Q2 2019 Earnings Call
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Thank you and now place your line on hold with music for the Marine products Corporation's second quarter 2019 earnings Conference call.
The second quarter of 2019 this morning.
Ben Palmer, our CFO will discuss the financial results in more detail in a moment.
This time I will briefly discuss our operational highlights.
Our net sales during the second quarter represented another record level net sales increased due to a 10% increase in average selling price per boat.
And an increase in parts and accessory sales. These increases were partially offset by a 7.6 decrease in the number of units sold during the quarter.
We continue to be pleased with the market share of all of our product categories.
Our chaparral sterndrive products.
Continue to hold the highest market share in their category approximately 15.9% for the 12 months ended March 31.
Robalo maintained its position as the second largest brand in its category.
With a market share of 5.5%.
And the combination of robalo and chaparral outboards now hold the highest position in the overall outboard market with a market share of 6.8%.
We announced this morning that our board of directors yesterday declared a regularly quarterly dividend of 12 cents per share the same as our regular quarterly dividend in the previous quarter.
Also during the first quarter, we repurchased 65407 shares of common stock in the open market with that overview I will now turn it over to our CFO Ben Palmer. Thank you Rick.
Next net sales for the second quarter of 2019 were as Rick pointed out a record at $88.7 million, an increase of 1.9% compared to the second quarter of last year.
Average selling prices increased by 10% and parts and accessories sales increased as well consistent with sales of larger models.
Unit sales decrease as we focused on producing newer our newer larger models, where there was a lot of demand during the 2019 retail selling season.
Gross profit in the second quarter was 20.4 million an increase of 4.9%.
Compared with the second quarter of 2018 gross margin during the quarter increased to 23% compared with 22.4% in the second quarter of 2018 due to this favorable model mix.
Selling general and administrative expenses were $9 million in the second quarter of 2019, an increase of 724000 compared with $8.3 million in the second quarter of last year.
These expenses increased due to expenses did increase with sales and profitability such as incentive compensation.
As well as higher research and development cost to support our new model development.
As a percentage of net sales as DNA expenses increased to 10.2% in the second COVID-19, compared to 9.6% in the second quarter of last year.
Interest income during the second quarter 2019 was 95000, a slight increase compared with 85000 during the second quarter of 2018.
For the quarter ended June 32019, we reported a record net income of $9.4 million, an increase of 4.3% compared to net income of $9 million in the second quarter of 2018.
Diluted earnings per share were 27 cents in the second quarter. This year compared with 26 cents in the second quarter of 2018.
Our effective tax rate during the second quarter of 2019 was 18.3% compared with 20% in the second quarter of 2018.
Marine products domestic sales increased by 7% during the second quarter of 2019 compared to the second quarter of the prior year in contrast to international sales declined by 40.5% in the second quarter of this year.
And represented only 6.2% of net sales compared to 10.6% of net sales in the second quarter of last year.
International sales decreased in many of our international markets.
The sales decrease was more pronounced in our Canadian markets, which continued to be negatively impacted by the lingering effects of tears.
Our cash balance at the end of the second quarter was $13 million, a decrease of $14.9 million compared to cash and marketable securities of $27.9 million at the end of the second quarter of last year.
Our cash and marketable securities balance decreased because of higher working capital requirements as well as higher dividends and cash used for share repurchases during the previous quarters.
As of June 32019 dealer inventories were slightly higher than at this time in 18.
But approximately 10% lower than at the end of the first quarter.
Indicating strong dealer sale through during this retail selling season.
Unit backlog at the end of the quarter was slightly lower than at this time last year.
With that I'll turn it back over to Rick.
Ben Thank you.
We look forward to introducing our 2020 models to our dealer network at our annual dealer Conference next month.
We are developing several new models, which we believe will appeal to our dealers and retail customers and we are eager to see their reaction.
We are aware of the recent reports discussing weak retail sales in May and June .
Well, we haven't seen any indications of weaknesses in the in the recreational boating market and note that the short term data points, often have some noise, which make them hard to interpret.
We will be listening closely to our dealers assessment of their markets during our dealer conference.
I'd like to thank you for joining us this morning, Brian we can open up the lines for questions now.
Thank you if you like to ask a question. Please press star one on the telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is off to allow your signal to reach our equipment.
Again press Star one to ask a question will pause for a moment hello, everyone an opportunity to signal for questions.
Once again, if youd like to ask a question. Please press star one well take our first question from Eric Wold from B. Riley. Please go ahead. Your line is open.
Thank you good morning, guys.
Great questions I guess.
You made a comment about.
You are not seeing any weakness in your sales trends and obviously the.
The data.
Jimmy tough on a short term basis.
Hey can you point to that maybe would cause your results to outperform I'm kind of in general and then are you seeing any any any regional strength or weakness around the country and then last question I know, Canada still having some lingering effects from the from the tariffs are in there.
Kind of mid quarter, what are you kind of seeing it now that we're kind of into Q3, maybe inventory kind of flows through there and when would you expect that Canada.
To get back on a more normalized growth rates.
Yes.
Eric This is Jim a lot of questions there, let's let's try to take them one at a time happy too.
In terms of.
You know the whole retail sales issue and how we're doing.
We have called out some some new models that we've done for the 2019 model year that had been successful for us.
But and we continue to hold the highest market share in our category.
In a couple of couple of different areas as we discussed but.
Theres nothing outside of that that would make us immune to any.
Any changes, but we do want to emphasize that.
We havent seen any weakness in our markets. We just wanted to acknowledge those reports, which have recently come out.
Which too.
Yes, and then thing yet and then you asked question about.
Different regions and then Canada.
Both good questions.
Not a whole lot of color to provide were not really seeing any any any particular changes in regional strength or weakness as at this point, it's it's pretty consistent.
Over over to kind of prior year and recent quarter. So no real change there and with respect to Canada and the tariffs its little bit hard to tell of course, our international sales again as it is a small number.
There was some relief a few months ago from from Canada, We haven't yet seen the flow through in terms of orders due to that we are hopeful that there will be some improvement, but it's very dealer specific as well. So unfortunately, we can't say that for us that it's.
A definite.
Positive that we're seeing benefits coming through in terms of dealer orders and our international orders again being a small percentage of the total it's a little bit.
Spotty the visibility into that can be a little bit spotty. So fortunately that's really all I can provide at this point.
No that's very helpful and congratulations on the strong results.
Thank you so much thanks, Eric.
We will now take our next question from Lewis Moser from my facts investors. Please go ahead. Your line is open.
Hi, Good morning Nice earnings.
I was.
Thank you Trish knowing.
I haven't followed your company to closely until I saw the report today, which.
Good.
If.
The company has a buyback program.
Not.
Is there any possibility of doing so.
We do have a buyback program that is in place we did repurchase some shares during the second quarter.
A little over 65000 shares so that is something that.
We do watch closely and that is something we routinely try to do to return some cash to shareholders. So thats.
And then 65000 shares during the second quarter this year.
Total buyback.
Central.
Thank we have and we could easily go back to the board, but we have well over a million that is authorized five.
The board of directors exact number.
Actually a million eight under the current authorization.
Yes, I guess last question would be.
82 analysts that follow stuff.
I see.
Anomaly this quarter.
Unusual.
See consistency.
Yeah.
I think we had some interference here.
And your question was about the number of analyst.
Then recover house is that correct no I said basically you've got a couple of analysts.
In that.
Estimates would be considerably but.
No its report.
I was wondering if the earnings for the quarter for this quarter was sort of an anomaly as much as they.
So high versus the estimates.
If this.
The trend is going to continue.
Louis This is Jim Landers, we do not give guidance. So we're not going to be able to talk about what we think the becoming quarters are going to be since you're new to the story, we might mention that second quarter is.
Is usually seasonally our best quarter.
The two analysts who follow us are great. We've seen them recently they know our business you would have to ask them about their estimates are and and how they are tracking.
Okay. Thanks very much.
Thanks for your interest.
Once again, if youd like to ask a question. Please press star one well take our next question from Rod and bar.
Binder from I if currencies. Please go ahead your line is open.
Hi, good morning, and yes, congratulations on a on a nice quarter.
Especially given what the reports from big data wire.
So.
Looking at that data.
Compared to what you see what you guys are seeing.
[laughter] aged.
Larger boat show or smaller boats aluminum versus fiberglass.
Where do you think the biggest differential as compared to what big data was saying.
Ron we're not sure what big data was saying so I don't know if we can we can reasonably addressed that and we we certainly think about other segments of the boat market that are doing better than than us or worse, what I'm about to tell you is not overly helpful.
The ski Wakeboard market has performed pretty strongly.
The punch aluminum pontoon boat market has been strong.
Maybe a little a little less strong right now, but I'm just repeating data that we all have reports, we all have access to so.
Mark and larger boats have done well for us and you know that from the first two quarters of this year.
And we feel good about that that helps our financial metrics.
Okay and.
Hi International.
It's been down so much primarily between because of Canada and the lingering effects as he said from the tariffs.
No.
Do you expect it to bounce back next year.
Or do you think that you know.
We might stay at this level going forward.
Oh this is been running.
It's hard to say, yet, it's still a relatively small percentage for us.
It it.
Several years ago, it was as much as 30% of our net sales so we've been able to.
Grow through domestically to overcome the weakness internationally in terms of what's going to happen next year. It's it's it's uncertain, we're not necessarily seeing any signs that it's.
Again picking up I talked about earlier about Canada in particular that despite some clearance of some of the headwinds weve not seen our dealers Russian with additional orders immediately.
So for US we would.
We hope it's better but at this point, we're not expecting that international will turn around and the significant contributor to our our results next year any any different than it has been and the most recent quarter.
And as you as you look to newer models to develop.
Is it still going to be a continued shift to larger outboard.
Going forward.
At this point, yes, I mean, we've.
Our folks have worked really hard and successfully too.
Two.
Move along with the trends, which which are really strong for the outboards and so we've been able to.
Pivot and take advantage of that and so yes, both outboards and the larger models, we see at this point continuing to be strong and we've got new good product out there that we think will help continue to support our sales.
And labor have you seen any relief yet in labor or does that continue to price higher.
In terms of labor and the ability to retain employee attract and retain employees continues to be a challenge.
Weve, thus far have been able to meet the challenge there there is some.
I don't know if I call it upward pressure, but there's no. We're looking at our compensation programs retention and you know.
Quality and so forth and no there there have been some compensation.
Adjustments that we've obviously made but we don't necessarily see that picking up that there's.
Each wage inflation, but it's something we're trying to respond to again more from a retention and and quality perspective.
Okay, great. Thank you for taking my questions and.
Good luck for the back half of the year.
Thank you thank you Ron.
Once again to ask a question please press.
There wont.
We'll take our next question from Eric Wold from B. Riley. Please go ahead. Your line is open.
Hey, Thanks, guys. Good quick follow up question.
This might be a tough one to answer but.
It's the strength you're seeing in large boat demand is there any is that a function you think of the smaller boat buyer being hesitant and not purchasing or is it more just a function of that's where you are rolling out the new model larger boats, and that's where the consumers migrating versus.
Versus the other question.
Eric This is Jim we think the trends that we've discussed or result of our.
Our focus on that market and our our successful designs this year so.
Successful products I think it's difficult to to.
To extrapolate our results to two any larger consumer trends I would just be cautious about doing that.
Perfect. Thank you.
Thanks. Thanks.
At this time there appears to be no further questions I'd like to turn the conference back to you with your lenders for any closing or additional remarks.
Brian . Thank you very much we appreciate it we appreciate everybody who called in this morning and for your questions. I Hope everyone has a good day and we will talk to you soon.
As a reminder, that the conference call will be repaid on W. W. W. Duff marine products car.
Dot com within two hours following the completion of the call.
Thank you.