Q1 2025 Patrick Industries Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Patrick Industries' first quarter 2025 earnings Conference call. My name is Molly and I'll be your operator for today's call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note that this conference is being recorded.
Speaker Change: And I will now turn the call over to Mr. Steve O'hara, Vice President of Investor Relations. Mr. O'hara, you may begin.
Speaker Change: Good morning, everyone and welcome to our call. This morning, I'm joined on the call today by any named CEO, Jeff for Dino President RV and Andy <unk> CFO certain statements made in today's conference call regarding Patrick industries and its operations may be considered forward looking statements under the securities laws.
Speaker Change: Company undertakes no obligation to publicly update any forward looking statement, whether as a result of new information future events or otherwise additional factors that could cause results to differ materially from those described in the Portland statements can be found in the company's annual report on Form 10-K for the year ended December 31 2020.
Speaker Change: Four and the company's other filings with the Securities and Exchange Commission.
Andy Nemeth: I would now like to turn the call over to Andy Nemeth.
Andy Nemeth: Thank you Steve Good morning, everyone and thank you for joining us on the call today.
Speaker Change: Our first quarter performance was largely in alignment with our plan and expectations attributable to our diversified business strategy and model and strong operational execution.
Speaker Change: Our team continues to show incredible tenacity and flexibility in the first quarter amid a dynamic and evolving macroeconomic landscape across all of our end markets as.
Speaker Change: As anticipated in Q1, we saw production increases and a slight restock in both the RV and MH markets in anticipation of the selling season.
Speaker Change: Continued production discipline in our marine and power sports markets, which were both down slightly year over year at the wholesale and retail levels.
Speaker Change: We did see sequential quarterly content gains in RV and marine both due to capturing additional market share as well as mix favorability as Jeff will outline further.
Speaker Change: Our new product development and innovation efforts over the past 18 months are starting to take hold with more expected upside to come as we progress throughout the year.
Speaker Change: We completed two acquisitions in the quarter and repurchased approximately $8 $5 million of our stock. Additionally through these market fluctuations we've maintained our focus on rigorous cost and working capital management operating improvements and product innovation to continue to actively manage our business to remain flexible scalable and nimble.
Speaker Change: In the first quarter, we produced top line growth of 7%, resulting in revenue of approximately $1.1 billion and on a trailing 12 month basis, approximately $3 8 billion earned.
Speaker Change: Earnings per diluted share were $1 11, including approximately five cents of dilution from our convertible notes and related warrants and our team drove organic growth of 2% net of pricing in the first quarter.
Speaker Change: Our strong cash flows diversified portfolio of brands entrepreneurial culture operational experience and expertise and full solutions model continue to enable us to swiftly adapt to market changes maintained the flexibility to invest in growth initiatives and respond to evolving industry dynamics with confidence.
Speaker Change: During these periods of uncertainty and volatility we are confident in our ability to size and scale, our business and execute on our capital allocation strategy to proactively take advantage of the many opportunities that present themselves.
Speaker Change: In addition to the investments we've made in our advanced product group to proactively drive innovation partnerships with our customers. We continue to invest in our portfolio of brands and are empowered by Patrick brand fronted strategy, which encapsulates the resources that the combined Patrick entity brings to the table as a strong foundation for our customers and stakeholders.
Speaker Change: It keeps us in a position of strength to drive and deliver the earnings power of the business.
Speaker Change: This better together culture and strategy enables our business units to maintain their entrepreneurial spirit and unique identities that our customers recognize while benefiting from our scale and capabilities of all of the Patrick brands.
Speaker Change: As we have entered Q2, the global tariff headlines have definitely caused uncertainty in our markets, which we will address and while marine MH and housing market trends have been a little more cloudy lately RV retail has actually been fairly resilient based on our data and touch points.
Speaker Change: Looking ahead, while acknowledging the consumers' uncertainty in the current environment, we remain confident in the long term resilience of the outdoor enthusiast lifestyle.
Speaker Change: E. R V. I, a notes that RV repurchase intention remains strong among current owners with 85% of those intending to repurchase within the next five years.
Speaker Change: Additionally, they note that our beers are younger and using their units more on average on.
Speaker Change: On the power sports and marine side, several Oems have reported steady engagement.
Speaker Change: With a segment of the outdoor enthusiast lifestyle.
Speaker Change: When economic uncertainty and headwinds ease we continue to expect pent up demand to inflect and pivot driving new purchases and bringing additional organic and strategic growth opportunities.
Patrick: Patrick we view, our operational adaptability and capital allocation strategy as a key strength in this environment by focusing on what we can control managing and aligning our highly variable cost structure manufacturing efficiency product innovation and building and reef reinforcing strong customer relationships, we are well positioned with a strong balance sheet.
Patrick: Cash flows and liquidity to navigate near term market dynamics and continue to execute on our strategic plan and capital allocation strategy, while leveraging our foundation for sustainable profitable growth when market conditions improve.
Patrick: Now I'll turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets.
Jeff: Thanks, Andy and good morning, everyone as Andy mentioned earlier, we are incredibly proud of our team for their ability to deliver impressive results and adapt quickly in this dynamic industry and macroeconomic landscape.
Jeff: In addition to our team is continuously looking for ways to save customers money and improve their production efficiencies. We have stepped up our efforts in regards to tariffs.
Jeff: Our teams have looked at every single product line and sourcing channels to find ways to mitigate the impact of tariffs on the end consumers in all of our markets.
Jeff: We have positioned our business to be nimble and we continued to strategically diversify optimized sourcing and cost structure and strengthening customer relationships.
Jeff: By staying on the offensive, we're leveraging our supply chain capabilities to stay ahead of potential challenges and continue serving our customers at the highest level.
Jeff: Moving to more detail on our end markets, our first quarter RV revenues increased 14% to $479 million versus the same period in 2024, representing 48% of consolidated revenue.
Jeff: RV content per unit on a TTM basis was $4870 flat from the same period last year the.
Jeff: The improvement revenue this quarter was driven by wholesale unit shipment growth and market share gains, partially offset by shipment mix.
Jeff: RV content per unit on a quarterly basis was up 6% sequentially compared to the fourth quarter of 2024.
Jeff: RV wholesale unit shipments in the quarter increased 14% and we estimate total RV retail unit shipments decreased approximately 7%.
Jeff: In anticipation of selling season inventory weeks on hand increased from 17 to 19 weeks in the fourth quarter of 2024 to 'twenty to 'twenty two weeks in the first quarter of 2025 and remain below historical averages.
Jeff: On the product and innovation front, we continue to strengthen our presence in composites by investing organically and strategically to expand our capacity to produce innovative durable and efficient composite materials with a variety of applications and solutions for our customers.
Jeff: This includes our recent acquisition of Elkhart composites we.
Jeff: We believe there remains significant product development and market share opportunity for this durable corrosive resistant more environmentally friendly alternative.
Two traditional wood products.
Jeff: Retro are leading aftermarket e-commerce platform continues to integrate Patrick RV products on their website, while developing its cross selling functionality and adding products from our marine businesses like <unk>.
Jeff: Our first quarter Marine revenues were 149 million up 4% from the prior year. Despite an estimated 10% decrease in wholesale powerboat unit shipments primarily due to a more favorable shipment mix and market share gains.
Jeff: Our estimated marine content per wholesale powerboat unit on a TTM basis was $3979 flat from the same period last year.
Jeff: Estimated marine content per wholesale powerboat unit on a quarterly basis was up 12% sequentially compared to the fourth quarter of 2024.
Jeff: We estimate marine retail and wholesale power boat unit shipments were 30000 736500 units respectively in the first quarter.
Jeff: This implies a seasonal dealer field inventory build of approximately 5800 units.
Jeff: Dealer inventory in the field remains lean at 26% to 28 weeks on hand up slightly seasonally from 23 to 25 weeks in the fourth quarter of 2024.
Jeff: Our full solution model remains a pillar of our growth strategy as we deliver more innovation individuality functionality efficiency and savings to our customers.
Jeff: As an example of this model we offer a ski and wake tower as a plug and play solution, including wire harnesses dash panels, and health systems with digital switching electronics and audio systems already built in.
Jeff: As noted we recently acquired medallion instrumentation systems. This solidifies the nucleus of our harness electrical audio and electronic solution further enhancing our ability to bring value and solutions not just components to our customers.
Jeff: Medallion is a premier provider of customized instrumentation, including digital switching lighting.
Jeff: Lighting controls integrated audio wire harnesses gauges in LCD touchscreen displays primarily serving the marine and transportation markets, but also with tremendous applicability to our RV and power sports market.
Jeff: Our power sports revenues were $81 million in the quarter up 2% from the prior year period, and representing 8% of our first quarter 2025 consolidated sales.
Jeff: We have continued to see share capture and increased take rates for our sport TEQ produced cabin closures as more and more consumers prefer HVAC systems and protection from the elements in there side by side vehicles.
Jeff: Additionally, as we have discussed our business continues to be more heavily skewed towards utility, which has remained more resilient than the recreation market.
Jeff: The decrease in revenue was primarily from our business is more exposed to the recreation side of the market.
Jeff: On the housing side of our business, our first quarter revenues were up 7% to 295 million representing 29% of consolidated sales.
Jeff: And manufactured housing, which represents 59% of our housing revenue in the quarter, our estimated content per unit on a TTM basis increased 4% year over year to $6671.
Jeff: MH wholesale unit shipments increased 6% in the quarter, while total housing starts decreased 2%.
Jeff: Our housing business remains poised to support builders and Oems continue to meet pent up demand for affordable housing.
Jeff: We believe the U S remains significantly under inventoried on affordable housing alternatives and our Oems are working diligently to highlight the value proposition and curb appeal of homes. They produce while actively working to improve buyers access to financing.
Andy Nemeth: I'll now turn the call over to Andy <unk>, who will provide additional comments on our financial performance.
Speaker Change: Thanks, Jeff and good morning, everyone now moving to our financial results as mentioned, our first quarter financial performance was largely in line with our expectations a testament to our team's execution in a dynamic environment Consol.
Speaker Change: Consolidated first quarter net sales increased 7% to $1.0 billion drill.
Speaker Change: Driven by a 14% increase in RV revenue and 7% growth in housing revenue, which more than offset declines in marine and power sports revenues of 4% and 2%.
Speaker Change: <unk>.
Speaker Change: Total revenue growth was 7% comprised of 4% acquisition growth, 2% organic growth and 1% industrial growth.
Speaker Change: The organic growth consists of 3% share content gains and negative 1% pricing.
Speaker Change: Gross margin was 22, 8% up 90 basis points from the same period last year, primarily due to acquisitions.
Speaker Change: Diversified business model Labor management and returns on our Capex and automation initiatives.
Speaker Change: On a GAAP basis operating margin increased by 10 basis points to six 5%.
Speaker Change: On an adjusted basis operating margin decreased 50 basis points compared to an adjusted op margin of 7.0% in the first quarter of 2024.
Speaker Change: There were no material adjustments to operating margin in the first quarter of 2025 the change in margin versus Q1, 'twenty. Four was primarily driven by increased operating expenses as a result of acquisitions combined with the first quarter seasonality low revenue stream of our growing aftermarket business, including retro.
Speaker Change: Approximately 60% of <unk> revenues generally occur in the second and third quarters on a seasonal basis.
Speaker Change: Our overall effective tax rate was 17, 7% for the first quarter compared to 10, 6% in the prior year the higher effective tax rate is due to the difference in the tax benefit related to equity compensation in the quarter.
Speaker Change: On a GAAP basis, net income increased 9% to $38 million.
Speaker Change: Or $1.11 per diluted share.
Speaker Change: Adjustments made to EPS were not material in Q1 'twenty five therefore, adjusted EPS of $1 11, since decreased 7% compared to $1 19 in the prior year period.
Speaker Change: As noted in this morning's earnings press release, our diluted EPS for the first quarter of 2025 included approximately five <unk> and additional accounting related dilution from our 2028 convertible notes and related warrants as a result of the increase in our stock price above the convertible option strike price.
Speaker Change: <unk>.
Speaker Change: The prior year's diluted EPS included <unk> <unk> per share from the same instruments as.
Speaker Change: As we've noted in the past we have hedges in place, which are expected to reduce or eliminate any potential dilution to the companys common stock upon any conversion of the convertible notes and or offset any cash payments. The company is required to make an excess of the principal amount of any converted notes for reporting purposes. These hedge.
Speaker Change: <unk> are always anti dilutive and therefore cannot be included when reporting earnings per share.
Speaker Change: EBITDA increased 9% or $9 million to a $108 million.
Adjusted EBITDA grew 4% to $116 million, while adjusted EBITDA margin decreased 40 basis points to 11, 5% for the first quarter of 2025.
Speaker Change: Cash provided by operations for the first three months of 2025 was approximately $40 million compared to $35 million in the.
Speaker Change: Higher year period.
Speaker Change: In purchases of property plant and equipment were $20 million in the quarter.
Speaker Change: We are committed to continuing to invest in our business to capture organic growth opportunities to create long term value for our customers and stakeholders.
Speaker Change: Our balance sheet remains solid at the end of the quarter. Our net leverage was two seven times down from two eight times in the first quarter of 2024 and flat sequentially versus the fourth quarter.
Speaker Change: We have multiple levers available to further manage leverage without risking the business model.
Speaker Change: <unk> further cost reductions if necessary.
Speaker Change: And aggressive working capital management as we did in the second half of 2022, when the RV industry pulled back production sharply.
Speaker Change: We remain focused on maintaining a strong balance sheet, enabling us to opportunistically deploy capital for the right strategic acquisitions.
Speaker Change: Even if it results in a temporary increase in leverage.
Speaker Change: Total net liquidity at the end of the first quarter was $745 million with no major debt maturities until 2028, underscoring our significant dry powder, enabling us to remain nimble and on offense related to organic and inorganic growth opportunities.
Speaker Change: Total net liquidity was comprised of $87 million of cash on hand, and unused capacity on our revolving credit facility of $658 million.
Speaker Change: As part of our disciplined capital allocation strategy, we returned $8 $5 million to shareholders through the repurchase of 99800 chairs, while returning $14 million through regularly regular quarterly dividends.
Speaker Change: As of today's call in the second quarter, we have repurchased more than $8 million of stock and plan to remain opportunistic going forward as appropriate.
Speaker Change: We want to update our estimated tariff related product exposure relative to the most recent policy announcements as previously noted China, Mexico, and Canada account for approximately 10% of our cost of goods sold was approximately one half focused on China and the other half on Mexico and Canada.
Speaker Change: Yeah.
Speaker Change: The rest of the world accounts for approximately 5% of cost of goods sold implying total import exposure at approximately 15% of cost of goods sold.
Speaker Change: As mentioned last quarter, we have continued to diligently derisk, our offshore exposure to China over the past two years and are confident in our ability to further reduce this exposure by more than half, which is already in process. We will continue exploring alternative sourcing options, where possible and monitoring the tariff situation.
Speaker Change: <unk> as it remains extremely dynamic.
Speaker Change: We have many tools at our disposal due to the breadth and depth of our sourcing channels relationships and expertise, including working in partnerships with both our suppliers and customers through our good better best product offering.
Speaker Change: V E initiatives, our advanced product group, our product solutions model and our strategic sourcing decisions, which we believe will help mitigate the absolute impact to our price pricing pass throughs and ultimately avoid any material impact to our operating margin.
Speaker Change: Yeah.
Speaker Change: Moving to our end market outlook consumer confidence and sentiment have declined following the recent policy developments, which we believe could impact consumers short term desire to spend on discretionary products.
Speaker Change: <unk> and dealers have continued to remain nimble aligning inventory to demand while maintaining capacity for it.
Speaker Change: Potential inflection point.
Speaker Change: We believe that greater certainty in the minds of consumers around the economic outlook will improve their comfort regarding discretionary spending.
Speaker Change: We are closely monitoring trends and we'll react appropriately as conditions dictate focusing on controlling what we can.
Speaker Change: Maintaining a strong balance sheet, while continuing to execute on our long term growth and shareholder value initiatives.
Speaker Change: We now estimate full year RV retail unit shipments will be down mid to high single digits, implying wholesale unit shipments of approximately 310 to 330000.
Speaker Change: Based on equivalent dealer inventory weeks on hand in the field in 2024.
Speaker Change: Our prior outlook assumed flat retail shipments in 2025, representing a mid single digit increase in wholesale unit shipments with the same weeks on hand estimate.
Speaker Change: We continue to believe the inventory weeks on hand in the field are not sustainable in periods of growth and we will need to be restocked with a corresponding increase in retail demand.
Speaker Change: In Marine we now expect retail to be down high single to low double digits versus our prior outlook of flat.
Speaker Change: This implies a low single digit decrease in wholesale unit shipments again with equivalent dealer inventory weeks on hand at year end 2024.
Speaker Change: We previously expected wholesale to be up 5% to 10% under the retail and weeks on hand assumptions mentioned.
Speaker Change: And our power sports and market our content per unit continues to grow given ongoing increasing attachment rates for our cabin closures.
Speaker Change: And therefore, while we expect industry shipments to be down low double digits, we expect our organic content to be up high single digits.
Speaker Change: And our housing market, we now estimate MH wholesale unit shipments will be up mid single digits for 2025 versus up 10% to 15% previously.
Speaker Change: On the residential housing side of the market. We estimate 2025 total new site built housing starts will be down approximately 10% year over year versus our previous estimate of flat to up 5%.
Speaker Change: We expect our effective tax rate to be approximately 24% to 25% for 2025, implying a quarterly effective tax rate of approximately 26% for the remaining three quarters of the year.
Speaker Change: We now estimate operating cash flow will be between $350 million to $370 million and maintaining our estimated capital expenditures will total $70 million to $80 million as we continue to reinvest in the business focusing on automation initiatives.
Speaker Change: This implies free cash flow of at least $270 million, an improvement of approximately $20 million at the low end from the prior year.
Speaker Change: With the volatility of the current macro environment, we remain focused on retaining our competitive advantage continuing to enhance our relationships and value proposition to our customers.
Speaker Change: Servicing our customers effectively.
Speaker Change: And also being judicious with cost reduction initiatives with an eye on the potential need to pivot to the upside should conditions change.
Speaker Change: Given the changes to our shipment outlook, we continue taking targeted thoughtful actions to reduce cost.
Speaker Change: These actions will help mitigate the negative impact on our profitability and as a result.
Speaker Change: Just on the assumptions I just mentioned, we now expect our full year 2025, adjusted operating margin to be approximately 7.0 to seven 3% for the full year.
Speaker Change: Based on usage commentary from outdoor enthusiast Oems and other quality qualitative insights from our customers. We believe demand will recover as consumers gain confidence in the economic outlook.
Speaker Change: Although the timing on this recovery remains uncertain.
Speaker Change: Did that belief change we have a playbook to further scale back our cost profile and we will execute if needed. If we believe these run rates will be longer term in nature.
Speaker Change: That completes my remarks, we are now ready for questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Our first question comes from the line of Mike Swartz, which was securities. Please proceed with your question.
Hey, Hey, guys good morning.
Speaker Change: Maybe just to start on tariffs and I think the.
Speaker Change: Hopefully I am doing the math correctly, but.
Speaker Change: I think based on what you said, maybe the gross exposure to tariffs as they stand today, it's somewhere in that.
Speaker Change: $250 million neighborhood.
Speaker Change: One I guess is that correct and then two I guess, how much are you anticipating being offset how much of that do you expect to flow through was built in your guidance here for 2025.
Andy Nemeth: Hey, Mike. Good morning. This is Andy later I can take a stab at this.
Andy Nemeth: So certainly tariffs dynamic environment. The team is all over it though.
Andy Nemeth: Defying the changing regs as well as the exclusions.
Andy Nemeth: Identifying potential cost impact by country by product category.
Andy Nemeth: From a company wide perspective, we've said 5%.
Andy Nemeth: 5% of our Cogs are imported from China, 5% from Canada, Mexico, and then 5% from rest of World.
Andy Nemeth: So I think you can do the math there I think you have 250 is a little low.
Andy Nemeth: So I think just in terms of offsets I mean, our goal is to do everything we can to mitigate the impact to our customers.
Andy Nemeth: We have many levers at our disposal, we're looking at alternative sourcing options of course, using our scale some strategic sourcing that we have some here's some overseas.
Andy Nemeth: But we're going to remain nimble.
Andy Nemeth: Be thoughtful about cost reductions inventory management.
Andy Nemeth: China, certainly is our biggest risk and that's where we're moving the fastest and again think we can move about half of our exposure in China.
Andy Nemeth: Okay. That's helpful and I didn't hear in your statements there anything about pricing and I think some of the OEM. Some of the dealers have talked about maybe a mid single digit price increase for for model year 2016.
Andy Nemeth: How much how much do you expect to use pricing as a lever to offset some of the tariff load.
Andy Nemeth: Yes, Mike this is Jeff.
Andy Nemeth: We are going to.
Speaker Change: Look at our pricing as we get it and we're not just randomly throwing out price increases just because theres tariff discussion in the market, but we're being very thoughtful about where we're at we're talking closely with all of our customers going through line by line, where we can mitigate costs, where we can use our good better best model, possibly too.
Speaker Change: To mitigate some of the tariff. So it's it's a line by line item that we're doing and theres going to be caused some cost that gets passed along.
Speaker Change: Certainly some of the <unk>.
Speaker Change: Early tariffs from China that 10, plus 10 is something Thats out there I can't speak.
Speaker Change: I can't speak directly to what increases our Oems are putting on their products into the market. They would have to talk about that but certainly we're being very thoughtful as we as we discuss all of their new products as they go into a model change I think you're aware that the model changes as June <unk> versus July one so a lot of those discussions have been going on through.
Speaker Change: March and April to prepare for a production starting and domain into June.
Speaker Change: Mike This is Andy I'm going to add a little bit to that.
Speaker Change: I've mentioned, we are actively working with our customers in partnership to identify every area, where we can to mitigate the impact of anything that we're going to have to pass along when you think about our exposure to the tariff situation in China in particular, most of our exposure is related to the appliance side of our business in the electronic side, we've moved a lot of the electronic.
Speaker Change: Overseas sourcing already and Thats as Andy mentioned, we're in process of moving as much as we can away from a risk mitigation perspective, and then on the other side of it as it relates to the appliance as you know these are fairly low end products and so we're going to do like I said everything we can from a good better best situation and scenario analysis to be able to work with our customers to mitigate.
Speaker Change: As much of the impact that we have to pass on as possible.
Speaker Change: Okay. Okay, that's super helpful.
Speaker Change: And maybe just one last for me.
Speaker Change: <unk>.
Speaker Change: One one of the big dealers without talking about maybe product mix being a little more diluted this year than expected. So.
Speaker Change: I guess are you seeing in the production runs from some of your customers and I guess, what what are your expectations relative to maybe content relative to the mix headwind that we've seen in this industry playing out maybe over the next 12 months.
Speaker Change: Yes, Mike. This is Jeff again, we have seen the mix kind of stays stable from where we were at the end of 2024 into 2025 with regards to small entry level units, we haven't seen a lot of deep content going on throughout the market from low end to high end.
Speaker Change: I've seen some additional high end being built out there, but certainly it's offset by by the entry level product Thats out there. So I mean, we continue to believe that's going to be kind of where people are going to go to.
Speaker Change: Start to get people back on the losses. Some of these macroeconomic dynamics change, but I think we feel pretty good about the I guess the mix not getting any significantly different than what it is today.
Speaker Change: Okay, great. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Joe Alibaba with Raymond James. Please proceed with your question.
Joe Alibaba: Thanks, Hey, guys good morning.
Joe Alibaba: First question I just wanted to clarify so if we look at the old versus new operating margin.
Joe Alibaba: It was down call. It 85 bps. So that is all coming from a reduction in end markets and there is no incremental impact from tariffs versus where we were in February.
Joe Alibaba: Yeah, I think I think Joe. This is Andy later, I think that the biggest impact is two volume we're pulling out 30000 RV units.
Joe Alibaba: At the midpoint.
Joe Alibaba: As well as about 17000 marine.
Joe Alibaba: So that's the biggest impact on margin.
Joe Alibaba: Okay, I'm, just I'm just unclear because the.
Joe Alibaba: China tariff at a 145% it wasn't there.
Speaker Change: I'm curious.
Joe Alibaba: Thank you.
Joe Alibaba: How you were offsetting that.
Joe Alibaba: Well, we do.
Joe Alibaba: And everything we can we've moved product out of China.
Joe Alibaba: Currently 145 is that percent is the headline but there are exclusions.
Joe Alibaba: So just working through that.
We have the tariff impact baked into.
Joe Alibaba: Our forecast.
Speaker Change: Okay, and just a follow up on the RV outlook.
Speaker Change: The shipping forecast coming down Q1, you mentioned that shipments were up 14% so.
Speaker Change: It sounds like that was just dealers trying to kind of get inventory. We ran some season not an indication that you're getting any more optimistic about retail.
Speaker Change: Yes, Joe This is Jeff I mean, if you look at the retail numbers January was flat to maybe down a little bit of February showed down 12%, we don't definitely know March yet.
Speaker Change: But that's not the trend that we expected going into the year when we kind of put together our first forecast at that kind of 340 to $3 50 number.
Speaker Change: So and then we've looked at the production levels, we have a good goodbye I on all of the production levels production levels did spike.
Speaker Change: I say spike, but moved up a little bit starting in January February and March we've seen those temporary a little bit which would lead us to believe just from.
Speaker Change: Our past is that if they are temporary in their production levels, a little bit the retail is evening off a little bit and so.
Speaker Change: All of those things combined definitely with the.
Speaker Change: Lack of consumer confidence out there like Andy mentioned in the prepared remarks leaves.
Speaker Change: Two people not not looking at discretionary spend the way they used to so all of those kind of factors.
Speaker Change: Our where we came up with those numbers. Joe. This is Andy I think as we looked at the production levels in the RV space in particular, and we had anticipated a little bit of a seasonal uptick in Q1 in anticipation of selling season I think the manufacturers were extremely thoughtful in the way that they manage their production. We only saw two weeks of additional weeks on hand.
Speaker Change: <unk> from the end of Q4 to the to the end of the first quarter of 2025, and so while there was a little bit of a build on the wholesale side in anticipation again, the oes have been very thoughtful from our perspective and really being in managing their inventories to match up with retail. So we don't feel like Theres anything out of line at this point in time as it relates to.
Speaker Change: Production retail matching up.
Speaker Change: Okay Super Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Noah is that skin with Keybanc capital markets. Please proceed with your question.
Noah: Hi, Thanks for taking my question. If you could just maybe talk about some of the <unk>.
Noah: Cost levers that you're using right now as well as additional levers that you could poll.
Noah: Should the environment deteriorate. Thanks.
Noah: No. This is Andy I think as we're looking at cost levers first of all we have a highly variable cost business and so we're flexing our variable costs in alignment with our revenue stream, which we always do and we've got a playbook to execute upon that so that's something that we're doing all the time, we are making some additional fixed cost.
Noah: Reductions as we kind of look forward here.
Noah: As we were anticipating and kind of hoping for a little bit of an upside here. The tariffs scenario has certainly put a little bit of a damper on that but we're being thoughtful about fixed cost reductions I think we're very confident in our ability to manage this business in size and scale it appropriately depending on whatever the revenue stream is so the high variable cost model for us is something that we.
Noah: We maintain we focus on we look at all of those costs and manage very aggressively as it relates to sizing and scaling the business. So we've got downside scenario analysis out there as well you know in our playbook to execute upon those to continue to maintain really the strength of the business model and the strength of the cash flow. So that we can stay in a position of offense.
Noah: Here, especially in these volatile markets.
Speaker Change: Really helpful and just hoping maybe you could kind of give an update on <unk> and how the aftermarket business is progressing thanks.
Jeff: Yes. This is Jeff it's progressing as we expected I think we're I think Andy mentioned in.
Speaker Change: In the remarks that.
Speaker Change: They are kind of launching into there theyre higher seasonal activity. We've seen we've seen it really kind of follow the same trajectory. It has the last three years with their sales.
Speaker Change: Been really encouraging to get additional Patrick RV products on there and start to get some additional marine products from our marine divisions onto the retro site. So we're monitoring the sales for each one of those product lines to see where the impact is but we're we're definitely pleased with the direction, it's going so far certainly going into what would be.
Speaker Change: They're heavier selling season.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tristan Thomas Martin with BMO Capital Capital markets. Please proceed with your question.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: I don't want to follow up.
Speaker Change: No. His question on rent growth, if we do enter your environment, where terroristic Moller 26 pricing goes up I know you don't guide right pro but I mean, how much of a tailwind.
Speaker Change: Maybe put a little more into their our views as opposed to buying them.
Speaker Change: I mean in theory, that's what you would expect we've talked about that throughout the years. When we've had cycles that the aftermarket piece of the business is a little bit counter cyclical to everything else that's going on when when we have downturns in the market.
If you look back at some of the retro history. He has seen that so but.
Speaker Change: As you mentioned, we're not going to do a lot of guidance on that but that would that would be what we would expect in a in an adverse market on the on the retail side.
Speaker Change: Okay.
Speaker Change: And then just one.
Speaker Change: Question on kind of.
Speaker Change: Moving sourcing out of China into other countries, we kind of removed towers from the equation on the on a like for like product basis, I'm, just curious how pricing compares or product quality compares as youre kind of moving to different countries and in source manufacturing.
Speaker Change: Yes. This is Jeff we're very careful I mean, what we're when we look at other countries. It's not just hey, they can do that let's move it over there we have a team that goes over and qualify as those manufacturers.
Speaker Change: We definitely look at the pricing to make sure that as you know.
Speaker Change: In the ballpark or if not better than where we're at in China, depending on certainly the tariff situation.
Speaker Change: So we're very cautious with that it's not just a <unk>.
Speaker Change: Major throw it into another manufacturing facility from.
Speaker Change: From China. So it takes some thought and if you look back over the last three years, we've spent a lot of time and effort moving product into different areas.
Speaker Change: And I.
Speaker Change: I think it's paid off for us and we've been able to get the equal amount of quality and service that we have out of the Chinese plants.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.
Alex Perry: Hi, Thanks for taking my questions here I guess just to follow up on tariffs and maybe put a finer point on it so it sounds like the current tariff rates or in the guide and there is no incremental op margin pressure from them does that imply that you're fully offsetting them right now our plan to fully offset.
Alex Perry: Are you passing along pretty much all of the cost to customers, who are sort of passing it on to the end consumer.
Alex Perry: I just want to make sure.
Alex Perry: Clear on that.
Alex Perry: The tariffs thanks.
Andy Nemeth: Yeah. Alex This is Andy I think as we think about tariffs again as Jeff mentioned and we've talked about we're going to continue to actively work on the multiple levers that we have to be able to offset as much of the tariff impact as we can as it relates to these products and commodities. So our goal is to mitigate as much as we can and.
Andy Nemeth: As it relates to passing on the headline numbers. So our goal is to continue to work with our customers. We've got multiple sourcing opportunities. We've got the good better best solution and so as we look at it again, we're doing everything we can cost reductions within the business.
Andy Nemeth: To make sure that we are partnering with our customers.
Andy Nemeth: In this process and doing everything we can to support the industry as a whole.
Really helpful and then.
Andy Nemeth: I just wanted to ask about the sort of expectation for the shipment cadence on the RV side.
Andy Nemeth: You know, it's sort of embedded roofing. The guide is it that growth rates accelerate from here we've heard.
Andy Nemeth: A couple of positive April data points on the RV side. It seems like the retail environment has been fairly resilient. So can you just talk about you know.
Andy Nemeth: Your sort of expectation on how you would expect shipments to flow from here.
Andy Nemeth: Yeah. So this is Jeff.
Andy Nemeth: We have stated in there in our prepared remarks that retail seems to be resilient on the RV side.
Andy Nemeth: If you look at February numbers, they werent the level that we expected them to be so I think there is some some caution there, especially when you have the potential of some tariff headwinds I think what we would really need to see to see an inflection point would be some of that.
Andy Nemeth: Consumer confidence start to bounce back I will tell you that within our organization, we're definitely prepared for any type of inflection up or down in the coming months and would expect if you look where we're really calling out the high the high point of where we're at our levels are kind of the low end of where Rbis.
Andy Nemeth: Similar to where we were last year. So we're comfortable with where we're at and what we're seeing from the production levels that kind of match up with where we think retail is is coming through.
Perfect. That's all I was incredibly helpful best of luck going forward.
Speaker Change: Thank you Alex.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Alex.
Speaker Change: Woodlands.
Alex Woodlands: I'm, sorry, I'm with women with Baird. Please proceed with your question.
Speaker Change: Yeah. Thanks, guys.
Just wanted to maybe focus on the manufactured housing side for a moment here really nice content performance I think up 4% maybe to a record level what are some of the drivers there and maybe what's your outlook for that metric through the balance of the year.
Jeff: Yes. This is Jeff.
Jeff: Yes, we've been really excited with what our MH team has been able to do on that side to bring that content level up.
Jeff: <unk> seen several opportunities with different products product categories to give them the opportunity to do that I think we did lighten where we thought.
Jeff: <unk> was going to be up 10% to 15% down to kind of that 5% to <unk>.
Jeff: I see.
Jeff: Digits, but I think that were.
Jeff: Really well positioned that business is very scalable and ready to run with the with the demand that the MH market can bring US again, we think that there is such a huge gap in affordable housing out there and as our MH Oems continue to fine tune their product and really work with their customers to.
Jeff: To get that product out there I think it's there's a lot of upside.
Speaker Change: Great and then maybe can you just review what you're seeing out in the M&A pipeline today.
Andy Nemeth: Al This is Andy.
Andy Nemeth: We're feeling really good about what's out there in the M&A pipeline.
Andy Nemeth: We're constantly cultivating that pipeline internally, so we're not necessarily relying on outside sources to bring us deals and as I look, especially at the back half of the year. You know first half in first quarter, we were really focused on being in a position to be able to be flexible and nimble with our customers in the event. We saw an inflection point, we invested in inventory.
Andy Nemeth: In Q4, as we've kind of seen this this subside a little bit we our inventory turns are up in Q1, which we are back to again be an aggressive on our working capital management I look at the back half of the year and the strength of the cash flows that we're going to be able to drive in the back half of the year and really look to get opportunistic in the back half as it relates to deploying capital on M&A.
Andy Nemeth: So.
Andy Nemeth: Optimistic about what's out there and again I think we want to continue to execute on our strategic plan based on the strength of the cash flows that we have.
Andy Nemeth: Thanks, that's it for me.
Andy Nemeth: Thank you. Thank you.
Andy Nemeth: Thank you.
Speaker Change: Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Daniel Moore: Thank you I appreciate the color.
Andy Nemeth: We see on the end markets and some of the.
Daniel Moore: Cost reduction initiatives I'm curious.
Daniel Moore: Just in terms of managing costs and capacity does your revised margin guidance include steps to reduce capacity.
Daniel Moore: You talked about obviously some of the variable costs and some fixed cost reduction.
Daniel Moore: But I'm wondering if you were holding on to two capacity for now at least assuming the downturn or softness is relatively short term.
Daniel Moore: And as Danny we're definitely maintaining a thoughtful long term vision as it relates to capacity and our ability to scale.
Daniel Moore: That is absolutely a value proposition that we've got with our customers is the ability to move quickly with them and so we are doing some consolidations I will tell you that but thoughtful consolidations without impacting the integrity of the business model and our ability to scale. So yes, we're making cost reductions, yes, we're doing some facility consolidation.
Daniel Moore: Sedation, where it makes sense, but maintaining capacity to be able to support any inflection point that our customers have.
Andy Nemeth: That's helpful. Andy.
Andy Nemeth: Follow up on the MH side.
Andy Nemeth: What are you hearing from your customers in this environment do they expect to be able to continue to accelerate share gains versus site built I know you tempered the outlook under Barry understandably, so but.
Andy Nemeth: Thinking more long term are you seeing.
Andy Nemeth: You know builder developers et cetera, opt for MH on an increasing fashion.
Andy Nemeth: We still see the same value proposition out there as it relates to affordable housing and what the MH industry can bring especially with the increased value proposition and the quality of the products that are going into MH. Today. So we still believe in that model and while we're going through like I said, a little short term inflection here I don't think we've seen any.
Change in the estimated impact that MH can have or the opportunity potential for share gains, especially in the stick built housing market. There definitely is a shortage.
Andy Nemeth: And certainly when we look at kind of the contractors out there and the limited contractors, we definitely think MH still has a value proposition. So we've not changed our thought process on average at this point.
Speaker Change: Okay. That's helpful and lastly, just <unk>.
Andy Nemeth: Power Sports where tech.
Andy Nemeth: I'll talk about in a slightly more challenging economic backdrop.
Andy Nemeth: What that means for share gains you talked about Cabot enclosures, you're continuing to see.
Andy Nemeth: You know.
Andy Nemeth: Coes and consumers opt for those is the share gain opportunity similar is it accelerating is it a little softer in this environment, how do we think about it. Thanks again.
Speaker Change: Yes, two things one.
Speaker Change: The utility sector, which is really where the focus has been in one of the things that.
Speaker Change: Again, we got our arms around as it relates to the spartech products has been much more resilient than the rec side of the business, but the really encouraging thing that we're seeing today is the take rate on enclosures in the units that are being produced especially in the side by side market. So we're seeing more and more units.
Speaker Change: Being.
Speaker Change: Being equipped with enclosures and saw it take rate continues to go up despite what we're seeing in the overall market. So we're still optimistic and really like what <unk> doing.
Speaker Change: Alright Super helpful. Thanks again.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Scott's Denver with Ralph M. Kam. Please proceed with your question.
Speaker Change: Good morning, guys and thanks for taking my questions as well.
Speaker Change: Going back to the manufactured housing piece.
Speaker Change: Obviously, you guys have good reason to be conservative to premier forecast down but.
Speaker Change: Have you and I know this isn't really the prime selling season, yet but.
Speaker Change: And reversing some of the previous gains or are we just being a little bit more conservative now.
Speaker Change: I think in.
Speaker Change: <unk>.
Speaker Change: With where we're at today you know in the short term view I think the Oems are being very thoughtful to manage production levels to maintain their backlogs and so.
Speaker Change: I think it's just I don't want to say, it's all caution, but I would just say that as we look across the space, whether it's RV Marine MH power sports, just the thoughtfulness and managing dealer inventories and the discipline. That's out there is very strong and so looking at that makes you know we've seen a little bit of production.
Speaker Change: It's kind of kind of pulled back just a little bit in this environment.
Speaker Change: But it is really to maintain the backlogs that are out there and production and consistent production levels. So I think it's too early to say, whether we are you know whether we're there we're not as it relates to the overall season and whether we have missed it but right now just as of today, we're seeing thoughtfulness as it relates to retail wholesale production management.
Speaker Change: Got it and then looking at aftermarket in retro in particular.
Speaker Change: I know we've talked about.
Speaker Change: Cross selling opportunities with power sports and marine but.
Speaker Change: Are there opportunities for cross selling into the housing side, namely MH.
Scott Denver: Scott This is Jeff not particularly.
Scott Denver: If there were some we'd look into that and that's certainly not our focus right now our focus is squarely on the RV Marine and power sports piece of the business.
Scott Denver: When it comes to the aftermarket.
Scott Denver: Yes.
Scott Denver: Yeah.
Scott Denver: Scott in 2024 aftermarket was about 8%.
Scott Denver: Of the revenues.
Scott Denver: With the addition of retro we're looking into that to uptick.
Scott Denver: The double digits for 2025.
Okay.
Scott Denver: Alright, Thats all I have thanks, guys.
Scott Denver: Thanks Scott.
Speaker Change: Thank you and ladies and gentlemen, I will turn it over to Andy Nemeth for closing remarks.
Scott Denver: Okay.
Speaker Change: Thank you once again I, just really want to thank the entire Patrick team and all of our customers and partners.
Scott Denver: For all the efforts, especially in this volatile environment, we've got a fabulous team.
Really focused on continuing to drive our business model, we've got a tremendous culture.
Scott Denver: And a team that is very much aligned to that I think as we look at these ball this volatile.
Scott Denver: Environment, we look at this as an opportunity to further embed our value proposition with our customers and we're really focused on that we have the we have the balance sheet, we've got liquidity.
Scott Denver: We've got the opportunity again to stay on offense in this type of environment to really again partner with our customers and bring value to the space as a whole. So again, we're looking forward to again, what we see in the for the long term of the industry, we're going to continue to manage our business. According to the revenue stream and we've got a playbook to operate under many scenarios.
Scott Denver: We have the tools that we need to manage this business and.
Scott Denver: In the short term, but still stay focused on the long term. So again I feel excited about where we're at today and the opportunities that are in front of us for the long term so with that we will see.
Scott Denver: Sign off and say thank you very much for joining us on the call. We'll look forward to talking to you in our second quarter.
Thank you ladies and gentlemen. This concludes today's teleconference. Thank you for participating you may now disconnect.
Scott Denver: Okay.
Scott Denver: [music].