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Edited Transcript of MPX earnings conference call or presentation 29-Jan-20 1:00pm GMT

Q4 2019 Marine Products Corp Earnings Call

Atlanta Jan 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Marine Products Corp earnings conference call or presentation Wednesday, January 29, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ben M. Palmer

Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary

* James C. Landers

Marine Products Corporation - VP of Corporate Finance

* Richard A. Hubbell

Marine Products Corporation - President, CEO & Director

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Conference Call Participants

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* Eric Christian Wold

B. Riley FBR, Inc., Research Division - Senior Equity Analyst

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Presentation

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Operator [1]

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Good morning, and thank you for joining us for the Marine Products Corporation's Fourth Quarter 2019 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. (Operator Instructions) I would like to advise everyone that this conference is being recorded.

Jim will get us started by reading the forward-looking disclaimer.

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James C. Landers, Marine Products Corporation - VP of Corporate Finance [2]

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Thank you, and good morning. Before we get started today, I'd like to remind everyone that some of the statements that we will make on this call may be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, our 2018 10-K and our other SEC filings that outline those risks. All of these are available on our website at marineproductscorp.com. If you've not received our press release, please visit our website, again, at marineproductscorp.com for a copy. We'll make a few comments about the quarter and then we'll be available for your questions.

Now I will turn the call over to our President and CEO, Rick Hubbell.

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Richard A. Hubbell, Marine Products Corporation - President, CEO & Director [3]

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Jim, thank you. We issued our earnings press release for the fourth quarter of 2019 this morning. Ben Palmer, our CFO, will discuss the financial results in more detail in a moment. At this time, I will briefly discuss our operational highlights. As previously announced, we reduced our headcount and lowered our production during the fourth quarter. As a result, our net sales during the fourth quarter decreased 22.4% over the fourth quarter of the prior year. Net sales decreased due to a 21% decrease in the number of units sold during the quarter. Average selling prices decreased slightly due to model mix. We maintained high market share in all of our major categories. Our Chaparral sterndrive products held the second highest market share in their category, approximately 16.2% for the 12 months ending September 30, 2019. Robalo maintained its position as the second largest brand in its category with a market share of 5.3%. And the combination of Robalo and Chaparral outboards continues to hold the highest position in the overall outboard market with a market share of 6.5%.

We announced this morning that our Board of Directors declared a regular quarterly cash dividend of $0.12 per share. Also during the fourth quarter, we repurchased 88,983 shares of common stock on the open market.

With that overview, I will turn it over to our CFO, Ben Palmer.

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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [4]

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Thanks, Rick. Net sales for the fourth quarter of 2019 were $48.2 million, a 22.4% decrease compared to the fourth quarter last year. As Rick said, unit sales declined by 21% during the quarter and average selling prices declined slightly on mix. Gross profit in the fourth quarter was $10.5 million, a decrease of 19.2% compared with the fourth quarter of 2018. Gross margin during the quarter was slightly higher at 21.8% compared with 21% in the fourth quarter of 2018.

Selling, general and administrative expenses were $6.3 million in the fourth quarter of this year, a decrease of $657,000 compared with $7 million in the fourth quarter of last year. These expenses decreased due to expenses that vary with sales and profitability, including warranty and incentive compensation as well as lower research and development expenses incurred during the fourth quarter of 2019. Interest income during the fourth quarter of this year was $88,000, an increase compared with $48,000 in the fourth quarter of 2018.

For the quarter ended December 31, 2019, we reported net income of $3.5 million, a decrease of 25.1% compared to net income of $4.7 million in the fourth quarter of 2018. Diluted earnings per share were $0.10 in the fourth quarter of 2019 compared with $0.14 in the fourth quarter of 2018. Our effective tax rate during the current quarter was 17% compared with 22% in the fourth quarter of 2018. Our effective tax rate decreased due to favorable permanent adjustments reflected in the fourth quarter of 2019. For 2020, we project an effective tax rate of approximately 22%.

While Marine Products' domestic sales decreased during the fourth quarter of 2019, our international sales increased by 17.4% and accounted for 4.8% of total sales. Our international sales increased because of significantly higher sales to our Canadian dealers. Our sales to other international markets were flat compared to the fourth quarter of last year.

For the 12 months ended December 31, 2019, net sales of $292.1 million decreased by only 2.2% compared to the prior year. Net income for the 12-month period was $28.2 million, essentially the same as the prior year. Diluted earnings per share were $0.83 in both years. Our cash balance at the end of the fourth quarter was $19.8 million, an increase of $3.4 million or 20.7% compared to cash and marketable securities of $16.4 million at the end of the fourth quarter of 2018.

As we discussed at the end of the third quarter, our dealer inventories had increased to a level that prompted us to adjust production to be more aligned with field inventories as we prepared for the 2020 retail selling season. At the end of the fourth quarter of 2019, dealer inventory levels had improved to be approximately the same as the fourth quarter of 2018.

With that, I'll turn it back over to Rick.

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Richard A. Hubbell, Marine Products Corporation - President, CEO & Director [5]

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Thanks, Ben. Our fourth quarter results show the result of our decision to reduce production in order to align field inventories with backlog, an objective we achieved by the end of the year. We continue to monitor field inventories as we always do. And at this time, we have an increasingly positive outlook for 2020. Early winter boat shows have been well attended and more sales are being closed at the shows than in previous years. We are also noticing more sales of larger boats, which is a positive trend. We are presently planning to increase production early in the first quarter as we respond to these positive indicators of 2020 demand.

Thank you for joining us this morning, and we'd be happy to take any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from Eric Wold of B. Riley.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [2]

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A couple of questions. I guess, one, so getting inventory down to flat with the year ago period, obviously, a strong move doing that. I guess -- one, I guess, what level of discounting you did kind of was necessary to move that inventory, use it out in the year ago period? And have you -- has that discounting now ended as you moved into Q1?

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Ben M. Palmer, Marine Products Corporation - VP, CFO, Treasurer & Corporate Secretary [3]

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Eric, this is Ben. We didn't have any particular strong discounting. I think it was kind of normal year-over-year and for the period, the clearing out of inventory was solely due to the fact, obviously, that we shipped a lot fewer boats during the fourth quarter. So there was just normal sell-through with either lot.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [4]

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Okay. And then on the comment that you sort of going to ramp production back up here in Q1. What are your kind of retail growth expectations for 2020 that you're kind of using within your kind of production plans for at least early in the year and then kind of through the year, given what happened last year?

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James C. Landers, Marine Products Corporation - VP of Corporate Finance [5]

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Eric, this is Jim. We don't have a good handle on that. We've all, at this point, seen retail sales for 2019, the preliminary numbers anyway, and they were flat to down. Rick's comments about how good the boat shows look and the activity and the reception from our dealers and our retail customers for the larger boats is very valid, and that's what we are using to plan a production increase in the first quarter. So we don't have any global assumptions about retail demand in 2020. We're just responding tactically to what looks like a very strong winter boat shows season at this point.

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Operator [6]

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Thank you, sir. At this time, I'm showing no additional questions, and I'd like to turn it back over to Jim Landers for closing remarks.

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James C. Landers, Marine Products Corporation - VP of Corporate Finance [7]

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Thank you very much. We appreciate everybody who called -- who listened in, and we appreciate the question. Hope everyone has a good day, and we will talk to you soon. Thanks.

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Operator [8]

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Thank you, ladies and gentlemen. As a reminder, today's call will be replayed at the company's website, www.marineproductscorp.com within 2 hours. This concludes today's teleconference.