LCI Industries — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021, compared with the three months ended March 31, 2020. LCI supplies engineered components to recreational vehicle, transportation, marine, and related aftermarket markets through its OEM and Aftermarket segments.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1,000.3 million | $659.7 million | +52% |
| Gross profit / margin | $241.8 million / 24.2% | $158.6 million / 24.0% | +52% gross profit |
| Operating profit / margin | $101.4 million / 10.1% | $44.3 million / 6.7% | +129% operating profit |
| Net income | $74.1 million | $28.2 million | +163% |
| Diluted EPS | $2.93 | $1.12 | +$1.81 |
| Operating cash flow | $4.8 million | $44.8 million | Down $39.9 million |
Net sales growth reflected strong RV retail demand and aftermarket sales, as well as approximately $41.2 million from acquisitions completed in 2020 and 2021. Management also cited the pandemic-related disruption to the prior-year comparison. Operating margin improved largely as higher sales spread fixed costs over a larger base. Net interest expense fell to $2.7 million from $5.2 million; the effective tax rate was 24.9%, versus 27.8%.
Segments and material changes
- OEM: Sales rose 53% to $816.3 million; operating profit increased to $79.3 million from $43.2 million. Travel trailer and fifth-wheel sales increased 64%, motorhome sales 64%, and adjacent-industries sales 34%.
- Aftermarket: Sales rose 45% to $184.0 million; operating profit increased to $22.1 million from $1.1 million. Growth reflected consumer demand and distributor inventory rebuilding. The prior-year comparison included a $6.2 million CURT inventory fair-value step-up in cost of sales.
- Higher steel and aluminum costs reduced OEM operating profit by $17.3 million; targeted pricing changes added $6.8 million. Increased direct labor costs reduced OEM profit by $4.9 million. Higher third-party freight reduced Aftermarket profit by $3.4 million.
Cash, debt, and liquidity
At March 31, 2021, cash was $63.3 million, total debt was $793.8 million, and total current assets and liabilities were $1,068.2 million and $535.0 million, respectively. Cash and cash equivalents increased $11.5 million during the quarter. Operating cash flow was limited by working-capital investment, including a $139.2 million increase in accounts receivable and a $41.2 million increase in inventory. Capital expenditures were $21.0 million; operating cash flow less capital expenditures was negative $16.1 million.
Net borrowings under the revolving facility were approximately $67.4 million. Revolver availability was $142.4 million; additional shelf-note capacity of up to $150 million was subject to Prudential’s approval. Combined remaining revolver and potential shelf capacity was $292.4 million. The company reported compliance with debt covenants and said available revolver capacity and operating cash flows should cover anticipated cash needs for the next 12 months.
Outlook, risks, and unusual items
- Management estimated 2021 capital expenditures of $130 million to $150 million, including capacity expansions, and full-year depreciation and amortization of $100 million to $110 million. These are estimates, not earnings or revenue guidance.
- Management described RV retail demand as at record levels through Q1, while warning of supply-chain constraints, rising material costs, and a tight labor market, particularly in northern Indiana. It intentionally built selected inventory and expanded capacity.
- COVID-19’s future effects remain uncertain. Industry seasonality may differ from historical patterns. Commodity costs, labor availability, dealer inventories, transportation, customer demand, and acquisition integration are among the stated risks.
- A $42.7 million receivable from Furrion remained outstanding; repayment timing was under negotiation because of COVID-19 impacts. $7.8 million was classified as long-term.
- After quarter-end, the company acquired Schaudt for approximately $30.0 million and Ranch Hand for approximately $57.4 million plus up to $3.0 million of contingent consideration. In-quarter, it acquired Wolfpack for $2.8 million.
- Management said ordinary-course litigation, environmental matters, product recalls, and warranty obligations could entail future costs; it did not expect unprovided litigation exposure to be material. No material changes to the prior annual report’s risk factors were reported.
Important facts for investors to verify
- Whether exceptionally strong RV and aftermarket demand persists and how much growth reflects acquisitions versus underlying demand and content gains.
- Whether pricing can offset continuing steel, aluminum, freight, and labor-cost pressures without weakening demand or margins.
- How working-capital requirements, capital spending, and additional acquisitions affect cash generation, borrowing, and covenant headroom.
- Collection timing and recoverability of the Furrion receivable, and the final purchase-price allocations and integration results for recent acquisitions.
- Whether the $130 million to $150 million capital-expenditure estimate and other stated operating estimates remain current; the filing provides no specific full-year revenue or earnings guidance.