Marine Products Corporation (NYSE:MPX) Q1 2018 Results Earnings Conference Call April 25, 2018 8:00 AM ET
Rick Hubbell - President & CEO
Ben Palmer - CFO
Jim Landers - VP, Corporate Finance
Eric Wold - B. Riley
Ronald Bookbinder - IFS Securities
Good morning, everyone. And thank you for joining us for Marine Products Corporation's First Quarter 2018 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. And also present is Jim Landers, Vice President of Corporate Finance.
At this time, all participants are in a listen-only mode. And 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.
And now, Jim will get us started by reading the forward-looking disclaimer. Jim?
Thank you, Laurie, and good morning. Before we get started today, I'd 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'd like to refer you to our press release issued today, our 2017 10-K, and other SEC filings that outline those risks. All of which are available on our website at www.marineproductscorp.com. If you not received our press release and would like one, please visit our website for a copy.
We will make a few comments about the first quarter and then we’ll 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 first quarter of 2018 this morning. Ben Palmer our CFO will discuss the financial results in more detail in a momentum. This time, I will briefly discuss our operating highlights.
Our net sales increased by 9.1% during the first quarter. Net sales increased due to a model mix of larger boats which contributed to 9.6% increase in the average selling price per boat.
We continue to be pleased with the market share of our product categories. Our Chaparral stern drive products continue to hold the highest market share in their category, approximately 16.7% for the 12 months ended December 31, 2017. Robalo’s market share continues to grow as it is now ranked number three in the outboard sport fishing category.
We also announced this morning that our Board of Directors yesterday declared a regular quarterly dividend of $0.10 per share, consistent with quarterly dividend issued last quarter. Also, during the first quarter we repurchased 110,141 shares of common stock on the open market.
With that overview, I will now turn it over to our CFO, Ben Palmer.
Thank you, Rick. Net sales for the first quarter of 2018 were $77.5 million, an increase of 9.1% compared to the first quarter of 2017. Higher average selling prices generated this increase, as unit sales declined slightly.
Gross profit in the first quarter was $17.7 million, an increase of 18.4% compared to the first quarter of ‘17. Gross margin during the quarter improved slightly to 22.8%, compared to 21% in the first quarter of '17, primarily due to an improved model mix.
Selling, general and administrative expenses were $8.6 million in the first quarter of this year, an increase of approximately 7.6% compared to the first quarter of 2017. SG&A expenses were 11.1% of net sales during the first quarter, a slight decline compared to the first quarter of the previous year. SG&A increased due to expenses that vary with improved operating results, such as incentive compensation.
For the quarter ended March 31, ‘17 we reported net income of $7.6 million. Net income increased by $2.3 million or 44.6% compared to the first quarter of last year.’
Diluted earnings per share of $0.22 increased by $0.07 or 46.7% compared to the prior year. Attributing to the year-over-year improvement in net income and earnings per share was lowered corporate tax rate as I will discuss in a moment.
International sales represented 7.7% of total sales during the first quarter this year, compared to 5.4% of net sales last year. Sales increased in several of our international markets, including Canada.
Our cash and marketable securities balance increased to $21.4 million at the end of the first quarter of this year, an increase of $3.4 million compared to the first quarter of last year. And a slight increase of 700,000 compared to the end of 2017.
Our effective tax rate during the first quarter of 2018 was 16.1%, a significant decrease compared to 24.3% in the first quarter of last year. The effective tax rate declined in the first quarter of this year, primarily because of the Tax Cut and Jobs Act enacted in the fourth quarter of last year.
Also the effective tax rate in the first quarters of both years reflect an excess tax benefit provided to – excuse me, restricted shares divested during these periods.
We estimate that Marine Product's effective tax rate for the next three quarters will be approximately 22% and the effective tax rate for the 12 months will also be in the low 20% range.
The lower effective tax rate for the first quarter of ’18 due to tax reform increased diluted earnings per share by approximately $0.02 to $0.03 compared to the effective tax rate during the first quarter of last year.
As of the end of the quarter, first quarter of 2018, dealer inventories and backlog were higher than at this time last year. As we compare to support our dealers higher demand during the remainder of the 2018 model year.
And with that, I’ll now turn it back over to Rick for a few closing comments.
Thanks, Ben. The recreational boating market continues to be strong as we entered the height of 2018 retail selling season. In spite of continued weakness in the overall sterndrive boat market. We are developing appealing Chaparral products that drive our market share and results and we continue to be pleased with Robalo’s success and market share growth.
Thank you for joining us this morning and we'll be happy to take any questions you may have.
Thank you. [Operator Instructions] And we'll go first to Eric Wold at B. Riley.
Couple of questions. I guess one, there were some weakness in the SSi new boat sales registration data for March that we believe was due mostly if not entirely by poor weather. What did you hear from your dealers out there in the channel during March in terms of delivery sales impact, et cetera, kind of what have you heard so far during April. Is there has been any kind of recovery from that weakness?
Eric, this is Jim. Your question was the fact that we're one step away from the - from the retail customer because we sell to the dealers. So given that - we really – we are aware of that, that comment about the SSi retail data, but we really haven't seen an impact, a negative impact. I mean, our large dealers in the southeast and we've got a big presence in Florida. We - it seems to be a bit of a non-event to us. So just our perspective on it.
Okay. That's helpful. And then lastly on commodity costs, update us on your thoughts on commodity costs in general going forward and just what level if any could the tariff – proposed tariffs have on some costs, I guess obviously around fiberglass, but everything else and your ability to offset those cost, is there going to be any pressure?
This is Ben. Eric, In terms of commodity prices there, they are overall in the market, some indication of some upward cost pressure on commodities. You know, we've not seen that yet at this point, but we're looking to manage that. I guess with respect to tariffs, that too is a very good question, but it's very fluid.
You know there's been - there's been a lot of talk not necessarily anything in particular that's come out in that regard. Our suppliers don't talk directly, myself to our suppliers, but they at this point are working through it, planning through it.
Obviously our largest engine supplier or one of them obviously is Japanese and I think they're hopeful that that they won't be impacted, but who knows, so at this point we'll just have to respond to whatever happens, there is really nothing we can do at this point. But a relevant question and obviously potential concern for everybody, but hopefully it's more rhetoric and posturing rather than actual impacts.
Perfect. Thank you, guys.
And we'll go next to Ronald Bookbinder at IFS Securities.
Good morning and congratulations on a nice start to fiscal ‘18.
Your unit sales decreased slightly. Why do you think that is, given the growth of the overall boating market, is it just that you're moving to higher price boats or could you add some color?
Ron, this is Jim. I think the best - the best answer is probably that sterndrive sales continue to be weak overall. That's a market that we've historically has - historically been a big part of our sales and still is. But I think retail, and I will see if I have this handy or may not. But yeah, I mean sterndrive sales, retail sales continue to decline.
So we've been fighting that weakness for a while with different products in the sterndrive market that niches. And then of course, with Robalo and some other things, so I think it's just sterndrive weakness.
I’ll take that and I’ll add, this is Ben, that some of its timing on shipping also I think that you know, on a net-net basis I think we will probably have a slight - more of a slight unit increase if the timing of the shipments has occurred as we had hoped. But certainly moving up in size is obviously helping our margins. That's where we prefer to be. We're going to go to where the demand is and where we can make the best margin for ourselves and for our dealers and the bigger boats is where we want to go and that by definition means fewer sales overall as well. All things being equal so.
So I think more of a flattish order unit is probably a better way to look at it then focusing on the decline. So we've pointed that out in the release, but I think is probably more flattish then down.
And the inventory increased 14%, obviously a lot of that is due to the higher priced boats. So on a unit basis say it wasn't nearly as much. But are you comfortable with your inventory. It was an increase on top of last year's increase. And how is the aging of the inventory and the balance between newer and older boats?
I'll answer that a couple of different ways, in terms of the inventory that's on our balance sheet, were very, very comfortable with that. Obviously all of that's brand new boats. And as I alluded to with the timing difference on shipments what you have is some inventory sitting in there that hadn't been shipped yet, okay. So that's part of what's - a big part of what's contributing to the increase on the balance sheet.
Now with respect to dealer inventories which are not on our balance sheet, we're very comfortable with that. Those inventory levels are actually only up slightly year-over-year. So that's a good thing. That means we have really good sales through to the retail customer.
And in terms of the aging of those boats they are - there are very few boats that are model year seven - earlier than model year ‘17 and a majority of them are current model year boat. So also at the dealer level we're very, very comfortable with the inventory.
Okay. And the lower warranty expense that you experienced in Q4 did that continue into Q1?
Yes, we're still seeing positive trends on the warranty side, which we're pleased with and you know, warrantees - one of those things that works itself out of over longer periods of time. But we are comfortable that the level at which we are reserving for warranty is stable and had a reasonable. We always want it to be better. But we're comfortable where it is at this point.
Okay. And lastly, are you guys going to be presenting at the Burkenroad Conference on Friday?
Yes, we are Ron. Are you coming?
Yes. I'll see you there. Okay, great. Congratulations on a great start to the year.
Thank you very much.
Thank you, sir.
[Operator Instructions] And it looks like we have no additional questions at this time. Mr. Landers, I'll turn things back over to you, sir.
Okay. Laurie, thank you and thanks to everybody who listened in and for the questions. Everybody have a good day. Talk to you soon.
And ladies and gentlemen once again that does conclude today's conference. I'd like to thank everyone for joining us today. And just a reminder that today's conference will be replayed on www.marineproductscorp.com within two hours following the completion of today's conference. Once again thank you for joining us today.
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