Patrick Industries, Inc. (PATK) on Q2 2021 Results - Earnings Call Transcript

Operator: Good morning, ladies and gentlemen and welcome to Patrick Industries Second Quarter 2021 Earnings Conference Call. My name is Darryl and I will be your operator for today’s call. 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 our call this morning. I am joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Jake Petkovich, CFO. Certain statements made in today’s conference call regarding Patrick Industries and its operations maybe considered forward-looking statements under the securities laws. There are number of factors, many of which are beyond the company’s control, which could cause the 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 2020 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update these statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Andy Nemeth: Thank you, Julie Ann. Good morning, ladies and gentlemen and thank you for joining us on the call today. I would especially like to welcome Jeff Rodino, who in his new role as President continues his legacy of leadership and deep knowledge of our business and end markets. We are absolutely thrilled that Jeff has taken on this new role, offering his phenomenal experience and insight into our products, customers and people and I am very excited to continue to work with him as he brings his energy, wisdom and vision to our business’s routine. Our second quarter of 2021 reflects continued quarter-over-quarter and sequential strong top line growth and profitability as well as the exciting expansion of our footprint and capabilities in the leisure lifestyle markets. This has been the trend over the last three quarters as we emerge from the uncertainty of COVID. It has become clear that outdoor recreation and housing needs will be front and center in the way family and friends spend quality time together. Additionally, as consumers continue to invest in the security of homeownership, the functionality and value of home improvement remains strong. The year has passed since we felt the full early stage impact of COVID in the second quarter of 2020, where we diligently exercised the flexibility of our business model, reinforcing our resilience. We were able to drive profitability despite a 6-week shutdown of our plants in line with the OEMs and pause on our CapEx and acquisition initiatives. Emerging from the second quarter of 2020, we quickly shifted gears from the defensive to offensive and immediately began reinvesting in our business to supply the explosive growth in not only leisure lifestyle, but housing as well. Fast forward to Q2 2021 and we are operating in a very dynamic and exciting marketplace, fueled by the incredible and growing horsepower of what now approximates more than 10,000 team members, who are providing RV, marine, MH and industrial solutions to our customers. Supply chain volatility and initiatives in the quarter required our teams to remain flexible, get creative, collaborate and work together between brands and reach out to our deep network of partners to secure essential materials needed to deliver on growth in our primary end markets. We have continued to partner with the OEMs and builders in all of our markets as well as they have demonstrated tremendous flexibility in adapting their business model and build schedules to match up with the supply chain constraints and opportunities. The leisure lifestyle markets represented 74% of our revenue in the quarter and consumer demand has remained strong throughout the spring and summer. The evidence is everywhere with National Park seeing record visits and marinas continuing to be at full capacity as the adventure continues for friends and family to share experiences, while being right at the center of nature and the outdoors with the luxury of having home-based amenities. Jeff Rodino: Thanks, Andy and good morning everyone. Our RV revenues were up $391 million or 192% in the second quarter and represented 58% of our consolidated sales. RV wholesale shipments were up 101% totaling approximately 152,000 units for the quarter. We currently estimate retail unit shipments also increased between 30% and 35% in the same period or resulted in between 190,000 and 200,000 units sold. Dealers continue to quickly turn units to retail customers as restocking has not yet started, and OEM backlogs continue to rise, indicating a further extension of dealer inventory replenishment cycle. Our estimates indicate that dealer inventories are down year-over-year approximately 35% to 40% on TTM retail unit shipments that are up 35% to 40% over the same period. Restocking of RV and marine retail inventories continues to be delayed as retail sales continue to outpace OEM production. New and used inventory levels continue to deplete achieving historic flows as registered by weeks of inventory on hand. RV and marine retail sales continue to be driven by healthy and growing demographic trends as well as heightened interest in the leisure lifestyle space. The motivation of the new market participants for outdoor recreation continues as they discover the benefits of RV camping and boating activities. The additional network effect of popularity and familiarity in the leisure lifestyle space fosters a platform of demand and growth. Investment in RV camping and boating infrastructure, which includes the growing rental and boot stocking space, is driven by growing public and private capital investment. The use of social distancing outdoors is spurring great interest in our national parks, private lands and a variety of iconic coastal and inland opportunities across the country. Aftermarket activities driven by RV and marine market upgrades continues to be driven by existing users and work and study from anywhere trends remain strong as hybrid work environment have become the new normal. Strong dealer traffic, growing popularity of what the RV lifestyle offers in a variety of environments and OEM investments in the differentiated products and dealer investment in education and product service continue to foster a compelling value proposition that provides growing opportunities. Jake Petkovich: Thanks, Jeff and good morning everyone. Our consolidated net sales for the second quarter increased 141% to $1.02 billion driven by increases in all four primary end markets. While the increase reflects the impact of 6 weeks of shutdowns for many of our plants in the second quarter of 2020, the growth in consolidated net sales for this quarter demonstrates the strength of our business model and our ability to support our customers. Revenue from our leisure lifestyle markets, which are comprised of RV and Marine, increased 190% with RV and marine revenues up 192% and 182% respectively. RV content per unit increased 15% to $3,543 per unit, and estimated marine content per unit increased approximately 60% to $2,841 per unit. Revenues from our housing and industrial markets increased 60% in the quarter, with MH revenues up 54% versus the prior year. Industrial revenues up 69% compared to the prior year. Andy Nemeth: Thanks, Jake. While supply chain constraints play out due to an expanding global economy, strong consumer balance sheets and manufacturing capacities coming online, the growing sophistication of our deep bench of talent across our platform has driven an even more compelling collaborative effort with our OEM customers. At the same time, our interaction with the robust trends of the leisure lifestyle aftermarket, have led to growing promising capture of opportunities. The quarter was as dynamic as we have seen and the talent and dedication of our people illustrated our ability to strive to provide the best service and products to our customers. Our organization team and brands are clearly better together especially during volatile times and are opportunities for both organic and strategic growth and harmonies are significant. Our proactive investment in our infrastructure, teams, innovation and culture continues to be a bright spot, coupled with our technology investments and intelligent expansion of strategic IT and software initiatives. We believe these initiatives will improve our organic capacity and provide us with the opportunity to better partner with our customers and enhance their growth in both leisure lifestyle and housing markets. The well-being of our nearly 10,000 team members will remain a core focus. Their dedication and outstanding execution during this quarter complement our investments and their success, and will drive our efforts to unlock fragmented markets, innovate and deliver quality products and reliable service to our customers. This is the end of our prepared remarks. We are now ready to take questions. Operator: Thank you. Our first question has come from the line of Brett Andress with KeyBanc Capital Markets. Please proceed with your questions. Brett Andress: Hi, good morning guys. So Andy, looking at RV wholesale shipments each month, we’ve kind of plateaued around this 50,000 unit a month pace. I just wanted to get your thoughts on when or if you think the industry can kind of start to break out of that range or if these constraints are kind of with us for the foreseeable future, which I guess I don’t think is necessarily a bad thing? Andy Nemeth: Sure, Brett. What we would tell you is I think that we’re going to see some supply chain constraints for the next quarter or two as the kind of global economy picks back up and continues to grow. We’re definitely seeing robust demand out there on the retail side and the wholesale side, and what we would tell you is that 50,000 units a month, we think that’s a very compelling run rate today and it keeps everything in balance from our perspective. So I think the other thing that we’re hearing really across the platform, especially in leisure lifestyle, is that the OEs are looking to be able to increase capacity as we go forward. So as the supply chain eases up a little bit, our anticipation would be is that we will be able to match up with increased production rates going forward. But I do see it for the next quarter or two. But again, I don’t think it’s a bad thing today. It’s stressful, certainly. But one of the things that’s come out of it is a tremendous collaborative relationship between ourselves and our OEM partners. We’re mixing and matching together to really be able to maximize opportunities as it relates to production schedules today. So I don’t think 50,000 units a month is bad, and I think there is opportunity for improvement in the future. But overall, we feel good about where we’re at today. We’re going to continue to work hard to mitigate the supply chain constraints. It’s really everywhere we look. And so again, I think we’re doing – our teams have done a phenomenal job of matching up, and we look for that to continue. Brett Andress: Got it. Understood. And then sorry if I missed this earlier, but did you give any update on how you’re thinking about the 80 to 100 basis points of operating margin improvements you laid out on the last call. I don’t know if there are moving pieces in the back half of the year? And then also, I think you gave an operating cash flow guide. But how much working capital do you think you need to build in the back half from here? Jake Petkovich: Hey, Brett, it’s Jake. I appreciate the questions. When we think about our operating margin, your first question, we’re thinking about the continued evolution of that view. And I would tell you that when we started the year at 80 to 100, and we’re now thinking that’s more of 100 to 120, 130 basis points of expansion on a year-over-year basis. We’re certainly seeing a lot, as Andy mentioned and I did as well in prepared remarks. We’re seeing the leverage of our fixed costs. We have great absorption on those, of course, as you’d expect. We’re also seeing a lot of great benefits coming from our cost initiatives, our ability to manage our labor force as well as the automation of the CapEx investments that we’ve made in the business, which are really starting to show through in a very positive way in our margin line. When we think about the investment in inventory, I would tell you that you probably recall that at the beginning of this year, we spoke about a proactive inventory growth in the fourth quarter to make sure we are on our front foot as we came into what we expect to be some significant demand in first quarter, and that certainly has played out very well. I would tell you when I look at our working capital, I think about us being kind of up on plane for that 50,000 a month that you were speaking to and how that works through our business. So – as we continue to grow, there’ll be continued investments in inventory. And as Andy mentioned, with a little bit of supply chain comes a little bit of investment and that increased cost in some of that inventory. But I would tell you, we’re in a pretty good spot from a continuity perspective, where our balance sheet looks at the current production levels, which we expect to see and persist through the rest of this year. Brett Andress: Great. Thank you, guys. Jake Petkovich: Thank you. Operator: Thank you. Our next questions come from the line of Daniel Moore with CJS Securities. Please proceed with your questions. Daniel Moore: Good morning, Andy and Jake, and congrats Jeff and thanks for the taking questions. Andy Nemeth: Good morning. Jeff Rodino: Good morning. Daniel Moore: Maybe just start with top line. Can you give us a sense of the revenue contribution from businesses acquired over the past 12 months as well as what the impact of pricing of passing through of higher raw materials, any sense of what each of those – how those impacted Q2? Jake Petkovich: Sure, Dan. It’s Jake again. And thanks again for dialing in today. Well, as you can see, we’re up 140% on a year-over-year basis. And if you think about the breakdown in the composition of that number, tell you about the first 20% of that is due to acquisitions we’ve made in the interim period and they are certainly showing up in that number. The rest of – I’d call it a 100%, 120% of that growth is pretty evenly split between industry growth, which we certainly participate in. And the other half of that is coming from our growth of organic initiatives, taking share and all the other things that we do really well. When we think about the pricing impact to that, it sits somewhere inside of that organic would tell you it’s somewhere in that about 20% of that half of the first 120, which certainly contributes to our growth is something we’re able to pass through pretty effectively as we’ve talked about in previous calls, and we certainly see an inflationary environment, and I think that extends through the entire supply chain. But certainly have something to rely on. We really rely on our execution, our ability to take that share and continue our organic growth and deliver on these numbers. Daniel Moore: So – sorry, 20% of that half, which is organic. Is that the right way to think about it for pricing? Jake Petkovich: I’d say 2,000 basis points is how I would think about that. Daniel Moore: Got it. Got it. That makes sense perfectly. And just following up on Brett’s question, the operating margins above 9%, gross margins above 20%, really impressive, particularly given some of that raw material inflation, even at 120, 130 basis points up year-over-year; for the full year, it would still imply lower margins kind of year-over-year in the back half. So, just wondering if there is conservatism as we think about the back half of the year or maybe something else going on? I’m just trying to pull on that strength? And how should we think about margins, both sequentially and year-over-year for the back half of the year? Thanks. Jake Petkovich: Thanks, Dan. It’s Jake again. We think about the margins as we continue to trend through this year is that consistency of the execution we’ve been able to perform in a pretty dynamic supply chain environment as well as the labor, the war for labor particularly here in Northwest Indiana as well as around the country, as you can see, its headline news continues to stay and our ability to keep our hands firmly around the rudder on that kind of work. I would tell you that – we continue to invest in our business and use those opportunities to drive incremental margin. And as we drive efficiencies and use that to manage our – some of that labor constraints that we have. But – when it comes to the rest of the year, I would tell you that what you’re seeing in these quarters are the kind of returns we expect to replicate as we move on and expect to tune the bar on that 130 basis point expansion over 2020, as I mentioned. Daniel Moore: Okay. And lastly, just a clarification, cash flow from ops $300 million and then $50 million, $55 million of free cash is the expectation for the year? Jake Petkovich: That’s accurate. One thing we mentioned a little bit, and I spoke to in the prepared remarks, and it’s something we see a little bit occasionally, as the quarters roll on and off is the timing of some working capital just where our month ends come. And as you can see, we mentioned in the 2 days immediately succeeding the close of the books, we put another $26 million of cash on the balance sheet that would have otherwise flown to our cash flow from ops. And we expect that to normalize a little better for the year. So we feel pretty good about that $300 million number. Daniel Moore: Yes. And then that’s a free cash flow yield getting up toward the mid-teens. Lastly, just in terms of capital allocation. You bought back a few shares this quarter. I know growth is obviously first and foremost in your mind. But given where the stock is today relative to that cash flow, just your thoughts around maybe being more aggressive in terms of investing in your own shares as well as inorganic initiatives? Thanks again for the color. Jake Petkovich: Thanks, Dan. This is Jake once again. As you know, we continue to be very focused on our capital allocation, and we think it’s pretty balanced between everything from our dividend policy to our acquisition strategy, and of course, our reinvestment in our shares, as you mentioned. This past quarter, we had – we continue to be opportunistic as we evaluate where the opportunity may lie and bring in some of the shares. And certainly, with some of the volatility we saw presented a pretty good opportunity for us to invest in the business. And that’s a good investment for us as well as continuing to plow money into our capital allocation for these great buys that we had in the quarter to include Alpha and Hyperform or the CDEC product, which obviously, hopefully, folks have some time to take a look at those and come way as impressed as we have been with the – not only the acquisition but the performance. Daniel Moore: Very good. Appreciate the color. I will follow-up later. Thanks. Jake Petkovich: Thanks, Dan. Operator: Thank you. Our next questions come from the line of Scott Stember with CL King. Please proceed with you questions. Scott Stember: Good morning guys. Thanks for taking my questions. Congrats on a great quarter and congrats to Jeff. Jeff Rodino: Thanks, Scott. Andy Nemeth: Good morning. Scott Stember: Jeff, you talked about, I guess some expectations for retail growth for this year. I think you might have made some broad comments for next year. But could you – when looking at the recreation business, whether it’s RV or marine, I know there is lots of puts and takes and tough comparisons. But – How do you look at ‘22 just from a perspective of growth versus being flat versus potentially being down. And again, add retail. Jeff Rodino: Yes, thanks. We still feel very optimistic about where things are headed. We see it right now in today’s business, and we really feel the combination of where wholesale is against where retail is going into 2022, really gives us a pretty long runway for the restock of the dealers taking quite a bit of the lot than we thought. And the continued – if you look, there is a continued retail demand out there, and it’s strong throughout the country. So we’re very optimistic about where things are headed for the rest of this year and into 2022. Andy Nemeth: Scott, this is Andy. I’ll just add a little bit to that. Our channel checks between our transportation business, our discussions with our financing partners and as well our discussion with the OEs are continuing to indicate that there is been no tail off in retail demand out there, in fact the quality of the buyers we have heard, have improved as it relates to those coming on to lots and really looking to buy and so – versus just kind of kicking the tires. So from our perspective, there is definitely a lot of demand out there. The inventory certainly are at a very, very low point. We think this carries for quite some time, and we’re very optimistic about where retail is headed. Scott Stember: Got it. And then lastly, just touching base on the non-recreation businesses, industrial, could you talk about residential versus nonresidential, how that performed in the quarter? And then MH, maybe just talk about some of the retail demand that you’re seeing just how that shapes up for the rest of the year? Thanks. Andy Nemeth: Sure. This is Andy again. On residential, nonresidential side, I think we’re seeing tremendous strength there as well. Residential housing, especially on single-family and multifamily was very, very strong during the quarter. We’re seeing a little bit of a shift on the high rise over to multifamily and to do that single family side of the business, certainly, given COVID and the remote opportunities that are out there today, but it still points towards strong demand in our business model across that platform. And then when you look at the MH business, it certainly feels like and looks like we’ve unlocked some capacity as it relates to the MH manufacturer’s ability to increase production. I think we’re getting our arms around the labor scenario. And so things are coming back to normal, and we’re very encouraged by what we’re seeing on the MH side of the business and the uptick that we’ve seen in production capacities out there. So again, no warning signs on either one of those fronts. Scott Stember: Perfect. Thanks again. Andy Nemeth: Thank you. Operator: Thank you. 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, Darryl. We appreciate everyone for being on the call today and look forward to talking to you again at our third quarter 2021 conference call. A replay of today’s call will be archived on Patrick’s website, www.patrickind.com under Investor Relations. Now I’ll turn the call back over to our operator. Operator: Thank you, ladies and gentlemen. This does conclude today’s teleconference. Thank you for your participation. 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.