White Plains, New York - February 13, 2008 -
Drew Industries Incorporated (NYSE: DW) today reported its
operating results for the fourth quarter and year-ended December
31, 2007.
Drew, a leading supplier of components for recreational vehicles
(RV) and manufactured homes (MH), reported net income of $39.8
million, or $1.80 per diluted share, for the year ended 2007, a
28 percent increase over net income of $31.0 million, or $1.42
per diluted share, for 2006. Drew achieved this record net
income despite continuing volatility in raw material prices and
an 8 percent decrease in net sales, which the Company attributed
primarily to softness in both the RV and MH industries.
“When we reported 2006 results a year ago, we said that we had
embarked on a program to reduce costs and improve efficiencies
in all phases of our operations,” said Leigh J. Abrams, Drew’s
President and CEO. “During 2007, we exceeded the goals set in
late 2006. Operating management reduced staff levels by more
than 120 salaried employees, improved production efficiencies,
and closed 18 factories and consolidated these operations into
other existing factories. We continue to consider additional
measures to ensure we are optimizing our profitability,
including additional strategic acquisitions. During 2007, we
completed three acquisitions in three different product lines,
complementing our existing product lines and expanding our
growth potential.”
Net sales for the year-ended December 31, 2007 were $669
million, a decrease of about $60 million, or 8 percent, compared
to 2006 net sales of $729 million. Excluding the impact of
acquisitions, Drew’s 2007 sales decreased by 11 percent
year-over-year. Drew attributed the sales decline primarily to
the 10 percent decline in industry wholesale shipments of travel
trailers and fifth wheel RVs in 2007, as well as the 18 percent
decline in industry wholesale shipments of manufactured homes.
In 2007, gains and losses on asset sales, and expenses related
to pending litigation, aggregated expense of approximately $0.5
million. In 2006, gains and losses on asset sales and due
diligence expenses related to an acquisition which was not
completed, aggregated income of approximately $1.2 million. The
effect of these items was not significant in the fourth quarter
of either 2007 or 2006.
“Over the past year and a half, we also significantly improved
asset utilization by reducing inventory levels, disposing of
excess equipment and idle facilities, and reducing our capital
expenditures,” said Fred Zinn, Drew’s Executive Vice President
and CFO. “As a result, our return on assets increased to 11.7
percent in 2007, from 9.4 percent in 2006. Further, by the end
of 2007, Drew had improved its cash position by $78 million, as
it had cash of $29 million, net of outstanding debt, compared to
debt of $49 million, net of cash, at the end of 2006.”
Fourth Quarter Results
Drew’s net income for the fourth quarter of 2007 increased by
$2.8 million, or 78 percent, to $6.5 million, or $0.29 per
diluted share, compared to $3.6 million, or $0.17 per diluted
share, in the same quarter of 2006.
The effective tax rate for the full year was reduced by
approximately 1 percent to 37.2 percent. The reduction in the
annual effective tax rate was primarily due to changes in
deferred state taxes. Since the reduction in the tax rate for
the full year was recorded in the fourth quarter of 2007, the
effective rate for the quarter was reduced to 32.1 percent
compared to 38.7 percent in the 2006 fourth quarter. In 2008,
the annual effective tax rate is expected to be approximately
38.5 percent.
Net sales for the fourth quarter of 2007 were $138 million, the
same level reported in the fourth quarter of 2006. The 9 percent
increase in sales by Drew’s RV Products segment offset a 20
percent decline in sales by Drew’s Manufactured Housing Products
segment in the 2007 fourth quarter. This compares to flat
industry-wide wholesale shipments of travel trailers and fifth
wheel RVs, and a 3 percent decrease in industry-wide wholesale
shipments of manufactured homes in the quarter.
“We are extremely pleased with our performance in 2007,
especially in our RV segment,” Abrams said. “Acquisitions, new
product introductions and margin improvements enabled us to
outperform the RV industry, particularly in the second half of
the year. In our MH segment, we continued to achieve solid
operating results despite the continued decline in sales.”
Recent Developments
Drew reported January 2008 sales were down approximately 4
percent compared to January 2007, reflecting the continued
slow-down in both the RV and MH industries.
“We are uncertain as to what effect current national economic
conditions will have on the RV and manufactured housing
industries,” Abrams said. “The real driving force in both
industries is consumer demand, and we’ll have to wait to see how
consumers react in this economic environment. However, we
anticipate our cost-cutting measures and new product growth will
partially offset the possible slow-down in these industries.”
During 2007, Drew completed three strategic acquisitions with
annual sales aggregating approximately $17 million. Abrams
continued: “Each of these newly-acquired businesses added
innovative new products with significant growth potential. By
consolidating production, and leveraging both our ability to
market products nationally and our purchasing power, we will
seek to maximize the profitability of these acquired
operations.”
The Company previously announced that its Board of Directors
authorized a repurchase of up to 1 million shares of the
Company’s Common Stock. The Company has not yet repurchased any
shares, primarily because the Company instituted its normal
quarterly blackout beginning January 1, 2008.
“In addition to the uncertain economic environment, we continue
to face unstable prices for our key raw materials, Zinn added.
“In recent weeks, the market prices of aluminum and certain
types of steel have increased 10 percent or more. Higher energy
costs continue to affect the costs of other raw materials, such
as vinyl and thermoplastics. To minimize the impact of these
cost increases, we continue to explore alternative sources of
raw materials and components, both domestically and from
overseas.”
Segment Reporting
To make its segment reporting easier to understand, and present
segment results in the same format used by management to
evaluate segment operations, certain items of income and expense
that are unrelated to the day-to-day operations of the segments
have been reclassified in this quarter to “Other items” in the
Company’s segment disclosure. Historical segment results have
been reclassified to conform to this new presentation.
Recreational Vehicle Products Segment
Drew supplies windows, doors, chassis, slide-out mechanisms and
power units, axles, bed lifts, bath products, electric
stabilizer jacks, suspension systems, leveling systems, steps,
exterior panels and ramp doors for RVs, as well as specialty
trailers for hauling boats, personal watercraft, snowmobiles and
equipment.
In 2007, Drew’s RV segment represented 74 percent of net sales
and 81 percent of segment operating profit. More than 90 percent
of Drew’s RV sales are components for towable RVs, with the
balance representing specialty trailers and components for
motorhomes.
Sales by Drew’s RV segment decreased 3 percent to $492 million
for 2007. However, RV segment sales in the fourth quarter of
2007 increased 9 percent to $102 million, from the $93 million
reported in the year-earlier period, compared to flat
industry-wide wholesale shipments of travel trailers and fifth
wheel RVs during the 2007 fourth quarter. Acquisitions added
approximately $18 million to 2007 revenues in this segment,
including $4 million in the fourth quarter. Excluding the impact
of acquisitions, sales by Drew’s RV segment would have been down
7 percent for 2007, but up 5 percent in the fourth quarter.
“Through acquisitions, new product introductions and our
position as an increasingly important supplier to leading RV
manufacturers, we increased our product content per RV to a
record $1,739 for travel trailers and fifth wheel RVs. Our
product content for motorhomes was $243 during 2007,” Abrams
said. Average product content for all types of RVs increased to
$1,326 in 2007, compared to $ 1,212 in 2006.
For 2007, the Recreational Vehicle Industry Association reported
that industry-wide wholesale shipments of travel
trailers and fifth wheel RVs declined more than 10 percent,
while Statistical Surveys reported that retail
shipments of travel trailers and fifth wheel RVs through
November 2007 (the last month for which industry information is
available) increased nearly 3 percent. Retail sales of travel
trailers and RVs declined about 4 percent in November 2007 after
eight consecutive month-over-month increases.
RV segment operating profit in 2007 increased 45 percent to $63
million, compared to operating profit of $44 million in 2006. A
$3.3 million operating loss from the Indiana-based specialty
trailer operation closed in September 2006 adversely affected
segment operating profit in 2006. For the fourth quarter of
2007, operating profit increased 73 percent to $10 million.
Drew’s RV segment results continue to benefit from cost-cutting
measures and production efficiencies, as well as from expanded
global sourcing.
“Recent dealer surveys indicate inventories of towable RVs,
although well below year-earlier levels, are still slightly
higher than dealers would prefer in this uncertain economic
environment,” Abrams said. “While retail demand held up quite
well in 2007, we continue to watch with concern the potential
impact on the RV industry of a softer economy and the volatility
in the real estate and mortgage markets in 2008.”
Manufactured Housing Products Segment
Drew supplies vinyl and aluminum windows and screens, chassis,
chassis parts, and bath and shower units to the MH industry.
Drew’s MH segment accounted for approximately 26 percent of net
sales and 19 percent of segment operating profit in 2007.
Drew’s MH segment reported 2007 sales of $177 million, a 20
percent decline from the $220 million reported in 2006.
Industry-wide wholesale shipments of manufactured homes declined
18 percent, from 117,000 homes in 2006 to 96,000 homes in 2007.
Largely due to the decline in sales, operating profit for this
segment declined 25 percent to $15.1 million in 2007, from $20.1
million in 2006.
In the 2007 fourth quarter, sales of this segment declined 20
percent to $36 million, compared to an industry-wide 3 percent
decline in wholesale shipments of manufactured homes. The
decrease in Drew’s fourth quarter sales was greater than the
decrease in industry wholesale shipments partly because the
Company exited certain business due to inadequate margins.
Further, during the fourth quarter of 2007, there was a 12
percent decrease in larger, multi-section homes produced by the
industry, but this was partially offset by a 19 percent increase
in smaller, single-section homes, in which Drew has less average
content per home.
Despite the decrease in sales, the operating profit margin of
this segment improved slightly, to 8.0 percent, from 7.7 percent
in the fourth quarter of 2006.
“While the 3 percent industry decline in the fourth quarter was
far less than the declines reported earlier in the year, there
has been no concrete evidence of any significant improvement in
the demand for manufactured homes,” Abrams said.“Sales of
manufactured homes in Arizona, Florida and California, the prime
retiree markets, were down more than 40 percent in 2007,
accounting for nearly half of the industry decline in 20
“Apparently, because of the weak site-built housing market,
retirees have not been able to sell their primary residence, or
are unwilling to sell at the currently depressed prices, and buy
a less expensive manufactured home. Further, in the last several
years, many traditional buyers of manufactured homes were
instead able to buy site-built homes, because sub-prime
mortgages were available to the site-built buyer at unrealistic
terms. Now that such sub-prime mortgages are no longer
available, we believe it is more likely that certain home buyers
will eventually turn to more affordable manufactured homes. With
our high market share and track record of profitability, we will
be in a strong position when the manufactured housing industry
begins its recovery.”
Balance Sheet
Inventories declined by $7 million from previous-year levels, to
$76 million as of December 31, 2007, and were more than $24
million below the $101 million reported at the end of 2005.
During 2007, inventories averaged $81 million, or 21 percent
less than the 2006 average.
Goodwill and other intangible assets increased by $13 million
compared to the end of 2006, as a result of the three
acquisitions completed during 2007, while capital expenditures
were limited to less than $9 million in 2007. Depreciation and
amortization aggregated $17.6 million in 2007. The Company
expects capital expenditures to be between $10 million and $12
million in 2008, while depreciation and amortization is expected
to be about $18 million for the year.
In 2007, the Company collected more than $14 million on the sale
of real estate and equipment. The Company also owns 10
facilities which are vacant or are in the process of being
vacated, which it plans to sell, with an aggregate book value of
$9 million. In addition, the Company has instituted foreclosure
proceedings on a mortgage securing a $3.9 million note it
received upon the sale of a facility in 2006. In connection with
such sale, Drew received $1.8 million in cash. When the
foreclosure proceedings are completed, which is expected to be
in 2008, Drew will record a gain of up to the $1.8 million cash
received.
“Though we are carefully watching conditions in our core
markets, we remain confident in our ability to outperform our
industries through our long-standing strategy of organic growth,
new product introductions, acquisitions and operational
efficiencies,” Abrams said. “We will continue this strategy with
the long-term aim of creating a stronger, more-efficient Company
in excellent position should the RV and MH industries return to
year-over-year growth. We are also confident in the experience,
talent and ability of our operating management, especially in
light of their exceptional track record of creating growth in
challenging markets in the past.”
Conference Call & Webcast
Drew will provide an online, real-time webcast and rebroadcast
of its fourth quarter and year-end 2007 earnings conference call
on the Company’s website,
www.drewindustries.com
on Thursday, February 14, 2008 at 11:00 a.m. Eastern time.
Individual investors can also listen to the call at
www.companyboardroom.com.
Institutional investors can access the call via the
password-protected event management site, StreetEvents (www.streetevents.com).
A replay of the conference call will be available by telephone
by dialing (888) 286-8010 and referencing access code 73077665.
A replay will also be available on Drew’s website.
About Drew
Drew, through its wholly owned subsidiaries, Kinro and Lippert
Components, supplies a broad array of components for RVs and
manufactured homes, including windows, doors, chassis, chassis
parts, bath and shower units, and axles. In addition, Drew
manufactures slide-out mechanisms for RVs, and trailers
primarily for hauling boats. Currently, from 33 factories
located throughout the United States, Drew serves most major
national manufacturers of RVs and manufactured homes in an
efficient and cost-effective manner. Additional information
about Drew and its products can be found at
www.drewindustries.com.
Forward-Looking Statements
This press release may contain certain “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to financial
condition, results of operations, business strategies, operating
efficiencies or synergies, competitive position, growth
opportunities for existing products, plans and objectives of
management, markets for the Company’s common stock and other
matters. Statements in the press release that are not historical
facts are “forward-looking statements” for the purpose of the
safe harbor provided by Section 21E of the Exchange Act and
Section 27A of the Securities Act. Forward-looking statements,
including, without limitation, those relating to the Company’s
future business prospects, revenues and income are necessarily
estimates reflecting the best judgment of the Company’s senior
management at the time such statements were made, and involve a
number of risks and uncertainties that could cause actual
results to differ materially from those suggested by
forward-looking statements. The Company does not undertake to
update forward-looking statements to reflect circumstances or
events that occur after the date the forward-looking statements
are made. Forward-looking statements, therefore, should be
considered in light of various important factors.
There are a number of factors, many of which are beyond the
Company’s control, which could cause actual results and events
to differ materially from those described in the forward-looking
statements. These factors include pricing pressures due to
domestic and foreign competition, costs and availability of raw
materials (particularly steel and related components, vinyl,
aluminum, glass and ABS resin), availability of retail and
wholesale financing for manufactured homes and recreational
vehicles, availability and costs of labor, inventory levels of
retailers and manufacturers, levels of repossessed manufactured
homes, the disposition into the market by FEMA, by sale or
otherwise, of RVs or manufactured homes purchased by FEMA in
connection with natural disasters, changes in zoning regulations
for manufactured homes, a sales decline in either the RV or the
manufactured housing industries, the financial condition of our
customers, retention of significant customers, interest rates,
oil and gasoline prices, the outcome of litigation, and adverse
weather conditions impacting retail sales. In addition, national
and regional economic conditions and consumer confidence may
affect the retail sale of recreational vehicles and manufactured
homes.
