LCI Industries (LCII) — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. LCI supplies engineered components to recreational vehicle and related transportation OEMs and aftermarket channels. Results are compared with 2020, when COVID-19 plant shutdowns depressed activity; the comparison is therefore affected by a weak prior-year base.
Financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,093.7 million | $525.8 million | $2,094.0 million | $1,185.4 million |
| Gross profit | $257.6 million | $128.7 million | $499.4 million | $287.3 million |
| Operating profit | $94.0 million | $20.8 million | $195.4 million | $65.0 million |
| Net income | $67.9 million | $13.2 million | $142.0 million | $41.4 million |
| Diluted EPS | $2.67 | $0.52 | $5.60 | $1.64 |
| Operating margin | 8.6% | 4.0% | 9.3% | 5.5% |
Q2 net sales rose 108% year over year; six-month sales rose 77%. OEM sales were $864.7 million in Q2, up 135%, and aftermarket sales were $229.1 million, up 45%. For the first half, OEM sales rose 87% to $1,680.9 million and aftermarket sales rose 45% to $413.1 million. Management attributed growth to record RV retail demand, recovery in adjacent markets, aftermarket demand and distributor inventory rebuilding, acquisitions, content gains and pricing.
Q2 gross margin was approximately 23.5%, versus 24.5% a year earlier; first-half gross margin was approximately 23.8%, versus 24.2%. Management cited higher steel and aluminum costs and tight labor conditions as offsets to operating leverage and pricing. Q2 operating profit also benefited substantially from the comparison with 2020 shutdown-related under-absorption.
Cash flow, debt and liquidity
- First-half operating cash flow was $23.9 million, down from $102.1 million. Receivables and inventory absorbed cash as the company built inventory to mitigate supply constraints and support higher demand.
- First-half capital expenditures were $42.0 million; acquisitions, net of cash acquired, used $103.9 million. Operating cash flow less capital expenditures was negative $18.1 million.
- Cash was $98.0 million at June 30, 2021, versus $51.8 million at year-end 2020. Current assets were $1,216.0 million and current liabilities $550.6 million.
- Total indebtedness was $1,007.7 million, including $460.0 million of newly issued convertible notes; cash less debt implies net debt of approximately $909.7 million. Revolver availability was $372.6 million. The company reported compliance with debt covenants and said cash flows and revolver availability were expected to cover anticipated needs for the next 12 months.
- In May, LCI issued 1.125% convertible senior notes due 2026. It also paid $100.1 million for note hedges and received $48.5 million from warrants; proceeds partly repaid revolver borrowings and supported general corporate purposes.
Outlook, risks and other notable items
- Management estimated 2021 capital expenditures of $130–$150 million, depreciation and amortization of $100–$110 million, and stock-based compensation expense of $20–$30 million.
- Demand was strong, but management highlighted supply-chain constraints, rising material costs, limited labor availability and the need to invest in inventory and production capacity. Additional financing may be needed and may not be available on favorable terms.
- Commodity price increases, especially steel and aluminum, and higher freight and labor costs could pressure margins. Contractual commodity-index pricing and targeted price increases partially offset material inflation; the timing and extent of future pass-through are uncertain.
- COVID-19’s future effects, demand and dealer inventory levels, seasonality, acquisition integration, customer and supplier conditions, transportation availability, product recalls, environmental matters and litigation are among the disclosed risks. Management said pending legal matters were not expected to have a material financial impact beyond amounts provided, while acknowledging uncertain outcomes.
- Acquisitions completed in the first half included Schaudt and Ranch Hand, among others. In August 2021, after quarter-end, LCI agreed to acquire Furrion, subject to customary closing conditions and regulatory approval. The company also reported a $36.7 million Furrion receivable, with payments scheduled through July 2022.
- The quarterly dividend was increased from $0.75 to $0.90 per share for Q2. No shares were repurchased in the first half; $121.3 million remained under the authorization.
Most important facts for investors to verify
- Whether exceptionally strong RV and aftermarket demand persists and how dealer inventory trends develop.
- Whether pricing can keep pace with material, freight and labor costs, and whether margins hold as comparisons normalize.
- Working-capital needs, particularly inventory and receivables, and the resulting cash generation against planned capital spending and acquisitions.
- Debt service, covenant headroom, convertible-note conversion and dilution exposure, and continuing access to financing.
- Furrion acquisition closing and integration, plus collection of the Furrion receivable.