Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Marine Products Corp. (NYSE:MPX)

Q4 2008 Earnings Call

January 28, 2009; 8:00 am ET

Executive

Rick Hubbell - President and Chief Executive Officer

Ben Palmer - Chief Financial Officer

Jim Landers - Vice President of Corporate Finance

Analyst

Joe Hovorka - Raymond James Company

Kurt Frederick - Wedbush Morgan Securities

Adam Hoff - Holden Asset Management

Operator

Good morning and thank you for joining us for the Marine Products Corporation’s, fourth quarter 2008 conference call. Today’s call will be hosted by Rick Hubbell, President and CEO and Ben Palmer, Chief Financial Officer. Also present, we have Jim Landers, Vice President of Corporate Finance.

At this time all participants are in listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for question. I would like to advise everyone that this call is being recorded. Jim, will you get us started by reading the forward-looking disclaimer.

Jim Landers

Thank you and good morning. Before we get started today, I need to remind everyone that we are going to be discussing some things today that are not historical facts. Some of the statements that will be made on this call will be forward-looking in nature and reflect a number of known and unknown risks. I’d like to refer you to our press release issued this morning, our 2007 10-K and other SEC filings that outline those risks; all of these are available on our website at www.marineproductscorp.com.

If you have not received our press release for any reason, please call us at 404-321-7910 and we will fax or email one to you immediately. We will make a few comments about the quarter and then we will be available for your questions.

Now, I’ll turn the call over to our President and CEO, Rick Hubbell.

Rick Hubbell

We issued our earnings press release for the fourth quarter of 2008 this morning. Ben Palmer, our CFO will discuss the financial results in more detail in a moment. At this time, I will briefly discuss a few of our operational highlights.

First, net sales for the quarter decreased approximately 61% compared to the fourth quarter of last year. The decrease in net sales was due to a 63% decrease in the number of boats sold, partially offset by a 7% increase in the average selling price per boat.

The increase in average selling price per boat was due to sales of one new Chaparral, Premiere 400, several larger Signature Cruisers and higher average selling prices of the Sunesta Wide Techs and Xtremes.

Our gross profit margin of 10.3% was lower than the 20.9% gross margin that we realized in the fourth quarter of ‘07. Ben will discuss the reasons for that in a few minute. Operating loss of little less that $1.7 million for the quarter compared to operating income of the a little less that $5 million in the prior year and our diluted earnings per share decrease by $0.14 from $0.11 per share last year to a loss of $0.03 per share this year.

The pleasure boating industry’s downturn continued and in fact deepened during the fourth quarter of ‘08, making three full years of depressed conditions for our industry. Negative consumer sentiment increased during the quarter as the problems in the financial system surfaced and the availability of credit for dealers and consumers became even tighter than in had been.

During the quarter we implemented an attractive retail incentive program to help dealer sell inventory and we’ve reduced our production level significant. The lower unit production levels created manufacturing inefficiencies and caused us to realize an operating loss for the first time in our history.

Additionally, as you may have seen from our other press release this morning, yesterday our Board of Directors reduced the quarterly cash dividend from $6.5 to $0.01 per share, in order to support the operations and the long-term goals of the company during the current industry operating difficulties and stagnant economy.

With that overview, I will turn it over to our CFO, Ben Palmer.

Ben Palmer

Thanks Rick. For the quarter ending December 31, 2008 we generated net sales of $23.8 million, it was a 61.4% decreased compared to last year. There was a 63.3% decrease in the number of boats sold, partially offset by an increase in average selling price per boat. Although unit sales decreased across all product line, interest in the new Premiere 400 Sport Yachts has been encouraging and average sales prices increases in the Cruisers and Sunesta product lines were positive.

Although, our sales of smaller Sportboats have declined due to increased competition from other manufactures, especially in the 18 to 21 foot range, our market share had increased slightly in the largest Sportboats. Although international sales decreased by a 34% in the fourth quarter of ‘08, compared ‘07, the full-year of ‘08 was still a 3.2% increase over ‘07. International sales were at 34% of total net sales in ‘08, compared to 23% in 2007.

Gross margin as the percentage of net sales was 10.3% for the quarter, compared to 20.9% last year. Our gross profit margin decline compared to the prior year due to cost inefficiencies resulting form the lower production volumes and higher retail incentives that we offered to assets dealers and selling field inventory. In the discussion on gross margin profitability I would like to point out that the prices out that several of the commodities used in our manufacturing process have declined.

Although, this is favorable it’s certainly not enough to offset the lower production volumes and other issues effecting gross margin. Selling, general and administrative expenses decreased 45.8% in fourth quarter of ‘08 compared to ’07, due to the variable nature of many of these expenses including incentive compensation and warranty expense, also our salaries and product development expenses were lower due to cost control measures instituted during past year.

Selling, general and administrative expenses in the fourth quarter include cost associated with repurchasing deal inventory under Marine Product’s agreements with third-party floor plan lenders. As a percentage of net sales SG&A were 17.6% of net sales in the fourth quarter of ‘08 compared to 12.5% last year.

Interest income in the fourth quarter decreased by 5.8% compared to fourth quarter of last year. However, our cash and marketable securities balance increased from $48.1 million last year to $51.4 million this year due principally to carrying lower levels of inventory. Effective income tax rate during the quarter was only 8.2% due to the relatively small pretax loss relative to our permanent items of credit. Diluted loss per share for the quarter was $0.03 with a decrease of $0.14 compared to $0.11 diluted earnings per share in the prior year.

Now, turning to the balance sheet, we continued to maintain a very healthy and liquid balance sheet. Inventories were managed down by $10.7 million or 33.2% compared to the end of ‘07 due to a significant reduction in working capital requirements consistent with lower production volumes. As previously noted, the total cash marketable securities and long-term marketable securities at the end of ‘08 increased 6.6% to $51.4 million.

We are pleased to report the year inventories at year-end decreased by 19.4% compared to one year ago, which is further evidenced of our ongoing efforts to work with our dealers to manage down our field inventories and facilitate the sales of our new products as demand wants. However, our order backlog in early January indicates continuous weak retail demand.

The trend of backlog in units continues to decrease and its down significantly compared to one year ago. Therefore, our production levels are expected to remain low for sometime. As Rick mentioned, we also announced in the press release today that our Board reduced the quarterly cash dividend from $0.065 to a penny per share that’s to get to support our long-term goals during this very difficult operating environment. So, with that I’ll turn it back over to Rick.

Rick Hubbell

Thank you. We are about halfway through the boat show season and at this point, attendance and sales seem to indicate another difficult year in our business. With 2008 impacted by high fuel prices, a drought in South East, economic uncertainty, residential mortgage problems and credit availability issue so prevalent in some of our major markets.

Many consumers were prevented for making discretionary purchases, such as pleasure boats. The backlog information, Ben just reviewed with you does not board well for the near term either and many are cutting production levels further, if the upcoming boat shows do not indicating more favorable trend. Having said that, we are proud of our Chaparral 400 Premiere Sport Yacht and the positive press and consumer interest it has provided.

Ongoing product development remains important as we continue to believe that innovation and customers focus creates advantages for us during the difficult time. Additionally, although attendance has been off at recent large boat exposition such as, New York, Santiago and another states, boats are still being sold at a better than expected rate considering the downturn in the industry.

Lastly as previously mentioned our boats reduction in the quarterly cash dividend demonstrates management’s commitment to the continued future success of Marine Products Corporation. Our physically conservative Board and management team will continue to make decision, so that we remain on financially firm footing in order to weather the current economic and industries trends and take advantage of opportunities that could present themselves in the future.

I’d like to thank you for joining us this morning and we will be happy to take any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Joe Hovorka - Raymond James Company.

Joe Hovorka - Raymond James Company

The higher retail incentives you cited on the cost of good clients, can you quantify how much that reduce gross margin by?

Jim Landers

Do you have another question; I will get back to you.

Joe Hovorka - Raymond James Company

The other one is on the repurchase agreement and SG&A. I’m assuming that’s from dealer bankruptcies, can you confirm that and then quantify either how much inventory was repurchased or how much the impacted SG&A, how many dealers you lost. All those things if you could?

Jim Landers

Joe this is Jim. You are right about the dealer repurchases, as you know we are notified by the floor plan lenders. They tell us about repurchases that are coming their way due to dealer insolvencies. So that’s right, we may not have the numbers that you’re asking about right our at our finger tips at the moment.

Ben Palmer

It was probably three to five basis points on margin line in the fourth quarter.

Joe Hovorka - Raymond James Company

For the incentives or --?

Ben Palmer

For the incentive, on the repurchased in SG&A is litter over half million dollar, where it was the cost that we incurred because if the repurchases.

Joe Hovorka - Raymond James Company

Okay, is that the total cost of the inventory or that’s just --?

Ben Palmer

That’s the P&L impact, that’s the SG&A impact. We’ve not actually received those boats, a lot of that is in anticipation of that happened.

Joe Hovorka - Raymond James Company

Okay and do you know, what your liability is at the end of the year under each purchase agreements?

Ben Palmer

At year end -- it gets a little bit complicated, but unsatisfied or “uncommitted” is just under $3 million additional.

Joe Hovorka - Raymond James Company

Okay and what was that last year, at the end of year? Do you have that in front of you? If not I could just put it out.

Ben Palmer

I don’t have it in front me, but it was probably four to five maybe.

Joe Hovorka - Raymond James Company

Okay and then just last question. The comment regarding the availability of floor plan for your dealers. Can you give more color on that? Has one of your major lenders put out, how are people finding liquidity?

Ben Palmer

Well, it’s very difficult environment Joe. You probably saw that Textron announced as they are getting out of the business. We don’t have a lot [Inaudible] what they are going to do or the speed with which they’ll do it, but they’ve announced that they’re giving now.

GE is clearly now the big dominant player in the industry. So, they are clearly working through their problems and so it’s quite difficult and GE is reluctant, obviously to open up there coffers for a lot more loans at this point in time and I’m not sure if anybody believes, but we need to be putting a lot more boats out into field inventory anyway, but there are certainly trying to work through their difficulties and we just hope to use our very strong balance sheet at out advantage over the coming quarters. We hope that there would be a lot of opportunities that will come out of it.

Rich Hubbell

We are still getting credit approvals right now. I mean the production we have is -- we are building to order rather than have stop, but fairly at reduced levels.

Ben Palmer

And completely [Inaudible] but it is certainly difficult.

Operator

(Operator Instructions)Your next question comes from Kurt Frederick - Wedbush Morgan Securities

Kurt Frederick - Wedbush Morgan Securities

I’ve just had one question on. You have dealer incentives in Q4, I’m wondering if those are replaced then in Q1 or it that a retail promotion or if that was ongoing?

Jim Landers

The Q4 cost that I referred to relates to the winter boat show promotion. So, that’s recognized and the cost associated with that program that actually began January 1.

Operator

Your next question comes from Adam Hoff - Holden Asset Management.

Adam Hoff - Holden Asset Management

I was curious, if you have a feel for the level of inventory at the dealer level?

Rich Hubbell

We do, as we indicated it’s down about 19% from last year, for us it’s about 25000 units

Adam Hoff - Holden Asset Management

On the take back of boats from dealers, you said it was about $500,000 gross margin hit?

Rich Hubbell

SG&A. Yes.

Adam Hoff - Holden Asset Management

Can we imply them that, it was about $5 million with that retail?

Rich Hubbell

The amounts of repurchases that were “recognize” were about $4 million.

Operator

Thank you. At this time, there are no further questions. We will now turn the call back over to Mr. Jim Landers.

Jim Landers

We appreciate everyone calling to listen to our call this morning. We also appreciate the questions and we appreciate everyone’s continued interest in the company during what’s turned out to be a projected downturn.

I guess the final comment is that, we are in the business for the long haul. You can look at our balance sheet and see that we have ability to sustain the business. We certainly aren’t happy with the environment right now, but we know that when it comes back we will be well positioned to take advantage of it. Thanks everyone. Have a good day.

Operator

Thank you. This concludes today’s conference call. You may all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Marine Products Corp. Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts