Drew Industries Incorporated (DW) Q2 2010 Earnings Call July 16, 2010 11:00 am ET Executives Jeff Tryka - Investor Relations Fred Zinn - President and CEO Joe Giordano - CFO and Treasurer Jason Lippert - Chairman and CEO of Lippert Components and Kinro Analysts Jamie Baskin - Thompson Research Group Scott Stember - Sidoti & Company Bret Jordan - Avondale Partners Liam Burke - Janney Montgomery Scott Torin Eastburn - CJS Securities Presentation Operator
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With that, I would like to turn the call over to Fred Zinn. Fred?Fred Zinn - President and CEO Thank you very much, Jeff. Thanking you all for joining us on the call and also on the webcast. Once again we are very pleased to be able to report such robust sales gains and strong operating results in both of our segments, RV and manufactured housing. I think the biggest takeaways from our press release this quarter are our continued overall market share gains and sales increases supported by tangible evidence of improved retail demand for recreational vehicles in both the United States and Canada. For the last several quarters, we along with the industry analysts have been saying that stronger retail demand was the key to sustain growth in the RV industry. We really had only been able to cite anecdotal reports from dealer surveys. Now, recently released data, which for the first time includes retail sales in Canada, confirms that retail sales of travel trailer and fifth-wheel RVs were up 11% year-to-date through May 2010. During that period, retail sales in the United States increased 7% compared to the same period in 2009 while retail sales in Canada surged 28% from the year earlier period and represented more than 20% of combined retail sales. As a result of this strong retail sell through, we estimate that dealer inventories declined somewhat in both April and May, after increasingly consistently since last summer. In addition for the second quarter, sales in our manufactured housing segment increased substantially over the prior year levels, including a 35% increase in the second quarter alone. Further, we are very encouraged that Drew sales gains in this segment of our business exceeded industry wide products comps by nearly 20% in each quarter. Our manufactured housing sales gains were largely due to growth in sales of our aftermarket replacement products which we expect will continue to expand.
Manufactured housing segment sales were also boosted by the recent addition of our entry door product line as well as market share gains in our window product line. While there are still some concerned about the continued softness in the overall US housing market we believe that home buyer focus on more affordable housing alternatives could support increased demand for our manufactured homes over the next several years.As result of these significant improvements in the demand for our products in both the RV and manufactured housing segments, we hired about 900 more employees compared to last year this time, while at the same time increasing our sales per manufacturing employee by 15% compared to the second quarter of 2009. Throughout the RV industry OEMs and suppliers have substantially increased employment levels due to increased demand. While we remain cautious about the economy and its potential impact on our business in recent weeks we increased our manufacturing capacity in key product areas by adding new manufacturing space and new equipment, and we’re prepared to make further investments in capacity and response to increase demand for our products. With our strong cash flow and solid balance sheet, we can readily handle these capital expenditure needs and also take advantage of attractive acquisitions or other expansion opportunities. At the same time we’ll continue to focus on maximizing production efficiencies and controlling cost. Looking forward to the second half of the year while industry wire production of towable RVs is likely to be less than in the first half of 2010 during which dealers increased their inventories; our goal is to continue to outperform the industries we serve. Historically, we’ve been able to do this. In fact, our RV segment sales, where the 12 months ended June 2010 recovered to 91% of what we achieved in 2007 before the recession. On the other hand, industry-wide production of towable RVs was still about 27% below 2007 levels. Of course, historical results don’t assure our future performance, I am confident in our ability to continue increasing our product contemporary unit, growing our after-market business, and expanding in to new related margins. Read the rest of this transcript for free on seekingalpha.com