Marine Products Corporation (NYSE:MPX)
Q4 2015 Results Earnings Conference Call
January 27, 2016, 08:00 AM ET
Jim Landers - Vice President, Corporate Finance
Richard Hubbell - President and CEO
Ben Palmer - Chief Financial Officer
Jimmy Baker - B. Riley & Co., LLC
Good morning and thank you for joining us for Marine Products Corporation’s Fourth Quarter and Year End 2015 Financial Earnings Conference Call. Today’s call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance.
At this time, all participants are in a 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 questions. I would like to advise everyone that this conference call is being recorded.
Jim will get us started by reading the forward-looking disclaimer.
Thank you, Kyle, and good morning. Before we get started today, I would like to remind everyone that some of the statements that we will make on this call may be forward-looking in nature, and they reflect a number of known and unknown risks. I’d like to refer you to our press release issued today, our 2014 10-K, and our other SEC filings, which outline those risks. All of these are available on our website at www.marineproductscorp.com. If you’ve not received our press release this morning and would like a copy, please visit our website again at www.marineproductscorp.com for a copy.
We’ll make a few comments about the quarter and then be available for your questions. Now I will turn the call over to our President and CEO, Rick Hubbell.
Jim, thanks. We issued our earnings press release for the fourth quarter of 2015 this morning. Ben Palmer, our CFO, will discuss the financial results in more detail in a moment. At this time, I will briefly discuss our operational highlights.
Our net sales increased by 33% during the fourth quarter and we generated improved margins. As with last quarter, net sales improved principally due to higher unit sales of our Robalo outboard sport fishing boats and Chaparral SunCoast outboards. We continue to be pleased with the market share of all of our product categories. Our Chaparral sterndrive product continues to hold the highest market share in its category, approximately 13.2% for the nine months ended September 30, 2015.
We also announced this morning that our Board of Directors yesterday voted to pay an increased quarterly dividend of $0.06 per share, a 50% increase over last quarter’s regular dividend.
With that overview, I’ll now turn it over to our CFO, Ben Palmer.
Thanks, Rick. For the quarter ended December 31, 2015, we reported net income of $3.8 million, an increase of 88.4% compared to $2 million in the fourth quarter of 2014. Our diluted earnings per share for the quarter were $0.10 compared to earnings per share of $0.05 in 2014.
During the current quarter, our results benefited from higher unit sales of our Robalo outboard sport fishing boats and the new SunCoast outboard models. Among our traditional Chaparral sterndrive models, the 227 SSX, which was new in 2015 generated strong unit sales and contributed to our growth.
Gross profit in the fourth quarter was $11.1 million, an increase of 49.5% compared to the fourth quarter of 2014. Gross margin during the quarter was 22.3% compared to 19.9% last year. With higher unit production, we realized efficiencies which helped to generate higher margins. We also captured some margin benefit from lower commodity prices which reduced our materials costs.
Selling, general, and administrative expenses were $5.7 million in the fourth quarter of 2015, an increase of $800,000 compared to the fourth quarter of 2014. These expenses increased due to costs that vary with sales and profitability, as well as higher advertising expenses. These increases were partially offset by a decrease in warranty expense as a result of continued favorable warranty claims experienced.
US domestic net sales continued to be strong, increasing by 34% in the fourth quarter of 2015 compared to the fourth quarter of last year. International sales increased by 25%, although our international sales remained low by historical standards due to the strength of the US dollar and country-specific economic weakness.
Interest income during the fourth quarter was $95,000 compared to $162,000 in the fourth quarter of last year. Interest income, as reported, declined due to lower average marketable security balances during the fourth quarter of 2015 compared to the fourth quarter of 2014. In addition, we realized higher gains through sales of marketable securities in the fourth quarter of 2014 compared to the fourth quarter of 2015.
Marine Products’ income tax provision during the fourth quarter was $1.670 million, compared to $658,000 in the fourth quarter of 2014. Our income tax provision increased due to higher income and a slightly higher effective tax rate of 30.3% compared to 24.4% in the fourth quarter of last year. Our effective tax rate increased because Marine Products’ higher income pushed us into higher state and federal tax brackets.
Our balance sheet remains strong. Our cash and marketable securities balance increased slightly to $42.9 million at the end of the fourth quarter compared to $41.6 million at the end of the fourth quarter of last year. Inventories were higher to support higher production levels, but accounts receivables were lower at the end of 2015 compared to last year.
At December 31, 2015, our order backlog was higher than at this time last year and our dealer inventories are at levels which support current retail sales, but also give our dealers the ability to accept our current production.
With that, I’ll turn it back over to Rick for a few closing comments.
Thank you, Ben. We’re optimistic about the upcoming 2016 retail selling season. Early indications from the winter boat show season have been positive and dealers and customers continued to be receptive to some of our newer models such as the 16-foot Robalo outboard and the additions to our Chaparral SunCoast outboard model lineup. Our Chaparral sterndrive boats continue to hold the highest market share in their category and our Robalo and Vortex products hold respectable and growing market share as well.
I’d like to mention that one of our current successes among with traditional Chaparral sterndrives, the 227 SSX was new for the model year 2016 and sold very well during the fourth quarter. The 227 SSX is the smallest boat among the sportboat series, but offers some features found only in larger boats of this type. The boat has a roomy seating layout with a versatile configuration that allows a number of different seating options. The portable table can be installed in the cockpit or in the bow and the optional bimini top and premium sound system make it competitive with larger bowrider sportboats at a compelling price point.
We have increased production during the first quarter of 2016 due to our optimism about the market and our confidence in our product offerings. We have responded to the changing market and are now offering Chaparral products with sterndrive, jet, and outboard power. Some of the successful broader product offerings I’ve just mentioned are the results of innovation and leverage of our product design and manufacturing capabilities. These offerings extend our brand name recognition and leverage our design and manufacturing expertise.
I’d like to thank you for joining us this morning, and we’d be happy to take any questions you may have.
[Operator Instructions] And we will take our first question from Jimmy Baker from B. Riley & Company.
Congrats on the quarter and a strong finish to the year.
First, you talked about favorable boat show sales and an increased backlog. I guess when you look at that backlog, is it up across the board or would you say that strength is more heavily weighted towards a certain size or segments within your portfolio? And I guess separately, can you just speak to how dealer inventory compares to this time last year?
I’d say the results from the boat shows are pretty steady across the various model lineups, and the boat show results again, several have been good, but there had been some mixed results dealing. We’re dealing with some weather and some stock market volatility right now, so we’re watching that very, very closely. But again, across the model lineup, it’s been fairly consistent.
Order backlog, I’ll let Jim.
Order backlog is probably skewed more towards the Robalo sport fishing boats and probably some of the SunCoast, and it is up than this time last year, and inventory is in pretty good shape too.
Would that mean that inventory is roughly flat year over year, is that a fair statement?
Inventory is up slightly year over year, dealer inventory is up slightly, yes.
We produced more and sold more during the fourth quarter than we might otherwise have in anticipation of the retail selling season.
Understood and imagine you’re still adding some Vortex dealers to the portfolio?
Yes, that’s correct.
Can you just provide the latest figure for your sterndrive marketshare and anyway you can better quantify the Vortex share within that jet segment?
Sure, so let’s see. For the rolling 12 months, we were at 13.4% for our sterndrive market share, down a little bit. There have been a couple of competitors that have gained a little bit of market share. We and maybe another one or two at the top have traded around a little bit. It’s hard to look at six month changes or three month changes and really read too much into that, but market share is down a little bit.
Regarding Vortex, Jimmy, it’s a more difficult market to talk about because it’s dominated by one major player that has about 90% of the market. Just by looking at the numbers, we’re number two in that market. But we have a pretty small market share in the 20 to 24-foot jet boat market. We’re number two, but the market share is in single digits.
Yet still developing as you know, our participation in that market and Vortex’s contribution to our results year over year was pretty small because we’re pulling out dealer inventory a year ago, so maybe it’s more stabilized, but we feel good about it. We’ve really been focused on it. Overall, the Vortex market, I mean, the jet boat market is doing very well. So we’re working hard at it and making some progress and looking forward to its contribution as we move forward.
Jimmy, I’m sorry, I just made a mistake. I said that our jet boat market share in the 20 to 24-foot range was in the mid-single digits, it’s closer to 10%. But again as Ben just said, developing market, and it’s dominated by one major player. So that’s not the same as having 10% of the sterndrive market, for example, if you’re a new player.
Just last question for me, you started to show here on the quarter some pretty significant international growth, I guess, is that your expectation for the full year 2016 that I guess maybe just simply the function of depressed comparisons that you’re seeing a bottom internationally and ought to be able to show some growth there in the full year 2016?
Not really, Jimmy. Not with the dollar continuing to strengthen against everyone’s expectations and many people’s wish is, you just alluded to easier comps as we go through the year, and I think that will be the case, but that will – I don’t think there’ll be any real growth internationally.
Just a stat, I guess, currently international sales are about 9% of our consolidated sales and I haven’t gone back and looked at it specifically, but I know just a few years ago it was mid 20’s%s, approaching 30% of sales. So if it does turn, when it turns, it will be some real nice opportunity there.
[Operator Instructions] We have no further questions in queue at this time. I’d now like to turn the conference back over to Jim Landers for any additional or closing remarks.
Alright, Kyle, thank you. Jimmy, thank you for calling in for the question. We enjoyed the discussion. We hope everybody has a good day and we will talk to you soon. Bye-bye.
Today’s conference will be replayed on www.marineproductscorp.com within two hours following the completion of the call. This does conclude today’s conference call. Thank you all for your participation. You may now disconnect.
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