Patrick Industries, Inc. (PATK) on Q1 2021 Results - Earnings Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to the Patrick Industries, Incorporated First Quarter 2021 Earnings Conference Call. My name is Diego, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. And I will now turn the call over to Ms. Julie Ann Kotowski from Investor Relations. Ms. Kotowski, you may begin. Julie Ann Kotowski: Good morning, everyone, and welcome to Patrick Industries First Quarter 2021 Conference Call. I am joined on the call today by Andy Nemeth, President and CEO; and Jake Petkovich, CFO. Andy Nemeth: Thank you, Julie Ann. Good morning, ladies and gentlemen, and thank you for joining us on the call today. We kicked off our first quarter of 2021 with a continuation of the strong trends and tailwinds supporting our markets as expected. In fact, momentum accelerated both year-over-year and sequentially in our leisure lifestyle markets, which represent 75% of our first quarter revenues as the strength of both retail and wholesale shipments in the recreational vehicle and boating markets materially improved year-over-year. Demand for outdoor recreation remains solid in interest in popularity in alignment with our view of their tremendous attractiveness and potential in both the COVID and post-COVID environment. Energy remains strong, capitalizing on interest and outdoor recreation activities that provide adventure in the exploration of the Great American outdoors, the ability for families to experience this adventure together, and the inherent social distancing through the freedom of being outside. In our housing and industrial markets, which collectively represent approximately 25% of first quarter revenues, housing, repair and remodel and home improvement conditions also remain robust, with demand for housing continuing to outweigh supply the success of the evolving work-from-home model and the continued urban migration and exodus from certain concentrated regions to less dense and more attractive climate-associated regions. These trends in leisure lifestyle and housing and industrial consumer preferences and activities all provide strong tailwinds for Patrick in our primary end markets, further solidifying an already promising long-term outlook. From an operations perspective, the size, scale and flexibility of our well-positioned operating and financial platform allowed us to execute strategically and tactically during the quarter and leverage our fixed cost structure to drive increased profitability. Our fourth quarter decision to carry heavier inventories in anticipation of a strong start to the year, proved positive as those inventories were quickly used up in Q1. Jake Petkovich: Thanks, Andy, and good morning, everyone. Our consolidated net sales for the first quarter increased 44% to $850 million, driven by increases in all four primary end markets. Our leisure lifestyle end markets continue to benefit from the popularity of RV and marine outdoor activities, while our industrial and MH markets benefited from consumer investment in homes and remodeling and a growing price differential between stick built and manufactured housing. Revenue from our leisure lifestyle markets, which are comprised of RV and marine, increased 60% with RV and marine revenues up 57% and 75%, respectively. RV content per unit increased 6% to approximately $3,288 per unit and estimated marine content per unit increased approximately 44% to $2,426 per unit. Revenues from our housing and industrial markets increased 11% in the quarter, with MH revenues up 8% versus the prior year and industrial revenues up 16% compared to the prior year. MH content per unit increased 3% to $4,691 per unit. Gross margin in the first quarter was 19%, increasing 40 basis points compared to the prior year. The gross margin improvement was primarily driven by benefits of leveraging our fixed costs against a strong increase in revenue but was partially offset by labor inefficiencies and overtime necessary to maintain quality standards and consistent delivery of our products to end markets. Operating expenses were 10.9% of sales compared to 11.9% in 2020, due to our leveraging fixed operating expenses as sales increased. Warehouse and delivery expenses decreased 70 basis points due to the lower mix of MH sales in the quarter. SG&A expenses were 6% of sales in the quarter, a 10 basis point decrease compared to the prior year, again, primarily reflecting the benefit of leveraging our fixed cost against increased sales. Operating income of $68 million increased 74% in the first quarter and operating margin of 8.1% increased 140 basis points, primarily due to factors previously described. Our diluted earnings per share in the first quarter was $2.04, up from $0.91 in the prior year. Net income and diluted EPS for the quarter reflect an income tax benefit of $5.7 million, or $0.24, respectively, related to the vesting and exercise of share-based payment awards. Our overall effective tax rate decreased to 17.1% for the first quarter of 2021 compared to 26.4% in the prior year mostly due to tax benefits related to share-based compensation. We expect our overall effective tax rate to be 24% in 2021. Looking to cash flows. We generated approximately $50 million of operating cash flows for the first quarter of 2021, an increase of 281% compared to the prior year quarter. The increase was primarily attributed to the strong increase in net income during the quarter, offset slightly by the continued investment in inventory as we work to align with strong OEM customer demand and the goal of supplying production lines in a just-in-time manner. As Andy discussed, we have focused on securing inventory levels through the leveraging of our extensive supply chain and continue to make strategic purchases to strive to attain a strong supply for our customers. Strategically, we further invested $30 million in acquisitions in the first quarter of 2021, including the previously announced acquisition of Sea-Dog. After the close of the first quarter, we also completed the acquisition of Hyperform, operating under the industry-leading SeaDek brand further increasing our penetration into the marine market and related aftermarket. These acquisitions represent investments in best-in-class popular marine categories and aftermarket solutions positioning our platform to deliver a deeper value added, highly engineered spectrum of products to marine manufacturers as they fulfill increased marine production levels. In addition, in alignment with our disciplined capital allocation strategy and dividend policy, we invested $14 million in capital expenditures for the quarter to support capacity expansion and automation to support growing end market demand. We returned nearly $7 million to shareholders in the form of quarterly dividends. We had approximately $303 million of total liquidity at the end of the first quarter, including $6 million of cash on hand, and remaining unused capacity on our revolving credit facility of $297 million. We have no major debt maturities until 2023. Our operating cash flow has positioned us to capitalize on strategic growth opportunities, return capital to our shareholders, and maintain our disciplined capital allocation strategy with attention to our long-term leverage profile. Our leverage position at the end of the quarter was 2.3x net debt to EBITDA. As Andy previously mentioned, subsequent to the end of the first quarter and in alignment with our strategic growth plan and financing strategy, we completed the issuance of $350 million of 4.75% senior notes due 2029, increased the capacity of our senior secured credit facility of $700 million, and extended the maturity of the credit facility to April 2026. Strong trends in our markets, our sound and flexible capital structure, our disciplined leverage position, and cash flows have positioned us extremely well for growth in our markets. We expect leisure lifestyle channel replenishment well into 2022 as marine and RV dealers work to first obtain inventory for immediate retail sell-through with the goal of leisure lifestyle retailers to eventually build inventory levels to an appropriate level of inventory in hand and we expect solid and resilient MH and industrial markets growth during the same period. For 2021, RVIA currently estimates an approximate 24% increase in wholesale unit shipments to 533,000 units, with an upside range of 544,000 units, and our current estimates going towards the higher end of that range. Based on current conditions and trends, we are presently estimating RV retail to be up low to mid-single digits for the full year. We currently anticipate marine wholesale to be at 25% to 30% over the 2020 shipment rates on retail that is estimated to be up low to mid-single digits. Based on these estimates and the continued strong retail demand expectations, we believe channel inventories in both the RV and marine markets will remain well below recent historic levels and will not be calibrated to a new normal until 2022 and possibly into 2023. In the manufactured housing and industrial markets, we currently expect MH wholesale unit shipments to increase low to mid-single digits in 2021 and new housing starts to continue their strong trajectory of high single-digit to double-digit growth in 2021. We have continued to invest in our capabilities to strive to ensure that we can meet increasing OEM demand as the markets grow at a rapid pace. Geographic diversification and scale will enable us to support and capture the growth of our addressable end markets. Our strong cash flow and liquidity support investments in our end market platforms. We estimate approximately $45 million to $50 million of CapEx for the full year 2021, which reflects increased investment in automation projects to offset the expected continued tight labor market, which will enable us to continue to support growth of all of our end markets. That completes my remarks. Andy? Andy Nemeth: Thanks, Jake. As discussed, our teams have been actively working with our customers during this incredibly dynamic period to support their needs. And in our proactive inventory management and investment in our infrastructure have afforded us the opportunity to move with our customers and partnering their growth across all end markets this quarter. We will continue to position ourselves in alignment with our customers' demand and remain flexible and nimble in our end markets as we execute our disciplined capital allocation and growth strategy. As always, the health and safety of our over 8,800 team members will continue to remain paramount in our efforts and priorities. And their inspiring dedication and outstanding performance during this quarter have energized and strengthened our commitment to strive for the highest level of internal and external customer service. Additionally, we remain committed to serving our communities, stakeholders and partners in driving overall shareholder value. Our focus on human capital management initiatives has resulted in energy, ideas and solutions for our customers and team members. The importance of our people and their talent is both tangible and inspiring. As our incredible market serves such a vital purpose of balance and enjoyment in the well-being and recreation of families and individuals as they pursue and explore the outdoors and invest in their homes, the dedication of our people is visible and evident as our team members give shape and meaning to the solutions and products we deliver to our customers. Our financial versatility, breadth, and depth of our resources, strong liquidity and balance sheet strength afford us the opportunity to pursue strategic acquisitions and key capital investments to expand the portfolio of brands we offer our customers to further drive capacity, efficiency, inter brand synergies, and continuous improvement initiatives. As we look ahead to the remainder of 2021, we believe the scale and capacity of our infrastructure position us to match up with the cadence of growth in leisure lifestyle and our housing and industrial markets. Our team members, core values and humble culture represent the center of who we are and our relationships with our suppliers, Board of Directors and shareholders continue to crystallize our efforts in creating long-term shareholder value and in always driving towards our goal of striving to serve our customers at the highest level. By investing in and protecting our talented and dedicated team members, dealing ethically and responsibly with our business partners in supporting our local communities, we believe our contributions will continue to enhance our overall brand and thriving end markets. This is the end of our prepared remarks. We are now ready to take questions. Operator: Our first question comes from Brett Andress with KeyBanc Capital Markets. Brett Andress: So thinking about the updated wholesale outlook for RVs, we've seen monthly shipment numbers kind of ramp from the 40,000 into the 50s and now I think the mid-50s here in March. And so how are you thinking about April and May here with the information you have? I mean do you think the industry kind of shoots up into the 60,000 plus? Or are there just too many constraints holding the industry back in the near term? Andy Nemeth: Brett, this is Andy. I think that there's opportunity for that type of number. I think there are some constraints over the next couple of months as we look at kind of the supply chain. That being said, the manufacturers have done a fantastic job of adapting and flexing towards -- or to the supply environment. And so we've really worked hard. Our teams have worked hard to make sure that we're matching up with production needs. And so as we look at it, I think, there's some constraints just in various places, but certainly nothing that's gating from our perspective, to continue to see strong production levels at the OE level. So our view is that the OEMs are very, very good at flexing. And the supply chain as well is very, very good at flexing. And we would expect a consistent cadence really through the next couple of months that will be very positive and continue to support the flow-through to the retail channel. Brett Andress: Got it. Okay. And then just curious what you're seeing with Indiana Transport, maybe first, just the financial profile of that business in this environment. But also, any insights you're seeing from that business as it relates to retail here in April, how quickly delivered units are getting sold? It just still seems like a very heavy presale market. Andy Nemeth: Certainly, both on the -- we've got two transport companies today, and they've done a phenomenal job, and they're performing extremely, extremely well. We continue to grab share. I'd also say that they're very, very efficient at managing their driver pool. As it relates to inventories that we're carrying at each of those particular operations, they are at lows right now. And so, units are moving just as fast as they come on the lots and going right through the dealers. And then the channel checks that the dealers are indicating that units are flowing just as fast to the retail consumer. So it's moving very, very quickly and very efficiently through those operations, and we're seeing, again, no real signs today of any headwinds out there. Operator: Our next question comes from Daniel Moore with CJS Securities. Daniel Moore: Perfect. Andy and Jake, given just what we've seen in terms of rising raw material costs, obviously, you don't have a ton of steel, but others are going up. Just what are your expectations for margins in Q2 relative to what we saw in Q1? Andy Nemeth: Sure, Dan. This is Andy. We've definitely seen commodity costs really across the platform go up. We're definitely in an inflationary environment. Our teams have worked very hard to mitigate the impact of those commodity costs as it relates to be our customers. And so our expectation would be is that we won't see any material degradation as we work with our customers, both on the upside and on the downside when materials are flowing upwards or downwards. And so we really partner with our customers through that process, have continued to do so, and we'll do everything that we can to mitigate the impact on them, but we're working very hard. But that being said, we are definitely seeing commodity costs continue to rise and have seen it in Q1 in this environment. Daniel Moore: Helpful. And then SG&A, is Q1 a kind of reasonable run rate to think about anything unusually good or bad in there? Andy Nemeth: Nothing unusual either way, no anomalies. We're a high variable cost component. And so I would expect our SG&A to stay pretty consistent. Daniel Moore: Perfect. One last one. You mentioned the growing -- or maybe it was Jake, mentioned the growing price differential between stick built and MH. Can you just give us your thoughts on what's driving that? Is it a more efficient operating model for MH? Is it the ability to pass on rising raw material prices? It's a little better? Just maybe any thoughts on that would be helpful. Jake Petkovich: Sure, Dan. It's all of the above, but also there's an embedded kind of infrastructure of the stick built, that's probably a little more mature than where they're putting in some of the manufactured housing. So what you end up with the supply and demand paradigm is driving a lot of buyers still to the stick built just because there's a little more inventory. We've talked about in previous calls, and you can see it that there's a little bit of capacity constraints on the MH side. So that drives people who are looking for homes into the more of the stick built or the lot ability to do that. There's a lot more builders out there that can help satisfy that demand. And then when you get with the supply demand of the -- driven by the migration patterns, you see it from just the household formation and everything else. It's pushing a little more pricing on that side as well. So I would say, input costs are certainly impacting everybody out there and supply chain availability for all the folks, whether they're building MH units or stick built, are still seeing that inflationary pressure as well. So it's creating a delta. But I would tell you, there's -- while there's strong demand, I think, across both categories, there's just a little more availability out there on the stick built side, and that's driving a lot of people that way while there -- rather than waiting maybe for an MH house. Operator: Our next question comes from Scott Stember with CL King & Associates. Scott Stember: Jake, did you give what the organic sales growth was, whether it's Patrick-specific on top of what the industry is doing? Jake Petkovich: No, I did not, but I'm happy to provide that. So we're up 44% just at the top line. 6% is -- we're up 6% net of industry on the organic side. About 28% is up on industry growth and the rest of the balance of that is coming from some acquisitions we made beginning in second quarter last year. Scott Stember: Okay. That's perfect. And then on the supply chain side, I know that you guys have been doing a great job of dealing with this. But are there any specific areas, whether it's fiberglass or anything else that's given you guys any headaches right now that we need to be aware of? Andy Nemeth: Nothing significant, Scott. I mean it's really kind of in a number of areas, is what I would say. And from week-to-week, things can change pretty quickly, but our teams have really done a great job of staying on top of things, working with each other, working with our like brands to make sure that we mix and match to be able to keep a constant supply chain going internally to our customers. So I expect it to continue. But again, I expect us to continue to manage that very actively and continue to work to match up with production needs. But it's really in a number of different areas. We're seeing it. So I think it's -- like I said, I think, it's going to continue to be a challenge, but it's something that, I believe, our teams are doing a fantastic job of working through. Jake Petkovich: And keep in mind, Scott, we -- as Andy mentioned in his initial comments, we started the year in a great spot to give us the -- both the stock that we need and the velocity to drive us through periods of this kind of supply chain tightness. And we spoke a lot about it in the fourth quarter, that proactive inventory build, and it's really helped us out as we come into a point where some folks are starting to falter a little bit, and we're coming from a running start into the first quarter that's helped us carry us through and put us in a position to take share as well. Scott Stember: Okay. Very helpful. And then last question on labor, specifically in the Elkhart area, how is that going in labor, any inflation on that front that we need to think about? Andy Nemeth: Sure, Scott. This is Andy. Labor continues to be very, very tight in the area. Again, I think, the teams have done a great job of working through kind of some labor headwinds as it relates to efficiencies. We're working a lot of overtime, certainly. But our teams have done a great job of managing that. We're definitely focused on maintaining a balance with our team members and making sure that they've got some balance, especially in this environment as we look forward. But overall, I think, that it's going to continue to be tight. And some of the things, certainly on the automation front that we're working on, we're very excited about to be able to continue to offset some of the labor constraints that we're seeing out there. And so again, it's a tight market for sure, but we're doing a good job of managing through it. Operator: Our next question comes from Steve O'Hara with Sidoti. Steve O'Hara: On the -- I think, about 2Q here, obviously -- like obviously, you've ramped up from January into February -- I'm sorry, January to March. And then -- I mean, so it sounds like you can something like 50,000 to maybe be 55,000 unit range is the right way to think about 2Q on a monthly basis. Is that kind of -- does that make sense on the RV side? Andy Nemeth: I think that definitely makes sense, Steve. I think, again, there's just a little bit of constraint here or there as it relates to some of the materials that are out there. But overall, again, the manufacturers have proven that they can manage through that and operate at that type of cadence. So I think that's definitely an opportunity to achieve out there. Steve O'Hara: Okay. And then just on the -- maybe the margin performance is really solid in the quarter. Let's say, it was an easy comp, but doesn't look like it given the change. But how do you think about kind of a normalized operating margin and kind of -- should we be thinking 3 to 5 or 30 to 50 basis points over kind of last year? Or is there a better kind of starting number to think about maybe a normalized number for 2020? Jake Petkovich: Yes, Steve, I appreciate the question. It's something we certainly put a lot of thought into. And you can see the margin expansion that we've been able to drive both the gross margin and the operating profit lines here as we come through first quarter. Good leverageability of our fixed costs. And as Andy has mentioned today and in the past, we have a pretty significant variable cost component to what we do and that's helped drive that. Some of the input costs, we talked a little bit about labor today. We talked a little bit about raw material today and our ability to manage those. So I would tell you, as we think through the remainder of 2021, we're thinking backwards at that 30 to 50 and maybe moving that upwards to thinking about 80 to 100 basis points of margin expansion versus last year for the full year. Steve O'Hara: Okay. Great. That helps. And maybe just on the market, you noted that inventories are extremely low there as well. Do you have a sense for that industry's ability to flex up to the same extent that the RV industry has performed? Is there any further constraints there? Or are there the issues that they face, maybe the RV industry does in terms of their ability to kind of meet that demand or, let's say, inventory shortfall? Andy Nemeth: Steve, this is Andy. There's similar constraints, if you will, as it relates to the material supply that's there today, but they're also very, very resilient on the OE level -- at the OE level in the marine side and would expect them to continue to flex as well. And we're continuing to partner with those customers and our customers to make sure that we're doing everything that we can to match up in a similar fashion as we are in the RV industry. So I don't see any reason why they can't. I think, again, it's just going to be a little bit choppy here on the material side for a couple of months. And so, I don't expect that to go away in the near term, but everybody is managing through it as best as they can right now and doing a great job of managing through it. So I don't see anything -- any reason why they wouldn't be able to. Operator: And we have no further questions at this time. I'll now turn the call back over to Ms. Julie Ann Kotowski for further remarks. Julie Ann Kotowski: Thanks, Diego. We appreciate everyone for being on the call today and look forward to talking to you again at our second quarter 2021 conference call. A replay of today's call will be archived on Patrick's website, www.patrickind.com, under Investor Relations. I'll now turn the call back over to our operator. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for participating, and you may now disconnect.
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Patrick Industries, Inc. (NASDAQ:PATK) Sees Shift in Analyst Price Targets Amid Market Changes

  • The average price target for Patrick Industries, Inc. (NASDAQ:PATK) has been adjusted from $131.43 to $105, reflecting a more conservative outlook from analysts.
  • Despite challenges in the RV and marine markets, Patrick Industries reported a 6.2% increase in revenue year-over-year in the third quarter of 2024, driven by growth in the powersports and manufactured housing sectors.
  • Truist Financial analyst Michael Swartz sets a price target of $105, citing the company's potential to surpass earnings estimates and its strategic acquisitions aimed at long-term growth.

Patrick Industries, Inc. (NASDAQ:PATK) is a key player in the manufacturing and distribution of components and building products, serving markets such as recreational vehicles, marine, and industrial sectors. The company has experienced a shift in its consensus price target over the past year, reflecting a more cautious outlook from analysts. A year ago, the average price target was $131.43, but it has since decreased to $105, indicating a more conservative view on the company's future stock performance.

The decline in the price target could be due to various factors, including changes in market conditions and company performance. Despite challenges in the RV and marine markets, Patrick Industries has shown resilience. In the third quarter of 2024, the company reported a 6.2% increase in revenue year-over-year, driven by growth in the powersports and manufactured housing sectors. This growth helped offset declines in other segments, showcasing the company's ability to adapt to market shifts.

Analyst Michael Swartz from Truist Financial has set a price target of $105 for Patrick Industries, highlighting the company's potential to surpass earnings estimates in its forthcoming report. The company's strategic acquisitions and focus on expanding market share in the outdoor enthusiast and aftermarket sectors are expected to support long-term growth prospects. This positive outlook is further supported by the company's recent upgrade to a Zacks Rank #2 (Buy), indicating increased optimism regarding its earnings potential.

Investors should consider these changes in analyst sentiment and investigate recent company news or earnings reports that might have impacted the price targets. Patrick Industries' management team, including CEO Andy Nemeth and CFO Andrew Roeder, recently participated in the Q3 2024 earnings conference call, where they discussed the company's performance and future strategies. Understanding the reasons behind the target price adjustments can provide valuable insights into the company's current standing and future prospects.

Overall, Patrick Industries continues to be viewed as a 'buy' due to its attractive pricing, robust growth, and strategic acquisitions. As highlighted by Truist Financial, the company's shares are on an upward trajectory, with expectations of continued growth in the near term. Investors are encouraged to prepare for the upcoming report, as the company is expected to perform well, potentially leading to a rise in the stock's price.

Patrick Industries, Inc. (NASDAQ: PATK) Undergoes Stock Split and Engages in Industry Summit

  • Patrick Industries, Inc. (NASDAQ:PATK) executed a 2-for-3 stock split to enhance stock affordability and liquidity.
  • The company showcased its commitment to investor relations by participating in the Truist Securities 12th Annual Gaming, Lodging, Leisure & Restaurants Summit.
  • Despite a slight decrease in stock price, PATK maintains a strong market presence with a market capitalization of approximately $3.01 billion.

Patrick Industries, Inc. (NASDAQ:PATK) is a key player in providing component solutions for the Outdoor Enthusiast and Housing markets. On December 16, 2024, PATK underwent a 2-for-3 stock split. This means for every three shares owned, shareholders now have two shares, which typically aims to make the stock more affordable and increase liquidity.

The company is actively engaging with the investment community, as highlighted by its participation in the Truist Securities 12th Annual Gaming, Lodging, Leisure & Restaurants Summit on December 12, 2024. Key executives, including CEO Andy Nemeth and President Kip Ellis, will meet with institutional investors and analysts, emphasizing their commitment to investor relations and industry leadership.

Currently, PATK's stock price is $134.59, reflecting a decrease of 1.03% or $1.40. The stock has traded between $131.91 and $137.74 today. Over the past year, it has seen a high of $148.35 and a low of $91.01, indicating some volatility in its market performance.

Patrick Industries' market capitalization is approximately $3.01 billion, reflecting its size and influence in its industry. The trading volume today on the NASDAQ is 207,723 shares, which provides insight into the stock's liquidity and investor interest.

The stock split and the company's active participation in industry events highlight its strategic efforts to maintain a strong market presence and foster investor confidence. These actions are crucial for sustaining growth and adapting to market dynamics.