LCI Industries — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. LCI supplies engineered components to RV and other recreation and transportation OEMs and related aftermarket channels. It reports OEM and Aftermarket segments.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,165.3 million | $827.7 million | $3,259.3 million | $2,013.2 million |
| Gross profit | $251.6 million | $221.4 million | $751.0 million | $508.8 million |
| Operating profit | $89.0 million | $94.4 million | $284.4 million | $159.5 million |
| Net income | $63.4 million | $68.3 million | $205.4 million | $109.7 million |
| Diluted EPS | $2.49 | $2.70 | $8.10 | $4.35 |
| Operating margin | 7.6% | 11.4% | 8.7% | 7.9% |
Q3 sales rose 41%, while operating profit and net income declined. Margin pressure reflected higher steel and aluminum, labor, and freight costs, partially offset by pricing actions and fixed-cost leverage. For the nine months, sales increased 62% and net income increased 87%; operating margin improved modestly. Gross margin was approximately 21.6% in Q3 versus 26.8% a year earlier, and 23.0% for the nine months versus 25.3%.
Segments and drivers
- OEM: Q3 sales were $946.3 million, up 47%; operating profit was $64.1 million, down from $65.5 million. Nine-month sales rose 70% to $2,627.2 million and operating profit rose to $206.8 million. Q3 OEM margin fell to 6.8% from 10.2%, with commodity costs a major drag.
- Aftermarket: Q3 sales increased 18% to $219.0 million, while operating profit declined to $24.9 million from $28.9 million. Nine-month sales rose 34% to $632.1 million and operating profit increased to $77.7 million.
- Management cited record RV retail demand, stronger marine and aftermarket demand, dealer inventory rebuilding, content gains, and acquisitions as sales drivers. Nine-month U.S. wholesale shipments of travel trailer and fifth-wheel RVs increased 51% year over year.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $12.3 million, down from $212.5 million. Management attributed the decline primarily to working-capital investment, including inventory build and higher receivables amid supply constraints and elevated demand.
- Investing cash outflow was $216.9 million, including $154.5 million for acquisitions and $73.9 million of capital expenditures. Financing cash inflow was $224.2 million, including convertible-note proceeds.
- Cash was $72.6 million at September 30, 2021. Total debt carrying value was approximately $1,086.4 million, versus $738.2 million at December 31, 2020; cash-adjusted debt was approximately $1,013.8 million.
- Revolver availability was $267.2 million; potential additional Shelf-Loan notes of up to $150 million require lender approval. The company reported covenant compliance and said available revolver capacity and operating cash flow should cover anticipated needs for the next 12 months.
- Inventory was $790.7 million, compared with $493.9 million at year-end 2020. Current liabilities were $684.1 million and current assets were $1,360.5 million at September 30.
Outlook, significant items and risks
- Management estimated full-year 2021 capital expenditures of $130–$150 million, depreciation and amortization of $110–$120 million, and stock-based compensation expense of $25–$30 million. The filing provides no specific full-year sales or earnings forecast.
- In May 2021, LCI issued $460 million of 1.125% convertible senior notes due 2026. It also paid $100.1 million for note hedges and received $48.5 million from warrants. Conversion may require cash settlement of principal; potential dilution and debt-service needs are disclosed risks.
- Acquisitions included Furrion in September, as well as Schaudt, Ranch Hand, and other businesses. Furrion consideration was approximately $146.7 million. In October, after quarter-end, LCI acquired certain Exertis assets for $39.7 million, subject to customary adjustments.
- Management highlighted supply-chain constraints, rising material costs, freight expense, labor availability and retention challenges, and the need to build inventory and expand capacity. Commodity-price increases may not be fully or promptly passed through to customers. COVID-19 and changing industry seasonality remain uncertainties.
- Other disclosed exposures include product recalls and warranty claims, environmental matters, litigation, acquisition integration and contingent consideration. Management said litigation liabilities beyond recorded amounts were not expected to be material, while noting outcomes are uncertain.
Important facts for investors to verify
- Whether pricing and commodity-index adjustments can keep pace with steel, aluminum, freight, and labor cost increases, and how margins perform.
- Whether inventory and receivables convert to cash as supply constraints ease; operating cash flow was sharply lower despite higher earnings.
- Debt repayment, covenant headroom, and liquidity needs as the company funds capacity investment and acquisitions.
- Furrion integration, acquisition-related consideration, and the effects of subsequent acquisitions on margins and cash flow.
- RV and aftermarket demand, dealer inventories, supply availability, and the sustainability of elevated industry volumes.