Patrick Industries, Inc. — Q1 2024 Form 10-Q
Reporting period: First quarter ended March 31, 2024; comparable quarter ended April 2, 2023. Patrick supplies manufacturing and distribution products to recreational vehicle (RV), marine, powersports, manufactured housing (MH), and industrial markets.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $933.5 million | $900.1 million | +4% |
| Gross profit | $204.9 million | $194.2 million | +5% |
| Gross margin | 21.9% | 21.6% | +0.3 percentage points |
| Operating income | $59.3 million | $56.2 million | +6% |
| Operating margin | 6.4% | 6.2% | +0.2 percentage points |
| Net income | $35.1 million | $30.2 million | +16% |
| Diluted EPS | $1.59 | $1.35 | +$0.24 |
| Net interest expense | $20.1 million | $18.5 million | +9% |
- Cost of goods sold was 78.1% of sales versus 78.4% a year earlier. Management cited lower material and labor costs as a share of sales, partly offset by higher overhead.
- Operating cash flow was $35.2 million, versus a $1.0 million use of cash in Q1 2023. Investing cash flow was a $370.7 million outflow, principally reflecting $329.6 million for acquisitions; financing cash flow was a $341.7 million inflow, principally from revolver borrowings.
- Cash was $17.6 million at March 31, 2024. Gross debt was $1.411 billion, up from $1.038 billion at December 31, 2023; reported long-term debt, net of discounts, financing costs and current maturities, was $1.392 billion.
- Liquidity included $395.0 million of availability under the credit facility. Management said available cash, operating cash flow and borrowing capacity were expected to cover working capital and capital expenditures for at least 12 months, excluding acquisitions.
Business trends and material changes
- Net sales by end market: RV $421.0 million, up 15%; marine $155.3 million, down 35%; powersports $82.7 million, up 152%; MH $156.1 million, up 17%; industrial $118.4 million, down 8%. Powersports is presented separately beginning in Q1 2024; its growth primarily reflects the Sportech acquisition.
- Four acquisitions were completed during the quarter, including Sportech. Consideration, net of acquired cash, was approximately $329.6 million. The acquired businesses contributed $58.1 million of Q1 sales and $11.0 million of operating income. Acquisition-related costs were $5.0 million.
- Manufacturing segment sales rose 1% to $714.5 million, while segment operating income was nearly flat at $87.5 million. Distribution sales rose 13% to $238.5 million, and segment operating income increased 30% to $23.7 million.
- Management attributed sales growth to higher RV and housing shipments, market share gains, and acquisitions, partly offset by lower marine volumes and pricing reductions related to commodity costs. RV wholesale shipments rose 9%; marine wholesale powerboat volumes fell 34%; MH wholesale shipments rose 13%, according to the company’s cited industry sources.
- Trailing-twelve-month content per unit decreased about 9% in RV and marine, largely reflecting lower pricing; MH content per unit increased about 1%.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management noted that seasonal patterns, demand, dealer inventories, interest rates, consumer confidence, financing access, and economic conditions can affect results.
- Variable-rate borrowings were $502.5 million at quarter-end; management estimated that a 100-basis-point increase in SOFR would add approximately $5.0 million in annual interest cost, assuming average borrowings at the stated level.
- The company was in compliance with credit-facility covenants. Actual secured net leverage was 0.95 against a maximum of 2.75; fixed-charge coverage was 3.10 against a minimum of 1.50. Consolidated total net leverage was 2.81.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. The Lusher Site litigation and related EPA Superfund Site matter remain unresolved; the EPA has not selected a final remedy, and an adverse judgment, injunctive relief, or settlement could have a material adverse impact.
- The effective tax rate was 10.6%, versus 20.1%, including $6.0 million of excess tax benefits from share-based compensation, compared with $2.3 million in the prior-year quarter. Acquisition purchase-price allocations remain preliminary.
Important facts for investors to verify
- How much of revenue and earnings growth is attributable to acquired businesses versus underlying volume, pricing, and market-share changes.
- Whether acquisition integration, amortization, and higher debt and interest expense affect future profitability and cash generation.
- Developments in RV, marine, and housing demand, dealer inventories, content per unit, and commodity-cost pass-through.
- Available revolver capacity, covenant headroom, and exposure to SOFR changes as borrowings fluctuate.
- Progress and potential financial exposure in the Lusher litigation and EPA Superfund matter.