Patrick Industries(PATK) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for Q3 2020 increased 24% to $701 million, driven by increases in three of the four primary end markets [40] - Net income per diluted share was $1.62, up from $0.92 in the prior year, representing a 76% increase [13][45] - Gross margin improved to 19.1%, an increase of 70 basis points compared to the prior year [42] - Operating income increased 60% to $60 million, with an operating margin of 8.5%, up 190 basis points [44] Business Line Data and Key Metrics Changes - Revenues from leisure lifestyle markets, which include RV and marine, increased 34%, with RV revenues up 36% and marine revenues up 25% [40] - Manufactured housing (MH) sales represented 15% of total revenues, remaining relatively flat compared to Q3 2019, with a 2% decrease in MH wholesale unit shipments [25][41] - Industrial business revenues increased 9% compared to the prior year, representing 11% of overall sales [27] Market Data and Key Metrics Changes - RV wholesale unit shipments were up 33%, totaling over 124,000 units for the quarter, while retail unit shipments increased by 25% to 30% [16][17] - Marine retail shipments estimated to be up approximately 30% to 35% in the quarter, despite a 4% decrease in wholesale unit shipments [19] - Single-family housing starts increased 17% in Q3, while multifamily housing starts decreased by 1% [29] Company Strategy and Development Direction - The company is aggressively investing in infrastructure to support OEMs and builders, anticipating continued expansion in addressable markets [30] - Three acquisitions totaling $99 million were made in Q3 to enhance presence in RV, marine, and industrial markets [36] - The company expects RV wholesale shipments to increase by 25% to 30% in Q4 2020 and anticipates a 20% increase in 2021 [30][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to meet increased demand due to a strong financial platform and proactive capital expenditures [62] - The ongoing support from customers and suppliers is expected to drive long-term shareholder value [59] - Management highlighted the positive demographic trends and macroeconomic tailwinds that are likely to sustain strong demand in end markets [58] Other Important Information - The company returned approximately $11 million to shareholders through dividends and share repurchases [14] - Total liquidity at the end of Q3 was approximately $473 million, including $62 million in cash [51] - The effective tax rate for Q3 decreased to 24.3%, with an estimated full-year rate of 24% to 25% [46] Q&A Session Summary Question: State of the RV supply chain and confidence in meeting demand - Management indicated a strong position to meet demand, with a resilient supply base adapting to changing circumstances [62][64] Question: October trends and confidence in retail outlook - Management noted consistent trends with strong new buyer activity and no channel refill occurring, extending the cycle for inventory replenishment [66] Question: Inventory levels in RV and marine - Management reported extremely lean inventories, with weeks on hand halved compared to 2014, indicating a need for rebuilding [74] Question: Labor inefficiencies and margin impact - Labor inefficiencies in Q3 were estimated at 30 to 50 basis points, with expectations for improvement in Q4 [77] Question: Growth expectations for the MH business in 2021 - Management anticipates low to mid single-digit growth for the MH market in 2021, with labor being a significant constraint [80] Question: RV retail expectations for next year - Management expects retail to be up low to mid-single digits in 2021, prolonging the channel refill cycle [89] Question: Share gains due to competitor issues - Management noted nominal share gains in Q3 but expressed optimism for capturing more share in the future [91] Question: Trends in the industrial market - Management highlighted constraints in multifamily and high-rise commercial due to COVID protocols but remains optimistic about long-term prospects [93] Question: Organic growth by category - Organic growth for the quarter was reported at 2%, with acquisition contributing 6 percentage points and end market industry growth at 16% [100] Question: Content per unit outlook - Management expects opportunities for content gains in 2021 as consumers upgrade [104] Question: Incremental margin expectations - Management is on track to improve operating margins by 30 to 50 basis points this year, despite some labor challenges [106]