Marine Products' (MPX) CEO Richard Hubbell on Q1 2016 Results - Earnings Call Transcript

| About: Marine Products (MPX)

Marine Products Corporation (NYSE:MPX)

Q1 2016 Earnings Conference Call

April 27, 2016, 08:00 AM ET

Executives

James C. Landers - Vice President of Corporate Finance

Richard A. Hubbell - President and Chief Executive Officer

Ben M. Palmer - Chief Financial Officer

Analysts

Jimmy Baker - B. Riley & Co.

Rommel Dionisio - Wunderlich Securities

Operator

Good morning and thank you for joining us for Marine Products Corporation’s First Quarter 2016 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.

James C. Landers

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 reflect a number of known and unknown risks. I would like to refer you to our press release issued today, our 2015 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 and would like a copy, please visit our website at www.marineproductscorp.com for a copy.

We will make a few comments about the quarter and then we will be available for your questions.

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

Richard A. Hubbell

Thank you, Jim. We issued our earnings press release for the first quarter of 2016 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 26% during the first quarter. Net sales improved due to higher unit sales of our Robalo outboard sport fishing boats, within the Chaparral product line or H2O sterndrive and SunCoast outboards also recorded higher unit sales. This quarter, we generated the highest net sales since the second quarter of 2008. We believe the continued low interest rates, improved consumer confidence relative to the strength in the real estate market combined with favorable spring weather are driving a strong retail selling season for 2016.

We continue to be pleased with the market share of all of our product categories. Our Chaparral’s sterndrive product continue to hold the highest market share in its category, approximately 14.4% for the 12-months ending December 31, 2015. We also announced this morning that our Board of Directors yesterday voted to pay a quarterly dividend of $0.06 per share a continuation of the increased dividend declared last quarter.

With that overview, I’ll now turn it over to our CFO, Ben Palmer.

Ben M. Palmer

Thank you, Rick. For the quarter ended March 31, 2016, we reported net income of $3.9 million, an increase of 33.9% compared to $2.9 million in the first quarter of 2015. Our diluted earnings per share for the quarter were $0.10 a $0.02 increase compared to earnings per share of $0.08 in 2015.

Net sales for the first quarter was $63.7 million an increase of 25.7% compared to the first quarter of 2015. Our unit sales increased by 36.7%, which was partially offset by 9.3% decrease in the average selling price per boat. This decrease in average selling prices was due to a model mix that includes smallest boats.

During the current quarter, our results benefited from higher unit sales of our Robalo outboard sport fishing boats, Chaparral H2O and SunCoast outboards. Also the Chaparral 227 SSX sterndrive continues to contribute our growth. Gross profit in the first quarter was $12.7 million an increase of 24.3% compared to the first quarter of 2015.

Gross margin during the quarter was 19.9% a very slight decline compared to the first quarter of 2015. Our lower margin model mix for smaller boats calls the decline in gross margin, partially offset by improved manufacturing efficiencies resulting from higher production dollars. Selling general and administrative expenses were $7 million in the first quarter of 2016 an increase of $1.1 million compared to the first quarter of 2015. These expenses increased due to cost, the variable sales and profitability as well as higher advertising and boat show expenses.

U.S. domestic net sales were strong increasing by 29.4% in the first quarter of 2016, compared to the first quarter of last year. International sales increased slightly and represented 11% of total sales during the first quarter of 2016, a decline compared to 13.6% of total sales during the first quarter of 2015.

Interest income during the first quarter was 92,000 compared to 117,000 in the first quarter of last year. Marine product income tax provision during the first quarter was $1.816 million compared to $1.442 million in the first quarter of 2015. Our income tax provision increased primarily due to higher income as our effects to tax rate was 31.7% in the first quarter of 2016 compared to 33% in the first quarter of 2015.

Our balance sheet remains strong, our cash to marketable securities balance increased to $49.1 million at the end of the first quarter compared to $44 million at the end of the first quarter of last year. Working capital was slightly higher at the end of the first quarter compared to prior year to support higher production, but we continue to generate strong operating cash flows.

As of March 31, 2016 compared to the prior year, our order backlog was lower and our dealer inventories were higher, but we have maintained higher production levels. This is due to our confidence and the strength of the retail selling season and our desire to support our dealers with an appropriate amount of inventory.

With that, I’ll now turn it back over to Rick for few closing comments.

Richard A. Hubbell

Thanks Ben. With a great deal of regret, we reported last month that Jim Lane the President of Chaparrel Boats and the Marine Products Director died following an illness. Jim had served as the president of Chaparral Boats for almost 40-years, and his passing is a loss to his friends, family, this company and the pleasure boat industry. We appreciate the expressions of support from everyone over the past month and we will definitely miss Jim.

We are confident that the tenured operational management will continue our tradition of strong performance. The recreational boating industry continues to improve, a recent industry report stated that March 2016 retail sales showed the best improvement in eight-years. Importantly for us this report also showed that sterndrive unit sales have started to grow after many years of declines.

These industry data reflected in our financial results this quarter, which included strength in the sterndrive sales as we have discussed. Also as we have discussed, we continue to hold high market share in all of our product categories. We will be changing over to the 2017 model year production soon and we have a number of new models to present to our dealers and consumers within in the next few months. We look forward to everyone seeing them in the industry press and in the upcoming Boat Shows.

I would like to thank you for joining us this morning and we would be happy to take any questions.

Question-And-Answer Session

Operator

Thank you [Operator Instructions] And we’ll take our first question from Jimmy Baker from B. Riley & Co.

Jimmy Baker

Hi good morning and thanks for taking my questions. Just first on the increase in international sales, can you just speak to which markets are improving for you know and do you feel like you have reached the bottom internationally?

James C. Landers

Jimmy its Jim Landers. Canada improved for us and you call us pretty closely you know that our previous quarters Canada was not improving. So Canada is the main one, there have been some declines in other areas. So have we reached the bottom? That’s a hard one to say. Yes you know the answer is, not to dodge the question, but part of the answer is what is the U.S. dollar going to do? So I don’t know.

Jimmy Baker

Okay. Fair enough and then historically your Q2 production has been up sequentially. Do you expect that to be the case this year after such a pronounced increase here in the first quarter and then could you just elaborate a little bit more on your backlog declines and what were the causes there and if you kind of look at the composition is there something sort of unusual year-over-year that drove that?

Ben M. Palmer

Jim this is Ben. Nothing in particular, sometimes it can be just due to the timing of bringing in orders and things like that. But we feel really good again about the strength where we are right now and the attitudes of our dealers. So we’re comfortable with those levels and as it relates to the production levels for the second quarter, here we are expecting that those will certainly be maintained and probably increase slightly moving into the second quarter.

Jimmy Baker

Okay. And then how should we think about model mix going forward particularly as it pertains to gross margin for the balance of the year?

James C. Landers

Jimmy this is Jim again. For the remainder of the year, I mean some of the strength that we’ve seen thus far I think is going to continue. So I think Robalo is continuing to grow, we’ve got some models, they are doing well for us now. Some of the models that will come into 2017 production are a little bit bigger, so that might actually might help the model mix from an average selling price point of view. And margins as well. So margins were a little bit lower this quarter than this quarter last year, I think we can look for margins to probably gross margins to improve a little bit and average selling prices to improve a little bit along with higher productions as Ben mentioned.

Jimmy Baker

Okay, understood. Just last question for me. You called out some higher expenses associated with advertising and boat shows. I guess what did you do differently this year and can you speak to return on that investment that you are seeing at this early stage of the retail selling season?

Ben M. Palmer

An example or one of the main things is our emphasis on the Vortex and trying to get the volumes up there and we’ve had some good success there. So some of that was trying to expand some of the force based at some of the boat shows for our dealers to showcase that particular product. So we are really encouraged about that and think to-date we think it has been successful certainly haven’t formally measured a actual return, but we’re pleased with the results on that. I think that’s going to play dividends going forward.

Jimmy Baker

Okay, got it. Thanks very much for the color.

James C. Landers

Thanks Jimmy.

Operator

And we’ll take our next question from Rommel Dionisio with Wunderlich Securities.

Rommel Dionisio

Good morning, thank you. So first question is on gross margins, I think you talk about some of positive and negative pressures. Was raw materials at all an impact that seems like that will be following, I’m not sure if that had a positive benefits to your gross margins in the quarter?

James C. Landers

Rommel, hey its Jim Landers good to hear from you.

Rommel Dionisio

Thank you.

James C. Landers

So raw materials price declines helped us a little bit, price of oil is down and has been for a year and half as everybody knows and that comes through in resin and a few other things. So it’s been measurable to us internally, probably it’s helped margin other things equal a little bit, not too many basis points, but it has helped some. So that’s going to main thing.

Ben M. Palmer

Yes. Engines continue to be something that suppliers are trying to force those prices higher, so that’s sort of a headwind as well. So our headwind against some of the price decreases otherwise.

Rommel Dionisio

Okay. And one of the follow-up question on topical production. Some companies in the motorsport arena has talked about some potential challenges from the Earthquakes in Japan and how that might impact you know electronic or energy component for parts. Do you guys foresee any bottlenecks here in the next few weeks or month as a result of that?

James C. Landers

None that we know right now, we reserve the right to change that answer. But we don’t know of any right now. All of our outboard engines are Yamahas, but, we have no knowledge of any bottlenecks right now. That’s a great question.

Rommel Dionisio

Thanks very much and congratulations on the quarter.

James C. Landers

Thanks Rommel.

Ben M. Palmer

Thank you.

Operator

[Operator Instructions] And it appear there are no further questions at this time. Mr. Landers, I would like to turn the conference over to you for any additional or closing remarks.

James C. Landers

Okay everybody thank you very much. And Jimmy and Rommel, thanks for calling with your questions. We hope everybody has a good day, and we’ll talk you soon. Bye-bye.

Operator

This concludes today’s conference. As a reminder, this conference call will be replayed on www.marineproductscorp.com within two hours following the completion of the call. We appreciate your participation. You may now disconnect.

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