Q1 2025 LCI Industries Earnings Call
Speaker Change: Hey everyone, it's the man who creates the music. Hey. What's up?
Speaker Change: Hello everyone and thank you for joining the LCI Industries first quarter 2025 conference call.
Lucy: My name is Lucy and I'll be coordinating your call today. [inaudible]
Speaker Change: During the presentation you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Lillian Etzkorn, CFO of LCI to begin. Please
Speaker Change: Good morning, everyone, and welcome to the LCI Industries' first quarter 2025 conference call. I am joined on the call today with Jason Lippert, President and CEO , along with Kip Emaneiser, VP of Finance and Treasurer. We will discuss the results for the quarter in just a moment.
Speaker Change: But 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 security laws and involve a number of risks and uncertainties.
Speaker Change: As a result, the company costumes you that there are a number of factors, many of which are beyond the company's control, which could cause actual results in events to differ materially from those described in the forward-looking statement.
Speaker Change: These factors are discussed in our earnings release and in our form 10K in another file ends with the FCC.
Speaker Change: The company disclaims any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur after the date of the forward looking statements are made, except is required by law. With that, I would like to turn the call over to Jason.
Jason Lippert: Thanks, Lillian, and good morning, everyone. I'd like to welcome you all to LCI Industries' first quarter 2025 earnings call.
Speaker Change: We started the year strong, delivering over 1 billion sales during the quarter, about 8% year over a year, our highest quarterly growth since June of 2022. These strong results are due on part to the resilience of our strong leadership teams, diverse markets and products, and the power of a competitive moment we built over the years.
Speaker Change: We plan to continue to leverage our deep presence across these markets with our customer first mentality and the relentless focus on growth and innovation to drive our performance and remain on track to deliver 5 billion revenue in 2027.
Speaker Change: I discipline manufacturing execution, also help enable us. Increase operating margin by nearly 200 basis points this past quarter.
Speaker Change: Our scalable production supported guillermatory rebuilding, along with aggressive cost actions goes structural improvement as the wholesale environment expanded almost 14 percent over last year's first quarter.
Speaker Change: We continue to consolidate facilities, having taken decisive action in our Rialto, California and Chesning Michigan facilities, which combined will drive a 230,000 square foot reduction to our footprint.
Speaker Change: Additionally, we executed on supply chain efficiencies, lowered indirect spend, and reduced salary labor as we made strong operational headway toward our 85 basis point overhead and GNA reduction target for calendar year 2025.
Speaker Change: We also resumed our time-tested M&A strategy with the acquisitions of prison seating and trans air, which have helped strengthen our position in the bus market, which we have found to be largely insulated from general economic and consumer demand cycles.
Speaker Change: We completed these acquisitions while strengthening our financial positioning with a series of financing activities that helped you risk our balance sheet, all while continuing to return meaningful cash to our shareholders.
and now moved on to our results by business.
Speaker Change: RV OEM sales total 531 million for the first quarter of 15% versus the prior year. This increase was largely due to the double digit rise in North American RV wholesale shipments as retail dealers restocked inventory for the 2025 felonix season.
Speaker Change: Secular trends supporting the outdoor lifestyle remain firmly in place, which help create a firm foundation for our future growth.
Speaker Change: According to KOA's 2025 Camping and Outdoor Hospitality Report, more than 11 million new households of the Enter of the Camping Marcus since 2019.
Speaker Change: The appeal of outdoor recreation continues to grow with consumers increasingly prioritizing experiences like camping, RVing, and outdoor travel. Additionally, the survey reported the 72 million Americans plan to take an RV trip this year.
Speaker Change: Also, in the quarter, we continue to focus on growing market share across our top five product categories, appliances, actuals and suspensions, chassis, furniture and windows.
Speaker Change: Appliances have been the biggest quarterly category winner with combined OEM and aftermarket sales growing 42% over 2023's first quarter.
Speaker Change: More recent innovations like the Chill Cube AC, Analog Breaking Systems, 4K Windows Series and TCS Suspension, led to some of our most impactful market share gains as the recognized advantages continue to drive adoption by OEM customers.
Speaker Change: We believe these innovations, combined with our strong OEM relationship, continue focus on customer service and quality, geographically strategic footprint, scale-based purchasing leverage and low cost production, make our offering the clear choice for partners evaluating competing products.
Speaker Change: These sharegames were evident as our organic content for travel trailer in fifth wheel content rose 3% year over year.
Speaker Change: This marks another quarter of content expansion as we continue to achieve growth despite an ongoing shift toward smaller single-axle trailers, supporting our beliefs that we have products that consumers want and need at all price point.
Speaker Change: Looking ahead, we're confident we can capture additional content opportunities. We continue to anticipate that organic content growth should be three to five percent annually.
Speaker Change: April sales increased 3% year-over-year as wholesale shipments and product mix normalize, and we now project 320,000 to 350,000 wholesale shipments in 2025 as a result of tariff from certain
Speaker Change: Turning to the aftermarket, Nest Sales were 222 million for the first quarter of 6% year over year, given by higher volumes in ARV and marine aftermarket.
as well as market share gains in the automotive aftermarket. [inaudible]
Speaker Change: We've worked hard the last several years to diversify the segment, the Dynamics' quarter continue to reflect resilience of our aftermarket products.
Speaker Change: The Curtin Ranchhand Acquisitions continue to build momentum, and we're important contributors to the performance of this quarter. Our Kirk family of products including hitches, towing solutions, and truck accessories delivered 4% growth year-over-year on Q1.
Speaker Change: We also saw strong performance from fury on suite of appliances, particularly on air conditioning, where our innovative chill cube continues to gain shares one of the quietest and most powerful AC units available for recreational vehicles.
Speaker Change: And as we continue to drive OEM content expansion and appliances, the growing replacement opportunities for appliances, the promises to unlock meaningful demand here in the near future. And we believe Hurian is well positioned to benefit as more RVs come out of their warranty periods.
Speaker Change: Our partnership with Camping World also remains a key growth driver for our aftermarket results. Botox sales at Camping World stores grew over 60% sequentially in the first quarter, building on the 57% growth achieved last year.
Speaker Change: We continue to work closely with the camping world team to bring more of our products in other stores and online platforms.
Speaker Change: We plan to update approximately 50 additional locations this year and top of the 14 complete in 2024 for the strengthening our retail presence with the largest RV dealer in the world.
Speaker Change: We're also investing heavily in the long-term growth of our aftermarket by building on our service and training functions.
Speaker Change: Our dealer tech training programs are helping us ensure that our products are supported correctly after the sale to retail.
Speaker Change: which should strengthen our pull-through with viewer service centers. Last year alone, our service ecosystem had 1.6 million views of Lippert-branded tech support seminars, 55,000 individual completions of technical training classes, and over 2.1 million visits to our Lippert-branded technical service pages.
Speaker Change: We're proud of this momentum as customer service and an experience remains a key strategic pillar for us. We believe and dealers are affirming that our company is doing more in the way of our customer and dealer support than anyone else in the industry.
Speaker Change: Turning to adjacent industry, sales decreased 2% to 293 million for the first quarter versus the prior year, driven primarily by continued softness and marine, as dealers remain focused on inventory rebalancing.
Speaker Change: We expect Mirangulous to be back to more of a normal ordering cycle sometime in the back half of the year. Utility trailer's content continues to be a bright spot and we expect that to continue. With approximately 600,000 utility and cargo trailers built annually, we view this as a meaningful opportunity for long-term content growth.
Speaker Change: We've continued to leverage our aqua-manufacturing expertise to serve leading brands like PJ Trailers, Diamond Sea, Nove and Big Decks Trailers, and a strategy is to continue to introduce advanced suspension system enhancements.
Speaker Change: such as analog braking systems, touring coil spring suspension, entire pressure management systems to elevate trailer safety and performance.
Speaker Change: Our assilist's work remains a key driver of our success in this market as assilist suspension components are the largest single content item on these products.
Speaker Change: In building products, we continue to grow our residential window business, which increase 26% in the quarter, as more distributors and builders recognize the quality and consistency of our new entry-level vinyl windows.
Speaker Change: And transportation, our windows and glass products are increasingly contributing to the content growth across on highway and off highway vehicles, school buses and transit buses.
Speaker Change: and buses alone approximately 70,000 units are produced annually and as we mentioned earlier buses are proving to be much less susceptible to consumer demand macroeconomic issues.
Speaker Change: As noted previously, we are happy to announce that we have resumed our time-tested M&A strategy during the quarter, by going deeper into the bus and market.
Speaker Change: acquiring Friedman Seating and Transair. Friedman Seating, which is a hundred-year-old business with a great name in the market, manufactures a variety of seats and seating-related products for many different bus types. While Transair manufactures a full line of climate control systems for school, transit and commercial buses.
Speaker Change: We believe these companies together further our exposure and deepen our importance, presence, and content in the bus markets.
Speaker Change: Turning to our financial discipline, we continue to operate with financial prudence and situational awareness, which has helped us navigate and gain share in a challenging economic backdrop.
Speaker Change: As I stated earlier, our 85 basis point cost reduction goal for 2025 focused on overhead and GNA remains within reach.
Speaker Change: These are structural improvements and we continue to take delivered action to tighten indirect costs.
Speaker Change: Through targeted facility consolidations, resourcing strategies, and ongoing improvements in product quality that should drive warranty costs down. Regarding capital allocation, our balance sheet remains strong, bolstered by our proactive refinancing activity during the quarter, the significantly de-risk our near-term position in a challenging credit market.
Speaker Change: We successfully refinanced our 2026 convertible notes, repurchase shares, and issued new 2030 notes, while taking steps that reduce risk, limit delusion, and preserve flexibility.
Speaker Change: Cash Performance was also strong as we generated 43 million of operating cash flow in the quarter, up significantly from the prior year, which was the cash use of 8 million.
Speaker Change: We effectively improved our working capital discipline while delivering enhanced earnings.
Speaker Change: These results continue to position us well, providing us with a financial capacity to continue infesting an innovation and growth, all remaining committed to returning capital to our shareholders.
Speaker Change: In addition, during the quarter, we continued to deliver a strong dividend with over a 5% yield and executed 28.3 million of share repurchases.
Speaker Change: Lastly, our net debt position at around two times EBITDA, provides ample financial flexibility to be opportunistic and pursue more of our robust M&A pipeline.
Speaker Change: Regarding tariffs, we know this is top of mind for all of our stakeholders and is top of mind for us as well. Over the past several years we've taken a fresh look at our global sourcing strategy to help further insulate the business with much more of a diverse supply chain.
Speaker Change: In fiscal year 2024, approximately 35% of raw materials and components came from producers outside the United States, of which approximately two-thirds were from China.
Speaker Change: By the end of this year, we expect that number to be reduced to approximately one-third of our imported raw materials and components.
as we transition production into more strategically favorable regions.
Speaker Change: The most important point to note is that we have navigated tariffs and other impactful challenges before, and we have the experienced leadership team in place to do it again with a successful result.
Speaker Change: Moving to culture, although intangible, I believe it's one of the most powerful drivers of our success. We remain fully committed to building a workplace grounded in strong values and servant leadership because we believe that when people feel supported and inspired, they stay with the business, grow and perform better every year.
Speaker Change: That's why we continue to see lower turnover compared to industry averages, which helps create consistency and momentum in our manufacturing quality and output.
Speaker Change: We are continuing to demonstrate how business can be a force for good as we serve our communities through a wide range of volunteer efforts. Building on the over 100,000 hours our team members give each year.
Speaker Change: Projects this quarter included park cleanups in South Dakota, hosting a community dinner in Alabama and a blood drive in Juarez, Mexico, just to name a few. These projects reinforced the idea that when people come together around a common purpose, the impact goes far beyond the bottom line.
Speaker Change: Just two weeks ago, 1,600 team members in Northern Indiana got together over three evenings for our annual company packout event, structured to purchase and pack supplies for the Food Bank of Northern Indiana, which serves over 70 food pantries throughout six local counties.
Speaker Change: Team members packed 108,000 food items into $5,400 boxes, which will be distributed to the Food Bank's mobile food drop program, providing food assistance to those in need in our surrounding communities.
Speaker Change: As we look ahead in the second and third quarters remain cautiously confident with a realistic view of the road ahead, the inflationary pressures and market volatility and elevated interest rates continue way on the consumer.
Speaker Change: RBDlers are taking a cautious view of the ordering products given the current tariffs uncertainty. We're also closely monitoring tariff risk and the resulting broader uncertainty that may reshape overall buying better.
Speaker Change: As always, we'll continue to align our cost structure, capital deployment, and production cadence with real-time market signals. We believe our ability to adapt quickly and execute with discipline has always been a great strength to ours.
Speaker Change: giving us confidence and our capability to deliver for our customers and shareholders no matter what the operating environment.
Speaker Change: In closing, we believe this quarter reinforced everything we've been saying over the past couple of years of industry turbulence.
Speaker Change: We have a diversified and durable business, a culture rooted in servant leadership, operational discipline, and great execution by our experienced leadership teams, as well as strategic clarity and passion to win in both good and bad times. While the broader environment may remain volatile, our playbook hasn't changed. [inaudible]
Speaker Change: We've been through cycles like this before, and we know what it takes to perform. We're confident that our competitive mode continues to set us apart, and it's even more of a strength at tougher times.
Speaker Change: by utilizing the advantages that I've mentioned. We believe that we are positioned well to continue to drive market share gains and growth across our business over the coming quarters. And as always, none of this will be possible without the incredible people and leaders behind it all. Our team's commitment, creativity, and heart continue to push Lippert forward.
Speaker Change: and I couldn't be prouder of what we're building together. I'm more excited about what we were having.
Speaker Change: I'm now turning it over to Lillian who will provide more detail in our financial results.
Lillian Etzkorn: Thank you, Jason. During the quarter, Lippert's industry leading innovations and strong competitive advantages drove strong net sales growth, while their ability to scale operations effectively, along with sustainable cost improvement, continued to support margin expansion.
Lillian Etzkorn: Our consolidated net sales for the first quarter were $1 billion, an increase of 8% from the first quarter of 2024.
Lillian Etzkorn: OEM net sales for the first quarter of 2025 were 824 million, up 9% from the same period of 24.
Lillian Etzkorn: RV OEM net sales for the first quarter of 2025 were $531 million.
of 15% compared to the prior year period. [inaudible]
Lillian Etzkorn: driven by an 18% increase in North American travel trailer and 5th wheel hole fill shipment, as well as overall market share gain.
Lillian Etzkorn: These results were partially offset by an 11% decrease in motor home wholesale shipments and the continued shift in unit mix towards lower content single-axle travel trailers.
Lillian Etzkorn: Single-axle trailers do remain an atypical portion of production, but we expect it's turned to normalize once consumers demand for covers.
Total RV Organic Content Group 1% sequentially and 3% year-over-year 3% year-over-year-
Lillian Etzkorn: reported by the sharegames we delivered in the top-product categories we supplied to RV OEM.
Lillian Etzkorn: Appliances, Excellence Suspension, Chassis, Furniture, and Windows, as well as the continued adoption of recent innovations for our ABS, TCS, and Best in Class Appliances.
Lillian Etzkorn: This growth significantly offsets the impact from the continued shift to smaller single-axle trailer.
Lillian Etzkorn: A Jason Industries OEM that fails for the first quarter of 2025 were 293 million. Down 2% year-over-year primarily due to lower sales to North America Marine and power sport OEMs. Personally offset by higher sales to utility trailer OEMs.
Lillian Etzkorn: Marine Fails were down 15% due to the impact of inflation and still high interest rates on retail demand and based on current visibility, we expect the softness to continue.
Lillian Etzkorn: Aftermarket net sales for the first quarter of 2025 were 222 million, an increase of 6% compared to the same period in 2024, primarily driven by higher volume within the RV and marine aftermarket, and market share gains in the automotive aftermarket. [inaudible]
Lillian Etzkorn: Growth margins for the first quarter of 2025 were 24.1%, compared to 23.1% for the prior year period.
Lillian Etzkorn: The cost of steel consumed in certain manufactured components decreased in the first quarter compared to the same period of 2024. Additionally, lower inbound freight costs and the impacted material sourcing strategies was implemented to lower input costs also benefited growth margins.
Lillian Etzkorn: Consolid operating profit during the first quarter was 81 million, or 7.8%. A 180-basis-point improvement over the prior year period.
Lillian Etzkorn: Operating margin expansion was supported by our ability to scale operations effectively, and further cost improvement actions such as facility consolidations and overhead reduction, marking progress towards our 85-base point fresh target.
Lillian Etzkorn: Decreases in Material Costs, and Increases in Production Labor Efficiency, which were partially offered by Decreases and Selling Processes.
Lillian Etzkorn: The aftermarket segment delivered at 8.7% operating profit margins, down from 11.8% in the prior year period, which was negatively impacted by the mix and investments and capacity and distribution processes to support growth for the aftermarket segment.
Lillian Etzkorn: Gatnet Income in the first quarter was $49 million for $1.94 earnings per deluded share. Compared to an at earnings of $37 million or $1.44 on earnings per deluded share in the prior year period.
Lillian Etzkorn: Adjusted net income in the first quarter of 2025 was 56 million, or $2.19 for diluted share, excluding the loss on extinguishment of debt net of tax effect during the quarter.
Lillian Etzkorn: Adjusted EBITDA in the first quarter was 111 million, a 23% increase from the prior year period driven by higher earnings.
Lillian Etzkorn: Non-cash depreciation and amorturization with $29.5 million for the three-month and at March 31, 2025.
Lillian Etzkorn: While non-tash stock-based compensation expense was $4.9 million for the same period. We continue to anticipate depreciation and amortization in the range of $115 to $125 million during the full year 2025.
Lillian Etzkorn: At March 31, 2025, our company's cash and cash approval is balanced with 231 million compared to 166 million at December 31, 2024.
Lillian Etzkorn: For the three months ended March 31, 2025, cash provided by operating activities was $43 million, up $50 million from the first quarter of 2024.
Lillian Etzkorn: Investing cash flows included 9 million used for capital expenditures and 30 million used for the acquisition of Trans-Air.
Lillian Etzkorn: During the quarter, we also strengthened our balance sheet with refinancing that pushed out near-term maturities and provided additional runway to execute our long-term strategy.
Lillian Etzkorn: These actions included successfully pricing a 460 million private placement of 3% convertible senior notes due 2030.
Lillian Etzkorn: The proceeds, not a fees and transactions cost, were used to repurchase $368 million of our 1.125% convertible notes due to 2026, and approximately 300,000 shares of our common stock.
Lillian Etzkorn: We also entered into a hedge and warrant transaction to manage dilution and maintain flexibility.
Lillian Etzkorn: Following the convertible note issuing, we refinanced our credit agreement with a 600 million revolving credit facility and the new 400 million seven-year term loan B. We used a portion of the term loan proceeds to repay the outstanding balance of our previous term loan of 280 million.
Lillian Etzkorn: In addition to the 28 million share repurchased made in connection with the convertible note issuance, we returned an additional 29 million to shareholders through a quarterly dividend of $1.15 cents per share, further reflecting our ongoing commitment to return capital to shareholders.
Lillian Etzkorn: As of March 31st, 2025, our net inventory balance was $717 million, down from $737 million at December 31st, 2024.
Lillian Etzkorn: At the end of the first quarter, we had outstanding net debt of $707 million, 1.9 times pro forma EBITDA, adjusted to include LTM EBITDA of acquired businesses, and the impact of non-cash and other items is defined in our credit agreement.
Lillian Etzkorn: For the month of April , sales were up 3% versus April 2024, with other adjacent sales up 9%, primarily reflecting the benefit of the Transair acquisition.
Lillian Etzkorn: and RV sales were up 7 percent, offset by softness and international. We are now anticipating an estimated full-year wholesale shipment range of 320 to 350,000 units, as consumer demand headwinds and overall economic uncertainty continues.
Lillian Etzkorn: As we think about Q2, we expect overall revenue to be about flat year over year. We also expect RV OEM sales to be up about 5% and we expect continuous lossness in marine and several of our other adjacent markets.
Lillian Etzkorn: We expect to maintain solid operating margins consistent with Q1 of 2025, despite the headwinds as we continue to focus on operating efficiency and through optimizing infrastructure.
Jason Lippert: Regarding potential tariffs, as Jason indicated, we have been focused over the past several years to look at our overall global sources strategy and diversify the supply chain.
Jason Lippert: There are three key elements to mitigating our exposure to tariffs, diversifying the supply chain by transitioning sourcing into more strategically favorable region, negotiating with our vendors to share the cost of the tarot, and finally passing through pricing to customers for the tariff impact. [inaudible]
Looking for capital allocation for the full year 2025.
Jason Lippert: Capital expenditures are anticipating to be in the range of 50 to 70 million as we continue to focus on investing into the business and innovation. We continue our aim to utilize our balance sheet to pursue strategic opportunities that help us capture profitable growth and deliver shareholder value.
Jason Lippert: while maintaining a long-term leverage target of one-and-a-half to two-time net debt to EBITDA and maintainer commitment to returning cash to shareholder.
Jason Lippert: And as Jason mentioned earlier, based on what we see today, we remain on track to organically achieve our 5 billion revenue target in 2027.
Jason Lippert: In closing, our operational flexibility, strategic diversification, and effective cost management along with a strong balance sheet enables us to deliver sustainable and measurable shareholder value.
Jason Lippert: That is the end of our prepared remarks. Operator, we are ready to take question. Thank you.
Speaker Change: Thank you. To ask a question, please press star follow by one on your telephone keypad now. If you change your mind, please press star follow by two. When preparing to ask your question, please ensure your device is unmuted locally.
Speaker Change: Our first question comes from Daniel Moore of CJS Securities. Daniel, your line is now open. Please go ahead.
Daniel Moore: Craig, good morning. Jason Mullian, or thank you for taking questions.
Daniel Moore: I'd love to start and just maybe dig into the two most recent acquisitions
Daniel Moore: First Trans-Air, what's your sort of pro-forma annualized revenue and climate control systems, and how do we think about the TAM and opportunity to increase penetration going forward in those markets, and kind of a similar question for free-been-seating as it relates to the bus trans-seating.
You take them.
Hurry up, hurry up!
Dan: Sure, so good morning Dan. So for the both combined entities is how the characterize it. We're looking at probably about 200 million.
of Annualized Revenue Opportunity.
Dan: Jason will talk more about the acquisitions themselves, but very strong businesses, very pleased to have them as part of our portfolio and go forward basis, and you'll be accreted to the results of the company as we move through these subsequent quarters.
Speaker Change: So, yeah, Dan, on the business is both both strong businesses. I think, you know, what attracted this most of these were one geography, you know, excuse me, the largest customers are right in our backyard here in Elkhart County. We obviously supply a lot of these bus manufacturers with window product already. So, you know, both the climate control systems and the seeding businesses that we acquired, strengthen our bus portfolio, and I feel like we said in our opening comments that...
You know, they're a little bit immune to some of the consumer.
Speaker Change: Consumer sediment and competence issues that might pop up here and there because it's mostly selling into municipalities through a dealer network. But Seedman, as we mentioned, is a 100-year-old business, very, very strong leadership team. We're going to just take both of these businesses and...
Speaker Change: We'll be divulging all that in the quarters to come as we work through the integration. Thank you.
They're very helpful. Switching gears, just-
Speaker Change: You know, obviously RV dealers are pulling back following a period of restock here and marine dealers are main cautious. What's been kind of the measurable impact in real time in terms of the tariffs on retail demand across both end markets that we've been able to glean or measure over the last day for six, eight weeks?
Speaker Change: Yeah, I don't think much, Dan. I mean, if you look at the price of, you know, boats and RVs on dealer last, there's not been much movement yet.
Speaker Change: You know, that'll all change this summer with Mattel, Mattel your change pricing and some of the tariff impacted.
Thank you.
Speaker Change: Will, and depending on what the amounts end up being, we'll translate to the retail prices of summer. But right now, if you're going to do it a lot, you're likely going to see similar prices today on some of those products that you did two or three months ago, but that'll start changing, come by, I'll change in June and July .
Speaker Change: Makes sense. And lastly, just confirming Lillian, if I heard correctly, for Q2, looking at kind of flatish revenue year over year.
Speaker Change: and Operating Mortions Consistent with Q1, I assume on an adjusted basis, or am I hearing that correctly?
Q1 of 2025, correct, correct fan.
Speaker Change: Right, sequentially, essentially, you know, flatish in terms of operating margins is what we're looking at, at least at the moment.
Yeah, yeah. Okay, Craig. Oh, drop-back wouldn't follow ups. Thank you.
Thank you. Thanks.
Speaker Change: Our next question is from Joe Altobello of Raymond James. Joe, your line is now open, please go ahead.
Joe Altobello: Thanks, hey guys, good morning. I wanted to talk about patterns a little bit. Looks like you're just imagining about 180 basis points.
Joe Altobello: Potential Margin Impact for this year. I guess my first question area is that effectively a half year number? So is it seems to assume a full year impact would be north of 300 basis points? [inaudible]
Joe Altobello: The hundred and eighty basis point is potential tariffs and just to be clear it's assuming that we're not able to mitigate any of those impacts.
Joe Altobello: which is, as we discussed, we are very focused on mitigating it and we are working towards that.
because you have a full year impact. [inaudible]
Joe Altobello: It's the impact that will come, you know, with higher tariffs that would be, you know, what we have to work on next and what we're continuing to work on. So, just know that the 180 FIPS is, you know, we feel we have pretty well taken care of what the mitigation efforts we've taken so far.
Speaker Change: Scott, and just to follow up on that, I mean, it's not like price is going to be part of those mitigation efforts in any sense for what sort of price increases you guys are pushing through to offset that.
Speaker Change: What do you look at what some of the other disclosures have been so far from some of the RV businesses, you know, that you know three to nine percent range to the consumer is probably probably reasonable at this point in time.
Speaker Change: It just depends on the make and model, on the content and the unit, things like that.
Speaker Change: And one of the other things we're doing with the OEM is making sure that we're…
Speaker Change: We're working through some access and absolutely inventory to help them maybe make some substitutions in the near term that will help their cost structures avoid some of the tariffs.
Speaker Change: You know, these OEMs will continue to maybe look at some decontending opportunities to mitigate that 39 percent. So, you know, who knows what will end up being? And, you know, June , July once, some of this model change pricing takes effect, but at the end of the day.
Son Alphonse, great. Yep, very much so. Thank you.
https://www.youtube.com.uk
Speaker Change: Our next question is from Mike Swartz of Truist. Mike, your line is now open, please go ahead.
Mike Schwartz: Hey, hey guys, good morning. Maybe just following up on the terrace. A couple questions there. I think you've
Mike Schwartz: Kind of handicapped the numbers around 20% Chinese tariffs, 10 rest of the world is there. Is there any way to think about what that would be given or based on the rates that are currently out there? Do they meeting the 145 in China? Any sense of what that would look like?
Mike Schwartz: Well, I think you just extrapolate the number four word based on the 20% we've already given you, but I would say that, you know, most businesses, including us are sitting here saying it's not going to be 145, it's kind of almost...
Mike Schwartz: Silly to think about what 145 would look like if you extrapolate that over a year because if that's the case, most of us are just going to get out of China a hundred percent.
Mike Schwartz: and we're working towards that, and we've provided some visuals in our materials to be able to show you how we're moving.
Mike Schwartz: Either back to the U.S. or rest of the world on our supply chain diversification but, you know, nobody's expecting that 145 and the president was out this week saying that it's got to come down because nobody would buy it from China if it's dated 145 so I think everybody's waiting patiently to see how that ends up. [inaudible]
Mike Schwartz: But at the end of the day, I don't think doing a model for 145 makes sense for a lot of different reasons.
Zellophon, okay.
Speaker Change: Yeah, that's great. And then just the, I know part of the mitigation strategy is moving some stuff out of China, but the 180 basis points, I just want to understand, is that based on the 2024 China exposure? Does that assume that you have...
Speaker Change: The lower exposure for the full year in 25, or kind of a partial year benefit of moving some stuff around, trying to understand the moving pieces there.
Speaker Change: Yes, so with it, it's kind of the ongoing rolling impact as we're moving the product out of China.
Speaker Change: of our imports from China and expect that to be down to 10 percent this year. We'll continue to reduce that as we move into 2026. So, as you're stating, it's a gradual exit from China. We're mitigating it as we're moving through the year while also...
Speaker Change: to taking the mitigation actions to ensure that it's not yet impactful on overall profit performance for the company. Yeah, so the 180 gets reduced simply as we continue to make all these mitigation efforts, whether it's pricing passers, passers, whether it's moving products out of China, the rest of the world, you know, all the other things we discussed.
OK, that's helpful. Thanks, Craig.
Thanks.
Speaker Change: Our next question is from Scott Stember of Ross Capital. Scott, your line is now open. Please go ahead.
Speaker Change: Hey guys, good morning, this is Jack on for Scott. I just want to dive deeper into specifically how you're diversifying your supply chain out of China. What sort of categories can you move out of China which ones can't be moved?
Speaker Change: I guess another way to ask is what sort of categories are impacted most and which ones aren't really impacted at all. Thank you.
Speaker Change: Yeah, that's a good question. So, you know, if you look at the categories and impact of the most, it's appliances and furniture and axles and suspension products, so...
You look at windows and…
Speaker Change: Chassis, which would be other two of our top five categories. Most of that's in the U.S. not impacted, but those would be the three categories that are impacted. But, you know, really there's nothing we can't move out. I mean, when the...
Speaker Change: When the tariffs started really rolling in 2017, we started initiatives to move product out of China and diversify our supply chain pretty significantly. 2020, we were forced to do the same thing, obviously, as the supply chain just got constricted.
Speaker Change: I mean obviously we're in a lot of different places now, but we weren't five, six years ago, including...
Speaker Change: Vietnam's big. So we diversified our supply chain significantly since 2020 and set up all these suppliers to duplicate production for some of the manufacturing we've got in China.
Speaker Change: and we're just going to start moving more to those manufacturers that are already building, that we started building products five years ago. So, it's not like we're having to really set up a lot of new vendors, it's moving more of our China product to existing vendors in the rest of the world. So, help.
Yes, that was great. Thank you. And just to follow up.
Speaker Change: Do you see any pull forward effect from the OEMs to kind of stay ahead of tariffs and how much of a one half or first half benefit kind of would that have?
Yep, yeah, so...
Speaker Change: I'm not hearing that. I'm sure a little bit of that's happening. I've talked to several dealers. It doesn't feel like, you know.
Speaker Change: It would feel like if that decision is going to be made by the dealers and I don't hear from a lot of dealers, that's what they're trying to do.
Speaker Change: It seems like they're kind of spring loading up of inventories is pretty normal for the inventories that they have and it's not overloading, so I would say that's not, you know, what I'm hearing right now?
Thank you.
Speaker Change: Awesome, thanks a lot. We feel the impact will be probably pretty minimal there.
Speaker Change: Thank you. Our next question comes from Bret Jordan of Jeffries. Bret, your line is now open. Please go ahead.
Hey, good morning, guys.
Brett Jordan: Hi, just on the last topic, I think you're talking about rest of the world and you said Vietnam is big and I guess how does the rest of the world that 23% a year and sort of mix out because obviously they were talking about a big reciprocal and Vietnam as well, but who knows.
Brett Jordan: Where are the big buckets you've gone to outside of China?
Brett Jordan: Yeah, I think I named him. I mean, it's Cambodian Vietnam. India's been pretty significant for us.
Brett Jordan: Turkey has been pretty significant. Those would be some of the bigger Malaysia. Those would be some of the bigger, bigger buck if we don't break out by country. It might get to the point down the road where we start doing that, but as of now, we're not breaking that out.
Okay.
Speaker Change: And then on your, the wholesale volume expectations for the year, I think you're still in that 320, 350, is there anything I guess to read into? I guess it seems like Thor is doing some layoffs recently, sort of early season production. Is that just sort of moving production around to make their business more efficient on a smaller scale? Or is that indicated that maybe we're looking at the lower end of that?
wholesale shipment range for 25, just given the consumer uncertainty.
Speaker Change: Yeah, you know, I think they're obviously trying to get efficient and optimize their footprint as well. I mean, it's no secret that this industry in general has a lot of brands and there's probably a lot of good moves, a lot of OEMs could make there, but they're, you know, there's, there's.
Speaker Change: There's brands that are winning everywhere. Well, there's brands that are, you know, some brands that are losing but, you know, Brinkley and Alliance are doing really well for us right now, for servers doing well. Certainly the JECO and Keystone brands that they're doing very well. So, you know, there's always winning and losing brands, but at the end of the day, you know, the good thing about LCI is the top suppliers. We sell everybody a lot of different products.
Speaker Change: Up to 5 billion, if you're talking about the 5 billion for 2027 target that we put out, it does not include that position.
Okay, great. Thank you.
Yep.
Speaker Change: Our next question comes from Craig Kennison of Baird. Craig, your line is now open. Please go ahead.
Craig Kennison: Hey, good morning. Thanks for taking my questions. Mostly just follow-ups, starting with slide 13. Can you share the dollar cost of raw materials and components? We're just trying to run that math and I don't want to make a mistake based on the basis points that you've provided.
Craig, we don't break out the material cost.
Thank you.
Craig Kennison: Yep, nope, nope problem. We'll back into it. I just think there's more room for error when that's...
Speaker Change: Can you just remind us of what the 2024 base year operating margin that you're using?
Craig Kennison: As the base for this 85 basis point of margin expansion, I just want to make sure we get that correct.
Craig Kennison: Yeah, so it's coming off as the operating income per cent for 2024. I'm trying to be the full year. I have lots of quarterly data.
Craig Kennison: 5.8, I think the number, I just want to make sure we do it right.
Craig Kennison: Yeah, so it's off of that and it's incremental that we're working towards, what I would copy out with that is to the extent that there are tariffs that we're not able to mitigate that obviously would be ahead when we're confident that we're going to be able to mitigate it.
Craig Kennison: But the 85 basic point is in commentals to the 5.8 LCI from last year and just in terms of how we're progressing with that and we feel very good in terms of the progress that we're making towards that cost reduction.
Craig Kennison: You know, areas that we've been successful already this year in cost reduction achievements include health care.
Craig Kennison: We've continued to optimize the footprint and we've closed down a few of our facilities. Jason mentioned a couple and his prepares remarks.
Craig Kennison: from an FTE perspective. We've continued to make improvements there and enhancements, and I would say just general efficiencies in our indirect spend that we've been putting out, you know, pretty focused RFPs.
Speaker Change: Thanks, and then I don't know if this applies to you, but I know the RV industry pushed for a
Luke Hall to be closed which was kind of sourcing. [inaudible]
Speaker Change: Components from China that were under $800 in shipping. I don't know. Does that impact your aftermarket business at all and is that something that you see as a win for your company?
Speaker Change: It's a minimal impact, Craig. I think the biggest opportunities for us is just continuing to diversify our supply chain and working with our customers to use some of this substitute and use some of these other materials that we have that are sitting here that could push any turf impact out aways.
Speaker Change: but also, you know, continue to work with our customers on.
Speaker Change: You know, our good, better best strategies on all the different products.
Speaker Change: Products we have, going from a better to a good or a best to a better gives our OEMs the opportunity to impact their bombs favorably to mitigate some of this. I think that's one of the biggest areas our...
Speaker Change: Opportunities Our Industry has on top of, you know, maybe some decontaining or some things like that which we've always talked about doesn't impact us significantly because...
Speaker Change: Yeah, and then maybe one more, if I could, Lillian, that's put you on the spot here for Q2, but I think you basically said revenues flat.
I'm not sure what the contribution was just from...
Speaker Change: Acquisitions, but it doesn't imply that you're seeing like organic declines in revenue in the second quarter as maybe the RV industry or marine industry adjusts production.
Speaker Change: Not necessarily, at least from an RV perspective for the second quarter, we'd expect that to continue to be up year over year about 5%.
Speaker Change: Some of the adjacent markets, such as Marine, you know, continues to be soft, but from the RV OEM perspective, I would expect that would continue to be up modestly year over year.
and that's organic.
Bethorgannick, yeah.
Thank you.
Thanks, Shrek. Thanks.
Speaker Change: Our last question comes from Tristan Thomas Martin of BMO Capital. Tristan, your line is now open. Please go ahead.
Hey, good morning.
Speaker Change: Morning. Real quick, can I just follow up on a question? RV OEM sales modestly up in 2Q, but is overall organic revenue flat, or is that down a little bit adjusting for those acquisitions?
Speaker Change: So only breaking out the RV at this point, so RV is up 5% probably in total net net organic is probably pretty flat-ish when I consider some of the other adjacent markets.
Speaker Change: that we're in. And I just say with the caveat, Tristan, that if, you know, tariff news doesn't improve, then, you know, rates could deteriorate and that could impact, impact things negatively, but, you know, we just don't know.
Speaker Change: Okay, and then appreciate kind of the initial kind of guidance on tariff, 10-20% but rates aren't much higher than that, they're kind of a rule of thumb you can give us on.
Speaker Change: Let's say there's an incremental 34% on China. How much of that do you think you can offset? And then what would the net kind of impact called for every 10% of incremental tire speed?
Speaker Change: Yeah, I think, you know, again, it's a difficult question the answer because we're just guessing. But, you know, if it does, you know, if it got to 30 or 35 percent, I think that, you know, the industry is pretty creative. We're pretty resilient. You know, there's lots of levers to pull for both OEMs, you know, all OEMs, dealers and suppliers and...
Speaker Change: We talked pretty thoroughly through the levers that we would pull but certainly there would be some level of pass-through to mitigate this.
Speaker Change: So, I think between the pass-through and the good-butter best strategies, using really pushing the OEMs that utilize some of the access inventory that we've got sitting around that can help push some of these tariffs off, decontending and recontending units by the OEMs.
Speaker Change: Margin Sacrifice by the dealers and OEMs. There's several levers to pull where I think we can mitigate a lot of this but certainly the higher you get up on the tariff number. And again, some of that depends on how much we get out of China. We probably will decide to continue to move things out if things...
Speaker Change: Remain elevated above 30%. We just would have to.
Speaker Change: But as soon as you tell me where the Chinatarrows are going to be, I can tell you how mitigation and pricing will look to the consumer.
Speaker Change: That would be pretty cool if I could tell you that. One more question that China 10% exiting 2025. How much of that is the result of permanent kind of production shifts or are there some maybe some pause production kind of embedded in the 2025 estimate?
Speaker Change: Well, I'd say there's some pretty permanent production shifts baked into those numbers, you know, so
Speaker Change: Again, we're not going to fully pull out until we know what the situation is. I think that they're going to come up with something that will allow us to...
Speaker Change: You know, vendors in the rest of the world that can produce the products that we need.
including some of our own factories.
Okay, thank you.
Thank you.
Speaker Change: We currently have no further questions, so I'll hand back to Tristan Lippert, CEO for Closing remarks.
Speaker Change: Thank you, everybody, for tuning into the call. It's certainly been an interesting couple of last months, but we hope to have a lot more clarity on tariffs over the next couple of months and look forward to the next quarter update for you all. Thank you.
Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect your lines.