftermarket business grows which is now you know it's been north of 20% of our business for the last couple of quarters.
And that's certainly the area that I would anticipate us long term continuing to see some margin appreciation there.
From the OEM side of the business.
It seems to kind of hover in the 8% to 10% type range. So you know I think that I would expect that to that pattern to continue through the remainder of the year and.
Into 2022, so I'm like I said, I think that we could see from a cadence perspective, maybe a little bit of a pullback as we continue to fight some of the inflation and steel and aluminum and the timing of those price adjustments, but then likely see that bounce right back up into the this the range that we're seeing at least for this quarter and.
As aftermarket continues to grow and maybe even see some further appreciation from there and I think that's really important and Scott to understand the from a steel standpoint and that being close to <unk>.
And 30% of our total business on the chassis side or right around there going from the 28 to 30 cents, a pound mark up upwards towards 70% historical highs.
That's impacted us pretty significantly pretty quick and we won't recover that until the quarter or two so that's the big piece of our efficiency gains will continue the to get better as we rightsize capacity and then you know and then we've got other issues like you know of marine that cranking, it 100% right now closer to 70% because they're just allocated.
On certain products, including foam on seating, which is one of our big ones. So that's impacting everybody and the marine side and that'll be backup and 100% towards the end of the month or are north of a 100% because they don't like to run more boats than than what they were running before of the allocations huh.
And touching on the.
Some of the automation projects and just give us an update on the IV facility.
The recent acquisition that you made the game the capacity of are there any plans to.
To take that chassis operations and integrated into the IV production was yeah. That's that's one of them and that's one of our plans and we can we want to continue to expand on the automation, we've already started and chassis.
As the largest project by five.
Buybacks that we've ever taken on and so it was of a big project has taken a little bit longer to get where we want but we're making progress every month and and getting to a point, where it's paying dividends I mean, we wouldn't be able to keep up with chassis capacity today and if we didn't have it given.
Given the fact that we've not only seen record demand on chassis, but we've taken a lot of market share there over the last handful of months.
And then we've got several we've had several window automation projects here.
Hit that are doing phenomenal and and.
And we've got a 300000 square foot facility, we are implementing right now all of our glass processing.
Everything from our current standard.
Glass doors and windows on the RV side too.
And our home when shield products and things like that that'll be coming later this year.
Got it and then just last question Jason could you just give us your views for retail.
And our views for the full year.
Oh Man you got you've probably got of goodness and Alan that is inside the like I said earlier.
We're looking at inventories and what the dealers are having to say about low inventories and kind of watching that and also looking at the the dealer.
I'll be back regarding lot traffic and things like that and and it doesn't seem to be to be slowing down so.
What we do know is that the.
We'll get a little bit of notice when the lot traffic.
And retail sales start to start to ease up but we don't you know.
We don't see any of that and site right now so.
And you look at some of the reports of KLA and the RV I E.
And <unk> Association did here recently and you look at the feedback on people running to the outdoors to spend their leisure time, right now 10 million new camping households.
The two koa's rapport just this past year.
Millennials surveyed.
Surveyed and 85% of millennials and Gen Z, saying that they would buy and RV and the next five years 9 million households.
Through the survey said that they buy and the next five years and total and those are significant numbers and I think that just allude to the fact that people are looking to the outdoors for.
You know outdoor recreation for four.
And what it does it theyre going to do with the free time, So I think that that's a good sign for our industry.
Got it thank you so much.
Your next question comes from the line of Bret Jordan with Jefferies. Your line is open.
Good morning, This is mark Jordan on for Brett.
And this may have already been discussed, but just thinking about the net sales. During April can you maybe break out what portion of that is organic and what might be due to some recent acquisitions.
I would tell you that so for the first quarter.
Acquired revenues were $41 million I believe and that should be at least what we saw in April of about the only thing you'd have is a little bit of ranch, and which is about a $50 million acquisition.
Our $50 million of acquired sales and and Shout now here at the end of the months $25 million.
Annual acquired sales so.
So we got a little bit of ranch and so at $41 million, which represents the fourth quarter acquisitions that we did plus now what ranch hand, and shell will be adding to the business on a go forward basis. So it would be how I would look at it.
Okay great.
And then just thinking about the aftermarket business can you talk about what's really driving some of the strength. There I mean is it is it.
Broad based strength, you're seeing across all product categories or maybe is there a certain product categories that are really.
Really outstanding right now.
I think its pretty broad and a lot of our replacement parts and repair parts I mean, that's that's probably the strongest because the.
And the service bays are all full and all of the dealerships and Theres a lot of dealer of adding capacity and service. So.
And I'd say service and general service and repair of warranty, it's it's pretty backed up across the industry because there's been so many units added to the the.
And the food chain over the last couple of years, so probably repair and service parts, but all of our upgrade parts from the furniture and all the other accessories and bells and whistles that we have and the aftermarket are doing great, we're expanding and marine aftermarket we've really been focused there.
Somewhat of a focus, but we've kind of integrated that with our RV aftermarket teams. So it's kind of of recreational aftermarket team now that services, both both areas and submarines doing better and we're finding more and more products to plug in there and one of the great things about aftermarket as you know we don't have to supply the part and the OEM side. So we're out asking all of our aftermarket partners.
And the customers, what what they need and because of our size. We can go out and procure things pretty quickly.
And take the take the place of some of these smaller suppliers that are having problems and you.
B in non sales on products. This year that we weren't selling last year. So that's good across the board and it's going to continue to grow and I would definitely add to that Kurt I mean, Curt definitely on the hip side of the business.
They've set a record every month for I don't know how many months now so their business continues to grow substantially I think of lot of that is driven by the demand that you see and all of the outdoor recreational products, but as well as some restocking I think of lot of the wholesale distributors depleted a lot of their inventories last year and so they continue to restock their shelves is.
And Theyre looking at increased demand as well I'm glad Brian and Bob brought current up it's a it's been a tremendous acquisition for us we've grown significantly to.
To the tune of 150 kind of run rate on what we bought it for and <unk>.
The short time that we've owned it I think we acquired it in January of 2020 December 2019 December of 19, so and.
And since we've owned them they've they've already taken a number of the number one spot and hitches.
And so they've done they've done really good.
Okay, great. Thank you very much for taking the questions.
Your next question comes from the line of Steve O'hara with Sidoti and Steve Your line is open.
Hi, good morning, Thanks for taking my question.
Net.
Hi, just maybe go into the acquisitions you guys made recently.
Curt Curt obviously seems like a.
Well timed and well executed acquisition, the larger size and I guess and he had recent memory I'm. Just wondering how you think about the size of the acquisition going forward I mean, it would seem that the smaller deals are great from a return standpoint, but don't move the needle as much.
Going forward you know.
And now that you've got you're at kind of of 1 billion and sales for the quarter.
How do you think of about that.
Are you able to kind of grow these things.
And much more quickly once they get into your system, yes.
The nail on the head I mean were typically.
Buying and say the smaller companies from $20 million to $50 million I mean, we're one of the big factors of just the the rate at which we think we can grow them and the growth track that they're already on and so I mean, that's the most strategic part of the fit we're looking for good leadership. That's all is important but that growth run rate is super important and important and we tend to find companies.
And acquire companies that that have that great growth track, where we can double or triple the sales over the course of five years and.
The innovations huge so we're looking for companies that are.
And have innovative products and the pipeline of ideas to bring innovation and and innovative products to the market. So that's always important and we never look at the the number.
We don't look at the size.
And we look at the out of the value that they can add once they become part of our family and how we can integrate and synergize the business, but the.
The the big ones have come along we had been looking at current for a long time prior to the time that we bought it and it was just good timing for for both parties and we're always looking at a few bigger ones and tailor made was of a good sized acquisition, we made and 2018 on the marine side, Great brand and I think.
It was 140 million and revenues at the time, we purchased so we're looking at those but it's got to fit the <unk>.
The other pieces of the the.
The acquisition requirements for us, which is leadership innovation and growth trajectory.
Okay. That's helpful.
And then I.
Just maybe on your comments.
And the press release.
I E.
It seemed to imply that the upgrade cycle we're.
We're starting to begin or head start and are ready.
Is that starting on the RV side or is that something and you're just kind of ex.
Speaking to happen and will be of benefit.
So there is there is already millions of rvs and the replacement cycle today, but you look at the last three four years of production, which we would consider the the RV is coming into the replacement cycle now and it's the largest population of rvs that ive ever under the replacement cycle and we're smack Dab in the middle of repair parts and.
Service related activity.
And then upgrades for people that are maybe by and the use that are being traded in for all of these new units. So.
And that's where the big growth and our aftermarket the big organic growth and our aftermarket is right now.
And all of those areas so.
And then you look at the.
And you add to that the population of Rvs that are being produced last year. This year next year, probably those are again youre talking about doubling up what's coming in over the last four years and that's a significant amount of units that are going to hit our business on the aftermarket side and.
It's good business for us.
Typically about three to five year cycle on that Steve is what we have at least historically seen.
Okay.
And I guess since.
I believe things of trended towards the entry level of leased.
Maybe the last year or so it would seem like that Mike.
The big impact that going forward.
And maybe just on the inventory and.
Maybe you mentioned this but can you just talk about when do you think the inventory normalizes.
Assuming kind of current thinking on retail and wholesale within the RV and marine.
Yes.
Yeah.
I'll take a stab at it but because it all comes down the retail from a wholesale perspective like we mentioned you're probably on a five.
<unk> $5 70 to $5 90, as what we said if we're on that kind of pace, so barring any disruption from supply chain et cetera.
I think retail is what it comes down to I think that at the end of February because.
The most recent retail hasn't kind of out yet I think we're on a five almost 525000 unit retail rate on a trailing 12 month basis I would anticipate that to climb here in the coming months, but then likely kind of level off as we hit some of those all time record retail months that we saw late last year and likely inventories.
Might disrupt that or at least the the absence of inventory might disrupt that a little bit as well, but if that put you on the 525.
Would be rebuilding inventories by.
And 50000 units or so during this year and I think that you know I think they were depleted by 70 or 80000 units last year. So we're still not there even at the end of this year. So that's why I think the expectation is that there is still runs into 2022.
And maybe the first half of the year is when you could maybe bridge the gap on that remaining inventory.
<unk> depletion that we that we experienced last year to fill that void and we've got the same opportunity in Europe as well they are significantly behind on and dealer inventories.
Almost a year out to get product. If you are on the retail side.
Okay alright. Thanks appreciate the time.
Your final question comes from the line of Shawn Collins with Citigroup Research John Your line is open.
Great Good morning, Jason and Brian.
How are you guys doing today.
Good thanks.
Good day.
My question is on the the recent German acquisition and the International segment.
Just wondering is the European OEM market experiencing some of the same supply chain challenges being experienced here in the U S.
So to what extent.
Yes, so the ones that we're aware of.
And pretty substantial they've got some chassis related issues for motor homes.
And the appear to be impacting like 10% to 15% of the or the total European production.
So it's it's.
It's significant but it's not a it's not crippling so all of the rest of the you know all of the rest of the the supply chain seems to be able the to manage and stay resilient and work around some of the you know the.
The the daily issues that we experienced here over the last 12 months so.
So we anticipate as long as the chassis suppliers can get back healthy.
Over there because.
The production 60 per cent motor homes. So.
Over here of motor homes, and issue or opportunity, it's not that big of the staying but over there of motor homes hiccup, but the bigger problem, but all in all we feel that and once they get past the motor home chassis. They can they can get past the supply chain related issues Theyre running hot.
Hot in terms of wholesale and increases there, but not nearly as hot as what the U S market seems to be but still up pretty good.
Okay great.
And then just a follow up on the same subject to the new.
And Germany acquisition I'm presuming, it's the large supplier to Erwin hymer of store over there is that correct and then.
And with that I'm thinking the margins on that and German business.
Essentially the later than the U S margins, which is in line with what we kind of see between Erwin Hymer and and doors U S business. So like Brian said earlier, the 25 million dollar revenue business and it's all the tax related so typically the tech margins are going to be a little bit higher than.
And the normal so you might not look at it as compared to normal.
Normal widget.
And the tech field.
And our Erwin hymer, as their largest customer, but and Europe.
We do just as much business with the other large player over there true Gano is we do hymer.
And so there's there's that's where the opportunity is for us is to introduce them to other customers like them that they're not doing any business with them and jumped the sales up.
The significantly pretty quick because they've they've got capacity.
Great. That's helpful. Thank you guys.
Thanks.
This concludes our question and answer session I will now turn the call back over to Jason The first for closing remarks.
Well, thanks for tuning in and listen to our great quarter. We're excited to report next quarters earnings and we'll talk to you guys all of that and thanks for tuning in.
This concludes today's conference call you may now disconnect.
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