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EXHIBIT
99.1
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1
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
CORPORATE
PARTICIPANTS
Jeff
Tryka
Lambert, Edwards & Associates -
IR
Fred
Zinn
Drew Industries Incorporated - President &
CEO
Joe
Giordano
Drew Industries Incorporated - CFO &
Treasurer
Jason
Lippert
Drew
Industries Incorporated - Chairman, CEO, & President, Lippert Components and
Kinro
CONFERENCE CALL
PARTICIPANTS
Kathryn
Thompson
TRG
- Analyst
Scott
Stember
Sidoti
& Co. - Analyst
Liam
Burke
Janney
Capital - Analyst
Torin
Eastburn
CJS
Securities - Analyst
Anand
Vankawala
Avondale
Partners - Analyst
Barry
Vogel
Barry
Vogel and Associates - Analyst
Arnold
Brief
Goldsmith
& Harris - Analyst
Kevin
Leary
Spitfire
Capital - Analyst
PRESENTATION
Operator
Good day,
ladies and gentlemen, and welcome to the fourth-quarter 2010 Drew Industries
Inc. earnings conference call. My name is Shaquana, and I will be your
coordinator for today. (Operator Instructions).
I would
now like to turn the presentation over to your host for today's call, Mr. Jeff
Tryka of Drew's Investor Relations firm. Please proceed,
sir.
Jeff Tryka - Lambert, Edwards & Associates - IR
Thank you.
Good morning, everyone, and welcome to the Drew Industries 2010 fourth-quarter
and full-year conference call. I'm Jeff Tryka with Lambert, Edwards, Drew's
Investor Relations firm, and I have with me members of Drew's management team,
including Leigh Abrams, Chairman of the Board of Drew; Fred Zinn, President, CEO
and a Director of Drew; Jason Lippert, Chairman and CEO of Lippert Components
and Kinro; and Joe Giordano, CFO and Treasurer of Drew.
We want to
take a few minutes to discuss our fourth-quarter and full-year results. However,
before we do so, it is my responsibility to inform you that certain statements
made in today's conference call regarding Drew Industries and its operations may
be considered forward-looking statements under the securities laws. As a result,
I must caution you that 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
are identified in our press releases, our Form 10-K for the year ended 2009, and
in our subsequent Form 10-Qs all as filed with the SEC.
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2
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
With
that, I would like to turn the call over to Fred Zinn. Fred?
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Thank you,
Jeff, and thank you all for joining us on the call and on the
webcast.
In 2010
Drew achieved dramatic improvement in our operating results, and that
achievement was not based solely on the recovery in the RV industry, but also
resulted from market share gains and the positive effects of the four
acquisitions we completed in 2010.
Sales by
both of our segments increased substantially more than the industries they
served. Our RV segment increased sales by 53% compared to 44% industry growth.
Equally gratifying was the 12% increase in sales by our Manufactured Housing
segment compared to industry growth of 1%.
In
addition, we achieved very strong sales gains outside of our traditional
markets. While still well below our peak results, we are also very pleased with
the significant improvement in our net income. To put our profit improvement in
a longer-term perspective than we typically discuss in a press release, I will
compare our 2010 results with 2008 results. Partly as a result of our
longer-term focus on cost control, our 2010 operating profit increased by more
than $17 million compared to our operating profit in 2008 before 2008 goodwill
impairment and executive retirement charges.
This $17
million profit increase was achieved on a $62 million increase in sales compared
to 2008. That is, operating profit increased by about 28% of the sales increase,
which is above our target incremental margin of 20%, largely because of the
steps taken by operating management to streamline operations and reduce fixed
costs.
Some
statistics are particularly striking. For example, compared to 2008, our sales
per SG&A employee was up 36% in 2010, and our sales per square foot of
production space was up 34%. So, clearly the impact of all our efforts over the
years to control costs have been significant.
Let me
just take another minute to highlight some of the key themes in our press
release. Probably the most important theme is our focus on profitable growth
through acquisitions and product line extensions. We continue to pursue
investment opportunities through which we can put our resources to work. We are
cautious but persistent, and we completed five such transactions over the last
13 months. And with dozens completed over the last 15 years, I would say we have
an impressive long-term track record of making acquisitions and integrating them
successfully.
I believe
we can continue this trend in part because of our strong balance sheet, along
with our well-designed incentive compensation program.
Another
key point to note is our strong sales growth in January 2011 with sales up about
16% compared to the prior January. We achieved that sales growth despite the
fact that sales in January 2010 were bolstered by inventory restocking by RV
dealers following the drastic downturn of late 2008 and most of 2009. Further,
our sales increase in January 2011 grew in all areas of our business. Sales to
RV manufacturers increased by about 18%. We achieved modest growth in sales to
Manufactured Housing producers, and we had strong gains in sales of aftermarket
products and sales to other industries.
Recent
reports of improving credit conditions are also encouraging. While credit
availability for both consumers and dealers is still more restricted than we
would like, continuing improvements in the credit markets will hopefully lead to
increased demand for our products.
Finally,
consumer confidence numbers have not been entirely consistent, but with
increases reported in four of the last five months, the trend certainly seems to
be up. Improving consumer confidence remains vital to growth in discretionary
purchases of big ticket items like RVs. Of course, we still face challenges,
including economic growth that has not been as strong as needed to generate
enough new jobs, as well as volatile raw material costs. But we expect to be
successful at meeting these challenges as we have been
historically.
I'm also
optimistic that both the RV and Manufactured Housing industries will grow over
the next few years, and I'm confident in our ability to exceed industry growth
rates.
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3
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
My
optimism is based on four premises. First, an increasing focus on affordable
lifestyles as evidenced by media attention to this topic. The RV industry, which
provides consumers with less costly vacations, and the Manufactured Housing
industry, which provides homeowners with more affordable housing, would benefit
from this trend to live within one's means.
Second, I
believe the hassles and delays that can be encountered with air travel continue
to motivate parents with young children to take other types of vacations like RV
vacations, and even very small increases in consumer preferences for RV travel
can make a huge difference to this relatively small industry.
Third, an
expectation among consumers that our economy will improve is key to increasing
demand for RVs and all types of housing. Therefore, recent improvements in
economic forecasts of growth over the next several years are very encouraging.
Of course, the road to economic recovery might be bumpy, but improving
expectations are important.
Finally
and most importantly, I am very confident in Drew's ability to exceed industry
growth rates. Drew's track record over the last decade and even longer shows we
are focused on profitable growth through acquisitions, new product introductions
and market share growth. We remain motivated to increase profits and return on
investment, which will hopefully lead to increased stockholder
value.
We also
know that to achieve our goals and to continue to grow profitably, we must have
the right management talent in place and provide appropriate incentives for
outstanding performance. Our incentive plans are structured to motivate
management, to invest only in growth opportunities that are likely to yield high
returns, both in the short-term and the long-term, with appropriate
consideration of risk.
For 2010
more than 55% of the total compensation of our named executives officers, other
than the CFO, was incentive-based compensation on profit performance, profit
growth exceeding industry growth rates and return on assets. This does not
include our CFO because we believe that best practice corporate governance
dictates that the compensation of those financial officers who have
responsibility over our financial statements should not be directly linked to
our reported results.
Further,
our named executive officers received about 30% of their total compensation in
2010 in the form of equity. This includes both stock options that vest over five
years and deferred stock, which will not be received for three to five years and
which are in large part based on the achievement of financial goals. This
motivates long-term performance and aligns management's gains to those of our
stockholders.
We also
recognize our responsibility to return value to our stockholders. As a result of
our strong cash flow and financial position, in December 2010 we paid a special
dividend of $1.50 per share for an aggregate of $33 million.
While
solid operating results, strong cash flows, and the achievement of our long-term
strategic goals can be motivated in part by properly designed compensation
plans, Drew's performance is much more the result of the capabilities and
experience of our operating management team led by Jason Lippert and Scott
Mereness. Having worked with Jason and Scott for more than 13 years and
witnessing their contributions to Drew's success, I can assure you that Drew's
operations are in very capable hands.
Thank you
and now I will ask Joe to discuss our results in more
detail.
Joe
Giordano - Drew Industries
Incorporated - CFO & Treasurer
Thank you,
Fred. Drew's net sales for 2010 increased 44% as compared to 2009, exceeding
industry growth in both our RV and Manufactured Housing segments. We were able
to exceed the industry results largely due to continued increases in our content
per RV and manufactured home.
From 2001
to 2009, our content per travel trailer and fifth-wheel RV increased by
approximately $1,350 or an average increase exceeding $160 per year. This trend
continued in 2010 with our content per travel trailer and fifth-wheel RV
increasing 8%, or $158. The increase in content for new RVs is due primarily to
market share gains, acquisitions and new product introductions. Based on the
historical sales of the recently acquired Home-Style business, going forward our
content per travel trailer and fifth-wheel RV would increase approximately $50
to $60 per unit. This incremental content from the Home-Style acquisition is in
addition to the increases in furniture and mattress content from our existing
Seating Technology business.
Our
Seating Technology furniture and mattress content per travel trailer and
fifth-wheel RV for 2010 was approximately $225 per unit, an increase of $60 per
unit or 36% from the $165 per unit when we acquired Seating Technology in July
2008.
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4
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
In
addition, continued market share gains in our RV entry doors are helping to
drive our content higher. RV entry door sales added $90 to the content per
travel trailer and fifth-wheel RV for 2010, a significant increase since the
introduction of this product line in the fourth quarter of
2008.
We
typically discuss our content trends for the prior 12-month periods because
there is some seasonality in our content. For example, our content per travel
trailer and fifth-wheel RV for just the fourth quarter of the year alone
typically declines compared to the third quarter of the year alone. This
reduction in fourth-quarter RV content has occurred in the fourth quarter of
five out of the last six years, including 2010.
Regarding
Manufactured Housing, for the full-year 2010, our content per manufactured home
produced is up 4% or approximately $50 per unit to $1,392 per unit compared to
$1,343 per unit for the full-year 2009. This increased content was largely a
result of growth in the Company sales of Manufactured Housing entry doors. Our
Manufactured Housing entry door product line, which was added in the fall of
2009, continues to gain market share for both new manufactured homes and the
aftermarket. We anticipate this new product line will continue to gain market
share in 2011.
In
addition to accomplishing our goal of increasing content through increased
market share of our products for new RVs and manufactured homes, we have
increased sales to the aftermarket of replacement components in both the RV and
the Manufactured Housing industries and increased our sales to other industries.
We anticipate continued expansion of our aftermarket business, as well as
increased sales to other industries.
For the
full year, SG&A as a percent of sales declined to 14.1% for 2010 from 16.4%
in 2009, excluding $4.2 million of extra expenses in 2009 related to the
unprecedented conditions in our industries during 2009. This reduction in
SG&A as a percent of sales in 2010 was achieved primarily because of the
efficiencies gained by the spreading of fixed costs over a larger sales base. I
believe the press release adequately describes the changes in our results from
the prior year. However, because so much has changed over the past year, we find
it useful to also compare our results for the most recently completed quarter to
the prior quarter.
Operating
profit in the fourth quarter of 2010 as compared to the third quarter of 2010
was consistent with expectations based upon our 20% incremental margin. Further,
seasonal trends have reversed in 2011, and Drew's net sales in January 2011
reached approximately $51 million, 16% higher than in January 2010 and 43%
higher than our average monthly sales in the fourth quarter of
2010.
During
2010 we completed four acquisitions for an aggregate cash consideration of $22
million paid at closing. In addition, contingent earn-outs could be paid over
the next six years depending upon the level of sales generated from certain of
the acquired products. The $12 million present value of the aggregate estimated
earn-out payments has been recorded as a liability on our balance
sheet.
As
discussed previously, each quarter we are required to reevaluate the fair value
of the liability for the estimated earn-out payments for recent acquisitions.
There were no material changes in the estimated future earn-out payments during
the fourth quarter of 2010.
Each
period we are also required to record an expense or accretion equivalent to
interest on this recorded liability for future earn-out payments. Accretion
expense was $500,000 for the fourth quarter of 2010 and $1.6 million for the
full-year 2010. Accretion expense is currently estimated to be approximately
$2.2 million in 2011. Both the accretion expense and the earn-out liability
adjustments are included in SG&A in the income statement and in other items
in the segment results.
Interest
expense for the fourth quarter of 2010 was less than $100,000, primarily
consisting of commitment and letter of credit fees under our line of credit.
Interest expense is partially offset by interest income. Due to market
conditions, we are currently earning very little interest income on our cash and
investments in US treasuries and money markets with Wells Fargo and JPMorgan
Chase.
A
four-year extension of our $50 million line of credit with JPMorgan Chase and
Wells Fargo is expected to be completed within a few days. Simultaneously we
expect to complete a three-year renewal with Prudential Capital Group on our
uncommitted shelf loan facility, as well as an increase in that facility from
$125 million to $150 million. These steps extend our financial strength and our
ability to continue to invest in growth opportunities.
Corporate
expenses for both the full-year 2010 and the fourth quarter of 2010 were above
the comparable periods of 2009. The full-year 2010 increase was due primarily to
an increase in performance-based incentive compensation costs.
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5
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Also, in
connection with the special cash dividend of $1.50 per share declared and paid
in December 2010, the Compensation Committee reduced the exercise price of all
the outstanding stock options by $1.50 per share. As a result of this option
modification, the Company recorded a charge of $400,000 in the fourth quarter of
2010.
Our tax
rate for the full-year 2010 was 38%, benefiting from a higher federal domestic
manufacturing credit as compared to 38.5% for the full-year 2009, which excludes
the impact of the goodwill impairment charge. Our tax rate in the fourth quarter
of 2010 was 31.2%, lower than normal, primarily because the federal
manufacturing credit was higher than previously estimated, as well as the
benefit from the recent extension of the federal research and development
credit. The annual effective tax rate for 2011 is expected to be 38% to
39%.
As a
result of the 44% increase in net sales for 2010, we increased our inventory
balances by only $12 million or 20% during the same period, significantly
improving inventory turnover. From a cash flow perspective, this increase in our
inventory balance was largely offset by an $8 million increase in Accounts
Payable and accrued expenses, primarily due to the timing of
payments.
Current
estimates for 2011 are that capital expenditures will be $13 million to $15
million, including $3 million of facility purchases that were planned for 2010
but were not completed by year-end. Additional capital expenditures may be
required in 2011, depending on the extent of sales growth and other initiatives
by the Company.
Depreciation
and amortization is estimated to be approximately $16 million in
2011.
Thank you
for your time. Now I will turn it back to Fred.
Fred Zinn - Drew Industries Incorporated - President, CEO
Thank you,
Joe. Operator, I think with that we are ready for questions. So please open it
up for questions.
QUESTION AND
ANSWER
Operator
(Operator
Instructions). Kathryn Thompson, TRG.
Kathryn Thompson - TRG - Analyst
The first
question is, we have seen a lot of raw material inflation in a variety of
industries. The question today is, what is the lag time between a price increase
and the corresponding offset to this raw material inflation, primarily steel,
and when can we expect some of the margin pressures to ease with -- as price
increases flow through your financials?
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Well, I
think we do take a longer-term view of working with our customers in regards to
the volatility of our commodity prices, and sometimes you will take a few months
to get price increases into effect. Of course, it takes a couple of months also
for the higher raw material costs to work their way into our cost of sales. So
net it is usually I don't know, one to three or four months before we see the
offsetting impact.
Kathryn Thompson - TRG - Analyst
And given
the increase in raw material prices, are you able to keep up with
inflation?
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6
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Well, we
will see. Certainly historically we've got a pretty good track record. I think
the key is that our customers view us as a strategic partner. We both take a
longer-term view of working together to offset the volatility in our costs
whether it is raw materials or otherwise. I think we will be successful in that
same regard. I do believe we will be able to offset the larger portion of the
raw material costs.
Kathryn
Thompson - TRG -
Analyst
And you
put reported in today's release a 16% increase in revenues in January. The
question is, how have sales progressed as 2010, calendar 2010 closed? In other
words, has there been more meaningful improvement in progression orders, and
what are your expectations for 2011 in terms of wholesale
orders?
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Well,
expectations for 2011, it is a little too early in the year to really have any
longer-term view. I think that January was a very nice increase and was a nice
progression from the prior quarters. Jason, do you have anything to add in terms
of how you see the January and February sales increase?
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
I think we
are expecting to see the increases we saw in January continue for the next few
months and things to kind of be similar this last half of the year to 2010's
last half of the year. So I think all-in-all we will be slightly up this year
over last year, but a lot can change in the next several
months.
Fred Zinn - Drew Industries Incorporated - President & CEO
And I
think it certainly depends -- I think Jason was talking mostly there about the
industry growth. Certainly we're very pleased with the 16% increase in January,
and we expect to see continuing increases in our content per unit. We expect to
see continuing increases in our aftermarket sales and in our sales to other
industries. So hopefully we will, once again, as we have for many years
outperform the industry.
Kathryn Thompson - TRG - Analyst
Okay. My
final question is, you have done a fair amount of acquisitions over the past 12
plus months. Can you speak of incremental revenues these acquisitions would
contribute to 2011?
Fred Zinn - Drew Industries Incorporated - President & CEO
I would
say for 2011 we really have not given that number out publicly, so I don't want
to comment on it on a call like this. In each of our individual acquisitions, we
do talk about what that run-rate was. So, for instance, in the last acquisition
we just completed of Home-Style furniture, I think their run-rate was in excess
of $10 million, and that was completed early in the year, so we will have pretty
much a full year there.
Operator
Scott
Stember, Sidoti & Co.
Scott Stember - Sidoti & Co. - Analyst
The
January sales increase that you talked about, does that include price increases
that you have put through?
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7
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Fred
Zinn - Drew Industries
Incorporated - President & CEO
The raw
material increases are really pretty current, so it took very little of price
increases. There probably are some, but very little.
Scott Stember - Sidoti & Co. - Analyst
Okay. But
I guess the whole idea is we are going to see that flow through in the middle
part of the year then?
Fred Zinn - Drew Industries Incorporated - President & CEO
Right.
Scott Stember - Sidoti & Co. - Analyst
Okay,
good. You talked about some of the new products at Louisville. You guys
announced that you were going to be providing some slide-outs into the motorized
market. Can you talk about how that is going, and what the expectations are for
the rest of the year?
Fred Zinn - Drew Industries Incorporated - President & CEO
Yes. I
think Jason probably has the best insight. Do you want to talk a little bit
about slide-outs?
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
Sure. From
the motorhome side of things, things have been going really well there. We did
not have a whole lot of slide-out content on the motorhome side of the business
here prior to the acquisition of the Schwintek system, and that has gone really
well. We are increasing our slide-out content very rapidly there. It is going
better than what we had anticipated. So that's a big
priority.
We also do
a lot of leveling systems and windows, and once you get into a product like
slides into a relatively new industry like the motorhome market, we are able to
package it together with multiple other products that we sell like windows and
doors and things like that.
Scott Stember - Sidoti & Co. - Analyst
Yes, that
was my next question, about the other opportunities within some of these
manufacturers. I guess it would be limited to the doors or could it just be any
suite of products that you sell, right?
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
Yes,
really until they want one of your products, it is really hard to get in and
sell a lot of the packages of products that we supply. So once they like a
product and ask for a product like a Schwintek system, it just becomes so much
easier to get in with other products that we know are good, but need that
opportunity like the Schwintek slide to get in.
Scott Stember - Sidoti & Co. - Analyst
And did
you disclose what the aftermarket sales increase was in the quarter and maybe
just touch on where you're seeing growth in the transit bus or non-RV business
sales?
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8
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Yes, I
think we did disclose that. I think we disclosed that actually for the full
year. Yes, for the full year, we talked about it up 35% to $29 million. That is
the aftermarket sales in both the RV and manufactured housing industries and
then in terms of sales to other markets like modular and transit buses and such
--
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
Those were
up 44% to $21 million for 2010.
Fred Zinn - Drew Industries Incorporated - President & CEO
So between
the two, we are looking at $50 million or just about 10% of our aggregate
sales.
Operator
Liam
Burke, Janney Capital.
Liam Burke - Janney Capital - Analyst
Fred, as
content per unit grows, you have talked about from time to time moving into
related markets to sort of supplement this growth. Are there any near-term plans
beyond some of the obvious related product lines?
Fred Zinn - Drew Industries Incorporated - President & CEO
Well, I
think what we just talked about, the $50 million that we are selling to the
aftermarket and to some of these other industries, is the beginning of that. I
know that Jason has made some management changes to focus a little bit on that.
We now have somebody who will be responsible for looking at other markets. Do
you want to add anything about that, Jason?
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
No, not on
the aftermarket side. I mean a lot of our upcoming growth is going to come from
some of these small acquisitions that we have made that have huge upside
potential, like Level-Up.
Liam Burke - Janney Capital - Analyst
Okay. And
on the CapEx, you said $13 million to $15 million this year. Will any of that
move into 2012, or is that pretty much what you are going to run in
2011?
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
Yes, I
think that's pretty good for 2011. At this point, I don't see any of it carrying
into 2012. But I could see some other projects maybe being pull forward
depending on the growth in our industries and other initiatives that operating
management wants to take.
Operator
Torin
Eastburn, CJS Securities.
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9
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Torin
Eastburn - CJS Securities -
Analyst
My first
question is about the strong January, and I think it sounds like February and
March as well. I know it is difficult, but is there anything you can see that
makes you feel like this is either an abnormally strong beginning to the year or
just a, I guess, an indication that the full year will be stronger than last
year?
Fred Zinn - Drew Industries Incorporated - President & CEO
Well, it
is probably a little too early to look at it for the full year. It depends on
the economy. It depends on consumer confidence. It depends on a lot of things.
But for now, it is encouraging to see. Jason, do you have any view on whether
this is a longer-term trend?
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
No, I
don't have any comments. I mean things generally are strong the first two
quarters of the year, and over the last couple of years, we have seen things
slow down a little bit after July and August. So it feels like it's going to
continue for a few months, and I think, as long as we get into that July
timeframe, we are probably sitting in pretty good shape relative to last
year.
Fred Zinn - Drew Industries Incorporated - President & CEO
Yes, I
think it all really depends on retail sales. So if retail sales stay strong and
continue to improve, then we will see growth over a
longer-term.
Torin Eastburn - CJS Securities - Analyst
Do you
have any visibility into dealer inventories or any sense if they are more
willing now to take on larger inventories?
Fred Zinn - Drew Industries Incorporated - President & CEO
Well, it
looked like they were in the last couple of months of last year. Production was
probably higher than retail sales, so they did grow some inventories in November
and likely in December as well. I think they were doing two things. They were
expressing some optimism about the coming quarters and trying to balance out
their purchases.
Torin Eastburn - CJS Securities - Analyst
Okay. And
the last question, the $15 million or so of CapEx that you are planning, are you
willing to say anything more about what product lines will be ramping up or what
regions you will be building in?
Fred Zinn - Drew Industries Incorporated - President & CEO
No, not
really. I think there is really nothing to -- if there was something particular
in there, maybe we'd discuss it, but it really is spread out pretty
well.
Operator
Bret
Jordan, Avondale Partners.
Anand Vankawala - Avondale Partners - Analyst
This is
Anand in for Bret. Most of my questions have been answered, but just one quick
follow-up on the CapEx. Did that include -- the $13 million to $15 million, does
that include the $2 million to $3 million that was shifted into this
year?
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10
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Joe
Giordano - Drew Industries
Incorporated - CFO & Treasurer
Yes. Yes,
that is included.
Anand Vankawala - Avondale Partners - Analyst
And then
any other commentary as far as acquisition pipeline goes, what you're really
looking at?
Fred Zinn - Drew Industries Incorporated - President & CEO
Well, we
can't make any specific comments on what we are looking at, but we continue to
look. I think that is the key. The pipeline is still -- there are still
acquisitions to be discussed and reviewed, and we are continuing to look. But we
are pleased with that.
Operator
Barry
Vogel, Barry Vogel and Associates.
Barry Vogel - Barry Vogel and Associates - Analyst
The first
question has to do with your commentary in your press release about the
aftermarket products and sales to other industries. I was wondering if you can
give us better color on that because I believe you said on aftermarket products,
there were $29 million in revenues for RVs and manufactured housing. So can you
split up that number for us so if we want to use content numbers and projections
for unit shipments in the industries, we can then add the aftermarket products
to that base to get a better picture of sales? And the same for the sales to
other industries. It is not clear, do they go to Manufactured Housing, do they
go to RVs, or do they go to both?
Fred Zinn - Drew Industries Incorporated - President & CEO
Yes, those
are good questions. I don't want to get too specific, but I do think that the
split -- and, Joe, correct me if I'm wrong, and Jason -- the split in terms of
the aftermarket is fairly equal.
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
It is
about 2/3 MH, 1/3 RV.
Barry Vogel - Barry Vogel and Associates - Analyst
Alright.
2/3 MH for the aftermarket products and 1/3 RVs, and what about the other
industry's sales of $21 million?
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
That one
is about 50-50.
Barry Vogel - Barry Vogel and Associates - Analyst
50-50?
Okay. And as far as content, you did not mention content to last year for motor
homes and I presume that A and C is combined. Can you give us a number? On the
order of $500 and change if I remember right.
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
For the
motor homes, yes. If you will give me just one second, I will look that up while
you ask your next question.
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11
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Yes, while
Joe is looking that up, one thing to keep in mind is that, at least in prior
years, certainly in 2009 and even to a certain extent in 2010, the number of
motor homes was way down. So regardless of the small changes in our content,
there is not a lot of dollars in it until we start to see those motorhome
numbers grow. They grew in 2010, and I expect we will see some further
growth.
Joe
Giordano - Drew Industries
Incorporated - CFO & Treasurer
For the
full-year 2010, the motorhome content was about $625, so $625 or
so.
Barry Vogel - Barry Vogel and Associates - Analyst
That is a
nice increase. Now, as far as the Schwintek, I know you paid, according to at
least my notes, $20 million of cash for that acquisition, and I guess there was
a future bet on their ability to bring products to you that you did not have
because of their innovations and their capabilities. Can you give us some idea
what the related sales that you got because you acquired Schwintek what they
were in 2010 and what they might be based on your initial success with some of
them as you expressed earlier in 2011?
Fred Zinn - Drew Industries Incorporated - President & CEO
Yes, I
don't want to comment on specific sales or sales of those specific products. I
can tell you that he has continued to be very innovative in his products. We
have started to see or have seen actually over the last few quarters a nice
ramp-up in sales of the slide-out products. So we are pleased with that
progress. And longer-term a significant portion of the slide-outs could turn out
to be Schwintek type systems.
Barry Vogel - Barry Vogel and Associates - Analyst
Now all
things being equal, if you do slide-outs, what would that add to the content per
motorhome?
Fred Zinn - Drew Industries Incorporated - President & CEO
Jason, do
you want to comment on the motorhome content for slide-outs?
Barry Vogel - Barry Vogel and Associates - Analyst
Yes. In
other words, if the slide-outs were as successful as you think they are going to
be, what would that add to content based on that $625 base for
2010?
Fred Zinn - Drew Industries Incorporated - President & CEO
I think
the slide-out prices are -- I'm probably going to -- Jason, correct me if I'm
wrong -- but the slide-out prices are $300 to $400. There are multiple
slide-outs in motor homes. So if you were to say 2.5, you could be talking about
$800 to $1,000, give or take something like that, per motorhome. And then it
would depend on share.
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
They are a
little bit higher than that, but you know I would say upwards of $1,000 probably
would be a good estimate on just the slide-out portion.
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12
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Barry
Vogel - Barry Vogel and
Associates - Analyst
Now I
would assume that is only in Class As.
Fred
Zinn - Drew Industries
Incorporated - President & CEO
No, it is
in Cs as well, but they have less slide-outs in the C models.
Barry Vogel - Barry Vogel and Associates - Analyst
Okay. So
if we looked at 2011, Jason, since you are in great demand with the numbers,
knowing what you're doing in terms of slide-outs, if we had that base of $625
last year for content in motorhomes with As and Cs combined, can you give us an
estimate of what the slide-outs would add to that?
Fred Zinn - Drew Industries Incorporated - President & CEO
Let me
interject here. That is a little too specific in terms of forecasting for us. I
think we would like to see continued nice progress there. And with more than
$1,000 a pop per motorhome, we would hope to grow this significantly, but I
don't think we want to give any forecast.
Barry Vogel - Barry Vogel and Associates - Analyst
All right.
But it certainly would help your content in 2011 versus --
Fred Zinn - Drew Industries Incorporated - President & CEO
And
beyond. I think it will continue to grow. As Jason said, once we see additional,
I don't know, acceptance by motorhome OEMs, hopefully they will look at other
products as well.
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
I think
the key thing to just throw out is that there is a ton of opportunity on the
motorhome side, and on some class As, there is opportunity for our Company to do
upwards of $3,000, $2,500 or $3,000 in content per A and maybe half that on a C.
So the numbers show you there is tons of upside potential for us right
now.
Barry Vogel - Barry Vogel and Associates - Analyst
Okay. And
is the profitability on the Schwintek products any different than the margins on
the rest of the products?
Fred Zinn - Drew Industries Incorporated - President & CEO
No, we
usually target about the same thing.
Barry Vogel - Barry Vogel and Associates - Analyst
Okay. And
as far as your vacant plants, have you closed any deals to sell some of
them?
Fred Zinn - Drew Industries Incorporated - President & CEO
You were
going to buy them, weren't you, Barry?
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13
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Barry Vogel - Barry Vogel and Associates - Analyst
I have
enough real estate.
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
We had one
of the smaller ones sell during the fourth quarter. But we are continuing to
actively market the remaining facilities, and hopefully this marketplace turns
around, and we will be able to get rid of some of them in
2011.
Barry Vogel - Barry Vogel and Associates - Analyst
Now in
terms of Manufactured Housing content, it was $1,392, I guess. And you said per
unit; is that per floor?
Fred Zinn - Drew Industries Incorporated - President & CEO
No, that
is per unit, per home. So it depends on the mix between multi and single section
homes. It is not exactly a double. So, in a two-floor home, it's not -- we don't
have twice the content, but we have significantly more
content.
Barry Vogel - Barry Vogel and Associates - Analyst
All right.
But yeah, it is the $1,392 number?
Joe Giordano - Drew Industries Incorporated - CFO & Treasurer
Correct.
Barry Vogel - Barry Vogel and Associates - Analyst
Per
home.
Fred Zinn - Drew Industries Incorporated - President & CEO
$1,392 per
home. It turns out to be I think it was $850 to $900 per
floor.
Barry Vogel - Barry Vogel and Associates - Analyst
$850 to
$900 per floor. And you said that Home-Style acquisition would add $50 per home
in content --
Fred Zinn - Drew Industries Incorporated - President & CEO
Per RV,
per towble RV.
Barry Vogel - Barry Vogel and Associates - Analyst
Oh, the
Home-Style is in the RVs?
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14
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Fred
Zinn - Drew Industries
Incorporated - President & CEO
Yes.
Barry Vogel - Barry Vogel and Associates - Analyst
I thought
it was in Manufactured Housing. I'm sorry. So that is in RV. I'm little
confused. Getting older. Now, as far as the content for 2011, I would expect for
Manufactured Housing, would you expect to see continuing increases in
it?
Fred Zinn - Drew Industries Incorporated - President & CEO
Well,
obviously that is our goal. I think we are making nice progress with the door
products in certain other areas. I think a bigger trend even is the aftermarket
growth in Manufactured Housing.
Barry Vogel - Barry Vogel and Associates - Analyst
Now how
big are the markets that you think with your current products that might be that
you are attacking in Manufactured Housing in terms of sales?
Fred Zinn - Drew Industries Incorporated - President & CEO
I forget
exactly where we are, but I think our content represents about 50% of market
share. So if we had 100% of market share, we would be on the order of double.
Barry, I'm going to ask you for a favor. If we can just let someone else jump
in, we will come back to you.
Operator
Arnold
Brief, Goldsmith & Harris.
Arnold Brief - Goldsmith & Harris - Analyst
A couple
of questions. On the $50 million in sales from the two new initiatives, have
they reached a revenue base, which permits margins to be normalized, or are
margins still below your expectations where you need to get to some higher
critical mass?
Fred Zinn - Drew Industries Incorporated - President & CEO
No, I
think many of those products are built alongside of our -- in terms of the
aftermarket in particular, are built right alongside of our other products. So
margins should be fairly typical. There is a different price structure I'm sure
with aftermarket sales, but you touch the product more often. So I would say net
it is probably close.
Arnold Brief - Goldsmith & Harris - Analyst
So could
you pro forma 2010 sales for the four acquisitions?
Fred Zinn - Drew Industries Incorporated - President & CEO
We could,
but that is not something we have disclosed. So that is not something we are
prepared to do.
Arnold Brief - Goldsmith & Harris - Analyst
Are you
sure you don't want to disclose that number? I mean it is a factual number. It
is not an estimate, and you're getting the revenue numbers for the individual
subs.
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15
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Fred
Zinn - Drew Industries
Incorporated - President & CEO
I'm not
prepared to do that on the call.
Operator
At this
time, there are no further audio questions. Bret Jordan, Avondale
Partners.
Anand Vankawala - Avondale Partners - Analyst
Yes, just
one quick follow-up on the January growth. Does It look like the growth was
mostly due to inventory build, or do you think it was more in-line with
one-to-one retail sales?
Fred Zinn - Drew Industries Incorporated - President & CEO
It is hard
to tell. We don't really have the data yet on retail sales -- on industrywide
retail sales. So we will just have to wait and see. Jason, do you have any feel
for whether dealers continue to increase their inventories in
January?
Jason Lippert - Drew Industries Incorporated - Chairman, CEO, & President, Lippert Components and Kinro
No, I know
the shows are going well, the retail sales shows that are happening right now,
so they are going better than average. So I do think a lot of the buildup is due
to some of that demand. But until we get January's retail numbers, it is going
to be hard to tell what is really going on.
Operator
Kevin
Leary, Spitfire Capital.
Kevin Leary - Spitfire Capital - Analyst
I was
wondering if you could just spend a quick moment expanding on capacity
utilization in the quarter, and how that is affecting gross margin, and how you
might see that going into 2011?
Fred Zinn - Drew Industries Incorporated - President & CEO
Well,
certainly our sales in the fourth quarter were lower than our average sales. So
our capacity utilization was down. It is a seasonal capacity utilization. I
think over the full year we were probably talking -- we are north of 50% in our
capacity utilization, much higher in the summer months and lower in the winter
months. And with expanding demand for our product, we have increased our
capacity. So I think we are -- I'm not answering you very specifically -- but I
think we are well capable of taking additional -- of supplying additional
product if demand increases.
Operator
At this
time, there are no further audio questions.
Fred Zinn - Drew Industries Incorporated - President & CEO
Okay.
Well, I certainly thank you all for your questions and for your participation on
the call. I look forward to talking with you next conference call when we report
our first-quarter results. And, as you all know, obviously if you would like to
discuss anything else, I would be happy to talk with you, and I will be out to
see you. So thank you, again, and all take care.
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16
Final
Transcript
Feb
15, 2011 / 04:00PM GMT, DW - Q4 2010 Drew Industries
Incorporated Earnings Conference
Call
|
Operator
Thank you
for your participation in today's conference. This concludes the presentation.
You may now disconnect, and have a great day.
Editor
Forward-Looking
Statements
This
transcript contains 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 this transcript that are not historical facts are
_forward-looking statements_ for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933.
Forward-looking
statements, including, without limitation, those relating to our future business
prospects, revenues, expenses income (loss), cash flow, and financial condition,
whenever they occur in this transcript are necessarily estimates reflecting the
best judgment of our senior management at the time such statements were made,
and involve a number of risks and uncertainties that could cause actual results
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various important factors, including those set forth in this transcript, and in
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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
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described in this transcript, pricing pressures due to domestic and foreign
competition, costs and availability of raw materials (particularly steel and
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components, availability of credit for financing the retail and wholesale
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